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Procedural Posture

Procedural Posture

Appellants, an investment corporation and associated individuals, challenged an order of the Superior Court of Alameda County (California), which imposed a constructive trust on their interests in a corporation in favor of respondent investors as third-party beneficiaries.

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Overview

Respondents, investors in a golf course development, paid appellants, an investment corporation and associated individuals, to form a limited partnership. Instead, appellants entered into an agreement with a park, which leased land to appellants for the golf course, and then assigned their interest in the agreement to a shell corporation. Appellant investment corporation filed for bankruptcy. Appellants formed a limited partnership with the same name as the shell corporation and included in it all of the investment corporation’s investors except respondents. The trial court found that respondents were third-party beneficiaries to the contract between appellant investment corporation and the shell corporation, which had breached its contract by failing to repay respondents. The trial court concluded that appellants held their interest in the golf course in trust for respondents and that the limited partnership agreement governed their relationship. The court affirmed, holding that imposition of a constructive trust was appropriate because appellants would have profited by a wrongful act or would have been unjustly enriched if they were permitted to keep the property.

Outcome

The court affirmed the trial court’s judgment finding that appellants, an investment corporation and associated individuals, held certain property in trust for the benefit of respondents, investors in a golf course development, because permitting appellants to retain the property obtained wrongfully would have resulted in their profit or unjust enrichment.

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