Chapter 11-11 Equitable Remedies for Recovery of Monetary Funds

• Jurisdiction: United States

11-11 Equitable Remedies for Recovery of Monetary Funds

For a variety of causes of action often seen in business litigation, such as fraud, breach of contract, breach of fiduciary duty, constructive fraud, and unjust enrichment, equitable remedies are available to trap and recover monetary funds. Equitable remedies should always be specifically pleaded.²²⁰

11-11:1 Constructive Trust

Imposition of a constructive trust is an equitable remedy to prevent unjust enrichment when there is: (1) a breach of a special trust or fiduciary relationship, or actual or constructive fraud; (2) unjust enrichment of the wrongdoer; and (3) tracing of funds to an identifiable res.²²¹ It is an equitable means of requiring a wrongdoer, who holds legal title to wrongfully acquired property, to convey the property to the party that is deemed to hold equitable title, in order to avoid unjust enrichment.²²²

The first element may be satisfied by either a demonstration of actual fraud (without regard to the nature of the relationship between the parties),²²³ or by demonstration of breach of a relationship of trust. the relationship of trust may exist due to a formal fiduciary relationship or due to an informal confidential relationship of trust.²²⁴

The second element is not limited solely to enrichment of the wrongdoer, but includes enrichment of a party who claims through the wrongdoer.²²⁵ However, a party's mere receipt of funds from a wrongdoer does not necessarily constitute unjust enrichment when the receiving party is also a victim of the wrongdoer.²²⁶

The third element places the initial burden on the party who seeks to impose a constructive trust to trace funds into the specific property sought to be recovered.²²⁷Once the claimant has met that burden, the burden then shifts to the holder of the property to demonstrate what portion of the property came from his own funds; if that burden is not met, the entirety of the property is subject to the constructive trust.²²⁸ the fact that the nature of the property changes form does not affect the power of the court to impose a constructive trust over it if the tracing burden is met.²²⁹

11-11:2 Unjust Enrichment

"A person is unjustly enriched when he obtains a 'benefit from another by fraud, duress, or the taking of an undue advantage.' Unjust enrichment is an equitable principle holding that one who receives benefits unjustly should make restitution for those benefits."²³⁰ Unjust enrichment has been variously described as a remedy,²³¹ as a cause of action²³² and as a doctrine justifying the imposition of various other equitable or quasi-contractual remedies such as constructive trust,²³³ quantum meruit,²³⁴ and restitution.²³⁵

Although unjust enrichment can result in the enforcement of a constructive trust (e.g., for fraud, or for duress that takes advantage of a confidential relationship), a remedy for unjust enrichment can also result in recovery in circumstances that would not justify imposition of a constructive trust. While a constructive trust requires breach of a special trust or fiduciary relationship, or actual or constructive fraud,²³⁶ restitution for unjust enrichment can result from a business dealing without fraud or special relationship, but where the retention of benefits would constitute unjust enrichment.

Unjust enrichment will not simply relieve a party from a bad bargain²³⁷ where the enrichment results from the terms of an express contract, especially when the contractual duty at issue has been performed,²³⁸ but the finding of an agreement does not defeat all restitution remedies grounded in the principle of unjust enrichment.²³⁹ "Indeed, the principle of unjust enrichment suggests that restitution is an appropriate remedy in circumstances where the agreement contemplated is unenforceable, impossible, not fully performed, thwarted by mutual mistake, or void for other legal reasons" and the retention of funds would constitute an unjust enrichment.²⁴⁰ Likewise, unjust enrichment applies principles of restitution where there is no express contract at all, yet the retention of unjust benefits implies an obligation to make resti-tution.²⁴¹

Although unjust enrichment can result in imposition of a constructive trust, it is not limited to the circumstances that would justify a constructive trust. this means there is no requirement that funds be traced to a specific res, but in the absence of tracing to establish a constructive trust, there is no judgment for recovery of a specific fund as opposed to judgment for recovery generally.

11-11:3 Rescission or Restitution

"Restitution" and "rescission" refer to the same remedy (although as with the term "unjust enrichment," the terms "restitution" and "rescission" have each been variously described as a cause of action²⁴² or as a remedy²⁴³). "[R]escission is the common name for the composite remedy of rescission and restitution."²⁴⁴

the remedy involves a mutual unwinding of a transaction, restoring both parties to their original positions.²⁴⁵ Rather than requiring a party to a contract to prove expectation damages, the remedy can be used as an alternative measure of recovery simply requiring each party to restore to the other what has been received.²⁴⁶ It is particularly useful as a remedy for recovering the defendant's wrongful gain in excess of the plaintiff's loss.²⁴⁷

11-11:4 Quantum Meruit Damages

Quantum meruit damages, as distinguished from a quasi-contractual cause of action for quantum meruit, constitute a remedy based on equity.²⁴⁸ While a quantum mer-uit cause of action is inconsistent with an express contract, quantum meruit damages may be recovered consistently with an express contract when a plaintiff has partially performed but, because of the defendant's breach, the plaintiff is prevented from completing the contract,²⁴⁹ when the contract is unilateral in nature,²⁵⁰ or in building or construction contracts (less any damages resulting from the plaintiff's breach of the contract).²⁵¹ As with a quantum meruit cause of action, the remedy is for the...