Murphy v. McKenzie

• Decision Date: 20 November 1973
• Parties: Patrick F. MURPHY v. Louise Robinson McKENZIE, individually and as trustee. 1
• Court: Appeals Court of Massachusetts

Page 744

303 N.E.2d 744

1 Mass.App.Ct. 553

Patrick F. MURPHY v. Louise Robinson McKENZIE, individually and as trustee.¹

Appeals Court of Massachusetts, Suffolk.

Argued Dec. 9, 1972.

Decided Nov. 20, 1973.

Joseph M. Cohen, Boston, for defendant.

Francis X. Moran, Scituate, for plaintiff.

Before ROSE, GOODMAN and ARMSTRONG, JJ.

GOODMAN, Justice.

This bill in equity seeks to establish a resulting trust of real estate held by the defendant as trustee of Louise Robinson Realty Trust. The trial judge declined to order a conveyance of the real estate to the plaintiff but did enter a decree awarding the plaintiff $20,641 for sums he had contributed toward the purchase of the real estate and monies he had advanced for mortgage payments and taxes. Both parties appealed. The trial judge adopted as a report of material facts the findings of fact made in his 'Findings, Rulings and Order for Decree.' The evidence is reported.

The property was purchased on May 29, 1969, and conveyed by the seller to the defendant. The purchase price was $40,000, of which $30,000 was paid from the proceeds of a mortgage of the property given by the defendant to a bank; the remainder was furnished by the plaintiff. After title was passed, the mortgage and tax payments also came from the plaintiff.

To counter the plaintiff's contention that the defendant took title on the plaintiff's behalf and that a resulting trust arose for his benefit, the defendant sought to prove that she had bought the property for her own benefit and had subsequently agreed orally with the plaintiff to sell it to him for $60,000. She testified that the monies advanced by the plaintiff prior to the agreement had been owed to her in connection with other matters. She also raised the defense of 'unclean hands.'

The trial judge found as matter of fact that the defendant's version of the arrangement was untrue; that the plaintiff and the defendant 'did enter into an oral agreement whereby the (defendant) was to take title to the property for and in behalf of the (plaintiff) with the understanding that the (defendant) would reconvey to the (plaintiff) or his nominee upon the assumption of the mortgage by the (plaintiff) . . . (and) (t)hat the (plaintiff) and the (defendant) agreed that the latter would obtain a purchase money mortgage in the amount of thirty thousand dollars ($30,000) which the (defendant) did obtain and became personally indebted thereby. A part of the agreement was that the (plaintiff) held himself responsible for the mortgage payments until such time as he was financially able . . . (to pay) the entire mortgage and discharg(e) it.' At the hearing the plaintiff 'conceded that he did not take title in his own name because he did not want his wife to reach the property for her support . . . (and) that he was having tax trouble with the Internal Revenue Service, and that he wanted to avoid an Internal Revenue Service lien on the property . . ..' The trial judge found that the parties 'were fully aware of (plaintiff's) purpose of circumventing the interests of his wife and the Internal Revenue Service as stated above.'

On the basis of these findings of fact, we hold (contrary to the trial judge's rulings of law) that (1) the plaintiff established a resulting trust of the real estate in question and (2) he is not barred by the clean hands doctrine from compelling a conveyance by the defendant.

1. On the facts found by the trial judge, a resulting trust arose as a matter of law 'within the well recognized principle of equity jurisprudence, that where one buys and pays for real estate, but the conveyance of the title is to another, a trust results in favor of the one who pays the consideration . . ..' Howe v. Howe, 199 Mass. 598, 600, 85 N.E. 945, 946 (1908); Restatement 2d: Trusts, § 440, p. 393. This is so although 'the consideration paid was not out of funds on hand by the original cestui que trust but from the proceeds of money borrowed by him even from the trustee . . ..' Howe v. Howe, supra, at 601, 85 N.E. at 946. Here the purchase price was furnished in part directly by the plaintiff and in part from proceeds of a mortgage of the property in question given by the defendant to the bank, the plaintiff agreeing, as the trial judge found, to hold 'himself responsible for the mortgage payments.' The defendant's obligation to the bank was thus, in effect, a loan or credit to the plaintiff, the actual purchaser. The transaction between the plaintiff and the defendant stands no differently from a loan of money from the defendant (the grantee of the record title) to the plaintiff, on whose behalf the defendant took title, to enable the plaintiff to pay the purchase price. McDonough v. O'Niel, 113 Mass. 92, 95 (1873); Howe v. Howe, 199 Mass. 598, 601, 85 N.E. 945 (1908); Gerace v. Gerace, 301 Mass. 14, 16, 16 N.E.2d 6 (1938); Collins v. Curtin, 325 Mass. 123, 125, 89 N.E.2d 211 (1949); Bogert, Trusts and Trustees (2d ed.) § 455, p. 532. It is essentially the same as a purchase money mortgage given to a seller by a grantee of the record title whom the beneficial owner agrees to exonerate. Davis v. Downer, 210 Mass. 573, 575, 97 N.E. 90 (1912); Williams v. Commercial Trust Co., 276 Mass. 508, 517, 177 N.E. 538 (1931); Gerace v. Gerace, 301 Mass. 14, 18, 16 N.E.2d 6 (1938); Kennedy v. Innis, 339 Mass. 195, 201--202, 258 N.E.2d 334 (1959); Shea v. Venuti, 346 Mass. 780, 195 N.E.2d 532 (1964); Scott, Trusts (3d ed.) § 456.2, p. 3391; Restatement 2d: Trusts, § 456, comment d, p. 428 and illus. 4. Cf. Carroll v. Markey, 321 Mass. 87, 89, 71 N.E.2d 756 (1947). From the findings of the trial judge, fully supported by the evidence, it appears, as the Supreme Judicial Court said in Williams v. Commercial Trust Co. 276 Mass. 508, 517, 177 N.E. 538, 541 (1931), 'That the purchase was entirely financed by the . . . (plaintiff), that expenditures for the acquisition and maintenance of the property were all made from money belonging or credit loaned to the . . . (plaintiff). Such a situation gives rise to a resulting trust.' The plaintiff therefore was entitled to a conveyance, subject however to the defendant's protection against the risk of loss. Scott, Trusts (3d ed.) § 456.2, p. 3393; Bogert, Trusts and Trustees (2d ed.) § 455, p. 535.

