Gallogly v. Watson

[Cite as Gallogly v. Watson, 2013-Ohio-3778.]

IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
UNION COUNTY

MYRON GALLOGLY, ET AL.,

PLAINTIFFS-APPELLEES/
CROSS-APPELLEES,
CASE NO. 14-12-12
v.

T. TODD WATSON, ET AL.,

DEFENDANTS-APPELLANTS/
CROSS-APPELLEES,
-and- O P IN I O N

PAGE ENGINEERING INC.,

DEFENDANT-APPELLEE/
CROSS-APPELLANT.

Appeal from Union County Common Pleas Court
Trial Court No. 2010-CV-0309

Judgment Affirmed

Date of Decision: September 3, 2013

APPEARANCES:

Christopher R. Conrad for Appellants/Cross-Appellees

Terrence Stolly and John D. Bodin for Appellees/Cross-Appellees,
Myron and Priscilla Gallogly

Dennis A. Schulze and Nichole M. Williams for Appellee/Cross-
Appellant, Page Engineering Co.
Case No. 14-12-12

SHAW, J.

{¶1} Defendant-appellant-cross appellee Timothy Todd Watson (“Todd” or

“Todd Watson”), successor trustee of the Roger L. Watson Trust, appeals the

March 5, 2012, judgment of the Union County Common Pleas Court imposing a

constructive trust upon the Gallogly residence and accompanying .7 acres for the

benefit of Plaintiff-appellee Priscilla Gallogly (“Priscilla”) following a bench trial.

Watson and Defendant-appellant-cross appellant Page Engineering (“Page”), also

appeal the same judgment entry designating the priority for distribution of

proceeds from the foreclosure sale of the Gallogly residence, and the Gallogly

property.

{¶2} For an initial overview of the voluminous record before this court,

Myron Gallogly (“Myron”) and Roger Watson (“Roger”), who were good friends

and had a strong mutual trust in one another, agreed to develop property owned by

Myron and Priscilla. The original agreement was that Myron would contribute the

Gallogly property, excluding Priscilla Gallogly’s residence, and manage the

development, and Roger would provide the financing for the project. The idea

was that the value of the Gallogly property would be commensurate with the

amount of money Roger invested. Subsequently, Roger and Myron formed a

corporation together, Oaks Development, Inc., with each owning 50%. Priscilla

was not party to this agreement and had no ownership of Oaks Development.

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{¶3} As development proceeded on the Gallogly property arrangements

were also made with Page engineering for subdivision work on this project.

Eventually, in order to move forward with the project, Roger and Myron had to

acquire a letter of credit for just over $1,000,000. Roger, who had been funding

the project per the agreement, was unable to obtain the further financing that he

originally thought he would be able to obtain.

{¶4} After discussing the matter, Myron and Priscilla transferred the

Gallogly property to the Roger Watson Trust so that Roger could obtain the letter

of credit and further financing. Specifically, the bank that Roger and Myron were

working with would not extend a letter of credit in the amount sought without

Priscilla’s residence being transferred to the Roger Watson Trust along with the

Gallogly property. As a result, the Gallogly residence was transferred to Roger’s

trust along with the Gallogly property to be developed. However, at the time of

the transfer assurances were made to Priscilla that Roger had no intention of

taking Priscilla’s residence, that the residence still remained hers, and that the

transfer was just for “business purposes.” Chief among those business purposes,

aside from acquiring the letter of credit, was Roger obtaining the tax benefits from

paying the mortgage. As Roger was already loaning money to Myron so that

Myron could make the mortgage payments,1 the plan was for Roger to assume the

1
These “loans” were described as “draws” on future profits.

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mortgages, make the mortgage payments and use the accompanying tax

deductions, which Myron was unable to use due to his then-current lack of

income.

{¶5} Thus the deed recording the transfer of the Gallogly property and

Priscilla’s residence to the Roger Watson Trust was recorded on June 4, 2007.

Unfortunately, Roger died unexpectedly just over a month later. Todd Watson,

Roger’s son, assumed Roger Watson’s position as trustee, and attempted to carry

through with his father’s wishes to fund the project. However, eventually that

became financially impractical so the funding ceased and the Gallogly property

and Priscilla’s residence went into foreclosure leading to the filing of this action.

{¶6} On June 17, 2010, Myron Gallogly and Priscilla Gallogly filed a

complaint against Todd Watson individually, Todd Watson as successor Trustee

of the Roger L. Watson Trust, Richwood Bank, Oaks Development, Inc., and

Page. (Doc. 2). The complaint was later amended, with leave of the court, on July

29, 2011, alleging eight counts against the same parties, including, inter alia,

breach of fiduciary duty against Todd as trustee of the Watson Trust, imposition of

a constructive trust, an implied vendor’s lien against the subject property, quiet

title of the subject property and unjust enrichment of the Watson Trust. (Doc.

