Barrett Oakes Welch

1Also before the court is the debtor’s application for administrative expenses and a
motion for relief from the automatic stay filed by Renee. Counsel for the debtor represented that
the parties had reached an agreement regarding the debtor’s application for administrative
expenses; however, the matter will be continued pending the submission of the consensual
agreement. The motion for relief from the automatic stay is held in abeyance, leaving the
automatic stay in effect.
1
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
GREENVILLE DIVISION
IN RE:
BARRETT OAKES WELCH,
DEBTOR.
CASE NO. 12-05082-8-JRL
CHAPTER 11
ORDER
This matter came before the court on the debtor’s motion for an order authorizing him to
execute a deed, to which the debtor’s former spouse, Renee J. Welch (“Renee”), and the bankruptcy
administrator have objected.1 A hearing was held on October 2, 2012, in Raleigh, North Carolina.
BACKGROUND
Barrett Oakes Welch (“debtor”) 	filed his voluntary petition under chapter 11 of the
Bankruptcy Code on July 12, 2012. The debtor and Renee separated on February 15, 2005, after
more than twenty years of marriage. Following the dissolution of the marriage, the debtor brought
SO ORDERED.
SIGNED this 10 day of October, 2012.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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2The check the debtor received from Aaron was for $16,650.00 and the check received
from John was for $16,667.00.
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an equitable distribution proceeding against his former wife Renee, which is currently pending in
Dare County, North Carolina ("domestic litigation"). Equitable distribution of the martial assets is
the only issue remaining in the domestic litigation.
The debtor was a creditor in the chapter 11 bankruptcy proceeding In re Blue Water Land
Development Co., LLC, 	Case No. 08-00842-8-JRL, in the United States Bankruptcy Court for
Eastern District of North Carolina, relating to the debtor’s investment of approximately
$1,900,000.00 in the business venture, Blue Water Land Development Company, LLC. Prior to the
petition date, the debtor received a disbursement of $1,600,000.00 from a mediated settlement in
Blue Water, which was deposited with the Dare County Clerk of Clerk.
Sometime prior to March 26, 2006, the debtor’s father, Aaron W. Welch, Sr., passed away
leaving three sons: the debtor, Aaron W. Welch, Jr. (“Aaron”) and John S. Welch (“John”)
(collectively “debtor’s brothers” or “brothers”). His last will and testament, executed on October
2, 2003, named his three sons as equal recipients of his residuary estate, which included real
property located at 5922 Carmel Lane, Raleigh, North Carolina, also described as Lot 45 North Bend
Townhomes (“condominium”). Pursuant to the terms of the will, the debtor, Aaron and John each
received an undivided one-third (1/3) interest in the condominium.
On March 26, 2006, the debtor sold his one-third (1/3) interest in the condominium to Aaron
and John for approximately $33,317.00. After the parties agreed that the condominium was worth
approximately $100,000.00, Aaron and John each delivered a check to the debtor for approximately
one-half of the agreed upon purchase amount.2 Although the debtor received $33,317.00 for his
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interest in the condominium, he never executed a deed conveying his one-third (1/3) interest to
Aaron and John. Without a deed, the public record reflected the debtor, Aaron and John as holding
an undivided one-third (1/3) owners of the condominium.
In early 2012, the debtor’s brothers secured a third-party purchaser for the condominium;
however, a search of the public records in North Carolina revealed that the condominium remained
in the names of the debtor and his brothers. To consummate the proposed sale of the condominium,
the debtor must execute a deed conveying his interest to his brothers. On August 15, 2012, the
debtor filed the motion seeking an order authorizing the debtor to execute deed that is now before
the court. The debtor asserts no right, title or interest in the condominium and merely wishes to
facilitate the proposed sale by executing a deed conveying his interest to Aaron and John. Renee
filed a objection, later joined by the bankruptcy administrator, to the motion contending that by
authorizing the debtor to execute a deed six years after he sold his interest in the condominium,
Aaron and John would be elevated to a higher priority than the remaining unsecured creditors in the
debtor’s bankruptcy.
DISCUSSION
The Bankruptcy Code provides that the debtor’s legal and equitable interests in property
as of the commencement of the bankruptcy case constitute property of the estate, 11 U.S.C.
§541(a)(1), and encompasses property interests transferred to the bankruptcy estate under the
strongarm or avoidance powers of the trustee. 11 U.S.C. §541(a)(4); Mid-Atlantic Supply, Inc.
of Va. v. Three Rivers Aluminum Co. (In re Mid-Atlantic Supply Co.), 790 F.2d 1121, 1124 (4th
Cir. 1986). Section 541(d) provides that “[p]roperty in which the debtor holds, as of the
commencement of the case, only legal title and not an equitable interest . . . becomes property of
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the estate . . . only to the extent of the debtor's legal title to such property, but not to the extent of
any equitable interest in such property that the debtor does not hold.” 11 U.S.C. §541(d).
Property subject to a constructive or resulting trust in favor of another is generally excluded from
the bankruptcy estate. 11 U.S.C. §541(d); In re Surplus Furniture Liquidators, Inc., 199 B.R.
