Daily Development for Tuesday, September 19, 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

STATUTE OF FRAUDS; CONSTRUCTIVE TRUST: Due in part to the policies of the Statute of Frauds, a mortgagee’s verbal promise to allow a borrower to continue to occupy the mortgaged property, notwithstanding a default, does not entitle the borrower  to a constructive trust following foreclosure. 

Parris v. Liefels, 280 Ga. 135,  625 S.E.2d 390 (2006).

A father gave his son and daughter-in-law an undeveloped parcel of property and the couple built a home using the proceeds of a construction loan.  The father then loaned his son and daughter-in-law proceeds to pay off this construction loan and, in return, they executed a security deed on the property in favor of the father.  The couple made nine payments and stopped making payments on the loan, but continued to pay the property taxes.

The couple encountered marital difficulties; and the father promised the daughter-in-law that, if she ever got divorced, she could continue to use the marital property for herself and her children.  After the daughter-in-law in fact filed for divorce, however, the father began to demand the mortgage payments, although she lived on the property with at least one of her children.  The divorce court ordered the husband to make the mortgage payments as part of the divorce order, but apparently  he did not do so.  The daughter-in-law ultimately remarried and moved off the property.  The father then foreclosed on the property and bought the property himself.

The daughter-in-law filed a request that a constructive trust be imposed over the property alleging only that equitable principles would be violated if the father were allowed to remain the sole owner.  The Trial Court ruled in favor of the daughter-in-law, finding that the imposition of a constructive trust was necessary to prevent the father from being unjustly enriched.  The father appealed.

The Supreme Court of Georgia reversed. 
The court, in general, found that the facts did not support the imposition of a constructive trust.  More specifically, however, the court stated that, with regard to interests in real property, a constructive trust generally may not be imposed based solely on a broken verbal promise to hold or transfer the land for the benefit of other.  To hold otherwise would wholly undermine the Statute of Frauds.  A broken verbal promise may be the basis of a constructive trust, however, if it was fraudulently made “with the intention of being broken and for the purpose of obtaining title.”

The court did note an exception to the application of the Statute of Frauds to void verbal promises respecting real property in equity cases.  It said that if the father had made the statement in question intending to break it, then such fraud was so inequitable that it would be taken into account in establishing the equities.  But, the court concluded, such was not the case.  There was no indication that the father was not sincere when he made the promise.  Further, although he may have threatened the daughter in law by demanding payment (she was a co-borrower so far as he was concerned), he did not in fact initiate foreclosure until she had left the property.  Consequently, it was difficult for the court to conclude that the father in fact had violated his promise. 

Comment: This exception to the Statute of Frauds in real estate matters is not often mentioned, but is generally recognized.  A parole statement that purports to bind one to transfer property is not generally honored, but if the parole statement itself is a fraud, because the party making it has no intention of honoring it, then it may be actionable as fraud and one remedy in equity may be enforcement of the statement. 

DEEDS; STATUTE OF FRAUDS; ORAL GIFTS: An oral gift of real property is effective without a deed, notwithstanding the Statue of Frauds, where the grantor places the grantee in possession of the property with intention to make a gift.  Troxel v. Bishop, 2006 Westlaw 2348934 (Tex. App. 8/18/06) (not yet approved for final publication)

Troxel met Bishop while he was recovering from open heart surgery.  Reports are that he viewed her as a “surrogate daughter.”  Troxel resolved to buy her a home.  Bishop selected a house (complete with swimming pool).  In fact, her name was on the original purchase agreement.   Bishop was obtaining a divorce, however, and the Bishop and Troxel apparently concluded that it would be unwise to deed the property to Bishop immediately.  Consequently, Troxel paid for the home and arranged for the deed to be conveyed to Greenburg, his close friend, for later transfer to Bishop.

There is no direct discussion as to why Troxel didn’t have the house transferred directly to his own, name, but there is mention in the case in another context that Troxel may have had IRS problems and was seeking to hide the asset and also there is a suggestion that he was not interested in his wife finding out about his fatherly relationship with Bishop.

Although Bishop did not move into the house for two years, she kept some personal belongings there and kept the fact of the house secret from her husband until she was divorced.  Troxel paid the taxes.  One assumes that he was in the house also from time to time.  Allegedly (this is a summary judgment case) Troxel and Bishop shared the expense of maintaining the house, and allegedly Bishop paid to recondition the pool.

Bishop completed her divorce and moved into the house in 2000.  She claimed that at that time Troxel told her that he was arranging for a deed to the house for her.  Troxel in fact verbally instructed Greenburg first to make out a deed in blank, which Greenburg gave him, and later asked Greenburg to make out a deed showing Bishop as the grantee.  Somehow this second deed wound up recorded, with instructions to the recorded to return the deed to Bishop.  The record states only that Greenburg never delivered the deed to Bishop, and says nothing more about how Bishop got the deed.  Greenburg never considered the property to be his own, and viewed his preparation of the deeds as the completion of the gift from Troxel to Greenburg that Troxel first had discussed with him some years before.  .

Troxel died in 2001.  His estate contested Bishop’s title to the property.  Although it first claimed that the entire arrangement with Greenburg and Bishop was a subterfuge to hide Troxel’s assets from his creditors, or from his wife, this assertion later was withdrawn.  Instead, the estate argued simply that the Statute of Frauds requires a written transfer of ownership, and that Greenburg never asserted ownership and Troxel never made any written grant of his own ownership.  As to Greenburg’s title, the estate argued that Greenburg held the property as a constructive trust, and that Greenburg had no power to convey the property except pursuant to a writing executed by Troxel.         

The court upheld the deed, regardless of evidence of written instructions to Greenberg, because Troxel ratified the delivery of the deed to Bishop. Although the original recitation of the facts does not indicate that Greenberg actually gave to Troxel the deed Greenberg made out to Bishop, this later discussion apparently assumed that is what happened, and that Troxel  either recorded the deed and instructed that it be sent to Bishop or that Troxel either gave the deed to Bishop himself.   Either action would have ratified the preparation and delivery of the deed, and obviate any need for a writing.

The court further held that the question of whether a writing was required to instruct Greenburg to convey to Bishop, in any event, would be beside the point, because a gift of the property had already been carried out by Troxel’s words and actions in placing Bishop in possession of the property with the expressed intent to give her a gift, acquiescence in her continued possession, and further acquiescence in her permanent improvements to the property (in the form of the rehabilitation of the swimming pool.)  Even without improvements, a parol gift will be upheld if the other factors or satisfied and denial of the gift would result in injustice.

Comment: The editor has no quarrel with the analysis upholding Troxel’s ratification of the deed, even on summary judgment. 

The editor finds more interesting the holding on the parole gift.  The court held that Bishop owned the property by parole gift, and would have done so, even if there had never been a deed.

People say a lot of things to other people in personal relationships, and sometimes have fingers crossed behind their back.  The way one delivers ownership of real estate is by delivery of a deed.  Troxel knew that, and likely Bishop did as well.  Prior to the delivery of such deed, the editor believes that there was substantial question as to Troxel’s true intent.  Although there is an explanation of the delay in delivery of the deed that is consistent with Bishop’s position, perhaps there are other explanations as well. 

The typical third element of a parole gift - apparently a form of reliance-based estoppel - is somewhat sketchy here.  Shared maintenance costs (remember Bishop was living there) and very vague testimony about monies spent on a pool.  But the appeals court is reviewing the lower court’s findings of fact, so perhaps we just have to accept the notion that there was sufficient basis for such estoppel here.

The important lesson is that an adequate basis for some kind of estoppel or other equitable foundation needs to be present in order for a parol gift to be upheld.

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