Title: Buchanan v. Buchanan

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
LUTHER BRUCE BUCHANAN, ET AL. 
 
v.  Record No. 022351     OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
September 12, 2003 
BONNIE S. BUCHANAN 
 
FROM THE CIRCUIT COURT OF MECKLENBURG COUNTY 
Leslie M. Osborn, Judge 
 
 
In this case, Luther Bruce Buchanan (Husband) seeks the 
reversal of certain orders allowing Bonnie S. Buchanan (Wife) 
to maintain an action for fraudulent conveyance under Code 
§ 55-80, directing a special commissioner to hold the proceeds 
of those conveyances and others pending disposition of a 
divorce proceeding, and awarding Wife attorneys' fees.  
Because, for the reasons stated below, we find that Wife was 
an "other person" who "may be" entitled to payment from 
Husband under the fraudulent conveyance statute, that the 
directive to the special commissioner to hold certain funds 
did not create constructive trusts, and that the issue 
regarding attorneys' fees is moot, we will affirm the judgment 
of the trial court. 
MATERIAL FACTS AND PROCEEDINGS
 
Husband and Wife were married in September 1973 and 
separated in February 2000.  On January 5, 2001, eleven months 
after the couple's separation, Husband sold construction 
equipment to his father Harold B. Buchanan (Father), for 
$30,500.  Father paid Husband $8,000 in cash and signed a 
promissory note in the amount of $22,500.  A month later, on 
February 26, 2001, Husband gave his mother, Bessie B. Buchanan 
(Mother), and Father $12,250 and $5,750, respectively, in 
repayment of loans they had allegedly made to Husband in the 
past.  The funds given to Husband's parents were proceeds from 
a $40,000 line of credit and an additional $40,000 loan 
Husband obtained in January 2001.  The line of credit and loan 
were secured by deeds of trust against the Buchanan home.  The 
home was built during the marriage on property owned by 
Husband prior to the marriage and titled in his name. 
 
On March 9, 2001, Husband filed a bill of complaint 
seeking a divorce on the grounds of separation in excess of 
one year.  Wife filed an answer and cross-bill alleging 
cruelty and constructive desertion.  On July 2, 2001, Wife 
filed a bill of complaint against Husband and his parents 
asserting that Husband's conveyances to his parents were 
fraudulent in violation of Code §§ 55-80 and –81. 
 
At the request of the parties, the trial court 
consolidated the fraudulent conveyance and the divorce 
proceedings.  The parties agreed that the claims would be 
heard sequentially, with evidence on the fraudulent conveyance 
claims presented first. 
 
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In the proceedings relating to the fraudulent conveyance 
claims, the trial court sustained Husband's motion for summary 
judgment regarding Wife's claim pursuant to Code § 55-81, but 
denied Husband's motion for summary judgment in which he 
asserted Wife could not maintain an action pursuant to Code 
§ 55-80.  Following an evidentiary hearing, the trial court 
held that Husband's transfers of $5,750 and $12,250 to Father 
and Mother, respectively, were void because each was done with 
the intent to "delay, hinder, or defraud" Wife's ability to 
recover property she may be entitled to from Husband in 
violation of Code § 55-80.  The court did not void Father's 
title to the construction equipment, finding that the sale was 
for valuable consideration. 
 
The trial court appointed a Special Commissioner to take 
possession of the $22,500 promissory note and hold in 
"constructive trust" payments due to Husband by Father 
pursuant to that note, the $12,250 paid to Mother, and the 
$5,750 paid to Father pending the evidentiary hearing on the 
divorce and equitable distribution determination. 
 
Following the hearing in the divorce action, the trial 
court entered an order requiring Husband to pay Wife $105,000 
based upon its determination of equitable distribution.  The 
court also awarded Wife $27,000 for her attorneys' fees and 
costs "incurred in this matter and the fraudulent conveyance 
 
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action."  Wife received partial satisfaction of these monetary 
awards when, pursuant to the trial court's order, the Special 
Commissioner paid Wife, from the funds held in "constructive 
trust," the $12,250 that Husband originally paid to Mother and 
an $11,250 payment made by Father on the promissory note. 
 
In this appeal, Husband challenges the trial court's 
failure to sustain his motion for summary judgment regarding 
Wife's ability to maintain an action pursuant to Code § 55-80, 
the imposition of a "constructive trust" on the promissory 
note and various cash payments, and the award of attorneys' 
fees for the fraudulent conveyance action.  We consider these 
issues in order.1
CODE § 55-80 
Husband's first assignment of error involves the 
application of the fraudulent conveyance statute, Code § 55-
80, to the circumstances of this case.2  Husband does not 
                     
1 We do not consider the $5,750 payment to Father here 
because for reasons not relevant to this appeal, those funds 
were returned to Father, rendering that issue moot. 
2 Code § 55-80 provides in relevant part: 
Every gift, conveyance, assignment or transfer of . . . 
any estate, real or personal, . . . given with intent to 
delay, hinder or defraud creditors, purchasers or other 
persons of or from what they are or may be lawfully 
entitled to shall, as to such creditors, purchasers or 
other persons, their representatives or assigns, be void.  
This section shall not affect the title of a purchaser 
for valuable consideration, unless it appear that he had 
notice of the fraudulent intent of his immediate grantor 
or of the fraud rendering void the title of such grantor. 
 
