Present: All the Justices
BALZER AND ASSOCIATES, INC.
v. Record No. 950052
OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR.
November 3, 1995
THE LAKES ON 360, INC., ET AL.
FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY
Timothy J. Hauler, Judge
This appeal arises from a suit by a judgment creditor to
void a transfer of real property by its judgment debtor. At the
conclusion of the creditor's case, the chancellor found that the
debtor had no equity in the property transferred, thus precluding
a finding of fraudulent intent, and granted the debtor's motion
to strike the evidence of the creditor. The issue we consider is
whether the chancellor erred in granting the motion to strike.
Because the creditor pled and presented a prima facie case
sufficient to prove both a void fraudulent transfer, Code
§ 55-80, and a voidable voluntary transfer, Code § 55-81, we
reverse.
The following material facts are not in dispute. Bradley
Investments, Ltd. (Bradley) initially purchased the property in
question on July 1, 1988, from Howard F. and Alpha T. Hancock
(the Hancocks) in exchange for a $1,000,000 purchase money note
secured by a deed of trust. Contemporaneously with its
acquisition of the property, Bradley further encumbered the
property with a second deed of trust to secure a $4,200,000
acquisition and development line of credit from Home Federal
Savings Bank (the bank).
In October, 1991, Bradley became indebted to Balzer and
Associates, Inc. (Balzer). Balzer received a judgment against
Bradley in the amount of $28,773.48 plus fees and prospective
interest on April 20, 1992.
Prior to February, 1992, Bradley was in default on its debt
to the Hancocks on the purchase money note and the bank for funds
expended from the acquisition and development line of credit. On
February 4, 1992, Robert A. Conner (Conner), president of Bradley
and husband of its principal owner, purported to transfer the
property to The Lakes on 360, Inc. (The Lakes), which at that
time had not received its corporate charter. Conner received a
check made out to him personally for $5,000 as part of the
transaction.
On February 20, 1992, six days after The Lakes received a
corporate charter showing that the corporation was controlled by
the Hancocks, Conner, by quitclaim deed, again purported to
transfer the property to The Lakes in order to correct a mistake
in the February 4, 1992 deed. No additional consideration was
exchanged.
On May 11, 1992, Balzer filed a Bill of Complaint seeking to
void the transfer of the property, naming as defendants Bradley
and The Lakes (jointly, the defendants). Balzer specifically
alleged that ". . . no consideration whatever passed from THE
LAKES ON 360, INC. to Bradley for the Deed[s]; that Bradley would
be rendered insolvent by the conveyance of the Property
purportedly conveyed by the Deeds; [and] that the same [were]
made to hinder, delay and defraud [Balzer] and other creditors."
In its prayer for relief, Bradley asked that the deeds "be
declared void and of no effect." At trial, Conner testified that
the $5,000 payment was made directly to him since Bradley was no
longer a going concern.
It was further adduced through testimony or by stipulation
that Bradley was insolvent at the time of the transfer; the
Hancocks were Conner's uncle and aunt; The Lakes took the
conveyance with the understanding that the property was subject
to foreclosure by the Hancocks and the bank owning the deed of
trust securing the acquisition and development loan; the
outstanding amounts of the two loans exceeded $4,000,000; The
Lakes was aware that additional mechanic's liens suits were
pending against Bradley at the time of the conveyance; following
the transfer, The Lakes obtained an additional $1,000,000 loan
secured by the property; and, thereafter, the Hancocks
subordinated their deed of trust to that of the bank.
At the conclusion of Balzer's case-in-chief, the defendants
moved to strike the evidence. The chancellor, while concluding
that the conveyance was "certainly questionable," nonetheless
found that, as "the property had no equity in it at the time of
the transfer," there was insufficient evidence of fraud on the
part of Conner acting as an agent for Bradley to support voiding
the transfer. On that basis, he granted defendants' motion to
strike and dismissed Balzer's Bill of Complaint with prejudice.
The chancellor erroneously based his ruling on the
presumption that the transfer was voidable only upon a showing of
actual fraud. In Virginia, an existing creditor may seek to void
a transfer of property by the debtor under one of two theories.
The transfer can be alleged to have been made for the purposes of
delaying, hindering, or defrauding the debtor's just creditors,
both existing and future. Such transactions are fraudulent acts
and are void except against bona fide transferees without
knowledge of the fraudulent intent. Code § 55-80; see also
Consolidated Tramway Co. v. Germania Bank, 121 Va. 331, 335, 93
S.E. 572, 573 (1917).
