In re Peery
| Decision Date | 12 June 1984 |
| Docket Number | Adv. No. 383-0405.,Bankruptcy No. 383-01014 |
| Citation | 40 BR 811 |
| Parties | In re Robert Clement PEERY, f/d/b/a Peery Construction Co., Debtor. NASHVILLE CITY BANK & TRUST COMPANY, Plaintiff, v. Robert Clement PEERY, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Tennessee |
Charles W. McElroy, B. Anthony Saunders, Boult, Cummings, Conners & Berry, Nashville, Tenn., for Nashville City Bank.
C. Kinian Cosner, Jr., Cosner & Waldschmidt, Nashville, Tenn., for debtor.
A creditor seeks to deny the debtor's discharge under 11 U.S.C.A. § 727(a)(2)(A) (West 1979). The issues are: (1) whether a testamentary devise is an "interest in property"; (2) whether renunciation of a devise constitutes a "transfer;" (3) whether a "relation-back" provision of state law affects the date of transfer; and (4) whether the renunciation was intended to hinder, delay or defraud creditors. After consideration of the briefs, arguments and stipulations, the court holds that the debtor's rights in a testamentary devise constitute an "interest in property," that the debtor's renunciation was a transfer of that interest, that the transfer occurred at the time of renunciation and within one year of bankruptcy, and that the debtor intended the renunciation to hinder, delay or defraud creditors.
The following constitute findings of fact and conclusions of law as required by Bankruptcy Rule 7052.
The facts are stipulated. Robert Clement Peery ("debtor") was a beneficiary under the Last Will and Testament of his grandfather, Robert S. Clement. Upon his grandfather's death on October 21, 1981, the debtor became entitled to a 1/11th share in approximately 200 acres of real property and in an unspecified amount of personalty. The value of the real property was estimated in excess of $168,000.
The debtor was substantially indebted to Nashville City Bank & Trust Company ("Bank"). By letter dated June 12, 1982, the Bank demanded payment and on July 9, 1982, the Bank filed a collection action in state court. On July 15, 1982, the debtor executed and filed a "Partial Renunciation by Beneficiary" in accordance with TENN. CODE ANN. § 31-103,1 renouncing all entitlement to the real property distributed under the will.2 The 1/11th interest in real property the debtor would have received passed to the ten residual beneficiaries, all related to the debtor by either blood or marriage. The debtor received no consideration for the renunciation.
On April 20, 1983, the debtor filed a Chapter 7 petition. The Bank filed a timely complaint to deny the debtor's discharge and the matter was submitted on briefs and stipulated facts.
The Bank argues that the debtor's renunciation was a fraudulent transfer3 justifying denial of discharge pursuant to 11 U.S.C.A. § 727(a)(2)(A) (West 1979). Section 727 provides in relevant part:
Under this subsection, a four-part inquiry is required: (1) whether a transfer of property occurred; (2) whether the property was the debtor's property; (3) whether the transfer was within one year of the date of the filing of the petition; and (4) whether the debtor had an affirmative intent to hinder, delay or defraud creditors at the time the transfer was made. First National Bank and Trust Co. v. Reed, 18 B.R. 462, 463 (Bankr.E.D.Tenn.1982). The burden to prove each element is on the Bank. Bankruptcy Rule 4005. See also First Federated Life Insurance Co. v. Martin, 698 F.2d 883, 887 (7th Cir.1983).
The right to receive a testamentary devise is an interest in property. Under Tennessee law, the debtor acquired rights in the real property immediately upon the testator's death. Doughty v. Hammond, 207 Tenn. 545, 341 S.W.2d 713, 717 (1960) (); Bradford v. Leake, 124 Tenn. 312, 137 S.W. 96, 100 (1911) (); Goss v. Singleton, 2 Head 67, 39 Tenn. 67 (1858). See also In re Means, 16 B.R. 775, 776 (Bankr.W.D.Mo.1982) (). The right to receive the devise existed without further action by the debtor—no affirmative acceptance was required. Although title to and possession of the property could not be realized until formal distribution, an "interest in property" attached upon the death of the debtor's grandfather. "Property" under the Bankruptcy Code is not dependent upon title or possession. The right to control, direct or receive a testamentary distribution constitutes an "interest" in property.4See O'Connor v. O'Connor, 32 B.R. 626, 629 (Bankr.E.D.Pa. 1983) ().
The debtor does not dispute that the renunciation was a "transfer." "Transfer" is broadly defined as:
Every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest.
