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Voidable Transactions

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Fraudulent Transfers

 

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Voidable Transaction Statutes of The United States

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Twine's Case is a case of much interest in fraudulent transfer law, largely because it is the case in which a case first sets out the so-called Badges of Fraud which significantly effected the development of Anglo-American fraudulent transfer law over the next four centuries.

 

We will examine the case shortly, but first a word of caution. In the era of 1601, when Twyne's Case was decided, the courts almost never gave the grounds for its decision in writing. Nor was there anything like a live transcription of the record of proceedings such as has been taken for granted in our courts for the last couple of centuries. Thus, there is no official record of the proceedings other than, in this case, the indictment and the result.

 

Instead, a person known as the reporter simply sat in on the court and took notes of whatever it seemed was interesting — to the reporter. It was also very common for the reporter to sit with the judges, and often the attorneys trying the case, at drinks and dinner at the local pub and hotel (often referred to as the "Inn of Court" wherever and whenever a court happened to be holding its proceedings), where cases were often openly discussed before the trial began, while the case was ongoing, and then afterwards as well. Thus, far from being a contemporaneous scrivner of the court's every word, a reporter of that era was much closer to a modern sports reporter who watches the game while doing live interviews to find out why it happened the way it did. The point being is that what the reporter is relating for future readers might contain substantial substance that was never discussed in court at all, but rather was picked up in late-night discussions at the pub. Further, a reporter's report on a particular case might not be drafted until some time after the case was decided, and then on the basis of the reporter's notes and memory.

 

Reporters of this time were also notorious for injecting their owns views of the law and facts into their opinions, whether that corresponded to those of the judges hearing the case or not, and usually without distinguishing their own opinions and characterizations of this, that, and the other thing from those of the judges. Lord Coke, who later would try Twyne's Case as the Queen's Attorney General and was himself perhaps the best known of all the reporters, had gained a reputation for injecting this own views as to what he thought the law should be into his law reports as the substance of the ruling, even when the court actually ruled on some other basis entirely. All of this means that four hundred plus years later, what of this decision was actually that of the court and what might have been added or subtracted by the reporter, cannot be accurately discerned with even the best OUIJA board.

 

Another point to be considered before we get to the opinion is that this case was tried in the Star Chamber, which in later years has come to be viewed (quite wrongly) as a sort of lawless place where the will of the Crown was arbitrarily imposed upon the disloyal without any regard to justice. This characterization is dangerously false. The Star Chamber was indeed a speciality court created to try those cases which involved higher crimes against the Crown, including breaches of the peace (which is what Twyne's Case is really all about), but generally the court strictly followed the law as it then existed, and its punishments were generally thought at the time to be less harsh than those of other criminal courts.

 

The Spanish Inquisition of torture and forced confessions, the Star Chamber was not. The bad reputation that the Star Chamber eventually got was mostly from its taking away (attainder) of lands from certain nobles who had chosen the wrong side in one or another of England's then-frequent political catharcisms -- many of which nobles had themselves obtained those lands by way of previous attainders. If anything, the Star Chamber was generally more lenient in its punishments than those of the ordinary criminal courts.

 

If the circumstances surrounding the reporting of Twyne's Case are uncertain, the facts of that case do not appear to be. Our debtor there, Pierce, owed four hundred pounds to his buddy, Twyne, and another two hundred pounds to our Creditor (whose name is not divulged).

 

To prevent Creditor from collecting, Pierce entered into a secret deal with Twyne, whereby Pierce executed a general assignment of all his personal property, worth about three hundred pounds and which was mostly sheep, to Twyne in satisfaction of Pierce's four hundred pound debt to Twyne — but Pierce continued in possession of his property, identified the sheep with his own mark (and not Twyne's), and even sold some of the sheep for his own benefit.

 

To collect the debt, Creditor obtained a Writ directed to the Sheriff of Southampton to execute on Pierce's property. But when the Sheriff came out to take Pierce's sheep, Twyne directed his own men to forcibly resist the Sheriff and tell the Sheriff that Pierce's property was really Twyne's property now. Apparently, something approaching a riot between Twyne's men and the Sheriff next ensued, and at any rate the Sheriff returned the Writ unexecuted.

 

Creditor next alleged that Pierce had made a fraudulent transfer of his property to Twyne, which implicated the Fraudulent Conveyances Act of 1571, also known as Chapter 5 of the Statute of 13 Elizabeth (the Statute of 13 Elizabeth was actually a complication of diverse legislation that was subdivided by chapters, of which the fraudulent conveyances legislation was only the fifth such chapter). Very importantly, this Act declared a fraudulent transfer to be a crime against the Crown, and in the event a fraudulent transfer was avoided, half of the fraudulently-transferred property went to the Crown with the other half going to the victorious creditor. It is thus because both Twyne violated a law against the Crown by the making of a fraudulent transfer, and that the riot ensued in breach of the Queen's peace that the matter lands in the Star Chamber.

