Attorneys Fees Where Fraudulent Conveyances are Declared Void: Tab 17

In any suit brought by a creditor pursuant to § 55-80,55-81, or 55-82 where a(i) gift; (ii) deed; (iii) conveyance, assignment, or transfer of, or charge upon,the estate of a debtor; (iv) suit commenced or decree, judgment or executionsuffered or obtained; (v) or bond or other writing is declared void, the courtshall award counsel for the creditor reasonable attorney fees against the debtor.Should there be a resulting judicial sale, any award of attorney fees shall bepaid out of the proceeds of the sale, as other costs are paid, provided the awardof attorney fees does not affect a prior lien creditor not represented by theattorney.

To: Members of the 2008 Boyd-Graves Conference

From: Leonard L. Brown, Jr, Esq. of ChesapeakeThe Hen. Rudolph Bumgardner, III of StauntonThe Hen. R. Edwin Burnette, Jr. of LynchburgJohn A. C. Keith, Esq. of FairfaxRussell V. Palmore, Esq. of RichmondStephen C. Price, Esq. of LeesburgGlenn W. Pulley, Esq. of Danville

The recovery of attorney’s fees when judgment has been obtained prior toinstituting a f~audulent conveyance suit

Date: 25 June 2008

Your referenced committee members were charged with studying whetherattorney’s fees should be recoverable when judgment has been obtained prior toinstituting a fraudulent conveyance suit. We are pleased to recommend to the Conferencethat it endorse a statutory change which would allow such a recovery.

BACKGROUND

Virginia’s Fraudulem Conveyance Statute is found at §§55-80, 81 & 82 of theCode. It is modeled on the original English enactments passed by Parliament at 13 Eliz. Cap.V. (1540) and 27 Eliz. Cap. IV (1585). A concise and helpful exposition on the statute can befound in the 1939 note from the VIRGINIA LAW REVIEW which follows this Report asAttachment A.l

Section 55-80 voids conveyances made with the intent to "delay, hinder ordefraud creditors" and reads as follows:

§ 55-80. Void fraudulent acts; bonafide purchasers not affected.Every gitt, conveyance, assignment or transfer of, or charge upon, any estate, real orpersonal, every suit commenced or decree, judgment or execution suffered orobtained and every bond or other writing given with intent to delay, hinder ordefi’aud creditors, purchasers or other persons of or from what they are or may belawfiflly entitled to shall, as to such creditors, purchasers or other persons, theirrepresentatives or assigns, be void. This section shall not affect the title of apurchaser for valuable consideration, unless it appear that he had notice of thefraudulent intent of his immediate grantor or of the fraud rendering void the title ofsuch grantor.(Code 1919, § 5184.)

Caution in reading this note: §55-81 was amended in 1988 to limit its scope to transferors who were"rcnderexi insolvent" by their gifts.

Section 55-81 voids conveyances made for inadequate consideration by aninsolvent transferor and reads as follows:

§ 55-81. Voluntary gifts, etc., void as toprior creditors.Every gift, conveyance, assignment, transfer or charge which is not uponconsideration deemed valuable in law, or which is upon consideration of marriage,by an insolvent transferor, or by a transferor who is thereby rendered insolvent, shallbe void as to creditors whose debts shall have been contracted at the time it wasmade, but shall not, on that account merely, be void as to creditors whose debts shallhave been conWacted or as to purchasers who shall have purchased after it wasmade. Even though it is decreed to be void as to a prior creditor, because voluntaryor upon consideration of marriage, it shall not, for that cause, be decreed to be voidas to subsequent creditors or purchasers.(Code 1919, § 5185; 1988, c. 512.)

THEPROBLEM

Originally, a creditor had to obtain judgment for his debt before instituting a suit toset aside a fi’audulent conveyance rendered void by §§ 55-80 and 81, however § 55-82 wasenacted to allow a creditor to obtain judgment for the debt and have a fraudulent conveyanceset aside in a single suit. This section reads as follows:

§ 55-82. Creditor’s suits to avoidsuch gifts, etc.A creditor before obtaining a judgment or decree for his claim may, whether suchclaim be due and payable or not, institute any suit which he might institute afterobtaining such judgment or decree to avoid a gift, conveyance, assignment ortransfer of, or charge upon, the estate of his debtor declared void by either § 55-80or § 55-81; and he may in such suit have all the relief in respect to such estate towhich he would be entitled after obtaining a judgment or decree for the claim whichhe may be entitled to recover. A creditor availing himself of this section shall have alien from the time of bringing his suit on all the estate, real and personal,hereinbefore mentioned, and a petitioning creditor shall be entitled to a like lienfrom the time of filing his petition in the court or in the clerk’s office of the court inwhich the suit is brought. If the proceeds of sale be insufficient to satisfy the claimsof all the creditors whose liens were acquired at the same time they shall be appliedratably to such claims and the court may make a personal decree against the debtorfor any deficiency remaining on the claim of any creditor after applying thereto hisshare of the proceeds of sale, or, if any creditor be not entitled to share in suchproceeds, may render a personal decree against the debtor for the full amount of thecreditor’s claim. And in any such case if the gift, deed, assignment, transfer orcharge be declared void, the court shall allow counsel for the creditors areasonable attorney’s fee to be paid out oftbe proceeds of sale as other costs arepaid provided the attorney’s fee allowed does not affect a prior lien creditor notrepresented by such attorney. This section is subject to the provisions of §§ 8.01-268 and 8.01-269.(Code 1919, § 5186; 1926, p. 874.)

The 1926 amendment to §55-82 added the highlighted sentence. Construing this amendmentin the case of Oakton Cloisters Homeowners Assn. v. Linderman, 25 Va. Cir. 148 (Fairfax

Co. 1991 ), the court held that the referenced language authorizes an award of attorney’s feesto successful creditors when they obtain judgment for the underlying claim in the fraudulentconveyance suit.2 The court found that there was no such authorization for an award in caseswhere a creditor had already obtained judgment for the underlying claim prior to institutingthe fraudulent conveyance suit, and, without such an authorization, no attorney’s fees wererecoverable. (A copy of this decision is attached to this Report as Attachment B.)