11 U.S.C.A. § 101(41) (West 1979). The renunciation was a completely voluntary transfer of the debtor's right to receive the testamentary distribution. See Schaefer v. Fisher, 137 Misc. 420, 242 N.Y.S. 308, 314 (1930).
The transfer occurred within one year of the filing of the debtor's bankruptcy petition. The debtor argues that although the renunciation was executed within one year of the filing of the petition, the renunciation relates back to the date of the testator's death—a date more than one year before the petition. TENN.CODE ANN. § 31-103(c) provides that "in every case the renunciation relates back for all purposes to the date of death of the decedent or the donee, as the case may be." The debtor cites Tennessee case law for the proposition that:
The renunciation is not a voluntary conveyance, void as against existing creditors, because when he has properly renounced, the renunciation relates back to the date of the gift, and, as he has never accepted the gift, he has had nothing that could be made the subject of a voluntary conveyance.
Bradford v. Calhoun, 120 Tenn. 53, 109 S.W. 502, 504 (1908). See also Bradford v. Leake, 124 Tenn. 312, 137 S.W. 96, 100 (1911).
The debtor argues an almost mystical notion of a transfer separated in time from itself because a state statute prescribes that the transfer has certain retroactive effects. It is not the date of transfer for bankruptcy purposes that is regulated by the Tennessee legislature in TENN.CODE ANN. § 31-103(c). The Tennessee relation back statute does not erase the fact of a transfer of the debtor's vested rights at the time of the renunciation. Instead, relationback is a legal fiction which defines the consequences of having property rights vest at death and then revest in others after a valid renunciation. Although relation-back may have significant nonbankruptcy effects on estate taxation and on the validity of creditors' liens interposed between death and renunciation, relation back does not change the time of transfer for purposes of § 727(a)(2). Section 727 gives creditors the special power to evaluate the debtor's affairs and actions in the year preceding bankruptcy. Legal fictions created for other purposes by state law cannot be used to defeat the express limitations periods created by the Bankruptcy Code. Renunciation may be "effective" for purposes of state law as of the date of the testator's death; however, the "transfer" of the debtor's rights and interests for purposes of the Bankruptcy Code took place on the date of renunciation, and within one year of the petition.
The evidence demonstrates that the debtor renounced his interest under his grandfather's will with intent to hinder, delay or defraud his creditors.5 To bar a debtor's discharge, intent must be actual, not merely constructive. See, e.g., State Bank of Albany v. Martinez, 31 B.R. 299, 301 (Bankr.D.Vt.1983); In re Fragetti, 24 B.R. 392, 296 (Bankr.S.D.N.Y.1982); Johnston Memorial Hospital v. Hess, 21 B.R. 465, 467 (Bankr.W.D.Va.1982); Semmerling Fence & Supply, Inc. v. Ramos, 8 B.R. 490, 496 (Bankr.W.D.Wis.1981). However, actual intent may be inferred from the debtor's actions.6Daniels v. Keenan, 19 B.R. 724, 725, 731 (Bankr.W.D.Mo.1982); Lewis v. Bone, 7 B.R. 549, 551 (Bankr.M.D. Ga.1980). Intent is rightfully inferred if the transfer is surrounded by badges or indicia of misconduct. O'Connor v. O'Connor, 32 B.R. at 628; Aetna Insurance Co. v. Nazarian, 18 B.R. 143, 150 (Bankr.D.Md.1982); Nakagawa v. Sergio, Inc., 16 B.R. 898, 908 (Bankr.D.Hawaii 1981); Loeber v. Loeber, 12 B.R. 669, 675 (Bankr.D.N.J.1981). Gennet v. Silver (In re Harry Kaiser Associates, Inc.), 14 B.R. 107, 109 (Bankr.S.D.Fla.1981); Baltic Linen Co. v. Rubin, 12 B.R. 436, 442 (Bankr.S. D.N.Y.1981); Williams v. Riddle, 8 B.R. 797, 798 (Bankr.S.D.Fla.1980). Among the "badges" to be considered are: (1) an absence of consideration for the transfer; (2) the value of the transfer as a component of the debtor's estate; (3) the timing of the transfer; (4) the relationship between the debtor and the transferee(s); (5) the financial condition of the debtor at the time of transfer; (6) whether the transfer was concealed; and (7) whether the conveyance was made while a collection lawsuit against the debtor was threatened or pending.
The facts of this case convincingly...
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