Landmark Medical Center v. Gauthier

• Citation: 635 A.2d 1145
• Decision Date: 06 January 1994
• Docket Number: No. 93-61-A,93-61-A
• Parties: LANDMARK MEDICAL CENTER v. Claire M. GAUTHIER et al. ppeal.
• Court: United States State Supreme Court of Rhode Island

Page 1145

635 A.2d 1145

62 USLW 2467

LANDMARK MEDICAL CENTER v. Claire M. GAUTHIER et al.

No. 93-61-Appeal.

Supreme Court of Rhode Island.

Jan. 6, 1994.

Paul A. Brule, Central Falls, for plaintiff.

Francis Gaschen, Pawtucket, for defendants.

OPINION

SHEA, Justice.

This matter came before the Supreme Court pursuant to G.L.1956 (1985 Reenactment) § 9-24-25 and Rules 72 and 76 of the Superior Court Rules of Civil Procedure. The Superior Court accepted an agreed statement of facts and certified three questions for our consideration. We summarize the pertinent facts.

The defendant Claire M. Gauthier (Claire) and her late husband, Louis J. Gauthier (Louis), both incurred medical expenses at plaintiff, Landmark Medical Center (Landmark). Landmark, the successor to Woonsocket Hospital, is a Rhode Island corporation providing hospital services in Woonsocket, Rhode Island. Claire is a resident of Woonsocket and the mother of defendants Gisele T. Gauthier (Gisele) and Suzanne B. Hooven (Suzanne). Louis was also a resident of Woonsocket and the father of Gisele and Suzanne.

Prior to his death Louis incurred medical expenses between March 1988 and December 1988 totaling $58,510.39 at Landmark. Claire also incurred medical expenses at Landmark between December 1988 and January 1989 totaling $11,974.75. Both parties agree that the charges billed for the medical services provided to Louis and Claire were fair and reasonable.

Louis died on December 24, 1988. Since none of his assets were subject to probate, no probate estate was ever opened. The principal asset that he owned at the time of his death was a three-unit apartment house located on Maple Street in Woonsocket. He owned that property as a joint tenant with Claire. By operation of joint tenancy, the property passed directly to Claire at the time of his death. After Louis's death, Claire continued to reside on the first floor, as she and her husband had prior to his death.

Landmark filed suit solely against Claire for payment due for the medical expenses rendered to both her and her late husband. A default judgment was obtained, and an execution issued against the real estate. The default judgment was vacated, and the execution was recalled after a showing that sometime during the twenty-day period after service of the complaint, Claire had been admitted to the Institute of Mental Health (IMH) in Cranston, Rhode Island.

Immediately after the judgment was vacated and the execution was recalled, Claire deeded the apartment house, which was her principal asset, to her two daughters, Gisele and Suzanne, for no consideration, while retaining a life estate for herself in the property. She did not give notice to Landmark of the execution or recording of the deed when she transferred her interest.

Landmark then initiated a second suit against Claire and her daughters, alleging a fraudulent conveyance. The suits were consolidated, and the complaint was amended to raise additional allegations. Landmark now alleged that not only was Claire liable for the medical expenses of Louis by virtue of their marriage, but Suzanne and Gisele were also liable to Landmark for the medical expenses of both their parents by virtue of G.L.1956 (1988 Reenactment) chapter 10 of title 15. The defendants denied liability to Landmark, and the following questions were certified for this court's consideration:

"I. What is the liability of the defendant, Claire M. Gauthier, for the above listed medical expenses of herself?

"II. What is the liability of the defendant, Claire M. Gauthier, for the above listed medical expenses of her husband?

"III. What is the liability of the defendants, Suzanne B. Hooven and Gisele T. Gauthier, for the above listed medical expenses of their mother and father?"

Before answering these three questions, we are compelled to address an underlying fourth issue regarding the validity of Claire's conveyance of the apartment house to Gisele and Suzanne. Landmark argues that Claire's conveyance of the apartment house to her daughters was done with the intent to hinder, delay, or defraud her creditor and was therefore fraudulent and void. We agree.

