DiLucia v. Clemens

BECK, Judge:

This case raises issues related to the creation of an express trust within a business context, the revocation of the trust by oral agreement, and the applicability of laches to the trust.

Appellant DiLucia brought an action in equity to enforce a written declaration of trust:

DECLARATION OF TRUST

I, Alvin H. Clemens, hereby declare to hold IN TRUST Two Thousand (2,000) shares of Unicom, Inc.’s stock for the equitable owner, Anthony M. DiLucia, with a duty to transfer legal title to said two thousand (2,000) shares to Anthony M. DiLucia thirty-six months from this date. Dated: 4/2/68

DiLucia, a building contractor, constructed certain improvements at the request of appellee Clemens to the offices of Unicom, Inc. (“Unicom”), a corporation of which Clemens was an officer and principal shareholder. In April 1968 DiLucia was compensated for this work, and in addition Clemens created the declaration of trust obligating himself as trustee to transfer 2,000 shares of Unicom to DiLucia. At the time of the creation of the trust the stock was restricted. DiLucia paid $2,000 for the stock which was its fair market value. At the time and all relevant times thereafter, Clemens personally held in excess of 25,-000 shares of stock in the corporation. The shares were fungible. Clemens made no attempt to segregate DiLucia’s 2,000 shares. In June 1972, Unicom began to offer its shares on the public market. Clemens did not transfer legal title of the shares to DiLucia pursuant to the declaration of trust.

Thereafter, the facts are disputed. Clemens alleges that he and DiLucia agreed on a settlement of various claims from subsequent business transactions which "included a release of DiLucia’s rights under the 1968 declaration of trust. DiLucia acknowledges the settlement but denies he relinquished his claim to the Unicom shares. In 1981, DiLucia requested the delivery of the shares. Clemens refused, and DiLucia brought this action in equity to enforce the trust.

The trial court denied DiLucia relief. It found that the settlement included a release by DiLucia of any claims for Unicom stock and for the $2,000 DiLucia had paid in 1968. It also concluded that the declaration of trust did not establish a trust but instead established a contract. The trial court further concluded that DiLucia failed to pursue his claim within the applicable statute of limitations for the contract and that Clemens was prejudiced by DiLucia’s delay. DiLucia’s timely exceptions were dismissed and DiLucia appealed.

Our standard of review as to the findings of a court in equity is well established. “Facts found by the chancellor, when supported by competent evidence in the record, are binding. However, no such deference is mandated for conclusions of law, and we are at liberty to review such conclusions.” Presbytery of Beaver-Butler v. Middlesex Presby. Church, 507 Pa. 255, 266, 489 A.2d 1317, 1323 (1985), cert. denied 474 U.S. 887, 106 S.Ct. 198, 88 L.Ed.2d 167 (1985). We will not reverse on appeal unless the trial court abused its discretion or committed an error of law. Valley Forge Hist. Soc. v. Washington Mem. Chapel, 330 Pa.Super. 494, 479 A.2d 1011 (1984).

I. CREATION OF THE TRUST

We first consider whether the trial court erred in concluding that a valid trust was not created and that the purported trust was actually a contract. The trial court reasoned that a valid trust was not created because there was no identifiable res. The court reasoned that the shares were not identified or segregated. Furthermore, the court reasoned that at the time of the creation of the trust, the stock was restricted and therefore not transferable into the trust. We find the court’s rationales and conclusion to be without foundation.

An analysis of the creation of a trust generally begins with a consideration of the intent of the parties. E.g., Buchanan v. Brentwood F.S. & L. Assoc., 457 Pa. 135, 320 A.2d 117 (1974). Clemens concedes that he intended to create a trust. Id., 457 Pa. at 143-44, 320 A.2d 117 (citations omitted). In the case sub judice however, Clemens does not argue lack of intent to create a trust relationship.