As a result of the Cloisters Homeowners Assn. decision, there exists an anomaly of acreditor who successfully sets aside a fraudulent conveyance receiving an award ofattorney’s fees if he obtained judgment for the underlying debt in the same suit, but beingdenied such an award if the judgment for the underlying debt was obtained in a prior suit.

OUR RECOMMENDATION

The Committee is of the opinion that a party who makes a fraudulent conveyance tothe detriment of his creditor has engaged in conduct which is egregious enough to justify anexception to the "American Rule" and allow the creditor to recover his attorney’s feesthe guilty party. Such recovery should not turn on whether or not the creditor obtains his-judgment prior to, or as a part of, the frandulent conveyance case)

THE PROPOSED SOLUTION

To implement the Committee’s recommendation that the recovery of attorney’sfees should be extended to cases where judgment on the underlying claim has been obtainedprior to instituting the fraudulent conveyance suit, the following statutory changes areproposed:

One: §55-82 be amended by deleting the referenced language as follows:

§ 55-82. Creditor’s suits to avoidsuch gifts, etc.

A creditor before obtaining a judgment or decree for his claim may, whether such claim bedue and payable or not, institute any suit which he might institute after obtaining suchjudgment or decree to avoid a gift, conveyance, assignment or transfer of, or charge upon,the estate of his debtor declared void by either § 55-80 or § L~-8 ~.; and he may in such suithave all the relief in respect to such estate to which he would be entitled after obtaining ajudgment or decree for the claim which he may be entitled to recover. A creditor availinghimself of this section shall have a lien from the time of bringing his suit on all the estate,real and personal, hereinbefore mentioned, and a petitioning creditor shall be entitled to alike lien from the time of filing his petition in the court or in the clerk’s office of the court inwhich the suit is brought. Iftbe proceeds of sale be insufficient to satisfy the claims of all thecreditors whose liens were acquired at the same time they shall be applied ratably to suchclaims and the enurt may make a personal decree against the debtor for any deficiency

2 By implication, "any such case" was held to refer to a fraudulent conveyance suit before judgment as

authorized by this §55-82.3 See Prospect Dev. Co. v. Bershader, 258 Va. 75, 92 (1999) holding that in a case based on actual liaud "a

ehaucellor, in the exercise of his discretion, may award attorney’s fees to a defrauded party."

remaining on the claim of any creditor after applying thereto his share of the proceeds ofsale, or, if any creditor be not entitled to share in such proceeds, may render a personaldecree against the debtor for the full amount of the creditor’s claim.,This section is subject tothe provisions of§§ 8 0|-268 and 8.01-269.

(Code 1919, § 5186; 1926, p. 874.)

Two: The following new section be adopted:

In any case brought by a creditor, pursuant to § §55-80, 81 or 82, where a gill deed,conveyance, assignment, transfer or charge upon the estate of a debtor, judgment orexecution suffered or obtained is declared void, the court shall award counsel forsuch creditor a reasonable attorney’s fee against his debtor; and should there be aresulting judicial sale, such fee shall to be paid out of the proceeds of sale as othercosts are paid, provided the attorney’s fee allowed does not affect a prior liencreditor not represented by such attorney.

Delet~l: And in any such case if thegill deed, assignment, transfer or chargebe declared void, the court shall allowcounsel for the creditors a reasonable

’ attomoy’s f¢~ to be paid out of theprocoeds of sale as other costs are paidprovided the attorney’s fee allowed doesnot affect a prior lien creditor notrepresented by such attorney.

Respectfully submitted,

Stephen C. Price

Committee Chairman

VIRGINIA SECTION

NOTE

The law of fraudulent conveyances and o£ voluntary conveyancesis naturally very closely related, and to a large extent defies com-pletely separate consideration. It is intended to limit this discussionto the latter except where there is a necessary interming_ling incidentto common membership in what may be treated as a larger class.Certain unusual features of the Virginia law make it important toinvestigate the rights of creditors with respect to voluntary convey-anCeso

If one makes a gift, what chance have his creditors to set it aside,and, conversely, to what extent may the donee feel secure in the en-joyment of this bounty?

It ~ been suggested that the common law was adequate to copewith this whole problem,* but this may be doubted.~ Some suchstatements are inaccurate because of indiscriminate reference to thecommon law before the statute of Elizabeth, and the body of law asbrought to America by the early colonists,s F_~uity might well havecbme to the. front with a solution had not early legisl~tion met the

need.~ While there were several earlier statutes,s the statute of 13EIJz., c. 5 (1540) is the landmark with which most discussions ofthe subject begin,e For the first time this statute broadly declaredthat any conveyance made with the intent to delay, hinder, and de-

"fraud creditors and others was void. In common with the otherAmerican colonies ~Virginia received this as par~ of her legal herit-age and substantially embodied it into statute.~ The statute of 1785declared conveyances fraudutently made were void as against cred-

~ See cases cited in W~,us’to~, CAs~s oN B,~r~u~ (2d ed. 1915) 1~ n." ~ ~, T~S ~w o~ ~~N~ ~~ (1931) ~ 59. The

law c~ ~ ~l~ ~ ~ ~ ~e ~e ~[~r ~ ~ ~-for~ ~ cl~ ~ p~ to whi~ a s~ hol~ ~e ~tl~

" G~, o~. dr. ~ no~ ~ at p. 91.

fur~h~ ~te ~ief ~out aid of ~~ ~ ~mpl~ of s~t~ ~ f~ ~ pro~ti~ o~ ~tors are

se~ ~ 50 Evw. 3, ~ 6 ~I~6) ~d 3 ~. 7, ~ 4 (1~).. . .

of 13 EH~ ~ merely ~~ of ~ ~on law. ~ H~s v. W~3 G~ ~, ~ (V~ 1~), ~d Hm~ v. K~ly, 1 ~. 131, 136 (V~1~2).

