Opinion ID: 1130976
Heading Depth: 1
Heading Rank: 1

Heading: separate action for fraudulent conveyance

Text: The Burtons contend that before foreclosing and executing on a lien, it is not necessary to file a separate action to set aside a fraudulent conveyance. They base their argument on two points: First, they contend that the conveyance from Willard Wood to his wife was fraudulent because he was attempting to protect the property from creditors. The Burtons claim that because the conveyance was fraudulent, it was therefore void and Willard Wood still maintained an interest in the property. Because Wood maintained an interest in the property, the lien could attach, and it was therefore proper to execute on the property without having the conveyance set aside as fraudulent. In the alternative, the Burtons argue that because the conveyance was fraudulent, the Burtons could entirely disregard it and execute upon the property. The Burtons maintain that according to Utah Code Ann. § 78-22-1, [8] the judgment obtained against Willard Wood in 1981 attached as a lien to the property. At issue is whether Willard Wood, the judgment debtor, had an interest in the property in question at the time the Burtons obtained their judgment against him. In order to make this determination, we must address the question of whether the 1980 conveyance from Willard Wood to his wife was void or simply voidable. The Burtons assert that the Utah Fraudulent Conveyances Act (the Act) explicitly states that a fraudulent conveyance is void. To support this position, they rely on section 25-1-8 of the Act, [9] which provides: Every conveyance or assignment, in writing or otherwise, of any estate or interest in lands, or in goods or things in action, or of rents or profits issuing therefrom, and every charge upon lands, goods or things in action or upon the rents or profits thereof, made with the intent to delay, hinder or defraud creditors, or other persons, of their lawful suits, damages, forfeitures, debts or demands, and every bond or other evidence of debt given, suits commenced, or decree or judgment suffered, with the like intent, as against the person hindered, delayed or defrauded shall be void. [10] Section 25-1-8 does invalidate conveyances made with intent to defraud. However, such conveyances are not automatically void. Under well-established law, a number of cases have held void to mean voidable only. [11] Professor Williston, in his work on contracts, stated: [A] statute may and sometimes does make a bargain absolutely void, but even though a statute states it in terms, void has been held to mean voidable. ... .... Unless no other conclusion is possible from the words of a statute it should not be held to make agreements contravening it totally void. [12] In Wagner v. United States, [13] the United States Court of Appeals for the Seventh Circuit held that an assignment under Indiana law, although not in compliance with a statute, was voidable, not void. The Wagner court stated, [E]ven when [an assignment] is statutorily described as being `void,' the proper construction is that the action is `voidable at the option of one of the parties or some one [sic] legally interested therein.' [14] Wagner stated the general rule of construction that when an act is void as to persons who have an interest in impeaching it, the act is not utterly void, but merely voidable. [15] Utah cases adhere to the general rule expressed above. This court has stated that a contract induced by fraud, false representations, mistake, etc., is not void but only voidable, and it is entirely within the right of the injured party to affirm it or treat it as valid and subsisting. [16] This court has also specifically addressed section 25-1-8 of the Act. [17] With regard to that section, we stated, The remedy provided by the Act for a fraudulent conveyance is the voiding of the conveyance. [18] These cases clearly show that some action must be taken by the complaining party to render a conveyance void. Two cases from other jurisdictions with facts similar to this appeal specifically address the issue of void versus voidable. In Becker v. Becker, [19] a creditor brought suit to set aside a transfer made by the debtor to himself and his wife. The creditor claimed that the transfer was made fraudulently to hinder the plaintiff's ability to recover on the defendant's debt owed to her. While the threshold issue in Becker was whether the transfer itself was fraudulent, the Becker court also stated: A voluntary or a fraudulent conveyance is valid between the parties, and in fact as to the whole world, except those within the protection of the statute; thus the words `null' and `void' are construed to mean voidable only. Therefore such conveyances vest the legal title in the grantee, subject only to be divested by the creditors of the grantor if they choose to impeach it. [20] In Gurley v. Blue Rents, Inc., [21] a creditor brought suit to set aside an allegedly fraudulent conveyance wherein a debtor husband conveyed to his wife his interest in real estate held by the two as joint tenants. Pertinent to the issue now before this court, Gurley concluded that as to the grantor's creditors, the conveyance is voidable [as opposed to void] and may be set aside at their option. [22] The Burtons rely on a line of cases from this court to support their claim that the conveyance at issue is void. [23] These cases are easily distinguishable because they involved either a prior proceeding where a conveyance was adjudged fraudulent and void or a situation where a motion to declare a conveyance fraudulent had been denied. [24] Therefore, in all of those cases, one of the issues was whether the conveyance was actually fraudulent. In the instant case, the conveyance has not been declared fraudulent or void. Furthermore, whether the conveyance was fraudulent is not an issue before this court. Hence, although section 25-1-8 of the Act uses the language void, as opposed to voidable, we do not believe that such a strict interpretation is warranted by the applicable case law. The conveyance is not the type of act that is routinely null, but rather, it must be challenged or set aside to render it void. Moreover, the conveyance is not something of which all the world may take advantage, but only the Burtons, who claim that they were injured by the transfer. Because the conveyance from Willard Wood to his wife has not been adjudged void as a fraudulent conveyance, we conclude that it is voidable but not void. We next address the Burtons' argument that because the conveyance was fraudulent, the Burtons could, pursuant to Utah Code Ann. § 25-1-15, entirely disregard it and execute upon the property. [25] Again, the Burtons claim that the conveyance was fraudulent because Willard Wood was attempting to shield the property from his creditors. While there is some record evidence suggesting that Willard Wood conveyed the property to his wife to protect it from creditors, we find little merit in this argument. A transfer must first be held void as fraudulent before section 25-1-15 becomes operative. [26] Although it remains in dispute, even if Willard Wood did admit fraud, the conveyance has not yet been adjudged fraudulent, and therefore, the remedy under section 25-1-15 is not available. Furthermore, the Burtons cannot execute under section 25-1-15(2) because the property is not in the hands of the allegedly fraudulent transferee. [27] When the Burtons executed on the property, the land was no longer in the hands of Tonya Wood, the allegedly fraudulent transferee, but was owned by Baldwin. Because the conveyance has not been declared fraudulent and is not in the hands of the fraudulent transferee, section 25-1-15 does not apply. In sum, since the conveyance is not void, but merely voidable, the Burtons could not simply disregard it and execute on the property. Contrary to the Burtons' position, Willard Wood held no interest in the property at the time the Burtons obtained their judgment against him; hence, a lien did not attach and the Burtons could not execute on the property. [28] We therefore conclude, as did the trial court, that it was necessary for the Burtons to bring a prior, separate action to set aside and declare void the allegedly fraudulent conveyance before foreclosing and executing on Baldwin's interest in the property. [29]