Opinion ID: 2630011
Heading Depth: 1
Heading Rank: 6

Heading: Constructive Trust and Promissory Estoppel

Text: [¶25] After concluding that Mrs. Baker breached the Stock Purchase Agreement as a matter of law and that summary judgment was appropriate on the Ayres' contract claim, the district court imposed a constructive trust and invoked the doctrine of promissory estoppel to apply the insurance policy proceeds Mrs. Baker already received against the amount the Ayres and the Company owed to her for purchase of her share of the corporate stock. Like the district court's ruling on the breach of contract claim, these determinations were made on the Ayres' motion for summary judgment. Implicit in the court's ruling, therefore, is the conclusion that no genuine issues of material fact existed on the claims for constructive trust and promissory estoppel and the Company was entitled to judgment as a matter of law. We disagree. [¶26] A constructive trust arises by construction of the court when equity so demands. Rossel v. Miller, 2001 WY 60, ¶ 13, 26 P.3d 1025, ¶ 13 (Wyo. 2001). It is an equitable remedy imposed to compel a person who unfairly holds a property interest to hold property in trust for the person for whom in equity and good conscience it should be held. Id. To warrant imposition of a constructive trust, the following elements must be proven: a promise, either express or implied; a transfer made in reliance on that promise; and unjust enrichment. Id. A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee. Id., ¶ 19. [¶27] The Ayres presented substantial evidence to support their claim for imposition of a constructive trust. They showed that during the existence of the partnership, before the business was incorporated, Mr. Ayres procured an insurance policy on his life and named the partnership as the beneficiary. Mr. Ayres testified he named the partnership as the beneficiary on his policy because he and Mr. Baker had agreed they each would procure individual policies naming the partnership as beneficiary. [¶28] At the time the business was being incorporated, the parties discussed with their attorney the idea of using Mr. Baker's and Mr. Ayres' existing life insurance policies to fund the buy/sell agreement. Corporate counsel testified that he understood from these discussions that the policies pre-existed the Company, were in the partnership name or were being paid for by the partnership, and were going to be transferred over to the Company. He testified that it was clearly the intent of everyone involved that the assets of the partnership, including the life insurance policies, would be transferred to the Company. He testified: I knew they had these policies that were on their lives and it had been my understanding that those had been funded by the partnership, so whether it was the company who owned them  I didn't know who owned them, I didn't know who the beneficiary was, I knew they had the amounts and I remember the discussion that they were going to use  those existing policies were going to be the ones that were going to fund this stock purchase agreement initially, that's what I recall. After Mr. Baker's death, corporate counsel re-confirmed by letter his understanding of the parties' intent. He stated: Pursuant to the terms of [the stock purchase] agreement, the parties agreed that life insurance policies on the life of Alvin Baker and Larry Ayres would be maintained through the corporation and the proceeds of these policies would be used to partially pay for the acquisition of either Alvin or Larry's interest in the event of death. The agreement specifies that since the stock in the corporation was jointly owned, that in the event that either Alvin or Larry died, then their surviving spouse would sell to the other party their interest in the corporation pursuant to the terms of this stock purchase agreement, and that the life insurance policy would be used as the initial payment for this and would not be considered as part of the valuation of the company. I have contacted Dan Norris, who was the agent that the policy on Alvin's life was obtained through and he has advised me that the policy was owned by Alvin, and the beneficiary of the policy was Mrs. Baker. However, it is clear from the records that this policy was paid for and acquired through the company and the intent of that would have been to partially fund the stock purchase agreement. [¶29] As proof that the Company paid the premiums for Mr. Baker's life insurance, the Ayres submitted copies of the Company's general ledger and cancelled checks written on its account showing premium payments to Farmers in the years 1990 and 1993 through 2000. The Ayres also submitted the testimony of insurance agent Van Johnson concerning his conversations with Mr. Baker in the course of procuring life insurance. Mr. Johnson testified Mr. Baker told him that he and Mr. Ayers had policies that would fund a buy-out of their shares in the