Lacey v. Van Royen

Smith, J., delivered the opinion of the Court. In this case it is contended that a trial judge erred in concluding that a conveyance was fraudulent as to creditors, the defense, among others, being that actual title was in a mother-in-law and that only bare legal title was in the son-in-law alleged to have made the fraudulent conveyance. We shall affirm the action of the chancellor. Appellants Robert H. Lacey, Jr. (Lacey) and Marianne K. Lacey are husband and wife.

Mrs. Lacey is the daughter of appellant Rose F. Kelly. In 1957 a house and a lot in a subdivision known as “Springfield” in Montgomery County were conveyed to Lacey, his wife, and Mrs. Kelly as joint tenants. The contract of purchase was in the name of Mrs. Kelly alone. Purchase price was $36,477.00.

At the time of settlement Mrs. Kelly paid $12,644.70 to County Title Company, Inc., which apparently handled the settlement. She and Mr. and Mrs. Lacey at the same time executed a purchase money deed of trust to secure repayment of a loan of $25,000.00 from American Security and Trust Company. Interest rate on that loan was 414 percent. The home was occupied by Mr. and Mrs. Lacey, Mrs. Kelly and the Lacey children, of whom there were nine at the time of trial.

Mrs. Kelly testified that she paid with her own funds all of the original down payment. In response to a question as to who made the payments under the deed of trust from early 1957 through early 1967 she said: “Well, sometimes they were made by Mr. Lacey and sometimes they were made by me. If I was making all the other payments some months and he being the father and raising a family and what-not, I assumed a man likes to have some dignity and I wasn’t charging rent, I let him make a payment.” She claimed to have made the majority of payments and ⁸³ answered in the affirmative when asked if Lacey made more than ten. She also claimed to have paid the utility bills and the maintenance expenses of the property and said, “* * * I never gave them any indication that the house was theirs or going to be theirs or anything.” Her explanation of Lacey’s name on the deed was, “At that time it was because he was employed at American Security and Trust Company and we were looking for a mortgage at a low interest rate and that was the only way we could obtain it, by having his name on it.” Mrs. Kelly’s testimony on the matter of title was remarkably brief.

On December 27, 1965, appellee, Irene Fetty Van Royen, gave Lacey the sum of $15,000.00 “to invest in a company of which he was a stockholder and president, the 1707 Management and Investment Company.” In the spring of 1986 she was not satisfied and consulted an attorney. Suit was entered against Lacey and the corporation. A judgment was entered in favor of Mrs. Van Royen against them on July 14,1967. On July 25, 1966, the same day Mrs. Van Royen filed suit, Mr. and Mrs. Lacey and Mrs. Kelly executed a second deed of trust on this land to secure repayment of a loan in the amount of $35,000.00 from Bank of Commerce in Washington.

It appears plain from the testimony that this was the debt of Lacey. On November 25, 1968, American Security and Trust Company filed foreclosure action relative to its deed of trust, the affidavit showing a principal balance of $14,-883.29 then due including interest to June 14,1968. On January 7, 1867, Mr. and Mrs. Lacey and Mrs. Kelly executed a deed to appellant Robert A. Hickey, “Trustee for the sole purpose of reconveyance”, and he in turn executed deed to Mrs. Lacey and Mrs. Kelly as joint tenants. Hickey, an attorney with the Department of Justice, is also a son-in-law of Mrs. Kelly.

He testified that the title search he had done showed the pendency of the Van Royen law suit at the time the deeds were executed. ⁸⁴ On January 7, 1967, Mrs. Kelly and Mrs. Lacey also executed a deed of trust to secure a loan in the amount of $20,000.00 from Enterprise Federal Savings and Loan Association. The Bank of Commerce by then had been merged with National Savings and Trust Company. Its deed of trust was released to secure priority of the Enterprise loan. A new second deed of trust for the benefit of National Savings and Trust Company was then executed in which Mr. Lacey joined with his wife and mother-in-law.

The Enterprise loan was in the amount of $20,000.00 which was said to have been approximately $3,800.00 in excess of the sum needed to pay off American Security and Trust Company. That sum was deposited in an account at the Bank of Bethesda in the name of Mrs. Kelly and Mrs. Lacey and used for living expenses of the parties. On January 25, 1967, permission was granted to the substituted trustee for American Security and Trust Company to dismiss the foreclosure action “with prejudice”. Lacey conceded that he was in serious financial difficulties “in May, June and July of 1966” and that this situation continued up to the date of trial.

He admitted he did not have sufficient assets to pay his debts. The chancellor (Pugh, J.), after hearing all of the evidence, was “of the opinion that the evidence [disclosed] sufficient grounds to justify setting aside the conveyance under either Section 4 or Section 7 of Article 39B of the Annotated Code of Maryland.” Section 4 provides in pertinent part: “Every conveyance made * * * by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the conveyance is made * * * without a fair consideration.” Section 7 provides: “Every conveyance made * * * with actual intent, as distinguished from intent presumed ⁸⁵ in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.” The appellants mount their defense on two grounds. They claim Lacey was seized of no real interest in the property, but was merely a trustee of a resulting trust in favor of his mother-in-law, Mrs. Kelly. If they prove unsuccessful on that, then they contend that the chancellor erred in finding Lacey to be insolvent within the purview of Code (1965 Repl.

