Lucas v. Abbott, C-1789

• Decision Date: 29 October 1979
• Docket Number: No. C-1789,C-1789
• Parties: Duane L. LUCAS, Petitioner, v. J. Dudley ABBOTT, Jr., and Sandstone 70 Corporation, a Colorado Corporation, Respondents.
• Court: Colorado Supreme Court

Page 1376

601 P.2d 1376

198 Colo. 477

Duane L. LUCAS, Petitioner, v. J. Dudley ABBOTT, Jr., and Sandstone 70 Corporation, a Colorado Corporation, Respondents.

No. C-1789.

Supreme Court of Colorado, En Banc.

Oct. 29, 1979.

Grant, McHendrie, Haines & Crouse, P. C., David A. Bottger, Donald B. Gentry, Denver, for petitioner.

Almon & Barsotti, David Barsotti, Denver, for respondents.

ROVIRA, Justice.

We granted certiorari to review a decision of the Colorado Court of Appeals, which reversed the district court. Abbott v. Lucas, Colo.App. (1978). The trial court granted the defendant's motion for summary judgment on the basis that the statute of limitations began to run at the inception of a constructive trust; I. e., with the constructive trustee's receipt of the trust Res on June 29, 1970.

The court of appeals held that the period of limitations did not commence until the claimant under the constructive trust acquired, or should have acquired, knowledge of the trust. We affirm the court of appeals and remand for further proceedings.

International Investments, Ltd. (International), owned real property which had been purchased with funds borrowed from Duane Lucas (Lucas), who was a director, officer, and shareholder of International. On March 5, 1970, International agreed to convey that property to Lucas in consideration of the cancellation of its debt to him.

On June 22, 1970, International executed a joint venture agreement with J. Dudley Abbott, Jr., and Sandstone 70 Corporation (Abbott). The joint venture was formed for the purpose of development by International of realty owned by Abbott. Under the terms of the agreement, International agreed to pay Abbott one half of the value of his land which was to be developed and to assume one half of the future joint venture expenses. A balance sheet prepared by International for the joint venture specified that International owned the real property (Lucas), that the land was worth $450,000 and that International owed Lucas $137,500.

On June 29, 1970, International executed a deed transferring the real property to Lucas as provided by the March 5 agreement, and the deed was recorded on June 30, 1970. This conveyance reduced the stated net worth of International from $275,000 in the black to $36,000 in the red. Neither the transfer nor its effect on International's net worth was revealed to Abbott.

International failed to perform its duties under the joint venture and was asked to withdraw therefrom in December 1970. On March 10, 1971, International conveyed to Abbott its half interest in the development property and executed a note in the amount of $18,000 to Abbott to settle accounts. It defaulted on the note in December 1971. Abbott sued on the note and obtained a judgment on October 19, 1972.

On April 28, 1976, Abbott attempted to execute the judgment; the execution was returned unsatisfied. On May 6, 1976, Abbott instituted another action seeking to impose a constructive trust on the property conveyed by International to Lucas. Lucas moved for summary judgment on the basis that the action was barred by the statute of limitations for fraud, section 13-80-109, C.R.S.1973, ¹ and by the statute of limitations for trusts, section 13-80-114, C.R.S.1973, which states:

"Bills of relief, in case of the existence of a trust not cognizable by the courts of common law and in all other cases not provided for in this article shall be filed within five years after the cause thereof accrues, and not thereafter."

This statute plainly provides that the period of limitations for actions on trusts commences with the accrual of the plaintiff's cause of action. Patterson v. Fort Lyon Canal Company, 36 Colo. 175, 84 P. 807 (1906). The issue presented for our determination is: When did Abbott's cause of action accrue under the facts of this case?

An action on any trust accrues at such time as the claimant attains, or reasonably could have attained, notice of the trustee's use of the trust property in a manner which is inconsistent with the claimant's interest. Section 13-80-114, C.R.S.1973; Vandeweile v. Vandeweile, 110 Colo. 556, 136 P.2d 523 (1943); Harding v. Burris, 52 Colo. 132, 119 P. 1063 (1911). In this respect, there is no distinction between express, resulting, and constructive trusts. Vandeweile, supra.

However, there are differences in the times at which claimants under the three types of trusts are held to have actual or constructive notice of the trustee's inconsistent use of the trust Res, and at which their causes of action under the trusts are held to accrue for purposes of the statute of limitations.

The trustee of an express or resulting trust has title to the trust Res in accordance with the terms of the trust, and the point at which the claimant has notice that the trustee has repudiated the trust and is no longer using the Res for the benefit of the claimant can be determined only on a full review of the facts of the case.

The trustee of a constructive trust, however, acquires title to the Res in a manner which is inconsistent Ab initio with the equitable interests of the claimant under the trust. The trustee holds title to the property in his own right and in hostility to all others. The fact situations from which constructive trusts arise vary widely and are often quite complex. The rule which emerges from the cases is that the claimant's cause of action to establish a constructive trust accrues, for purposes of the statute of limitations, when the claimant is aware, or reasonably should be aware, of facts which would make a reasonable person suspicious of the wrongdoing asserted as the basis of the trust. Harding v. Burris, supra; Cliff v. Cliff, 23 Colo.App. 183, 128 P. 860 (1912). See also G. Bogert, Trusts and Trustees § 953 (2d ed. 1962); Silver v. Silver, 421 Pa. 533, 219 A.2d 659 (1966); Dabney v. Philleo, 38 Cal.2d 60, 237 P.2d 648 (1951).

One of the factors to be considered in determining the point at which such reasonable suspicions arise is the existence Vel non of a fiduciary relationship between the constructive trustee and the claimant under the constructive trust. In the context of such a relationship, "facts which would ordinarily require investigation may not excite suspicion, and the same degree of diligence is not required." Hobart v. Hobart Estate Co., 26 Cal.2d 412, 440, 159 P.2d 958, 973 (1945); Davis v. Kahn, 7 Cal.App.3d 868, 86 Cal.Rptr. 872 (1970). Justified reliance on representations made within the ambit of such a fiduciary relationship...