Constructive Trust. Paula Thomas was formerly married to Charles Fales. During their marriage, Charles sold illegal drugs and frequently had large amounts of cash resulting from those transactions. To avoid the increasing scrutiny of a neighbor (a

Question

police officer), Charles decided to purchase a home (the Winslow property) in another area in September 1983. Allegedly to avert suspicion concerning his drug activity, Charles had his brother Steven purchase the property in Steven's name. Charles, however, provided Steven with the money for the down payment, and Charles and Paula lived in the home and paid the mortgage payments and all other expenses. Eventually, Paula separated from Charles; she left the home, and it was rented to a third party. In 1988, Paula and Charles were divorced, and the divorce judgment awarded her all of their right, title, and interest in the Winslow property. Steven refused to convey the property to Paula, contending that he was the legal owner. Paula then brought an action seeking the imposition of a constructive trust on the Winslow property and an order that legal title be conveyed to her. Should the court impose a constructive trust on the Winslow property for the benefit of Paula? Discuss fully.

Answer 1

Constructive trust
The Maine state trial court imposed a constructive trust on the property for the benefit of Paula and ordered that it be conveyed to her. Steven appealed. The trial court's judgment was af-firmed. The Supreme Judicial Court of Maine could find no clear error in the lower court's find-ings of fact and no abuse of discretion in its imposition of a constructive trust on the Winslow property for the benefit of Paula. The appellate court held that "[a] constructive trust may be im-posed when a party holding legal title to property stands in a fiduciary relation to another, resulting in an ‘equitable duty to convey [the property] on the ground that he would be unjustly enriched if he were permitted to retain it.'" The court held that Steven stood in a fiduciary relation to Charles and Paula and would be unjustly enriched if allowed to retain the house. Because Charles bought the house for his own benefit, Steven had an equitable duty to convey the property to Paula, who had been awarded Charles's interest in the house. Among other things, Steven had argued that Paula should not be entitled to the house because it was bought with the proceeds from an illegal activity. In response to this argument, the court noted that there was no evidence that Paula had actively participated in the illegal activity.