136, 142 (Bankr. M.D.N.C. 1995). Although the Bankruptcy Code dictates what property
interests constitute property of the estate and included in the bankruptcy estate, the resolution of
the existence and nature of the debtor’s interest in the property hinges on state law. Universal
Coops., Inc. v. FCX, Inc. (In re FCX, Inc.), 853 F.2d 1149, 1153 (4th Cir. 1988).
At oral argument, the court indicated its tentative ruling that, with regard to real property,
the debtor-in-possession could use the trustee’s avoidance powers under §544 to defeat the
interests of the beneficiaries of a resulting or constructive trust. See, e.g., In re Chase, Case No.
96-01286-8-JRL (Bankr. E.D.N.C. Aug. 21, 1997) (holding that the trustee, through his status as
a bona fide purchaser for value, may prevail over the beneficiary of a constructive trust in real
property under North Carolina law); In re Shearin Family Invs., LLC, 418 B.R. 584, 587 (Bankr.
E.D.N.C. 2009); Bank of Vance v. Crowder, 194 N.C. 312, 315, 139 S.E. 601, 602 (1927)
(disallowing a beneficiary of a constructive trust from recovering trust property where it has
been transferred to a bona fide purchaser for value without notice). Without retreating from that
ruling, the court after further review of the facts here, denies the motion because there is no basis
for the imposition of a resulting or constructive trust or equitable lien under North Carolina law.
Constructive trusts, resulting trusts and equitable liens are equitable remedies recognized
under North Carolina law in limited circumstances. “Trusts created by operation of law are
classified into resulting trusts and constructive trusts.” Carcano v. JBSS, LLC, 200 N.C. App.
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3 In Roper, the North Carolina Supreme Court stated that a constructive trust "prevent[s]
the unjust enrichment of the holder of title to, or of an interest in, property which such holder
acquired through fraud, breach of duty or some other circumstance making it inequitable for him
to retain it against the claim of the beneficiary of the constructive trust." 323 N.C. at 465, 373
S.E.2d at 425. Inequitable conduct by a party falling “short of actual fraud will give rise to a
constructive trust where retention of the property by the holder of the legal title would result in
his unjust enrichment.” Id. (emphasizing that "[f]raud need not be shown if legal title has been
obtained in violation of some duty owed to the one equitably entitled." (citation omitted)).
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162, 170, 684 S.E.2d 41, 49 (2009). Fulp v. Fulp, 264 N.C. 20, 140 S.E.2d 708 (1965), sets forth
the requirements for the imposition of a resulting or constructive trust under North Carolina law:
[A] resulting trust arises, if at all, in the same transaction in which the legal title
passes, and by virtue of consideration advanced before or at the time the legal title
passes. . . . A constructive trust, on the other hand, arises when one obtains the legal
title to property in violation of a duty he owes to another. Constructive trusts
ordinarily arise from actual or presumptive fraud and usually involve the breach of
a confidential relationship.
264 N.C. 20, 22, 140 S.E.2d 708, 711 (1965). 	A constructive trust is a remedial device imposed
by "[c]ourts of equity . . . to prevent the unjust enrichment of the holder of the legal title to
property acquired through a breach of duty, fraud, or other circumstances which make it
inequitable for him to retain it against the claim of the beneficiary of the constructive trust.” Sara
Lee Corp. v. Carter, 351 N.C. 27, 35, 519 S.E.2d 308, 313 (citation and internal quotation marks
omitted); Roper v. Edwards, 323 N.C. 461, 465, 373 S.E.2d 423, 425 (1988).3 Constructive
trusts are "remedial device[s] . . . used wherever specific restitution in equity is appropriate on
the facts[;]" Roper, 323 N.C. at 465, 373 S.E.2d at 425 (citation omitted, emphasis in original),
and "arise[] independent of any actual or presumed intention of the parties and is usually
imposed contrary to the actual intention of the trustee." Bowen v. Darden, 241 N.C. 11, 14, 84
S.E.2d 289, 292 (1954). On the other hand, a resulting trust arises "when a person becomes
invested with title to real property under circumstances which in equity obligate him to hold the
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title and to exercise his ownership for the benefit of another. . . . It results from the fact that one
man's money has been invested in land and the conveyance taken in the name of another."
Shearin Family Invs., LLC, 418 B.R. at 587 (citations omitted). The resulting trust must arise in
the same transaction in which legal title passes, driven by the presumed intent of the parties. See,
e.g., Strange v. Sink, 27 N.C. App. 113, 116, 218 S.E.2d 196, 198 (1975) (“Resulting trusts are
established by equity for the purpose of carrying out the presumed intention of the parties.”);
Colwell Elec. Co. v. Kale-Barnwell Realty & Constr. Co., 267 N.C. 714, 720-21, 148 S.E.2d
856, 860-61 (1966); 2 Patrick K. Hetrick and James B. McLaughlin, Jr., Webster’s Real Estate
Law in North Carolina § 28.03 (Matthew Bender, 6th Ed. 2011).
