Duran v. Henderson
| Decision Date | 22 February 2002 |
| Docket Number | No. 06-01-00053-CV.,06-01-00053-CV. |
| Citation | 71 S.W.3d 833 |
| Parties | Charles DURAN, Individually, and Christie Jean Patterson, Individually and as Guardian of the Person and Estate of Charles Duran, and Patresa Duran Gilbert, Trustee of The Duran Family Trust, Appellants, v. E.G. HENDERSON and Betty Henderson, Appellees. |
| Court | Texas Court of Appeals |
Ron Adkison, Wellborn, Houston, Adkison, Sadler & Hill, Henderson, for appellant Charles Duran.
J. Paul Nelson, Henderson, for appellant Patresa Duran Gilbert.
Garry Lewellen, McMillan & Lewellen, PC, Stephenville, Clay Wilder, PC, Henderson, for appellees.
Before CORNELIUS, C.J., GRANT and ROSS, JJ.
Pursuant to the Texas Uniform Fraudulent Transfer Act ("TUFTA"), the trial court, after a bench trial, rendered judgment for E.G. Henderson and Betty Henderson, setting aside allegedly fraudulent real estate conveyances by Charles Duran. Charles Duran, Christie Jean Patterson, Individually and as Guardian of the Person and Estate of Charles Duran, and Patresa Duran Gilbert, Trustee of the Duran Family Trust (hereafter collectively Duran) appeal, raising two primary issues: whether TUFTA is a statute of repose that extinguished the Hendersons' cause of action, or whether it is a statute of limitations; and whether a conveyance of homestead property done with the intent to defraud creditors may be set aside as fraudulent pursuant to TUFTA.
The Hendersons have brought three suits against Charles Duran and the other appellants. In the first suit, they obtained a judgment against Charles Duran awarding them a one-half interest in the net proceeds of a $300,000.00 note receivable. Several years after obtaining this first judgment but before the note's maturity date, the obligor on the note paid the note in full to Charles Duran. Despite the judgment, however, Charles Duran did not pay the Hendersons their one-half of the note proceeds. At about this time (the exact time is in dispute), Charles Duran conveyed two parcels of real property and transferred certain monies out of his name. Later, Charles Duran was declared non compos mentis, and his daughter, Christie Jean Patterson, was appointed guardian of his person and estate. After Charles Duran failed to pay the Hendersons their one-half share of the note proceeds, they brought a second suit against him for conversion and to recover the money. Again they were successful. The Hendersons contend that during the taking of depositions for the second suit, they learned for the first time about the allegedly fraudulent property conveyances that Charles Duran had made. They then brought the third and present suit. In the present suit, the Hendersons sought to set aside the allegedly fraudulent conveyances made by Charles Duran to Christie Patterson and the family trust; to subject the property covered by these conveyances to a lien; to have the lien foreclosed; to have the property sold in satisfaction of the debt Charles Duran owed to the Hendersons; and to obtain certain monies held in a bank account by Charles Duran or for his benefit. The trial court rendered judgment for the Hendersons, setting aside all of the challenged property conveyances but ordering only part of the real property sold. The court also ordered the bank account funds seized.1
On appeal, Duran argues that the trial court had no jurisdiction to entertain the Hendersons' suit; there was insufficient evidence to support the court's findings concerning Charles Duran's debt to the Hendersons and his intent to defraud, delay, or hinder the Hendersons; Charles Duran did not waive his homestead rights in the property he transferred to the family trust; and all of the real property conveyed was homestead property and as such is not subject to TUFTA. For the reasons that follow, we find that, although all of the Hendersons' claim was not extinguished and thus the trial court properly exercised jurisdiction over the matter, the property that Charles Duran conveyed was homestead property at the time of the conveyances, and as such was not subject to TUFTA. We therefore reverse that portion of the judgment that ordered the conveyances set aside and part of the underlying property sold. As Duran does not challenge the seizure of monies, that portion of the judgment is affirmed.
A fraudulent conveyance is a transfer by a debtor with the intent to hinder, delay, or defraud his creditors by placing the debtor's property beyond the creditor's reach. See Nobles v. Marcus, 533 S.W.2d 923, 925 (Tex.1976). TUFTA creates a statutory cause of action through which a creditor may seek recourse against a fraudulent conveyance. See Tex. Bus. & Com.Code Ann. § 24.001, et seq. (Vernon 1987 & Supp.2002); Connell v. Connell, 889 S.W.2d 534, 542 (Tex.App.—San Antonio 1994, writ denied).
