Case Name: Kim Huong Trinh v. Thuy Tran, et al.

Case No.: 18CV328417

Defendant Thuy Tran’s General Demurrer to First Amended Complaint

In 2011, plaintiff Kim Huong Trinh (“Kim”) and her then-husband separated and contemplated divorce. (First Amended Complaint (FAC), ¶11.) Plaintiff Kim’s then-husband indicated he would claim some interest in plaintiff Kim’s sole and separate real property located at 2547 Story Road in San Jose (“Property”). (FAC, ¶11.)

In an effort to protect the Property from her then-husband’s potential claim, plaintiff Kim asked her brother, defendant Tam Trinh (“Tam”), and former sister-in-law, defendant Thuy Tran (“Thuy”), if they would temporarily hold title to the Property on plaintiff Kim’s behalf. (FAC, ¶12.) Defendants Tam and Thuy orally agreed to hold title to the Property as joint tenants. (FAC, ¶13.) Whenever plaintiff Kim demanded title be returned, defendants Tam and Thuy would transfer the Property back to plaintiff Kim. (Id.) Defendants Tam and Thuy paid no consideration in exchange for title to the Property. (Id.) Plaintiff Kim has made all Property related payments including mortgage and property tax. (Id.) Plaintiff Kim fully paid off the mortgage on the Property while defendants Tam and Thuy held title. (Id.)

From around November 2017 to May 2018, plaintiff Kim verbally demanded on repeated occasions that defendants Tam and Thuy transfer the Property back to plaintiff Kim as agreed, but defendants Tam and Thuy refused stating the house belonged to them. (FAC, ¶¶14 – 15.) On or around May 27, 2018, defendant Thuy informed plaintiff Kim that she had transferred her entire interest in the Property to a third party but did not reveal the identity of this person. (FAC, ¶16.) Upon investigation, plaintiff Kim learned the Property was transferred on May 2, 2018 from defendants Tam and Thuy to defendants Tam and Yen Kim Trinh (“Yen”) as joint tenants. (FAC, ¶16.)

On May 16, 2018, plaintiff Kim commenced this action by filing a complaint.

On May 30, 2018, plaintiff Kim filed the operative FAC which asserts causes of action for: (1) breach of contract; (2) fraudulent misrepresentation; (3) resulting trust; and (4) fraudulent transfer.

On July 25, 2018, defendant Yen filed an answer to plaintiff Kim’s FAC.

On January 22, 2019, defendant Thuy filed the motion now before the court, a demurrer to plaintiff Kim’s FAC.

I. Defendant Thuy’s demurrer to plaintiff Kim’s FAC is SUSTAINED, in part, and OVERRULED, in part.

A. Breach of contract.

Defendant Thuy demurs to the first cause of action for breach of contract on the ground that it is an illegal contract and unenforceable. “A general demurrer lies where the terms of the contract alleged are illegal and thus void. Again, the complaint discloses on its face a bar to recovery.” (Weil & Brown et al., CAL. PRAC. GUIDE: CIV. PRO. BEFORE TRIAL (The Rutter Group 2018) ¶7:59.1, p. 7(I)-34 citing Beck v. American Health Group, Int’l, Inc. (1989) 211 Cal.App.3d 1555, 1563.)

“A contract must be lawful (Civ. Code, §1550 ); i.e., it must not be in conflict either with express statutes or public policy. (1 Witkin, Summary of Cal. Law (10th ed.2005), Contracts, § 420, p. 461.) A contract that conflicts with an express provision of the law is illegal and the rights thereto cannot be judicially enforced. [Citations.]” (Vierra v. Workers’ Comp. Appeals Bd. (2007) 154 Cal.App.4th 1142, 1148.)

“’The general principle is well established that a contract founded on an illegal consideration, or which is made for the purpose of furthering any matter or thing prohibited by statute, or to aid or assist any party therein, is void. This rule applies to every contract which is founded on a transaction malum in se, or which is prohibited by a statute on the ground of public policy.’ Nor in such cases does it matter whether the contract has been partially or wholly performed, or whether the consideration has passed or not.” (C.I.T. Corp. v. Breckenridge (1944) 63 Cal.App.2d 198, 200.)

“A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.” (Rest.2d of Contracts, §178.)

