38-10-117. Conveyances to defraud creditors void.
Statute text
(1) Every conveyance or assignment in writing or otherwise of any estate or interest in lands, goods, or things in action or of any rents and profits issuing thereupon, and every charge upon lands, goods, or things in action or upon the rents and profits thereof made with the intent to hinder, delay, or defraud creditors or other persons of their lawful suits, damages, forfeitures, debts, or demands, and every bond or other evidence of debt given, suits commenced, or decree or judgment suffered with the like intent as against the person so hindered, delayed, or defrauded shall be void.
(2) This section shall not apply to any transfer made or obligation incurred on or after July 1, 1991, and, for the applicability of this subsection (2), the time at which any such transfer or obligation is made or incurred shall be determined in accordance with the provisions of article 8 of this title.
History
Source: R.S. p. 340, 17. G.L. 1267. G.S. 1526. R.S. 08: 2671. C.L. 5116. CSA: C. 71, 17. CRS 53: 59-1-17. C.R.S. 1963: 59-1-17. L. 91: Entire section amended, p. 1690, 3, effective July 1.
Annotations
ANNOTATION
Annotations
Analysis
I. General Consideration.
II. Void Conveyances.
III. Transactions Between Husband and Wife.
I. GENERAL CONSIDERATION.
Law reviews. For article, "Reaching Fraudulent Conveyances and Equitable Interests of Debtors", see 27 Dicta 137 (1950). For article, "Property Law", see 32 Dicta 420 (1955). For article, "An Aspect of Estate Planning in Colorado: The Revocable Inter Vivos Trust", see 43 Den. L.J. 296 (1966). For article, "Deeds in Lieu of Foreclosure", see 15 Colo. Law. 394 (1986). For article, "Perils of Pre-Bankruptcy Planning: Transfers, Exemptions and Taxes", see 17 Colo. Law. 1513 (1988). For article, "Colorado's New Fraudulent Transfer Statutes", see 20 Colo. Law. 1815 (1991).
Object of this section is to protect all persons against conveyances made to hinder or defraud them of their lawful suits, damages, forfeitures, debts, or demands. Gregory v. Filbeck, 12 Colo. 379, 21 P. 489 (1888).
Injured party deemed creditor. One who has sustained a personal injury by the negligence or misconduct of another is a creditor of the offending party within the meaning of this section even though his claim has not been reduced to judgment. Thuringer v. Trafton, 58 Colo. 250, 144 P. 866 (1914); Chalupa v. Preston, 65 Colo. 400, 177 P. 965 (1918).
"Creditor" includes persons with unlitigated claims against a defendant. Sands v. New Age Family P'ship, Ltd., 897 P.2d 917 (Colo. App. 1995).
"Obligation" includes the assumption by the debtor of a duty to transfer an asset as a fraudulent transfer, even though no actual transfer has as yet taken place. Sands v. New Age Family P'ship, Ltd., 897 P.2d 917 (Colo. App. 1995).
Neither "transfer" nor "obligation" refers to the creditor's claim against the debtor, but refers instead to the transaction by which the debtor sought to place assets beyond the reach of creditors. Sands v. New Age Family P'ship, Ltd., 897 P.2d 917 (Colo. App. 1995).
Hindering and delaying construed. The hindering and delaying meant by this section as vitiating an assignment is that hindrance and delay intended to be produced by the assignor through covin and malice, or for his own benefit and advantage. Burr v. Clement, 9 Colo. 1, 9 P. 633 (1885).
By listing the elements of hindrance, delay, or fraud in the disjunctive, the statute implies that each is to have substantive consequences and a creditor need only show that the debtor acted with one of the three elements in mind to support a remedy. Yetter Well Serv., Inc. v. Cimarron Oil Co., Inc., 841 P.2d 1068 (Colo. App. 1992).
A wrongful withholding within the meaning of 5-12-102 (1)(a) need not involve actual fraud or be tortious in nature. Section 38-10-117 provides that any conveyance made with the intent to hinder, delay, or defraud creditors is fraudulent. Stansbury v. Comm'r of Internal Rev., 102 F.3d 1088 (10th Cir. 1996); Scott v. Comm'r of Internal Rev., 236 F.3d 1239 (10th Cir. 2001).
