First year law school students often take a course about equitable remedies, one of which is the imposition by the Court of a “constructive trust”. The remedy is almost always intensely fact sensitive because the disputes often arise out personal relationships and undocumented special circumstances without the formalities of a contract. A recent example follows:
From 2000 until 2017, Michael Baker and Anna Harrison were in a long-term romantic relationship. During their relationship, they ran a timber harvesting business for which various equipment was purchased. By deed dated March 7, 2017, a 4.66-acre parcel of undeveloped land on State Route 9 in the Town of Chester, Warren County, was transferred by its owner to Harrison for $3,500. The deed was not recorded.
Although the property was paid for by way of a check drawn on Harrison’s bank account, Baker contended that he in fact was the purchaser of the property and the money utilized in the purchase, while drawn from Harrison’s account, was actually his as the result of a loan from her. Baker further contended that, although he was the actual purchaser of the property, he purposely directed that the deed be put in Harrison’s name, in an effort to thwart potential creditors.
In May 2017, when the parties’ relationship ended, Baker promptly called the attorney who had drawn the deed and directed that he destroy it and draw up a new one listing his current paramour as grantee.
The attorney demurred and advised that both Baker and Harrison seek new counsel. Both parties did so. Baker’s new attorney prepared a second deed, dated August 30, 2017, purporting to convey the property from the original owner to Baker. However, before that deed was recorded, Harrison recorded the deed in the Warren County Clerk’s office naming her as owner.
In October 2017, Baker filed suit and asserted causes of action for a constructive trust, for a determination of the parties’ rights to the property and unjust enrichment. Harrison answered the complaint and asserted five counterclaims, seeking a determination of the parties’ rights, damages for trespass, treble damages for harvesting trees and timber and damages conversion of trees, rocks, personal property and equipment.
Following the completion of paper discovery, but prior to depositions taking place, Harrison moved for summary judgment dismissing the complaint and for judgment on her counterclaims. Supreme Court granted the motion, finding that Harrison demonstrated that (1) she was the owner of the property, (2) Baker could not establish all four elements of a constructive trust, and (3) Baker would be unable to establish that Harrison was unjustly enriched.
The court dismissed Baker’s complaint and granted Harrison judgment on her first counterclaim, determining that she was the owner of the vacant property. Based upon that determination, the court further found Baker liable on Harrison’s second, third, fourth and fifth counterclaims, and ordered the matter be scheduled for a trial on damages. Baker appealed.
The elements of a constructive trust are a confidential relationship, a promise, a transfer in reliance on that promise and unjust enrichment. Constructive trust is an equitable remedy and courts do not rigidly apply the elements but use them as flexible guidelines.
The promise need not be express, but may be implied based on the circumstances of the relationship and the nature of the transaction. And courts have extended the transfer element to include situations where funds, time and effort were contributed in reliance on a promise to share in some interest in property, even though no transfer actually occurred. Here, both parties conceded that they had a confidential relationship. However, it was sharply disputed whether there was a promise, a transfer or unjust enrichment.
Baker contended that he was the sole owner of the logging business, and he performed all of the required labor. Baker alleged that all income and proceeds from his business were deposited into Harrison’s bank account and that those proceeds were used to pay for the equipment and the property.
Baker finally claimed that, despite title being in Harrison’s name, it was understood between them that the equipment, personal property and real property were his, and he could use and dispose of the property as he wished.
Harrison denied the existence of any such promise. She alleged that the parties were both engaged in the work of harvesting timber. Although Harrison agreed that Baker performed the physical labor of harvesting trees and timber, she claimed that she performed the administrative duties necessary to run the business.
Harrison also asserted that all income from the business was deposited into her bank account and reported on her tax returns, she was the title holder of all land and equipment associated with the business and paid all taxes and insurances. In addition, Harrison signed all financing agreements and was solely responsible for and remitted payment on all assets.
An express promise is not required to impose a constructive trust. The parties’ relationship and circumstances may be construed as an implied promise. Additionally, the promise may be implied or inferred from the very transaction itself.
Both parties sought a portion of the proceeds from the sale of equipment and personal property. Baker sought a constructive trust of the land. The transfer concept extended to instances, where, as here, funds, time and effort were contributed in reliance on a promise to share in the result. The fact that Baker did not hold any previous interest in the disputed personal and real property was not fatal to his claim. A person is unjustly enriched when his or her retention of the benefit received would be unjust considering the circumstances of the transfer and the relationship of the parties. Baker claimed that it was his business, he worked full time and utilized all funds earned in the business to purchase the equipment, personal property and the land. On the other hand, Harrison argued it was their business, she held title to all assets, paid for all assets and debts and paid for Baker’s services by paying his expenses, housing and cash.
Harrison submitted the deed to the property, copies of the checks from her account used to pay for the property and receipts for school and county taxes. Baker submitted two letters to him from the original attorney involved in the land sale, and a receipt for timber. Baker’s affidavit — in which he avowed his ownership of the business and property and his transfer in reliance on Harrison’s promise, and alleged her unjust enrichment — was sworn to and based on first-hand knowledge.
On appeal, the court was not persuaded that Baker’s affidavit could be disregarded as merely self-serving and conclusory as Harrison urged. Rather, the credibility of the parties emerged as the critical factor in resolving those material issues and could not be resolved on a motion for summary judgment.
In addition, the issue of whether the property was to be held by Harrison, or held by her in trust for Baker, required the resolution of issues of fact as to the intent of the parties, which also must await the trial of the action. And concluding that Supreme Court should not have granted Harrison’s motion for summary judgment dismissing Baker’s complaint, nor should it have granted Harrison summary judgment on her five counterclaims.