~ ~ Hut~ v. K~Iy, 1 Rob. 131, 1~ (Va. l~)~he s~of 13 ~1~ ~ 5 (su~fially ~ ~ o~ ~)~" ~ ~l~t~d ~ d~d~t of ~e whole ~~ of ~e law of f~ud-ul~t c~ve~c~ fr~ ~rly E~lish ~w ~ ~n~ ~ ~e ~ of H~t~sv. W~ 3 Gm~ ~ (Va. 1~); Huron v. Kelly, 1 R~ 131 (Va.1~2); ~d ~ v. ~’s T~, 11 Gm~ ~2 ~a. 1~).

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cessors, there arose a controversy destined fi~r much debate. Chan-cellor Kent first presented the problem clearly in the now-famouscase of Reade v. Li’oiugston.~ By Kent’s theory a gift made by oneindebted is conclusively presumed fraudulent as to existing creditors~regardless of the donor’s intent or of the amount of the gift or debts.This rule has been vigorously attacked as unsound and even ridicu-lous.ao Certainly it makes all gifts uncertain, however solvent thedonor may be. This question involves the fundamental conceptionof creditor’s rights. The creditor has only s right to realize his .debtout.of the debtor’s assets by legal pro.c~..’.ngs, and he has no .right

ing when a conveyance is voluntary should be rebuttable.I~ Pro-po.nents of Kent’s rule apply in its hall rigor the principle that "theclanns of justice are paramount to those o~ affection." ~s These di-verse ¯iews were vigorously u~_ged in the case of !-lutchin~on v.Kelly 14 and Hunt#rs v. Waite.~ Judge Stannard agreed with Kent,~dwJ~d~to noteBaldwinthat°Pp°sedthese particularthe vieWcaseswith ~bo~~ ~nvog~ve~t’fraIutdTs~Y

athec~E~geli~ sr~te_himsel~ seems t°

ute in 1829.

a voluntary character is necessary to make a conveyance wrongfulagainst a creditor so as to give the right to attack.~ The clrcum-

s.~r~note 2o at §§ 1-6, 270.ee note 10, supra. See O~s~, o#. cir. supra note 2, at § 271; the basisofath~ two rules and a compaH’son thereof is giver~ in sections 269 and 270., See Hunters v. Waite, 3 Graft. ~, 54 (Va. 1846). And at page 55:’As to the existing debt, the creditor has at the moment of donation, ~ su-perior claim to the app.li.cation of the property of the debtor, than that claimedby thedonec; ** *.u I Rob. 131 (Va. 1842).

"30ratt. 25 (Va. 1846).~ See ~u, ters v. Waite, 3 Onttt. ~., 42 (¥~,. lS4~).

I.%do~te~ by th~ Suprem~ Com’t, H,-de’s I~ssee v. Longwort~ 11 Wheat.

~ (U. S. 1826). ’I’~ case o~ Salmon v. Bennett, 1 Conn. 525 (1816) which

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stances of the gift must at least be such as import fraud. Virginiais one of the very few states following the other view.Is Staun~d’sagreement with Kent has been embodied in statute since 1849. Atleast there is no longer the uncertainty that existed under earlierstatutes.

Though the Virginia statutes may still be open to some of the criti-cisms indicated,1~ the practical operation of the law as it stands isof greatest immediate importance. A great encouragement at theoutset is found in the clarity of the statutes and their consistent in-terpretation by decision.

The first relevant section, similar in scope to the .s.~tut¢ of 13Eliz. and the earlier Virginia statute, makes every gift m fraud ofpurchasers or of creditors, both existing and ~uture,~o void as tothem.~X Bona fide purchasers ~ are expressly protected.

The next section makes all voluntary conveyances, regardless ofintent, void as to e.xi~i~ creditors and purchasers only.~s In 1887the provision was added to this section that conveyances on consid-eration of marriage should be void under this section.

cl~e~r~ecsets out the moder~ majority, rule was ignored by Kent two years later.cases cited, OL~mq, op. c~L ~u~rg note 2, at p. 359, n. 13.~ Though the present Virgiida statute, .r.~ches substantial.l~ the .s~n. e r~ult

as that of the Kimt doctrine, it is not subject to all the criticisms directed atthe latter, y~.’.e Kent conclusively presumed £raud from lack of consider-ation, the Virginia statute merely declares a voluntary conveyance void as toexisting creditors Yega~r_dle$$ of~ fr.raud.,o,The terms .’prii~r" and "existing" ~ the terms "subsequent" and."fu-ture are used in~-changeably to designate the respecthre classes of creditors.

= Co~ o~ V~. (1849) c. i18, § 1, V~. Co~s A~N. (Michie, 1936) § 5184,’~very gift, conveyance, assi ..g~ment, or transfer of, or. charge upon, auy .es-

suRerea or obtained, ana every oona or omer writing g~ven va~ intent to de-.~.y, hinder, or dei.rau.d ~rs, .~..rchasers, ~ other persgus of_ or from whatmey are or may oe mw~mw entitled to, shall, as to such creditors, purenas-ers, or other persons, their representatives or assigns, be void. This sectionshall not affect the title of a-purchaser for valuable consideration, unless itappear that he had notice of thee fraudulent intent of his immediate gr_an.toror of the fraud re~derlng void the title of such ~r.an.tor..’.’ The last provisionis.an interesti.n~g departs, e from. the equitable pr~.cip!.e th~.t o~.e B. F:.P. in:sulates succeeamg purcluasers who are strangers to r~e xraua~ reg~ra~ess o~knowledge. Mo~:ri~ette v. Cook, 122 Va. 588, 9S S. F., 449 (1918) (fraud-ulent conveyance void as to subsequent creditor also). See Battle v. Rock,144 Va. I, i0, 131 S. ~ 344, 346 (1926). ." See Bank v. Ferimer, 161 Va. 37, 41, 170 S. F_. 591, S92 (1933)--

A bona fide purchaser is one who has no knowl ~edge or notice, actual or c~.-structive, of the grantor’s fraudulent intent, and h~s not ..been put on .such _m_-qutry as would lead to knowledge or notice, and has paid consideration, Heis protected regardless of the grantor’s fraud. .

