Buchanan v. Buchanan

Present: All the Justices

LUTHER BRUCE BUCHANAN, ET AL.

v. Record No. 022351 OPINION BY JUSTICE ELIZABETH B. LACY
September 12, 2003
BONNIE S. BUCHANAN

FROM THE CIRCUIT COURT OF MECKLENBURG COUNTY
Leslie M. Osborn, Judge

In this case, Luther Bruce Buchanan (Husband) seeks the

reversal of certain orders allowing Bonnie S. Buchanan (Wife)

to maintain an action for fraudulent conveyance under Code

§ 55-80, directing a special commissioner to hold the proceeds

of those conveyances and others pending disposition of a

divorce proceeding, and awarding Wife attorneys' fees.

Because, for the reasons stated below, we find that Wife was

an "other person" who "may be" entitled to payment from

Husband under the fraudulent conveyance statute, that the

directive to the special commissioner to hold certain funds

did not create constructive trusts, and that the issue

regarding attorneys' fees is moot, we will affirm the judgment

of the trial court.

MATERIAL FACTS AND PROCEEDINGS

Husband and Wife were married in September 1973 and

separated in February 2000. On January 5, 2001, eleven months

after the couple's separation, Husband sold construction

equipment to his father Harold B. Buchanan (Father), for
$30,500. Father paid Husband $8,000 in cash and signed a

promissory note in the amount of $22,500. A month later, on

February 26, 2001, Husband gave his mother, Bessie B. Buchanan

(Mother), and Father $12,250 and $5,750, respectively, in

repayment of loans they had allegedly made to Husband in the

past. The funds given to Husband's parents were proceeds from

a $40,000 line of credit and an additional $40,000 loan

Husband obtained in January 2001. The line of credit and loan

were secured by deeds of trust against the Buchanan home. The

home was built during the marriage on property owned by

Husband prior to the marriage and titled in his name.

On March 9, 2001, Husband filed a bill of complaint

seeking a divorce on the grounds of separation in excess of

one year. Wife filed an answer and cross-bill alleging

cruelty and constructive desertion. On July 2, 2001, Wife

filed a bill of complaint against Husband and his parents

asserting that Husband's conveyances to his parents were

fraudulent in violation of Code §§ 55-80 and –81.

At the request of the parties, the trial court

consolidated the fraudulent conveyance and the divorce

proceedings. The parties agreed that the claims would be

heard sequentially, with evidence on the fraudulent conveyance

claims presented first.

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 In the proceedings relating to the fraudulent conveyance

claims, the trial court sustained Husband's motion for summary

judgment regarding Wife's claim pursuant to Code § 55-81, but

denied Husband's motion for summary judgment in which he

asserted Wife could not maintain an action pursuant to Code

§ 55-80. Following an evidentiary hearing, the trial court

held that Husband's transfers of $5,750 and $12,250 to Father

and Mother, respectively, were void because each was done with

the intent to "delay, hinder, or defraud" Wife's ability to

recover property she may be entitled to from Husband in

violation of Code § 55-80. The court did not void Father's

title to the construction equipment, finding that the sale was

for valuable consideration.

The trial court appointed a Special Commissioner to take

possession of the $22,500 promissory note and hold in

"constructive trust" payments due to Husband by Father

pursuant to that note, the $12,250 paid to Mother, and the

$5,750 paid to Father pending the evidentiary hearing on the

divorce and equitable distribution determination.

Following the hearing in the divorce action, the trial

court entered an order requiring Husband to pay Wife $105,000

based upon its determination of equitable distribution. The

court also awarded Wife $27,000 for her attorneys' fees and

costs "incurred in this matter and the fraudulent conveyance

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action." Wife received partial satisfaction of these monetary

awards when, pursuant to the trial court's order, the Special

Commissioner paid Wife, from the funds held in "constructive

trust," the $12,250 that Husband originally paid to Mother and

an $11,250 payment made by Father on the promissory note.

In this appeal, Husband challenges the trial court's

failure to sustain his motion for summary judgment regarding

Wife's ability to maintain an action pursuant to Code § 55-80,

the imposition of a "constructive trust" on the promissory

note and various cash payments, and the award of attorneys'

fees for the fraudulent conveyance action. We consider these

issues in order. 1

CODE § 55-80

Husband's first assignment of error involves the

application of the fraudulent conveyance statute, Code § 55-

80, to the circumstances of this case. 2 Husband does not

1
We do not consider the $5,750 payment to Father here
because for reasons not relevant to this appeal, those funds
were returned to Father, rendering that issue moot.
2
Code § 55-80 provides in relevant part:
Every gift, conveyance, assignment or transfer of . . .
any estate, real or personal, . . . given with intent to
delay, hinder or defraud creditors, purchasers or other
persons of or from what they are or may be lawfully
entitled to shall, as to such creditors, purchasers or
other persons, their representatives or assigns, be void.
This section shall not affect the title of a purchaser
for valuable consideration, unless it appear that he had
notice of the fraudulent intent of his immediate grantor
or of the fraud rendering void the title of such grantor.

