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A constructive trust is an equitable device used to compel one who unfairly holds a property interest to convey that interest to another to whom it justly belongs. This equitable remedy may be imposed when property has been acquired in such circumstances that the holder of legal title may not in equity and good conscience retain the beneficial interest. The beneficiary of a constructive trust may obtain, through tracing, not merely what was lost but also other property or profits traceable to that lost property. The party holding the subject property need not have performed a wrongful act for a constructive trust to be imposed, and such trusts have been imposed in a wide variety of cases in which equity dictated this remedy. The purpose of the constructive trust is to prevent the defendant from being unjustly enriched at the plaintiff's expense.
Plaintiffs moved for summary judgment against defendants, an individual and a trust. The individual filed for bankruptcy, thereby staying the motion and the action as against him. Plaintiffs sought summary judgment against the trust on the following claims: (1) imposition of a constructive trust and equitable lien upon all of the trust's assets; (2) requiring the trust to provide an accounting; and (3) entry of a permanent injunction. It was undisputed that the funds the trust used to purchase a condominium unit were profits received by the individual as a result of his participation in a scheme to defraud plaintiffs and other investors in a program to sell settlement contracts to the public. There was no evidence that the trust was a bona fide purchaser of the unit.
Should a summary judgment against the trust be granted?
The court found that the unit was subject to a constructive trust of which the trust was the trustee and plaintiffs and the claims they represented were the beneficiaries. Plaintiffs had an equitable lien on the condominium unit. There was no evidence that any other specific property or asset held by the trust was derived from or traceable to the individual's fraud on plaintiffs. Given the circumstances of the trust's formation and its utilization of funds fraudulently obtained from investors in the program, however, plaintiffs were entitled in equity to an accounting from the trust to enable them to determine if the trust held any other property or assets derived from or traceable to the program and to a permanent injunction barring the trust and related persons from disposing of any property or assets derived from or traceable to this source.