Opinion ID: 2252946
Heading Depth: 1
Heading Rank: 9

Heading: Equitable Claims: Constructive Trust, Accounting, Rescission

Text: Plaintiffs' first two counts alleged the breach of Heinold's fiduciary duties and sought the imposition of a constructive trust on the foreign service fees plaintiffs paid to Heinold and an accounting in order to recover their full investment losses. The trial court imposed a constructive trust over plaintiffs' entire investment losses and also noted that plaintiffs were entitled to an accounting. The trial court found that under section 205 of the Restatement (Second) of Trusts, causation need not be shown for plaintiffs to recover their full investment losses. (Restatement (Second) of Trusts § 205 (1959).) The trial court further found sufficient causation in that, but for Heinold's breach, plaintiffs would not have lost their money. Plaintiffs argue that the trial court was correct in relying on section 205 of the Restatement (Second) of Trusts and that, under the Restatement, proximate cause need not be shown for them to recover their full investment losses. Instead, plaintiffs argue, under the law of trusts, only a but for causation test applies: but for Heinold's misrepresentation, plaintiffs would not have lost their money. Plaintiffs conclude that [t]he liability of fiduciaries to investors for full investment losses, without any proof at all of `loss causation,' is well established. We disagree. While making no determination as to the accuracy of plaintiffs' argument concerning causation and section 205 of the Restatement (Second) of Trusts, we do note that the Restatement of Trusts is not applicable to constructive trusts. The Restatement (Second) of Trusts specifically states: The rules applicable to constructive trusts    are not dealt with in the Restatement of this Subject. These rules are dealt with in the Restatement of Restitution. (Restatement (Second) of Trusts § 1, at 5 (1959).) The reason for this has been noted by this court: An express trust is based upon the intention of the parties, while a constructive trust is a distinctly different concept. It arises, not out of an agreement or intention, but by operation of law   . ( Swanson v. Randall (1964), 30 Ill.2d 194, 199, 195 N.E.2d 656.) We must thus look to the Restatement of Restitution. Section 9 of the Restatement of Restitution, dealing with causation, provides: (1) A person who has conferred a benefit upon another because of a mistake, whether or not the mistake was induced by fraud or misrepresentation, is entitled to restitution only if the mistake caused the conferring of the benefit. (Restatement of Restitution § 9 (1937).) In the instant case, the mistake, plaintiffs' belief that the foreign service fee was a charge Heinold necessarily incurred in LCO transactions and not a commission, induced by Heinold's deception, caused plaintiffs to confer a benefit on Heinold. The Restatement of Restitution also specifies that a constructive trust is imposed to recover any illegal benefit a breach of fiduciary duty may have given the fiduciary. Section 160 of the Restatement of Restitution provides: Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a constructive trust arises. (Restatement of Restitution § 160 (1937).) Comment c to section 160 states: A constructive trust is imposed upon a person in order to prevent his unjust enrichment. To prevent such unjust enrichment an equitable duty to convey the property to another is imposed upon him. (Restatement of Restitution § 160, Comment c (1937).) Thus, a constructive trust is imposed to prevent unjust enrichment by imposing a duty on the person receiving the benefit to convey the property back to the person from whom it was received. (See also Swanson, 30 Ill.2d at 199, 195 N.E.2d 656.) We must now determine what benefit plaintiffs conferred on Heinold, or on what funds the constructive trust was properly imposed. The price of an LCO consisted of three items: (1) a premium for the option; (2) a commission; and (3) a foreign service fee. The benefit Heinold received from plaintiffs was the commission and foreign service fee. Heinold received no benefit, or profit, from the money actually paid for the LCO, which went to the party in London acquiring the LCO for plaintiffs. Thus, under plaintiffs' breach of fiduciary duty claim seeking a constructive trust, the amount plaintiffs may recover is the amount Heinold received in commissions and foreign service fees. Plaintiffs also sought to recover their full investment losses through an accounting due to Heinold's breaches of its fiduciary duties. We note, however, that an action for accounting is similar to an action to impose a constructive trust in that the action seeks the return of any benefit, or profit, conferred upon the breaching party. Accounting holds the defendant liable for his profits, not for damages. The ground of this liability is unjust enrichment. (1 D. Dobbs, Law of Remedies § 4.3(5), at 611 (2d ed. 1993).) As this court has observed in an action for an accounting: it is gain to the agent from the abuse of the relationship that triggers the right to recover, rather than loss to the principal. City of Chicago ex rel. Cohen v. Keane (1976), 64 Ill.2d 559, 565-66, 2 Ill.Dec. 285, 357 N.E.2d 452. Plaintiffs also argue that Heinold is liable for full investment losses because it acted in bad faith and self-dealed. Plaintiffs argue that when a fiduciary acts in bad faith, or for his own benefit, all ensuing losses are recoverable, regardless of their causal connection to the breach. The traditional remedy in such instances, plaintiffs argue, is to set aside the entire transaction. What plaintiffs argue for is rescission of their contract with Heinold for its breach of its fiduciary duty. In Moehling v. W.E. O'Neil Construction Co. (1960), 20 Ill.2d 255, 170 N.E.2d 100, this court stated: It has long been the settled law in this jurisdiction that    [w]here    a reasonable suspicion exists that the confidential relation has been abused, the contract or transaction will be set aside   . ( Moehling, 20 Ill.2d at 266-67, 170 N.E.2d 100.) However, this court has also stated: `It is a general rule, to which there are but few exceptions, that the restoration of the party against whom the relief is sought, or the offer to restore him, to the position which he occupied before the transaction complained of took place, is a condition precedent to the right to rescind. The right can be exercised only upon the terms of returning the consideration received, or, perhaps, under certain circumstances, of returning its value.' ( Naugle v. Yerkes (1900), 187 Ill. 358, 365, 58 N.E. 310, quoting Rigdon v. Walcott (1892), 141 Ill. 649, 661, 31 N.E. 158.) This court has also stated: `A party cannot rescind a contract of sale, and at the same time retain the consideration he has received.    He must put the other party in as good a condition as he was before the sale, by a return of the property purchased.' Buchenau v. Horney (1851), 12 Ill. 336, 338. Thus, rescission of a contract in Illinois will only be allowed where both parties are able to place each side in status quo. Plaintiffs are not entitled to a rescission of their contracts with Heinold. Plaintiffs have received and used the benefit for which they bargained, the use of the LCO's. Thus, plaintiffs cannot return Heinold to as good a condition as it was before the sale. There is nothing left to return.