Territorial Sav. & Loan Ass'n v. Baird

• Citation: 781 P.2d 452
• Decision Date: 26 September 1989
• Docket Number: No. 890275-CA,890275-CA
• Parties: TERRITORIAL SAVINGS & LOAN ASSOCIATION, Plaintiff and Appellant, v. John N. BAIRD, aka John Nelson Baird; Joy K. Baird; and John Knapp Baird, Trustee of the KOA Irrevocable Trust, Defendants and Respondents.
• Court: Court of Appeals of Utah

Page 452

781 P.2d 452

TERRITORIAL SAVINGS & LOAN ASSOCIATION, Plaintiff and Appellant, v. John N. BAIRD, aka John Nelson Baird; Joy K. Baird; and John Knapp Baird, Trustee of the KOA Irrevocable

Trust, Defendants and Respondents.

No. 890275-CA.

Court of Appeals of Utah.

Sept. 26, 1989.

Merrill F. Nelson, Salt Lake City, for plaintiff and appellant.

Randall Feil and Michael Ferrin, Salt Lake City, for John Knapp Baird.

John Knapp Baird and Mark J. Morrise, Salt Lake City, for John N. Baird and Joy K. Baird.

Before BILLINGS, GARFF and GREENWOOD, JJ.

OPINION

BILLINGS, Judge:

This appeal arises from a garnishment proceeding filed by appellant Territorial Savings & Loan Association ("TSL") to enforce a deficiency judgment against respondent John N. Baird. The parties cross-motioned for summary judgment. The trial court granted Baird's motion and denied TSL's motion. TSL appeals from this order, claiming the trial court erred in concluding as a matter of law, that Baird's conveyance of real estate into an irrevocable trust was not void under various provisions of the Utah Fraudulent Conveyances Act. ¹ We affirm in part, and reverse and remand in part.

FACTS

Since this case was disposed of on a motion for summary judgment, we review the facts and inferences reasonably drawn therefrom in the light most favorable to TSL. See, e.g., Hardy v. Prudential Ins. Co. of Amer., 763 P.2d 761, 763 (Utah 1988); Guardian State Bank v. Humpherys, 762 P.2d 1084, 1086 (Utah 1988). In May 1983, TSL loaned $325,000 to John Baird and his wife. The loan was secured by a second mortgage on the Bairds' Hawaii residence. The Bairds defaulted on the loan in September 1984. TSL completed foreclosure proceedings, applied the sale proceeds to pay the first mortgage and foreclosure expenses, and obtained a deficiency judgment against Baird in the amount of $237,174.79 in June 1986.

On June 22, 1984, approximately two months before the Bairds defaulted on the TSL loan, Baird created the KOA Irrevocable Trust ("trust"), and designated his son, John Knapp Baird, as trustee. Baird conveyed one of his only remaining valuable assets, the Meadowview Convalescent Center ("Meadowview"), ² to the trust. At the time of the conveyance, Meadowview was valued at approximately $1.7 million but was encumbered by $1.2 million in mortgage debt. Meadowview was operated by an independent lessee under a ten-year lease. The lessee paid Baird monthly payments in excess of $16,000. The leasehold was also conveyed to the trust.

Contemporaneously with creating the trust, Baird directed the trustee to issue $166,000 in promissory notes from the trust to Baird, his wife, and his children.

In exchange for the property and lease agreement, the trust assumed the following obligations:

1. Mortgages on Meadowview $1,225,000.00

2. Notes to non-family creditors 245,467.93

3. Notes to family creditors 136,250.00

4. Note payable to Baird 30,000.00

TOTAL (excluding interest) $1,636,717.93

Two of the notes to non-family creditors were also apparently executed contemporaneously with the creation of the trust. The notes to Baird's family and non-family creditors allegedly represented antecedent debts and past services performed. The trust has paid approximately $28,000 to Baird personally, and $12,000 to his wife and children since the trust was created. No payments have been made to the non-family creditors.

Although the property was conveyed to the trust in 1984, Meadowview continued to make lease payments to Baird directly until 1986. Moreover, Baird has made personal payments on several of the obligations purportedly assumed by the trust. The trustee has maintained no record of these payments or of the trust's resulting obligations to Baird. ³ The trust has never filed a state or federal income tax return.

After TSL obtained the Hawaii deficiency judgment against the Bairds, it conducted a search for the Bairds' assets but found none sufficient to satisfy its judgment other than Meadowview and the related lease. Accordingly, TSL filed its deficiency judgment in Salt Lake County, and served a writ of garnishment on the nursing facility lessee to garnish the lease payments owed by the lessee to Baird. The lessee answered that Baird's interest in the lease had been assigned to the KOA Trust. TSL then served a writ of garnishment on the trustee to garnish the lease payments and any other sums owed by the trust to Baird. The trustee answered that the trust owed Baird only $2,000. TSL commenced these proceedings by filing a reply to the trustee's answer alleging that Baird's conveyance of the nursing facility and lease into the trust was void under several provisions of the Utah Fraudulent Conveyances Act.

