KRIEGLER, Acting P. J. —
A wife agreed to hold funds in trust for her husband's elderly stepmother. After her husband's death, the wife changed the form of the accounts and used the funds for her own purposes. The stepmother died and her personal representative brought this action to impose a constructive trust on the funds. At the conclusion of the personal representative's case-in-chief, the trial court granted judgment in favor of the wife under Code of Civil Procedure section 631.8. The trial court found the husband committed no wrongdoing in transferring the funds to the accounts, and the trust designation on the accounts was revocable, so no constructive trust could be imposed on the funds. We hold that despite the form of the bank accounts, when clear and convincing evidence shows funds were transferred to an account owner to hold in an irrevocable trust for a third party beneficiary and the trustee repudiates the trust, a constructive trust may be imposed on the funds for the beneficiary's estate to prevent unjust enrichment. We reverse the judgment and remand for further proceedings.
Maria Lopez Higgins (Maria) and her husband, Bartlett Higgins, prepared a thorough estate plan in 1994.
Maria's will provided for her property at her death, including savings and checking accounts, to be added to the Family Trust and administered under its terms. She nominated Bartlett to serve as her executor. If he was unwilling or unable to act as executor, she nominated Clive. If Clive was unwilling or unable to serve, she nominated Arthur. Maria and Bartlett executed powers of attorney as well.
Bartlett died the following year. Maria was authorized under the terms of the Family Trust to serve as the sole trustee after Bartlett's death, although she was required to serve with a co-trustee under certain circumstances to avoid taxes. The individuals nominated to serve as executor under her will were appointed as successor trustees under the Family Trust. Maria did not take actions as trustee in the name of the Family Trust, however. She continued to conduct transactions during her lifetime in her own name.
Maria leased the Sunset Boulevard property for $10,000 per month to a family business operated by Clive, Arthur, and Karl. After his father's death, Clive visited Maria regularly to assist with her finances. He helped her pay bills, collect rents, and deposit checks. Clive became the sole owner of the family business when Karl passed away in August 1999, and Arthur sold his shares to Clive after a dispute in December 1999. Clive had four sons of his own, including Michael Higgins and Mark Higgins, prior to his marriage to defendant and respondent Maria Lupe Higgins (Lupe). When Clive became the sole owner of the business, his son Michael took a management position to assist his father.
Maria executed a second power of attorney on March 20, 2007, appointing Clive and another individual to make joint decisions if she became disabled or incapacitated. She executed a new lease with Clive for the Sunset Boulevard property, reducing the rent to $5,000 per month. On March 30, 2007, Maria reported complaints about her short-term memory to Dr. Nelson Sanchez. She was 91 years old and had a regular caregiver. In Dr. Sanchez's opinion, her cognitive dysfunction was more than normal memory loss and could progress into dementia. He prescribed a medication commonly used for dementia or Alzheimer's patients.
Maria owned checking and savings accounts for many years at Los Angeles National Bank. On May 4, 2009, Maria executed new signature cards adding Clive as a joint account holder to her checking and savings accounts. Maria's Social Security check was deposited directly into the checking account. In addition to the checking and savings accounts, Maria had two certificates of deposit.
By June 2010, Maria had full-time care. On September 30, 2010, Dr. Sanchez included dementia in Maria's diagnosis. Clive's health began to suffer in June 2011. His son Mark took him to Mexico for treatments. Maria's caregiver gave notice and Maria was placed in a nursing care facility in February 2012. Clive was diagnosed with cancer at the end of February 2012. His health declined rapidly. In March 2012, he was placed under hospice care at home. On March 25, 2012, he was hospitalized for a few days.
When Clive returned from the hospital at the end of March, he could not walk or care for himself. He was completely dependent on Lupe and hospice. He was not capable of caring for Maria's finances. Clive and Lupe conducted all of their banking transactions through bank manager Juan Sandoval. At times, Sandoval came to Clive and Lupe's home to conduct transactions.
On March 28, 2012, Clive closed Maria's checking account. He transferred the balance of $113,889.75 into a new account by a check endorsed by Clive and Lupe "in trust for Maria Lopez." On the signature card for the new checking account, the account owners were listed as "William Clive Higgins [¶] Lupe Higgins [¶] ITF Maria Lopez Higgins." The boxes on the form for a joint account, trust under a separate agreement, Totten trust, or pay-on-death (POD) designation were not selected. Instead, "ITF: Maria Lopez Higgins" was typed in.
Clive withdrew $121,887.74 from Maria's savings account, closed the account, and deposited the funds in a new savings account which he opened on March 30, 2012. The account owners were listed as "William Clive Higgins [¶] Lupe Higgins [¶] ITF Maria Lopez Higgins." In the area to indicate the ownership of the account and the consumer purpose, "In Trust for Maria Lopez Higgins" was typed in.
