In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 07-1995

HONG KONG ELECTRO-CHEMICAL WORKS, LTD.,

Plaintiff-Appellant,

v.

GARRY LESS, et al.,

Defendants-Appellees.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 05 C 3582—Samuel Der-Yeghiayan, Judge.

____________

ARGUED JANUARY 16, 2008—DECIDED AUGUST 27, 2008

____________

Before MANION, WOOD, and SYKES, Circuit Judges.

WOOD, Circuit Judge. This appeal is part of a long effort

by Hong Kong Electro-Chemical Works, Ltd. (“HKEW”) to

get paid for goods that it sold to defendant Garry Less and

a business he and his wife Michelle ran under the name

Todd Industries. (We refer to them all as Less, unless the

context requires otherwise.) The district court found that

Less owes HKEW $166,252.88 plus interest. Less did not

pay, leading HKEW to search for assets that would satisfy
2 No. 07-1995

its judgment. The dispute here centers on a house that Less

and his family occupied and arguably owned. The district

court rejected HKEW’s claim that a 2002 conveyance of

that house to Michelle Less’s mother, Charlene Werner,

and a later 2006 conveyance of the same house to Roth

Holdings, LLC, were fraudulent transfers and were

voidable under the Illinois Uniform Fraudulent Transfer

Act (IUFTA), 740 ILCS 160/1 et seq. We reverse.

I

Garry Less earned a significant sum of money in 1988

as a commodities trader. He failed, however, to set aside

enough money to pay his taxes, and as 1989 opened, his

luck ran out. Less wound up with tax debts he could not

pay, liens imposed by the IRS, and a young family to

support. During this period, Less refrained from purchasing a house in his own name. Instead, Less and his

wife Michelle entered into an agreement with Werner,

under which Werner would purchase a house for the

Lesses to live in and the Lesses would cover the mortgage

payments. This led to the 2002 conveyance at issue here. In

that year, Werner purchased from Scott Warren (an

unrelated third party) a house in Riverwoods, Illinois, that

Garry picked out. The Lesses moved in and made the

mortgage payments for the next few years.

In the meantime, Less went into business as an importer

of frying pan handles. He conducted this business through

Todd Industries, a corporation wholly owned by Michelle.

In July 2000 the corporation was dissolved by the Illinois

Secretary of State for failure to file an annual report and
No. 07-1995 3

pay statutory fees. After dissolution, Less nonetheless

entered into a contract supposedly on behalf of Todd

Industries to purchase frying pan handles from HKEW; in

that agreement, he misrepresented the legal status of Todd

Industries. After receiving the wares, neither Less nor

Todd Industries paid for them. In June 2005 HKEW

(relying on diversity jurisdiction) filed a breach of contract

claim against Less, Michelle, and Todd Industries to

recover $166,252.88.

While that suit was pending, Less made arrangements

for the Riverwoods house to be sold to his lawyer, Mitchell

Roth. Roth purchased the house through his wholly-owned

corporation, Roth Holdings, LLC. (When appropriate, we

refer to them collectively as “Roth.”) Mitchell Roth is,

according to Less, a very old and close friend of Less, as

well as the registered agent for Todd Industries. Roth’s law

firm was handling the litigation with HKEW for Less. A

central condition of the sale of the house was that the Less

family be permitted to remain on the premises. (In looking

for a buyer who was amenable to this arrangement, Less

also approached the accounting firm that handled his

taxes and another party whose relationship to Less is

uncertain; both declined.) In 2006, Less signed the sale

contract as “attorney-in-fact” for Werner. (This is the

transaction referred to in these proceedings as the 2006

conveyance.) Less also signed the lease from Roth to the

Lesses, which required the Lesses to pay all mortgage, tax,

and other expenses of the property and gave them an

option to buy the property within a year. Notably, in the

meantime the IRS liens had been extinguished by operation of law; this meant that Less could once again own
4 No. 07-1995

property without worrying that the IRS would seize it in

satisfaction of his debt for the 1988 taxes. As of the time

the district court awarded summary judgment to HKEW

for the full amount of $166,252.88, making HKEW a

judgment-creditor of the Lesses, the Riverwoods house

had been conveyed to Roth. 

