CONTRUCTIVE TRUST EXPLAINED

A constructive trust is one raised by equity in respect to property which has been acquired by fraud, or where, though acquired originally without fraud, it is against equity that it should be retained by him who holds it. Quinn v. Phipps, 93 Fla. 805, 113 So. 419, 422 (1927). Constructive trusts are akin to an express trust in that a bifurcation of title occurs; bare legal title to the property is held by the possessor of the property while the beneficial interest is held by the person entitled to the property. In re Shepard, 29 B.R. 928 (Bkrtcy.M.D.Fla.1983). However, unlike an express trust or a resulting trust, a constructive trust arises solely by operation of law. Palmland Villas I Condominium Ass'n, Inc. v. Taylor, 390 So.2d 123 (Fla. 4th DCA 1980). Thus, a constructive trust is a remedial device with dual objectives: to restore property to the rightful owner and to prevent unjust enrichment. Abreu v. Amaro, 534 So.2d 771 (Fla. 3d DCA 1988). To impose a constructive trust, there must be (1) a promise, express or implied, (2) transfer of the property and reliance thereon, (3) a confidential relationship and (4) unjust enrichment. Id. at 772. The person seeking to impose a constructive trust must prove these elements by clear and convincing evidence. Id. However, similar to any equitable remedy, the enforcement of a constructive trust is tempered by equitable defenses, including laches and estoppel. See generally Steinhardt v. Steinhardt, 445 So.2d 352 (Fla. 3d DCA), rev. denied sub nom., 456 So.2d 1181 (Fla.1984); Mills v. Holcomb, 389 So.2d 223 (Fla. 5th DCA 1980), rev. denied, 399 So.2d 1143 (Fla.1981). Provence v. Palm Beach Taverns, Inc., 676 So.2d 1022 (Fla. 4th DCA 1996)e to property Assume the following facts: The premises at issue is a three-family dwelling. In 1997, Grandfather was the owner of the premises occupying the first floor and Grandson occupied the second floor of the premises paying Grandfather rent. A tenant vacated the third floor leaving it in deplorable disrepair. Grandfather and Grandson orally agreed that Grandson would (i) move into this damaged third floor apartment; (ii) renovate the apartment; and (iii) make repairs and improvements to the whole building. In return, Grandfather agreed that he would convey the premises to Grandson for $100,000. Grandson performed his part of the bargain. He moved into the damaged apartment, renovated the whole building, gutted and renovated all the bathrooms, paid for and installed new marble flooring, and installed new windows throughout the entire building. Notably, Grandson stopped paying rent in 1997. Occasionally, Grandfather initiated and paid for a few repairs as well. Grandson attempted in 2003 to schedule the closing at which Grandson would pay to Grandfather the agreed upon the sum of $100,000. However, Grandfather refused to convey for the agreed to sum and instead demanded $750,000, later increasing his demand to $1 Million. When Grandson refused, Grandfather sued Grandson in Landlord-Tenant Court seeking "back rents" totaling over $100,000.