Company in the event that one of them passed away. Q He made it explicitly clear to you that the purpose of the policy was to effectuate a buyout of Mr. Ayres in the event of his death; is that correct? A Yes. Q And that was, in fact, explicitly discussed between you? A Yes. Q And in fact there had been other discussions, had there not, in which Alvin remarked upon the importance of these policies for that purpose? A Yes. Q And again, how would you describe Alvin's view of the importance of these policies for the purpose of buying out a surviving partner in the entity? A He was very proud that they had that in place because not very many companies did. Q Did he remark upon what its importance was in terms of how it would affect the families in the event of a death of one of these gentlemen? A Yes. Q And what was that remark? A That the families would be adequately taken care of in case the business did not succeed. The Ayres also submitted Mrs. Baker's deposition testimony in which she acknowledged that a couple of years before his death, Mr. Baker told her that although Mr. Ayres had been trying to get him to do so, he was not going to sign his life insurance policy over to the Company because he did not think the Company needed the insurance for the buyout. [¶30] Against this evidence, however, Mrs. Baker submitted evidence that her husband procured the Farmers' life insurance policy for two purposes: to cover his family and an SBA loan taken out by the partnership. Mr. Baker was listed on the insurance application as the owner and Mrs. Baker was listed as beneficiary. Mrs. Baker testified that Mr. Baker told her he did not think the life insurance was intended for the buyout, the Company did not need it for the buy-out and the insurance was intended to cover an SBA loan and for the family. Mrs. Baker also testified that although the premiums for Mr. Baker's policy were paid by the business, her husband told her they were treated as part of his wages and he paid taxes on the amounts. In terms of the Stock Purchase Agreement provisions concerning insurance, Mrs. Baker testified her husband told her the Company would probably get a smaller insurance policy than what he had to fund the buy-out. [¶31] Viewing the evidence presented in the light most favorable to Mrs. Baker, and giving to her all favorable inferences that can be drawn from the evidence, we hold that genuine issues of material fact existed on the claim for constructive trust that precluded summary judgment. Given the evidence that Mrs. Baker was listed as the intended beneficiary of the Farmers policy and that Mr. Baker told Mrs. Baker the insurance was not intended to fund the buy-out and the Company would get another policy for that purpose, we cannot conclude the evidence was so clear reasonable minds could not differ on the elements necessary to support imposition of a constructive trust. The insurance policies procured by the parties pre-existed the Stock Purchase Agreement. They were not owned by the Company nor were they procured by the Company as provided in the Stock Purchase Agreement. Corporate counsel mistakenly believed the existing insurance had been transferred to the Company when in fact it had not and was surprised to learn after Mr. Baker's death that Mr. Baker owned the policy and Mrs. Baker was the beneficiary of the proceeds. These are genuine issues of material fact precluding summary judgment. We hold the district court erred in granting summary judgment on the Ayres' claim for constructive trust. [¶32] We likewise hold the district court erred in granting summary judgment on the promissory estoppel claim. The required elements of a promissory estoppel claim are: the existence of a clear and definite agreement; proof that the party urging the doctrine acted in reasonable reliance on the agreement; and the equities support the enforcement of the agreement. Finch, ¶ 22. Here, issues of fact existed concerning whether the parties clearly and definitely agreed that the existing insurance policies would be used to fund the buy-out; if that was the agreement, whether the Ayres reasonably relied on Mr. Baker's statements that he would transfer his policy to the Company; and whether the equities supported enforcing any such agreement. [¶33] The district court's order granting partial summary judgment for the Ayres and the Company is reversed. The case is remanded for entry of summary judgment for Mrs. Baker on her breach of contract claim and for trial on the issues of whether imposition of a constructive trust or application of promissory estoppel is appropriate. If the Ayres and the Company meet their burden of proof on one or the other of these claims, Mrs. Baker will be entitled to payment of the difference between the value of the Baker stock and the life insurance proceeds. Conversely, if the Ayres and the Company fail to meet their burden, Mrs. Baker will be entitled to payment for the full value of the Baker stock.