Elliott v. Elliott

• Decision Date: 14 December 1964
• Citation: 41 Cal.Rptr. 686,231 Cal.App.2d 205
• Court: California Court of Appeals Court of Appeals
• Parties: Gwen ELLIOTT, Plaintiff and Respondent, v. Victor W. ELLIOTT, Defendant and Appellant. Civ. 7302.

Page 686

41 Cal.Rptr. 686

231 Cal.App.2d 205

Gwen ELLIOTT, Plaintiff and Respondent, v. Victor W. ELLIOTT, Defendant and Appellant.

Civ. 7302.

District Court of Appeal, Fourth District, California.

Dec. 14, 1964.

Bergmann, Lightner, Beyer, Pulley & Williams and Loyal C. Pulley, Long Beach, for defendant and appellant.

Simpson & Daley and Edward M. Daley, Long Beach, for plaintiff and respondent.

STONE, Justice.

This action is the outgrowth of a prior divorce action between defendant and his former wife, the plaintiff, wherein defendant contended that a promissory note was his separate property, but which the court found to be community property. The note was executed by defendant's brother-in-law (his sister's husband) as maker, payable to defendant alone, and dated January 4, 1954. The divorce action was commenced in 1956. The interlocutory decree, which awarded plaintiff a one-half interest in the note, was entered May 15, 1957. Defendant appealed, and the judgment was affirmed by the District Court of Appeal; a hearing was denied by the Supreme Court.

The remititur was filed September 24, 1958, but in the meantime, on January 5, 1958, while the appeal was pending, the statute of limitations ran on the promissory note. The present action against defendant, for a judgment equal to one-half of the principal and interest due under the terms of the note, was filed September 25, 1959.

At the trial the husband testified that he was under the impression the statute of limitations did not commence to run on a demand note until demand for payment is made, that after his wife made demand upon him to collect the note he consulted his attorney, who told him the statute of limitations had run and it would be a waste of money to file an action to collect the note. He also testified that the maker contended the note was given as a consideration for the purchase of an interest in several businesses and it was to be paid only if the profits of the businesses were sufficient to satisfy the indebtedness.

The court found that defendant held the note as a constructive trustee for plaintiff, his divorced wife, and awarded her a judgment for one-half the principal of the promissory note with accrued interest.

Defendant has centered his appeal upon an analysis of the language of Civil Code sections 2223 and 2224, the basic statutes pertaining to constructive trusts. We quote the sections in full before discussing defendant's dissection of their terminology:

'One who wrongfully detains a thing is an involuntary trustee thereof, for the benefit of the owner.' (Civ.Code § 2223.)

'One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act, is, unless he 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.' (Civ.Code § 2224.)

Defendant first points out that both sections require a 'wrongful' possession of detention of a thing. He asserts that he regarded the promissory note as his separate property, that his possession of the note was rightful in the first instance, and that his retention of it could not be considered wrongful until his appeal from the divorce decree was finally determined.

We cannot agree with defendant as to the point in the proceedings when his refusal to recognize plaintiff's interest in the note became wrongful. Once the interlocutory decree of divorce was entered, the wife's undivided one-half interest in the note was legally established. By appealing from the decree, defendant automatically invoked Code of Civil Procedure section 949, which stayed proceedings in the trial court. This held in abeyance the wife's right to claim her one-half interest in the promissory note until determination of the appeal. Defendant thus effectively prevented plaintiff from enforcing payment until after the statute of limitations had run. Within the rationale of Civil Code sections 2223 and 2224 this constituted a wrongful detention of plaintiff's property. In short, defendant, by exercising exclusive control over the note during his appeal, became a constructive trustee, which position carried with it the duty of preserving the property.

Next, it is asserted that sections 2223 and 2224 contemplate a res which the constructive trustee holds in trust for the constructive beneficiary, since both sections refer to one who detains or gains 'a thing.' Defendant tells us no res is involved here, simply an indebtedness which became unenforceable by reason of the statute of limitations. It should hardly be necessary to point out that the note which evidenced the indebtedness satisfies any technical requirement that there be 'a thing' or a res, in the sense that a res is a necessary integrant of the concept 'constructive trust.' Neither is it material that the judgment is for the value of one-half of the debt evidenced by the promissory note, rather than a judgment for a specific res. The constructive trust doctrine is a remedial device which would lose its efficacy if a trustee were permitted to defeat recovery by wrongfully permitting the res to become valueless, as here. The courts have recognized the right of a beneficiary under a constructive trust, to obtain a money judgment in lieu of a destroyed res (Corey v. Struve, 170 Cal. 170, 174, 149 P. 48), and to recover the value of trust property commingled by a constructive trustee with his own properties, so that the identity thereof could no longer be traced. (Noble v. Noble, 198 Cal. 129, 132, 243 P. 439, 43 A.L.R. 1235. See also Johnson v. Clark, 7 Cal.2d 529, 535, 536, 61 P.2d 767.)

The question of res, qua res, causes us no difficulty, but defendant's corollary argument that California law requires proof that a constructive trustee received a benefit rightfully belonging to a constructive beneficiary, a benefit which he should, in good conscience, return, raises a more profound question. Defendant points out that both sections 2223 and 2224 employ the language, 'one who gains a thing,' and argues that the sense of the word 'gain' as thus used is to acquire a tangible benefit or an unconscionable advantage. But, asserts defendant, the statute of limitations ran against his one-half interest in the promissory note, as well as plaintiff's one-half interest. It would appear on the face of it that defendant also suffered a loss but, as well shal point out later, the difficulty in proving whether defendant really suffered a loss is a persuasive reason for applying the constructive trust doctrine.

Assuming, arguendo, that defendant gained nothing tangible, we do not believe that fact is determinative. Defendant tells us that every California case imposing a constructive trust has been based upon some tangible benefit or advantage acquired by the constructive trustee. We find no case in which the question of tangible benefit has been directly adjudicated but, accepting defendant's analysis of the cases as correct, it need not preclude the application of the doctrine of constructive trust to circumstances different from those of any case heretofore litigated.

We do not deem a tangible benefit to the constructive trustee a sine qua non of a constructive trust. The Restatement of Restitution does not take such a restricted view of the doctrine, as shown by the following language appearing in the opening sentence of the introduction:

'The Restatement of this Subject deals with situations in which one person is accountable to another on the ground that otherwise he would injustly benefit or the other would unjustly suffer loss.' (Rest., Restitution, p. 1.) (Emphasis added.)

Defendant's benefit here may well have been the intangible satisfaction of preventing his wife from collecting anything on a note which he contended in the divorce action was his separate property.

But quite aside from the question of a benefit to the trustee, whether tangible or intangible, it seems logical and reasonable that a constructive trustee should account for a loss he...