VoL), Art. 39B, § 2(1) which states: “A person is insolvent when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured.” The chancellor in reaching his decision said: “Following the rule of Sines et al vs Shipes et al, 192 Md. 139 [ 63 A. 2d 748 (1949)], which stated that family members need not make equal payments in order to share equally in the property, the Court feels that the defendant, Robert Lacey, held more than a bare legal title and was thus capable of making a fraudulent transfer of the subject property.” In Sines, cited by Judge Pugh, the Court held that there was a resulting trust in favor of certain brothers and sisters, notwithstanding their unequal contribution to the fund from which purchases were made. The appellants draw strength and sustenance from a portion of the opinion in that case in which Judge (later Chief Judge) Markell quoted from Fasman v. Pottashnick, 188 Md. 105, 109 , 51 A. 2d 664 (1947), saying: “ ‘It is one of the fundamental principles of equity that where property is purchased, and the legal title is taken in the name of one person, while the purchase price is paid by another, but ⁸⁶ not as a loan to the grantee, nor from any natural or moral obligation to provide for the grantee, a resulting trust arises by implication of law in favor of the person paying the purchase price, unless a different intention is shown. Philbin v. Watson, 129 Md. 497, 501 , 99 A. 675 ; Vogel v. Vogel, 157 Md. 147, 153 , 145 A. 370 . Likewise, where a transfer of property is made to one person, and only a part of the purchase price is paid by another, a resulting trust arises in favor of the person by whom such payment is made in such proportion as the part paid by him bears to the total purchase price, unless he manifests an intention that no resulting trust should arise or that a resulting trust to that extent should not arise.

Johnson v. Johnson, 96 Md. 144 , 53 A. 792 ; 2 Restatement, Trusts, sec. 454.’ ” Id. at 153 of 192 Md. They claim that this is authority for the proposition that the party who pays the purchase price for property but places title in the name of another is the real equitable owner of that property by resulting trust. The burden of proof is on the party seeking to establish the resulting trust, in this instance upon Mrs. Kelly. This can only be done by evidence showing a clear intention of the trust. Mountford v. Mountford, 181 Md. 212, 219 , 29 A. 2d 258 (1942), and cases there cited.

In Powell v. Mackenzie, 137 Md. 266 , 112 A. 290 (1920), Judge Oifutt said for our predecessors: “The rule that where one person takes the title to property, which is paid for by another, in the absence of any facts explanatory of such circumstance, a resulting trust arises in favor of the person supplying the purchase money, is settled beyond question in this State (Dixon v. Dixon, 123 Md. [44,] 55 [, 90 A. 846 (1914)]), but the exception to this rule, that where the person supplying the purchase money is under a natural, moral or legal obligation to provide ⁸⁷ for the person taking the title, the purchase is to be considered as an advancement or a settlement as the case may be, is equally well settled and quite as generally recognized. The cases illustrating the application of these principles are collected and analyzed in the case of Dixon v. Dixon, supra, in which Judge Burke, speaking for the court, says, citing 4 Kent, 306: ‘If the person in whose name the conveyance of property is taken by one for whom the party paying the purchase money is under a natural or moral obligation to provide, no equitable presumption of trust arises from the fact of the payment of the money, but on the contrary the transaction will he regarded, prima facie, as an advancement for the benefit of the nominee. In that case, therefore, it will be for the party who seeks to establish a trust in behalf of the payer of the purchase money to displace by sufficient evidence the presumption that exists in favor of the legal title.’ * * * “This presumption is one of fact and not of law and may therefore be rebutted by proof showing a contrary intention on the part of the purchaser. But the evidence of such an intent should be substantial and convincing, for the ‘principle of law that a purchase is presumed prima facie to be an advancement is not to be frittered away by mere refinements.’ Finch v. Finch, 15 Ves. 43.

And where such an intention is sought to be drawn from declarations of the nominal purchaser the ‘declarations must be direct and certain, and where possible should be corroborated by other facts and circumstances; for courts will not act upon mere declarations if they are conflicting, vague or inconsistent with themselves.’ 1 Perry, Trusts, Sec. 147.” Id. at 270-71. ⁸⁸ Lacey and Mrs. Kelly do not really take issue with the above propositions of law, but say “there is no moral or legal obligation on [Mrs. Kelly] to provide for [Lacey], who is her son-in-law” and from that conclude that a resulting trust is established. Eestatement (Second), Trusts § 442 (1959), states: “Where a transfer of property is made to one person and the purchase price is paid by another and the transferee is a wife, child or other natural object of bounty of the person by whom the purchase price is paid, a resulting trust does not arise unless the latter manifests an intention that the tranferee should not have the beneficial interest in the property.” (emphasis supplied) The comment under § 442 states in relevant part: “a. To what relatives rule is applicable. The application of the rule stated in this