Bingham, William H., Jr.

Digital Commons at St. Mary's University, San Antonio

St. Mary's Law Journal Volume 1 Number 2 Article 8 12-1-1969 Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior to Reducing His Claim to Judgment. William H. Bingham Jr. Follow this and additional works at: https://commons.stmarytx.edu/thestmaryslawjournal  Part of the Torts Commons Recommended Citation William H. Bingham Jr., Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior to Reducing His Claim to Judgment., 1 ST. MARY'S L.J. (1969). Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol1/iss2/8 This Article is brought to you for free and open access by the St. Mary's Law Journals at Digital Commons at St. Mary's University. It has been accepted for inclusion in St. Mary's Law Journal by an authorized editor of Digital Commons at St. Mary's University. For more information, please contact sfowler@stmarytx.edu. ST. MARY'S LAW JOURNALtwenty years, liable for the wrong committed, the court opened thedoor to retaliation from or friction between a foreign government andthe United States? It would seem that the above questions must beanswered in the negative, and in support thereof one should recognizeeach of the factors considered by the court in Hellenic Lines Limited.The protection of the rights of seamen, as well as the rights ofcompeting American shipowners and resident alien shipowners, de-mand the result reached by the court in Hellenic Lines Limited. Ship-owners who are resident aliens and shipowners who are United Statescitizens should be subject to the same liabilities for injuries sufferedby their employees on their vessels, particularly when the vessels areat United States piers. If a United States shipowner is liable under theJones Act to a foreign seaman serving on a foreign registered vesselinjured in our territorial waters, a permanent resident alien shouldalso be liable.Raul GarciaFRAUDULENT CONVEYANCE-ToRT CLAIMANT MAY SEEK ToSET ASIDE FRAUDULENT CONVEYANCE PRIOR To REDUCING His CLAIMTo JUDGMENT. Hollins v. Rapid Transit Lines, Inc., 440 S.W.2d57 (Tex. Sup. 1969).Hollins, joined by her husband, filed a personal injury suit againstRapid Transit Lines, Inc. claiming that she had been injured while apassenger on defendant's bus. Plaintiff then amended her petition toinclude a cause of action alleging that defendant, in anticipation ofbeing held liable, fraudulently conveyed substantially all of its assetsto another transit company after the accident. The trial court severedand granted summary judgment for defendant on the fraudulent con-veyance action on the ground that a plaintiff's tort suit must be reducedto judgment prior to his seeking to set aside the alleged fraudulenttransfer. The granting of summary judgment for the defendant wasaffirmed by the court of civil appeals,1 and the Texas Supreme Courtgranted writ of error. Held-Reversed and cause ordered reinstated.A tort claimant may seek to set aside fraudulent conveyance prior toreducing his claim to judgment.The action to set aside a conveyance by a debtor in fraud of hiscreditors has long been recognized as a valid restriction on an individ-ual's right to dispose of his property in the manner in which he desires. 21 Hollins v. Rapid Transit Lines, Inc., 430 S.W.2d 57 (Tex. Civ. App.-Houston [14thDist.] 1968, writ granted).2 37 AM. JUR. 2d, Fraudulent Conveyances § 1 (1968).[Vol. I1Bingham: Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior tPublished by Digital Commons at St. Mary's University, 2018This right is based on the theory that. since the creditor has a claimagainst his debtor, he has a right to have the claim satisfied out of hisdebtor's property.3 Therefore, any transfer with the intent to hinder,delay, or defraud the creditor is inequitable and should not be allowed.4Every state allows some form of fraudulent conveyance action,and most, including Texas, have statutes based on the early Englishcommon law fraud statutes of 50 Edw. III, c. 6 (1376) and 13 Eliz. I,c. 5 (1570). 5 Approximately twenty states have adopted the UniformFraudulent Conveyance Statute which specifically allows the holder ofan unliquidated claim to maintain an action under the statute. 