Opinion ID: 1816534
Heading Depth: 1
Heading Rank: 2

Heading: was the conveyance to m.c. clark of the lake washington property a fraudulent conveyance, made with the intent to hinder and defraud creditors?

Text: Since this question has already been answered in the affirmative by the trial court and is not challenged by cross-appeal of the appellees and is amply supported by the evidence, it does not necessitate a lengthy discussion. However, a consideration of the correctness of the trial court's holding on this point is necessary to address the other assignments. Appellant asserts that the conveyance in question was a voluntary conveyance, without consideration, but with the participation of M.C. Clark, and that under Mississippi law such a voluntary conveyance is presumed to be fraudulent as to creditors. Barbee v. Pigott, 507 So.2d 77 (Miss. 1987); Morgan v. Sauls, 413 So.2d 370 (Miss. 1982); Hudson v. Allen, 313 So.2d 401 (Miss. 1975). It has been held that transactions between husband and wife will be viewed with suspicion and, to prevent fraud as to creditors, they will be closely scrutinized to see that they are fair and honest. Fidelity & Deposit Co. of Maryland v. Lovell, 108 F. Supp. 360, 365 (S.D.Miss. 1952) ( quoting 37 C.J.S., Fraudulent Conveyances, § 252, p. 1085). Other cases have gone further, holding that when a voluntary conveyance is made between husband and wife, without consideration, it is presumptively fraudulent. First National Bank in Kearney v. Bunn, 195 Neb. 829, 241 N.W.2d 127, 128 (1976); Miami National Bank v. Willens, 410 Pa. 505, 190 A.2d 438, 439 (1963); Bank of Atkins v. Teague, 205 Ark. 38, 166 S.W.2d 1017, 1018-19 (1942). When examining a conveyance to determine if it is fraudulent, a court searches for certain badges of fraud, or suspicious circumstances, which usually accompany a fraudulent conveyance. Reed v. Lavecchia, 187 Miss. 413, 193 So. 439 (1940). In the case sub judice, there are numerous badges of fraud present: (1) Inadequacy of consideration  The recited consideration in the quitclaim deed was $10.00 and other good and valuable considerations for a piece of property worth at the very least $38,000 to $40,000, with the actual value possibly being greater. Dehmer v. Temple, 44 B.R. 992, 996 (S.D.Miss. 1984); Oury v. Annotti, 113 R.I. 506, 324 A.2d 325, 327 n. 2 (1974); Waukesha County Department of Social Services v. Loper, 53 Wis.2d 713, 193 N.W.2d 679, 682 (1972). See also, 37 C.J.S. § 81. The trial court found no real consideration. (2) Transfer in anticipation of possible future litigation  The transfer took place after the debtor-creditor relationship arose and after IPS had defaulted on the $52,000 loan it had received from the Bank. The usual case of a claim of fraudulent conveyance as to a subsequent tort claimant arises where the tort is committed, then a conveyance is made with intent to avoid a possible later judgment. Bank of Josephine v. Hopson, 516 S.W.2d 339, 341-42 (Ky.App. 1974); Watson v. Harris, 435 S.W.2d 667, 672 (Mo. 1968). Morgan v. Sauls, supra . See also, 37 C.J.S. § 82. No doubt IPS anticipated litigation on the defaulted loan. (3) Length of delay in recording the deed  The deed was dated November 3, 1978 but was not recorded until February 16, 1979. See 37 C.J.S. § 85. The Bank filed suit in December, 1978. (4) Secrecy  The conveyance was made to M.C. Clark rather than Martha Carol Clark or Martha Carol Clark Sarullo. During Sarullo's testimony at trial, he referred to his wife as Martha Carol or Carol. He never referred to her as M.C. See 37 C.J.S. § 86. (5) Transfer of all the grantor's property  It was admitted at trial that IPS had no other assets at the time of the conveyance, a finding specifically noted in the trial court's ruling. Dehmer, supra at 996. See also, 37 C.J.S. § 89. (6) Failure of the grantee to testify  M.C. Clark never testified at trial, creating a presumption that she could not have testified to the bona fides of the transaction or she would have done so. Nashville Milk Producers v. Alston, 43 Tenn. App. 257, 307 S.W.2d 66, 70 (1957). See also, 37 C.J.S. § 91. (7) Relationship of the grantor to the grantee  Here, the grantee (Clark) was married to the president of the grantor corporation (Sarullo). Such a relationship, while not always considered to be a badge of fraud, is nonetheless always deserving of close scrutiny. Montana National Bank v. Michels, 631 P.2d 1260, 1263 (Mont. 1981). See also, 37 C.J.S. § 96. Additionally, the relationship of the parties here is that of a corporate officer, S. Sarullo as president, conveying corporate property to his wife. In this case, there is no need to address the potential liability of Sarullo as president of IPS and of further seeking to pierce the corporate entity of IPS to impose liability upon Sarullo individually. This is so because Sarullo personally guaranteed this loan, and the judgment of the Bank is jointly and severally against both Sarullo and the corporation. (8) Insolvency  After execution of the deed in question by IPS, the corporation was insolvent. (9) Control  Sonny Sarullo used the property as a residence for himself and after he moved, permitted his son to rent the house. It is therefore clear that the conveyance of the Lake Washington property was a fraudulent conveyance within the meaning of § 15-3-3 of M.C.A., which reads in pertinent part as follows: Every gift, grant, or conveyance of lands ... by writing or otherwise ... had or made and contrived of malice, fraud, covin, collusion, or guile, to the intent or purpose to delay, hinder, or defraud creditors of their just and lawful actions, suits, debts, accounts, damages, penalties, or forfeitures .. . shall be deemed and taken only as against the person or persons, his, her, or their heirs, successors, executors, administrators, or assigns, and every of them whose debts, suits, demands, estates, or interests by such guileful and covinous devices and practices shall or might be in any wise disturbed, hindered, delayed, or defrauded, to be clearly and utterly void ... Section 15-3-5 provides two (2) exceptions to the coverage of § 15-3-3: (1) where the conveyance was made upon good consideration and lawfully conveyed; and (2) where the debts were contracted after the fraudulent act occurred. Neither of these exceptions applies here. The conveyance was without consideration. Also, the loan to IPS was made in June 1978 and the corporation defaulted on the loan in September of that same year. The quitclaim deed was dated November 3, 1978, meaning the debt was contracted before the property was ever conveyed. Therefore, neither of these exceptions is applicable. This Court holds that the chancellor's ruling on this point was amply supported by the facts of the case, and therefore, he was correct in ruling that the conveyance should be set aside.