An essential element in the creation of a trust is the existence of the subject matter or res of the trust at the time the trust is created. It is axiomatic that a “trust arises when by a sufficient declaration of its terms, the three following elements concur: sufficient words to create it, a definite subject matter, and a certain or ascertained object.” Pugh v. Gaines, 156 Pa.Super. 613, 615, 41 A.2d 287, 288 (1944). “A trust cannot be created unless the subject matter is definite or definitely ascertainable.” Restatement (Second) of Trusts § 76 (1959).

The subject matter or res of the trust is 2,000 shares of Unicom which, under the terms of the trust, Clemens was under a duty to transfer to DiLucia. Although Clemens never segregated, designated or described the shares specifically, the identity of the shares was clear and the description sufficient because the shares were fungible. It is immaterial that no specific shares were isolated and held in trust.

It is the identity of the [trust] fund, not of the pieces of coin or bank notes, that controls____ Where the agent has mingled his own property with that of the principal, the latter may reclaim from the admixture an amount equal to his own, although it may not be the same identical property____ and where a trustee has mingled trust funds with his own, and afterward takes sums from the common mass for his own use, it will be presumed, so long as the mass is as large as the original trust funds, that the sum so taken was his own and not the trust funds.

Vosburgh’s Estate, 279 Pa. 329, 333, 123 A. 813, 815 (1924). See Rollestone v. National Bank of Commerce, 299 Mo. 57, 252 S.W. 394 (1923) (valid declaration of trust when owner of over a million shares of mining stock stated that he was carrying 10,000 shares of said fungible stock at a fixed price for his friend who had assisted him in raising the money to purchase some shares; the stock was not more specifically described); see also, People v. Lyon, 82 A.D.2d 516, 442 N.Y.S.2d 538 (1981) (prohibition against commingling is not a sine qua non of a trust). It is not fatal to the creation of the trust that Clemens failed to segregate specific shares.

Alternatively, the trial court reasoned that even if it were not necessary for Clemens to segregate the shares of stock, the trust res did not come into existence, because at the creation of the trust, the 2,000 shares were restricted, and their transfer into the trust was impossible.

Although it is hornbook law that a trust can not be created with property that is not transferable into the trust, Restatement (Second) of Trusts 79 (1959), we find that it is unnecessary to address whether the restricted shares in question were transferable,¹ because, “[i]n the case of declarations of trust, [where] the declarant already owns the property no transfer of title to a trustee is need. He ceases to hold for his own benefit and thereafter holds for the benefit of another.” BOGERT, HORNBOOK ON TRUSTS, § 32 (6th ed. 1987). Since Clemens was both settlor and trustee, no specific transfer into the trust was required. We therefore conclude Clemens held the shares in trust for DiLucia whether or not the restriction permitted transfer of the shares. The trial court therefore erred in concluding that a valid trust was not created.

II. REVOCATION OF THE TRUST

We now consider whether there is sufficient evidence in the record to support the trial court’s finding that the parties revoked the trust by oral agreement. Having averred revocation or release as an affirmative defense, Clemens is charged with the burden of proof on the question. We note initially that a trust may be orally revoked. Estate of Vittorio, 290 Pa.Super. 329, 434 A.2d 777 (1981) (Totten trust). However, “the declaration relied upon to terminate a ... trust must clearly, unequivocally and decisively establish a present disaffirmance and revocation thereof.” Id., 290 Pa.Super. at 335, 434 A.2d at 781. Although Vittorio applied this standard where a tentative trust was at issue, the protection that the law affords a trust relationship mandates application of this standard to the express trust sub judice.

