Matter of Hulk
| Decision Date | 13 January 1981 |
| Docket Number | Adv. Proceeding No. 2-80-0369.,Bankruptcy No. 2-80-00764 |
| Parties | In the Matter of William T. HULK and Amelia Hulk, Debtors. William T. HULK and Amelia Hulk, Plaintiffs, v. Gilbert L. ROSENBAUM, Esq., Trustee Hartford Hospital, Inc., United States Leasing Corporation, Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — District of Connecticut |
Martin W. Hoffman, Hartford, Conn., for plaintiffs.
Gilbert L. Rosenbaum, Trustee, pro se.
Gregory A. Sharp, Hartford, Conn., for United States Leasing Corp., defendant.
Nair & Levin, Hartford, Conn., for Hartford Hospital, Inc., defendant.
Plaintiffs, Amelia (Amelia) and William (William) Hulk, (the Hulks), initiated this adversary proceeding by filing, pursuant to 11 U.S.C. § 522(f)(1), a joint complaint to avoid judicial liens which allegedly impaired their exemptions.1 The Hulks named as defendants Gilbert L. Rosenbaum, the trustee of both Hulk estates, and Hartford Hospital, Inc. (Hospital) and United States Leasing Corporation (USLC), the holders of judicial liens on the Hulks' home.
The facts giving rise to this action are not in serious dispute, and may be summarized as follows. The Hulks were married in June, 1977. Amelia had been married before and had a child from her prior marriage. On October 17, 1978, Amelia and William jointly purchased a residence located at 260 Cavan Lane, Glastonbury, Connecticut (property) for $54,500.00. The purchase was financed through a bank mortgage of $46,500.00, a $5,000.00 gift to Amelia from her father and the balance from joint funds of Amelia and William.
In 1979, Amelia applied to the State of Connecticut for welfare benefits for the child of her prior marriage because the child's father was not making child support payments. Amelia was told by a welfare department employee that she would not qualify for benefits if she owned real property. The welfare employee recommended that Amelia transfer her half interest in the property to her husband. Accordingly, Amelia transferred her interest to William for no consideration on April 18, 1979.2 Thereafter, she briefly received the welfare benefits, but when they ended, she neglected to have her half interest in the property reconveyed to her.
In June, 1980, the Hulks were experiencing financial difficulties. William consulted with an attorney about possible ways to resolve their predicament and keep their home. The attorney advised William to transfer Amelia's half interest in the property back to her prior to the filing of Chapter 7 petitions. An admitted purpose of the proposed transfer was to permit Amelia to take advantage of the homestead exemption provided for by 11 U.S.C. § 522(d)(1), (5) and (m).3 William transferred Amelia's half interest back to her on July 3, 1980. It is not disputed that at the time of the transfer on July 3, 1980, and other relevant times, William was insolvent. On July 23, 1980, the Hulks filed a joint petition for relief under Chapter 7 of the Bankruptcy Code.4
The parties agree that the value of the property on the date of the filing of the joint petition was $61,000.00. They also agree that in addition to existing mortgage indebtedness totaling $49,900.00, the property is encumbered by three judicial liens, to wit: an attachment by Hospital recorded November 20, 1979 for $1,400.00, a second attachment by Hospital recorded May 2, 1980, for $2,000.00, and an attachment by USLC recorded June 11, 1980, for $2,000.00, all levied when the property was solely in the name of William.
To the Hulks' complaint, USLC filed an answer and alleged as affirmative special defenses and counterclaim that the July 3, 1980 transfer by William to Amelia of a one-half interest in the property was a fraudulent transfer and voidable under 11 U.S.C. § 548.5 The trustee has filed a similar pleading alleging the voidability of the said transfer under either 11 U.S.C. § 548 or 11 U.S.C. § 544, and requesting "that the court set aside the transfer of July 3, 1980, and that the trustee have such other and further relief as is just." Hospital neither filed pleadings nor appeared at the trial.
The central issue as presented to the court by the parties is whether William's transfer of a one-half interest in the property to Amelia on July 3, 1980, twenty days before the Hulks filed their petition for relief, is a fraudulent and thus voidable transfer. Section 548 of the Bankruptcy Code sets forth two disjunctive and discrete tests to determine whether or not a transfer within one year before the date of filing a petition is fraudulent. Subsection (a)(1) of § 548 contains the "intent" test whereby the evidence must be scrutinized to discover whether the trustee has borne his burden of proof that the transferor-debtor acted with "actual intent to hinder, delay or defraud" his creditors. Subsection (a)(2)(A) and (B)(i) contains a second and alternative test which requires no intent but presumes a fraudulent transfer where conditions obtain that a transferor-debtor, insolvent on the date of the transfer, "received less than a reasonably equivalent value" for the interest transferred. Since it is conceded that William was insolvent on July 3, 1980, the disputed transfer must be held fraudulent and voidable under § 548 if William acted with the requisite intent, or if he received less than reasonably equivalent value for the interest transferred.