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102). Page Engineering and Todd each filed counterclaims against the appellees

and crossclaims against each other.2 (Docs. 103, 104).

{¶7} On December 20-21, 2011, the case proceeded to a bench trial. Just

prior to the beginning of the trial, it was agreed by the parties that Page’s claims

for engineering work done on the project would be settled for the amount of

$220,000, and that Page waived any defenses and crossclaims other than priority.

{¶8} The trial then commenced, at which Priscilla, Myron, and Mike

Karcher of Richwood Banking Company testified in Myron and Priscilla’s case-

in-chief. At the conclusion of Myron and Priscilla’s case, the claims against Todd

Watson individually were dismissed. Then Todd presented his case as successor

trustee, taking the stand himself, and also calling Justin Moeller, an accountant.

Thereafter the case was submitted to the trial court for decision.

{¶9} On March 5, 2012, the trial court filed a 33-page judgment entry on

the matter summarizing the extensive record, and making findings of fact and

conclusions of law. (Doc. 153). In its entry, the trial court held, inter alia, that a

constructive trust would be imposed upon Priscilla’s residence and accompanying

.7 acres for Priscilla, and that Priscilla was entitled to 21% of the proceeds from

the foreclosure sale of the Gallogly property and Priscilla’s residence as a result of

2
Page claimed breach of contract against ODI and the Watson Trust, and that the Watson Trust was
unjustly enriched. The Watson Trust claimed a breach of contract by Myron and unjust enrichment.
Various filings were made by the remaining parties, but as they do not pertain to the case, they will not be
addressed.

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the constructive trust for her residence. (Id.) The basis of the trial court’s holding

was the court’s finding that the parties never intended Priscilla’s residence to be

included in the project; rather, Priscilla’s residence was transferred purely for the

sake of obtaining financing.

{¶10} In its entry, the court also determined that the proceeds of the

foreclosure sale of the Gallogly property and Priscilla’s residence would be

distributed first to the balance due to the Richwood Banking Company for the

mortgages, then Priscilla’s 21% representing the constructive trust for her

residence, then Page’s agreed upon $220,000, then the next $1,003,729.00 to Todd

Watson, Trustee of the Roger Watson Living Trust representing the amount the

Roger Watson Trust invested over Myron in the project, and any remaining

balance paid to the Watson Trust and Myron Gallogly in a 50/50 ratio per their

original agreement as investors in the Oaks. (Doc. 153).

{¶11} It is from this judgment that Todd Watson3 and Page appeal,

asserting the following assignments of error for our review.

TODD WATSON’S FIRST ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED BY IMPOSING A
CONSTRUCTIVE TRUST IN PRISCILLA’S FAVOR,
ESSENTIALLY RESCINDING THE DEED AS TO THE
HOUSE, IN DIRECT CONFLICT WITH THE DEED’S
UNAMBIGUOUS CONSIDERATION CLAUSE AND THE
UNDISPUTED EVIDENCE IN THE RECORD.

3
Herein where “Todd” or “Todd Watson” is referenced, it is in his capacity as successor trustee of the
Roger Watson Trust.

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TODD WATSON’S SECOND ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED BY IMPOSING A
CONSTRUCTIVE TRUST IN PRISCILLA’S FAVOR
BECAUSE THE REAL ESTATE MARKET CRASH, NOT
INEQUITABLE CONDUCT, CAUSED HER HARM.

TODD WATSON’S THIRD ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED BY GIVING PRISCILLA’S
AND PAGE’S INTERESTS PRIORITY WHEN THE TRUST
HAS THE ONLY SECURED INTEREST AMONG THEM.

TODD WATSON’S FOURTH ASSIGNMENT OF ERROR
IF A CONSTRUCTIVE TRUST WAS AN APPROPRIATE
REMEDY, THE TRIAL COURT ERRED IN HOW IT
IMPLEMENTED THAT REMEDY.

PAGE’S ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED IN CONCLUDING THAT
PRISCILLA GALLOGLY’S 21% INTEREST IN THE
SUBJECT PROPERTY IS SUPERIOR TO THE INTEREST
OF PAGE ENGINEERING, INC.

{¶12} For the sake of clarity, we elect to address some of the assignments

of error together, and out of the order in which they were raised.

Watson’s First and Second Assignments of Error

{¶13} In Todd’s first and second assignments of error, Todd makes various

arguments that the trial court’s imposition of a constructive trust in Priscilla’s

favor was improper. Specifically, Todd argues that the deed to Priscilla’s

residence contained language that was unambiguous in stating that the property

had been transferred for consideration making a constructive trust inappropriate,

that there was no fraud or unjust enrichment on behalf of the Watson Trust, and

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that Priscilla knowingly, intelligently, and voluntarily transferred her residence

making a constructive trust inappropriate.

