Court Opinion

ID: 1076629
Source: CourtListenerOpinion
Date Created: 2013-10-09 20:19:45.72176+00
Date Added: 2024-06-11T08:46:46.648369
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                        AT NASHVILLE
                                                        FILED
                                                          April 16, 1999

JERRY BOWMAN,                            )             Cecil Crowson, Jr.
                                         )            Appellate Court Clerk
      Plaintiff/Appellant,               )
                                         )   Appeal No.
VS.                                      )   01-A-01-9808-CH-00424
                                         )
MIDSTATE FINANCE COMPANY,                )   Bedford Chancery
INC., a Tennessee Corporation,           )   No. 19,280
                                         )
      Defendant/Appellee,                )
                                         )
and                                      )
                                         )
E. SCOTT BOWMAN,                         )
                                         )
      Defendant.                         )

      APPEALED FROM THE CHANCERY COURT OF BEDFORD COUNTY
                   AT SHELBYVILLE, TENNESSEE

                   THE HONORABLE CHARLES LEE, JUDGE

GRANVILLE S.R. BOULDIN, JR
122 North Church Street
Murfreesboro, Tennessee 37133-0811
      Attorney for Plaintiff/Appellant

CHARLES L. RICH
202 Union Planters Bank Building
Shelbyville, Tennessee 37162
      Attorney for Defendant/Appellee

                             AFFIRMED AND REMANDED

                                             BEN H. CANTRELL,
                                             PRESIDING JUDGE, M.S.

CONCUR:
KOCH, J.
CAIN, J.
                                  OPINION

               A holder of the first mortgage on a parcel of real estate took a quitclaim

deed from the owner to satisfy the mortgage and in payment of some unsecured

debts. The owner’s brother, claiming as an equitable owner of the property and as a

creditor, asserted that (1) the conveyance was fraudulent as to creditors, and (2) that

the mortgagee was not a bona fide purchaser under the quitclaim deed. The

Chancery Court of Bedford County dismissed the claim. We affirm.

                                            I.

               The Bowman family operated a large farm in Bedford County. By 1988,

all the children, two boys and a girl, had become adults. One child, Scott, ran his own

dairy business. The parents owned a 132 acre tract that was mortgaged to the First

National Bank of Shelbyville. Scott did business with Midstate Finance Company,

Inc., where he frequently borrowed money to finance his operation. His parents were

also obligated on some of the Midstate loans.

               In 1993, Scott and his parents were heavily in debt. The parents

conveyed the 132 acre tract to Scott on Scott’s promise to sell the property and to pay

the net proceeds to his brother and sister. At essentially the same time, Midstate

sued Scott and his parents on the debts they owed Midstate.               Midstate also

purchased the first mortgage on the 132 acre tract from the First National Bank of

Shelbyville.

               On April 21, 1994, Scott agreed to quitclaim the property to Midstate in

lieu of foreclosure. Midstate agreed to sell the property and to pay the proceeds to

Scott, after deducting the costs of sale, the debts owed Midstate, and an unspecified

                                          -2-
amount owed by Scott Bowman to Michael M. Shofner. Scott Bowman executed and

delivered the quitclaim deed to Midstate, and Mr. Shofner, on behalf of Midstate,

executed the following oath in order to record the deed:

              I, or we, hereby swear or affirm that the actual
              consideration for the transfer or value of the property
              transferred, whichever is greater, is $10.00, which amount
              is equal to or greater than the amount which the property
              transferred would command at a fair and voluntary sale.

                                           II.

                          a. The Fraudulent Conveyance

              The common law regarded a person’s property, except that exempted

by law, as a fund for the benefit of creditors. State v. Nashville Trust Co., 190 S.W.2d
785 (Tenn. App. 1945); see also Tenn. Code Ann. § 30-2-305. It is, therefore,

understandable why early English statutes provided that all transfers of property made

with the intent to hinder, delay, or defraud creditors were fraudulent and void. The

substance of these statutes (13 Elizabeth (ch. 5) and 27 Elizabeth (ch. 4)) now

appears in our Code at Tenn. Code Ann. § 66-3-101. In addition, in 1919, our

legislature passed the Uniform Fraudulent Conveyance Act, which made a

conveyance fraudulent, without regard to intent, if the transfer was for an inadequate

consideration and the transferor was insolvent, or was rendered insolvent by the

transfer. Tenn. Code Ann. § 66-3-305. The Uniform Law did not repeal the prior act

but merely enlarged thereon. Scarborough v. Pickens, 170 S.W.2d 585 (Tenn. App.

1942).

              The combined effect of these statutes makes a conveyance fraudulent

as to creditors if it is made without a fair consideration, leaving the grantor insolvent,

or if it is made with the actual intent to hinder, delay, or defraud creditors. Hicks v.

Whiting, 149 Tenn. 411 (1923); Macon Bank and Trust Co. v. Holland, 715 S.W.2d
347 (Tenn. App. 1986).

                                          -3-
              Under the Uniform Act fair consideration is defined as:

                     Fair consideration is given for property, or
              obligation:

                     (1)     When in exchange for such property, or
              obligation, as a fair equivalent therefor, and in good faith,
              property is conveyed or an antecedent debt is satisfied; or
                     (2)     When such property or obligation is received
              in good faith to secure a present advance or antecedent
              debt in amount not disproportionately small as compared
              with the value of the property or obligation obtained.

Tenn. Code Ann. § 66-3-304.

              The appellant argues that the oath of value on the deed estops Midstate

from showing that the actual consideration for the property was more than ten dollars.