Claire conveyed her interest in the property to her daughters, subject to her life estate, immediately after the judgment against her was vacated and the execution on that property was recalled. The transfer was not made for any taxable consideration, and on the deed was the notation that "consideration is such that no documentary stamps are required." General Laws 1956 (1992 Reenactment) § 6-16-4 provides in pertinent part that

"(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

(1) With actual intent to hinder, delay, or defraud any creditor of the debtor; or

(2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(A) Was engaged or about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(B) Intended to incur, or believed or reasonably should have believed that he or she would incur, debt beyond his or her ability to pay as they became due.

"(b) In determining actual intent under subsection (a)(1), consideration may be given, among other factors, to whether:

(1) The transfer or obligation was to an insider;

(2) The debtor retained possession or control of the property transferred after the transfer;

(3) The transfer or obligation was disclosed or concealed;

(4) Before the transfer was made * * * the debtor had been sued or threatened with suit;

(5) The transfer was of substantially all of the debtor's assets * * *."

An examination of Claire's conveyance in light of the factors in § 6-16-4(b) indicates that it was indeed fraudulent. The transfer was made to her daughters for no taxable consideration while she retained a life estate. The transfer was concealed in that no notice was given to her existing creditor, Landmark, who had already commenced suit against her. The apartment house was also Claire's principal asset. A clear inference of fraudulent intent can be drawn from a review of the agreed facts submitted under the considerations outlined in the statute.

In addition, § 6-16-5(a) establishes that

"A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time, or the debtor became insolvent as a result of the transfer or obligation."

We have previously stated that "the mere establishment by a plaintiff that a conveyance was made by an insolvent debtor without consideration [does not] give rise to a presumption that it was fraudulent." Ducharme v. Champagne, 110 R.I. 270, 274-75, 292 A.2d 224, 226 (1972). However, the absence of proof of actual fraud is not fatal to plaintiff's claim. Id. "As has often been said, a debtor must be just before he is generous." Tanner v. Whitney, 52 R.I. 391, 394, 161 A. 122, 123 (1932).

We have long held that a prima facie case of intent to delay, hinder, or defraud creditors is established when a conveyance of all a person's property is made to a spouse for nominal consideration and after a notice of a claim against that person. Savoie v. Pion, 52 R.I. 422, 424, 161 A. 219, 220 (1932). The same finding would result from a conveyance between such close family members as a mother and her daughters as opposed to dealings between strangers.

We also find it interesting to note plaintiff's argument that she has competence when she finds it convenient. She argues that although she was incompetent to contract with Landmark for medical services because of her recurrent mental illness, she was competent to convey the property validly to her daughters. This argument is quite contradictory. We conclude that the conveyance was fraudulent and therefore null and void.

We shall now address the three certified questions before us.

I

Both parties stipulated that Claire "had incidents of mental illness requiring, from time to time, her hospitalization at the Institute of Mental Health in Cranston, R.I." Claire argues that she should not be liable for the medical services provided by Landmark because her mental illness precluded her from contracting with Landmark. We disagree.

Incidents of mental illness alone will not incapacitate a person from making a valid contract provided that person is able to understand the nature and effect of his or her acts. Sosik v. Conlon, 91 R.I. 439, 443, 164 A.2d 696, 698 (1960). Claire's prior or subsequent hospitalization for mental illness at the IMH is not determinative of her capacity to contract at the time that she entered Landmark. In the absence of probative evidence that shows that Claire was suffering from mental incapacity at the time services were rendered by Landmark, a general allegation of chronic mental illness does not suffice to negate capacity. Id. at 442, 164 A.2d at 698. No evidence was produced to show that Claire was mentally ill and without capacity to contract for services on the dates of her hospitalization between December 14, 1988, and January 12, 1989.

In addition Landmark correctly argues that even if there had been probative evidence presented that showed Claire's incapacity to contract, she would still be liable for the medical services, in the absence of a valid contract, under the quasi-contract theory. A quasi-contract or an implied-in-law contract is formed when medically necessary services are rendered even without mutual assent. Hurdis Realty, Inc. v. Town of North Providence...