Constructive Trust and Equitable Lien in California Business Disputes
Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).
A constructive trust is a court order treating someone who wrongfully holds property as a trustee who must turn it over to the rightful owner. If a partner used company money to buy property in his own name, California law may let the company claim the property itself, not only a money award. The company must prove an underlying wrong and trace its money into the asset. Kolmogorov Law, P.C. is a business litigation firm in Irvine that pursues and defends these claims for companies and their owners.
Call (909) 235-6116 or contact us online to discuss money that left your company and what it became.
What a constructive trust is: two Civil Code sections
One who wrongfully detains a thing is an involuntary trustee of it for the benefit of the owner. (Civ. Code, § 2223.) One who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act is an involuntary trustee of the thing gained. The trust runs in favor of the person who would otherwise have had it, unless the holder has some other and better right. (Civ. Code, § 2224.)
Courts read those sections to require three things. There must be identifiable property or an interest in property. The claimant must have a right to it. And someone not entitled to it must have acquired or kept it wrongfully. (Campbell v. Superior Court (2005) 132 Cal.App.4th 904.) The same decision calls a constructive trust a remedy that compels the transfer of property to its rightful owner.
That has a pleading consequence. The complaint needs an underlying claim, such as fraud, conversion, or breach of fiduciary duty, and the trust is the relief requested on it. Between partners the statute is explicit. A partner must account to the partnership and hold as trustee for it any property, profit, or benefit derived from the partnership business or from a use of partnership property. (Corp. Code, § 16404, subd. (b)(1).)
Tracing: following the money into the asset
The first condition does most of the work. There has to be a thing for the trust to attach to, and the claimant has to connect its money to that thing. The proof is documentary: bank statements, wire confirmations, escrow closing statements, and brokerage records showing company funds going out and the asset coming in.
Tracing gets harder when the money passed through an account that also held the other person's own funds. At that point it becomes an accounting exercise, and a forensic accountant may be needed. If the money cannot be followed into any identifiable asset, what remains is an ordinary claim for damages. An accounting claim and subpoenas to banks are two ways to get the records.
When an equitable lien is the right remedy
A constructive trust fits when the wrongdoer acquired the asset with the claimant's money. It does not fit when the money was used to improve property the wrongdoer already owned. For that situation the Court of Appeal in Campbell quoted the Restatement of Restitution. The claimant is entitled to an equitable lien on the property for the amount of its money so used, but not to a proportionate share of the property.
The difference shows when values change. A trust delivers the asset. A lien secures a sum and leaves title where it was.
Tying up the property before trial
The next question is whether a lis pendens can be recorded when the complaint is filed. Be careful. In Campbell, the court held that an equitable lien claim did not support a lis pendens. Neither did a constructive trust claim sought only to secure a money recovery, and the court upheld the order expunging the notice. A claim to title may stand on different footing. A later Court of Appeal decision held that a lis pendens could rest on a claim for a constructive trust returning the same properties the plaintiffs alleged were wrongfully taken from them. Whether a claim to property bought with company money fits that category depends on how it is pleaded. Our page on the lis pendens explains the procedure.
Where a lis pendens is unavailable, an asset may still be protected by a temporary restraining order or preliminary injunction. If the asset has already been moved to a relative or a new entity, a fraudulent transfer claim may reach it.
Deadlines follow the underlying claim
A constructive trust has no limitations period of its own. The California Supreme Court has held that the period is determined by the nature of the right sued upon, not by the form of the action or the relief demanded. (Day v. Greene (1963) 59 Cal.2d 404, 411.) In that case the gravamen was constructive fraud, so the fraud period applied.
If your company or its owner is the one accused
The defenses track the three conditions.
- No identifiable asset exists, or the money cannot be traced into it.
- The funds were the defendant's own, such as salary, distributions, or repayment of a loan.
- The defendant has "some other and better right" to the property, in the words of section 2224.
A defendant facing a recorded lis pendens on a claim that is really about money should also consider a motion to expunge.
What to bring to the first meeting
Bring the company's bank and card statements for the period, the general ledger, and any closing statement or deed for the property. Add the partnership or operating agreement and the emails or texts in which the transaction was discussed. A timeline of when money left and when the asset was acquired is the most useful single document.
Frequently asked questions
My former partner used company money to buy property in his own name. Can I claim the property itself?
Possibly. Under California Civil Code section 2224, a person who gains a thing by fraud, violation of a trust, or other wrongful act holds it as an involuntary trustee for the person who would otherwise have had it. The company must prove the underlying wrong and trace its funds into the property. If the money only improved property he already owned, the likelier remedy is an equitable lien.
Is constructive trust a cause of action in California?
California courts describe a constructive trust as an equitable remedy, not a freestanding claim. It is imposed when three conditions are met: identifiable property, the claimant's right to it, and wrongful acquisition or detention by another. The complaint should plead a substantive claim, such as fraud, conversion, or breach of fiduciary duty, and request the trust as relief.
What is the difference between a constructive trust and an equitable lien?
A constructive trust in California compels the holder to transfer the property itself to the rightful owner. An equitable lien leaves title in place and secures payment of a sum out of the property. Courts have used the lien where the claimant's money improved property the wrongdoer already owned, so the claimant recovers the amount used and not a share of the property.
Can I record a lis pendens on a house that was bought or improved with money taken from my company?
Not automatically. California allows a lis pendens only for a claim that would affect title to or possession of specific real property. In Campbell v. Superior Court, the Court of Appeal held that an equitable lien claim, and a constructive trust claim used only to secure a money recovery, did not qualify. A wrongly recorded notice can be expunged, so the pleading should be reviewed first.
How long do I have to seek a constructive trust in California?
There is no separate deadline for the remedy. The California Supreme Court has held that the limitations period depends on the nature of the right sued upon, not on the relief requested. A constructive trust built on fraud follows the fraud period, and one built on another wrong follows that claim's period. Plan around the shortest period that could apply.
Talk to a California business fraud attorney
If company money has been turned into property in someone else's name, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located in Irvine, California. Related reading: our business fraud practice and our page on conversion claims.
This page provides general information about California law and is not legal advice. Outcomes depend on the records, the facts, and the court.