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challenge the trial court's determination that he fraudulently 
conveyed funds to Mother; rather, Husband asserts that Wife 
could not maintain an action under Code § 55-80 because her 
claim against him had not accrued at the time of the 
conveyance.  Husband argues that Wife's claim accrued only 
upon an equitable distribution determination in the context of 
their divorce proceeding and that the divorce proceeding was 
not filed until after the conveyance at issue.  Thus, Husband 
asserts that, at the time of the conveyance, Wife was not an 
"other person" who "may be lawfully entitled" to payment from 
Husband for purposes of Code § 55-80.  We disagree. 
 
Code § 55-80 embodies the common law principle that 
transfers of real or personal property made "with intent to 
delay, hinder, or defraud creditors, purchasers, or other 
persons of or from what they are or may be lawfully entitled 
to" are void.  The "essence of fraudulent conveyance . . . is 
the diminution of the debtor's estate to the detriment of the 
creditor's right of realization."  1 Garrard Glenn, Fraudulent 
Conveyances and Preferences § 319, at 556 (rev. ed. 1940). 
 
To maintain an action under this statute, the entitlement 
of one alleging a fraudulent conveyance need not be judicially 
established or reduced to judgment at the time of the 
challenged conveyance.  For example, in Crowder v. Crowder, 
125 Va. 80, 99 S.E. 746 (1919), a wife prevailed in an action 
 
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under a predecessor to Code § 55-80 even though the fraudulent 
conveyance occurred prior to any determination of the wife's 
right to a divorce or alimony.  Moreover, in Davis v. Davis, 
239 Va. 657, 391 S.E.2d 255 (1990), we said that although the 
spousal support award was not made until after the fraudulent 
conveyance, the wife could pursue an action under Code § 55-80 
because that section applies to both what one is entitled to, 
and what one "may be entitled to."  Id. at 661 n.3, 391 S.E.2d 
at 257 n.3.  And, in another context, we have held that a 
"deed made with intent to defraud a recovery by a third person 
of damages in an action of tort, even before trial and 
judgment . . . is fraudulent and void to the same extent as a 
conveyance to hinder, delay and defraud existing creditors."  
Bruce v. Dean, 149 Va. 39, 46, 140 S.E. 277, 280 (1927). 
Wife's claim here is based on that portion of Code § 20-
107.3 that gives a spouse a marital interest in property 
acquired during marriage and in the improved value of the 
property occurring during marriage.  Wife's entitlement to 
that marital interest was enforced in the divorce proceeding 
through the application of the statutory principles of 
equitable distribution.  Like the claimants in Crowder, Davis, 
and Bruce, Husband's liability to Wife in this case was not 
established or quantified until after the conveyance at issue.  
Nevertheless, like those claimants, at the time of the 
 
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conveyance in question, Wife was an "other person" who "may 
be" entitled to payment from Husband.  Code § 55-80. 
Husband, noting that independent actions for divorce, 
alimony, and support were available to the spouses in Crowder 
and Davis at the time of the fraudulent conveyances, asserts 
that the fraudulent conveyance statute requires that the 
spouse's claim be enforceable by an independent action at the 
time of the conveyance.  Husband contends that Wife had no 
cognizable claim for purposes of the fraudulent conveyance 
statute because at the time of the conveyance at issue no 
divorce action had been filed and Wife could not file an 
independent action for equitable distribution.  We again 
disagree with Husband. 
Neither Crowder nor Davis held that the present 
availability of an enforcement action was a prerequisite to 
maintaining a fraudulent conveyance action under Code § 55-80.  
In this case, the enforcement mechanism for the claim giving 
rise to Husband's liability to Wife was the divorce 
proceeding.  The grounds for divorce in this case, separation 
in excess of one year, prevented the filing of the divorce at 
the time of the conveyance.3  To hold that such limitations 
                     
3 Whether Wife could have prevailed in a divorce 
proceeding filed on other grounds at the time of the 
conveyances is not clear from this record.  Nevertheless, the 
 
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period for instituting procedures to enforce a claim defeats 
Wife's fraudulent conveyance action is inconsistent with the 
longstanding public policy against fraudulent conveyances.4  A 
transferor could circumvent the policy by transferring assets 
just prior to the expiration of the limitations period even 
though the transferor knew of the impending liability and made 
the transfer precisely to shield the assets from the 
liability. 
In this case, the parties had been separated for eleven 
months prior to the transfers in issue.  Husband did not 
challenge the trial court's finding that Husband conveyed the 
property with the intent of defrauding or otherwise deterring 
Wife from recovering amounts from him.  It is inherent in this 
finding that Husband believed that at the time he conveyed the 
funds, eleven months after the separation and one month before 
he filed a petition for divorce, a divorce proceeding would 
ensue and that a judgment would or could be entered making him 
liable to Wife.  He was aware of Wife's rights or claims under 
the provisions of Code § 20-107.3 and took action to defeat or 
hinder the realization of these rights. 
                                                                
ultimate result of the divorce action is not determinative of 
the fraudulent conveyance action. 
4 See also Code § 55-82 (allowing a creditor to file an 
action under Code § 55-80 before default by the 
transferor/debtor). 
 
