Case Title: Balzer and Associates Inc. v. The Lakes on 360 Inc

Citation: 

Docket Number: 950052

State: virginia

Court: Virginia Supreme Court

Date: 1995-11-03T00:00:00Z

Document:
Present: All the Justices 
 
BALZER AND ASSOCIATES, INC. 
 
v.  Record No. 950052 
 
OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR. 
                                     November 3, 1995 
THE LAKES ON 360, INC., ET AL. 
 
 
FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY 
 
Timothy J. Hauler, Judge 
 
 
This appeal arises from a suit by a judgment creditor to 
void a transfer of real property by its judgment debtor.  At the 
conclusion of the creditor's case, the chancellor found that the 
debtor had no equity in the property transferred, thus precluding 
a finding of fraudulent intent, and granted the debtor's motion 
to strike the evidence of the creditor.  The issue we consider is 
whether the chancellor erred in granting the motion to strike.  
Because the creditor pled and presented a prima facie case 
sufficient to prove both a void fraudulent transfer, Code 
§ 55-80, and a voidable voluntary transfer, Code § 55-81, we 
reverse. 
 
The following material facts are not in dispute.  Bradley 
Investments, Ltd. (Bradley) initially purchased the property in 
question on July 1, 1988, from Howard F. and Alpha T. Hancock 
(the Hancocks) in exchange for a $1,000,000 purchase money note 
secured by a deed of trust.  Contemporaneously with its 
acquisition of the property, Bradley further encumbered the 
property with a second deed of trust to secure a $4,200,000 
acquisition and development line of credit from Home Federal 
Savings Bank (the bank). 
 
In October, 1991, Bradley became indebted to Balzer and 
Associates, Inc. (Balzer).  Balzer received a judgment against 
Bradley in the amount of $28,773.48 plus fees and prospective 
interest on April 20, 1992. 
 
Prior to February, 1992, Bradley was in default on its debt 
to the Hancocks on the purchase money note and the bank for funds 
expended from the acquisition and development line of credit.  On 
February 4, 1992, Robert A. Conner (Conner), president of Bradley 
and husband of its principal owner, purported to transfer the 
property to The Lakes on 360, Inc. (The Lakes), which at that 
time had not received its corporate charter.  Conner received a 
check made out to him personally for $5,000 as part of the 
transaction. 
 
On February 20, 1992, six days after The Lakes received a 
corporate charter showing that the corporation was controlled by 
the Hancocks, Conner, by quitclaim deed, again purported to 
transfer the property to The Lakes in order to correct a mistake 
in the February 4, 1992 deed.  No additional consideration was 
exchanged. 
 
On May 11, 1992, Balzer filed a Bill of Complaint seeking to 
void the transfer of the property, naming as defendants Bradley 
and The Lakes (jointly, the defendants).  Balzer specifically 
alleged that ". . . no consideration whatever passed from THE 
LAKES ON 360, INC. to Bradley for the Deed[s]; that Bradley would 
be rendered insolvent by the conveyance of the Property 
purportedly conveyed by the Deeds; [and] that the same [were] 
made to hinder, delay and defraud [Balzer] and other creditors." 
 In its prayer for relief, Bradley asked that the deeds "be 
declared void and of no effect."  At trial, Conner testified that 
the $5,000 payment was made directly to him since Bradley was no 
longer a going concern. 
 
It was further adduced through testimony or by stipulation 
that Bradley was insolvent at the time of the transfer; the 
Hancocks were Conner's uncle and aunt; The Lakes took the 
conveyance with the understanding that the property was subject 
to foreclosure by the Hancocks and the bank owning the deed of 
trust securing the acquisition and development loan; the 
outstanding amounts of the two loans exceeded $4,000,000; The 
Lakes was aware that additional mechanic's liens suits were 
pending against Bradley at the time of the conveyance; following 
the transfer, The Lakes obtained an additional $1,000,000 loan 
secured by the property; and, thereafter, the Hancocks 
subordinated their deed of trust to that of the bank. 
 
At the conclusion of Balzer's case-in-chief, the defendants 
moved to strike the evidence.  The chancellor, while concluding 
that the conveyance was "certainly questionable," nonetheless 
found that, as "the property had no equity in it at the time of 
the transfer," there was insufficient evidence of fraud on the 
part of Conner acting as an agent for Bradley to support voiding 
the transfer.  On that basis, he granted defendants' motion to 
strike and dismissed Balzer's Bill of Complaint with prejudice. 
 
The chancellor erroneously based his ruling on the 
presumption that the transfer was voidable only upon a showing of 
actual fraud.  In Virginia, an existing creditor may seek to void 
a transfer of property by the debtor under one of two theories.  
The transfer can be alleged to have been made for the purposes of 
delaying, hindering, or defrauding the debtor's just creditors, 
both existing and future.  Such transactions are fraudulent acts 
and are void except against bona fide transferees without 
knowledge of the fraudulent intent.  Code § 55-80; see also 
Consolidated Tramway Co. v. Germania Bank, 121 Va. 331, 335, 93 
S.E. 572, 573 (1917). 
 
