Opinion ID: 1840147
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Heading Rank: 2

Heading: The Fraudulent Transfer Act

Text: Minnesota's Fraudulent Transfer Act (the Act) is found at Minnesota Statutes sections 513.41 to 513.51. [2] The Act was first enacted as the Fraudulent Conveyance Act and later repealed and reenacted in 1987 as the current Fraudulent Transfer Act, essentially adopting the Uniform Fraudulent Transfer Act (the Uniform Act). Act of Apr. 7, 1987, ch. 19, 1982 Minn. Laws 19. In construing the Act, the object of this court is to ascertain and effectuate the intention of the legislature. Minn.Stat. § 645.16 (1994). Where the words of a law are not explicit, the intent of the legislature may be ascertained by considering other laws upon the same or similar subjects. Id. In this case, we must ascertain the intention of the legislature with respect to a uniform act. The intention of the drafters of a uniform act becomes the legislative intent upon enactment. Layne-Minnesota Co. v. Regents of the Univ. of Minnesota, 266 Minn. 284, 290-91 n. 13, 123 N.W.2d 371, 376 n. 13 (1963). Where a provision of the uniform state law is ambiguous, resort may be had to the notes of the drafters. Id.; see also Record v. Metropolitan Transit Comm'n, 284 N.W.2d 542 (1979) (considering the comments to the Uniform Motor Vehicle Accident Reparations Act in construing Minnesota's No-Fault Automobile Insurance Act). The drafters of the Uniform Act explain in the Uniform Act's prefatory note that the Uniform Act's predecessor represented a codification of the law related to the Statute of 13 Elizabeth. Unif. Fraudulent Transfer Act 7A U.L.A. 639, prefatory note at 639 (1985). The Statute of 13 Elizabeth, which dates back to 1570, and its descendants, which exist in every American jurisdiction today, invalidate `covinous and fraudulent' transfers designed to `delay, hinder, or defraud creditors and others.' BFP v. Resolution Trust Corp., 511 U.S. 531, ___, 114 S.Ct. 1757, 1763, 128 L.Ed.2d 556 (1994). Since the intent to hinder, delay, or defraud creditors is seldom susceptible of direct proof, courts have relied on badges of fraud. 7A U.L.A. 639, prefatory note. The fact that a transfer is made for less than adequate consideration constitutes one of those badges of fraud. Minnesota's Fraudulent Transfer Act, like the Uniform Act, provides for two scenarios under which a transfer made without adequate consideration may be fraudulent: one which is characterized by actual intent to hinder, delay or defraud, and one which is constructively fraudulent. [3] A transfer made without receiving a reasonably equivalent value in exchange for the transfer or obligation is constructively fraudulent under one of these conditions: (1) the debtor was engaged in or about to engage in a transaction for which he or she was left by the transfer with unreasonably small assets in relation to the transaction contemplated, or (2) the debtor intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay. See Minn.Stat. § 513.44. A threshold question often raised in cases involving the Act, as in this case, is whether a particular event qualifies as a transfer within the purview of the Act. `Transfer' means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance. Minn.Stat. § 513.41(12). In Minnesota, as elsewhere, the transfer of property pursuant to a regularly conducted, noncollusive mortgage foreclosure sale satisfies the requirement of reasonably equivalent value. Minn.Stat. § 513.43(b). The prefatory note to the Uniform Act makes a distinction between the transfer of an unencumbered property and the transfer of property which served as security for a debt. The note explains the reason why a creditor may not attack the transfer of a security interest such as a mortgage. The premise of the new Act is that the value of the interest transferred for security is measured by and thus corresponds exactly to the debt secured. Unif. Fraudulent Transfer Act, 7A U.L.A. 639, 641, prefatory note. Section 513.43(b) indicates that reasonably equivalent value specifically includes the results of a regularly conducted, noncollusive mortgage foreclosure sale: (b) For the purposes of sections 513.44(a)(2) and 513.45, a person gives a reasonably equivalent value if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the interest of the debtor upon default under a mortgage, deed of trust, or security agreement. The purpose or intent of the Fraudulent Transfer Act is to: prevent debtors from putting property which is available for the payment of their debts beyond the reach of their creditors. If the property transferred is not subject to the claims of creditors, the rules as to fraudulent conveyances do not apply. A transfer of property to the true owner by one who has the bare legal title is not fraudulent as to the latter's creditors. Kummet v. Thielen, 210 Minn. 302, 306, 298 N.W. 245, 247 (1941).