{¶14} In its judgment entry, the trial court set forth the following factual

findings, which were stipulated to by the parties at trial, and which provide a more

detailed summary of the evidence relied upon by the court in reaching its decision

to impose the constructive trust in this case.4

1. The real estate at issue consists of land totaling
approximately 64.4 acres, and is more particularly described in
the Quit Claim Deed dated June 12, 2006. Joint Trial Exhibit J-
1-A.

2. The aforementioned real estate was owned in fee simple by
the Gallogly Qualified Personal Residence Trust dated January
1, 2001, Priscilla Gallogly, Trustee, and is referred to as the
“Gallogly Property”.

3. In 2005, Myron Gallogly (Priscilla’s husband, “Myron”)
and Mr. Roger L. Watson of Bellefontaine, Ohio (“Roger” or
“Roger Watson”) had general discussions concerning the
development of the Gallogly Property as a single-family
residential development.

4. On January 10, 2006, Myron Gallogly and Roger Watson
executed an agreement which outlined the general terms of the
project (the “Agreement”), the general terms of which included
the following:

A. single-family home lots would be developed and sold in
phases, except that the Galloglys’ residence and an
approximate 0.7 acre lot upon which it sat would be retained
by Priscilla Gallogly remain [sic] with the Priscilla Gallogly
Residential Trust, Priscilla Gallogly Trustee;
4
These stipulations were read into the record at trial, and were submitted to the court as “Agreed
Stipulation of Facts” via a document the court accepted as an exhibit of the court. (Tr. at 9-15).

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B. income expenses of the development would be shared equally
by Myron Gallogly and Roger Watson, and should they
decide to form a legal entity for the development, the two
men would each own 50% of such entity;

C. Galloglys would contribute the land and management
services, while Roger Watson would facilitate financing for
the project; and

D. The then-existing mortgages to Defendant Richwood Banking
Co. on the Gallogly Property would remain the liability of
Myron Gallogly.

5. On or about May 16, 2006, Myron Gallogly and Roger
Watson filed Articles of Incorporation to form Defendant The
Oaks Development, Inc. (“ODI”), an Ohio for-profit
corporation, with Myron and Roger each owning 50% of that
corporation.

6. Myron and Roger Watson, through ODI, began the
development process for The Oaks subdivision, including
seeking subdivision approval from the City of Marysville, Ohio
and retaining various professional services, including among
others, the engineering services of Defendant Page Engineering,
Inc.

7. On May 16, 2007, Defendant Richwood Banking Co.
obtained an appraisal for the Gallogly Property, as developed,
based upon 43.981 acres of development land, 20 developed lots,
and existing Gallogly residence and lot, at an estimated value of
$2.6 million ($2,600,000).

8. With this information, Roger and Myron reached a more
detailed, revised agreement for the project, which included, at
least, the following terms:

A. Myron Gallogly and Roger Watson agreed that $1.3 million
would be the value of the land contributed to the Project; and

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B. The existing first and second mortgage payments to
Richwood Banking Co. would be booked as loans to Myron
Gallogly; and [sic]

9. On May 26, 2007, a closing to transfer the Gallogly
Property was held at Defendant Richwood Banking Co.’s
Offices.

10. On May 23, 2007, Roger Watson executed a mortgage
Assumption Agreement whereby he agreed, individually and as
Trustee of the Watson Trust, to assume with Myron Gallogly,
the debt payments on the existing first and second mortgages on
the Gallogly Property which had a then combined balance of
$455,566.62.

11. Priscilla Gallogly executed a warranty deed to transfer title
of the Gallogly Property to the Watson Trust.

12. This deed was recorded on June 4, 2007.

13. By June 1, 2007, phase 1 of The Oaks subdivision P.U.D.
and plat was approved by the City of Marysville, consisting of 21
lots, and the Declaration of Covenants, Easements, Restrictions,
Assessments, and Assessment Liens for the Oaks subdivision was
recorded against the Gallogly Property in the office of the Union
County Recorder.

14. An initial loan of $200,000 was obtained on August 3, 2005
from Richwood Bank prior to the January 2006 agreement
between Myron and Watson.

15. A second loan of $100,000 was obtained in January 2006
from Richwood Bank.

16. In early 2007, Roger Watson obtained two personal loans
for the principle purpose of funding the Oaks Project, using
Roger Watson’s personal assets as collateral.

17. Roger Watson’s first personal loan was obtained on May 3,
2007 from the People Savings Bank in the amount of $615,200.

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18. Roger Watson’s second personal loan was obtained on June
29, 2007 with Citizens Federal Savings & Loan in the amount of
$1,000,000.

19 On July 14, 2007, soon after returning from his out-of state
trip, Roger L. Watson died unexpectedly.

20. Defendant Timothy Todd Watson was thereafter appointed
Successor trustee of the Roger Watson Trust.

21. On January 6, 2009, Todd Watson cancelled a listing
agreement which Myron Gallogly had signed, as the Property’s
alleged owner, with Coldwell Banker to sell the lots.