In the alternative, the transfer can be alleged to have been 
made without receipt by the debtor of "consideration deemed 
valuable in law" while the debtor was, or as a result of the 
transfer became, insolvent.  Code § 55-81.  In such cases, fraud 
or other malicious intent is not an element required to prove the 
voidability of the transfer.  See Consolidated Tramway, 121 Va. 
at 335-36, 93 S.E.2d at 573, and Witz, Beidler & Co. v. Osburn, 
83 Va. 227, 229, 2 S.E. 33, 34-35 (1887) (distinguishing 
fraudulent and voidable voluntary transfers).  In other words, a 
transfer undertaken by an insolvent debtor, or by a debtor who is 
thereby rendered insolvent, without return to him of valuable 
consideration is de jure fraudulent as against any existing 
creditor without any need to prove intent to defraud.  Johnston 
v. Gill, 68 Va. (27 Gratt.) 587, 592 (1876).  "The principle upon 
which voluntary conveyances are held void as to existing 
creditors is that a man should be just before he is generous."   
Battle v. Rock, 144 Va. 1, 15, 131 S.E. 344, 348 (1926). 
 
Here, Balzer's allegations in the Bill of Complaint and the 
nature of the relief sought adequately pled alternative theories 
of fraudulent and voidable voluntary transfer in the context of 
Code §§ 55-80 and -81.  The requirements for stating a cause of 
action are not so strict as to demand specificity beyond that 
necessary to "clearly [inform] the opposite party of the true 
nature of the claim or defense" pled.  Rule 1:4(d); see also Code 
§ 8.01-275; cf. Fox v. Deese, 234 Va. 412, 422-23, 362 S.E.2d 
699, 705 (1987) (holding that Rule 1:4 and correlative statutes 
represent "a radical departure" from rules of common-law 
pleading).  Moreover, where the allegations of a pleading support 
two alternative theories of recovery, the pleading of one is not 
made insufficient by the insufficiency of the other.  Rule 
1:4(k); Code § 8.01-281.  It is thus axiomatic that at the trial 
of a pleading which adequately states alternative theories of 
recovery, a motion to strike may not be sustained where the 
evidence would, if unrebutted, support recovery under at least 
one theory. 
 
It is firmly established that, in considering a motion to 
strike a party's evidence, the chancellor must view the evidence 
and all reasonable inferences arising therefrom in the light most 
favorable to the non-moving party.  Any reasonable doubt about 
the sufficiency of the evidence must be resolved in favor of the 
non-moving party.  Shepherd v. Colton, 237 Va 537, 540, 378 
S.E.2d 828, 829-30 (1989). 
 
We first consider whether the motion to strike should have 
been sustained with respect to the allegation of fraudulent 
transfer pursuant to Code § 55-80.  The chancellor based his 
ruling on the finding that Bradley had no equity, actual or "of 
redemption", in the property.  Balzer asserts that, since no 
evidence of the actual value of the property was adduced at 
trial, this finding is not supported by the record.  We agree 
with Balzer. 
 
Without direct evidence of the present value of the land, 
including the improvements which had been made since its 
acquisition, the mere fact of Bradley's insolvency was 
insufficient to establish that it had no equity in the property. 
 Moreover, the evidence available to the chancellor, including 
the original maximum credit available through the acquisition and 
development loan, the fact of improvements to the property which 
were subject to the mechanic's liens, and the additional 
development money available to The Lakes upon its acquisition of 
the property, would, under the standard of review described 
above, support the reasonable inference of the property having 
value at or above the established level of the encumbrances upon 
it. 
 
In light of the close familial relationship between the 
parties, the apparent absence of adequate consideration, and the 
absence of certain evidence concerning the value of the property, 
we hold that Balzer made out a prima facie case of a fraudulent 
transfer and that the chancellor thus erred in granting the 
motion to strike under this theory of recovery. 
 
Similarly, Balzer's evidence, viewed in this light, would 
have supported a finding of a voluntary transfer by an insolvent 
debtor without consideration valuable in law.  The transfer from 
Bradley to The Lakes did not extinguish the debt to the Hancocks. 
 Rather, the transfer occurred with the understanding that the 
property remained subject to foreclosure by the Hancocks.  In 
addition, the $5,000 payment was made to Conner individually and 
not to Bradley.  Finally, in the absence of direct evidence 
establishing that the value of the property did not exceed the 
indebtedness against it, the remaining evidence, when viewed in 
the light most favorable to Balzer, suggests a lack of 
consideration to Bradley valuable in law.  Such a transfer would 
be void as to Balzer, an existing creditor, since it left the 
debtor insolvent and was not made for valuable consideration in 
law.  Accordingly, the chancellor erred in striking the evidence 
as to this theory of recovery. 
 
Once a party has established a prima facie case in support 
of its claim that a transfer is voidable, the burden of producing 
evidence to rebut the prima facie case shifts to the opposing 
party.  We cannot say whether the defendants would have been 
able, given the opportunity to present evidence of the value of 
the property and of the consideration received by Bradley for the 
transfer, to rebut Balzer's evidence, or at least bring into 
equipoise the ultimate questions of fraudulent intent pursuant to 
Code § 55-80, and lack of valuable consideration at law pursuant 
to Code § 55-81.  See Pullen v. Fagan, 204 Va. 601, 604, 132 
S.E.2d 718, 720 (1963). 
 
Accordingly, we will reverse the summary judgment and remand 
the proceeding for a new trial. 
 
Reversed and remanded.