Corporate executive of insolvent company liable as a transferee of assets for unpaid income taxes and the interest that accrued since the taxes became due. Transferee liable under subsection (1) because conveyance was made with the intent to hinder, delay, or defraud creditors, in this case, the internal revenue service. While structuring the sale of the assets of the insolvent company, corporate executive (transferee) obtained multiple opinions on the foreseeable tax consequences. Informed by those opinions and his corporate acumen, executive knowingly chose to take a calculated risk. Scott v. Comm'r of Internal Rev., 236 F.3d 1239 (10th Cir. 2001).
Conveyance to hinder and delay creditors is void only as to the creditor intended to be hindered or delayed. Lathrop v. Pollard, 6 Colo. 424 (1882); Italian-American Bank v. Lepore, 79 Colo. 466, 246 P. 792 (1926).
Transaction held to constitute conveyance with intent to hinder creditors. Love v. Olson, 645 P.2d 861 (Colo. App. 1982).
There was no evidence of intent to defraud, hinder, or delay creditors where the evidence showed that the transferee knew of a pending lawsuit against the transferor, but expected the transferor to win the lawsuit and continue as a going concern. Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp., 778 F. Supp. 1116 (D. Colo. 1991).
Evidence that the transferee knew of a judgment against the transferor does not by itself show intent to defraud, hinder, or delay. Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp., 778 F. Supp. 1116 (D. Colo. 1991).
A good-faith conveyance between family members based upon a pre-existing debt may permissibly operate as a preference of a relative's loan even though it results in delay or hindrance to other creditors. Erjavec v. Herrick, 827 P.2d 615 (Colo. App. 1992).
Fraudulent conveyance not void, but voidable. Fraudulent conveyances are not void ab initio in Colorado; they are voidable. The fraudulent transferee can convey good title to a bona fide purchaser for value. Appel v. Steamboat Ski Corp. (In re Smythe), 32 B.R. 736 (Bankr. D. Colo. 1983).
No conveyance may be adjudged "fraudulent" against creditors without proof that: (1) The transferor was insolvent at the time of the transfer, or was rendered insolvent thereby; (2) the purpose of the conveyance was to defeat, hinder, or delay creditors; (3) the transferor acted with fraudulent intent or with an intent to benefit or to secure an advantage to himself; and (4) the transferee knew of, or participated in, the transferor's intent. Yetter Well Serv., Inc. v. Cimarron Oil Co., Inc., 841 P.2d 1068 (Colo. App. 1992).
In order to state a claim under this section to set aside a fraudulent conveyance, a plaintiff need not first have a judgment against the debtor. Emarine v. Haley, 892 P.2d 343 (Colo. App. 1994).
Lis pendens appropriate. A proceeding to set aside a conveyance pursuant to this section falls within the type of action upon which a lis pendens pursuant to C.R.C.P. 105(f) may be recorded. Crown Life Ins. Co. v. April Corp., 855 P.2d 12 (Colo. App. 1993).
The three-year statute of limitations set forth in 13-80-101 applies to suits brought under this section. In re Walden, 207 B.R. 1 (D. Colo. 1997).
Applied in Gutheil v. Polichio, 103 Colo. 426, 86 P.2d 972 (1939); Mohler v. Buena Vista Bank & Trust Co., 42 Colo. App. 4, 588 P.2d 894 (1978); In re Carter, 4 B.R. 692 (D. Colo. 1980); Zimmerman v. Mozer, 10 B.R. 1002 (D. Colo. 1981); Appel v. Steamboat Ski Corp. (In re Smythe), 28 B.R. 882 (Bankr. D. Colo. 1983); Smith Office Serv., Inc. v. Kelley, 762 P.2d 791 (Colo. App. 1988).
II. VOID CONVEYANCES.
Fraud may be inferred from the facts and circumstances of each case. Grimes v. Hill, 15 Colo. 359, 25 P. 698 (1890); Innis v. Carpenter, 4 Colo. App. 30, 34 P. 1011 (1893); Helm v. Brewster, 42 Colo. 25, 93 P. 1101 (1908); Fish v. East, 114 F.2d 177 (10th Cir. 1940).
Intent of conveyance necessary determination. The necessary and material thing to bring a case within the protection of this section is not that the party invoking its aid should have an existing cause of action or demand at the time the conveyance is made, but that the grantor intended by such conveyance to hinder, delay, or defraud creditors or other persons in the manner set forth in this section. Gregory v. Filbeck, 12 Colo. 379, 21 P. 489 (1888).
