Daily Development for Tuesday, September 21, 1999

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

TRUSTS; RESULTING TRUSTS: Court will not award a resulting trust to a party who participated in the transfer of title to a third party in pursuit of an unethical or illegal scheme to disguise ownership of assets.

Simmons v. Simmons, 724 So.2d 1054 (Miss.App. 1998)

In a divorce action, wife sought to impose a constructive trust on a parcel of real estate titled in the name of her husband's mother and on a Harley Davidson motorcycle titled in the name of her husband's grandmother.

As to the real estate, the court upheld the Chancellor's ruling that no implied trust arose, although it chose to characterize the claim as one for a resulting trust, rather than a constructive trust. The property had been titled in the husband's mother prior to the husband's marriage to this wife. The mother testified that she had invested funds in paying down the note

and in carrying insurance on the property, and that she had a business use for the property. Although her son had paid the down payment, title went directly to the mother and she testified that she later repaid her son.

Wife argued that, after her marriage to husband, she had moved into the property with her husband and that they had expended substantial funds and effort in improving the place. The court held that, at best, this would only give her a claim to share in her husband's constructive trust interest as beneficiary, or possibly a lien against that interest. But since the Chancellor had held that there had been no trust in favor of husband to begin with, wife's and husband's subsequent efforts in contributing to the improvements to the property could not establish independently an implied trust.

As to the HarleyDavidson motorcycle, the court noted that the wife testified that she and her husband decided when they bought the motorcycle that they would title it in the husband's mother's name to disguise their ownership from the IRS, as they then were undergoing a tax audit. (They ran a small business together.)

The court held that the Chancellor was incorrect in concluding that the evidence did not support the establishment of a resulting trust in the couple, since the mother testified that she didn't even know the motorcycle was titled to her until much later. Her explanation that this was in satisfaction of prior loans to husband did appear logical under the circumstances. Nevertheless, the court held that no constructive trust benefiting wife should be ordered, because she was guilty of "unclean hands" in participating with her husband in a scheme to defraud the IRS.

The court noted that there might be a resulting trust found in favor of innocent creditors of the husband and wife (such as, presumably, the IRS), but that wife's own testimony indicated that she was not entitled to equitable relief.

Comment: The case contains a useful discussion of the distinction between two types of implied trusts constructive trusts and resulting trusts. Constructive trusts are recognized in order to avoid inequitable injury, and usually run counter to the desires and expectations of the parties. Resulting trusts, on the other hand, are recognized to fulfill the parties' probable expectations at the time the trust arose, even though there is no formal documentation of those expectations. The trusts in this case would have been resulting trusts.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 16, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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