6 In1967, Texas chose not to adopt the uniform statute but revised andreenacted articles 3996 through 3999 into chapter 24 of the Texas Busi-ness and Commerce Code. Section 24.02, the article upon which theinstant case is based, is essentially a reenactment of article 3996. Inorder to have a conveyance set aside as a fraud on a creditor, it must beproved that the debtor transferred certain property with the intent todefraud his creditors,7 that the creditors were or will be hindered,delayed or defrauded 8 and that the transferee had knowledge of thedebtor's intent." A bona fide purchaser for value without knowledge ofthe fraud is protected under the statute.'0 Badges or circumstanceswhich are evidence of fraud include secrecy," failure to record,' 2 closerelationship of parties, 13 pendency of suits against the grantor,14 trans-fer without delivery, 15 and conveyances between husband and wife' 6 orother closely related members of the family.' 7 Lack of consideration ina voluntary conveyance is covered by section 24.03.18The defrauded creditor must resort to court action before he will be30cklawaha River Farms Co. v. Young, 74 So. 644 (Fla. 1917).41d.5 37 AM. JUR. 2d, Fraudulent Conveyances § 3 (1968).6 REPORT OF THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS,1918; 37 AM. JUR. 2d, Fraudulent Conveyances § 3 (1968).7 Cates v. Clark, 24 S.W.2d 450 (Tex. Civ. App.-Eastland 1930, writ ref'd).8 Rivera v. White, 94 Tex. 538, 63 S.W. 125 (1901); Couger v. Costello, 10 S.W.2d 746(Tex. Civ. App.-Eastland 1928, no writ).9 Blum v. McBride, 69 Tex. 60, 5 S.W. 641 (1887); Belt v. Texas Co., 204 S.W.2d 653(Tex. Civ. App.-Amarillo 1947, writ ref'd n.r.e.); Texas Life Insurance Co. v. Goldberg,184 S.W.2d 333 (Tex. Civ. App.-Vaco 1944, no writ).10 Hamm v. Drew, 83 Tex. 77, 18 S.W. 434 (1892); Snyder v. Roberts, 13 Tex. 598 (1855).11.Edmundson v. Silliman, 50 Tex. 106 (1878).12 Matula v. Lane, 56 S.W. 112 (Tex. Civ. App. 1900, no writ).13 Reynolds v. Lansford, 16 Tex. 287 (1856); Tinsley v. Corbett, 66 S.W. 910 (Tex. Civ.App. 1902, writ ref'd).14 Briscoe v. Bronaugh, 1 Tex. 326 (1846); Texas Sand Co. v. Shield, 381 S.W.2d 48 (Tex.Sup. 1964).15 Boltz v. Engelke, 43 S.W. 47 (Tex. Civ. App. 1897, no writ).16 Byrd v. Taylor, 40 S.W.2d 942 (Tex. Civ. App.-Texarkana 1931, writ dism'd).17 Howard v. Bolin Warehouses, Inc., 422 S.W.2d 489 (Tex. Civ. App.-Texarkana 1967,no writ).18 Snow v. Harding, 180 S.W.2d 965 (Tex. Civ. App.-San Antonio 1944, writ ref'dW.o.m.).1969] CASE NOTES2St. Mary's Law Journal, Vol. 1 [2018], No. 2, Art. 8https://commons.stmarytx.edu/thestmaryslawjournal/vol1/iss2/8ST. MARY'S LAW JOURNALentitled to recover property fraudulently conveyed 9 because the trans-fer is not void, but only voidable at the option of the person protectedby the statute.20 Depending on the circumstances, he may elect betweentwo remedies. 21 One holding a judgment lien against a debtor maycause execution to be issued under the judgment and levy on the prop-erty conveyed without necessity of a separate suit.22 Until the creditorhas a right to levy on the property by execution or attachment or hasa judgment which he may have abstracted, his only remedy is an actionin equity for a decree annulling the conveyance as a fraud and a hin-drance in the collection of the amount due to him.23Although it is usually a creditor, i.e., one who actually loans moneyto a debtor and later has problems in collection of the amount due,who takes advantage of the fraudulent conveyance statute, the lawhas long recognized that persons other than true creditors are pro-tected by the statute. The language quoted by Justice Smith in thiscase of first impression in Texas, "Upon common-law principles, how-ever, one who at the time a transfer of property is made has a right torecover damages in tort may avoid the transfer as fraudulent if thetransfer is made for the purpose of defeating his right," was first setforth in the case of Fox v. Hills,2 4 an 1815 Connecticut case that inter-preted the common law and that set a course that was followed inseveral other cases25 in that state including the Murphy case 26 cited bythe Texas court. These cases were based on the English statute of 13Eliz. I, c. 5 (1570), which was an embodiment of the common law ofEngland at the time of its enactment27 and stated in substance that aconveyance in fraud of creditors or other persons is null and voidagainst such creditors or other persons. In the case of Corry v. Shea,28by the Wisconsin Supreme Court, an interpretation of the Wisconsinstatute29 and the statute of 13 Eliz. I on which it was based, led thecourt to hold that "protection extends not only to creditors but to allothers who have a cause of action or suit and embraces claims forslander, trespass and other torts.' 