Gregory v. Bowlsby - 115 Iowa 327, 88 N.W. 822 (1902)

Rule:

The statute of frauds was not enacted as a means for perpetrating a fraud; and, if fraud in the original transaction is clearly shown, the grantor will be held to be a trustee ex maleficio. If, then, there was a fraudulent intent in procuring the deed without intention to hold the land as agreed, and pursuant to that intent the grantee disposed of the property, or otherwise repudiated his agreement, equity will take from the wrongdoer the fruit of his deceit by declaring a constructive trust. Mere breach or denial of the oral agreement does not constitute a fraud. It seems to be requisite that there should have been an agency, active or passive, on the part of the grantee, in procuring the deed. There must be an element of positive fraud accompanying the promise, and by means of which the acquisition of the legal title is wrongfully consummated. Breach of the agreement may, of course, be considered, but it is not alone sufficient. There must be also some clear and explicit evidence of fraud or imposition at the time of the making of the conveyance to constitute the purchaser a trustee ex maleficio.

Facts:

Plaintiff grantors were the children and heirs at law of the grantee, Benjamin Bowlsby, and the grantee's first wife. The grantee’s first wife died. The grantors alleged that they deeded their interest in their mother's real estate to the grantee and that the grantee verbally agreed not to sell the land. The grantee also made a representation that at his death, the accumulations should descend to the plaintiffs. Plaintiff grantors also alleged that the conveyance was induced by the representations, and that there was no other consideration, though the deed recited one. The grantee then conveyed to his second wife an undivided one-third interest in the property received from the grantors. The grantors filed the instant action, seeking to cancel the deed made by the them to the grantee. The district court sustained the demurrer of the grantee and the grantee’s second wife. 

Issue:

Did the district court properly sustain the demurrer of the grantee and the grantee’s second wife? 

Answer:

No.

Conclusion:

The court held that the trial court improperly sustained defendants' demurrer. The court first held that because the deed from the grantors to the grantee was absolute on its face and recited the payment of a valuable consideration, the grantors were not allowed to establish a trust by showing that there was in fact no consideration but a parol agreement to hold the title in trust. However, the petition on its face recited facts showing a constructive trust, growing out of defendants' alleged fraud. The petition charged that, with intent to cheat and defraud, the grantee made the representations charged, fully intending at the time he made them not to carry them out, but to obtain the title to the land. Accordingly, a demurrer thereto should have been overruled.