That same day, Clive withdrew $100,420.92 from Maria's certificate of deposit No. 104208447, and transferred the funds to a new certificate of
When Clive asked her to sign the bank documents, Lupe signed the signature cards at their home without asking questions. She did not have any discussions with Clive about the reasons for opening the accounts. Lupe understood the owners of the checking account to be Maria and Clive. She understood the savings account to be owned by "Clive, Lupe, everything on behalf of Maria." Lupe knew at the time she signed the signature cards, including the certificates of deposit, that the purpose for which she was opening accounts in trust for Maria was that everything was for Maria to take care of Maria.
Maria's Social Security checks, monthly rent of $5,000 from the Sunset Boulevard property, and checks from life insurance companies and other entities made out to Maria were deposited into the checking account. Clive's son Mark helped Lupe pay Maria's bills by filling out checks for Lupe to sign.
In early May 2012, Clive died without a will. His estate included real property and the stock of the business. After Clive passed away, Mark helped Lupe every day. Lupe wanted Maria to move in with her, so Mark helped to move Maria from the nursing home to Lupe's house.
On June 12, 2012, Lupe met with Sandoval at the bank. She changed the ownership of the checking and savings accounts to list the account owner solely as "Maria Lupe Higgins." The new signature cards did not state that the funds were being held in trust for Maria. She had a new signature card prepared for the certificates of deposit listing the owner as "Maria Lupe Higgins." Under form of ownership and consumer purpose, a box was checked for an individual account. Nothing was stated about Maria's interest or the account being held in trust.
Mark moved Maria to his home while they looked for a new nursing home. Arthur was notified that his brother Clive had died, Arthur was the successor trustee under terms of the Family Trust, and he needed to take care of Maria. He asked for a copy of the Family Trust.
Maria died in August 2012. Her funeral expenses were paid from the checking account that was now in Lupe's name. Lupe signed blank checks, which she gave to Mark to fill in with the information for the funeral expenses.
Arthur established a bank account for the Family Trust and obtained a taxpayer identification number. In September 2012, Mark provided Arthur with a copy of the lease for the Sunset Boulevard property.
Lupe paid $10,000 to each of Bartlett and Maria's eight grandchildren from the checking account that was now in Lupe's name. Mark asked Lupe to distribute $10,000 to Maria's niece, but Lupe refused because she was not a grandchild.
At the end of September, Lupe changed the name of the owner on the savings and checking accounts from "Maria Lupe Higgins" to "Lupe Higgins." Lupe wired $5,000 to her mother in Mexico and gave $2,000 to her sister from the checking account. She paid her attorney from the account. A check was made out to cash in the amount of $9,706.33 to close the account.
In April 2013, the savings account had a balance of $136,572.02. Lupe withdrew $100,017.26 from certificate of deposit No. 104211314 on April 8, 2013, closed it, and deposited the funds in the savings account. She closed the other certificate of deposit, valued at a little more than $100,000, and deposited it in the savings account as well. The money in the savings account represented everything left after Maria's bills had been paid and the distributions had been made to Bartlett's grandchildren that were described in the Family Trust. All of Lupe's transactions with the bank, while Clive was alive and after his death, were conducted through Sandoval.
Lupe arranged wire transfers of $120,000 and $100,000 to open new accounts for herself. In July 2013, she wired $5,000 to her brother from the savings account. She sent another wire transfer to her brother. On August 15, 2013, she withdrew $50,000 and used it for her own expenses. She used another $40,000 to support herself. Approximately $22,000 remained in the savings account at the time of trial.
On September 23, 2013, plaintiff and appellant Arthur Higgins, as executor of Maria's estate and successor trustee of the Family Trust, filed the complaint in the instant action against Lupe to impose a constructive trust on the funds in the accounts. The complaint alleged that Clive and Lupe obtained their claim to the funds by reason of fraudulent or otherwise wrongful conduct, including an agreement that the funds would be used solely for Maria's benefit, and Lupe unduly influenced Clive to transfer the funds to her to deprive Maria and the trust of the funds. A bench trial began on May 19, 2015.
Arthur's first witness was Ben Tsugawa, vice-president at Royal Business Bank, which purchased Los Angeles National Bank. Tsugawa testified that the bank views the designation "ITF" like a Totten trust. Clive and Lupe were the owners of the account, while Maria was the beneficiary if Clive and Lupe both passed away. Maria had no present interest in the account and was not an owner or a signatory. The endorsement on the check depositing funds into the new account typically reflects the vesting on the new account. Sandoval left the bank's employment two months before the trial and it was not the bank's practice to provide contact information for former employees.