3019 Stockbridge v. Crockett, 38 S.W. 401 (Tex. Civ. App. 1896, no writ).20 Rilling v. Schultze, 95 Tex. 352, 67 S.W. 401 (1902); Hollis v. Hollis, 226 S.W.2d 129(Tex. Civ. App.-Amarillo 1949, writ dism'd).21 Rutherford v. Carr, 66 Tex. 101, 87 S.W. 815 (1905).22 Snow v. Harding, 180 S.W.2d 965 (Tex. Civ. App.-San Antonio 1944, writ ref'dw.o.m.); American Employers Insurance Co. v. Davis, 153 S.W.2d 501 (Tex. Civ. App.-Galveston 1941, no writ).23 Eckert v. Wendel, 120 Tex. 618, 40 S.W.2d 796 (1931), noted in 76 A.L.R. 855 (1931);see also Texas Sand Company v. Shield, 381 S.W.2d 48 (Tex. Sup. 1964).24 Fox v. Hills, 1 Conn. 295 (1815).25 White v. Amenta, 148 A. 345 (Conn. 1930); De Feo v. Hindinger, 120 A. 814 (Conn.1923).26 Murphy v. Dantowitz, 114 A.2d 194 (Conn. 1955).27 GRIFFITS, CREDITORS' BILLS, in CREDITORS' RIGHTS IN TEXAS, p. 157 (McKnight ed. 1963).28 128 N.W. 892 (Wis. 1910).29 WISCONSIN STATUTES OF 1898 § 2320. (W.S.A. c. 242).30 Corry v. Shea, 128 N.W. 892 (Wis. 1910).[Vol. I3Bingham: Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior tPublished by Digital Commons at St. Mary's University, 2018The Wisconsin statute is very similar to the original Texas Fraud-ulent Conveyance Statute of 1840.31 However, although it is stated thatthis early Texas statute is based on the statute of 13 Eliz. 1,32 the Texasversion did not include the words "or other persons" but applied onlyto creditors per se.3 3 In the Revised Civil Statutes effective July 24,1879, article 246534 was enacted as a revision of article 3876, and thelegislature added the words "or other persons" to the statute, bringingit almost exactly in line with the statute of 13 Eliz. I, the Wisconsinstatute, and the decisions by the Wisconsin and Connecticut courts.Relying on article 2465 and its later reenactments, Texas courts haveheld that one having a valid tort claim and demand for unliquidateddamages may be a creditor entitled to protection under the fraudulentconveyance statute.35 These cases dealt with actions brought afterjudgment on the claim. The plaintiffs sought to avoid the general rulethat a subsequent creditor cannot attack a prior conveyance of whichhe had notice at the time he became a creditor. 36 Although these caseshave mentioned that there must be a judgment in order to maintain theaction to set aside the conveyance, the facts of the cases showed that ajudgment was in existence, and the necessity of obtaining a judgmentprior to maintenance of the action was not in issue. Even though thequestion had not been presented prior to the instant case, since 1879the Texas Fraudulent Conveyance Statute, by the inclusion of thewords "or other persons," seems to have allowed a claimant with un-liquidated damages to maintain an action to set aside a fraudulentconveyance prior to obtaining a liquidated demand by judgment. Thewording of the latest revision,37 section 24.02, allowing the action tobe maintained when the transfer was intended to defraud "interestedpersons of that to which he is or may become entitled" seems to clearlyallow a claimant, in the event he should think it necessary, to file suitand obtain a judgment to set aside the conveyance prior to a finaljudgment being rendered in the tort suit.A logical step from holding the tort claimant to be a creditor wouldbe to allow him to maintain a fraudulent conveyance action at anytime after his cause of action accrues. In the majority of the states in31 TEX. LAWS 1840, An Act to Prevent Frauds and Fraudulent Conveyances § 2; 2H. Gammel, LAWS OF TEXAS 202 (1898).82 Bryant v. Kelton & Uzzell, 1 Tex. 415 (1846).33 TEx. LAWS 1840, An Act to Prevent Frauds and Fraudulent Conveyances § 2, 2H. Gammel, LAWS OF TEXAS 202 (1898).34 TEX. Civ. STAT. art. 2465 (1879).35 Cole v. Terrell, 71 Tex. 549, 9 S.W. 668 (1888); Holden v. McLaury, 60 Tex. 228(1883); Colby v. McClendon, 116 S.W.2d 505 (Tex. Civ. App.-Amarillo 1938, no writ);Robertson v. Hefley, 118 S.W. 1159 (Tex. Civ. App. 1909, no writ).36 Lehmberg v. Biberstein, 51 Tex. 457 (1879); Collier v. Perry, 149 S.W.2d 292 (Tex. Civ.App.