The questions are whether the Grandson has a defense to the Landlord-Tenant action and also, whether the Grandson has a viable cause of action that would allow him to enforce the oral agreement he had with Grandfather? Grandson argues that his renovaion and repair to the premises at his own expense supports his claims that his actions were "unequivocally referable to" and in part performance of an oral agreement by Grandfather to convey the premises to him. Moreover, Grandson asserts the fact that Grandfather never sought rent until after Grandson demanded to close on the purchase. He contends that this plainly demonstrates that Grandfather waived any claim to rent in consideration of Grandson's efforts and that the renewed call for payment is nothing more than an attempt to counter Grandson's legitimate claims. Predictably, Grandfather contends that the agreement Grandson asserts is in violation of the Statute of Frauds.1 However, the Statute of Frauds has several notable exceptions and an oral contract may be enforced if it falls within one of the exceptions. Based on the facts of this case, Grandson may very well have established that a constructive trust should be imposed. The classic constructive trust scenario Ordinarily, the following elements must be established in order to impress a constructive trust: (1) a confidential or fiduciary relationship; (2) a promise; (3) a transfer in reliance thereon; (4) a breach on the promise; and (5) unjust enrichment. See, e.g., Onorato v. Lupoli, 135 A.D.2d 693, 522 N.Y.S.2d 593 (2nd Dept. 1987); Valvo v. Spitale, 305 A.D.2d 668, 761 N.Y.S.2d 236 (2nd Dept. 2003). The underlying idea is that when property has been acquired under such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee. Simonds v. Simonds, 45 N.Y.2d 233, 241, 380 N.E.2d 189, 408 N.Y.S.2d 359 (1978). Indeed, it has even been said that the constructive trust doctrine serves as a "fraud-rectifying" remedy rather than an "intent-enforcing one." Bankers Sec. Life Ins. Soc. v. Shakerdge, 49 N.Y.2d 939, 406 N.E.2d 440, 428 n.Y.S.2d 623, 624 (1980). In other words, a constructive trust will be imposed "where property is parted with on faith of an oral or implied promise to reconvey, but none may be imposed by one who has no interest in the property prior to obtaining a promise that such interest will be given to him." Onorato, supra, 135 A.D.2d at 695, Scivoletti v. Marsala, 97 A.D.2d 401, 402, 467 N.Y.S.2d 228 (2nd Dept. 1983).

For example, in Lefton v. Bedell, 160 A.D.2d 702, 553 N.Y.S.2d 783 (2nd Dept. 1990), the appellant alleged that his parents asked him to move into their home in order to maintain the real property and care for them. According to the appellant, his father continually told him that "this house is now yours." Following his father's death, the appellant brought an action seeking to impose a constructive trust. Yet, the court ruled that the record failed to indicate that the appellant had any prior interest in the premises which he conveyed to his parents in reliance upon their promise to reconvey. The court cited the well-settled rule that a constructive trust may not be imposed by one who has no interest in property prior to obtaining a promise that such an interest will be given to him. The Lefton court further held that the appellant's alleged "expenditures to improve and maintain the subject premises may be satisfactorily explained by his desire to improve the surroundings in which he and his family lived." The court continued: "[l]ikewise, the fact that he made mortgage, tax and other payments on the property during the time he resided there could be considered as rent for use of the property." See also, Satler v. Merlis, 252 A.D.2d 551, 675 N.Y.S.2d 644 (2nd Dept. 1998) (Court held that the plaintiff failed to show any legal cognizable "transfer in reliance" or "unjust enrichment" enjoyed by the

defendants, requiring dismissal of her cause of action to impose a constructive trust); Doria v. Masucci, 230 A.D.2d 764, 646 N.Y.S.2d 363 (2nd Dept. 1996), leave to appeal denied by, 89 N.Y.2d 811, 657 N.Y.S.2d 404 (1997) (plaintiff sought to impose a constructive trust over a house, alleging that his grandmother had conveyed the property to the defendants upon the condition that they hold one-half in trust for his mother). In Doria, plaintiff stated that it was agreed and understood by everybody concerned that the house "belonged" to his aunt and his mother. The court ruled that "this bare, conclusory assertion, which is contradicted by the documentary evidence and expressly denied by the defendants, is insufficient to support a finding that the defendants make any promise to the grandmother concerning the home or that the grandmother transferred the home in reliance thereon." Id at 766. On those occasions when the plaintiff contends that he has partly performed his part of the bargain, there are no guarantees that a court will agree. In order to come within the exception permitting enforcement of an oral agreement based upon part performance, "there must be performance 'unequivocally referable' to the agreement, performance which alone and without the aid of words of promise is unintelligible or at least extraordinary unless an incident of ownership." Onoraty v. Lupoli, 135 A.D.2d 693, 694, 522 N.Y.S.2d 593 (2nd Dept. 1987), quoting Wooley v. Stewart, 222 N.Y. 347, 351, 118 N.E. 847. An act which "admits of explanation without reference to the alleged oral contract or a contract of the same general nature and purpose is not, in general, admitted to constitute part performance." Id.

