Court Opinion

ID: 9791691
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:16:04.488731+00
Date Added: 2024-06-11T07:37:38.021668
License: Public Domain

TOBRINER, J.
I concur in the conclusion of Justice Mosk that when the Waughs acquired legal title they held this title subject to a trust in favor of the Majewskys, and therefore defendant judgment creditors’ liens did not attach to the realty. I would prefer to rest this conclusion, however, upon a theory of constructive trust.
All three opinions begin with the premise that if, during that scintilla of time when the. Waughs held legal title to the property in question, the Majewskys owned equitable title, then the liens of the Waughs’ judgment creditors cannot attach. As stated in Wheeler v. Trefftzs (1964) 228 Cal.App.2d 271, 274 [39 Cal.Rptr. 507]: “It is the law in California that the lien of a judgment does not attach to a naked title, but only to the judgment debtor’s interest in the real estate, and if he has no interest, through possessing the naked title, then no lien attaches and a court of equity will permit the real owner to show that the apparent ownership of another is not real. . . . [Wjhere a creditor acts by judicial process to attach the property of his debtor to satisfy the debt, he acquires only the interest which the debtor actually possesses.”1 A judgment creditor does not have the status of a bona fide purchaser; he is treated as a purchaser with notice, and is subject to any latent equities which may be asserted against the debtor.2
A constructive trust is a remedy to redress unjust enrichment (Rest., Restitution, § 160) caused by fraud, accident, mistake, undue influence, viola*490tion of trust, or other wrongful act. (Civ. Code, § 2224.) The majority opinion recognizes that a person wrongfully using another’s money to acquire property could be found a constructive trustee of the property to prevent unjust enrichment {ante, p. 486). The opinion, however, finds no wrongful act by the Waughs and no unjust enrichment. It concludes that the use of one escrow and the shortcut of financing both sales with the Majewskys’ money is the doing of the title company, and “we cannot impute fraud or wrongdoing to the Waughs, or conclude that they were unjustly enriched, merely because the title company employed such adjustments without requiring the Waughs to deposit cash of their own for their purchase of the property.” {Ante, p. 486.)
We do not need to impute wrongdoing to the Waughs; it is clear on the record. The Waughs submitted into escrow a grant deed. Such a deed warrants, as a matter of law, that the grantor’s estate is “free from encumbrances done, made, or suffered by the grantor . . .” (Civ. Code, § 1113). “Encumbrances” includes “all liens upon real property.” (Civ. Code, § 1114.) The Waughs could not and did not perform this warranty, and presently stand in breach.
The Waughs did not reveal to the Majewskys or to the title company that seven abstracts of judgment had been recorded against them. This concealed information was material, and both reliance3 and injury are clear. If the Waughs knew, or should have known, of the recorded abstracts of judgment their failure to disclose this fact is fraud (see Civ. Code, § 1710, subd. (3); Border v. McClung (1949) 93 Cal.App.2d 692 [209 P.2d 808]); if the Waughs did not know of the abstracts, the transaction is tainted by mutual mistake respecting the title conveyed by the Waughs. For purposes of this case the distinctions between fraud and mistake are immaterial, for both are grounds for imposition of a constructive trust. (Civ. Code, § 2224.)
The unjust enrichment of the Waughs is also clear from the record. The Waughs received $1,500 cash profit on the sale, and, if a constructive trust is not imposed, property worth at least $12,500 will be applied to pay the Waughs’ creditors and thus to reduce their outstanding debts. In return for all this the Waughs will have conveyed land so encumbered with liens that the interest conveyed is valueless.
*491Before the title company could disburse the $12,500 deposited by the Majewskys, it had to receive a deed from the Waughs to the Majewskys. (See Kelly v. Steinberg (1957) 148 Cal.App.2d 211 [306 P.2d 955].) By depositing into escrow a deed whose warranties of title would not be performed, and by not disclosing the existence of the judgment liens, the Waughs led the title company into the mistaken belief that this condition had been complied with, and thus brought about the wrongful appropriation of the Majewsky funds. Moreover, in disbursing these funds, $1,500 to the Waughs and $11,000 to perform the Waughs’ agreement with the Cuslidges, the title company was following the escrow instructions of the Waughs. Thus, whether we speak of direct liability or imputed liability, the Waughs wrongfully caused the monies deposited by Majewsky to be disbursed to the Waughs or applied for their benefit. Once misappropriated, the monies deposited are impressed with a constructive trust.
A portion of this trust fund was paid to the Cuslidges in consideration for title to the land in question; consequently, that land too is held in constructive trust and the Majewskys, as beneficiaries of the trust, have priority over other creditors of the Waughs. (4 Witkin, Summary of Cal. Law (1960), pp. 2941-2942; see Rest.2d, Trust, § 202; Rest., Restitution, § 202; Noble v. Noble (1926) 198 Cal. 129 [243 P. 439, 43 A.L.R. 1235].)4
The fact that only one escrow was used greatly facilitates our ability to trace the misappropriated monies into the property, and the majority opinion stresses that the decision to use a single escrow was made by the title company and not by the Waughs. I doubt that the use of a single escrow, in which the Waughs need not put up any money, was mere happenstance; $50,000 in unsatisfied judgments was outstanding against the Waughs, and one wonders whether they could have raised the $11,000 cash required to fulfill their agreement with the Cuslidges. In any event, the unjust enrichment is plain, and, thanks to the fact that a single escrow was used, the remedy of constructive trust is available to redress the wrong. The possibility that, if a double escrow had been used we would find it *492more difficult to utilize a constructive trust theory should not give us pause;5 we have the means to redress injustice on the facts of this case, and should not hesitate because in another and different case it would be more difficult to achieve this end.
Appellants’ petition for a rehearing was denied May 20, 1970. Tobriner, J., and Mosk, J., were of the opinion that the petition should be granted.

