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Bankruptcy | Case Law | Trusts
TRUSTS
In re Cutter, 398 B.R. 6, 19-20 (9th Cir. BAP 2008)
1. Property which the debtor transferred to a self-settled trust became property of the estate.
“While California law recognizes the validity of spendthrift trusts, any spendthrift provisions are
invalid when the settlor is a beneficiary.” 2. “If. . .the trust agreement allows the debtor-beneficiary to exercise control over and reach trust property contributed by others, the estate is entitled to the maximum amount that the trust could pay or distribute to the debtor-beneficiary. In re Commercial Money Centers, Inc., 392 B.R. 814, 830f (9th Cir. BAP 2008) Debtor did not hold equipment lease payments in a constructive trust. In re Sale Guaranty Corporation, 220 B.R. 660 (9th Cir. B.A.P. 1998), aff’d, 199 F.3d 1375 (9th Cir. 2000) Trustee of tax-deferred sale “accommodator” could not avoid resulting trust in favor of property owners who retained obvious ownership of property pending sale. Elements of express trust discussed. In re Coupon Clearing Services, Inc., 113 F.3d 1091 (9th Cir. 1997) Creditor’s failure to establish agency or trust relationship with debtor supports summary judgment for another creditor with perfected security interest In re Ehrle, 189 B.R. 771 (9th Cir. 1995) Kraus v. Willow Park Public Golf Course, 73 Cal. App.3d 354, 140 Cal. Rptr. 744(Cal. App. 1977) In California, to impose a constructive trust, there must exist s res, the plaintiff must have right so the res, and the defendant must have gained the res by “fraud, accident, mistake, undue influence, violation of the trust or other wrongful act.” In re Advent Mgmt. Corp., 178 B.R. 480 (9th Cir. B.A.P. 1995), aff’d 104 F.3d 293 (9th Cir. 1997) Complete review of constructive trust law in California In re Markair, Inc., 172 B.R. 638 (9th Cir. B.A.P. 1994) Unsecured creditor who fixed debtor’s engine not entitled to receive insurance proceeds in connection with engine damage as constructive trust without showing entitlement ahead of other creditors Inchoate right to constructive trust is comparable to an unperfected security interest Under normal principle of trust, if a trustee transfers trust property to a third party, the third party holds that property free of trust unless the trustee committed a BREACH of trust in conveying the property. Restatement (Second) of Trusts §283 (1959); IV Austin W. Scott & William F. Fratcher, The Law of Trusts §283 (4th ed. 1989). Thus, absent a BREACH of trust, when a trustee enters into a contract with a third party, any trust funds transferred to that third party in consideration of the contract are transferred free of trust unless the contract provides that the transferred funds shall be held in trust. In re Goldberg, 168 B.R. 382 (9th Cir. B.A.P. 1994) Constructive trust imposed on property (cash used to buy home) that mistakenly came into debtor’s hands. Need only show wrongful acquisition and unjust enrichment, not fraud. Strict tracing of assets not required where no creditor will be harmed. In re Golden Triangle Capital, Inc., 171 B.R. 79 (9th Cir. B.A.P. 1994) In re Unicom Computer Corp., 13 F.3d 321 (9th Cir. 1994) California law provides for the imposition of a constructive trust in a situation involving simple negligence on the part of a debtor who wrongfully detains another’s property. See Cal. Civ. Code §§2223, 2224; Toys “R” Us, Inc., v. Esgro,Inc. (In re Esgro, Inc.), 645 F.2d 794, 797 (9th Cir. 1981); GHK Assoc.. v. Mayer Group, Inc., 224 Cal. App. 3d 856, 878, 274 Cal Rptr, 168, 182 (1990); 11 B.E. Witkin, Summary of California Law: Trusts §§305(2), 306(2) (9th Cir. ed. 1990). CHoPP Computer Corp. v. U.S., 5 F.3d 1344 (9th Cir. 1993), cert. denied, 513 U.S. 811 (1994) Imposition of a constructive trust upon a wrongful taking does not automatically award equitable title to the party nor does it defeat a third party judgment lienholder’s prior rights in the property. In re Jordan, 914 F.2d 197 (9th Cir. 1990) Reversing the Bankruptcy Appellate Panel judgment affirming the bankruptcy court, the court of appeals held that a trust containing restrictions against the reach of creditors created to compensate a debtor for the release of a personal injury claim, was not a spendthrift trust excludable from the bankrupt’s estate. In re Foam Systems, 92 B.R. 406 (9th Cir. B.A.P. 1988), aff’d, 893 F.2d 1338 (9th Cir. 1990) See also In re Golden Triangle Capital, Inc., 171 B.R. 79 (9th Cir. B.A.P. 1994) Definition statute of frauds express and resulting trusts under California law. In re Teichman, 774 F.2d 1395, 1399 (9th Cir. 1985) Under California law, the elements of trust include “a competent trustor, an intention on the part of the trustor to create a trust, a trustee, an estate conveyed to the trustee, and acceptance of the trust the by trustee, a beneficiary, a legal purpose and a legal term.”