22. After the Watson Trust stopped making payments to
Richwood Bank, Myron Gallogly paid the real estate taxes for
the house and lot and the mortgage payments for the Gallogly
Property to Richwood Banking Co., the total amount of which is
in dispute.

23. Roger Watson and the Watson Trust contributed a total of
$2,032,612 to the project. This does not include a loan from
Grand Rental Station.

24. Priscilla Gallogly is not a shareholder in the Oaks
Development, Inc.

25. Priscilla Gallogly was not a beneficiary of the Roger
Watson Trust.

26. The parties have reached agreement to settle Page’s claims
in the amount of $220,000. * * * Court determines priority.
Defendant waives any defenses and cross claims other than
priority.5

5
The preceding 25 stipulations were all submitted via a typed sheet for the court and acknowledged by the
parties in open court after the stipulations were read into the record. The final stipulation/agreement was
not part of the document with the other stipulations, but both parties did agree to this stipulation in open
court.

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{¶15} In Estate of Cowling v. Estate of Cowling, 109 Ohio St.3d 276, 280-

81, 2006-Ohio-2418, the Ohio Supreme Court defined a constructive trust as a

trust by operation of law which arises contrary to intention and
in invitum, against one who, by fraud, actual or constructive, by
duress or abuse of confidence, by commission of wrong, or by
any form of unconscionable conduct, artifice, concealment, or
questionable means, or who in any way against equity and good
conscience, either has obtained or holds the legal right to
property which he ought not, in equity and good conscience,
hold and enjoy. It is raised by equity to satisfy the demands of
justice.

Cowling at ¶ 18, citing Ferguson v. Owens, 9 Ohio St.3d 223, 225, (1984), quoting

76 American Jurisprudence 2d (1975) 446, Trusts, Section 221. A constructive

trust is considered a trust because “‘[w]hen property has been acquired in such

circumstances that the holder of the legal title may not in good conscience retain

the beneficial interest, equity converts him into a trustee.’” Cowling, 2006-Ohio-

2418, at ¶ 18, citing Ferguson, 9 Ohio St.3d at 225, quoting Beatty v. Guggenheim

Exploration Co., 122 N.E. 378 (1919). “In applying the theories of constructive

trusts, courts also apply the well-known equitable maxim, ‘equity regards [as]

done that which ought to be done.’” Ferguson, 9 Ohio St.3d at 226.

{¶16} The party seeking to have a constructive trust imposed bears the

burden of proof by clear and convincing evidence. Cowling, supra, at ¶ 20, citing

Univ. Hosps. of Cleveland, Inc. v. Lynch, 96 Ohio St.3d 118, 2002-Ohio-3748,

paragraph three of the syllabus. The standard of “clear and convincing evidence”

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is defined as “that measure or degree of proof which is more than a mere

‘preponderance of the evidence,’ but not to the extent of such certainty as is

required ‘beyond a reasonable doubt’ in criminal cases, and which will produce in

the mind of the trier of facts a firm belief or conviction as to the facts sought to be

established.” Cross v. Ledford, 161 Ohio St. 469 (1954), paragraph three of the

syllabus. Where the proof required must be clear and convincing, a reviewing

court will examine the record to determine whether the trier of facts had sufficient

evidence before it to satisfy the requisite degree of proof. Ford v. Osborne, 45

Ohio St. 1 (1887) paragraph two of the syllabus.

{¶17} In this case, the trial court held the following with regard to the

imposition of the constructive trust for Priscilla Gallogly’s benefit:

The Court finds under the circumstances of the instant matter
that an equitable remedy is appropriate to place the parties in
the position for which they bargained for in their agreement
regarding the Project. All parties substantially performed under
the agreement until the Watson Trust reasonably ceased funding
the fledgling Project. The Court finds that the original parties to
the agreement, Roger Watson and Myron Gallogly, intended for
the ownership of the Gallogly residence and .7 acre lot to be
vested in Priscilla Gallogly. In the efforts to obtain financing
and funding for the Project, the subject property in its entirety
was transferred to the Watson Trust as this was the only way
that the parties found to obtain such financing. Despite the
transfer, the Court finds that the intent for the ownership of the
Gallogly residence and .7 acre lot to be vested in Priscilla
Gallogly did not change. The Court finds that it would be against
the principles of equity to allow the entire property to be retained
by the Watson Trust and therefore that a constructive trust be
imposed for the benefit of Priscilla Gallogly.

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(Emphasis Added.) (Doc. 153).

{¶18} The trial court thus found that although Priscilla’s residence was

transferred to the Roger Watson Trust, the parties never intended the residence to

be part of the project. It is clear, and undisputed, that Myron and Roger had this

understanding at the inception of their agreement. On January 10, 2006, Myron

and Roger executed an agreement which outlined the general terms of the project,

which stated that:

Myron Gallogly and Roger L. Watson wish to become partners
in a project hereafter referred to as “The Oaks”.

