Proprietary Responses to Voidable Contracts: A Misconceived Analysis
Journal of Contract Law, Vol. 25, No. 3, p. 272, 2009
Monash University Faculty of Law Legal Studies Research Paper No. 2010/27
Posted: 11 Apr 2011
Date Written: 2009
Abstract
This article considers recent case law in which it has been held that plaintiffs can obtain a constructive trust over misappropriated funds if they are victims of fraud under a contract affected by fraudulent misrepresentation. This conclusion is reached by an extension of the principle stated in Black v S Freedman & Co Ltd (1910) 12 CLR 105, that stolen money is trust property in the hands of the thief. It is argued that the extension of this concept to give a proprietary remedy for voidable contracts is not appropriate as it is contrary to accepted principles of contract law. Further, appeals to conscience or restitutionary analysis are not convincing, and there are policy arguments against the use of constructive trusts where the sole rationale is to give the plaintiff priority in the defendant’s insolvency.
Keywords: Fraud, Stolen money, Property in the hands of a thief, proprietary remedies, constructive trusts, insolvency, priority
JEL Classification: K00, K1, K10, K11, K14, K4, K42, K49
Suggested Citation: Suggested Citation