Supreme Court Seal
South Carolina
JUDICIAL DEPARTMENT
Site Map | Feedback
24678 - Hayne Federal Credit Union v. Bailey et al.

Davis Adv. Sh. No. 24
S.E. 2d

THE STATE OF SOUTH CAROLINA

In The Supreme Court

Hayne Federal Credit Union,

Appellant,

v.

Lynda Hutchins Bailey, a/k/a

Lynda Hutchins Smith, Harold E.

Bailey, Karen Kristen Bailey,

National Welders Supply

Company, Inc., United States

Fidelity and Guaranty Company,

and Pennsylvania National Mutual

Insurance Company,

Respondents.

Appeal From Sumter County

William M. Reynolds, Jr., Special Referee

Opinion No. 24678

Heard June 4, 1997 - Filed August 11, 1997

REVERSED AND REMANDED

Charles E. Carpenter, Jr. and Deborah H. Sheffield, both of Richardson,

Plowden, Carpenter & Robinson, P.A., of Columbia; Jack W. Erter, Jr.,

of Lee, Wilson, and Erter, of Sumter, all for Appellant.

Linwood S. Evans, Jr., of Sumter, for Respondents.

TOAL, A.C.J.: In this foreclosure action, Hayne Federal Credit Union ("Credit

Union") appeals from the order of the special referee who held that Harold Bailey

("Father") owned the property in dispute by virtue of a resulting trust. We reverse and

remand.

p68

HAYNE FEDERAL CREDIT UNION v. BAILEY, et al.

FACTUAL/PROCEDURAL BACKGROUND

Father contracted to purchase a house located on Pumpkin Lane in Sumter County.

He had put down $25,000 in earnest money to make the purchase. The real estate agent

involved in the transaction indicated that Father had told her to prepare the contract

identifying Father's son, William E. Bailey ("Son"), as the purchaser. The closing

attorney testified that his primary contact was with Father. At the closing, which Son

attended, Father produced a briefcase containing $73,000 in cash to pay off the balance

on the house.

Although Father paid for the house, the deed was put in Son's name. The closing

attorney testified that Father was buying the property and putting it in Son's name because

of business problems. In his pleadings in the present case, Father declared that he

instructed the closing attorney to place the title in Son's name "as an accommodation and

for protection against the claims of potential lien and judgment creditors." At trial, he

testified that "The real reason I put the house in my son's name was to keep my wife from

getting it . . . ." He further indicated that he had been advised not to have any houses in

his own name in the event he remarried.

Father occupied the house. He paid the insurance and taxes on the property. Father

testified that Son never helped him financially or physically with the house, nor did Son

ever occupy the residence.

Son died in June 1987. Son's will devised all of his property to his wife Lynda

Hutchins Bailey ("Lynda"). Father did not make a claim against Son's estate as to the

Pumpkin Lane property.

In 1990, Lynda applied for a loan in the amount of $17,000 from Credit Union,

where she was employed at the time. The loan was to be secured by the Pumpkin Lane

property. Credit Union required an attorney to certify the title. Lynda's attorney did a

title search and certified that the mortgage was a first lien on the property and that Lynda

was the fee simple title owner. Credit Union approved the loan, and the mortgage was

recorded in the Sumter County RMC office.

Sometime thereafter, Lynda filed for bankruptcy. Father filed a claim with Lynda's

bankruptcy trustee, asserting ownership of the Pumpkin Hill property. In April 1994, this

claim in bankruptcy court was settled for approximately $12,000. The settlement

statement declared that "the Trustee will transfer the estate's interest in the real property

by Trustee's deed, without warranties, to [Father] subject to a first mortgage to Hayne

Federal Credit Union of Spartanburg, South Carolina and Bailey will pay to the Trustee

$11,000 [sic] lump sum." This settlement was approved by the bankruptcy court.

p69

HAYNE FEDERAL CREDIT UNION v. BAILEY, et al.

In August 1994, Credit Union commenced this foreclosure action. Father answered

and counterclaimed, contending that he owned the Pumpkin Hill property by virtue of a

resulting trust. The matter was referred to a special referee. The referee found that Father

owned the property and canceled Credit Union's lien on the property. Credit Union has

appealed and presents, among others, the following issues:

It argues that Father is not entitled to avoid Credit Union's lien on the property

because:

1. A resulting trust was not created inasmuch as Father did not rebut the

presumption that he made a gift by titling the property in Son's name.

2. A resulting trust was not created because Father placed title in Son's name to

avoid creditors and/or to defraud his wife,

3. Father is by virtue of judicial estoppel precluded from claiming ownership of the

property.