= CODS OV V~- (1849) e. 118, § 2, Vx. Co~s Am~. (Miclde, 1936) § 5185,"Every gift, conveyance, assignment, transfe.r~ or charge, which is not uponconsideration deemed valuable in law, or which is upon consideration of mar-riage, shall be void as to creditors whose debts shall have been contracted atthe time it was made, but shall not, on that account, merely, be vo’ai as tocreditors whose debts shall have b..ee~_ contracted or as to purcliasers who shallhave purchased after it was made, and though it be decreed to be void as toa prior creditor, because voluntary or upon eonsider.a, tion of marriage, it shahnot, for that cause, be decr~d to be void as to subsequent creditors or purochasers." See Battle v. Rock, 144 Va. 1, 10, 131 S. E. 344, 346 (1926).

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FIRGINL4 SSCTION--NOTH $651939]

While those opposed to Kent’s view wished to treat both existingand future creditors alike in that mere want of considerat{on wouldnot give e~ther the right to attack a conveyance, no one has ven-tured to keeo them both in the same class under the Kent-Virginiarule so that ~uture creditors could attack a conveyance merely volun-tary.a~ By express words of the statute ~v a~_d. by consistent, inter-pretation s merely voluntary conveyance is subject to attack by~ti~g a0 creditors.u7 While the statute of 13 Eliz. and most of itssuccessors have used the term "void", a fraudulent or volunta~ con-veyance is always voidable, only.~s It is effective until a creditoracts to set it aside, and this attack can be made only by one of thespecified class. As to the rest of the world it is good.~9 The par-ties to the conveyance cannot question it,~0 nor can their privles,s~Formerly a grantor whose ~raudulent or voluntar~ conveyance hadbeen set aside was ~rmitted to claim homestead exemption in thesame prope~.~ This undesirable practice was prohibited by theVirginia .Constitution of 1902.~

There ~s a possibility of great con~usion .a~.’sing from the questiono~ whether avoidance bY one class o~ creditors should affect therights of the other,ss The issue was raised at an .ear.l.y date in Vir-ginia,s~ but the statute apparently, has been successful m disassociat-ing the two groups so that the rights of each depend on the clear-cut

~ See Reade v. Livingston, 3 Johns. Ch. 481, 501 (N.. Y. 1818).; H..un.tersv. Waite, 3 Gratt 25, 52 (Va. 1846). If subsequent ~e~i.’tors coul9 atmc~ avoluntary conveyanc.e,, a donor could always defeat a gi~t by borrowing moneyon security of the gift property.

~ See note 23," The statute avolies e~ually to creditors with and without notice. See

Davis v. Borm.ey~ 8~-Va. ?~S, 7~9, 17 S. F~ 229, 230 (1893_). ~:C_redi_tors’_’ .c~ersholders o~ tort ~udgments. See Note (1926) 48 A.~ross~ ~0 W. v~ I, ~3 S. E. ~, 4~.(1~1.D-~..~.s~csuon ~pr~or orsubsequent ~reditor depends solely on the ume me oebt is contract

~ Cramer v. Semger, 107 Va. ~)0, 59 S. E. 375"IZR C. L. § 7, p. 473. . .....= Alth~gh a purchaser from a donee stanas in his snees, a su~seq_uem .sa~e

by the donor to a ~rd p~rty c~o.t a~e~t h_’~ r~s.hts._ _Wh~.tteg_.v~5 Vs. 563 (1881). See Chamberlayae v. Temple, Z F,~n~. ;~, ~ t.va.

102 Va. 880, 47"S E 1007 (1904) ; Pratt v. Cox, 22 Gratt 330 ( a. )." See Soooner ~r ~ilbish. 92 Va. 333 336, 23 S. E. 751 752 (1895).

" V~. Co~. art. xiv, § 191. Enacted into statute, Acts of Assembly

and children clahn such exemptio.ns.. ~ee u~c~enson v. z’atton, ll.0.V.a.S. ~ 529 (1909). But the exemption is valid if cla.’uned~ he_fore suit ~s orou.g~t

~ The r~ghts of subsequent creditors .ha..v~..somet~..es been.o.held ~o dependon whether the conveyance had been avo~.e~ ~ ex~s~.~..g cr~t.ors. ...

= Another test of whether thee were prior debts still .remam~_ng un_pmo hasbeer~ applied to determine the righ~ of .s~b~seq_uent eredi~to~. _~ee T~o~y v.UeGebee, 38 Ark. 419, 427 (188~); aria z ~z~OW, ~.~,(1890), ~. 97. See Hunter~ v. Waite, 3 Gratt, 2~, 48 (846), or a_. -sion of the distinction between the rlght~ of prior and subsequent ereditors.

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866 VIRGINIa1 L,4W RF~VI~W [Vol. 25

tests laid down by the statute,as There is no sound reason why therights o£ the two classes should be interdependent on the existenceOf rights in each other, or on whether the other class has taken ac-tion.s7

While the intent .a~.ompanying a voluntary conveyance i.s utterlyimmaterial as to existing creditors,ss mere want of considerationnever makes a conveyance void as to subsequent creditors.~ofore the latter can attack a transfer both (1) the fraudulent intentof the grantor, and (2) knowledge or notice of the grantee*O mustbe proved by clear and convincing evidence.~1 One should alwayskeep in mind that a sale for adequate consideration is always goodif there is no fraudulent intent.4~ Valuable consideration within the.s...t~u. te means adequate rather than nominal consideration. Thefidity of each transfer is a ques_ tion for the j .ur),, and a m~ely doubt-~ul situation or the exercise o~ bad judgment Is not enough to defeata trander.4s The Virginia court has taken a very ~vholesome atti-tude in f.rankly admitting that precedent is of. but tittle aid in thisfield where each case must be determined on its own Pacts and cir-..~mstances.~4 Since 1887 marriage has not been sufficient to sus-~in a conveyance against existing creditors, but it should be care-futly noted that this change does not affect the validity Of marriagesettlements as against subsequent creditors.4~ The statute merelyprevents the gross injustices that used to be perpetrated when an

= See statute quoted in note 23, supra. "* * * and though it be decreedto be void as to a lwior creditor * * * it shall not, for that reason, be de-creed to be void as to subsequent creditors or purchasers:’

~ See Jolmst~ v. Zane’s Trustees, I1 Gratt. ~52, 565 (V~ 1854); Hutch-inson v. Kdly, 1 Rob. 131, 137 (Vs. 1842). ¯

= See F-Awards Mfg. Co: v. Cart, 65 W. Vs. 673, 64 S. ~ 1030, 1032 (1909)under similar statute.