-El Paso 1941, writ dism'd jdgmt cor.).37 TEX. Bus. & COMM. CODE ANN. § 24.02 (1968).1969] CASE NO TES4St. Mary's Law Journal, Vol. 1 [2018], No. 2, Art. 8https://commons.stmarytx.edu/thestmaryslawjournal/vol1/iss2/8ST. MARY'S LAW JOURNALwhich this question has been raised, the courts have taken the positionthat their statutes were broad enough to include tort claimants ascreditors. While many of these states have adopted the Uniform Fraud-ulent Conveyance Statute which specifically allows a tort claimantwith an unliquidated claim to maintain an action,3 8 in 1963 theSupreme Court of Mississippi, under a statute39 which purports to coveronly creditors, reversed an earlier case 40 and allowed an action by atort claimant prior to judgment.41 In this case the court reasoned thatsince, in the case of Mclnnis v. Wiscassett Mills, 28 So. 725 (a case muchlike Colby v. McClendon, supra), the tort claimant had been held to bea creditor within the protection of the statute, it was within the letterand spirit of the law to allow the fraudulent conveyance action priorto judgment as well as after judgment. In 1964, the Ohio SupremeCourt reversed the earlier case of Pennell v. Walker,42 and held thatthe statute43 currently in force included a tort claimant within itsprotection and the claimant could bring the action prior to judgment.A review of the cases in the sixteen states that comprise the majorityindicates that all the holdings have been based on the principle thatthe state statute included a tort claimant in addition to one having atort judgment as a party entitled to protection.Four states support the minority view. 44 In California,45 New Jersey,46and Washington,47 there appear to be no cases exactly on point, butthe courts, when writing on other subjects, have recognized the rulethat a judgment must be taken prior to seeking to set aside a fraud-ulent conveyance. This rule appears to be based on the 1861 UnitedStates Supreme Court case of Adler v. Fenton48 where the Court heldthat, in the absence of special legislation, a general creditor cannotbring action against his debtor prior to the debt becoming due. Thiswas an action for tortious interference with collection of a debt andseems to be quite different from a suit to set aside a conveyance. Inaddition, the objection of the Supreme Court in the Adler case is clearlyovercome in Texas by the statute's allowing "other interested persons"to maintain actions of fraudulent conveyance.4 9 In Rhode Island theFederal Court of Appeals, First Circuit, held that an injunction would38 UNIFORM FRAUDULENT CONVEYANCE ACT, 1918 § 1.39 MISSISSIPPI CODE OF 1942, § 265.40 Jones v. Jones, 30 So. 651 (Miss. 1901).41 Allred v. Nesmith, 149 So. 2d 29 (Miss. 1963).42 36 N.E.2d 150 (Ohio 1941).43 Of-o REVISED CODE, tit. 13 § 1336.01 (1964).44 73 A.L.R.2d 749 (1931).45 Chalmers v. Sheehy, 64 P. 709 (Cal. 1901).46Washington Nat. Bank v. Beatty, 76 A. 442 (N.J. 1910); Boid v. Dean, 21 A. 618 (N.J.1891).47 Allen v. Kane, 140 P. 534 (Wash. 1914).48 65 U.S. 407, 16 L. Ed. 696 (1861).49 TEX. Bus. & COMM. CODE ANN. § 24 (1968).[Vol. I5Bingham: Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior tPublished by Digital Commons at St. Mary's University, 2018CASE NOTESnot issue to prevent the fraudulent transfer of property in a personalinjury action, 50 However, in that suit the plaintiff failed to allege fraudon defendant's part. It would seem, therefore, that there is no solidminority position or reasoning against allowing a tort claimant tomaintain a fraudulent conveyance action prior to judgment.It should be noted that in the Connecticut case, 51 cited by the TexasSupreme Court in the instant case, it was held that plaintiff could joinher tort action with her fraudulent conveyance action and try both atthe same time. Although usually it would be best to join the actionsand dispense with both claims at once (unless the jury would beadversely influenced against the defendant by hearing evidence on theconveyance), section 24.0252 seems to clearly allow the fraudulent con-veyance action to be tried first. This might be an advantage to a plaintiffbecause the sooner the conveyance is set aside, the less likely a creditorof the transferee or a bona fide purchaser will enter the picture andeliminate the plaintiff's chance to recover the property. Although itseems that the defendant may still obtain a severance of the two causesof action, 53 as in the instant case, the severance seems to be less advan-tageous because the fraudulent conveyance action would not be subjectto dismissal but could be tried prior to the tort action.The Naumovich case,54 distinguished by the supreme court as noton point, is still authority for the rule that a temporary injunctionfrom another court will not issue to enjoin the sale of property infraud of a creditor. It would seem logical to allow an injunction to pre-vent a fraudulent transfer if a suit to set