While it is true that a fraudulent intent must be participated in by both parties, grantor and grantee, or mortgagor and mortgagee, when such is the case, the conveyance or mortgage is null and void. Livingston v. Swofford Bros. Dry Goods Co., 12 Colo. App. 331, 56 P. 355 (1898); Fish v. East, 114 F.2d 177 (10th Cir. 1940).
A sale of property, though for a full consideration, may be void, if made by the owner with intent to hinder, delay, or defraud his creditors, and if the vendee participated in such intent. Helm v. Brewster, 42 Colo. 25, 93 P. 1101 (1908); Reithmann v. Godsman, 23 Colo. 202, 46 P. 684 (1896); Fish v. East, 114 F.2d 177 (10th Cir. 1940).
Intent need only be to hinder or delay payment. That the transferor did not intend to defraud his creditors will not defeat a suit to void a transfer as fraudulent. If the transferor's intent was merely to hinder or to delay the payment of his creditors, the transfer will be voided. United States v. Morgan, 554 F. Supp. 582 (D. Colo. 1982).
Burden of proof to show that a conveyance is honest and made in good faith for valuable consideration and without intent to hinder, delay, or defraud creditors is on the transferee and transferor. In re Genova v. Champion, 33 B.R. 930 (Bankr. D. Colo. 1983).
Once a bankruptcy trustee shows a family transfer, burden of proof shifts to the transferee and transferor to show that the transfer was honest and that there was no intent to defraud. Also, the burden of proof of solvency is upon the debtor and the transferee and not upon the trustee. In re Genova v. Champion, 33 B.R. 930 (Bankr. D. Colo. 1983).
Void transfer invalid even between parties. Where an attempted transfer by deed of a party's interest in property is set aside as an attempt to defraud creditors, it is invalid as between the parties to the deed. Park State Bank v. McLean, 660 P.2d 13 (Colo. App. 1982).
Conveyance intended to defraud future creditors void. A conveyance intended to defraud creditors, is voidable not only as to existing, but as to future, creditors. Gregory v. Filbeck, 12 Colo. 379, 21 P. 489 (1888); Fish v. East, 114 F.2d 177 (10th Cir. 1940); House v. Johnson, 19 Colo. App. 524, 76 P. 743 (1904).
Party need not have been existing creditor at the time the conveyance was executed in order to invoke the protection of this section. House v. Johnson, 19 Colo. App. 524, 76 P. 743 (1904); Fish v. East, 114 F.2d 177 (10th Cir. 1940).
Action by judgment creditor to set aside conveyance maintainable. A judgment creditor may maintain an equitable action to set aside a fraudulent conveyance of real property by the debtor, and enforce its judgment lien thereon. Hugo Nat'l Bank v. Ashworth, 84 Colo. 362, 270 P. 553 (1928).
Bar to money judgments implicit in remedy. Implicit in this remedy is a bar to any money judgments against the fraudulent transferor since awarding the judgment creditor a money judgment would amount to an increase in the judgment debt owed to the judgment creditor by the fraudulent transferor. Miller v. Kaiser, 164 Colo. 206, 433 P.2d 772 (1967).
Equity court has inherent power to award actual damages. A court of equity has the inherent power to award actual damages under certain circumstances in order to accomplish the fulfillment of the equitable remedy. Miller v. Kaiser, 164 Colo. 206, 433 P.2d 772 (1967); Morris v. Askeland Enter., Inc., 17 P.3d 830 (Colo. 2000).
When fraudulent transferee held personally liable. Under special circumstances which generally involve some activity of the fraudulent transferee in causing the property involved to be depreciated in value while in his hands or causing the property, either wholly or in part, to be placed beyond the reach of the court, it is in equity's power to hold a fraudulent transferee personally liable. Miller v. Kaiser, 164 Colo. 206, 433 P.2d 772 (1967).
Property statements and debtor's oral admission admissible as evidence. In an action to set aside alleged fraudulent conveyances, property statements and oral admissions of the debtor are properly admitted. Gallegos v. Lajara Livestock Loan Co., 73 Colo. 325, 215 P. 131 (1923). See Whitescarver v. Interstate Trust Co., 71 Colo. 416, 207 P. 81 (1922).
Transfer not fraudulent because value of the property transferred was worth a great deal less than the amount owed. In re Genova v. Triangle Truck Serv., Inc., 40 B.R. 513 (Bankr. D. Colo. 1984).
III. TRANSACTIONS BETWEEN HUSBAND AND WIFE.
The decisions interpreting this section hold that married parties may stand in the relationship of debtor and creditor. Erjavec v. Herrick, 827 P.2d 615 (Colo. App. 1992).