~* By expreSSVa. 345,wording of the(1898)statute.; L-vine v. Greever~ 32 Gratt. 411 (Va.IRked9).96 31 S. F_~ 514 See ~ote 23, supra. Bldg. Ass’n v.

atal as g~ow~e Ot ~e oenen¢~ry. ~ee Wneler t;o. v. 3a~es~ 1°,0 va.768, 132 S. F~ 859, 862 (1926).

~ See Bank v. Ferimer, 161 Va. 37, 41, 170 S. E. 591, 592 (1933); Irbyv. Gardner, 157 Va. 1~32, 138, 160 S. F_~ 81, 83 (1931). See Note (1915) 17A. L. R. 732. Requisites satisfied in Crowder v. Crowder, 125 Va. 80, 99 S.~.~ (I919).

Insolvency does not deprive the owner of the right to dispose of hisexty at a ~air and adequate price, unless the sale is made with a fraudulenttent. See Irby v. Gardner0 157 Va. 132, 138, 160 S. E. 81, 83 (1931).

~ Neff v. F_Awards, 148 Va. 616, 139 S. J~ 291 (1927); Catron v. Bostic,123 Va. 355, 96 S. E. 845 (1918). But board and lodging furnished withoutprevious _agre~_m~__ __ent was not valid consideration for conveyance. Stoueburnerv. Motley, 95 V~ 784, 30 S. E. 364 (1898). And a trust deed reserving fullcontrol in the grantor xvas ~raudulent a~d void. Consol. Tramway Co. v.Germanla Bank, 121 Va. 331, 93 S. E. 572 (1917).

~ Haynes v. Bunting, 152 Va. 395, 401, 147 S. E. 211, 213 (1929) ; Hef~ v.FAwards, 148 V~ 616, ~8o 139 8. E. 291, .~5 (1927). .

~ A deed in co~|deratiou of marriage m void as to existing creditors butnot othcrwise. See Snyder v. Gran~taff, 96 Va. 473, 479, 3I S. F~ 647, 649(1898). ’~he statute does not declare that such ~.�~mvey~. ces .are voluntary.It simpl~, declares that conveyances upon consideration of marrmge are voidas to emsting creditors."

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insolvent man married and settled all his property on the wife be-yond reach of his creditors.4s

The subsequent creditor has the burden of proving fraud: and,while want of consideration is evidence of fraud, it is not conclusivebecause the statute says it shall not be.47 However, want of con-sideration may be considered as a badge of fraud ~s like conve~-an .c.esbetween husband and wife,4° failure to take security,~0 transters inthe. face of threatened insolvency,~l and other situations raising sus-picion. When these exist there.is a presumption of fraud whichmust be overcome by those daindng under the conveyance. Other-w~se it will be deemed fraudulent and subject to attack by all credi-tors.~

The statute was plainly intended to reach all conveyances of anykind of property.~3 So it has been hdd that payments on a life in-surance policy come within the statute as a voluntary conveyance,~4and the change d the benefidary in such a poficy may amount to afraudulent or voluntary conveyance if the policy has a cash valuewhich creditors could reach.~

Having discovered the general rules by which the rights of credi-a Example_: HerLing v. Wlckham, 29 Gratt. 628 .(18~_8) ; Q.outts v. Green-

how, 2 Munf 363 (Vs. 1811). See (1924) I0 V~. ~,. ~v.e See M~)~-J~ep.e v. Cook, 12~ Va. 588, 593, 95 S E 449, 450 (1918). See

103 Vs. 36, ~, 48 S. F_,. 497, 498 (1904). Actually any g~ges of.iraud isnever more than a~ evidenda! drcumstance. But see Bank v. Fedmer, 161Va. 37, 42, 170 S. E. 591, 592 (1933) where relationship is meniioued as abadge of fraud and not denied. .

’* Conveyances from husband to w~fe are pr..es.um.ed voluntary and vd.dIess proved otherwL~e by evidence beyond recitals m the deed and t .eTti..m~yof the parties. Pnckett v. Draper, 156 _Va. 238, ~58 & E. 68 (1931);Farges v. Ryland, 87 Va. ,104, 12 S. E. 805 _(1891); see BatXle v. Rode, 14~Vs. 1, 1t, 131 S. E. 344, 3.46 (1926). But such a transfer may be proved bonafide where the wife actually gives value. Parl~.ley Nat. Bank v. Parks, 200S. E 6Z9 (Vs. I~3~) (security for antecedent debt) ; FIyan .& Royalty v. ~rack-son Bros., 93 Va. 341,25 S. ~ 1 (1896) (release of dower).,0 Todd v. Sykes, 97 Va. 143, 33 S. E. 517 (1899).

~ Wright v. I-Lmcock, 3 MunL .~21 (ISlZ). .u For the four views as to what fraud is necessary to allow suosequ~entcreditors to attack a conveyance in various judsdictlous, see (1928) Z~ I~.L. P,~v. 673.

" "T.h._e obvious intent of the .sp~tute is to invalidate as a~ exist~ claimsof creditors every ~i_’it or volunfary .ass| .~.~.t_ .of the d,,ebtor s.propqty, wi.th-out regard to its object or the form m which i! ~s made. White v. Pae.. ~Vlut.Co., 150 V*- 849, 863, I43 S. E. 340, 344 (1928).