The Oaks Project is defined as the development and sale of 64
acres more or less at 14180 State Route 38, Marysville, Ohio
43040, less the house and a lot of approximately .7 acre.

The house and lot remain with the residential trust (Pricilla
Gallogly, trustee) and the current 1st and 2nd mortgage of
approximately $500,000.00 remains the liability of Myron
Gallogly.

It is intended that all income and expenses of The Oaks be
equally shared by Myron Gallogly and Roger Watson. Should
the partners decide to form a legal entity, the documents would
reflect 50% Myron Gallogly and 50% Roger Watson.

Myron Gallogly provides the land and management and Roger
Watson will facilitate the financing.

It is intended to phase the project to minimize exposure and
utilize proceeds to accomplish future phases.

***

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(Emphasis Added.) (Joint Ex. 10).6

{¶19} Following the agreement, the parties proceeded with development of

the Gallogly property under the continued understanding that Priscilla’s residence

was not part of the project, and that Roger Watson was to provide financing for the

project. (Dec. 20, 2011, Tr. at 81); (Dec. 20, 2011, Tr. at 60). As part of that

financing, Roger loaned Myron money against future profits so that Myron could

pay the mortgages on the Gallogly property and Priscilla’s residence.

{¶20} During development of the Gallogly property, a letter of credit in

excess of $1,000,000 was required to continue, and Roger was unable to secure

further financing as he originally thought he would, so Myron and Roger

negotiated an agreement whereby the Gallogly property would be transferred to

Roger so that Roger could obtain the requisite letter of credit and financing in

exchange for a $1.3 million note. The bank informed Myron and Roger that it

would not issue a letter of credit unless Priscilla’s residence was involved as well,

so Myron and Roger spoke with Priscilla about transferring the residence to the

Roger Watson Trust along with the land. However, according to Myron, when

Myron discussed the matter with Roger, it was not intended to place the equity in

6
It is not disputed that that at the time of originally making this deal title to the residence and the
accompanying land to be developed was held by the Gallogly Qualified Personal Residence Trust, with
Priscilla Gallogly as trustee. Subsequently, the land and residence were transferred to Priscilla Gallogly on
June 12, 2006. See (Joint Ex. 1).

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the residence in the project, Myron testified that he would not have signed the

deed if it was supposed to be collateral for the project. (Dec. 20, 2011, Tr. at 85).

{¶21} Priscilla testified that Myron and Roger first approached her and

asked her to transfer the residence approximately a week or two before the

ultimate transfer. (Dec. 20, 2011, Tr. at 192). According to Priscilla, when Roger

and Myron spoke to her about transferring her residence to the Roger Watson

Trust, she had reservations as she did not want to lose her home. (Dec. 20, 2011,

Tr. at 193). However, Priscilla testified that Myron and Roger told her that Roger

needed the residence for financing and tax deductions. (Dec. 20, 2011, Tr. at 193).

Priscilla and Myron testified at trial that Roger made assurances to Priscilla that

the transfer was only so Roger and Myron could obtain further financing, and so

that Roger could take the tax deductions for paying the mortgages he was

effectively already paying by loaning Myron the money (against future profits) to

pay them. According to Priscilla, at closing, Roger said directly to her that he

wanted her to understand he was not taking her house, and that the transfer was

just for business reasons. (Dec. 20, 2011, Tr. at 195).

{¶22} Priscilla testified that Roger also informed Priscilla he would give

her the previously discussed $1.3 million note for the Gallogly property upon his

return from his pending vacation.7 With these assurances, and because Priscilla

7
This note appears as though it was prepared but never signed by Roger Watson prior to his death.

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and Myron trusted Roger, with Priscilla testifying that she specifically trusted

Roger “to do what was right,” Priscilla transferred the deed for her residence over

to the Roger Watson Trust and that deed was recorded on June 4, 2007. (Dec. 20,

2011, Tr. at 222).

{¶23} Subsequently, on June 25, 2007, Roger prepared a letter for Myron

just prior to Roger going on vacation to summarize where the two were at in their

development deal, which stated, in part, as follows:

***

I have developed some summary sheets right after we closed on
the 26th. Please go over these. If there is something you don’t
understand we will discuss it.

The first sheet shows $1,300,000 for the farm, payments to you
so far and the assumption of debt on the house, the additional
loan and the $10,000 I loaned you earlier. As you know the house
I consider yours and anything over and above the payoff you get
will be yours and add back to your note due The Oaks.

***

(Emphasis Added.) (Joint Ex. 11). Roger then took a vacation, and unfortunately

died unexpectedly upon return, on July 14, 2007.

{¶24} The trial court relied on the foregoing evidence to establish that

throughout the development, from the beginning until Roger’s death, Priscilla’s

residence was never intended to actually be part of the project. Roger’s letter,

written shortly before he died, seems to make clear that even after the deed to

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Priscilla’s residence had been transferred to the Roger Watson Trust, Roger

considered the Gallogly property and Priscilla’s residence separately. Roger

specifically stated in the letter that he considered the house Priscilla’s, and

addressed the house separately from the $1.3 million that would be “for the farm.”