The Court in Onorato stated: Although the plaintiff allegedly expended some $5,000 to $10,000 on maintenance, repairs and improvements in his brother-in-law's property during the nearly two years he and his family lived there, such expenditures are not "unequivocally referable" to and do not prove the existence of an oral agreement to convey that property. Such expenditures maybe satisfactorily explained by the plaintiff's desire to improve the surroundings in which he and his family were to live ... Likewise, the fact that the plaintiff made mortgage, taxes and other payments on the property during the period in which he resided in his brother-in-law's house, could be considered as rent for use of the property...135 A.D.2d 694. See also, Lebowitz v. Mingus, 100 A.D.2d 816, 474 N.Y.S.2d 748 (1st Dept. 1984) (tenant's alleged investment of $50,000 in renovating and improving apartment was not "unequivocally referable" to oral contract to sell apartment, where expenditures could be satisfactorily explained by tenant's desire to improve surroundings in which she was living); Pentony v. Saxe, 2 A.D.3d 1076, 769 N.Y.S.2d 636 (3rd Dept.) (Plaintiff claimed that improvements to the real property during her tenancy were "unequivocally referable" to an alleged oral agreement to purchase such property, but Court held that, "Although it is undisputed that plaintiff expended sums to paint, clean and generally maintain the premises after taking occupancy, such conduct is as referable to a tenancy as it is to a sale.") Id.

A Constructive trust may be impressed even in the absence of the reconveyance element There are numerous cases regarding constructive trusts holding that a trust will be impressed in the interests of equity and justice in situations just like the one discussed here. For example: A constructive trust is an equitable remedy available "[W]hen property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest." Generally, the remedy requires four elements: (1) a confidential or fiduciary relationship, (2) a promise, expressed or implied, (3) a transfer in reliance thereon, and (4) unjust enrichment. Notably, "[t]hese elements are not rigid, but are flexible considerations for the court to apply in determining whether to impose a constructive trust." [Where] Defendant's sole argument is that Plaintiff cannot satisfy the third element, as a matter of law, because she did not own or transfer any interest in the disputed property [and] Plaintiff contends that her contribution of money and work toward construction of the house satisfies the "transfer in reliance" element [,w]e accept the latter premise.Lester v. Zimmer, 147 A.D.2d 340, 542 N.Y.S.2d 855 (3rd Dept. 1989) (citations omitted). The four factors are not an "unyielding formula which limits a court's freedom to fashion this equitable remedy" and the requirements are not to be rigidly applied. Rather, "[a] constructive trust will e erected whenever necessary to satisfy the demands of justice. Byrd v. Brown, 208 A.D.2d 582, 617 N.Y.S.2d 192 (2nd Dept. 1994) (citations omitted). See also, Washington v. Defense, 149 A.D2d 697, 698, 540 N.Y.S.2d 491, 492 (2nd Dept. 1989) (where plaintiff's investment of money towards premises deemed sufficient under both constructive trust and reliance upon promise). Significantly, as the Lester case makes clear: The law of constructive trusts, however, is not confined to reconveyance situations. The third element necessary to impress a constructive trust speaks to a transfer in reliance on a promise without qualifying the underscored term. In our view, the transfer concept extends to instances, as here, where funds, time and effort are contributed in reliance on a promise to share in the result (see, e.g., Spodek v. Riskin, 150 A.D.2d 358, 540 N.Y.S.2d 879; Lester v. Zimmer, supra, 147 A.D.2d at 342, 542 N.Y.S.2d at 856 (emphasis added). Conclusion The cases demonstrate that the New York courts strive to strike a balance and to craft the proper remedy in the interests of justice. Instead of slavish adherence to the established elements of constructive trust and in particular "reconveyance" the courts will impress a constructive trust in the interests of equity and justice as the circumstances merit. In the scenario described above, all of the elements for a constructive trust are met. The parties are in a confidential familial relationship. Grandson relied upon Grandfather's promise to convey the premises to Grandson. The element of "transfer or "conveyance" is satisfied because our facts fall squarely within those contemplated by the above-cited cases. Finally, it is clear that, absent enforcement of the oral agreement, there would be unjust enrichment of Grandfather and an unconscionable outcome. Therefore, one would expect a New York court to find that all required elements have been satisfied, entitling Grandson to the imposition of a constructive trust.