As to intent, the court finds that the circumstances of the instant transfer give rise to none of the implications employed by courts to conclude that fraud has occurred. See 4 Collier on Bankruptcy (15th ed.) ¶ 548.025 at 548-32 et seq. The statement of financial affairs attached to the Hulks' joint petition fully disclosed the transfers between them. William's transfer to Amelia arose because Amelia had previously transferred her interest to him upon the incorrect advice of a welfare department employee. It is obvious that William acted only as a titleholder for the convenience of Amelia and that Amelia was at all times the equitable or beneficial owner of the one-half interest in the property paid for by her contributions. There is no doubt that Amelia could have obtained restoration of title at any time. William executed the transfer of July 3, 1980 upon advice of counsel, and the acknowledged reason for so doing was to enable Amelia to claim a statutory exemption in her one-half interest in the property to which property she was beneficially entitled anyway. The trustee has not established the requisite actual intent demanded by § 548(a)(1). Mayo v. Pioneer Bank & Trust Co., 270 F.2d 823 (5th Cir. 1959), cert. denied, 362 U.S. 962, 80 S.Ct. 878, 4 L.Ed.2d 877 (1960); Cf. In re White, 221 F.Supp. 64 (N.D.Cal.1963).
With respect to the alternate basis for claiming a fraudulent transfer, when Amelia transferred her one-half interest in the property to William on April 18, 1979, she received no consideration. Amelia had a claim upon William at any time to require him to transfer title back to her without payment to him. Thus, it cannot be said that when William transferred a one-half interest in the property to Amelia on July 3, 1980, he received less than a reasonable equivalent value for the interest transferred. Luper v. Ruhl, 148 F.Supp. 888, 890 (S.D.Ohio 1956) (); Mayo v. Pioneer Bank & Trust Co., supra.
The court also concludes that the transfer does not constitute a preference under 11 U.S.C. § 547(b), inasmuch as the property transferred was not, in equity, the property of the debtor-transferor, William, and Amelia, the transferee, was not a creditor.6 The true relationship between William and Amelia, with respect to the disputed transfer, is that between a trustee and a cestui que trust. Ward v. Ward, 59 Conn. 188, 22 A. 149 (1890). Transfers arising out of such a relationship do not give rise to preferences. Benjamin v. Buell, 268 F. 792 (7th Cir. 1920); Ortlieb v. Baumer, 6 F.Supp. 58 (S.D.N.Y.1934); Malone v. Gimpel, 151 F.Supp. 549 (N.D.N.Y.1957), affirmed 244 F.2d 954 (2d Cir. 1957).
A finding that the July 3, 1980 transfer of Amelia's half interest in the property back to her is neither fraudulent nor preferential is, however, not dispositive of the ultimate issue herein. Amelia received back the half interest encumbered by the aforementioned three attachments. The avoidance of these attachments is the purpose of the Hulks' joint complaint. The Hulks' claim that the liens of these attachments are void either because they impair their exemptions, or because they were recorded within 90 days prior to the filing of the Hulks' petition for relief. Because the Hulks' joint petition has schedules which do not separate the assets and liabilities of each, it appears the parties have assumed that William is entitled to claim his exemption against the Hulks' entire equity in the property.7 This is not so. The purpose of a joint petition by a husband and wife is mainly to provide for ease of administration.8 There has never been a court-ordered consolidation of the Hulks' two estates. At the time of recordation of each of the attachments sought to be avoided, (November 20, 1979, May 2, 1980, and June 11, 1980, respectively), William was the sole owner of record of the property. Connecticut law is clear that lienors are not subordinated to unrecorded equities of which they have no knowledge but may rely on record title. Conn.Gen.Stat. § 47-10; Goldberg v. Parker, 87 Conn. 99, 87 A. 555 (1913); Second Bank of New Haven v. Dyer, 121 Conn. 263, 184 A. 386 (1936). This being so, Amelia's half interest was subject to the existing attachment liens (and mortgages) when it was transferred back to her, and she can claim as exempt...
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