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Constructive Trust for Developer’s Lot Reversed

Deborah Elkins//June 13, 2016

Constructive Trust for Developer’s Lot Reversed

Deborah Elkins//June 13, 2016//

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An owner who sold her lot to a developer for cash and a promise to convey a lot in the new subdivision to her is not entitled to a con­structive trust on another lot after the devel­oper sold the lot originally assigned to her to another buyer, but she is entitled to damages of $110,000, the sale price of the original lot, as contract damages; the Supreme Court of Virginia reverses the judgment awarding the owner a constructive trust on the second lot, and enters final judgment for the owner.

We have held that constructive trusts arise, independently of the intention of the parties, by construction of law. In order to be entitled to the benefit of a constructive trust, a claim­ant’s interest must be distinctly traced into the chose in action, fund or other property which is to be made the subject of the trust.

Crestar Bank v. Williams, 250 Va. 198 (1995), involved multiple victims of an invest­ment fraud who sought recovery against the few remaining assets of the man who perpe­trated what was essentially a Ponzi scheme. We held that the trial court erroneously imposed a constructive trust in favor of the defrauded investors because the investors failed to distinctly trace the funds they had invested into the remaining assets.

In this case, too, appellee failed to distinctly trace her claim to the property that was the subject of the constructive trust. As amended in 2005, appellee’s contract with the devel­oper provided that she would receive a par­ticular subdivision lot, designated as Lot 1. Yet 10 years later, the trial court imposed a constructive trust upon Lot A, a different lot within the subdivision. Unlike money, land is not fungible. Therefore, even if Lot 1 and Lot A were identical in shape and size, appellee would have no equitable claim to Lot A.

After her choice of lot in 2005, appellee’s in­terest lay with Lot 1, not with Lot A. In 2012, when the developer sold Lot 1 to another buy­er, it breached its contract with appellee. She was entitled to damages. But a constructive trust is an equitable remedy available under specific conditions and when legal remedies, such as monetary damages, would be insuf­ficient. We hold the trial court erred when it imposed a constructive trust upon Lot A. However, the trial court’s award of $110,000 in damages against the developer and other defendants is proper.

Because the trial court erred in imposing a constructive trust upon Lot A, the issue whether the bank was a bona fide purchaser is no longer relevant. Further, the bank is not aggrieved and lacks standing to challenge the trial court’s refusal to reduce appellee’s $110,000 judgment by the $25,000 which she allegedly received to settle her claim against the buyer of Lot 1.

Judgment imposing a constructive trust is reversed and final judgment of $110,000 for appellee.

The Bank of Hampton Roads v. Powell (Lemons) No. 151190, June 2, 2016; Chesa­peake Cir.Ct. (Arrington) Richard H. Mat­thews, Kristen R. Jurjevich for appellants; Gregory S. Larsen for appellee. VLW 016-6- 045, 7 pp.

VLW 016-6-045

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