HKEW filed a motion in the district court to void the

2006 conveyance to Roth as a fraudulent effort on Less’s

part to avoid creditors. It also asked the court to set aside

the 2002 conveyance in which Werner purchased the

Riverwoods house, although a closer look at the motion

shows that it was really a request to reform the 2002 title

and to establish a constructive trust that recognizes Less

as the true purchaser and that allows HKEW to reach

the property to satisfy its judgment. The district court

denied the motion, and HKEW now appeals.

II

We review the district court’s legal conclusions de novo,

and its findings of fact for clear error. Here, the primary

legal issues concern what rule to apply for evaluating

resulting trusts, constructive trusts, and fraudulent conveyances. The facts are largely uncontested. Illinois

law governs in this diversity suit.

The first issue for us is whether the district court erred in

finding that the Lesses did not have any ownership interest

in the Riverwoods house at any point. HKEW recognizes

that Less avoided taking legal title to the house, but it

argues that he had an equitable interest in it that it is

entitled to reach. The district court had this to say: 
No. 07-1995 5

HKEW has not pointed to any evidence that indicates

that the Less Defendants ever had any legal or equitable

interest in the House, either in whole or in part. The

parties agree that Werner purchased the House from

Warren. However, HKEW has not pointed to any

connection between the Less Defendants and Warren.

Nor has HKEW shown that the Less Defendants gave

any money to Werner for the purchase of the House. Thus,

the undisputed facts show that the 2002 Conveyance

did not involve a transfer of any interest to or from

the Less Defendants.

(Emphasis added.)

The district court seems to have been assuming that,

under Illinois law, an equitable interest (such as a beneficiary’s interest via a resulting trust) cannot arise unless the

party who enjoys the beneficial interest in the house

and who pays the mortgage also contributed some of the

up-front money toward the purchase of the house. As we

explain below, this is not the case, and any decision based

on that assumption cannot stand. Moreover, the italicized

language in the preceding quote demonstrates that Roth

is incorrect when it argues that HKEW waived the resulting-trust argument by failing to raise it below. The

district court’s language leaves no doubt that it considered the question whether Less had an equitable

interest in the house. The resulting-trust argument has not

been waived, and this court may review the district

court’s resolution of this claim.

“[A] resulting trust [arises] wherever the circumstances

surrounding the disposition of property raise an inference,

not rebutted, that the transferor does not intend that the
6 No. 07-1995

person taking or holding the property . . . should have the

beneficial interest therein.” Kaibab Indus., Inc. v. Family

Ready Homes, Inc., 444 N.E.2d 1119, 1126 (Ill. App. Ct. 1983)

(omission in original). A resulting trust “comes into being

at the instant the title vests or not at all.” Suwalski v.

Suwalski, 240 N.E.2d 677, 679 (Ill. 1968). Nevertheless,

“[u]nder Wright, Suwalski, and West, the supreme court has

examined the conduct of the parties subsequent to the

questioned conveyance to determine the intent of the

parties at the time of the conveyance.” Key v. Key, 443 N.E.2d

812, 816 (Ill. App. Ct. 1982) (emphasis added). “[T]he

burden of proof rests upon the party seeking to establish a

resulting trust, and the evidence to be effective for this

purpose must be clear, convincing, unequivocal, and

unmistakable.” Kaibab, 444 N.E.2d at 1126. The “crucial

element in creating a resulting trust is ‘intent’ ” and “such

intent can be proved by surrounding circumstances, but

such proof must be clear and convincing.” Id. at 1126.

Applying those principles to this case, the district court

should have conducted an analysis of the circumstances

before, during, and after the 2002 conveyance to ascertain

the intent of the parties, rather than relying on the

single indicium of up-front payment of purchase price.

Illinois courts have found resulting trusts in a variety of

circumstances. See Key, 443 N.E.2d at 816 (finding

resulting trust in favor of a father where the conveyance

was in the names of his two sons but the father paid part of

the down payment and made all payments toward principal and interest on the mortgage indebtedness, as well as

payments for repairs, insurance, and taxes, and received

the crops from the land). See also Suwalski, 240 N.E.2d at

679 (reversing appellate court and holding that a resulting
No. 07-1995 7

trust, rather than a co-tenancy, was created in favor of the

parents where the son fronted $1,500 toward purchase

price of property and co-signed for the loan but paid none

of the mortgage payments, taxes, insurance premiums, or

costs of repairs and improvements, all of which were

paid by the father and mother).

