Plaintiff purchased a house. The "Bank" foreclosed on the property. Plaintiff approached his uncle, Defendant, and asked him to purchase the property on his behalf from the Bank and then sell the property back to him for the same price paid to the bank. Plaintiff testified that Defendant verbally agreed to do so. Plaintiff admitted that the redemption price for the property at that time was over $500,000 and that he had no intention of redeeming the property for that amount. He testified that Defendant agreed to purchase the property on his behalf and that he provided instructions to Defendant on how to go about making the purchase. The alleged agreement was never reduced to writing. Further, in contrast to Plaintiff's assertions, Defendant testified that although Plaintiff had approached him about purchasing the property on his behalf, he never agreed to do so and instead decided to purchase the property for himself. It is undisputed that Defendant purchased the property for $130,000 and that he did not convey it to Plaintiff.
While plaintiff acknowledged that he only had an oral agreement with defendant, he argued that the statute of frauds did not bar enforcement of the contract because the circumstances justified imposition of a constructive trust in his favor. The court disagreed, noting that, because a constructive trust is an equitable remedy, a party seeking a constructive trust must come in with clean hands. Further, courts will not grant equitable relief on a verbal agreement where, as here, the agreement would have been unenforceable if written. A contract that involves an improper subject matter that contradicts public policy is not valid.
A contract entered for the purpose of defrauding a third party contradicts Michigan's public policy. While plaintiff had no contractual obligation to disclose his relationship to defendant to the bank, it was clear that he was trying to regain title to the property for significantly less than what he owed the bank. Further, a party may not avoid the application of the clean hands doctrine by arguing that the other party also has unclean hands.
Are you involved in a real estate dispute? Are you seeking a resolution to a property litigation matter? If you are facing mortgage foreclosure or real estate litigation, seek the advice of an experienced and skilled real estate litigation attorney.