Gregory v. Bowlsby
115 Iowa 327, 88 N.W. 822 (1902)
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Rule of Law:
While a mere breach of an oral agreement to hold property in trust is unenforceable under the Statute of Frauds, a constructive trust will be imposed on a grantee when the conveyance was induced by a fraudulent oral promise made with no intention of performing it.
Facts:
- Catherine S. Bowlsby died intestate, leaving real estate to her children (plaintiffs).
- Their father, Benjamin Bowlsby (defendant), asked the children to deed their interests in the land to him.
- Benjamin Bowlsby orally promised he would hold the land, not sell it, and that upon his death it would descend to the children.
- In reliance on this promise, the children executed a deed conveying their interests to their father for a recited consideration of $1.
- Benjamin Bowlsby later married his co-defendant, M. I. Bowlsby.
- He then conveyed an undivided one-third interest in the property to his new wife.
- The children alleged that their father never intended to keep his oral promise and made it for the sole purpose of defrauding them of their inheritance.
Procedural Posture:
- The children (plaintiffs) sued their father, Benjamin Bowlsby, and his new wife in a state trial court, seeking to cancel the deeds and establish a trust.
- The defendants filed a general equitable demurrer (a motion to dismiss), arguing the plaintiffs' claim was barred by the Statute of Frauds because the alleged agreement was oral.
- The trial court sustained the demurrer, dismissing the plaintiffs' petition.
- The plaintiffs (appellants) appealed the trial court's ruling to the Supreme Court of Iowa.
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Issue:
Does a grantee's oral promise to hold land in trust for the grantor, made with the fraudulent intent at the time of conveyance not to perform the promise, create a constructive trust that is enforceable despite the Statute of Frauds?
Opinions:
Majority - Deemer, J.
Yes. A constructive trust arises when a grantee fraudulently procures a deed by making an oral promise to hold the property in trust for the grantors with no intention of carrying it out. The court reasoned that while an express trust concerning land cannot be established by parol evidence due to the Statute of Frauds, and a resulting trust does not apply here, an exception exists for fraud. A mere subsequent refusal to perform an oral agreement is not sufficient to establish fraud, as that would nullify the Statute of Frauds. However, the Statute was not enacted to be a means for perpetrating fraud. Therefore, if there was a fraudulent intent at the inception of the transaction—a preconceived plan to not perform the promise in order to acquire the land—equity will intervene by imposing a constructive trust, treating the grantee as a trustee 'ex maleficio' (a trustee by virtue of his wrongdoing). Because the plaintiffs' petition specifically alleged that the defendant made the promise with the intent to cheat and defraud them from the beginning, it states a valid cause of action for a constructive trust.
Analysis:
This decision establishes a crucial fraud exception to the Statute of Frauds regarding oral promises to hold land in trust. It differentiates a mere unenforceable breach of an oral contract from an actionable tort of fraudulent inducement. By recognizing the doctrine of a constructive trust arising from fraud 'ex maleficio,' the court prevents the Statute of Frauds from being used as a shield to protect a party who obtains property through deceit. This precedent sets a high evidentiary bar for future plaintiffs, who must prove not just a broken promise but a fraudulent intent existing at the time the promise was made, thereby preserving the integrity of the Statute while ensuring equity can remedy clear instances of fraud.