In Wright v. Wright, 118 N.E.2d 280, 281-82 (Ill. 1954), 

plaintiff requested defendant to apply for a “G.I. loan”

to assist her in raising the purchase price. . . . Plaintiff

said that she would pay the mortgage debt. . . . Plaintiff

testified that at the time of the transaction defendant

said: “I don’t want the property because it is in my

name only and you will have to pay for it, Mother,

because I don’t want it.” 

The Wright court found that “[t]itle was taken in the son’s

name for the convenience of his mother and for her sole

benefit.” Id. at 283-84 (reversing trial court and holding that

plaintiff established a resulting trust, where plaintiff

paid no part of the purchase price of the house but did pay

$206 up front for the painting of the house, as mandated

by the sale contract, and paid the monthly mortgage

payments).

The identity of the parties to the transaction in question

is also relevant under Illinois law. In Kaibab, the court

observed that the purchaser in a suspect conveyance “was

a business associate and friend of the judgment debtor.

Evidence further discloses that [the judgment debtor] and

his wife resided in the premises . . . probably continuously

from sometime in the 1950’s”—that is, both before and

after the transfer of title from the judgment debtor to the
8 No. 07-1995

friend-purchaser. 444 N.E.2d at 1126. The purchaser

was “a crony of the judgment debtor. . . . Throughout the

years, the property was titled in a mother-in-law, son and

friend of the judgment debtor.” Id. at 1127 (reversing trial

court and holding that a resulting trust was created in

favor of the judgment debtor, thus allowing the judgment

creditor to reach the property that the judgment debtor

had conveyed to the crony).

The district court in this case noted that “Werner also

had a personal incentive to allow the Less Defendants to

reside in the House since it would assist her daughter

with housing and it would allow her grandchildren to

remain in the same school district.” As HKEW points out,

however, this “personal incentive” is not a personal

benefit; it is instead a willingness to accept a detriment

(liability to pay for the house), and is highly consistent

with an intent to create a resulting trust for the benefit

of Werner’s daughter and son-in-law, the Lesses.

The court also stated that “HKEW has not shown that the

rent payments made to Werner provided the Less Defendants with anything other than temporary housing from

month to month.” The circumstantial evidence shows

otherwise. The Lesses admit that they went shopping for

a house, found one they liked, arranged for Michelle’s

mother to purchase it because Less allegedly could not

obtain credit, and promised to “pay rent in the form of

mortgage payments.” In addition, although Roth repeatedly claims that Werner was responsible for paying the

property taxes (presumably to show that she shouldered

the responsibilities of ownership), there is reason to believe
No. 07-1995 9

that this is not true either. Werner technically owned the

house for three and a half years, and she was three years

behind on the property taxes. When it came time to sell

(whether because a creditor’s judgment loomed on the

horizon or because the Lesses could no longer afford to

make the mortgage payments), it was Less who scouted

out a (crony) buyer and negotiated and signed the sale

contract as “attorney-in-fact” for Werner. This is compelling evidence that Less was the true owner but the

paperwork had to be done in Werner’s name. The circumstances of the Roth-Less “lease” lend additional weight to

the inference that Less intended all along to act as the true

owner of the Riverwoods house: he agreed to pay

all mortgage, tax, insurance, maintenance, and other

ownership expenses of the property, and he obtained a

right-to-purchase clause in the lease.

HKEW has presented compelling evidence of a resulting

trust in favor of the Lesses. The district court failed to

evaluate this evidence in accordance with the standards

established by Illinois law. Instead, it used an inappropriately narrow legal standard when it should have

evaluated Less’s intent by examining all the circumstances.

Before leaving this topic, we add a word about the kind

of equitable interest Less may have had. In briefing this

case, the parties referred interchangeably to an equitable

interest and to both constructive and resulting trusts. The

doctrine of resulting trust recognizes and gives effect to the

actual mutual intent of the parties. By contrast, the doctrine

of constructive trust is an equitable remedy based on

fairness. A court may impose a constructive trust on
10 No. 07-1995

property acquired through fraud or theft, with the

victim as beneficiary, even though the defrauding party

certainly did not intend such an outcome.