Psychologist Robert Sawicky testified that Maria was dependent upon Clive to make decisions for her in 2009 and was susceptible to undue influence. Dr. Sanchez testified as well. He opined that Maria was not capable of making decisions about properties or estate planning documents, or understanding the differences between financial accounts on March 16, 2009. By September 2010, her symptoms had progressed to the stage that he could conclusively diagnose dementia.
Clive's sons were witnesses at trial. Mark testified that he and Lupe found a copy of the Family Trust at Maria's house. When Lupe learned Arthur was responsible for the Family Trust and would serve as executor when Maria died, she said she would not help Mark with anything. She asked Mark to drive her to the bank to talk to Sandoval. Mark waited with the tellers while Lupe conducted her business with Sandoval, then he took her home. Lupe also wanted Maria to move out of her home. Mark and his wife took Maria into their home to give Lupe a break while they tried to find a nursing home for Maria. Lupe complained about the cost of the facility they located, but Mark reminded her that the money belonged to Maria, so it should go to her needs, and Lupe signed the checks.
Michael testified that when Clive returned from the hospital at the end of March, he was not in any condition to go to the bank, conduct banking transactions, or make financial decisions.
Lupe referred to the checking account several times during her testimony as "Maria's account." Even after she changed the ownership of the account to be in her name only and removed the "in trust for" designation, everything in the account was for Maria. After Maria's death, Lupe wrote checks from the account to Maria's grandchildren because it was Maria's money. The funds that she gave to the grandchildren were not a gift from Lupe.
Lupe believed the funds in the accounts transferred to her when Maria died. She also believed she was entitled to keep money electronically deposited into the accounts for Maria after her death, such as a deposit from Guggenheim Life Insurance on September 20, 2012, because Maria was no longer alive. Clive and Lupe were the owners named on the account, and Clive was no longer alive, so it was logical that the funds in the account were hers. She explained that Maria was not around anymore, Clive was not around anymore, and the account belonged to her.
At the conclusion of Arthur's evidence, Lupe brought a motion for judgment pursuant to Code of Civil Procedure section 631.8. She argued that the complaint sought a constructive trust based on undue influence or fraud, but there was no evidence of undue influence or fraud by Lupe with regard to Maria. Any cause of action based on undue influence or fraud by Clive needed to be brought against him, and the statute of limitations had passed. Clive had the legal right to withdraw money from the joint accounts he had with Maria.
Arthur responded that a constructive trust should be imposed on the funds in this case based on evidence of undue influence, lack of capacity, and violation of a trust. He argued that even unintentionally, the joint bank accounts between Maria and Clive were a product of Clive's undue influence. When Clive opened new accounts with Lupe, he did not intend to make a gift of Maria's money to Lupe. The parties to an account can agree that the funds are owned differently as between the parties, which is what the evidence showed in this case. Clive made the funds accessible to Lupe with the understanding, and Lupe's acknowledgement, that the funds belonged to Maria. Lupe's use of funds that she knew belonged to someone else was wrongful.
Judgment was entered in favor of Lupe on June 16, 2015. Arthur filed a timely notice of appeal.
If the trial court determines at the conclusion of the plaintiff's case-in-chief that the plaintiff has failed to meet the burden of proof, Code of Civil Procedure section 631.8 allows the court to forgo the need for the defendant to present evidence. (Roth v. Parker (1997) 57 Cal.App.4th 542, 549 [67 Cal.Rptr.2d 250].) "The substantial evidence standard of review applies to judgment given under Code of Civil Procedure section 631.8; the trial court's grant of the motion will not be reversed if its findings are supported by substantial evidence. [Citation.] Because section 631.8 authorizes the trial court to weigh evidence and make findings, the court may refuse to believe witnesses and draw conclusions at odds with expert opinion. [Citation.]" (Id. at pp. 549-550.)
Arthur contends undisputed evidence in this case established all of the conditions necessary to impose a constructive trust. We agree.
An action to impose a constructive trust is a suit in equity to compel a person holding property wrongfully to transfer the property interest to the person to whom it rightfully belongs. (Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 990 [41 Cal.Rptr.2d 618] (Communist Party);
The general principles for imposition of a constructive trust are set forth in Civil Code sections 2223 and 2224. (Martin v. Kehl (1983) 145 Cal.App.3d 228, 237-238 [193 Cal.Rptr. 312] (Martin).) Civil Code section 2223 states, "One who wrongfully detains a thing is an involuntary trustee thereof, for the benefit of the owner." Civil Code section 2224 provides, "One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he or she has some other and better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who would otherwise have had it."
Three conditions must be shown to impose a constructive trust: (1) a specific, identifiable property interest, (2) the plaintiff's right to the property interest, and (3) the defendant's acquisition or detention of the property interest by some wrongful act. (Calistoga Civic Club v. City of Calistoga (1983) 143 Cal.App.3d 111, 116 [191 Cal.Rptr. 571]; Communist Party, supra, 35 Cal.App.4th at p. 990.)
