Hogg v. Walker

• Citation: 622 A.2d 648
• Parties: Monica Lewis HOGG, Plaintiff Below, Appellant, v. Gerald H.E. WALKER, Defendant Below, Appellee. . Submitted:
• Decision Date: 17 February 1993
• Court: United States State Supreme Court of Delaware

Page 648

622 A.2d 648

Monica Lewis HOGG, Plaintiff Below, Appellant, v. Gerald H.E. WALKER, Defendant Below, Appellee.

Supreme Court of Delaware.

Submitted: Feb. 17, 1993.

Decided: March 16, 1993.

Rehearing Denied April 8, 1993.

On appeal from the Court of Chancery. REVERSED.

Kester I.H. Crosse, Potter, Crosse & Leonard, P.A., Wilmington, for appellant.

Michael J. Goodrick and David S. Lank, Theisen, Lank, Mulford & Goldberg, P.A., Wilmington, for appellee.

Before HORSEY, MOORE and WALSH, JJ.

MOORE, Justice.

The plaintiff, Monica Lewis Hogg, appeals from the Court of Chancery's refusal to grant her petition for a Rule to Show Cause and Writ of Attachment to compel the distribution of an $8,000 corpus held in a constructive trust by the defendant Gerald Walker ("Walker"). Because the defendant had dissipated the trust corpus, the Court of Chancery ruled that it could not compel the defendant to disgorge that which he did not have. Hogg challenges this ruling on several grounds. Her primary claim, however, is that the court erred as a matter of law in concluding that the defendant's disposal of the res of the constructive trust precludes its enforcement. We conclude that the Court of Chancery erred in failing to use its equitable powers to shape an appropriate remedy to compel the asset distribution of the plaintiff's constructive trust or its equivalent. Accordingly, we reverse.

I.

In 1978, the plaintiff and Walker were close personal friends. Hogg wanted to buy a house, but lacked sufficient credit to do so. Walker had a stable employment and earnings history, and he agreed to help Hogg buy a row house in Wilmington. On June 20, 1978, Walker executed an installment sales contract for the house with the Administrator of Veterans Affairs ("V.A.") for $14,500. Hogg provided the down payment for the purchase. Additionally, Hogg and Walker verbally agreed that Hogg would occupy the premises and make the monthly installment payments.

Thereafter, the personal relationship between Hogg and Walker deteriorated and eventually became hostile. On January 10, 1979, the parties entered into an "Assignment of Installment Contract," wherein Walker assigned to Hogg "all his right, title and interest" to the property. Additionally, Walker "assign[ed], transferr[ed], convey[ed], release[d], and [sold] all of his right, title and interest to all credits, equities, rights and privileges" to which he was entitled pursuant to the sales contract to Hogg. This assignment was not sent to the V.A. until May, 1983, and the V.A. rejected it upon receipt.

From 1978 to 1987 Hogg sporadically made monthly payments under the installment sales contract, but was frequently in arrears. The record, however, is not clear on the actual number of payments Hogg missed. Nonetheless, since Walker was legally obligated under the terms of his agreement with the V.A. to make the monthly payments, the V.A. sent him notices of arrearage and he consequently paid a number of past due installments.

Prior to 1987, Walker filed a series of actions against Hogg, including suits for ejectment, contractual damages, and to foreclose upon Hogg's equitable interest in the property. Walker mistakenly believed that his assignment of the installment contract to Hogg had been accepted by the V.A., and that the equitable foreclosure action in Chancery was necessary to obtain legal title to the property. Upon learning that the V.A. had refused the assignment, Walker obtained a dismissal of the action in the Court of Chancery, apparently assuming that Hogg no longer had an enforceable interest in the property.

At a later unspecified date Walker encumbered the property with a mortgage to secure a personal loan. In April, 1987, Walker paid the outstanding balance owed to the V.A. and received a deed to the property in his name. ¹ After Walker obtained legal title, Hogg was evicted from the property by an order of the Superior Court dated May 27, 1987.

Hogg filed this suit in equity in June, 1987, seeking imposition of a resulting or constructive trust on the property. With the suit in Chancery pending, Walker arranged to sell the property in November, 1987. Upon learning this, Hogg filed a motion to hold the sale funds in escrow, which the Court of Chancery denied. Although that particular sale was not consummated, Walker did sell the property on February 22, 1988, for $30,318.62 in cash. Hogg then sought a resulting or constructive trust on the proceeds of the sale.

