Morris v. Nance

Citation888 P.2d 571,132 Or.App. 216
PartiesMichael J. MORRIS, Appellant, v. Otis NANCE, Respondent. 9302-00779; CA A81242.
Decision Date28 December 1994
CourtCourt of Appeals of Oregon

[132 Or.App. 217-B] Michael J. Morris argued the cause and filed the briefs pro se.

Ferris F. Boothe, Portland, argued the cause and filed the brief for respondent.

Before ROSSMAN, P.J., and De MUNIZ and LEESON, JJ.

LEESON, Justice.

Plaintiff appeals from a judgment dismissing his suit to set aside debtor's transfer of property to defendant. Plaintiff contends that the conveyance was fraudulent under the Uniform Fraudulent Transfer Act (UFTA). ORS 95.200 et seq. He bases his arguments on two theories: (1) that debtor's preferential transfer to defendant was made "with actual intent to hinder, delay, or defraud any creditor" under ORS 95.230(1)(a); and (2) that the transfer to defendant constituted constructive fraud under ORS 95.230(1)(b) or ORS 95.240(1). We review de novo, ORS 19.125(3), and affirm.

Defendant and debtor were married for several years and had two sons. They were divorced in 1970. Defendant relinquished all of his interest in their marital home, but continued to provide debtor with goods and to perform extensive building maintenance and other services to enable her to live independently. Plaintiff is debtor's former attorney and the assignee of debtor's unpaid account to a now-dissolved law firm. 1

In July, 1992, plaintiff notified debtor that he was about to commence an action to obtain a judgment against her. Shortly thereafter, debtor executed a deed conveying the fee interest in her home to defendant, reserving a life estate to herself. The stated consideration was "love and affection." In October, 1992, after plaintiff commenced an action on the debt, debtor executed a second deed. It made the identical conveyance but "corrected" the first deed by specifying the consideration as "past care, support and miscellaneous expenses and future expenses for the care and support of the grantor."

Debtor and defendant had an express agreement that, in exchange for the services and materials defendant had provided and would continue to provide to debtor, defendant would receive the house when debtor dies. Both acknowledged that this agreement was the only way she could compensate defendant for his past and continuing assistance. There is no evidence, however, that debtor executed a will to carry out the agreement; prior to execution of the deeds, the agreement was oral. 2 The trial court held that plaintiff is not entitled to relief, because the transfer was not fraudulent as to plaintiff.

We first address plaintiff's argument that the trial court erred in concluding that the transfer of debtor's house to defendant was not made with actual intent to hinder, delay or defraud. According to plaintiff, the trial court should have imposed on defendant the burden of proving that the transfer of debtor's house was not a fraudulent transfer. Plaintiff relies on Hughey v. Lind, 92 Or.App. 433, 437, 758 P.2d 431 (1988), for the proposition that, although the burden of proving fraudulent intent is normally on the plaintiff, the presence of several so-called "badges of fraud" may serve to shift to the defendant the burden of proving that the transfer was not fraudulent. 3 Once the burden shifts to the defendant, the defendant must show: (1) that the transfer was not made with the intent to defraud; (2) that it was in exchange for fair consideration; and (3) that no benefit was reserved by the debtor. See also Nelson v. Hansen, 278 Or. 571, 577, 565 P.2d 727 (1977).

Although Hughey was decided in 1988, it, like Nelson, stated the rule under former ORS 95.010--ORS 95.100. Those provisions were repealed in 1985 by the UFTA. 4 Notwithstanding the continuing authority of many pre-UFTA cases, which survive because much of the UFTA "codifies principles recognized by the courts prior to its enactment," Blum, supra n. 4 at 379-80, § 18.1, those cases are authoritative only to the extent that they are in harmony with the UFTA. The central issue in this case is whether the burden shifting analysis of Hughey and Nelson is consistent with the UFTA.

In construing a statute, our task is to discern the intent of the legislature. The first level of analysis is to examine both the text and context of the statute, including other provisions of the same statute. PGE v. Bureau of Labor and Industries, 317 Or. 606, 610-11, 859 P.2d 1143 (1993). We are enjoined by ORS 174.010 from inserting into the statute what has been omitted or omitting what has been inserted. 317 Or. at 611, 859 P.2d 1143.

