Oddities and occasional inequities of the Chancery practice – Part 1

ALL RISE, TONY SOPRANO PRESIDING

The storm raged as Jeb’s pickup bounced along the dark road leading to his farmhouse.  Jeb stared lazily into the rain-soaked windshield, the old man’s mind and vision blurred by the many beers he had enjoyed at the hunting club.   His thoughts drifted to his portfolio, and the wise investments he had made through the years.  It was the thud on the right corner panel that refocused his attention to the task at hand.

To this day, he does not know exactly what he hit, but he remembers with great clarity the words in the newspaper the following morning.  “BOY FOUND DEAD ON SIDE OF ROAD.”  To the likes of Jeb, this headline translated as “OLD MAN LOSES LIFE SAVINGS!”

He immediately called his sister, Angel, who was a kind and honest soul.  Jeb told her he needed to give her some money to “hold for a little while ‘till this thing blows over,” but she refused.  It just felt dishonest to her, and she did not want to get involved in his mess.

Jeb then turned, reluctantly, to his cousin Billy.  Billy was a useless sort, but he was scared of Jeb, and would do as he was told.  Jeb told Billy he would be sending some money his way because “he sure wasn’t going to let a bunch of lawyers take his life savings.” Jeb made Billy promise to return the money after the “danger had passed.”

The danger did pass.  A few weeks later, another driver confessed to having struck the child, and Jeb was never even contacted by the police.

Jeb contacted Billy, and although Billy was scared of Jeb, his wife Morganna was not.  She said “what money?”  Jeb was so angry he dropped dead.  His will left everything to Angel.

Would Jeb have been able to enforce the express or resulting trust and have the court compel Billy to give the money back to Jeb?  Is Angel likely to be able to do so?  The answer to both questions is almost certainly no.  The Chancellor will likely have to leave the parties as he finds them.

A Chancery court will not enforce a constructive trust established for an improper purpose.  This includes an express or resulting “trust” involving the transfer of funds to a “trustee” in an attempt by the transferor to avoid creditors or potential creditors.  The result is the same for the heirs of the transferor.  It also does not matter whether the feared “creditor” or judgment actually materializes.

Is that the equitable ruling?  What did Angel do wrong that should prevent her from obtaining relief from the court of equity? Shouldn’t the court refuse to participate in a transaction intended to have an improper purpose?  Doesn’t this rule serve to deter fraudulent, or potentially fraudulent, transfers?  Does the fact that the party seeking to enforce the trust is the beneficiary, as opposed to the transferor, relieve the court of these concerns?  Is this result “equitable?”  If the trust cannot be enforced by the Court, who will be called upon to enforce it?

I am interested in your thoughts.  Please feel free to email me at rking@richardkinglaw.com

Reference: 37 Am. Jur. 2d Fraudulent Conveyances and Transfers § 97;  Rule Denying Recovery Of Property To One Who Conveyed To Defraud Creditors As Applicable Where The Claim Which Motivated The Conveyance Was Never Established, 6 A.L.R.4th 862 ; Hildebrand v. Willig  64 N.J. Eq. 249 (Ch. Div. 1903); Tantum v. Miller  1858 WL 4981 (Ch. Div. 1858); Yeiser v. Rogers, 19 N.J. 284 (1955); The Estate of Lindale C. Loper, 1977 WL 9566 (Del.Ch.).

 

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