LAW/ANALYSIS

A mortgage foreclosure is an action in equity. Collier v. Green, 244 S.C. 367, 137

S.E.2d 277 (1964). Our scope of review of a case heard by a master who enters a final

judgment is to determine facts in accordance with our own view of the preponderance of

the evidence. See Tiger, Inc. v. Fisher Agro, Inc., 301 S.C. 229, 391 S.E.2d 538 (1989).

A. RESULTING TRUST: PRESUMPTION OF GIFT

Credit Union argues that a resulting trust was not created because Father did not

rebut the presumption that he made a gift by titling the property in Son's name. We

disagree.

Equity devised the theory of resulting trust to effectuate the intent of the parties in

certain situations where one party pays for property, in whole or in part, that for a

different reason is titled in the name of another. McDowell v. South Carolina Dep't of

Social Servs., 296 S.C. 89, 370 S.E.2d 878 (Ct. App. 1987). The general rule is that

when real estate is conveyed to one person and the consideration paid by another, it is

presumed that the party who pays the purchase money intended a benefit to himself, and

accordingly a resulting trust is raised in his behalf. Caulk v. Caulk, 211 S.C. 57, 43

S.E.2d 600 (1947). The presumption, however, may not be in accord with the truth. It

may be rebutted and the actual intention shown by parol evidence. Larisey v. Larisey, 93

S.C. 450, 77 S.E. 129 (1913).

But when the conveyance is taken to a spouse or child, or to any other person for

whom the purchaser is under legal obligation to provide, no such presumption attaches.

p70

HAYNE FEDERAL CREDIT UNION v. BAILEY, et al.

On the contrary, the presumption in such a case is that the purchase was designated as a

gift or advancement to the person to whom the conveyance is made. Lollis v. Lollis, 291

S.C. 525, 354 S.E.2d 559 (1987). This presumption, however, is one of fact and not of

law and may be rebutted by parol evidence or circumstances showing a contrary intention.

Legendre v. South Carolina Tax Comm'n, 215 S.C. 514, 56 S.E.2d 336 (1949).

Father argues that the presumption of a gift where the conveyance is to a child, as

here, does not apply when the child is an emancipated adult. We disagree. Rather, we

concur with the view expressed in Scott on Trusts, which declares that "Where a parent

purchases property in the name of his child, a gift is presumed even though the child is an

adult to whom the parent owes no duty of support." 5 William F. Fratcher, Scott on

Trusts § 442 at 183 (4th ed. 1989). Therefore, in the present case, the presumption of a

gift in favor of Son exists. Nevertheless, Father may rebut the presumption by showing

a contrary intention.

We find that Father has presented clear and convincing evidence that the

conveyance was not intended as a gift, but that he intended to benefit himself. Father

handled the entire transaction in purchasing the property. He dealt directly with the real

estate agent and the closing attorney. He occupied the house after the purchase. He paid

the insurance and the taxes on the property. Son just showed up for the closing. There

was no evidence Son actually occupied the premises or that he ever helped Father

financially or physically with the house. Accordingly, Father has rebutted any

presumption of a gift to Son.

B. RESULTING TRUST: DEFRAUDING CREDITORS AND WIFE

Credit Union argues that Father cannot establish a resulting trust because he placed

title in Son's name to defraud creditors or his wife. We agree.

Fraud can defeat a resulting trust, as was implied in Elrod v. Cochran, 59 S.C. 467,

472, 38 S.E. 122, 124 (1901)("The testimony does not show that Sue Cochran intended

to place any of her husband's property out of the reach of his creditors, but to prevent

them from unlawfully intermeddling with her property . . . .There was, therefore, no

fraud on her part . . . ... )(emphasis in original). This is consistent with holdings from

other jurisdictions: "It has been held in numerous cases that where A purchases property

and takes title in the name of B for the purpose of defrauding his creditors, A cannot

enforce a resulting trust." 5 Scott on Trusts § 444, at 199.

Father's own pleadings and testimony establish that he had placed the property in

Son's name in order that creditors and his wife would not be able to reach it. In his

answer, Father declares that he instructed the closing attorney to place the title in Son's

p71

HAYNE FEDERAL CREDIT UNION v. BAILEY, et al.

name "as an accommodation and for protection against the claims of potential lien and

judgment creditors. " At trial, he testified that he "didn't want [his] wife to get a hold of

that property. " Under such circumstances, this Court finds that the resulting trust is

negated by Father's fraudulent actions.