Following extensive discovery, both TSL and the trustee moved for summary judgment. The district court denied TSL's motion and granted the trustee's motion. TSL appeals from this order, claiming the district court erred in concluding as a matter of law, (1) that the conveyance was not void under Utah Code Ann. § 25-1-11; and (2) that there are no genuine issues of material fact concerning whether the conveyance was constructively fraudulent under Utah Code Ann. § 25-1-4, or actually fraudulent under Utah Code Ann. §§ 25-1-7, 25-1-8; and that (3) the district court erred in imposing a clear and convincing standard of proof under Utah Code Ann. § 25-1-11, and in failing to properly apportion the parties' respective burdens of proof.

MOTION TO SUPPLEMENT THE RECORD

Prior to oral argument, TSL moved to supplement the record claiming it had inadvertently failed to include John Baird's deposition in the record filed on appeal. Baird responded that not only had TSL failed to file the deposition on appeal, but that TSL also did not file it with the trial court in conjunction with TSL's motion for summary judgment. Thus, the trial court did not have John Baird's deposition before it when it granted the trustee summary judgment. Evidence not available to the trial judge cannot be added to the record on appeal, Conder v. A.L. Williams & Assocs., Inc., 739 P.2d 634, 635-36 (Utah Ct.App.1987), and thus we deny TSL's motion to supplement. Accordingly, we consider only facts properly before the trial court, notwithstanding that both parties to this action repeatedly cite to Baird's deposition in their appellate briefs.

STANDARD OF REVIEW

Summary judgment is appropriate only if the undisputed material facts before the trial court demonstrate that the moving party is entitled to judgment as a matter of law. See, e.g., Utah R.Civ.P. 56(c); Guardian State Bank v. Humpherys, 762 P.2d 1084, 1086 (Utah 1988). In reviewing a summary judgment, we afford no deference to a trial court's conclusions of law but review them for correctness. See, e.g., Madsen v. Borthick, 769 P.2d 245, 247 (Utah 1988).

In granting summary judgment, a trial court must not weigh or resolve ⁴ disputed evidence. See, e.g., Hardy v. Prudential Ins. Co. of Amer., 763 P.2d 761, 765 (Utah 1988); W.M. Barnes Co. v. Sohio Natural Resources Co., 627 P.2d 56, 59 (Utah 1981). "[T]he sole inquiry to be determined [by the trial court] is whether there is a material issue of fact to be decided." ⁵ Furthermore, "[c]ross-motions for summary judgment do not ipso facto dissipate factual issues, even though both parties contend for the purposes of their motions that they are entitled to prevail because there are no material issues of fact." Amjacs Interwest, Inc. v. Design Assocs., 635 P.2d 53, 55 (Utah 1981).

With the foregoing principles in mind, we review TSL's claim that there are material issues of fact concerning whether the conveyance into the trust was void under the Utah Fraudulent Conveyances Act.

Trust For Grantor Void--Utah Code Ann. § 25-1-11

We first address whether the trial court correctly concluded, as a matter of law, that the conveyance was not void under Utah Code Ann. § 25-1-11. Section 25-1-11 provides, with our emphasis:

All deeds, gifts, conveyances, transfers or assignments, verbal or written, of goods, chattels, or things in action made in trust for the use of the person making the same shall be void as against the existing or subsequent creditors of such person.

There are no reported Utah decisions defining the term "for the use of" as it appears in § 25-1-11. However, the Utah Supreme Court has declared that the underlying purpose of § 25-1-11 is to prevent debtors from using trusts as a device to place their property beyond the reach of their creditors' just claims, while simultaneously retaining and enjoying virtually all the advantages of ownership. See Leach v. Anderson, 535 P.2d 1241, 1243 (Utah 1975). The relevant inquiry for purposes of § 25-1-11 is not how much the grantor actually receives from the trust, but "what [he or] she has a right to take under its terms during [his or] her lifetime...." Id. In Leach, the grantor created a spendthrift trust and by the express terms of the trust provided, among other things, that it would:

1. "pay to or for the benefit of the grantor" the necessary income to maintain the grantor's reasonable standard of living and to maintain her home;

2. purchase a new car every two or three years at the grantor's request; and

3. provide the necessary income for the grantor and a companion to vacation....

Id. at 1242. The terms of the trust in Leach also permitted the grantor to direct and control the operation of the trust assets. The trust in Leach clearly transgressed the provisions of § 25-1-11, as the Utah court aptly noted, "the entire trust res, income and principal, [was] committed to maintain [the grantor] in her standard of living and adjuncts thereto." Id. at 1243-44.

Similarly, other jurisdictions considering analogous, if not identical, statutes invalidating a trust created for the use and benefit of the grantor have stated that the primary focus is whether the grantor has effectively insulated his or her assets against creditors' lawful...