A constructive trust is not the same kind of interest in property as a joint tenancy or a remainder. It is a remedy, flexibly fashioned in equity to provide relief where a balancing of interests in the context of a particular case seems to call for it.
North American Coin and Currency, Ltd. (hereinafter NAC or debtor) was an Arizona corporation in the business of buying and selling precious metals. The appellants were former customers of NAC who placed orders with the company and paid for them during the week of September 13, 1982, immediately before NAC filed for voluntary reorganization under Chapter 11 of the Bankruptcy Code due to severe financial losses as a result of certain transactions initiated by the company president. The customers brought a class action against the Bankruptcy Trustee, seeking to recover their funds from the bankruptcy estate. They claimed that the trustee holds the funds in constructive trust for them because the debtor obtained the money by fraud or misrepresentation. On cross-motions for summary judgment, the bankruptcy court found for the trustee. On appeal, the district court affirmed. The customers sought further review.
Did the bankruptcy trustee hold the debtor coin seller's estate funds in constructive trust for the customers, who claimed the debtor had obtained the money by fraud or misrepresentation?
The United States Court of Appeals for the Ninth Circuit affirmed the grant of summary judgment in favor of the bankruptcy trustee. The Court held that there was insufficient evidence to establish fraud. The customers failed to demonstrate that he debtor had obtained the customers' funds by misrepresentations that induced them to do business with appellants former customers before it became insolvent. Simply accepting new orders during the last week of its existence did not amount to fraud on the part of debtor. Under the circumstances, the Court refused to impose a constructive trust to protect the customers at the expense of other creditors.