Constructive Trusts as an Equitable Remedy

Equitable Remedies in Texas

Our law firm routinely receives calls from prospective clients complaining that they gave someone money to buy a property and were supposed to receive their money back plus a return at the sale of the property. The prospective clients go on to elaborate that there was no written agreement and their name is nowhere on the deed. They simply just had a verbal agreement to "go in on the flip" with the other person and now that person is refusing to give them their money back or their return on investment.

What can be done to help this prospective client? In comes the constructive trust. A constructive trust is actually not really a trust, but instead an equitable remedy fashioned by the courts to avoid parties becoming unjustly enriched. Its function is to correct violations that cannot be handled through other causes of actions or remedies. Ellisor v. Ellisor, 630 S.W.2d 746, 748 (Tex. App-Houston [1st Dist.] 1982, no writ)

In the fact pattern above, one can argue that the prospective client effectively entered into a joint venture--even without any written joint venture agreement or the prospective client being on the deed. The aggrieved party can ask the court to impose a constructive trust with regards to the property.

In Omohundro v. Matthews, 161 Tex. 367, 341 S.W.2d 401, 405 (1960) the Texas Supreme Court said:

A constructive trust does not, like an express trust, arise because of a manifestation of intention to create it. It is imposed by law because the person holding the title to property would profit by a wrong or would be unjustly enriched if he were permitted to keep the property. It is used, among other things, to adjust rights of partners. The same basic rules, in situations such as we have here, apply to joint ventures.

Once the court imposes a constructive trust, the proponent can ask the court to appoint a receiver to sell the property and have the proceeds distributed according to the real agreement between the parties.

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