 

Ultimately, the court finds that Pierce's assignment of all his personal property to Twyne was in the nature of a fraudulent transfer, based primarily on six findings of suspicious facts surrounding the assignment:

 

  • First, Pierce had made a general assignment of all his personal property to Twyne, which did not exclude such things that a person would normally exclude in such an assignment, such as personal clothing.

 

  • Second, even after the assignment, Pierce continued to treat all the properties as his own, even as to buying and selling sheep, such that if the assignment were valid then Pierce had effectively defrauded both sellers to him and buyers from him alike.

 

  • Third, Pierce's assignment to Twyne was made in secret, and secret transactions inherently give rise to suspicions as to their validity.

 

  • Fourth, Pierce made the assignment to Twyne while the Writ to the Sheriff of Southampton was pending.

 

  • Fifth, Pierce and Twyne effectively had an agreement that Twyne would hold Pierce's property for him in trust, "and fraud is always apparelled and clad with a trust, and a trust is a cover of fraud."

 

  • Sixth, the deed for the sheep given by Pierce to Twyne recited that the transaction "was made honestly, truly and bona fide", and the inclusion of such a clause under the circumstances was thought to also be suspicious.

 

The court also found that Pierce did indeed owe four hundred pounds to Twyne, and further that if Pierce had transferred his property to Twyne in exchange for partial satisfaction of that debt that such would have been "good consideration" for the transfer. The court further noted that it would have been just fine for Pierce to have preferred one of his creditors (Twyne) over the other (Creditor) under these circumstances.

 

The problem here, however, was that Pierce really didn't use the transfer to Twyne to pay off or down his debt to Twyne. Instead, Pierce and Twyne had an agreement that Twyne would appear to receive Pierce's property, but Pierce would continue to be the de facto owner of the property and control that property, and their transaction was only to thwart the Creditor's efforts to collect the two hundred pound debt against Pierce. Thus, this wasn't a case at all of Pierce simply preferring one creditor to another.

 

To this end, the court stated that if there had been a real satisfaction of Pierce's debt to Twyne, then three things should have occurred:

 

(1) The satisfaction would have occurred openly and not in secret;

 

(2) Pierce's property should have been appraised so that the precise amount of the satisfaction could be determined; and

 

(3) Twyne would have actually taken possession of the property and Pierce would have had nothing further to do with it, much less treat it as his own.

 

Failing these three things, the court could not conclude that Pierce's transfers to Twyne were actually in satisfaction of Pierce's debt to Twyne.

 

The court took this line of reasoning further, pointing out that if there was an agreement between Pierce and Twyne that the latter would simply hold the former's assets, then there could be no good consideration for the transfer. Otherwise, what you end up with is a trust per nomen speciosum (a specious trust), which "is in truth, as to all the creditors, a fraud, for they are thereby defeated and defrauded of their true and due debts."

 

Looking at the Statute of 13 Elizabeth, the Court noted the preamble that fraud and deceit to cheat creditors had gotten out of hand, which was why that Act was passed, and therefore the Act "should be liberally and beneficially expounded to suppress the fraud." This is what we would call today a legislative mandate to expansively interpret the Act to achieve its purposes; in this case, of defeating debtors' attempts to fraudulently transfer their assets in derogation of creditors' rights.

 

Precedential decisions being of arguably more importance to the courts of that era than even today, the court cited to a case arising before the Exchequer Court (roughly analogous to today's tax court since it largely heard treasury matters), being Pauncefoot v. Blunt. In that case, Pauncefoot had apparently decided not to render the Queen some service, and to flee abroad so that he could not be punished. But, on the way out the door, Pauncefoot transferred away his property to others so that it could not be forfeited to the Crown. In that case, Pauncefoot's transfers were avoided because he had the intent to cheat his creditor, i.e., the Crown.

 

Similarly, in Standen v. Bullock, the Court of Common Pleas (what amounted to England's civil courts) set aside a transfer because the transferor had retained a right to revoke the transfer, although it is unclear whether this case even involved a creditor. In Lee v. Colshil, another case before the Court of Common Pleas, Colshil was in debt to Smith to the tune of a thousand marks, and had promised Smith than when Colshil died that his creditors would repay Smith three hundred pounds. Colshil then died, but Smith was not paid his three hundred pounds. However, Colshil's obligation to Smith was later determined to be void. Apparently, this case also involved a right to revoke the transfer, and such powers of revocation are in fraud on purchasers. (Apparently, these two cases were meant to demonstrate that if the debtor could revoke a transfer, such as could be expected with a fraudulent transfer when creditors had gone away, then the transfer is of no effect as to creditors.)

