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Constructive Trusts

Trustee Liability for Breach of the Duty of Loyalty: Good Faith Inquiry and Appreciation Damages

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In remedying breaches of its vaunted duty of loyalty,' the law of trusts in New York is fettered by rules that emphasize restitutionary principles. Created by a stubborn adherence to absolute liability, this emphasis persists because it was written into the Restatement of Trusts. Although absolute liability and restitution of gain may still serve valid purposes,' justice requires an inquiry into the character of the breach as well as full compensation of the beneficiary when a trustee makes a sale tainted with a conflict of interest.The trustee owes a duty of loyalty to the beneficiary." The selfdealing trustee 8 who neglects to obtain prior court approval is buttably presumed to be disloyal ' the no further inquiry rule bars consideration of good faith and fairness." Such absolute liability is intended to negate the temptation of self-interest." Because of the no further inquiry rule, however, honest and dishonest trustees are subject to the same measures of damages. These measures do not permit the beneficiary

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The Restatement of the Law of Trusts

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As a preface to a discussion of any of the tentative drafts of the restatement of law it is interesting to recall the situation which created the need for the American Law Institute, and the objects which its founders hoped to attain. Logic is a method of classification, and the logical machinery of the law is a classification of the opinions of appellate courts under titles or concepts. As rapidly as the increasingly numerous opinions appear, they are put under the protection of one of these abstractions, and, once there, automatically become part of the field of "law" for which the abstraction stands as a symbol. The more ingeniously the legal analogies and concepts are used, the more dissimilar become the cases grouped under any one classification, until at times these terms become almost meaningless. Yet prior to the American Law Institute no systematic reclassification had ever been attempted. The magnitude of the task was terrifying. The conservative

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The Confidential Relationship Theory of Constructive Trusts-An Exception to the Statute of Frauds

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The constructive trust, often referred to as a trust "implied in law," has been generally recognized as an exception to the Statute of Frauds. Fraud, duress, mistake, undue influence, or the breach of a fiduciary relationship may all be the basis for a constructive trust. Promises to convey or to hold property in trust, which would ordinarily be unenforceable under the statute, have often resulted in the imposition of a constructive trust when the abuse of a confidential relationship has been found.3 The "abuse of confidence" exception to the statute, which defies accurate definition, has provided courts of equity with an elastic means for intervention whenever such is considered just and proper.and confidence can be found in every transaction involving a fiduciary. To this extent, the fiduciary relationship is undoubtedly "confidential." The true fiduciary relationship and the duties and obligations which adhere thereto, however, can generally be placed into distinct categories wherein an underlying legal relationship also exists. Such would...

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