Bona fide loan transaction required. Although husband and wife may stand in the relationship of debtor and creditor, a bona fide loan transaction must be established. Love v. Olson, 645 P.2d 861 (Colo. App. 1982); Erjavec v. Herrick, 827 P.2d 615 (Colo. App. 1992).
Lien enforceable on payment for land. Where a debtor transferred real property to his wife without consideration, in fraud of a judgment creditor, and the wife sold and conveyed the property to another, the creditor can establish and enforce his lien on the money to be paid by the purchaser of the land. Hugo Nat'l Bank v. Ashworth, 84 Colo. 362, 270 P. 553 (1928).
Wife may be "creditor" within the protection of this section based upon a judgment obtained subsequent to the conveyance. Linker v. Linker, 28 Colo. App. 136, 470 P.2d 882 (1970).
Wife's action against husband to set aside conveyance maintainable. A wife can maintain an action to set aside a conveyance by her husband, made with fraudulent intent, so as to enable her to collect alimony awarded in a divorce suit against him, though the cause for such divorce did not arise until after the conveyance was made. Gregory v. Filbeck, 12 Colo. 379, 21 P. 489 (1888); Hanscom v. Hanscom, 6 Colo. App. 97, 39 P. 885 (1895); Hall v. Harrington, 7 Colo. App. 474, 44 P. 365 (1896); Ruffenach v. Ruffenach, 13 Colo. App. 102, 56 P. 812 (1899); Fahey v. Fahey, 43 Colo. 354, 96 P. 251 (1908).
Conveyance by husband to his wife is deemed fraudulent, without regard to intent, if the conveyance is made without fair consideration and if the husband is insolvent at the time of making such conveyance, or if, by reason of such conveyance, he is rendered unable to pay his existing debts. Harvey v. Harvey, 841 P.2d 375 (Colo. App. 1992).
Parties related or married have burden of proving innocence and integrity. In a transaction between relatives or those connected in marriage, the parties thereto have the burden of establishing its innocence and integrity. Helm v. Brewster, 42 Colo. 25, 93 P. 1101 (1908); Chalupa v. Preston, 65 Colo. 400, 177 P. 965 (1918).
When a conveyance by an insolvent debtor to his wife is attacked by a creditor of the former at the time of such conveyance, the husband and wife are required to clearly establish that the transaction is honest, and that there is no intent to thereby hinder and defraud such creditor. First Nat'l Bank v. Kavanaugh, 7 Colo. App. 160, 43 P. 217 (1895); Helm v. Brewster, 42 Colo. 25, 93 P. 1001 (1908); United States v. Morgan, 554 F. Supp. 582 (D. Colo. 1982); Harvey v. Harvey, 841 P.2d 375 (Colo. App. 1992); Erjavec v. Herrick, 827 P.2d 615 (Colo. App. 1992); U.S. v. Schaeffer, 245 B.R. 407 (D. Colo. 1999).
When transactions between spouses are challenged under this section, husband and wife bear the burden of establishing that the conveyance was honest, made in good faith for a valuable consideration, and without intent to hinder and defraud creditors in the collection of their judgment. Erjavec v. Herrick, 827 P.2d 615 (Colo. App. 1992).
Evidence sufficient to support the inference and conclusion that husband and wife possessed fraudulent intent to hinder or delay creditor where husband and wife admitted intention to transfer property in anticipation of an adverse outcome in litigation in favor of another creditor and the resulting depletion of husband's estate. Erjavec v. Herrick, 827 P.2d 615 (Colo. App. 1992).
Conveyances wife made with intent to hinder or defraud creditors. In re Weyand, 33 B.R. 553 (Bankr. D. Colo. 1983).
Defense of laches denied. Where, after a fraudulent conveyance of a boardinghouse to the wife by a husband, the business was run in the same manner as before, and the wife devoted no more time nor money in improving the property and business than she would have done had the title remained in her husband, the delay of a creditor of the husband in recovering judgment and in instituting a creditor's suit to set the conveyance aside is not prejudicial to either the husband or wife, and hence laches is no defense to the bill. Dubois v. Clark, 12 Colo. App. 220, 55 P. 750 (1898); Morgan v. King, 27 Colo. 539, 63 P. 416 (1900); Farris v. Wirt, 16 Colo. App. 1, 63 P. 946 (1901); Helm v. Brewster, 42 Colo. 25, 93 P. 1101 (1908).