 

More to the point, the court then looked at a third case before the Court of Common Pleas, being Upton v. Bassett, where the court held that a debtor could not make a transfer to defeat the pre-existing rights of another creditor, but if the transferee gave good consideration for the transfer then the transfer could not be avoided, i.e., this states part of the modern transferee's good faith for value defense.

 

The court then look at yet a fourth case, Nedham v. Beaumont, which was heard in the Court of Chancery (the court of equity). In that case, Babington entered into a deal with Lord Darcy whereby Lord Darcy would advance the interests of Babington's male heirs and also allow Babington to use a certain manor for life. Lord Darcy apparently held up his end of the bargain, but Babington did not, and instead attempted to lease the manor to Heys. This transfer was avoided.

 

In modern times, one would expect a summation that ties all this together in some neat form, but that is not what we get. Instead, the reporter, who apparently simply grew tired of writing, next blandly states that: "And by the judgment of the whole Court, Twyne was convicted of fraud and all the others of a riot."

 

What we get out of Twyne's Case is mostly law that is not new, such that a transfer meant to cheat creditors may be avoided, and that a transferee who pays good consideration for the transfer may assert that in defense. What is new is the court's recognition to the effect that debtors who are trying to cheat their creditors will always have some cover story to deny that fact, and instead of simply adopting the debtor's subjective and self-serving denials the court should look to the surrounding circumstances (the Badges of Fraud) to objectively determine the debtor's actual intention in making the transfer.

 

That is very good law even today. How the Badges of Fraud came to be repeatedly mishandled, and mechanically and thoughtlessly applied, over the next four centuries and even today presents a much less desirable depiction of modern fraudulent transfer law.

 

Read the text of Twyne's Case here.

 

 

UVTA AUDIO PRESENTATION

 

Need to become fluent in the UVTA quickly? This four-hour audio program by Jay Adkisson and Dave Slenn, ABA Advisors to the UVTA Drafting Committee, explains key features of the UVTA, how they operate, and why. Hosted by Leimberg Information Services. Click here for more

RECENT ARTICLES ON FRAUDULENT TRANSFERS

 

2019.09.13 ... The Sackler Family And Fraudulent Transfers

2019.08.21 ... Of Jeffrey Epstein And The Assets He Placed Into Trust Two Days Before His Death

2019.07.27 ... Cortez Rule For California Uniform Voidable Transactions Act Reaffirmed In Potter

2019.07.08 ... Fraudulent Transfers And The Statute of 13 Elizabeth Translated To Contemporary Legal English

2019.05.30 ... Understanding The Elements Of The UVTA Tests For A Voidable Transaction

2019.05.20 ... Good Faith Not Enough For Transferee To Establish Fraudulent Transfer Defense In Hawk

2019.03.31 ... Voidability Of Sham Lawsuit And Judgment At Issue In Chen

2019.02.22 ... California Court Of Appeals Swings And Misses On Pre-Marital Fraudulent Transfer Agreement In Sturm

2019.02.12 ... Why The Mere Incorporation Or Formation Process For A New Entity Is Not A Fraudulent Transfer

2019.01.30 ... Resignation Of Corporate Officer Not A Fraudulent Transfer In Texas Opinion

 

Many more articles on voidable transactions law found here

 

UVTA - LOGICAL ORGANIZATION (Designed For Litigators)

 

Click here to go to the Voidable Transactions Decision Chart

 

Overview of UVTA -- The process and result

 

Learn The Vocabulary Of The Act (Main Page)

 

Has A Voidable Transaction Occurred? (Main Page)

 

Does The Transferee Have A Defense? (Main Page)

 

What Remedies Are Available? (Main Page)

 

Other Helpful Provisions (Main Page)

 

UVTA - NUMERICAL ORGANIZATION (Confusing & Difficult To Use)

 

The Uniform Law Commission's complete copy of the UVTA with comments in PDF format is available here. The webpage for the UVTA, showing states that have enacted and much other information regarding the Act is found here.

 

1 - Definitions

(1) Affiliate -- (2) Asset -- (3) Claim -- (4) Creditor -- (5) Debt -- (6) Debtor -- (7) Electronic -- (8) Insider -- (9) Lien -- (10) Organization -- (11) Person -- (12) Property -- (13) Record -- (14) Relative -- (15) Sign -- (16) Transfer -- (17) Valid Lien

2 - Insolvency - How insolvency is calculated

3 - Value - Issues relating to calculating value

4 - Transfer Or Obligation Voidable As To Present Or Future Creditor

(a)(1) {Intent Test} - To hinder, delay or defraud any creditor

(a)(2)(i) {Overextending Insolvency Test} - The debtor engages in a transaction for which it does not have the financial strength

(a)(2)(ii) {Sinking Insolvency Test} - The debtor is not technically insolvent but headed for insolvency

(b) {Badges of Fraud} - Circumstances available to prove the debtor's intent

5 - Transfer or Obligation Voidable As To Present Creditor

(a) {Insolvency Test} - The test preferred by creditors

(b) {Insider Preference Test} - Not really a fraudulent transfer test at all

6 - When Transfer Is Made Or Obligation Is Incurred - Determines the time of the transfer

7 - Remedies Of Creditor

      {Non-Money Judgment Remedies} - Avoidance, attachment, etc.

