Opinion
No. 25698-7-III.
November 20, 2007.
Appeal from a judgment of the Superior Court for Lincoln County, No. 05-2-00151-9, Philip W. Borst, J., entered November 14, 2006.
Affirmed by unpublished opinion per Kulik, J., concurred in by Brown and Stephens, JJ.
A constructive trust arises when a person who holds title to property has an equitable duty to convey it to another because retention of the property would result in unjust enrichment. Proctor v. Forsythe, 4 Wn. App. 238, 242, 480 P.2d 511 (1971). Constructive trusts are independent of the intentions of the parties "and are forced upon the conscience of the trustee for the purpose of working out right and justice or frustrating fraud." Id. (citing Carkonen v. Alberts, 196 Wash. 575, 83 P.2d 899 (1938)).
Craig and Nancy Smith, husband and wife, owned an undivided one-third interest in a truck scale located in Odessa. The other two owners of one-third interests were Ritzville Warehouse, Inc. and Odessa Union Warehouse. When the Department of Transportation (DOT) forced removal of the truck scale for a highway realignment, the DOT paid Ritzville Warehouse and Odessa Union enough to build two replacement truck scales, one on each side of the new highway. The DOT paid nothing to the Smiths, who subsequently demanded a one-third share of the sums paid to Ritzville Warehouse and Odessa Union. When Ritzville Warehouse refused payment, the Smiths successfully sued in equity for recovery under a constructive or resulting trust.
Ritzville Warehouse appeals, contending the Smiths' one-third interest in the old truck scale did not support a one-third share of the two replacement truck scales. We conclude that the trial court properly applied the principles of a constructive trust to prevent the unjust enrichment of Ritzville Warehouse at the expense of the Smiths. Accordingly, we affirm.
Facts
Odessa Union originally purchased and installed the truck scale on its real property to weigh truckloads of grain and vegetables. In the early 1990s, Ritzville Warehouse's predecessor in interest, Odessa Trading Company, paid Odessa Union one-half of the total cost for extension of the scale over its adjacent property. The Smiths, doing business as Odessa Farming Service, Inc., frequently used the truck scale while operating their potato storage facility east of Odessa. Consequently, they paid Odessa Trading and Odessa Union $6,500 each in August 1996 for a one-third interest in the scale. It is undisputed that the Smiths owned an undivided one-third interest in the original truck scale.
Kramer Place, LLC, wholly owned by the Smiths, is the successor in interest to Odessa Farming Service, Inc. Kramer has assigned its interests to the Smiths in this action.
In the early 2000s, State Route 21 through Odessa was realigned. The new highway bisected the site of the truck scale along the property line between the lots owned by Odessa Union and Ritzville Warehouse. During the highway realignment project, the manager of Odessa Union asked the Smiths if they wanted to sell their interest in the scale. They replied that they were not interested in selling, but would take whatever the other interest holders decided to take. Aware that a single truck scale on one side of the new highway would be inconvenient for the property owner on the other side of the highway, the DOT offered to pay for two new truck scales, one on each side of the highway. Ritzville Warehouse and Odessa Union were the registered owners of the properties containing the original truck scale. For this reason, the DOT assumed they were the sole owners of the scale. When asked if any others had a written interest in the scale, Ritzville Warehouse and Odessa Union replied that there were no others.
The DOT paid Odessa Union and Ritzville Warehouse $45,760 each for scale replacement in 2003. When the Smiths learned of the settlement in February 2005, they demanded one-third of this amount — approximately $15,253 each — from Odessa Union and Ritzville Warehouse. Odessa Union settled by paying the Smiths $13,000, representing $15,253 minus property taxes and maintenance expenses paid by Odessa Union. Ritzville Warehouse refused to pay the Smiths anything, and they filed suit in September 2005 for $15,253 plus interest, an amount they claimed was held by Ritzville Warehouse as a constructive trust or a resulting trust. In Ritzville Warehouse's answer, it argued that the sum paid by Odessa Union fully compensated the Smiths for their original investment of $13,000.
Mr. Smith worked as a professional pilot in Florida part of the year in 2003 and 2004, which helps explain why the Smiths did not learn of the settlement with the DOT earlier.