Although Todd Watson suggests on appeal that this letter could be read to have a

different meaning, certainly the trial court could validly read this as consistent

with Priscilla’s residence never being intended to be in the project.

{¶25} Thus the record contains a consistent trail of evidence that the trial

court could rely upon establishing that Priscilla’s residence was never intended to

be part of the project from its inception to after the transfer. It is undisputed that

Priscilla’s residence was not intended to be part of the project at the inception of

the project, and there is clear and convincing evidence to support the finding that

Priscilla’s residence was not intended to be part of the project when she signed the

deed over to the Roger Watson Trust, especially when considering Roger’s letter

weeks prior to his death.

{¶26} To argue against the imposition of the constructive trust by the trial

court based on these facts, Todd first claims that a general warranty deed was

transferred and that the deed stated it was transferred for valuable consideration.

Todd claims the deed constituted a novation to the original understanding and that

therefore the deed should control. However, the trial court weighed all of the

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evidence and determined by clear and convincing evidence that a constructive

trust was appropriate in this case.8 Notably, the deed is the only evidence in the

record to indicate that the parties ever had an intention other than Priscilla’s

residence remaining hers, and that indication is specifically rebutted in Roger’s

letter.

{¶27} Next, in arguing against the imposition of the constructive trust,

Todd claims that the trial court did not explicitly find any unjust enrichment in its

judgment entry. Todd correctly argues that for a constructive trust to be imposed

unjust enrichment or fraud has to be found. Cowling, supra, at ¶ 19. Todd

contends no fraud was alleged in the complaint and that unjust enrichment was

specifically rejected by the trial court in its judgment entry. Unjust enrichment

was discussed at an earlier point in the trial court’s judgment entry, prior to the

trial court’s discussion of the constructive trust, and rejected; however, this portion

of the trial court’s judgment entry pertained only to the Gallogly’s breach of

contract claim.

{¶28} In the trial court’s judgment entry where the court discusses its

imposition of a constructive trust, the court outlines the standards for finding a

constructive trust. As part of that analysis, the court stated, “[t]he constructive

trust is an equitable remedy that protects not only against fraud, but also unjust

8
Appellees also contend that valuable consideration was actually not transferred as Roger never signed the
promissory note.

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enrichment, ‘where it is against the principles of equity that the property to be

retained by a certain person even though the property was acquired without fraud.’

(Emphasis Added.) (Doc. 153) quoting Cowling, supra, at ¶ 19, quoting Ferguson,

supra, at 226. The trial court thus cited recognized standards of the Ohio Supreme

Court in Cowling and Ferguson to impose a constructive trust, standards which

clearly contain the concept of unjust enrichment.

{¶29} Following the trial court’s analysis of the standards it had laid out for

imposing a constructive trust, the court then specifically stated, “[t]he court finds

that it would be against the principles of equity to allow the entire property to be

retained by the Watson Trust and therefore that a constructive trust be imposed for

the benefit of Priscilla Gallogly.” (Emphasis Added.) (Doc. 153). A comparison

of the trial court’s language used in its findings to the standards and requirements

of the Ohio Supreme Court for imposing a constructive trust clearly shows that the

trial court utilized the Ohio Supreme Court’s language from Cowling, and

Ferguson in making its decision.

{¶30} In sum, while the exact phrase “unjust enrichment” was not used in

the trial court’s official “finding,” the language the trial court did use precisely

mirrors the required findings for a constructive trust. Therefore, we cannot find

that the court’s failure to use the phrase “unjust enrichment” in its finding warrants

reversal.

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{¶31} Based upon all the evidence, we find that there was competent

credible evidence to support the trial court’s imposition of a constructive trust for

the benefit of Priscilla Gallogly.

{¶32} Accordingly, Todd Watson’s first and second assignments of error

are overruled.

Watson’s Fourth Assignment of Error

{¶33} In Todd’s fourth assignment of error, he argues that if the

constructive trust was an appropriate remedy, the trial court erred in how it

implemented the constructive trust. Specifically, Todd argues that constructive

trusts attach to assets, not values, and that the trial court should have factored in

the mortgage debt when determining Priscilla’s residence’s value.

{¶34} In the trial court’s judgment entry, the trial court conducted the

following analysis, and made the subsequent findings, when determining

Priscilla’s interest to be covered by the constructive trust.

The Galloglys request that the constructive trust be for 21% of
the current fair market value, if not for the $350,000.00
valuation at the time of transfer. By the property values
Priscilla Gallogly is entitled to 21% of the subject property,
determined by adding the value of the Gallogly residence and .7
acre lot ($350,000.00) to the value of the residue ($1,300,000.00),
then dividing the value of the Gallogly residence and .7 acre lot
($350,000.00) by that sum ($1,650,000.00). * * * The Court
finds that inherent in the transfer of the subject property is some
risk of loss despite the intent of Roger Watson and Myron
Gallogly and as such Priscilla Gallogly should share partially in
the loss as a result of the failure of the Project.

