Constructive Trust - Usefulness of Constructive Trusts

Usefulness of Constructive Trusts

For example, if the defendant steals $100,000 from the plaintiff and uses that money to buy a house, the court can trace the house back to the plaintiff's money, and can deem the house to be held in trust for the plaintiff; the defendant must then convey title to the house to the plaintiff - even if rising property values had appreciated the value of the house to $120,000 by the time the transaction occurred. If the value of the house had instead depreciated to $80,000, the plaintiff could demand a remedy at law (money damages equal to the amount stolen) instead of an equitable remedy.

The situation would be different if the defendant had mixed his own property with that of the plaintiff, for example, adding $50,000 of his own money to the $100,000 stolen from the plaintiff and buying a $150,000 house; or using plaintiff's $100,000 to add a room to defendant's existing house. The constructive trust would still be available, but in the proportions of the contributions, not wholly in the claimant's favour. Alternatively, the claimant could elect for an equitable lien instead, which is like a mortgage over the asset to secure repayment.

Because a constructive trust is an equitable device, the defendant can raise all of the available equitable defenses against it - including unclean hands, laches, detrimental reliance, and undue hardship.