In order to record a deed conveying a freehold estate, the grantee must pay a

recordation tax based on the consideration for the transfer or the value of the

property, whichever is greater. Tenn. Code Ann. § 67-4-409(a)(1). The grantee is

required to supply the information on which the tax is based. Tenn. Code Ann. § 67-

4-409(a)(6)(A). In Mid-South Bank & Trust Co. v. Quandt, No. 01A01-9403-CH-00107

(filed in Nashville Oct. 20, 1995), this court held that the oath estopped the grantees

from showing a greater consideration than the amount they swore to on the face of

the deed.

              The statute, however, treats quitclaim deeds differently. In Tenn. Code

Ann. § 67-4-409(a)(4) the tax for recording a quitclaim deed is “based only on the

actual consideration given for that conveyance. (Emphasis added). Where the

conveyance is given to satisfy an antecedent debt, the grantee may in good

conscience represent that a nominal consideration was given for that conveyance.

The representation does not work an estoppel against the grantee.

              We think the consideration paid in this case was not only “fair” but “full.”

Midstate agreed to take the property and sell it, and then to remit to Scott Bowman all

the proceeds above the debts he owed to the bank and to Mr. Shofner. Since a

                                          -4-
transfer for an antecedent debt qualifies as fair consideration, the transfer to Midstate

cannot be set aside on this ground.

              It could be argued that a transfer to one creditor, even for a fair

consideration, would “hinder and delay” the other creditors. But our courts have

refused to set aside such conveyances, even where the transferee knows the

transferor has numerous other debts. Troustine v. Lask, 63 Tenn. 162 (1874); Bates

v. Fuller, 76 Tenn. 644 (1881); Blackmore v. Crutcher, 46 S.W. 310 (Tenn. Ch. App.

1898). In Feder v. Ervin, 38 S.W. 446 (Tenn. Ch. App. 1896) the court said:

              It is true, the vendor, Ervin, was heavily in debt, and this
              fact was known to the purchasers; but that does not make
              the transaction fraudulent. There was no purpose upon
              the part of these purchasers to defraud the other creditors
              of Mr. Ervin. They only desired to save their own debt,
              and they paid a proper consideration.

38 S.W. at 449.

              In Hefner v. Metcalf, 38 Tenn. 577 (1858) the court said:

                      The words “hinder and delay” are to be taken in
              their legal or technical, and not their literal sense, or no
              deed could stand where all the creditors were not
              provided for. If this were otherwise, the right to prefer one
              creditor to another, where a debtor cannot pay all, would
              be defeated. But “a debtor may prefer one creditor, and
              secure his debt, though others may suffer loss.” (citation
              omitted). He may, at any time before a lien has been
              obtained upon his property by judgment in court or levy,
              appropriate it by bona fide sale or assignment to the
              payment or security of other creditors. This will not fail,
              because a reasonable “delay” is taken to sell and apply.
              He may thus interpose obstacles in the way of others, that
              is, “hinder” them, as well as “delay them.” The statute
              only refers to an improper or illegal hindrance or delay --
              not such as is reasonable and fair in the exercise of the
              well established right to prefer creditors.

38 Tenn. at 579-80.

              There is a limited right to avoid preferences under the bankruptcy law,

but preferences are not fraudulent conveyances under state law, where the

transaction is bona fide and the debt satisfied amounts to fair value for the property.

                                          -5-
               b. The Quitclaim Deed and Bona Fide Purchasers

              The appellant also argues that the defense of innocent purchaser is not

open to one taking under a quitclaim deed. The basis for this contention is Hows v.

Butterworth, 62 S.W. 1114 (Tenn. Ch. App. 1899) where the court said:

                     “The defense of innocent purchaser insisted upon
              on behalf of defendant Butterworth in argument is not
              available, because it was not pleaded nor relied upon in
              his answer, and, if it had been, is not available, as he took
              under a quitclaim deed . . . .”

62 S.W. at 1115.

              We think that case is doubtful authority for the proposition that a grantee

in a quitclaim deed cannot be an innocent purchaser. There is authority to the

contrary, more directly on point. In Campbell v. Home Ice & Coal Company, 126
Tenn. 524 (1912) the court said that a grantee of a quitclaim deed “will be regarded

as a purchaser in good faith notwithstanding such quitclaim deed, if his title as shown

by the registry record, is apparently valid and clear, and he has no notice of any defect

in the title.” 126 Tenn. at 534. From the time of that decision until now, the holding

has not been challenged. We, therefore, overrule this argument by the appellant.

              Although he does not raise it as a separate issue, the appellant argues

that one acquiring land in payment of an antecedent debt cannot be a bona fide

purchaser. He cites Robinson v. Owens, 103 Tenn. 91 (1899) for that proposition.

We think, however, the case stands for the opposite. There Robinson conveyed

property to Owens and the deed recited that part of the purchase price was unpaid.

When Owens transferred the property to Vesey, Robinson argued that Vesey could

not be a bona fide purchaser without notice. The court said, however,

              “[A] vendor who sells and conveys real estate without
              reserving a specific lien, may enforce his equity, as
              against his vendee and mere volunteers at any time
              before conveyance; but as against purchasers from and
              creditors of the vendee he comes too late, if he has
              delayed filing his bill and fixing a charge on the property

                                          -6-
             until after they have rights and evidenced them through
             the public records of the state, as the law provides.”

103 Tenn. at 98.

             The judgment of the court below is affirmed and the cause is remanded

to the Chancery Court of Bedford County for any further necessary proceedings. Tax

the costs on appeal to the appellant.

                                        _________________________________
                                        BEN H. CANTRELL,
                                        PRESIDING JUDGE, M.S.

CONCUR:

_____________________________
WILLIAM C. KOCH, JR., JUDGE

_____________________________
WILLIAM B. CAIN, JUDGE