Opinion ID: 546102
Heading Depth: 2
Heading Rank: 2

Heading: Texas Fraudulent Transfers Act

Text: 43 Zahra also objects to the district court's conclusion that the transfer of Blanco County property from Dar Al-Hikmah to Zahra on August 12, 1984, was a fraudulent conveyance. The district court found that the conveyance was fraudulent under sections 24.02 and 24.03 of the Texas Fraudulent Transfers Act. 10 The district court's judgment that Zahra received a fraudulent conveyance from Dar Al-Hikmah rested in part on the implicit finding that Dar Al-Hikmah was the nominee/alter ego of the taxpayers. Before addressing Zahra's other objections to the court's finding of a fraudulent conveyance, we note that the ultimate resolution of this issue will depend upon whether Dar Al-Hikmah is the nominee/alter ego of the taxpayers, which must be resolved on remand. 44 Sections 24.02 and 24.03 of the Texas Fraudulent Transfers Act provide separate theories by which creditors can set aside certain transfers of assets. 45 Section 24.02(a) provides, generally, that a transfer of property is void as to a creditor if the transfer was intended to delay, hinder, or defraud any creditor from obtaining that to which he is, or may become, entitled. 11 Section 24.03 provides that a transfer is void with respect to an existing creditor if not made for a fair consideration. 12 46 United States v. Chapman, 756 F.2d 1237, 1240 (5th Cir.1985) (emphasis in original). As a comparison of these provisions reveals, section 24.02 provides a theory to attack certain transfers intended to delay, hinder, or defraud existing and subsequent creditors, while section 24.03 may only be utilized by one who was a creditor of the transferor when the transfer occurred. Cf. Tex.Bus. & Com.Code Ann. Secs. 24.02, 24.03; see also 17 Tex.Jur. 3rd Creditors Rights and Remedies Sec. 576, at 583-84 (section 24.03 protects existing creditors). 47 Zahra argues that the court erred in finding Sec. 24.03 satisfied because the government was not a creditor of the taxpayers when Dar Al-Hikmah transferred the property to Zahra and because the transfer was for fair consideration. 48 Insofar as Zahra contends that the government did not become a creditor until the jeopardy tax assessment occurred, we disagree. The Texas courts have given a broad construction to the term creditor, so that the Act protects the holders of unliquidated unmatured contingent claims. See Burnett v. Chase Oil & Gas, Inc., 700 S.W.2d 737, 743 (Tex.App.--Tyler 1985, no writ). As the Burnett court put it, [t]he existing creditors who may attack the transfer need not have been the owners of a fully matured and liquidated debt. Id. 49 The character of the claim, if it is just and lawful, is immaterial. It need not be due; for, although the holder cannot maintain an action until it is due, he nevertheless has an interest in the property as a fund out of which the demand ought to be paid.... A contingent claim is as fully protected as one that is absolute. 50 Id. (quoting Frees v. Baker, 81 Tex. 216, 221, 16 S.W. 900, 901 (1891)). The trial court found that the IRS had visited the Haeris twice about their taxes in 1984 shortly before Dar Al-Hikmah executed a deed to Zahra Spiritual Trust. On the second visit, an investigation of the Haeris' 1981 and 1982 taxes was opened. Later, a jeopardy assessment exceeding $10 million issued against the taxpayers for these two years. We are sensitive to Zahra's argument that a conveyance did not fall within Sec. 24.03 if the debtor was wholly unaware of an existing creditor's claim. This potential outer limit of Sec. 24.03 liability is not before us, however, on the facts of this case. The Haeris knew IRS was investigating them for a potentially large assessment at the time Dar Al-Hikmah conveyed property to Zahra, and it was not unreasonable for the district court to conclude that IRS was an existing creditor as specified in Sec. 24.03. 51 We now turn to Zahra's argument that the transfer was for valuable consideration. Zahra maintains that Dar Al-Hikmah's conveyance constituted a charitable contribution since Zahra is a bona fide charitable trust and, as such, the transfer was not without any consideration. Zahra cites In re Missionary Baptist Foundation, 24 B.R. 973, 979 (Bkrtcy.N.D.Tex.1982) for the proposition that a debtor may receive spiritual fulfillment or consideration by making certain charitable contributions. We are unpersuaded by Missionary Baptist Foundation because the decision is distinguishable on its facts and the applicable law. Applying section 548(a)(2)(A) of the Bankruptcy Code, the court rejected the trustee's argument, on the facts involved, that the debtor did not receive reasonably equivalent value from periodic contributions to a nonprofit corporation, Upreach Ministries, Inc. See Missionary Baptist Foundation, 24 B.R. at 979. 52 The relevant inquiry under section 24.03(a) is whether the debtor received monetary, not spiritual, consideration. E.g. Glenney v. Crane, 352 S.W.2d 773, 775-76 (Tex.Civ.App.--Houston [1st Dist.] 1961, writ ref'd n.r.e.) (court compared legal value of the consideration received by the debtor with the value of the property conveyed); Hartman v. Hartman, 32 S.W.2d 233, 234 (Tex.Civ.App.--Austin 1930, writ dism'd w.o.j.) (conveyance for recited consideration of $5 and love and affection is insufficient as against prior creditors). As the Texas Supreme Court pointed out in 1896: 53 The purpose of the [Texas fraudulent transfer] statute is the protection of creditors against voluntary conveyances by their debtors. It is based upon the maxim that a man must be just before he is generous. 54 Walker v. Loring, 89 Tex. 668, 673, 36 S.W. 246, 247 (1896) (emphasis added). Additionally, it is not disputed that the transfer of property from Dar Al-Hikmah to Zahra was by gift deed. We agree with the district court's finding that Dar Al-Hikmah received no consideration within the meaning of section 24.03 when it transferred the Blanco tract to Zahra. 55 Because we affirm the district court's finding that the conveyance from Dar Al-Hikmah to Zahra violated Sec. 24.03, if Dar Al-Hikmah is an alter ego of the taxpayers, we need not discuss the application of Sec. 24.02.