Daily Development for Monday, October 16, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
TRUSTS; RESULTING TRUST. The Delaware Chancery Court discusses circumstances in which resulting trust will be declared. Taylor v. Jones, C.A. No. 1498-K, 2006 Westlaw 1510437 (Del. Ch. May 26, 2006).
The Irelands owned a one-acre parcel they subdivided for the use of two of their daughters, Taylor and Jones, for installation of two mobile homes. The Irelands retained title to the parcels, with the understanding that each of the daughters would eventually obtain title to their respective parcels.
In order for Jones to obtain loan financing for the acquisition of a mobile home for her lot, the Irelands conveyed title, not just to Jones' subdivided parcel, but to the entire one-acre parcel, in order for Jones to have adequate collateral for the loan, which conveyance was made with the understanding that once the entire parcel was no longer needed as security for the loan, Jones would convey to Taylor the parcel Taylor occupied.
Over time, Jones and Taylor became estranged, and Jones demanded Taylor either start paying rent or vacate the Taylor parcel. Taylor brought an action in the Court of Chancery to impose a resulting trust on the Taylor parcel and for the court to cause legal and equitable title to be vested to Taylor.
The Court imposed a resulting trust and found for the petitioner, Taylor. Citing precedent, the court relied on the principle that, "A resulting trust arises from the presumed intentions of the parties and upon the circumstances surrounding the particular transaction. A resulting trust is found where the legal estate is acquired with accompanying facts and circumstances from which it can be inferred or assumed that the beneficial interest is not to go with the legal title."
In dicta, the court examined the theory of resulting trusts, and noted that the theory of relief for resulting trusts is reversionary. Strict application of the theory would mean the proper party to receive title to the Taylor parcel would be the Irelands.
The court was willing to set aside this requirement because it felt that the discretion of equity is broad in these circumstances, albeit unlimited, and that this case is a classic candidate for equitable relief:
“The Court's apprehension is animated by the realization that implied trusts cannot be available to parties entirely without limit in order to grant relief for actions they later regret. It may also be said, however, that the Court's capacity to grant this form of flexible equitable relief most closely comports with the historical foundations of Chancery jurisdiction.”
The court noted, in fact, that in Delaware, unlike most other states, even an express trust can be established through oral evidence, and that it might have been possible here to make out a claim that the grant of the property to Jones was an express trust.
But, as to resulting trusts, the court noted it was a problem that the trust was not in writing. Resulting trusts are imposed in two contexts: (1) when a party pays the purchase price for property that is transferred to another, or (2) when there is a failure, in whole or in part, of an express trust or the purpose of an express trust or when the purpose of an express trust is achieved without exhausting the income or corpus of the trust.
The Court indicated that Taylor's claim would arise under the resulting trust being imposed for failure of an express trust. The Restatement (Third) of Trusts suggests that, under the modern approach, a resulting trust may not be found where there is a failure to comply with the Statute of Frauds requiring a writing in order to establish the trust, and, instead, a constructive trust may be imposed or a transferee may retain the property free of the trust. Delaware, however, has not adopted such a requirement that an express trust in land be in writing to be established; therefore, the limitation would not restrict the Court's imposition of a resulting trust.
Comment 1: It is somewhat difficult to make out what the difference in consequence would be if the court had declared a constructive trust here rather than a resulting trust. The court had already determined that one unique aspect of a resulting trust, that the beneficiary is the original grantor of the land into trust, would be ignored. Are there any other aspects of the resulting trust that would make it distinct?
Comment 2: Perhaps one important issue is the court’s receptiveness to proof of the trust intent. As indicated, the trust was not in writing. This is often the case with constructive trusts, which are found, for instance, where property is obtained through fraud, embezzlement, or some other inequitable circumstance. Under the Restatement, apparently, the circumstances mandating the creation of a resulting trust require some form of writing.
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