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It is therefore ORDERED, ADJUDGED AND DECREED that a
constructive trust be imposed upon the subject property for the
benefit of Priscilla Gallogly in the amount of 21% of the net
proceeds of the foreclosure sale after payment of court costs and
the amount due and owing to the Richwood Banking Company.

(Emphasis Added.) (Doc. 153).

{¶35} Todd’s first argument that the trial court’s computation was improper

is that constructive trusts attach to assets rather than values. The Ohio Supreme

Court held in Estate of Cowling v. Estate of Cowling, supra, 109 Ohio St.3d 276,

2006-Ohio-2418, that

[a] claimant seeking the imposition of a constructive trust must
specify the particular property over which the constructive trust
is to be placed. If the form or possessor of the property over
which the constructive trust should be placed changes during a
lawsuit, the claimant should be given an opportunity to conduct
discovery, if necessary, and present evidence of the new location
or form of the property over which the trust should be placed.

Cowling, at ¶ 24. Here Priscilla’s residence, along with the Gallogly property, was

in the process of going through foreclosure at the time of the trial, and the trial

court traced the property back to Priscilla Gallogly and imposed the constructive

trust over her financial interest in her residence relative to the accompanying land

as a whole. In this case, the “assets” are the identifiable proceeds derived from the

pending foreclosure sale of Priscilla’s residence, over which the constructive trust

was imposed. Consequently, there is clear and convincing evidence to support the

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trial court’s tracing. Accordingly, we do not find that the trial court erred in this

aspect of its implementation of the constructive trust.

{¶36} In Todd’s second argument under this assignment of error, Todd

argues that the trial court erred in its computation of the value of Priscilla’s

interest covered by the constructive trust. Todd claims that the trial court did not

appropriately factor in the mortgages as they pertained to Priscilla’s residence, and

that therefore her interest should have been lower.

{¶37} As is made clear by the trial court’s holding above, the mortgages on

the entire property are to be paid out of proceeds from the foreclosure sale, as well

as the court costs, before Priscilla receives her 21%. Thus Priscilla will effectively

be “paying” her share of the mortgage relative to the property as a whole, as she is

only getting 21% of the net proceeds of the foreclosure after the mortgages are

paid off, not 21% of the property value before the mortgages are paid off. This

computation establishes that the trial court did, in fact, consider the mortgages and

Priscilla’s obligation to pay her share. Accordingly, we find that there is clear and

convincing evidence to support the decision made by the trial court. Therefore,

Todd’s fourth assignment of error is overruled.

Watson’s Third Assignment of Error and
Page’s Assignment of Error

{¶38} In Todd’s third assignment of error, and Page’s assignment of error,

Todd and Page contest the trial court’s determination of priority distribution of

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funds from the foreclosure sale. Specifically, Todd argues that the Watson Trust

should have priority over all but the bank’s mortgages on the Gallogly property

and Priscilla’s residence. On the other hand, Page argues that it should have

priority over all but the bank’s mortgages on the Gallogly property and Priscilla’s

residence.

{¶39} Regarding priority, the trial court held the following:

It is therefore ORDERED, ADJUDGED AND DECREED that
after payment of court costs, taxes, and the balance due to the
Richwood Banking Company, the remaining net proceeds of the
foreclosure sale shall be distributed as follows:

a. The first 21% to Priscilla Gallogly;
b. The next $220,000 to Page Engineering
c. The next $1,003,729.00 to Todd Watson, Trustee of the Roger
Watson Living Trust; and
d. Any remaining balance paid to the Watson Trust and Myron
Gallogly in a 50/50 ratio.

(Doc. 153).

{¶40} At the outset, we would note that the constructive trust imposed

would not have any practical effect in protecting Priscilla’s interest if she was not

given priority over Todd. We have already found that there was clear and

convincing evidence to support the trial court’s finding that a constructive trust

should be imposed for Priscilla’s benefit. Moreover, we see nothing in the record

illustrating that Todd’s interest was somehow secured or should be superior in any

other way to Priscilla’s interest in her residence.

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{¶41} As to Page’s priority, the trial court found that “Page Engineering

does not have an interest in the Gallogly residence and .7 acre lot portion of the

subject property; therefore, its interest is only in the remaining portion of the

subject property.” (Id.) The record supports the trial court’s determination. In

this case, Page engineering did work on the Gallogly property that was part of the

project, and Page expected to be compensated for it. Nowhere in the record is

there any indication that Page ever had any interest in Priscilla’s residence, or that

Page did any work on Priscilla’s residence. Thus Page would have no claim on

Priscilla’s residence, as the trial court found, and we do not find that the trial court

erred in determining that Page’s interest was subordinate to Priscilla’s in the

proceeds of the foreclosure sale.

