California Partition Law Blog
Trusts are an important way to set out one’s wishes for how and when you want to transfer assets like property. While trusts usually are set up as written contracts, other trusts can be enforced by the court, like resulting trusts and constructive trusts. These types of trusts are involuntary, meaning a court imposes them as a remedy to prevent an inequitable result, when property is wrongfully taken or transferred. (Kenneally v. Bank of Nova Scotia (2010) 711 F.Supp.2d 1174, 1190.) A resulting trust may arise where the transferor did not want the transferee to have a beneficial interest in the property. A constructive trust is used by the court to prevent unjust enrichment.
What are some similarities between resulting and constructive trusts?
Both resulting and constructive trusts are involuntary because they are imposed by the court to reach an equitable result. (In re Raymond Renaissance Theater, LLC (Bankr. C.D. Cal. 2018) 583 B.R. 735, 746.) Because they are imposed by the court and not preexisting or stemming from a contract, they are exempt from the Statute of Frauds. This means there is no writing requirement for the trust to be enforced. (Martin v. Kehl (1983) 145 Cal.App.3d 228, 238.) They both have a similar purpose in identifying and then enforcing beneficial rights in property for a third party. (Holder v. Williams (1959) 167 Cal.App.2d 313, 315-316.)
As involuntary trusts, neither type of trust gives the trustee or holder of property heightened duties. As a trustee of a resulting trust, the person does not take on any trustee duties of administering a trust. (Cal. Civ. Code § 2223.) They are only expected to hold onto and then convey the property to the proper beneficiary. (In re Raymond Renaissance Theater, LLC, 583 B.R. at 746.) A constructive trust is similarly passive, only requiring conveyance of the property. (Haskel Engineering & Supply Co. v. Hartford Acc. & Indem. Co. (1978) 78 Cal.App.3d 371, 375, 378.) However, whether a resulting or constructive trust will apply depends on the circumstances.
What is a resulting trust?
A resulting trust is enforced where a property was transferred, and circumstances show the transferee or person receiving the property was not meant to take the beneficial interest. (Fidelity National Title Ins. Co. v. Schroeder (2009) 179 Cal.App.4th 834, 848.) This usually means circumstances clearly and convincingly indicate both parties to the transaction intended the holder of the property to hold it in trust for another. (In re Cedar Funding, Inc. (Bankr. N.D. Cal. 2009) 408 B.R. 299, 315.) This type of trust may be used for real and personal property. (McKinnon v. McKinnon (1960) 181 Cal.App.2d 97, 104.) The court will enforce the trust so that the inferred intent of the parties can be carried out. (In re Raymond Renaissance Theater, LLC, 583 B.R. at 746.)
The type of relationship courts look for are between a resulting trustee and a beneficiary. The transferee must have received title in good faith, and that title must actually belong to someone else. (Estate of Yool (2007) 151 Cal. App. 4th 867, 874.)
By accidentally receiving the property, the transferee becomes the resulting trustee. The trustee must hold the property for the actual owner’s benefit, and then eventually give it to the proper owner. (Murphy v. American General Life Ins. Co. (C.D. Cal. 2015) 74 F.Supp.3d 1267, 1281.) The resulting trust is terminated by merger where the trustee transfers property to the beneficiary, the rightful holder. (Zakaessian v. Zakaessian (1945) 70 Cal.App.2d 721, 724.)
What is a constructive trust?
A constructive trust differs from a resulting trust because it is imposed by the court in response to fraudulent behavior. (In re Marriage of Ruelas (2007) 154 Cal.App.4th 339, 342.) A constructive trust acts as a remedy in response to a wrongful act of a party or to prevent a wrongful act from occurring. (Johnson v. Johnson (1987) 192 Cal.App.3d 551, 647-648.) A court will impose a constructive trust where the acquisition of the property was wrongful and if the holder of the property kept it they would be unjustly enriched. (Calistoga Civic Club v. Calistoga (1983) 143 Cal.App.3d 111, 116.) This means courts look for actions like fraud or breach of fiduciary duty that entitle the plaintiff to relief. (Fredianelli v. Jenkins (N.D. Cal. 2013) 931 F.Supp.2d 1001, 1024-1025.)
Unlike with resulting trusts, the court looks for the lack of intent to create a trust. If the evidence clearly and convincingly excludes or lacks any intention to create a trust it must be a constructive trust. (Dabney v. Philleo (1951) 38 Cal.2d 60, 67-68.)
A constructive trust will compel the transfer of property from the person wrongfully holding it to the rightful owner. (Optional Capital, Inc. v. DAS Corp. (2014) 222 Cal.App.4th 1388, 1402.) A trust can be resulting and constructive at the same time if the property is taken fraudulently and the person who otherwise would have had it furnished whole consideration, like full payment, for its transfer. (Broder v. Conklin (1888) 77 Cal. 330, 337-338.) If this is the case, the funds paid must be traceable. (Ljepava v. M.L.S.C. Properties, Inc. (9th Cir. 1980) 632 F.2d 815, 816.)
What are some examples of resulting and constructive trusts?
For example, Julie and Shawn enter a contract. Julie conveyed Shawn land in exchange for a share of net profits from developing the land into condominiums. If Shawn failed to develop the land into condos and instead built apartments, he would have breached the agreement entitling Julie to a share of the profits. If Julie brought an action against Shawn in court for breaching the contract, the court could impose a constructive trust on the rentals and sale proceeds. (GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 880.) This would make Shawn the offending party and the constructive trustee who is required to turn over the rental and sale proceeds, so he is not unjustly enriched.
Alternatively, Julie and Shawn live together in a home. Julie seeks to establish a one-half interest in the property. Shawn made the down payment, took title in his name, and made mortgage payments. Julie just made monthly rental payments which were not payments on the house. If Julie tries to assert a claim for constructive trust she would fail. (Taylor v. Polackwich (1983) 145 Cal. App. 3d 1014, 1022-1023.) There is no unjust enrichment on Shawn’s end. If Julie received the one-half interest, she would be unjustly enriched.
Conclusion
The Underwood Law Firm has a team of experienced lawyers who can help resolve your property interest disputes at trial and help you pursue solutions like partition by sale. We are here to help.