 Accord: Kinnison v. Guaranty Liquidating Corp. (1941) 18 Cal.2d 256, 263 [115 P.2d 450]; Schriber v. Alameda etc. Title Ins. Co. (1958) 156 Cal.App.2d 700, 707 [320 P.2d 82],

 McGee v. Allen (1936) 7 Cal.2d 468, 473 [60 P.2d 1026]; Kinnison v. Guaranty Liquidating Corp., supra, 18 Cal.2d 256; Wheeler v. Trefftzs, supra, 228 Cal.App.2d 271, 274.

 The recorded abstracts of judgment are public records. The victim of fraudulent misrepresentations as to title, however, is not denied relief under a theory of constructive notice of public records; recovery is barred only if reliance on the representation was not justifiable. (Seegerv. Odell (1941) 18 Cal.2d 409, 415 [115 P.2d 977, 136 A.L.R. 1291]; Conlqn v. Sullivan (1895) 110 Cal. 624 [42 P. 1081]; Barder v. McClung (1949) 93 Cal.App.2d 692, 697 [209 P.2d 808].) The Majewskys did not, and could not reasonably be expected to, research title themselves.

 It has been suggested that the argument for a constructive trust in this case rests on circular reasoning; that the assumption that the judgment liens would attach to the property is what gives rise to a duty to disclose those liens, but the imposition of a constructive trust prevents the liens from attaching and thus contradicts that assumption. This sort of pseudo-circularity is inherent in the constructive trust remedy, and in any remedy which attempts to cure a wrong by placing the parties in the position they would have occupied had the wrong not occurred. Take the simplest case for a constructive trust: defendant acquires plaintiff’s property by fraud. To impose a constructive trust, we assume that defendant got title to plaintiff’s property, but the imposition of a constructive trust restores title to plaintiff ab initio. The appearance of circularity of reasoning simply shows that the remedy has worked to obliterate the effect of the fraud or mistake.

 In such a case the injured party might still obtain redress by an action in negligence against the escrow holder. (See Spaziani v. Millar (1963) 215 Cal.App.2d 667, 682-683 [30 Cal.Rptr. 658].)