After a bench trial in October 2006, the Lincoln County Superior Court ruled in favor of the Smiths. The court concluded that the Smiths, Odessa Union, and Ritzville Warehouse owned undivided one-third interests as tenants in common of the original scale under an oral agreement. Accordingly, the Smiths were entitled to one-third of the proceeds paid to Odessa Union and Ritzville Warehouse for replacing the scale. In its findings of fact and conclusions of law, the court concluded that Ritzville Warehouse would be unjustly enriched at the expense of the Smiths if it retained the entire $45,760 replacement value and the entire $4,000 paid by the DOT to offset the sales taxes and building permit for the replacement scale. The court also concluded that the DOT intended to compensate everyone who had an interest in the original truck scale. Consequently, the court decided that one-third of the scale-related proceeds paid to Ritzville Warehouse should be held in a resulting or a constructive trust for the benefit of the Smiths. Ritzville Warehouse timely appealed to this court.
Equitable Trusts
Resulting and constructive trusts are equitable in nature. Stocker v. Stocker, 74 Wn. App. 1, 6, 871 P.2d 1095 (1994). Both forms of trust arise by implication of law and generally require clear, cogent, and convincing evidence of the basis for imposing the trust. Consulting Overseas Mgmt., Ltd. v. Shtikel, 105 Wn. App. 80, 87, 18 P.3d 1144 (2001); Stocker, 74 Wn. App. at 6. Evidence is clear, cogent, and convincing if it shows that the ultimate fact in issue is highly probable. In re Estate of Watlack, 88 Wn. App. 603, 610, 945 P.2d 1154 (1997). Ritzville Warehouse contends the trial court erred in imposing both a resulting trust and a constructive trust for the benefit of the Smiths. Because Ritzville Warehouse does not assign error to any of the trial court's findings of fact, this court's review is limited to whether those findings support the conclusions of law. Watlack, 88 Wn. App. at 609.
A resulting trust arises when a person disposes of property in a manner that shows that the person did not intend the grantee to have the beneficial interest in the property. Thor v. McDearmid, 63 Wn. App. 193, 205, 817 P.2d 1380 (1991) (quoting Engel v. Breske, 37 Wn. App. 526, 528, 681 P.2d 263 (1984)). The crucial element in a resulting trust is the intent of the grantor to transfer the property without the beneficial interest. Thor, 63 Wn. App. at 205.
The trial court concluded that the DOT paid Odessa Union and Ritzville Warehouse with the intent to compensate everyone who held an interest in the original scale. On the basis of that conclusion, the court ruled that one-third of the amount paid to Ritzville Warehouse should be held in a resulting trust for the benefit of the Smiths. Although the DOT's intent to compensate all interests is relevant to the disposition of this case, it does not support imposition of a resulting trust. The DOT paid Odessa Union and Ritzville Warehouse for replacement scales without knowledge that the Smiths also had an interest in the scale that was replaced. Without knowing that there was another interest, the DOT could not have intended to give Ritzville Warehouse funds as trustee for the Smiths' share. The DOT's intent to compensate all owners who had an interest in the truck scale does not translate to an intent to transfer title without beneficial interest. Id.
A constructive trust, on the other hand, does not require evidence of intent; in fact, it arises independently of, and often directly contrary to, the intention of the parties. Shtikel, 105 Wn. App. at 87; Proctor, 4 Wn. App. at 242. Basically, a constructive trust is imposed when a person holding property has an equitable duty to convey it to another. Proctor, 4 Wn. App. at 242. "[T]he primary purpose of a constructive trust is to prevent unjust enrichment." Shtikel, 105 Wn. App. at 87. Unjust enrichment occurs when a person retains money, property, or benefits that in justice and equity belong to another. Bailie Commc'ns, Ltd. v. Trend Bus. Sys., Inc., 61 Wn. App. 151, 160, 810 P.2d 12 (1991). Although constructive trusts often arise in cases of fraud, misrepresentation, or bad faith, they may also arise simply when retention of the property would unjustly enrich the person retaining it. Shtikel, 105 Wn. App. at 86-87.
The trial court concluded that the DOT's payments to Odessa Union and Ritzville Warehouse were intended as compensation for all interests in the original truck scale. This conclusion is supported by the undisputed findings. Before settling, the DOT asked Odessa Union and Ritzville Warehouse if there were any other owners of record, and they assured the DOT agent that there were no others. The Smiths specifically rejected an offer to sell their interest to Odessa Union, and stated that they would abide by the settlement reached with the DOT. Accordingly, they retained their one-third interest in the total compensation for the scale. That the total compensation was mistakenly apportioned by the DOT to the two known interests does not change the fact that the DOT thought it was satisfying all interests in the original scale.
