A constructive trust is a remedy or solution a court may use to right a wrongful act or situation for which there may not otherwise be a legal remedy, such as money damages, or when the legal remedy would be inadequate. Because a constructive trust is based on a sense of fairness, equity, or what is right, it is known as an equitable remedy and a court that provides such a remedy is sometimes said to be sitting in equity. A constructive trust may also be known as an implied trust or involuntary trust.
The equitable remedy of a constructive trust is often used by courts when a person has possession or title to property that the person holding the property acquired by fraud—or when property obtained by fraud or theft is exchanged for other property or is given as a gift to another. Even though the person in possession of the property (motor vehicle, painting, home, etc.) may have title to it, courts recognize that the rightful owner from whom the property was stolen, embezzled, or fraudulently appropriated (taken) has a superior right and claim to it.
In these situations the court may apply or declare a constructive trust in favor of the rightful owner—giving title (ownership) of the wrongfully held property to the person or entity from whom it was stolen, embezzled, or fraudulently appropriated. The person or entity wrongfully holding the property is known as a constructive trustee and is required to turn the property over to the constructive beneficiary (the rightful owner).
Because a constructive trust is not an actual, written trust it is known as a legal fiction—created by courts to do equity.
In Texas, a constructive trust is an equitable remedy that courts may impose to address situations where legal remedies, such as monetary damages, are inadequate or unavailable. This remedy is typically used when someone has wrongfully obtained or retained property through fraud, theft, or other improper means. The court, acting in equity, may declare a constructive trust to prevent unjust enrichment by transferring title of the property to the rightful owner. The individual or entity that is in possession of the property but acquired it wrongfully is deemed a constructive trustee and must transfer the property to the constructive beneficiary, who is the rightful owner. Texas courts recognize constructive trusts as a means to correct wrongdoing and ensure fairness, even though a constructive trust is not a formal trust established by a written document but rather a 'legal fiction' created to serve justice.