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challenge the trial court's determination that he fraudulently

conveyed funds to Mother; rather, Husband asserts that Wife

could not maintain an action under Code § 55-80 because her

claim against him had not accrued at the time of the

conveyance. Husband argues that Wife's claim accrued only

upon an equitable distribution determination in the context of

their divorce proceeding and that the divorce proceeding was

not filed until after the conveyance at issue. Thus, Husband

asserts that, at the time of the conveyance, Wife was not an

"other person" who "may be lawfully entitled" to payment from

Husband for purposes of Code § 55-80. We disagree.

Code § 55-80 embodies the common law principle that

transfers of real or personal property made "with intent to

delay, hinder, or defraud creditors, purchasers, or other

persons of or from what they are or may be lawfully entitled

to" are void. The "essence of fraudulent conveyance . . . is

the diminution of the debtor's estate to the detriment of the

creditor's right of realization." 1 Garrard Glenn, Fraudulent

Conveyances and Preferences § 319, at 556 (rev. ed. 1940).

To maintain an action under this statute, the entitlement

of one alleging a fraudulent conveyance need not be judicially

established or reduced to judgment at the time of the

challenged conveyance. For example, in Crowder v. Crowder,

125 Va. 80, 99 S.E. 746 (1919), a wife prevailed in an action

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under a predecessor to Code § 55-80 even though the fraudulent

conveyance occurred prior to any determination of the wife's

right to a divorce or alimony. Moreover, in Davis v. Davis,

239 Va. 657, 391 S.E.2d 255 (1990), we said that although the

spousal support award was not made until after the fraudulent

conveyance, the wife could pursue an action under Code § 55-80

because that section applies to both what one is entitled to,

and what one "may be entitled to." Id. at 661 n.3, 391 S.E.2d

at 257 n.3. And, in another context, we have held that a

"deed made with intent to defraud a recovery by a third person

of damages in an action of tort, even before trial and

judgment . . . is fraudulent and void to the same extent as a

conveyance to hinder, delay and defraud existing creditors."

Bruce v. Dean, 149 Va. 39, 46, 140 S.E. 277, 280 (1927).

Wife's claim here is based on that portion of Code § 20-

107.3 that gives a spouse a marital interest in property

acquired during marriage and in the improved value of the

property occurring during marriage. Wife's entitlement to

that marital interest was enforced in the divorce proceeding

through the application of the statutory principles of

equitable distribution. Like the claimants in Crowder, Davis,

and Bruce, Husband's liability to Wife in this case was not

established or quantified until after the conveyance at issue.

Nevertheless, like those claimants, at the time of the

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conveyance in question, Wife was an "other person" who "may

be" entitled to payment from Husband. Code § 55-80.

Husband, noting that independent actions for divorce,

alimony, and support were available to the spouses in Crowder

and Davis at the time of the fraudulent conveyances, asserts

that the fraudulent conveyance statute requires that the

spouse's claim be enforceable by an independent action at the

time of the conveyance. Husband contends that Wife had no

cognizable claim for purposes of the fraudulent conveyance

statute because at the time of the conveyance at issue no

divorce action had been filed and Wife could not file an

independent action for equitable distribution. We again

disagree with Husband.

Neither Crowder nor Davis held that the present

availability of an enforcement action was a prerequisite to

maintaining a fraudulent conveyance action under Code § 55-80.

In this case, the enforcement mechanism for the claim giving

rise to Husband's liability to Wife was the divorce

proceeding. The grounds for divorce in this case, separation

in excess of one year, prevented the filing of the divorce at

the time of the conveyance. 3 To hold that such limitations

3
Whether Wife could have prevailed in a divorce
proceeding filed on other grounds at the time of the
conveyances is not clear from this record. Nevertheless, the

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period for instituting procedures to enforce a claim defeats

Wife's fraudulent conveyance action is inconsistent with the

longstanding public policy against fraudulent conveyances. 4 A

transferor could circumvent the policy by transferring assets

just prior to the expiration of the limitations period even

though the transferor knew of the impending liability and made

the transfer precisely to shield the assets from the

liability.