On October 27, 1989, the Court of Chancery found that Walker's legal ownership was subject to a resulting trust in favor of Hogg because of the latter's equitable title to the property. Upon Walker's sale of the property, however, the court held that a constructive trust arose in favor of Hogg with respect to the proceeds in the amount of $8,324.58. The court determined the amount by offsetting $21,994.04 against the proceeds, consisting of $8,205 in installment payments made by Walker, together with Walker's final payment of $13,789.04 to satisfy the installment sales contract.

After further disputes between the parties, in July 1991 the Court of Chancery held that Walker had taken possession of an $8,000 trust corpus after the sale of the property, and that the corpus had to be distributed to Hogg. Despite this ruling, Walker did not pay the trust corpus to Hogg, and Hogg filed a petition for a rule to show cause or for writ of attachment. Walker responded to the motion by contending that the proceeds had been dissipated, and there remained no corpus upon which the constructive trust could attach.

On September 10, 1992, the Vice Chancellor stated in a letter opinion that "constructive trust exists only insofar as a beneficiary can identify the trust property or proceeds," and that a beneficiary is not entitled to a general lien on the trustee's nontrust-related property. Accordingly, the court held that when Walker dissipated the corpus of the trust, a general lien could not be imposed on Walker's nontrust-related property. Thus, Hogg could not invoke equity's civil contempt power to compel Walker to disgorge what he did not possess.

The Court of Chancery denied a subsequent motion for reconsideration on two grounds. First, the motion was not timely filed. Second, even if timely filed, the court considered the motion to be an attempt to "reargue [Hogg's] right to obtain a personal judgment against the defendant" for breach of trust. The court stated that it had not made any determination that Walker had violated his fiduciary duties as constructive trustee.

II.

In denying the motion for a Rule to Show Cause, the Court of Chancery ruled that enforcement of the constructive trust was prevented by the absence of a trust res. We review such conclusions as a question of law. See Fiduciary Trust Co. v. Fiduciary Trust Co., Del.Supr., 445 A.2d 927, 930 (1982).

The doctrine of constructive trust effectuates the principle of equity that one who would be unjustly enriched, if permitted to retain property, is under an equitable duty to convey it to the rightful owner. It is an equitable remedy of great flexibility and generality, and is viewed as "a remedial [and] not a substantive" institution. McMahon v. New Castle Associates, Del.Ch., 532 A.2d 601, 608 (1987); RESTATEMENT OF RESTITUTION § 160. As Judge Cardozo stated in Beatty v. Guggenheim Exploration Co.:

A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.

225 N.Y. 380, 122 N.E. 378, 380 (1919). A constructive trust is not designed to effectuate the presumed intent of the parties, but to redress a wrong. When one party, by virtue of fraudulent, unfair or unconscionable conduct, is enriched at the expense of another to whom he or she owes some duty, a constructive trust will be imposed. Adams v. Jankouskas, Del.Supr., 452 A.2d 148, 152 (1982); see also RESTATEMENT OF RESTITUTION § 160, Comment d. Some fraudulent or unfair and unconscionable conduct is essential. Greenly v. Greenly, Del.Ch., 49 A.2d 126, 129 (1946).

As a remedial measure, a constructive trust avoids a continuing relationship with the beneficiary by requiring transfer of the property to the plaintiff who has established an equitable entitlement. See Adams v. Jankouskas, Del.Supr., 452 A.2d 148 (1982); RESTATEMENT OF RESTITUTION § 160. Indeed, the only duty of the constructive trustee is to transfer the property to the equitable owner. Simpson v. Dailey, R.I.Supr., 496 A.2d 126, 128 (1985). Significantly, the duty to transfer the property relates back to the date of the wrongful act that created the constructive trust. Andre v. Morrow, Idaho Supr., 106 Idaho 455, 680 P.2d 1355, 1363 (1984); Pioneer Annuity Life Insurance Company v. National Equity Life Insurance Company, Ct.App., 159 Ariz. 148, 765 P.2d 550, 556 (1989).

Historically, a constructive trust was impressed upon specific property and the legal owner was required by equity to hold that property as if upon a trust. However, Hogg does not seek to impress specific property per se, but rather the monetary proceeds resulting from the specific property, namely the sale of the house. The constructive trust is a remedy that relates to specific property or identifiable proceeds of specific property. McMahon v. New Castle Associates, Del.Ch., 532 A.2d 601, 608 (1987); Accord, RESTATEMENT OF RESTITUTION § 160, comment a (1937).

The constructive trust concept has been applied to the recovery of money, based on tracing an identifiable fund to which plaintiff claims equitable ownership, or where the legal remedy is inadequate--such as the distinctively equitable nature of the right asserted. See, e.g., Adams v. Jankouskas, Del.Supr., 452 A.2d 148 (1982). In Adams the relationship between plaintiff and the...