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Friday, September 11, 2009

Unclean Hands Defeat Equitable Reformation of Deed

A recent case handed down in Indiana demonstrates that equitable property doctrines are still alive and well in the common law: Hardy v. Hardy, 910 N.E.2d 851 (Ind. Ct. App. 2009).

Father owned 80 acres of farmland in Cass County, Indiana.  In 2004, Father faced methamphetamine charges in Oklahoma and Indiana, and the possibility of prison time, hefty fines, and the attachment of his land. With the intent of making himself judgment proof and to protect his land from forfeiture, Father transferred 70 of his acres to his Son and Daughter, as joint tenants with rights of survivorship via a warranty deed.  Daughter was 17 at the time and was not informed of the transfer. 

Father, from prison, instructed Son to lease the farmland and the proceeds were deposited in an account for Father's benefit.  Daughter's name was forged on the three leases.  Daughter learned that she was an owner of the land in 2005 when Son asked her to sign a quitclaim deed (without consideration) giving sole title to two acres to Son and his wife so that they could build a home.  Daughter began asking questions of Father and Son about the nature of her interest in the land.  Her questions went unanswered, so in 2008 she filed a complaint requesting partition and sale of the land, an accounting from Son, and an award of any credits owed to her.

Son answered by asking the court to “reform the deed to reflect the intent of the parties including [Father] and [to] impose a constructive trust to protect the interests of Father, Son, and Daughter.”  Son also moved for Father to join as a real party in interest, which the court granted.  Father claimed that he intended to deed the land to Son and Daughter subject to a life estate.  The trial court found that any mistake by Father in the original conveyance was a unilateral mistake of law and granted Daughter's petitions.  Father and Son appealed, claiming that the decision was clearly erroneous. 

The Indiana Court of Appeals was not persuaded by Father's claim that he intended to reserve a life estate for himself, noting that the trial record clearly established that Father's intent was to "place his property beyond the reach of his creditors-specifically, to evade government efforts to seize or lien his land."  Retaining any ownership interest in the land would have defeated that purpose. 

Father's attempt to appeal to equity was equally unsuccessful.  The Court of Appeals noted the old maxims that "whomever seeks equity must do equity" and "one who comes into equity must come with clean hands."  Finding that Father's actions were hardly equitable or clean, the appellate court found that the trial court decision was not clearly erroneous.

I'm a fan of equity, and it is is nice to see that the old rules are still getting some action.

Tanya Marsh

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