“No principle of law is better settled than that a party to an illegal contract cannot come into a court of law and ask to have his illegal objects carried out.” (Yoo v. Jho (2007) 147 Cal.App.4th 1249, 1251.)

Defendant Thuy contends the contract at issue here is an agreement by plaintiff Kim entered into with the intent to hide assets from her then husband. Defendant Thuy contends such an agreement violates Family Code section 721, subdivision (b) which states, in part, “in transactions between themselves, spouses are subject to the general rules governing fiduciary relationships that control the actions of persons occupying confidential relations with each other. This confidential relationship imposes a duty of the highest good faith and fair dealing on each spouse, and neither shall take any unfair advantage of the other.”

The court is not persuaded that Family Code section 721, subdivision (b) applies since that section applies to “transactions between” spouses and the transaction here is between a spouse and third parties. More relevant in this court’s opinion is Family Code section 2100 which states:

The Legislature finds and declares the following:
(a) It is the policy of the State of California (1) to marshal, preserve, and protect community and quasi-community assets and liabilities that exist at the date of separation so as to avoid dissipation of the community estate before distribution, (2) to ensure fair and sufficient child and spousal support awards, and (3) to achieve a division of community and quasi-community assets and liabilities on the dissolution or nullity of marriage or legal separation of the parties as provided under California law.
(b) Sound public policy further favors the reduction of the adversarial nature of marital dissolution and the attendant costs by fostering full disclosure and cooperative discovery.
(c) In order to promote this public policy, a full and accurate disclosure of all assets and liabilities in which one or both parties have or may have an interest must be made in the early stages of a proceeding for dissolution of marriage or legal separation of the parties, regardless of the characterization as community or separate, together with a disclosure of all income and expenses of the parties. Moreover, each party has a continuing duty to immediately, fully, and accurately update and augment that disclosure to the extent there have been any material changes so that at the time the parties enter into an agreement for the resolution of any of these issues, or at the time of trial on these issues, each party will have a full and complete knowledge of the relevant underlying facts.

(Emphasis added.)

The stated public policy in Family Code section 2100 defeats plaintiff Kim’s argument, in opposition, that the contract at issue is not illegal because it concerns property which plaintiff has alleged to be her sole and separate property. (FAC, ¶11.) In seeking to transfer title to the Property, the object of the alleged agreement was to avoid a full and accurate disclosure of all assets in a contemplated divorce.

Accordingly, defendant Thuy’s demurrer to the first cause of action in plaintiff Kim’s FAC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for breach of contract is SUSTAINED with 10 days’ leave to amend.

B. Fraudulent misrepresentation.

“The elements of fraud, which give rise to the tort action for deceit, are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 (Lazar).) “Fraud actions are subject to strict requirements of particularity in pleading. … Accordingly, the rule is everywhere followed that fraud must be specifically pleaded.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216.) “The pleading should be sufficient to enable the court to determine whether, on the facts pleaded, there is any foundation, prima facie at least, for the charge of fraud.” (Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508, 518.) The Lazar court did not comment on how these particular allegations met the requirement of pleading with specificity in a fraud action, but the court did say that “this particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ A plaintiff’s burden in asserting a claim against a corporate employer is even greater. In such a case, the plaintiff must ‘allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Lazar, supra, 12 Cal.4th at p. 645.)

Defendant Thuy demurs to the second cause of action for fraudulent misrepresentation on the ground that plaintiff Kim has not alleged fraud with the requisite specificity. Plaintiff Kim does not address this argument in opposition.

Accordingly, defendant Thuy’s demurrer to the second cause of action in plaintiff Kim’s FAC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for fraudulent misrepresentation is SUSTAINED with 10 days’ leave to amend.

C. Resulting trust.

“The resulting trust, often called an ‘intention-enforcing’ trust, is not based on fraud but is imposed by law to enforce the actual or implied intentions of the parties. The resulting trust is a remedy and not a cause of action. In order to impress the trust there must be specific, identifiable property.” (12 Miller & Starr, California Real Estate (3rd ed. 2001) Remedies, §34:122, pp. 409 – 410.) “In contrast, the constructive trust is created contrary to the intentions of the parties in order to preclude unjust enrichment to the defendant from wrongful conduct. A constructive trust is often described as a ‘fraud-rectifying’ trust.” (Id.)

