38 Mass. App. Ct. 702 | Mass. App. Ct. | 1995
The defendants appeal from a Superior Court judgment which orders the sale of property on Valentine Street in Fall River (the locus) found to have been fraudu
We take our facts as found by the judge after a jury-waived trial. Following a mortgage foreclosure sale in June, 1977, of property owned by Joseph on South Main Street in Fall River, the bank’s attorney informed him of a deficiency of about $29,000. Anticipating that the bank would look to the locus to satisfy the deficiency Joseph and his wife, Dale, in July, 1977, conveyed it to Richard M. Alegría, who gave no consideration for the conveyance and who then conveyed it to Anita Callahan, the mother of Joseph. The deed to Anita Callahan never was recorded.
After initiating a deficiency action in the District Court, the bank filed the present action in 1978, pursuant to G. L. c. 109A, the Uniform Fraudulent Conveyance Act, seeking to set aside the conveyances to Alegría and Anita Callahan. In 1985, before this action came to trial, Joseph filed a Federal bankruptcy petition and was discharged. The bank’s request for relief from the automatic stay provisions of the Federal Bankruptcy Act,
1. The effect of the Federal bankruptcy on the bank’s claim. Placed beyond the reach of a creditor is a conveyance to a “purchaser for fair consideration without knowledge of the fraud at the time of the purchase.” See G. L. c. 109A, § 9(1). The judge found that Anita “did not take title to the property for fair consideration.” A creditor may, pursuant to G. L. c. 109A, § 9(l)(a), have the fraudulently conveyed property “set aside ... to the extent necessary to satisfy his claim.” David v. Zilah, 325 Mass. 252, 256 (1950). See also Joseph P. Manning Co. v. Shinopoulos, 317 Mass. 97, 99 (1944).
While the bank no longer has a remedy against Joseph Callahan, his discharge in bankruptcy neither extinguished his debt nor, in the circumstances, prevents the bank from maintaining its status as a creditor and satisfying its judgment from the property in the hands of the transferee. “It is established that a ‘discharge [in bankruptcy] destroys the remedy but not the indebtedness.’ Zavelo v. Reeves, 227 U.S. 625, 629 (1913).” Groden v. Kelley, 382 Mass. 333, 336 (1981). See Webster v. Kowal, 394 Mass. 443, 447-448 (1985).
It is significant that the trustee in bankruptcy could not have avoided the deeds in question either at the time this action was brought or at the time of trial. That the conveyances occurred more than seven years before the bankruptcy petition was filed puts them well beyond the reach back powers of the trustee under 11 U.S.C. § 547(b) or
No Massachusetts cases have come to our attention on the question whether a creditor may utilize G. L. c. 109A once the Federal bankruptcy trustee is time-barred from recovering property that has been fraudulently transferred by the debtor. However, that question has been answered affirmatively by another State’s court in applying the Uniform Fraudulent Conveyance Act in generally similar circumstances. In Dixon v. Bennett, 72 Md. App. 620, 636 (1987), an unsecured creditor brought an action under the Maryland Uniform Fraudulent Conveyance Act seeking to reach certain assets which she claimed had been fraudulently transferred to the defendants. The suit was filed after the debtor had been discharged under the Federal Bankruptcy Act and also after the right of the trustee in bankruptcy to sue to avoid fraudulent transfers had expired. The Maryland Court of Special Appeals held that the creditor’s suit under the State fraudulent conveyance law was not barred once the trustee was precluded from suing to recover assets fraudulently transferred by the debtor. The court reasoned that the barring of the State action after the expiration of the trustee’s powers “would only serve to shield the recipients of fraudulent transfers at the expense of the unsecured creditor.” Id. at 634. Aside from agreeing with the reasoning of this case,
2. Other issues. Contrary to the defendants’ claim, there is ample evidence in the record to support the judge’s conclu
Judgment affirmed.
See 11 U.S.C. § 362(a)(1988).
The defendants concede that the Federal District Court decision treats the issue in the present case as one of State law. The Federal judge declined to apply In re Mortgageamerica Corp., 714 F.2d 1266, 1275 (5th Cir. 1983) (under Texas law [not a Uniform Fraudulent Conveyance Act jurisdiction] a debtor and hence a debtor’s estate has a continuing legal or equitable interest in property fraudulently conveyed and, therefore, the au
General Laws c. 109A, § 7, provides in pertinent part: “Every conveyance made . . . with actual intent ... to hinder, delay or defraud either present or future creditors, is fraudulent as to both present and future creditors.”
Although the bank’s actions are not in question in this appeal, we note with approval the observation in the Maryland decision that “the State court has the equitable power ... to bar the suit if it discovers that the creditor was aware of the transfers and attempted to withhold [that information] from the trustee.” Dixon v. Bennett, supra at 1326.
Tenancies by the entirety underwent extensive statutory alteration in 1980. See St. 1979, c. 727, amending G. L. c. 209, § 1.