Although in the end it does not matter much for HKEW

whether we proceed under the law of resulting trusts or

constructive trusts, it seems to us that the 2002 transaction

is better approached under the theory of resulting trusts.

The evidence suggests that both Werner and the Lesses

actually intended, at the time the Riverwoods house

was purchased by Werner, that the Lesses enjoy the

beneficial interest in the property. The theory of constructive trusts becomes more applicable for the potentially

fraudulent 2006 transaction. We need not dwell on which

judicially created remedy is better suited to this case,

however, because in IUFTA Illinois has enacted a statute

to address specifically the fraudulent transfer of property

with intent to evade creditors. We therefore turn to the

other principal question on appeal, whether Less fraudulently transferred his interest in the Riverwoods house

(whether a resulting trust or a constructive trust) in

2006 when it was conveyed to Roth.

III

IUFTA, 740 ILCS 160/1 et seq., establishes that a debtor’s

transfer of an asset before or after a creditor’s claim arose

is fraudulent if the transfer was made “with actual intent

to hinder, delay, or defraud any creditor of the debtor . . . .”

740 ILCS 160/5(a). In determining whether a transfer was

made with “actual intent,” courts should consider the

following factors:
No. 07-1995 11

(1) the transfer or obligation was to an insider;

(2) the debtor retained possession or control of the

property transferred after the transfer;

(3) the transfer or obligation was disclosed or concealed;

(4) before the transfer was made or obligation was

incurred, the debtor had been sued or threatened with

suit;

(5) the transfer was of substantially all of the debtor’s

assets;

(6) the debtor absconded;

(7) the debtor removed or concealed assets;

(8) the value of the consideration received by the

debtor was reasonably equivalent to the value of the

asset transferred or the amount of the obligation

incurred;

(9) the debtor was insolvent or became insolvent

shortly after the transfer was made or the obligation

was incurred;

(10) the transfer occurred shortly before or shortly

after a substantial debt was incurred; and

(11) the debtor transferred the essential assets of the

business to a lienor who transferred the assets to an

insider of the debtor.

740 ILCS 160/5(b).

The district court held that, even supposing that Less

possessed an ownership interest in the Riverwoods
12 No. 07-1995

house, there are insufficient indicia pointing to fraudulent

intent in the 2006 conveyance. In support, it noted that “the

Less Defendants make rent payments to” Roth, that

“HKEW has not shown that the [2006 purchase] price of

[$590,000] was unreasonable in light of factors such as

unpaid real estate taxes,” and (conclusorily) that “no

evidence has been presented of wrongdoing on the part

of Werner, [Roth], or the Less Defendants.”

This analysis is inadequate. Essentially, the district

court addressed only factor (8). It apparently did not

consider the other factors, for if it had it would surely have

noticed how many point to fraud. (1) Roth, the transferee,

was an insider; (2) the Lesses retained possession of the

property after the transfer; (3) there is some evidence that

the transfer was concealed because the Lesses were

evasive to HKEW about their home address, possibly to

avoid inquiry into the history of their relation to the

Riverwoods property; (4) before the transfer was made, the

Lesses had been sued by HKEW; (5) the transfer was of

substantially all of the Lesses’ assets; (7) there is evidence

of concealment of assets: in highly evasive testimony,

Less acknowledges that he told the HKEW attorney that

he had no money and later admitted that he paid his

expenses out of a drawer full of cash and that “I’ve had

cash that I’ve kept on the side”; (9) the Lesses were allegedly insolvent (though it is hard to tell how the cash

drawer figures into this); and (10) the transfer occurred

shortly before summary judgment was entered against

the Lesses in an amount exceeding $160,000. The district

court erred by failing to conduct the thorough inquiry

required by IUFTA to determine whether the transfer

was fraudulent.
No. 07-1995 13

IV

HKEW has shown that it is entitled to one more chance

to show that the Riverwoods house should be treated as

an asset belonging to Less and that it may reach that asset

in satisfaction of its debt. We REVERSE the judgment of

the district court and REMAND for further proceedings

consistent with this opinion. On remand, Circuit Rule 36

shall apply.

8-27-08