The record reveals that Clemens testified that at a settlement in 1976, he and his father paid $200,000 to DiLucia and business associates of DiLucia for property worth $160,000 to satisfy certain unrelated options and debts. Clemens asserts that under the settlement DiLucia also released claim to the 2,000 Unicom shares in trust. Clemens testified vaguely that the transaction was to “clear the decks” and that he understood that DiLucia had waived his claim to the 2,000 shares. N.T., March 3,1986 at 74-75, 81-82, 87. Although Clemens testified to the location of the settlement meeting, he did not testify clearly and with specificity that DiLucia released his claim to the 2,000 shares. Moreover, Clemens’ testimony is not consistent with his conclusion that the $200,000 would “clear the decks” because Clemens also testified that he made additional payments to the DiLucia business associates in relation to the unrelated option agreements, thereby raising the inference that the $200,000 payment did not “clear the decks.” The testimony about the release is vague and uncertain. We find that the record evidence does not clearly, unequivocally and decisively support an oral revocation of the trust. Therefore, the trial court’s finding that the settlement released Clemens from his obligation under the declaration of trust cannot be sustained.

III. LACHES

Lastly we consider whether the trial court erred in concluding that DiLucia’s claim was barred by laches. Laches may be applicable to enforcement of a trust instrument. Truver v. Kennedy, 425 Pa. 294, 229 A.2d 468 (1967); Kehoe v. Gilroy, 320 Pa.Super. 206, 467 A.2d 1 (1983). In order to prevail on his assertion of the equitable defense of laches, Clemens must establish both undue delay from DiLucia’s failure to exercise due diligence and prejudice resulting from the delay. Nicholson Co. v. Pennsy Supply, Inc., 362 Pa.Super. 307, 524 A.2d 520 (1987). Application of “laches does not depend upon the fact that a certain definite time has elapsed since the cause of action accrued, but whether, under the circumstances of the particular case, the complaining party is guilty of want of due diligence in failing to institute his action to another’s prejudice.” Truver, 425 Pa. at 309, 229 A.2d at 475.

The record reveals that under the 1968 declaration of trust Clemens had a duty to transfer legal title of the stock to DiLucia in 1971. Ten years later, in 1981, DiLucia first made a demand for transfer. He testified that he regarded the declaration of trust as the equivalent of the 2,000 shares and that he simply put the declaration of trust with his other stock certificates. He asserted he made the demand for the shares only after he decided to sell them.

Our first inquiry is whether the ten-year time interval prejudiced Clemens. We conclude that Clemens failed to meet his burden of showing prejudice. We therefore need not examine whether, under the circumstances of the instant case, the ten-year interval constituted an undue delay due to lack of due diligence. See Leedom v. Thomas, supra.

To show prejudice, Clemens must show that “some change in the condition or relations of the parties [occurred] during the period the complainant unreasonably failed to act.” Kehoe v. Gilroy, 320 Pa.Super. at 208, 467 A.2d at 5 (quoting Leedom v. Thomas, 473 Pa. 193, 200, 373 A.2d 1329, 1332 (1977)).

The prejudice required is established where, for example, witnesses die or become unavailable, records are lost or destroyed, and changes in position occur due to the anticipation that a party will not pursue a particular claim.

Class of 200 Admin. Fac. Mem. v. Scanlon, 502 Pa. 275, 279, 466 A.2d 103, 105 (1983) (citations omitted). Clemens failed to show any change in position because DiLucia did not pursue his rights under the declaration of trust more promptly. Clemens’ testimony indicates that the delay made it difficult for him to locate certain option agreements. However, Clemens never established the relevance of those agreements to the trust. In addition, Clemens argued that the cost of delivering the shares in 1981 was higher than in 1971, as was his attendant tax liability. Since throughout the relevant time period, he retained at least 25,000 shares, any increase in value was unrealized. He failed to show any reliance on this increase in value. Moreover, his argument that he would be prejudiced by an increase in tax liability is merely a bald assertion. The vague assertion of a difference in tax liability and the difficulty in finding documents with unestablished relevance to the trust do not establish the required showing of prejudice.

Order reversed. Case remanded so that the court may consider appropriate relief. Jurisdiction relinquished.

CIRILLO, President Judge, files a concurring opinion.

1 . We note that the record is devoid of any information regarding the nature and purpose of the restriction.