Meaning
Legal remedies imposed by a court prevent unjust enrichment by treating a party as holding property for the benefit of another. This constructive equity trust arises when a founder or officer acquires shares or assets through a breach of fiduciary duty or a misunderstood verbal agreement. It operates as an equitable lien rather than a formal contract.
The mechanism stops where the property has been transferred to a bona fide purchaser for value without notice.
Equitable Restitution
Courts apply this principle to restore the intended balance of ownership when documentation fails to capture the true intent of the parties. A constructive equity trust functions as a corrective instrument rather than a pre-planned entity. It requires the claimant to prove that the current holder of the asset obtained it through wrongful conduct or that retaining it would be unconscionable.
The record here is the evidence of the original promise.
Property Identification
Identification of the asset depends on the ability to trace it from the point of the alleged wrong to its current form. In cases involving startup ownership, the constructive equity trust may attach to a specific block of shares identified in the cap table. This tracing process verifies that the equity in question remains identifiable and has not been commingled beyond recovery.
Remedial Outcome
Transfer of the legal title is required by the order.