ORS 95.230 provides in part:

"(1) 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:

"(a) With actual intent to hinder, delay, or defraud any creditor of the debtor[.]

" * * * * *

(2) "In determining actual intent under paragraph (a) of subsection (1) of this section, consideration may be given, among other factors, to whether:

"(a) The transfer or obligation was to an insider;

"(b) The debtor had retained possession or control of the property transferred after the transfer;

"(c) The transfer or obligation was disclosed or concealed;

"(d) Before the transfer was made or obligation was incurred, the debtor was sued or threatened with suit;

"(e) The transfer was of substantially all the debtor's assets;

"(f) The debtor had absconded;

"(g) The debtor had removed or concealed assets;

"(h) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

"(i) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

"(j) The transfer had occurred shortly before or shortly after a substantial debt was incurred; and

"(k) The debtor had transferred the essential assets of the business to a lienor who had transferred the assets to an insider of the debtor." (Emphasis supplied.)

ORS 95.230(1)(a) clearly calls for a case-by-case factual determination of whether a transfer was made with actual intent to hinder, delay or defraud. ORS 95.230(2) provides a means for creditors to overcome the difficulties of proving actual fraudulent intent by direct evidence. It allows the inference of actual intent to be drawn from the presence of listed factors or other suspicious factual circumstances surrounding the transfer. Many of the listed factors are a codification of the "badges of fraud" that had been judicially engrafted to former ORS 95.070 (repealed by Or.Laws 1985, ch. 664, § 16). See, e.g., Evans v. Trude et al. and Champlin et al., supra n. 3, 193 Or. at 656-57, 240 P.2d 940. ORS 95.230(2) contains no suggestion that certain factors carry more weight than others or that the presence of several factors should shift the burden of proof to the defendant. 5 To the contrary, the factors listed in ORS 95.230(2)(c) and ORS 95.230(2)(h) could weigh in a defendant's favor. Thus, both plaintiffs and defendants may use circumstantial evidence to show that a transfer was or was not made with intent to defraud. The absence of actual fraudulent intent can only be shown by evidence that supports an alternative motive on the part of a defendant. Determining a mental state by indirect proof suggests the need to weigh the factual circumstances advanced by the parties before drawing any inference. To presume fraud whenever a plaintiff presents a circumstantial case amounts to placing a judicial thumb on one side of the balance created by the legislature.

Other provisions of ORS chapter 95 bolster our conclusion that the UFTA does not contemplate the burden shifting suggested by plaintiff. ORS 95.230(1)(b) and ORS 95.240 expressly identify the circumstances that constitute constructive fraud. 6 No similar provisions were included in former ORS 95.010--ORS 95.100. Because Hughey v. Lind, supra, 92 Or.App. at 437, 758 P.2d 431, allowed the conclusion that fraud was present even in the absence of actual fraudulent intent, the two additional elements that had to be proved by the defendant once the burden was shifted--lack of "fair consideration" and "reservation of a benefit"--must be understood as judicially recognized elements of constructive fraud. To find fraud in the absence of actual fraudulent intent required a legal construct not addressed by the former statutes. Because the UFTA addresses constructive fraud, we conclude that the burden-shifting test in Hughey v. Lind and Nelson v. Hansen is not compatible with the UFTA.

In Allen v. Meinig, 109 Or.App. 341, 346, 819 P.2d 744 (1991), rev. den. 313 Or. 209, 830 P.2d 595 (1992), we followed the lead of the parties and applied the test stated in Nelson v. Hansen, supra, 278 Or. at 578, 565 P.2d 727, to shift the burden of proof to defendant. Here, for the first time, we are asked to construe the meaning of the UFTA according to its plain terms. In so doing, we recant the analysis in Meinig regarding the burden shifting under the UFTA. 7 According to the plain terms of ORS 95.230, the "badges of fraud" included as factors in ORS 95.230(2) are to be weighed against evidence presented by the defendant to determine whether a transfer was made with actual intent to defraud or was a legitimate preference among creditors. Just as "badges of fraud" may be used to raise the inference of actual intent, some of the factors in ORS 95.230(2), along with other evidence, may also be used to infer lack of actual intent. The burden of persuasion remains on the plaintiff to show actual intent by a preponderance of the evidence.

On de novo review, we find the presence of three "badges of fraud" that suggest fraudulent intent on the part of defendant in this...

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