Opinion ID: 1059334
Heading Depth: 1
Heading Rank: 12

Heading: Burden of Proof on Remand

Text: The defendants argue that the Commonwealth had the burden of tracing JMHI's assets into an identifiable account or property. They assert that as a claimant seeking recovery of assets that may have been commingled with other assets, the Commonwealth must identify the portion of the commingled property to which it is entitled. In response, the Commonwealth contends that when trustees have commingled personal assets with those belonging to the trust, the entire commingled fund is subject to the constructive trust unless the trustees can distinguish the funds to which they personally are entitled. In stating the burden of proof applicable to these proceedings, we first observe that a constructive trust arises by operation of law to prevent what otherwise would result in a fraud. See Crestar Bank v. Williams, 250 Va. 198, 204, 462 S.E.2d 333, 336 (1995); Leonard v. Counts, 221 Va. 582, 589, 272 S.E.2d 190, 195 (1980). The chancellor's imposition of a constructive trust, which we approved in Tauber I, reflected his determination that the defendants had wrongfully diverted the assets of JMHI into other entities and business opportunities for their personal benefit. On remand, the chancellor was required to fix the amount of JMHI's assets held by the defendants as trustees in dissolution of the charity. As the successful proponent of the constructive trust, the Commonwealth bore the initial burden on remand of tracing JMHI's assets and establishing the amount of its intangible assets. See Crestar Bank, 250 Va. at 204, 462 S.E.2d at 335-36; Watts v. Newberry, 107 Va. 233, 240, 57 S.E. 657, 659 (1907). However, to the extent that the defendants commingled their own property with JMHI's assets and sought recovery of such property, they had the burden of proving how much of the commingled funds they owned personally. See Brown v. Coleman, 318 Md. 56, 566 A.2d 1091, 1097 n. 7 (1989); Bass v. Smith, 189 Md. 461, 56 A.2d 800, 805 (1948); MacBryde v. Burnett, 132 F.2d 898, 900 (4th Cir.1942); V Austin W. Scott & William F. Fratcher, The Law of Trusts § 515, at 609 (4th ed.1989). The defendants bore this evidentiary burden because when trustees conduct their affairs in a manner that prevents a precise accounting of trust assets, the trustees, rather than the trust, must suffer the consequences. Am. Nat'l Bank v. Ames, 169 Va. 711, 750, 194 S.E. 784, 798 (1938); see Royall v. Peters, 180 Va. 178, 189, 21 S.E.2d 782, 787 (1942); First Nat'l Bank v. Commercial Bank & Trust Co., 163 Va. 162, 175, 175 S.E. 775, 779 (1934).