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Accordingly, under the facts of this case, we conclude 
that the trial court did not err in holding that Wife was an 
"other person" who "may be" entitled to payment from Husband 
and therefore could maintain an action under Code § 55-80. 
CONSTRUCTIVE TRUSTS 
In the fraudulent conveyance proceedings, the trial court 
ordered that a "constructive trust" be imposed on the $22,500 
owed Husband under the promissory note executed for the 
construction equipment and instructed the Special Commissioner 
to "take possession of the promissory note and any payments 
due thereunder pending further order of this court in the 
divorce action."  The trial court also imposed a "constructive 
trust" on the $12,250 Husband paid to Mother and ordered 
Mother to deposit that sum with the Special Commissioner 
pending the divorce action. 
In his second and third assignments of error, Husband 
asserts that these "constructive trusts" were improperly 
imposed by the trial court. 
 
A constructive trust is a mechanism by which the person 
holding title to property is subjected to an equitable duty to 
convey the property to another because allowing the title 
holder to retain the property would be unjust.  Leonard v. 
Counts, 221 Va. 582, 590, 272 S.E.2d 190, 195-96 (1980).  The 
constructive trust arises by operation of law and is 
 
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independent of the intention of the parties.  Id. at 588-89, 
272 S.E.2d at 195.  In an action in which a constructive trust 
is imposed, the original transfer is not declared void; rather 
the title holder is ordered to transfer title of the property 
to or for the benefit of another.  Id. at 591, 272 S.E.2d at 
196. 
 
The remedy for a fraudulent conveyance is generally to 
declare the transfer void, or, under certain circumstances, to 
enter a personal judgment against the transferee.  See Price 
v. Hawkins, 247 Va. 32, 35-36, 439 S.E.2d 382, 384 (1994).  
Voiding the conveyance was the remedy adopted by the trial 
court with regard to the funds Husband fraudulently 
transferred to Mother, but, rather than returning the funds to 
the Husband, the trial court placed the funds with the Special 
Commissioner pending a final decree in the divorce action.  
Although labeled a "constructive trust," placing the funds 
with the Special Commissioner did not create the type of trust 
contemplated by the jurisprudence of constructive trusts.  
Accordingly, regardless of the terminology used, the 
trial court did not impose a constructive trust on the funds 
fraudulently conveyed to Mother.5  Pursuant to Code § 20-103, 
the trial court had the authority to transfer those funds to 
 
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the Commissioner pending further proceedings in the divorce 
actions. 
 
Husband also complains that the trial court erred in 
imposing a "constructive trust" on the promissory note 
executed by Father in favor of Husband and on the cash 
payments made under that note.6  Once again, however, the 
"constructive trust" imposed was not a true constructive 
trust.  The legal title holder of the note, the Husband, was 
not required to transfer the note to, or hold the note for the 
benefit of, another party.  The trial court's order that the 
note and its proceeds be placed in the custody of the Special 
Commissioner pending divorce was no more than a mechanism to 
preserve the Husband's estate authorized by Code § 20-103.  
Because no true constructive trusts were placed on the note or 
its proceeds, we reject Husband's second and third assignments 
of error. 
ATTORNEYS' FEES
 
In his final assignment of error, Husband asserts that 
the trial court erred in awarding Wife attorneys' fees in the 
fraudulent conveyance action.  We will not address the merits 
                                                                
5 In light of our conclusion that no constructive trust 
arose, we need not address Husband's assertion that an in 
personam judgment against Mother was the appropriate remedy. 
6 Although Husband asserts that the trial court imposed a 
constructive trust on the promissory note itself, the order 
 
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of this assignment of error, however, because the issue is 
moot. 
 
The decree entered in the divorce action on August 6, 
2002, awarded Wife $27,000 attorneys' fees and costs "incurred 
in this matter and the fraudulent conveyance action 
consolidated with this matter which sum . . . shall be 
docketed as a judgment against Husband."  The Husband did not 
appeal the attorneys' fees awarded in this decree, either to 
this Court or the Court of Appeals.7  The award of attorneys' 
fees in the amount of $27,000 is, therefore, a final judgment. 
 
For the above stated reasons, we will affirm the judgment 
of the trial court. 
Affirmed.
                                                                
only imposed the "constructive trust" on the amounts owed to 
Husband under the note. 
7 Husband brought a separate appeal to the Court of 
Appeals regarding the trial court's holdings on constructive 
desertion, equitable distribution, payment requirements, 
interest, disposition of separate property, and future spousal 
support.  Resolution of those issues does not affect the 
matters before us. 
 
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