~’ Here seems to be a glaring b!con_sistency in applyin~ the statute. Hay-ing declared that pa__y_ments are voluntary conveyances w|tbin the statute, thecourt limits the ~tor’s recov..e~ to payments made a[~er i~soI~en¢y, al-though the statute regularly apphes regardless of _solvent7. White v. Pac.Mut. Co, 1S0 Vs. 84~9, 143 S.-E. 340 (~1928) ; Stigler v. Sfigier, 77 Va. 163(1883). See (1917) 5 Va. L. Rsv. 217. l~o~ a very complete consideration .ofcreditors’ rights in exempt_proceeds of life insurance purchased during m-solvency, see Note (1939) ?.SV~. L. R~. SSS.

" Note (1937) 47 Y,u,S L. J. 128; (1937) 23 V^. L. 1~. 463.

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868 P’IR~INIA L~IFF" REVIEW [Vol. 25

tors and others are defined, we may now consider the manner inwhich these fights can be er~orced. Formerly an attack on a fraudu-lent conveyance was allowed only as a last resort. Only after judg-ment had been obtained could the creditor bring a bill to attack theconveyance_ This restriction was thought absolutely necessary toprevent mischie~ of the most serious nature.~s Gradually the va-rious states facilitated this relle£ by removing the requirement offirst obtai "~ui~g_ judgment.~ But this did not he!p matters in the fed-eral courts ~s until a similar provision was mad~ by the new federalrules.~ A Virginia statute led the way at an early date,so and theUniform Fraudulent Conveyance Act followed the trend. Today,quite generally, the in~ured creditor’s first move is to bring a bill toset the conveyance aslde_ex On the other hand he may elect to at-tach the property to prevent its fraudulent conveyance or ignore aconveyance already made and attach the property in the hands ofthe ~ng~,nte~ or, ~ ~resonal P~OsPeirt~ ehas been ~n:~.~d, ~.sVY.ue~e-

¯ curio on egoo nthehan o th ~ f7 " J g-ment.es To a large extent an equity court will exercise its discre-tion to give such peculiar relie~ as may be required,s4 Suits to at-tack voluntary conveyances are subject to a statutory limitation offive years after recordation, or after the conveyance was or shouldhave been dis~..vered,~ but apparently attack on a fraudulent con-vey.ance is llnuted only by the equitableprinciple of laches.~s

Th~ Uniform Fraudulent Conveyance Ac~ has been widely adoptedwith very desirable results,e~ Although not a..d.opted in Virginia,the law in this state is substantially in accord with the uniform law.The uniform act provides a more specific definition of what shallconstitute fraud than did the older laws. On the subject of volun-

~ Ch~mberlayne v. Temple, ~_ Rand. 384, 394 e~ seq. (_Va. 1824).= See the cases collected in, G~, op. ¢i~. ~upro note ~, at p. 125, n. 57.~ Removal of the requirement for judgment by state statute was a mere

procedural change and so not binding on the federal court. See Note (1932)42 Y,,a~ L. J. 288.

*" Legis. (1938) 24 V~,. L. R~v. 79~.~ Com~ o~ V& (1849) e. 179, § 2, VA. Com~ Ass.~Michie, 19;36) § 5186.

M_ay act without judgment whether claim be matured or not." Ashworth v. Hagnn Estates, 165 Va. 151, 18I S. E. 381 (1935); Wheby

v. Moir, 102 Va. 875, 47 S. E. 1005 (1904); Almond v. W~on, 75 Va. 613

(~e,oo~,.~z, oo~ o~ VA. (1887) § 2959, V~,. Com~ Am~. (Michte, 1936) § 6379.FHth. "Has assigned or disposed o£, or is about to assign or dispo~e~ of hisestate, or. some, part thereof, with intent to hinder," delay, or defraud hiscreditors ~--. See Breeden v. Peale, 106 Va. 39, 55 S. F_~ 2 (1906) ; and Bur-russ, Son & Co. v. Trant & Bro., 88 Va. 980, 14 S. ~ 845 (1892).

"~ See Hoge v. Turner, 96 Va. 624, 629, 32 S. E. 291, 293 (1899).~ A receiver may sometimes be ~ecessary in a suit to set aside a ~raudu-

lent conveyance. See Jenkins v. Wall.er, 80 Va. 668 (188~). In at least onecase the court enforced contribution between several donees when the con-veyanee had been set aside. Chambertayne v. Tempi,e,_ 2 Rand. 384 (.V.~.1824).A wi~e was held liable as trustee for her husband s creditors ~or dimin~onof the property fraudulently conveyed to her. Carner v. Middlekauf, 117 Va.474, 85 S. E. 473 (1915).e~ Co~ ot~ V^. (1887) § 2929,_V~. Com~ A~r. (Miehie, 1936) § 5820.

,e Terry v. Fontaine, 83 Va. 451, 455, 2 S. E. 743, 744 (1887)." Comment in, G~,~.NS, op. cir. supra note 2, at §§ 62, 89.

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1939] VIRGINI.4 SHCTION--DHCISION 869

tary conveyances, however, there is a complete divergence. Theuniform la~.v foH.ow.s the majority view.es The Virginia statutes arepractically identical with those, of West .Vi, rgi.nia,~° and ~ fve~ otherstates show more or less similarity in their treatment o untaryconveyances.’o .

Th.ough the Virginia law of .voluntary conveyances does not fallinto line with most other jurisdictions, it is rather clearly defined onall basic principle, and whatever may be the criticism of its policy,there is no dlstor~on of legal principles.

R. B. P.

DECISION.

= ~.e drca note 17. For a very compreh..ensive tL.e~t~..ent o_f the act.wltha consideration of each part, see McLaughlm, ,d~plwation of the. U, ifor~nFraudulent Co~¢e A¢~ (1933) 46 H^~v. L. l~v. 404, whereto he_ .de-scribes the Act as ~ ** a modernized Statute of Elizabeth and nothinge~se" p. 405. .

~*’Co,~ ov W. V,~. (1860) c. 118, § 1~ W. V,~ Co~ A~s. (Michie, 1937)§ 3985 is idential with the Virginia section; see note 21, ~tpra. Co,s .ov W.V,~. (1860) c. 118, § 2, W. V.~ Covs A~, (Michie, 1937) § 3987, ~s sub-stantially the same as the VJrgln~_ statute except no provision as to ma..rriage;see note 23, $~pr~. See Woods, The La~¢ of ]~raudulent Co,v¢ya,ces m Ff estV~cgi~d~ (193?) 43 W. V~. L. ~. 266.