An equitable lien "arise[s] from an agreement which shows an intention to charge some
particular property with a specific debt or obligation or may be declared by a court of equity out
of the general considerations of right and justice as applied to the relations of the parties and the
circumstances of their dealings." Shearin Family Invs., LLC, 418 B.R. at 587 (citation omitted);
see Fulp, 264 N.C. at 24-25, 140 S.E.2d at 712-13 (imposing an equitable lien where one party
wrongfully spends another's funds to improve his own land or expends his own funds to improve
land which another has orally agreed to convey to him, but later refuses).
An equitable lien is applied when one party wrongfully spends another's funds to
improve his own land or when one party expends his own funds to improve land
which another has orally agreed to convey to him, but later refuses to do so. It is the
unjust enrichment of the title holder which supports the imposition of an equitable
lien against his property. Neither a written nor an oral contract is required to recover
based upon this unjust enrichment. It is enough that the plaintiff possess a good faith
belief that he owns or will soon own an interest in the property or the improvements
he makes to the property promised to him. An equitable lien assists the plaintiff to
assert his rights in the benefit of the improvements to the extent that they increased
the value of the land.
Guy v. Guy, 104 N.C. App. 753, 759, 411 S.E.2d 403, 406-407 (1991) (citations and internal
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quotation marks omitted). In this case, there is no authority to impose an equitable lien on the
debtor's interest in the condominium because there has not been any improvements, the benefit
of which would unjustly enrich the debtor. Because there is no authority to impose an equitable
lien on the debtor’s interest in the condominium, one does not arise under these facts.
North Carolina does not permit the imposition of a resulting or constructive trust in
situations where legal title has not been transferred. Halverson v. Halverson (In re Halverson),
151 B.R. 358, 363 (M.D.N.C. 1993) (citation omitted); see, e.g., Anderson v. Anderson, 101
N.C. App. 682, 685, 400 S.E.2d 764, 765-66 (1991) (“While an agreement is not necessary to
create a resulting trust, the resulting trust must arise in the same transaction in which legal title
passes. Consideration to support the resulting trust must have been paid before or at the time
legal title passes, and not after legal title has passed.” (citations and internal quotation marks
omitted, emphasis in original)); 2 Patrick K. Hetrick and James B. McLaughlin, Jr., Webster's
Real Estate Law in North Carolina § 28.03 (“[T]he resulting trust must arise in the same
transaction in which legal title passes.”(emphasis added)) and § 28.04 (“Constructive trusts may
be declared anytime a person obtains legal title to property by the violation of a fiduciary
relationship or by neglect to discharge some duty or obligation with respect to the property in
any other unconscientious manner.” (emphasis added)).
The debtor’s reliance on Surplus Furniture Liquidators, Inc., is misplaced. In that case,
the court refused to impose a constructive or resulting trust on personal property because it found
“[m]issing . . . [the] essential requirement that there ha[s] been a transfer of title . . . under
circumstances permitting the imposition of trust.” 199 B.R. at 143; see Halverson, 151 B.R. at
363 (refusing to impose a constructive or resulting trust for equitably distributed property when
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there has been no transfer of legal title due to a party’s failure to execute the necessary
documents). In Halverson, a former spouse contended that she held equitable title to certain
personal property of debtor as the beneficiary of a resulting or constructive trust because the
debtor failed to execute documents required by the equitable distribution judgment. 151 B.R. at
362-63. In refusing to recognize a constructive or resulting trust, the United States District Court
for the Middle District of North Carolina held that neither can be imposed under North Carolina
law “where legal title has not changed hands[.]” Id. at 363.
The evidence in this case fails to establish either a resulting or constructive trust because
as in Surplus Furniture Liquidators, Inc. and Halverson, there was no transfer of title under
circumstances allowing the court to impose either type of trust on the debtor’s one-third (1/3)
interest in the condominium. Surplus Furniture Liquidators, Inc., 199 B.R. at 143; Halverston,
151 B.R. at 363. By failing to execute a deed conveying the debtor’s interest to Aaron and John,
there was no transfer of legal title to the condominium. In the absence of such a transfer, the
court cannot impose a constructive or resulting trust on the debtor’s interest. Id.; see Fulp, 264
N.C. at 22, 140 S.E.2d at 711 (holding evidence, established by the plaintiff, insufficient to
warrant imposing a resulting or constructive trust in real property because the "defendant
acquired no title to realty with the use of plaintiff's money."). Furthermore, the debtor failed to
show the existence of any agreement, intent, fraudulent conduct, confidential relationship or
other circumstance that would, under North Carolina law, impose a resulting or constructive
trust. To the contrary, all the evidence shows that the failure to execute a deed consummating
the purchase of the debtor’s one-third (1/3) interest in the condominium was simply an oversight.
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CONCLUSION
Based on the foregoing, debtor’s motion for authorization to execute deed is DENIED. The
condominium may be sold, with each of the debtor’s brothers entitled to one-third (1/3) share of the
proceeds. 	Both the debtor’s brothers have claims in the debtor’s bankruptcy case, which may
include the amounts paid to the debtor for his interest in the condominium and for the debtor’s pro-
rata share of any expenses and real property taxes paid by the debtor’s brothers over the past six
years.
END OF DOCUMENT
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