Father contends that Credit Union's argument is unpreserved because it failed to

affirmatively plead the defense of fraud. We conclude, under the facts and procedural

posture of this case, that Credit Union was not required to plead the defense. Credit Union

commenced a foreclosure action. Father answered and counterclaimed, asserting a

resulting trust. The existence of the resulting trust could be rebutted by a showing of fraud

on the part of Father. Thus, Father could only make out a resulting trust if he did not

engage in fraudulent acts in effecting the trust. The well-known maxim, "He who seeks

equity must do equity, " is applicable here. Cf. Taff v. Smith, 11 4 S. C. 306, 103 S. E. 551

(1920). Accordingly, Credit Union was not required to affirmatively plead the defense of

fraud.

C. JUDICIAL ESTOPPEL

Credit Union argues that Father is precluded from claiming ownership of the

property because he swore in a prior divorce proceeding that he had no legal interest in the

property and that Son owned the property. Credit Union urges the court to apply the

doctrine of judicial estoppel.

Judicial estoppel precludes a party from adopting a position in conflict with one

earlier taken in the same or related litigation. See Colleton Reg. Hosp. v. MRS Med. Rev.

Syst., 866 F. Supp. 896 (D.S.C. 1994). The purpose or function of the doctrine is to

protect the integrity of the judicial process or the integrity of courts rather than to protect

litigants from allegedly improper or deceitful conduct by their adversaries. 31 C.J.S.

Estoppel & Waiver § 139, at 593 (1996). Judicial estoppel generally applies only to

inconsistent statements of fact. Cannon v. H.K. Porter Co., 705 F. Supp. 288 (E.D. Va.

1989). Although some courts have held to the contrary, the doctrine does not apply to

conclusions of law or assertions of legal theories. See United States v. Siegel, 472 F.

Supp. 440 (N.D. Ill. 1979).

Our research of South Carolina case law has not revealed an explicit discussion of

judicial estoppel; however, there are opinions alluding to the doctrine. For example,

Boykin v. Prioleau, 255 S.C. 437, 179 S.E.2d 599 (1971) intimated that the doctrine exists

in this state: "The defense of judicial estoppel has not been raised, and the facts appearing

here would not support it." Id. at 441, 179 S. E. 2d at 601; see also Zimmerman v. Central

Union Bank, 194 S.C. 518, 532, 8 S.E.2d 359, 365 (1940)("[W]here a party assumes a

certain position in a legal proceeding, and succeeds in maintaining that position, he may

p72

HAYNE FEDERAL CREDIT UNION v. BAILEY, et al.

not thereafter, simply because his interests have changed, assume a contrary position. ").

We now explicitly adopt the doctrine of judicial estoppel as it relates to matters of

fact (not law). In order for the judicial process to function properly, litigants must

approach it in a truthful manner. Although parties may vigorously assert their version of

the facts, they may not misrepresent those facts in order to gain advantage in the process.

The doctrine thus punishes those who take the truth-seeking function of the system lightly.

When a party has formally asserted a certain version of the facts in litigation, he cannot

later change those facts when the initial version no longer suits him. It is certainly

conceivable that parties may want to present novel legal theories, which may require

changing one's previous legal theory.1 However, the truth-seeking function of the judicial

process is undermined if parties are allowed to change positions as to the facts of the case,

unless compelled by newly-discovered evidence. The present case offers a vivid

illustration.

In 1988, Father's wife filed for divorce. The petition made reference to "the

marital dwelling at 111 Pumpkin Lane." In his answer, Father stated he "has no legal

interest" in the Pumpkin Lane property and that "The said property is owned by William

E. Bailey, son of the Respondent, who allows his father to reside there. " When questioned

in the present action about the divorce pleadings, Father admitted that he lied under oath

in order to protect his interest. Under the doctrine of judicial estoppel, because Father

previously claimed that Son owned the property, but now claims he owns the property,

then Father would be estopped from asserting the latter claim.

Accordingly, we are compelled to reverse this matter. Because of the disposition

of the above issues, it is unnecessary for us to reach the other issues appealed.

CONCLUSION

For the foregoing reasons, the order of the special referee canceling Credit Union's

lien is REVERSED, and the matter is REMANDED to proceed with foreclosure of the

property to satisfy the lien.

WALLER, A.J., BURNETT, JJ., and Acting Associate Justices

George T. Gregory, Jr., and Thomas J. Ervin, concur. __________________________

1 The discussion here is not intended to suggest an alteration of our rules of

preservation.

p73