In re Butler
| Decision Date | 03 April 1984 |
| Docket Number | Bankruptcy No. 83-20229,Adv. No. 83-0191. |
| Citation | 38 BR 884 |
| Parties | In re Dick Albert BUTLER and Helen Bette Butler, d/b/a A & B Motor Company, Debtors. The NATIONAL BANK OF PITTSBURG, Plaintiff, v. Dick Albert BUTLER and Helen Bette Butler, d/b/a A & B Motor Company, Defendants. |
| Court | U.S. Bankruptcy Court — District of Kansas |
COPYRIGHT MATERIAL OMITTED
Murvyl M. Sullinger and Tammy Sullinger, Pittsburg, Kan., for debtors/defendants.
Phillip A. Miller, Olathe, Kan., for plaintiff.
James E. Kunce, Kansas City, Kan., Trustee.
This matter came on for trial on October 28, 1983, upon a Complaint objecting to discharge pursuant to 11 U.S.C. § 727(a)(2)(A) and § 727(a)(4)(A). Plaintiff, The National Bank of Pittsburg, appeared by its counsel, Phillip Miller. Debtors/defendants, Dick Albert Butler and Helen Bette Butler, appeared in person and by their attorneys, Murvyl M. Sullinger and Tammy Sullinger.
Based on the exhibits, testimony, pleadings, and file, this Court finds as follows:
1. That it has jurisdiction over the parties and the subject matter pursuant to Rule 42 of the United States District Court for the District of Kansas; and that venue is proper.
2. That on September 18, 1975, Julia Brown executed a Warranty Deed conveying real estate described as follows:
"Lot 34 in Block Three in the Merwin addition to the City of Pittsburg, Kansas"
to her daughter, Helen Butler, debtor herein. There was no written express trust created in conjunction with this transfer.
3. That on January 26, 1982, the warranty deed was recorded in the Register of Deeds' Office in Crawford County, Kansas.
4. That on February 8, 1982, Julia Brown, the grantor, died.
5. That on October 21, 1982, Dixie Lee Kemp, the debtors' daughter, was granted her second divorce since September 18, 1975.
6. That on November 26, 1982, debtors conveyed the same property to their daughter, Dixie Lee Kemp. The deed was recorded on November 29, 1982.
7. That the debtors filed a Chapter 7 petition herein on March 24, 1983.
8. That the debtors answered the following questions in their Statement of Affairs for Debtor Engaged in Business:
9. That the debtors answered the following questions in their Statement of Financial Affairs for Debtor Not Engaged in Business:
Under 11 U.S.C. § 727(a)(2), the Court will grant the debtors a discharge unless:
The statute requires that four elements be proven: (1) a transfer of property has occurred; (2) it was property of the debtor; (3) the transfer was within one year of filing of the petition; (4) the debtors had, at the time of the transfer, intent to hinder, delay or defraud a creditor. In re Reed, 18 B.R. 462 (Bkrtcy.E.D.Tenn.1982).
The debtors concede that they transferred property to their daughter within one year of filing their bankruptcy petition. They contend, however, that they have not violated § 727(a)(2)(A) because they only held legal title to the transferred property and because they lacked the requisite intent to hinder, delay, or defraud. According to the debtors, Mrs. Butler had received the property from her mother who had requested that Mrs. Butler hold the property in trust for Dixie Lee Kemp, the debtors' daughter, until she (Ms. Kemp) resolved her marital problems.
The purpose of § 727(a)(2)(A) is to deny a discharge to those debtors who, intended to defraud, transfer without consideration property which would have become property to the estate. In re O'Connor, 32 B.R. 626, 628 (Bkrtcy.E.D.Pa.1983). Under debtors' version of the facts, the purpose of § 727(a)(2)(A) is not met since the debtors transferred real estate in which they held only legal title and would, therefore, never become property of the estate; that equitable title was in their daughter, Dixie Lee Kemp.
Under Bankruptcy Rule 4005, the plaintiff has the burden of proving its objection at the trial on a complaint objecting to discharge. Since the debtors do not dispute that they transferred the property within one year of filing their petition, plaintiff Bank assumes the burden of proving two issues: (1) that the transferred property was the debtors' own property; and (2) that the transfer was made with the intent to hinder, delay or defraud the other creditors.
In bankruptcy proceedings, the nature and extent of debtors' property rights will be determined with respect to state law. Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966). Kansas trust law specifies that "no trust concerning lands . . . shall be created unless in writing signed by the party creating the same . . . " Kan.Stat.Anno. § 58-2401 (1976).
The Court finds that since there was no written document creating a trust for Dixie Lee Kemp, in this case no trust exists herein.
The remaining issue under § 727(a)(2)(A) is whether, in transferring their property to their daughter, the debtors intended to hinder, delay, or defraud their creditors. While actual intent is not easy to prove, an inference of actual intent may be drawn from convincing evidence of extrinsic fraud. In re Rubin, 12 B.R. 436, 441 (Bkrtcy.S.D.N.Y.1981). Additionally, the plaintiff may rely upon presumptions which arise under certain fact patterns. Plaintiff may rely upon two such presumptions here: a presumption of actual fraudulent intent necessary to bar a discharge arises when property is either transferred gratuitously or is transferred to relatives. Rubin, supra at 441; Matter of Loeber, 12 B.R. 669, 675 (Bkrtcy.N.J.1981); In re Nazarian, 18 B.R. 143, 150 (Bkrtcy.Md.1982). These presumptions establish plaintiff's prima facie case and shift to the debtors the burden of establishing that they lacked fraudulent intent when they gratuitously transferred real estate to their daughter. Loeber, supra at 675.
The debtors contend they lacked fraudulent intent because they believed Mrs. Butler acquired and held the property as trustee for her daughter. Debtors' contention that they believed a trust was created was supported only by their testimony. After observing the demeanor of the witnesses and substance of their testimony, this Court finds that the debtors' testimony is insufficient to overcome either the factual inconsistencies or the presumption of fraudulent intent established by the plaintiff. Volis v. Puritan Life Ins. Co., 548 F.2d 895, 901 (10th Cir.1977).
Factual inconsistencies are especially convincing. According to debtors' testimony, when Julia Brown conveyed the real estate to Helen Butler in September, 1975, she told her to hold the property in trust for Helen's daughter, Dixie Lee Kemp, until Ms. Kemp had resolved her marital problems. If Ms. Kemp was experiencing marital difficulties in 1975 with her first husband whom she subsequently divorced; and if Mrs. Butler were to comply with the terms of the alleged trust, she would have transferred the property to her daughter (Ms. Kemp) after the first divorce. Yet, Mrs. Butler did not convey the real estate to her daughter until November 26, 1982, when her daughter had received her second divorce since September 18, 1975. The incongruity and illogic of the debtors' action leads the Court to conclude that the debtors' conveyance to their daughter was made with the intent to hinder, delay or defraud creditors. Therefore, discharge of the debtors is denied under § 727(a)(2)(A).1
11 U.S.C.A. § 727(a)(4)(A) states in pertinent part, as follows:
Plaintiff alleges the debtors made false oaths when they denied in their Statement of Affairs that they had made extraordinary gifts to family members or had made transfers of property.
Two elements must be present to deny discharge under § 727(a)(4)(A): (1) debtors' oath must have been knowingly and fraudulently made; and (2) it must have related to a material fact. Matter of Ramos, 8 B.R. 490, 494, 7 B.C.D. 458, CCH ¶ 67,879 (Bkrtcy.Wis.1981).
The debtors contend they lacked fraudulent intent because their failure to list the transfer of property was the result of an honest mistake of fact or law. They claim to...
To continue reading
Request your trial