~ Texas Acts 1840, p. 28, P~ D. 3876, T~. S~e,~. (Baldwin, t926) § 3996is identical with the Virginia section; see note 21, supra. Texas Acts 1840,p. 28, P. D. 3876-77, TEx. STY. _.(Baldwin, 1926) § 3997. A. voluntary con-veyance is void as to existing .creditors unless the debtor retains enough prop-erty withi~ the state to pay his debts.

Covs o~ N. C. (1840) c. 28, §§ 1, ~, N. C. Cow Ass. (Michie, 1931) §1006 is similar to the Virginia section. Covs ov N. C~ (1840) c. 28, §§ 3, 4,N. C. Co~� A~. (Michie, 1931) § 1007. A gift is not void if enough prop-erty is reserved by the grantor to pay his debts.

R~. S~,~. c. 65, §§ 14, A]~ D~c~ S~’~. (Pope, 1937) §§ 6070-6073 seemsto be very broad. It provides that any gift not on considerationdeemed good in law, eh~ll be voi~ as to all creditors and purebasers * * *."

Mxss. Cow A~. (1930) § 3344 is similar to the early Virginia statute. Seenote 8, ~pra, See Note (1934) 6 MIss. L J. 279. Acts of 191~ § 5, G. L.F~. (1927) § 4544 may sometimes have a r~ult similar to the ~/irginia stat-ute because of the heavy burden of proof put on the grantor.

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Page 1

Oakton Cloisters Homeowners Association v. James Linderman et al.

Case No. (Chancery) 116394

CIRCUIT COURT OF FAIRFAX COUNTY, VIRGINIA

25 Va. Cir. 148; 1991 Va. Cir. LEXIS 239

August 14, 1991

HEAl)NOTES

[**1] A decree for a judicial sale is not a f’mal or-der.

A defendant who is in default may raise legal objec-tions to the conduct of a judicial sale.

A decree of sale should contain a period in whichthe debtor may redeem the property. If the judgmentdebtor can show that he was prejudiced by such omis-sion, the decree should be vacated.

Attorneys’ fees under Section 55-82 are not availablewhere a judgment on the claim is obtained before afraudulent conveyance is set aside.

JUDGES: JUDGE ROSEMARIE ANNUNZIATA

OPINION BY: ANNUNZIATA

OPINION

[*148] The matters before the Court are the com-plainant’s Motion to Confirm the Special Commissioner’sReport and defendant James Linderman’s Exceptions tothe Special Commissioner’s Report.

The pertinent facts are as follows. The complainantobtained a default judgment against the defendant Lin-derman for delinquent homeowners association fees onJanuary 9, 1990, in Alexandria General District Court.Judgment was entered in the amount of $ 2,089.54, with8% interest from the date of the judgment, $ 29.00 costsand $ 520.00 attorney fees. The complainant docketedthe judgment in the Fairfax County land records on Janu-ary 22, 1990.

The complainant [*’2] trded a Bill of Complaint inthe present case on May 25, 1990, asking that a convey-ance of real estate from the defendant Linderman to thedefendant Karen Fen’is, Mr. Linderman’s wife, be setaside on the [*149] grounds that the conveyance wasmade to prevent the complainant from collecting the Al-exandria General District Court judgment. Meritor Sav-

ings Bank, F.A. (hereinafter referred to as "Meritor"), thenoteholder and beneficiary of a fk~st deed of trust encum-bering the property recorded on July 20, 1978, wasjoined as a defendant, along with Martin L. Schnider andJohn D. K. Smoot as trustees under the fkrst deed of trust.Beneficial Mortgage Co. of Virginia, Inc. (hereinafterreferred to as "Beneficial") was also joined as a defen-dant because of its status as the noteholder and benefici-ary of a second deed of trust recorded on September 22,1986. Defendants Bradford C. Harrison and Frank P.Dorsett are the trustees under the second deed of trust.

On January 7, 1991, Judge Fitzpatrick entered a de-fault judgment against the defendant Linderman settingaside the conveyance to the defendant Ferris as fraudu-lent. Judge Brown subsequently entered an order onMarch 15, 1991, conf’trming the [*’3] judgment liendocketed on January 22, 1990, as a lien subordinate tothe two deeds of trust encumbering the property.

A Decree of Sale was entered on April 19, 1991, ap-pointing D. Brian Costello as Special Commissioner. TheDecree authorizing the Commissioner to sell the propertyat a private sale or through a licensed real estate agent asthe Commissioner deemed advisable, as long as theproperty was not sold for less than the total payoff ofboth trust liens, the judgment lien and any delinquentreal estate taxes. In addition, attorney fees in the amountof $1,500.00 were awarded in the Decree of Sale pursu-ant to Va. Code § 55-82.

The Commissioner solicited bids for the property byadvertisement in the Fairfax Journal and by mailing thenotice of sale to twenty-two real estate agents, brokers,and private investors. The Commissioner subsequentlyfiled a Report recommending conf’n’mation of the highestbid for the property of $120,000.00. In response to thecomplainant’s Motion to Confirm the Commissioner’sReport, the defendant Linderman filed Exceptions to theReport. The parties appeared for argument before theCourt regarding the complainant’s Motion and the defen-dant Linderman’s [*’4] Exceptions on June 21, 1991,and the Court took the matters [* 150] under advisement.

25 Va. Cir. 148, *; 1991 Va. Cir. LEXIS 239, **Page 2

Each party subsequently filed memoranda of law ad-dressing the issues presented.