Ritzville Warehouse, which owned only an undivided one-third interest in the original scale, received one-half of the compensation for the scale. In fact, Ritzville Warehouse received an amount intended to purchase and install an entire scale on Ritzville Warehouse's separate property. The Smiths received nothing. Accordingly, the findings support the trial court's conclusion that Ritzville Warehouse would be unjustly enriched at the expense of the Smiths if it retains that entire amount.
Ritzville Warehouse also argues that it merely sold its undivided one-third interest to the DOT, and that the Smiths are not entitled to a share of this separate interest. Each cotenant in a tenancy in common has the right to possess and enjoy the whole property. In re Foreclosure of Liens, 130 Wn.2d 142, 148, 922 P.2d 73 (1996). But each cotenant owns a separate estate and may sell, lease, or otherwise dispose of his or her interest without the consent of the other cotenants and without their joining in the conveyance. Id. One cotenant may not, however, affect the other cotenants' interests in the common property without authorization or ratification. Id. at 149. When the cotenants agree to a sale of the property as a whole, one cotenant may not reap a secret profit. Douglas v. Jepson, 88 Wn. App. 342, 349, 945 P.2d 244 (1997) (citing Briggle v. Cox, 72 Wash. 574, 578-79, 131 P. 209 (1913)).
All of the cotenants in the original truck scale agreed to seek compensation for the scale from the DOT. Odessa Union and Ritzville Warehouse received payment for the entire original scale without accounting for the Smiths' one-third interest in that common property. And Ritzville Warehouse did not inform the DOT that Ritzville Warehouse was negotiating for the sale of only its one-third interest. The DOT thought it was compensating Ritzville Warehouse for a one-half interest. Ritzville Warehouse was not entitled to what amounted to a secret profit to the Smiths' detriment.
Ritzville Warehouse claims it did not know that the Smiths had a one-third interest, although it admits that its predecessor in interest — Odessa Trading — received payment from the Smiths in 1996 for a one-third interest.
In summary, although the trial court erred in concluding that the evidence supports imposition of a resulting trust, it properly concluded that Ritzville Warehouse's retention of one-half of the compensation for the original truck scale unjustly enriched Ritzville Warehouse at the expense of the Smiths' one-third interest. Accordingly, the trial court properly found clear, cogent, and convincing evidence to impose a constructive trust. Shtikel, 105 Wn. App. at 87.
Mitigation of Damages
At trial, Ritzville Warehouse raised mitigation of damages as an affirmative defense. The trial court did not directly address this issue in its findings of fact and conclusions of law. Ritzville Warehouse now contends that despite knowing that the DOT was negotiating with Odessa Union and Ritzville Warehouse, the Smiths did nothing to prevent their damages.
The doctrine of mitigation of damages prevents recovery of damages that the injured party could have avoided through reasonable efforts. Labriola v. Pollard Group, Inc., 152 Wn.2d 828, 840, 100 P.3d 791 (2004). Courts allow wide discretion to the person who is forced by another's wrong into a predicament involving a probability of injury or loss. Id. (quoting Hogland v. Klein, 49 Wn.2d 216, 221, 298 P.2d 1099 (1956)). If this person has more than one reasonable choice for action, the person whose wrong forced the choice cannot complain when one of those options is chosen. Id.
According to the undisputed findings of the trial court, the Smiths learned that the DOT was going to compensate the scale owners, they declined to sell their interest to Odessa Union, and they told the manager of Odessa Union they would accept whatever Odessa Union and Ritzville Warehouse would accept. Because Mr. Smith was intermittently out of the state during 2003, 2004, and early 2005, he was unaware until February 2005 that Odessa Union and Ritzville Warehouse were paid settlements. Soon after he learned of the compensation, he demanded payment for the Smiths' one-third interest. The Smiths' belief that they would be compensated for their one-third share was reasonable in light of their conversation with the manager of Odessa Union.
We affirm.
A majority of the panel has determined this opinion will not be printed in the Washington Appellate Reports, but it will be filed for public record pursuant to RCW 2.06.040.
WE CONCUR:
Brown, J.
Stephens, J.