Duran's first complaint is that the trial court lacked subject matter jurisdiction to render judgment for the Hendersons because their TUFTA claim was extinguished before they filed suit. The Hendersons' original petition, filed April 27, 2000, did not specify that they were seeking relief under TUFTA. Duran argued before the trial court that they thought the Hendersons were suing under the common law, but found out they were in fact suing under TUFTA after reading the Hendersons' trial brief on the morning of trial. On discovering this, Duran filed a supplemental answer that day asserting that the Hendersons' TUFTA claim had been extinguished before the filing of the case and the court, therefore, had no jurisdiction over the matter. The court struck the supplemental answer as untimely filed.
The trial court found that Charles Duran violated Section 24.005 of TUFTA, which covers transfers of property made with actual intent to hinder, delay, or defraud a creditor. See Tex. Bus. & Com.Code Ann. § 24.005(a)(1). With certain exceptions not applicable here, a claim alleging such a violation is extinguished if it is not brought within four years of the transfer sought to be voided or, if later, within one year of the time when the transfer was or could reasonably have been discovered by the claimant. See Tex. Bus. & Com.Code Ann. § 24.010(a)(1). Duran argues that, unlike an ordinary statute of limitations, the limitations provision of TUFTA provided in Section 24.010 is substantive law, not a procedural mechanism, and cannot be waived. As such, Duran argues, the court had no discretion to strike the pleading and no jurisdiction to render judgment for the Hendersons.
The Uniform Fraudulent Transfer Act ("UFTA") was approved by the National Conference of Commissioners on Uniform State Laws in 1984, see Unif. Fraudulent Transfer Act, 7A-2 U.L.A. 266, 267 Historical Notes (1999); Tex. Bus. & Com.Code Ann. § 24.010 Historical Note, and was adopted by the Texas Legislature in 1987. See TEX. BUS. & COM.CODE ANN. § 24.001, et seq. Although not characterized as such, the substance of Duran's first argument is that Section 24.010 is a statute of repose rather than a procedural statute of limitations and, as such, cannot be waived.2
A statute of limitations is a procedural device that operates as a defense to limit the remedy available from an existing cause of action. First United Methodist Church v. United States Gypsum Co., 882 F.2d 862, 865-66 (4th Cir.1989). A statute of repose, on the other hand, creates a substantive right in those protected to be free from liability after a legislatively-determined period. See Crandall v. Irwin, 139 Ohio St. 253, 39 N.E.2d 608, 610 (1942) . While statutes of limitations operate to bar the enforcement of a right, a statute of repose takes away the right altogether after the specified time period has expired. See Texas Gas Exploration Corp. v. Fluor Corp., 828 S.W.2d 28, 32 (Tex.App.-Texarkana 1991, writ denied).
The drafters of the original UFTA intended that the extinguishment provision be enforced as a statute of repose rather than as a traditional waiveable statute of limitations. The goal of the provision is to "mitigate the uncertainty and diversity that have characterized the decisions applying statutes of limitations to actions to fraudulent transfers and obligations." Unif. Fraudulent Transfer Act § 9, 7A-2 U.L.A. 266, 359 cmt. (1999). The means of securing that goal effectuated by the provision is to ensure that the "lapse of the statutory periods prescribed by the section bars the right and not merely the remedy." Id. In so doing, unlike a traditional statute of limitations, the extinguishment provision places a substantive condition on the accrual of a fraudulent transfer action. United States v. Bacon, 82 F.3d 822, 823-24 (9th Cir.1996). The provision abolishes the right to bring a fraudulent transfer action if the action is not brought within the established time limits. Although it appears that no Texas court has considered this particular issue, we can find no reason to construe Texas law any differently than the drafters of UFTA intended. We find that Section 24.010 operates as a statute of repose rather than as a procedural statute of limitations. A claim must be brought within the statutory time limitations or it may not be brought at all.
Charles Duran conveyed two parcels of real property. He conveyed the first parcel, which consisted of approximately 165 acres,3 to the Duran Family Trust on November 28, 1995, specifically excluding and reserving one acre and the house as his homestead.4 Then, on July 10, 1996, Duran conveyed this one acre and house to his daughter, Christie Patterson, specifically reserving to himself a life estate. The Hendersons alleged, and the trial court found, that it was in October of 1999, during depositions for the second suit against Charles Duran for conversion and recovery of the proceeds of the note, that the Hendersons learned for the first time about these...
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