{¶42} It remains for us to determine whether the trial court correctly

determined that Page’s interest in the foreclosure proceeds was superior to Todd’s.

In making its determination, the trial court reasoned that, “whether or not Page

Engineering is a creditor or an investor Page Engineering’s interest in the subject

property is superior to the other investors of the Project, those being Roger

Watson/the Watson Trust and Myron Gallogly as shareholders in ODI.” (Doc.

153).

{¶43} On appeal, both Todd and Page argue each should be ahead in

priority over the other. Todd claims that he was somehow a “secured” creditor

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and Page claims priority over Todd as a creditor over an investor. The trial court

weighed the evidence and found that Todd was not a creditor and his interests

were subordinate to Page’s regardless of whether Page was an investor or a

creditor.9

{¶44} We would further note that the record would support a determination

that Page was a creditor, as the parties agreed and stipulated that Page was owed

$220,000.00 for the work it performed on the Gallogly property, certainly taking

Page out of the realm of an investor. As a creditor, Page would certainly take over

Todd as an investor and thus the trial court’s decision would be correct. However,

even if Page and Todd were both construed as investors, the trial court’s

discretionary decision is supported by the record and we will not simply substitute

our judgment for the trial court’s judgment on this point.

{¶45} Accordingly, Watson’s third assignment of error and Page’s

assignment of error are overruled.

{¶46} For the foregoing reasons Watson’s and Page’s assignments of error

9
The argument that Page was an investor rather than a creditor stems from Page’s original agreement in the
project. Evidence indicated that Page originally agreed to forgo receipt of payment for its work on the
project for a period of years in exchange for double its regular fee. Even if this made Page an investor, that
characterization would be altered when the parties later agreed that Page was owed a flat-fee of $220,000
for its work on the project.

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are overruled and the judgment of the Union County Common Pleas Court is

affirmed.

Judgment Affirmed

WILLAMOWSKI, J., concurs in Judgment Only.

ROGERS, J., DISSENTS.

{¶47} I must dissent from the opinion of the majority. Once again this

court has chosen to ignore the finality and sanctity of formally executed

documents; in this case a warranty deed. See Neville v. Neville, 3d Dist. Marion

No. 9-08-37, 2009-Ohio-3817, ¶ 36 (Rogers, J., concurring in part and dissenting

in part) (“I find it troubling the lack of importance placed upon the formally

executed deed of the parties.”). The Galloglys (yes, both husband and wife) made

a business decision to formally transfer their property to the Watson Trust. That

transfer enabled Roger to obtain a loan that was necessary for the Oaks

Development to proceed. Personal assurances aside, the property development

could not continue without the letter of credit Watson needed to obtain a loan,

which was intended to benefit both Watson and the Galloglys’ business venture.

At that point in time, Roger was also making the mortgage payments on the

Gallogly property. It is unfortunate that Roger died shortly after the loan was

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executed. However, his death may or may not have contributed to the failure of

the development.

{¶48} But more importantly, all that is immaterial to the issues in this case.

A properly executed deed may only be set aside upon a showing of lack of

capacity, fraud, or undue influence, and the burden of proof is by clear and

convincing evidence. Household Fin. Corp. v. Altenberg, 5 Ohio St.2d 190

(1966), syllabus. None of these circumstances have been alleged, let alone proven

by any evidentiary standard. Priscilla contributed her property to her husband’s

business venture and must be allowed to suffer the consequences. She might have

tried to protect herself through additional written agreements, although such a

collateral agreement may not have been acceptable to the loaning institution, and

the development might have stopped there. The choice was made to indenture the

property without recourse.

{¶49} As to the issue of a constructive trust, this court cannot rationally

find unjust enrichment of the Watson Trust when the Galloglys benefited from the

business venture proceeding due to the loan obtained by Watson. Priscilla

effectively made herself a silent partner in the Oaks Development by her transfer

of the real estate and has no rights except those properly executed in writing, and

obviously there are none. Therefore, I would find that Priscilla has no interest in

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the subject property and the trial court erred in both imposing a constructive trust

and giving Priscilla priority over Todd Watson and Page Engineering.

{¶50} As to Page Engineering, it is an unsecured creditor of Oaks

Development, and has no rights except as to Oaks Development. Consequently,

the trial court erred in giving priority to Page Engineering over Todd Watson.

Nevertheless, Page Engineering should have been given priority over Priscilla,

who, as stated above, did not have any interest in the subject property.

{¶51} Accordingly, I would sustain Todd Watson’s first, second, and third

assignments of error, as well as Page’s assignment of error. Moreover, I would

find that the resolution of Todd Watson’s first and second assignments of error

rendered his fourth assignment of error moot.

{¶52} Since the majority today has failed to uphold the permanence of

warranty deeds, it has failed to properly determine the priorities of the parties

involved in this matter. As such, I respectfully dissent.

/jlr

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