Decided: April 17, 2014
The Fourth Circuit reversed the district court’s finding that a resulting trust severed the plaintiff’s legal and equitable interests in property. Thus, the Fourth Circuit stated that the district court’s judgment was vacated and remanded the case back to district court.
On May 10, 2001, the plaintiff and her husband (the Pfisters) acquired property in Greer, South Carolina (SC), which they put in their names, and then leased to her husband’s wholly owned corporation, Architectural Glass Construction, Inc. (AGC). AGC made its rental payments directly to the bank, and not the Pfisters. The Pfisters subsequently refinanced the property’s mortgage several times, with the names of the borrowers differing on multiple occasions by listing the Pfisters, AGC, or both as the borrower. On December 31, 2008, AGC received an $87,000 loan from Greer State Bank, and the Pfisters listed the property as collateral. However, the attorney realized that AGC could not grant the mortgage because it was not listed on the property’s deed. To fix this issue, the Pfisters deeded the property to AGC in exchange for ten dollars consideration. The plaintiff then declared bankruptcy seven months later, and the bankruptcy trustee moved to set aside the transfer as a constructively fraudulent conveyance because she disposed of the property for nominal consideration when her interest was worth $270,000. The bankruptcy court agreed with the trustee and ordered AGC to reimburse the bankruptcy estate. However, the district court found that AGC’s use of the property and payment of the mortgage warranted reversal, stating that the facts created a resulting trust under which AGC held equitable title to the property and the plaintiff held only bare legal title. Thus, the district court found that the plaintiff’s interest lacked any value when she conveyed it such that she did not make a voidable, constructively fraudulent conveyance in 2008. The trustee appealed.
On appeal, the Fourth Circuit stated that the Bankruptcy Code permits a bankruptcy trustee to recover property the debtor fraudulently conveyed before filing a petition for bankruptcy. 11 U.S.C. §§ 544 & 548. The alleged constructive fraud occurs when an insolvent debtor, in the two years before filing for bankruptcy, transfers an asset for less than “reasonably equivalent value.” Id. § 541(a)(1)(B). If the debtor transfers an asset for less than “reasonably equivalent value,” the trustee may avoid the transaction, and the debtor must either surrender the property or provide the trustee with its cash equivalent. Under SC law, the general rule is that when real estate is conveyed to a spouse, the presumption is that the property was supposed to be a gift or advancement. Caulk v. Caulk, 43 S.E.2d 600, 603 (S.C. 1947). Here, AGC paid for the property deeded to the Pfisters, and plaintiff’s husband is the sole owner of AGC. Thus, SC law presumes that the property was intended as a gift to the plaintiff. However, the gift presumption may be rebutted by clear evidence that a gift was not intended. In order to overcome the gift presumption and establish a resulting trust, a party must prove by clear and convincing evidence that (1) it paid for the property, (2) with the intent to own it, and (3) on the date of purchase. Although AGC committed to pay for the property under post 2001 mortgages, and intended to be the owner of the property after the 2008 transfer, the facts presented did not show that all of the requirements were met on the date the property was purchased in May 2001. First, the property was entirely financed by BB&T on the date of purchase, and neither the Pfisters nor AGC paid for the property on the date it was purchased. Second, at the time the property was purchased a rental agreement was propositioned indicating that AGC served as the property’s tenant, not the property’s owner, further proving that AGC did not intend to own the property on the date of its acquisition. Thus, the Fourth Circuit concluded that the bankruptcy court did not clearly err when determining that there was no justification for a resulting trust.
-Alysja S. Garansi