In the alternative, the transfer can be alleged to have been
made without receipt by the debtor of "consideration deemed
valuable in law" while the debtor was, or as a result of the
transfer became, insolvent. Code § 55-81. In such cases, fraud
or other malicious intent is not an element required to prove the
voidability of the transfer. See Consolidated Tramway, 121 Va.
at 335-36, 93 S.E.2d at 573, and Witz, Beidler & Co. v. Osburn,
83 Va. 227, 229, 2 S.E. 33, 34-35 (1887) (distinguishing
fraudulent and voidable voluntary transfers). In other words, a
transfer undertaken by an insolvent debtor, or by a debtor who is
thereby rendered insolvent, without return to him of valuable
consideration is de jure fraudulent as against any existing
creditor without any need to prove intent to defraud. Johnston
v. Gill, 68 Va. (27 Gratt.) 587, 592 (1876). "The principle upon
which voluntary conveyances are held void as to existing
creditors is that a man should be just before he is generous."
Battle v. Rock, 144 Va. 1, 15, 131 S.E. 344, 348 (1926).
Here, Balzer's allegations in the Bill of Complaint and the
nature of the relief sought adequately pled alternative theories
of fraudulent and voidable voluntary transfer in the context of
Code §§ 55-80 and -81. The requirements for stating a cause of
action are not so strict as to demand specificity beyond that
necessary to "clearly [inform] the opposite party of the true
nature of the claim or defense" pled. Rule 1:4(d); see also Code
§ 8.01-275; cf. Fox v. Deese, 234 Va. 412, 422-23, 362 S.E.2d
699, 705 (1987) (holding that Rule 1:4 and correlative statutes
represent "a radical departure" from rules of common-law
pleading). Moreover, where the allegations of a pleading support
two alternative theories of recovery, the pleading of one is not
made insufficient by the insufficiency of the other. Rule
1:4(k); Code § 8.01-281. It is thus axiomatic that at the trial
of a pleading which adequately states alternative theories of
recovery, a motion to strike may not be sustained where the
evidence would, if unrebutted, support recovery under at least
one theory.
It is firmly established that, in considering a motion to
strike a party's evidence, the chancellor must view the evidence
and all reasonable inferences arising therefrom in the light most
favorable to the non-moving party. Any reasonable doubt about
the sufficiency of the evidence must be resolved in favor of the
non-moving party. Shepherd v. Colton, 237 Va 537, 540, 378
S.E.2d 828, 829-30 (1989).
We first consider whether the motion to strike should have
been sustained with respect to the allegation of fraudulent
transfer pursuant to Code § 55-80. The chancellor based his
ruling on the finding that Bradley had no equity, actual or "of
redemption", in the property. Balzer asserts that, since no
evidence of the actual value of the property was adduced at
trial, this finding is not supported by the record. We agree
with Balzer.
Without direct evidence of the present value of the land,
including the improvements which had been made since its
acquisition, the mere fact of Bradley's insolvency was
insufficient to establish that it had no equity in the property.
Moreover, the evidence available to the chancellor, including
the original maximum credit available through the acquisition and
development loan, the fact of improvements to the property which
were subject to the mechanic's liens, and the additional
development money available to The Lakes upon its acquisition of
the property, would, under the standard of review described
above, support the reasonable inference of the property having
value at or above the established level of the encumbrances upon
it.
In light of the close familial relationship between the
parties, the apparent absence of adequate consideration, and the
absence of certain evidence concerning the value of the property,
we hold that Balzer made out a prima facie case of a fraudulent
transfer and that the chancellor thus erred in granting the
motion to strike under this theory of recovery.
Similarly, Balzer's evidence, viewed in this light, would
have supported a finding of a voluntary transfer by an insolvent
debtor without consideration valuable in law. The transfer from
Bradley to The Lakes did not extinguish the debt to the Hancocks.
Rather, the transfer occurred with the understanding that the
property remained subject to foreclosure by the Hancocks. In
addition, the $5,000 payment was made to Conner individually and
not to Bradley. Finally, in the absence of direct evidence
establishing that the value of the property did not exceed the
indebtedness against it, the remaining evidence, when viewed in
the light most favorable to Balzer, suggests a lack of
consideration to Bradley valuable in law. Such a transfer would
be void as to Balzer, an existing creditor, since it left the
debtor insolvent and was not made for valuable consideration in
law. Accordingly, the chancellor erred in striking the evidence
as to this theory of recovery.
Once a party has established a prima facie case in support
of its claim that a transfer is voidable, the burden of producing
evidence to rebut the prima facie case shifts to the opposing
party. We cannot say whether the defendants would have been
able, given the opportunity to present evidence of the value of
the property and of the consideration received by Bradley for the
transfer, to rebut Balzer's evidence, or at least bring into
equipoise the ultimate questions of fraudulent intent pursuant to
Code § 55-80, and lack of valuable consideration at law pursuant
to Code § 55-81. See Pullen v. Fagan, 204 Va. 601, 604, 132
S.E.2d 718, 720 (1963).
Accordingly, we will reverse the summary judgment and remand
the proceeding for a new trial.
Reversed and remanded.