Opinion ID: 2048394
Heading Depth: 1
Heading Rank: 4

Heading: Tracing Trust Proceeds into Joint Tenancy Property.

Text: Defendants contend that Helen Waudby's joint tenancy interest in the property prevents judicial sale of the premises, referring to the general rule that property held in joint tenancy is not subject to execution and sale for the debt of one joint owner. The ability of beneficiaries to trace the proceeds of trust property may be cut off by the superior rights of innocent third parties. State v. Hawkeye Oil Co., 253 Iowa 148, 158, 110 N.W.2d 641, 647 (1961); Bogle v. Goldsworthy, 202 Iowa 764, 771, 211 N.W. 257, 260 (1926). Equity will not impress a constructive trust upon property that has passed into the hands of a good faith purchaser for value who takes the property without notice of the trust. Harris v. Warner, 199 Iowa 1000, 1003-04, 203 N.W. 279, 281 (1925); Restatement of Restitution § 172 (1937). However, [w]here property is held by one person upon a constructive trust for another, and the former transfers the property to a third person who is not a bona fide purchaser, the interest of the beneficiary is not cut off, and the defrauded person can maintain a suit in equity for specific restitution against the third person. Restatement of Restitution § 168. The spouse of a person who acquires property with stolen or misappropriated funds does not occupy the position of a bona fide purchaser, and the spouse's interest cannot cut off the interests of beneficiaries unless he or she gives consideration for his or her acquisition of title to the property. E.g., Bellinger v. Collins, 117 Iowa 173, 176, 90 N.W. 609, 610 (1902); Kaiser v. Waggoner, 59 Iowa 40, 41, 12 N.W. 754, 754 (1882). A constructive trust is imposed not because of the intention of the parties but because the person holding title to the property would profit by a wrong or would be unjustly enriched if he or she were permitted to keep the property. Restatement of Restitution § 160 comment b (1936). As a person who acquired title to the property without paying value, Helen Waudby is not a bona fide purchaser but a gratuitous transferee. A constructive trust or equitable lien can be imposed on the product of wrongfully obtained property in the hands of a gratuitous transferee. Restatement of Restitution § 161 comment d, § 168 (1937). We find the district court correctly determined that plaintiffs are entitled to a constructive trust and an equitable lien on defendants' homestead property to the extent of the $33,331.32 invested in that property which was obtained by borrowing against the plaintiffs' farm. The district court was also correct in authorizing levy and sale of the property to enforce that obligation. We affirm the order of the district court. AFFIRMED.