8 - Defenses, Liability, And Protection Of Transferee Or Obligee

{Main Provisions} -The transferee's good faith for-value defense

(b) and (c) {Money Judgment Remedy} - Alternative remedy for creditors when avoidance is not good enough

9 - Extinguishment Of Claim For Relief - Similar to Statutes of Limitation

10 - Governing Law - Conflicts of Laws provisions

11 - Application To Series Organization - Applies to intra-series transfers

12 - Supplementary Provisions - Allows application of other law to issues unresolved by the UVTA

13 - Uniformity Of Application And Construction - Court opinions from other states may be looked to for guidance

14 - Relation To Electronic Signatures In Global And National Commerce - Waste of statutory space

15 - Short Title - From fraudulent transfers to voidable transactions

16 - Repeals; Conforming Amendment - Information for enacting legislatures

 

OTHER SOURCES OF FRAUDULENT TRANSFER LAW

 

Fraudulent Transfers In Bankruptcy - Main Page

 

28 U.S.C. § 3301, et seq. - Where United States is the creditor

 

Common Law Fraudulent Transfer - Still exists in most states

 

Fraudulent Conveyances Act of 1571 a/k/a Statute of 13 Elizabeth - The medieval statute to which the modern American UVTA traces some of its roots.

 

Statutes Of The U.S. Jurisdictions -- State and Territorial Voidable Transaction and Fraudulent Transfer Laws

 

TOPICAL COURT OPINIONS

 

DEFINITIONS

     Creditor Definition - Court opinions on the definition of creditor

     Debtor Insider Affiliate Relative Organization Person Definitions   - Court opinions on the definitions of debtor, insider, etc.

     Claim And Debt Definitions  - Court opinions on the definitions of claim and debt

     Asset And Property Definitions  - Court opinions on the definitions of assets and property

     Lien And Valid Lien Definitions  - Court opinions on the definitions of lien and valid lien

     Transfer Definition  - Court opinions on the definition of transfer

     Value And Reasonably Equivalent Value (REV) Definition  - Court opinions on the definitions of value and reasonably equivalent value

     Insolvency Definition  - Court opinions on the definition of insolvency

TESTS

     Insolvency Test  - Court opinions relating to the Insolvency Test

     Insider Preference Test  - Court opinions relating to the Insider Preference Test

     Overextending Insolvency Test  - Court opinions relating to the Overextending Insolvency Test

     Sinking Insolvency Test  - Court opinions relating to the Sinking Insolvency Test

     Intent Test  - Court opinions relating to the Intent Test

           Badges Of Fraud  - Court opinions relating to the Badges of Fraud

DEFENSES

     Extinguishment Periods a/k/a (incorrectly) Statute Of Limitations  - Court opinions relating to the extinguishment periods

     Transferee Good Faith  - Court opinions relating to the transferee good faith for-value defense

REMEDIES

     Non-Money Remedies  - Court opinions relating to avoidance and other non-money remedies

     Money Judgment Remedies  - Court opinions relating to money judgments

OTHER

     Burdens of Proof  - Court opinions relating to the burdens of proof

     Conflict Of Laws  - Court opinions relating to conflict of laws

     Uniformity  - Court opinions relating to uniformity with the laws of other jurisdictions

     Supplementary Law  - Court opinions relating to the interplay of the UVTA with other law

     Jurisdictional Issues - Court opinions relating to jurisdiction of UVTA actions.

BANKRUPTCY

     Section 548  - Court opinions relating to 11 USC 548

 

OTHER RESOURCES

 

 

OTHER INFORMATIONAL WEBSITES BY JAY ADKISSON

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business, by the author of the best-selling book on the topic: Adkisson's Captive Insurance Companies.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

  • Judgment Collection - An explanation of common creditor remedies, strategies and tactics to enforce a judgment, including a discussion of common debtor asset protection strategies.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Charging Orders - The confusing remedy against a debtor's interest in an LLC or partnership is explained in reference to the Uniform Partnership Act, the Uniform Limited Partnership Act, and the Uniform Limited Liability Company Act.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Anti-SLAPP Laws - A collection of and commentary about Anti-SLAPP laws and significant court decisions on the subject within the United States, and special section on California Anti-SLAPP.

 

Available in 2021

 

Voidable Transactions: Fraudulent Transfers In American Law, by Jay D. Adkisson

 

Click here for more information

© 2020 Jay D. Adkisson. All rights reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site https://voidabletransactions.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.