2. The clean hands doctrine does not bar the plaintiff's recovery in this case. It is true, as the trial judge found, that the plaintiff conceded he was motivated in this transaction by a desire to keep the property out of the reach of his wife and to avoid a tax lien. But the motivation was immaterial to the establishment of the resulting trust; that arose as a matter of law on the operative facts proved by the plaintiff. And these did not include an express agreement like that on which the plaintiff in Caines v. Sawyer, 248 Mass. 368, 374, 14 N.E. 326 (1924) (cited by the defendant) had to rely in order to prove that his gratuitous transfer to the defendant, absolute on its face and therefore presumptively a gift (Scott, Trusts (3d ed.) § 405, p. 3219; Gould v. Lynde, 114 Mass. 366 (1874)), was subject to an express trust embodied in that agreement. The distinction is explained in Bohaker v. Koudelka, 333 Mass. 139, 142--143, 128 N.E.2d 76, 777 (1955), in which it was argued that 'the petitioner (wa)s not entitled to relief because the conveyance to the testatrix was a fraud on his legal wife, Lulu, and hence he d(id) not come into court with clean hands.' The court said (p. 143, 128 N.E.2d p. 772): 'It is true that the judge found that the petitioner caused the property to be conveyed to the testatrix to keep the land free from any claim or interference by Lulu. We assume that as to her the conveyance was fraudulent. . . . However, since no rights of Lulu are involved in this suit, the petitioner can prevail if he can make out his case without reference to the fraudulent elements in the facts. Lufkin v. Jakeman, 188 Mass. 528, 531--533, 74 N.E. 933; O'Gasapian v. Danielson, 284 Mass. 27, 34, 187 N.E. 107, 89 A.L.R. 1159; Charest v. St. Onge, 332 Mass. 628, 635, 127 N.E.2d 175. In his petition he averred that he paid the entire consideration for the property and caused title to be taken in the name of the testatrix. By proof of these averments, without more, he established his case. The petitioner is not attempting to enforce an express agreement which discloses on its face the fraud in the transaction as in Caines v. Sawyer, 248 Mass. 368, 374, 143 N.E. 326, on which the respondent relies.' ² The court further cited Gerace v. Gerace, 301 Mass. 14, 16 N.E.2d 6 (1938), as being 'to the same effect.' In that case, as in this, the plaintiff proved a loan of credit; the master's findings also established that he was bankrupt and that his motive in taking title in another's name was to avoid creditors. The court said (p. 19, 16 N.E.2d p. 9), 'He made no conveyance of property in fraud of creditors which he is seeking to avoid, so that cases like Verne v. Shute, 232 Mass. 397, 122 N.E. 315; Dunne v. Cunningham, 234 Mass. 332, 125 N.E. 560, and Caines v. Sawyer, 248 Mass. 368, 143 N.E. 326, do not apply. If we assume that the plaintiff's purpose was fraudulent as to creditors, nevertheless, where, as here he can show a prima facie right to the establishment of a resulting trust in the property purchased, without developing the alleged fraud in the transaction, the court will not permit the defendants to set up a fraud against third persons as a defence.' See Williams v. Commercial Trust Co., 276 Mass. 508, 518, 177 N.E. 538 (1931) (also involving a loan of crddit and a resulting trust which the court recognized as binding on the parties, although motivated by a desire to circumvent a statutory restriction on bank holdings); Lufkin v. Jakeman,188 Mass. 528, 532, 74 N.E. 933, 935 (1905) (in which the court answered in the negative the question 'whether a common transaction, the legal effect of which as between themselves is...