In this case, the parties had been separated for eleven

months prior to the transfers in issue. Husband did not

challenge the trial court's finding that Husband conveyed the

property with the intent of defrauding or otherwise deterring

Wife from recovering amounts from him. It is inherent in this

finding that Husband believed that at the time he conveyed the

funds, eleven months after the separation and one month before

he filed a petition for divorce, a divorce proceeding would

ensue and that a judgment would or could be entered making him

liable to Wife. He was aware of Wife's rights or claims under

the provisions of Code § 20-107.3 and took action to defeat or

hinder the realization of these rights.

ultimate result of the divorce action is not determinative of
the fraudulent conveyance action.
4
See also Code § 55-82 (allowing a creditor to file an
action under Code § 55-80 before default by the
transferor/debtor).

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 Accordingly, under the facts of this case, we conclude

that the trial court did not err in holding that Wife was an

"other person" who "may be" entitled to payment from Husband

and therefore could maintain an action under Code § 55-80.

CONSTRUCTIVE TRUSTS

In the fraudulent conveyance proceedings, the trial court

ordered that a "constructive trust" be imposed on the $22,500

owed Husband under the promissory note executed for the

construction equipment and instructed the Special Commissioner

to "take possession of the promissory note and any payments

due thereunder pending further order of this court in the

divorce action." The trial court also imposed a "constructive

trust" on the $12,250 Husband paid to Mother and ordered

Mother to deposit that sum with the Special Commissioner

pending the divorce action.

In his second and third assignments of error, Husband

asserts that these "constructive trusts" were improperly

imposed by the trial court.

A constructive trust is a mechanism by which the person

holding title to property is subjected to an equitable duty to

convey the property to another because allowing the title

holder to retain the property would be unjust. Leonard v.

Counts, 221 Va. 582, 590, 272 S.E.2d 190, 195-96 (1980). The

constructive trust arises by operation of law and is

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independent of the intention of the parties. Id. at 588-89,

272 S.E.2d at 195. In an action in which a constructive trust

is imposed, the original transfer is not declared void; rather

the title holder is ordered to transfer title of the property

to or for the benefit of another. Id. at 591, 272 S.E.2d at

196.

The remedy for a fraudulent conveyance is generally to

declare the transfer void, or, under certain circumstances, to

enter a personal judgment against the transferee. See Price

v. Hawkins, 247 Va. 32, 35-36, 439 S.E.2d 382, 384 (1994).

Voiding the conveyance was the remedy adopted by the trial

court with regard to the funds Husband fraudulently

transferred to Mother, but, rather than returning the funds to

the Husband, the trial court placed the funds with the Special

Commissioner pending a final decree in the divorce action.

Although labeled a "constructive trust," placing the funds

with the Special Commissioner did not create the type of trust

contemplated by the jurisprudence of constructive trusts.

Accordingly, regardless of the terminology used, the

trial court did not impose a constructive trust on the funds

fraudulently conveyed to Mother. 5 Pursuant to Code § 20-103,

the trial court had the authority to transfer those funds to

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the Commissioner pending further proceedings in the divorce

actions.

Husband also complains that the trial court erred in

imposing a "constructive trust" on the promissory note

executed by Father in favor of Husband and on the cash

payments made under that note. 6 Once again, however, the

"constructive trust" imposed was not a true constructive

trust. The legal title holder of the note, the Husband, was

not required to transfer the note to, or hold the note for the

benefit of, another party. The trial court's order that the

note and its proceeds be placed in the custody of the Special

Commissioner pending divorce was no more than a mechanism to

preserve the Husband's estate authorized by Code § 20-103.

Because no true constructive trusts were placed on the note or

its proceeds, we reject Husband's second and third assignments

of error.

ATTORNEYS' FEES

In his final assignment of error, Husband asserts that

the trial court erred in awarding Wife attorneys' fees in the

fraudulent conveyance action. We will not address the merits

5
In light of our conclusion that no constructive trust
arose, we need not address Husband's assertion that an in
personam judgment against Mother was the appropriate remedy.
6
Although Husband asserts that the trial court imposed a
constructive trust on the promissory note itself, the order

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of this assignment of error, however, because the issue is

moot.

The decree entered in the divorce action on August 6,

2002, awarded Wife $27,000 attorneys' fees and costs "incurred

in this matter and the fraudulent conveyance action

consolidated with this matter which sum . . . shall be

docketed as a judgment against Husband." The Husband did not

appeal the attorneys' fees awarded in this decree, either to

this Court or the Court of Appeals. 7 The award of attorneys'

fees in the amount of $27,000 is, therefore, a final judgment.

For the above stated reasons, we will affirm the judgment

of the trial court.

Affirmed.

only imposed the "constructive trust" on the amounts owed to
Husband under the note.
7
Husband brought a separate appeal to the Court of
Appeals regarding the trial court's holdings on constructive
desertion, equitable distribution, payment requirements,
interest, disposition of separate property, and future spousal
support. Resolution of those issues does not affect the
matters before us.

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