Equity’s doctrine of unclean hands still has serious teeth, at least in the world of trusts (Part 2)

Charles E. Rounds, Jr.
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In an action for breach of trust, the unclean hands of the plaintiff-beneficiary, assuming they are in fact unclean, could well be an effective equitable defense. The Restatement of Restitution (1937), specifically § 140, provides that “a person may be prevented from obtaining restitution for a benefit because of his criminal or other wrongful conduct in connection with the transaction on which his claim is based.”

Equity’s maxims as they apply to the trust relationship, of which the doctrine of unclean hands is one, are catalogued in §8.12 of Loring and Rounds: A Trustee’s Handbook (2021), which section is reproduced in relevant parts in the appendix below. The maxims’ relevance to the trust relationship is addressed in the footnoting to the excerpt.

"The doctrine of unclean hands is unique to equity and has no analog at law. Unlike most legal doctrines, its aim is not to aid the search for truth, or even promote justice for the litigants. Its purpose is protection of the reputation of equity itself, and of those courts that exist to provide equity. The awesome power of equity, as opposed to the limited civil power of the law courts, would be intolerable unless stringently cabined by a doctrine under which Chancery withholds this power where invoked by wrongdoers whose bad acts are a part of the cause of action itself.” In re Niki & Darren Irrev. Tr., 2020 WL 8421676 (Del. Ch. Feb. 4, 2020). The Restatement of Restitution (1937) had similarly articulated the policy that underpins the doctrine: “If relief is denied, it is because of the desirability of protecting public interests, which may require a denial of relief even though, as between the parties, there is both unjust deprivation and unjust enrichment. The result can be justified only on the ground that it tends to prevent such transactions or that the public should not be burdened with the expense of adjusting such claims.” Restatement of Restitution (1937) § 140, cmt. a.

Thus, a trustee-beneficiary who wrongfully decants a trust in the absence of an express power to invade principal may not later have the equity court void the decanting if to do so would benefit the trustee-beneficiary personally at the expense of another beneficiary. See, e.g., In re Niki & Darren Irrev. Tr., referenced above.

So also has an infant who had fraudulently hid from the trustees his infancy, and in so doing received an improper distribution from the trust estate, unsuccessfully sued the trustees for a duplicate distribution upon his attaining the age of majority, his unclean hands having deprived him of the usual protections equity affords infants. See Overton v. Banister (1844) 3 Hare, 503; 8 Jur. 906; 67 Eng. Rep. 479; 28 Digest (Repl) 494, 118. [APPENDIX starts on 2nd page of attachment below]

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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