Counsel for the complainant argues that defendantLinderman’s Exceptions to the Commissioner’s Reportmust be overruled because the Decree of Sale is a finalorder and, according to Virginia Supreme Court Rule1:1, the Court’s jurisdiction to correct any errors in theDecree ceased within twenty-one days after entry. Thecomplainant cites the definition of a final order as one"which disposes of the whole subject, gives all the reliefcontemplated.., and leaves nothing to be done in thecause save to superintend ministerially the execution ofthe order." Complainant’s Memorandum of Points andAuthorities in Opposition to Exceptions to Commis-sioner’s Report at 2 (citing Daniels v. Truck & Equip.Corp., 205 Va. 579, 139 S.E,2d 31 (1964)). The Com-plainant concludes that the Court’s duties after entry ofthe Decree of Sale are ministerial in nature, rather thandiscretionary, and therefore, the Decree is f’mal. Id.

However, it is well-established that a Decree of Saleis an interlocutory, rather than a f’mal order. "A judicialsale is not consummated [*’5] until the proceeding isconfh’med by the court. Until then the proceeding is infied, the accepted bidder is merely a preferred proposer,and the Court retains the power to set the proceedingaside and order a new sale." Austin v. Dobbins, 219 Va.930, 935, 252 S.E.2d 588 (1979) (citing Terry v. Coles’Ex’or, et al., 80 Va. 695 (1885)). The Virginia SupremeCourt has further noted that the Decree of Sale is not af’mal order because a number of discretionary functions,such as directing the application of the proceeds of thesale, passing on the reports of the sale, and approving orrejecting bids, must be performed by the Court after en-try of the Decree. Richardson v. Gardner, 128 Va. 676,683, 105 S.E. 225 (1920); see also, Motley v. Vicello, 132Va. 281, 292, 111 S.E. 295 (1922).

Even if the defendant Linderman is not barred fromattacking the Decree of Sale by Rule 1:1, the complain-ant argues that the defendant should be precluded fromasserting any Exceptions to the Report because he is indefault. However, Virginia Supreme Court Rules 2:17and 3:17 provide that a defendant who is in defaultwaives only the right to trial by jury, any objections tothe admissibility of evidence, and notice of further pro-ceedings in the [*’6] [’151] case. Thus, the Rules donot prevent the defendant in the present case from assert-ing that the creditor has failed to comply with the com-mon law and statutory requirements for a judicial sale.See also, Kyles v. Tait’s Adra’r, 47 Va. 44 (1849) (defen-dant was permitted to assert on appeal that a Decree ofSale did not provide for a period of redemption eventhough he was in default).

The defendant’s primary Exception to the Commis-sioner’s Report rests on his allegation that the SpecialCommissioner’s Report should not be conf’n’med becausethe Decree of Sale failed to provide a reasonable time forthe defendant to redeem the land by paying the amountof the judgment lien. As both parties note in their memo-randa of law, the Decree of Sale should contain a periodin which the debtor may redeem the property, and if thejudgment debtor can show that he was prejudiced by theomission, the Decree is erroneously entered. Harkins v.Forsyth, 38 Va. 294 (1840); Kyles v. Tait, 47 Va. 44(1849); Dockery v. Flanary, 194 Va. 318, 73 S.E.2d 375(1953); Crawford v. Weller, 64 Va. 835 (1873); Hall v.White, 114 Va. 562, 77 S.E. 475 (1913); Peterson v.Haynes, 145 Va. 653, 134 S.E. 675 (1926).

It [*’7] is clear that the Decree of Sale in the pre-sent case did not provide for a period of redemption, andthe Court finds that the defendant Linderman was preju-diced by the error. The defendant relied to his detrimenton the absence of a specific time by which the propertywas to be redeemed and put his fight to redeem at risk bydelaying payment of the judgment. The Court furthertrmds that in light of the defendant’s payment of thejudgment, the property must be considered redeemed.See complainant’s Memorandum of Points and Authori-ties in Opposition to Exceptions to Commissioner’s Re-port at 4-5 (conceding that the defendant has paid thejudgment lien in full). See also Tait, 47 Va. 49 (ninetydays is a reasonable length of time to redeem the prop-erty); Strayer v. Long, 89 Va. 471, 16 S.E. 357 (1926)(court has discretion to determine the length of timeavailable to the defendant to redeem the property). Here,it should be noted, the payment of the heir was withinseventy-three days of the entry of the decree of sale.

For the reasons stated above, the Court denies thecomplainant’s Motion to Confirm the Special Commis-sioner’s Report. I also fred that the complainant’s asser-tion that [*’8] [*152] the interests of the holders of thedeeds of trust will be injured if the Court does not con-f’mn the Special Commissioner’s Report is not persua-sive. There is no evidence that the defendant is in defaulton his obligations to these creditors, and they have notasserted any such claims in the present suit.

Finally, I f’md that the complainant may not recoverattorney fees pursuant to Virginia Code § 55-82, as pro-vided in the Decree of Sale. According to § 55-82, acreditor may recover attorney fees incurred as the resultof a suit to avoid a fraudulent conveyance which thecreditor has filed prior to obtaining a judgment on theunderlying claim. In this case, however, the complainanthad already obtained a judgment on the underlying claimin the Alexandria General District Court before it filedthe present action to set aside the fraudulent conveyance.

25 Va. Cir. 148, *; 1991 Va. Cir. LEXIS 239, **Pa~e 3

Therefore, Virginia Code § 55-82 does not provide statu-tory support for the recovery of attorney fees.

The complainant also alleges that even if VirginiaCode § 55-82 does not provide specific statutory author-ity for the award, the complainant is entitled to recoverits attorney fees pursuant to a contract with the defen-dant, the [*’9] Declaration of Covenants and Restric-tions. However, the contract is not before the Court. Inthe absence of specific statutory authority or a contrac-tual agreement between the parties, attorney fees may not

be awarded and this portion of the Decree of Sale is ac-cordingly vacated. Citizens Nat’l Bank v. Manoni, 76 Va.802 (1882); Flint v. Haynes, 651 F.2d 970 (4th Cir.1981), cert. denied, 454 U.S. 1151, 71 L. Ed 2d306, 102S. Ct. 1018 (1982).

Based on my decision that defendant Linderman hasredeemed the property and that the Special Commis-sioner’s report will not be confmned, the defendant’sadditional Exceptions need not be addressed.