While all parties are living, an account belongs to the parties who have a present right to payment, in proportion to their contributions, unless there is clear and convincing evidence of a different intent. (Prob. Code, §§ 5136, subd. (a), 5301, subd.(a).)
Clive and Lupe intended the trust in this case to be irrevocable, unlike a Totten trust that is revocable at will during the owner's lifetime. Clive transferred Maria's money into the accounts. Maria's Social Security income and other payments owed to Maria continued to be deposited directly into the accounts. The owner of a Totten trust generally deposits his or her own money and retains the right to withdraw funds for any purpose, but Clive and Lupe did not deposit their own funds into these accounts. Although Lupe did not have any conversation with Clive about the reasons for opening the accounts, it is clear from her actions and testimony that she agreed to hold the funds in trust for Maria and use them for Maria's needs. Lupe signed signature cards that stated the accounts were in trust for Maria. She testified that the funds in the accounts belonged to Maria, and she believed everything in the accounts was for Maria. She referred to the funds several times during her testimony as Maria's money. Lupe used the money in the accounts for Maria's needs, and after Maria's death, for the expenses of Maria's funeral and specific bequests set forth in Maria's estate plan. The evidence was clear and convincing that Clive and Lupe agreed the beneficial ownership of the trust accounts belonged to Maria, unlike Totten trusts in which the beneficiary has no present interest during the owner's lifetime.
Although Lupe changed the form of the accounts in June 2012, she did not have any beneficial interest in them. When Maria died, her beneficial interest in the accounts passed to her estate. Maria's will provided for her property, including savings and checking accounts, to be administered under the Family Trust. There is no evidence that Clive intended to give the funds to Lupe or told her that the funds in the account would belong to her after Maria's death. Lupe was not named as a beneficiary of the accounts or Maria's estate plan. Lupe testified that she kept the funds because her name was on the account and it was logical that the funds belonged to her as the only surviving account owner. After Maria's death, however, she paid funeral expenses from the accounts and made distributions in accordance with the provisions of the Family Trust, so there is evidence that she knew Maria's
We conclude Lupe held the funds in the accounts in trust for Maria, and her repudiation of the trust by removing Maria's name from the accounts and using the funds for her own purposes was a wrongful act supporting the imposition of a constructive trust. We do not need to decide whether there was evidence of additional wrongful acts that would support a constructive trust, such as actual fraud in receiving payments intended for Maria, or a simple mistake of law in retaining funds after Maria's death (see generally Decorative Carpets, Inc. v. State Board of Equalization (1962) 58 Cal.2d 252, 254 [23 Cal.Rptr. 589, 373 P.2d 637] [constructive trust imposed on funds collected due to mistake of law]). At this stage of the proceedings, the evidence shows Arthur is entitled to a constructive trust as a matter of law. On remand, however, Lupe will be entitled to present evidence, and the trial court will make a final determination of the issues.
The judgment is reversed and remanded for further proceedings. Appellant Arthur C. Higgins, as executor of the estate of Maria Lopez Higgins and successor trustee of the Higgins Family Trust dated March 11, 1994, is awarded his costs on appeal.
Baker, J., and Kin, J.,
Probate Code section 5301 was amended, effective January 1, 2013, to add provisions governing excess withdrawals. Probate Code section 5301 currently provides: "(a) An account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each, unless there is clear and convincing evidence of a different intent. [¶] (b) If a party makes an excess withdrawal from an account, the other parties to the account shall have an ownership interest in the excess withdrawal in proportion to the net contributions of each to the amount on deposit in the account immediately following the excess withdrawal, unless there is clear and convincing evidence of a contrary agreement between the parties. [¶] (c) Only a living party, or a conservator, guardian, or agent acting on behalf of a living party, shall be permitted to make a claim to recover the living party's ownership interest in an excess withdrawal, pursuant to subdivision (b). A court may, at its discretion, and in the interest of justice, reduce any recovery under this section to reflect funds withdrawn and applied for the benefit of the claiming party. [¶] (d) In the case of a P.O.D. account, the P.O.D. payee has no rights to the sums on deposit during the lifetime of any party, unless there is clear and convincing evidence of a different intent. [¶] (e) In the case of a Totten trust account, the beneficiary has no rights to the sums on deposit during the lifetime of any party, unless there is clear and convincing evidence of a different intent. If there is an irrevocable trust, the account belongs beneficially to the beneficiary. [¶] (f) For purposes of this section, `excess withdrawal' means the amount of a party's withdrawal that exceeds that party's net contribution on deposit in the account immediately preceding the withdrawal."
