Tummelson v. White, a 2015 4th District appellate case, considers the inconvenient topic of what rights a former cohabitant has to funds he contributed to a home after he gets ousted from it by an ex-.
The parties lived together for several years in two different homes and paid mortgage and household expenses from a joint account which each party periodically funded. When the couple broke up and plaintiff was kicked out of the (second) house, he sued to recover damages for equity from the sale of the first home and to recoup mortgage payments and a down payment he made on the second home. The trial court entered judgment for the plaintiff after an evidentiary hearing and assessed a constructive trust on about $17,000 of the equity gained from the sale of the first home. Defendant appealed.
In partially affirming the trial court, the Fourth District examines the nature of the constructive trust remedy, the legal status of joint checking account funds, and whether fiduciary duties apply to live-in partners.
Two essential elements of a constructive trust include (1) an identifiable property to serve as the basis (or “thing”) for the constructive trust, and (2) possession of that property by the person to be deemed the “constructive trustee.”
A constructive trust can generally apply in one of two situations: where there is actual fraud or where a fiduciary abuses his authority over a more vulnerable counterpart. The fiduciary relationship question itself distils to whether there is a fiduciary relationship (1) as a matter of law, or (2) as a matter of fact. A “matter of fact” fiduciary relationship applies where one reposes special trust and confidence in another, who, as a result of the trust and confidence, is able to gain a position of dominance and influence over the weaker party.
Critically, though, the superiority and influence must result specifically from the plaintiff’s trust and confidence placed in the defendant. It isn’t enough to say one party has influence over another in a vacuum.
The Court rejected plaintiff’s argument that defendant stood in a dominant position because the homes were titled in defendant’s name who could kick plaintiff out at any time. The Court found that a licensor’s (here, the defendant) control over a licensee (plaintiff) wasn’t the kind of control required to establish a fiduciary-in-fact relationship. Since there was no evidence that the defendant ever influenced the plaintiff to do anything involving the homes against his will (plaintiff paid the mortgage and household bills voluntarily), there was no abuse of fiduciary relationship.
Still, the Court affirmed the constructive trust finding. While fraud and breach of fiduciary duty are the usual constructive trust grounds, the device also applies to remedy unjust enrichment. That is, even though there is no wrongdoing a court can still impose a constructive trust to avoid unjust enrichment.
Citing secondary authority (American Law Institute and Restatement (Third) of Restitution), the Court noted that an established basis for unjust enrichment is where one party to a relationship resembling marriage makes tangible uncompensated contributions in the form of property or services and the other party enjoys the benefits of those contributions. In such a case, the person making the contributions has a restitution claim for the value of the property or services if and when the relationship fails.
The court disagreed that the plaintiff’s mortgage and home expense payments from the couple’s joint account were ‘contributions’ that could support an unjust enrichment finding. This is because under the law money deposited to a joint account is presumed a gift from one account “tenant” to the other.
Once plaintiff deposited funds into the joint account from which the mortgages were paid, those funds were no longer “plaintiff’s money.” Instead, the money deposited into the account became a gift to the defendant – the other account holder. As a result, no constructive trust could attach to plaintiff’s mortgage payments on the two homes.
The Court did agree with the trial court that the plaintiff should be able to recoup some of the money he put into the homes. It attached a constructive trust on the plaintiff’s $7,000 down payment towards the second home’s purchase price.
This case provides a useful summary of the factors involved in assessing fiduciary relationships and the constructive trust remedy. This court squarely held that actual wrongdoing is not required and all that’s necessary is unjust enrichment for a court to impose a constructive trust. Another key lesson is that deposits to a joint bank account are deemed gifts from one party to the other and that household expenses paid out of a joint account likely won’t be deemed a recoverable contribution by only one of the joint account holders.