“A constructive trust is a remedy used by a court of equity to compel a person who has property to which he is not justly entitled to transfer it to the person entitled thereto.” (11 Witkin, Summary of California Law (9th ed. 1990) Trusts, §305, p. 1138.) A constructive trust can be imposed against “one who wrongfully detains a thing.” (Civ. Code, §2223.) A constructive trust can also be imposed against “one who gains a thing by fraud, accident, mistake, undue influence, the violation of a trust, or other wrongful act … unless he or she has some other and better right thereto.” (Civ. Code, §2224.)

“A constructive trust is an involuntary trust created by operation of law and not by the intention of the parties’ as an equitable remedy to prevent unjust enrichment and to enforce restitution.” (12 Miller & Starr, California Real Estate (3rd ed. 2005) Remedies, §34:115, p. 389.) “The creation of a constructive trust requires that: (1) there be a res—some property or interest in property, which includes real property, a promissory note, or cash; (2) the plaintiff has a right to the res; and (3) the defendant acquired the res wrongfully.” (Id. at §34:117, pp. 392 – 393.)

Defendant Thuy demurs to the third cause of action for resulting trust on the basis that, by plaintiff Kim’s own allegation, defendant Thuy no longer holds title to the Property. (See FAC, ¶16—“title to the Property was transferred on May 2, 2018 by Tam and Thuy as joint tenants to Tam and Yen as joint tenants.”)

In opposition, Kim concedes defendant Thuy no longer holds any interest in the Property and so the imposition of a trust against defendant Thuy would not be proper. Plaintiff Kim argues, nevertheless, that if she is successful on the fourth cause of action for fraudulent transfer, the transfer from Tam and Thuy to Tam and Yen would be voided, at which point the court could impose a resulting trust on defendant Thuy. Even so, a resulting trust would be a potential remedy to the fourth cause of action and is not the basis for a separate cause of action. (See Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 76—“In their third amended complaint appellants alleged, as causes of action, a resulting trust and a constructive trust. But neither is a cause of action (5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, §§ 788–791, pp. 232–235) only a remedy.”)

Accordingly, defendant Thuy’s demurrer to the third cause of action in plaintiff Kim’s FAC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for resulting trust is SUSTAINED with 10 days’ leave to amend.

D. Fraudulent transfer.

“A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation … [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.” (Civil Code §3439.04, subd. (a).) “A creditor may bring an action for relief from a fraudulent transfer or obligation.” (8 Witkin, California Procedure (4th ed. 1997) Enforcement of Judgment, §471, p. 468; see also Civil Code §3439.07, subd. (a)(1).)

A transfer is fraudulent in one of two ways. Either there is actual fraud (Civ. Code, §3439.04, subd. (a)(1)) or there is constructive fraud (Civ. Code, §§3439.04, subd. (a)(2), 3439.05.). In demurring, defendant Thuy reads plaintiff Kim’s fourth cause of action to assert a claim of fraudulent transfer based on both actual fraud and constructive fraud. Defendant Thuy argues that, to the extent plaintiff Kim’s fraudulent transfer cause of action is based on constructive fraud, plaintiff Kim has not adequately alleged constructive fraud as required by Civil Code section 3439.04, subdivision (a)(2)(A – B).

However, this deficiency only affects a portion of the cause of action. A defendant cannot demur to a portion of a cause of action. (See Financial Corp. of America v. Wilburn (1987) 189 Cal.App.3d 764, 778—“[A] defendant cannot demur generally to part of a cause of action;” see also PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682—“A demurrer does not lie to a portion of a cause of action;” Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 274—“A demurrer challenges a cause of action and cannot be used to attack a portion of a cause of action.”) By defendant Thuy’s own acknowledgment, the fourth cause of action for fraudulent transfer is also based upon actual fraud which is sufficiently alleged. (See Civ. Code, §3439.04, subd. (a)(1) and FAC, ¶38.)

Defendant Thuy argues, additionally, that the claim is not directed at her despite the allegation that it is being asserted against all defendants. Without any authority, defendant Thuy contends the claim seeks to void the transfer to defendant Yen and does not need to include defendant Thuy. The language of Civil Code section 3439.04 states that a transfer by a “debtor” is voidable. Absent legal authority otherwise, the court interprets this language to require naming Thuy as a defendant.

Accordingly, defendant Thuy’s demurrer to the fourth cause of action in plaintiff Kim’s FAC on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] for fraudulent transfer is OVERRULED.