aside the transfer is to beallowed as soon as the sale is complete. Other states do not seem todistinguish between the two remedies, and with the blended systemof law and equity in Texas, the court will probably allow this oncethe point is presented.Justice Walker, in his concurring opinion,5 5 points out that thecourt's only holding is that the trial court erred in dismissing the suitto set aside. However, it would seem that a plaintiff interested incancelling a fraudulent conveyance before his tort suit was tried couldcertainly rely on the instant case and bring a cancellation action at anytime after his cause of action arose and the alleged fraudulent con-veyance was made.William H. Bingham, Jr.5O Martin v. James B. Berry Sons Co., 83 F.2d 857 (Ist Cir. 1936).51 Murphy v. Dantowitz, 114 A.2d 194 (Conn. 1955).52 TEX. Bus. & COMM. CODE ANN. (1968).53 TEx. R. Clv. P. 41.54 Naumovich v. Reese, 247 S.W.2d 417 (Tex. Civ. App.-Dallas 1952, no writ)..55 Hollins v. Rapid Transit Lines, Inc., 440 S.W.2d 57, 60 (Tex. Sup. 1969).1969]6St. Mary's Law Journal, Vol. 1 [2018], No. 2, Art. 8https://commons.stmarytx.edu/thestmaryslawjournal/vol1/iss2/8

Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior to Reducing His Claim to Judgment.

St Mary's University School of Law Digital Repository

St. Mary's Law Journal Volume 1 Number 2 Article 8 12-1-1969 Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior to Reducing His Claim to Judgment. William H. Bingham Jr. Follow this and additional works at: https://commons.stmarytx.edu/thestmaryslawjournal  Part of the Torts Commons Recommended Citation William H. Bingham Jr., Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior to Reducing His Claim to Judgment., 1 ST. MARY'S L.J. (1969). Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol1/iss2/8 This Article is brought to you for free and open access by the St. Mary's Law Journals at Digital Commons at St. Mary's University. It has been accepted for inclusion in St. Mary's Law Journal by an authorized editor of Digital Commons at St. Mary's University. For more information, please contact egoode@stmarytx.edu, sfowler@stmarytx.edu. ST. MARY'S LAW JOURNALtwenty years, liable for the wrong committed, the court opened thedoor to retaliation from or friction between a foreign government andthe United States? It would seem that the above questions must beanswered in the negative, and in support thereof one should recognizeeach of the factors considered by the court in Hellenic Lines Limited.The protection of the rights of seamen, as well as the rights ofcompeting American shipowners and resident alien shipowners, de-mand the result reached by the court in Hellenic Lines Limited. Ship-owners who are resident aliens and shipowners who are United Statescitizens should be subject to the same liabilities for injuries sufferedby their employees on their vessels, particularly when the vessels areat United States piers. If a United States shipowner is liable under theJones Act to a foreign seaman serving on a foreign registered vesselinjured in our territorial waters, a permanent resident alien shouldalso be liable.Raul GarciaFRAUDULENT CONVEYANCE-ToRT CLAIMANT MAY SEEK ToSET ASIDE FRAUDULENT CONVEYANCE PRIOR To REDUCING His CLAIMTo JUDGMENT. Hollins v. Rapid Transit Lines, Inc., 440 S.W.2d57 (Tex. Sup. 1969).Hollins, joined by her husband, filed a personal injury suit againstRapid Transit Lines, Inc. claiming that she had been injured while apassenger on defendant's bus. Plaintiff then amended her petition toinclude a cause of action alleging that defendant, in anticipation ofbeing held liable, fraudulently conveyed substantially all of its assetsto another transit company after the accident. The trial court severedand granted summary judgment for defendant on the fraudulent con-veyance action on the ground that a plaintiff's tort suit must be reducedto judgment prior to his seeking to set aside the alleged fraudulenttransfer. The granting of summary judgment for the defendant wasaffirmed by the court of civil appeals,1 and the Texas Supreme Courtgranted writ of error. Held-Reversed and cause ordered reinstated.A tort claimant may seek to set aside fraudulent conveyance prior toreducing his claim to judgment.The action to set aside a conveyance by a debtor in fraud of hiscreditors has long been recognized as a valid restriction on an individ-ual's right to dispose of his property in the manner in which he desires. 21 Hollins v. Rapid Transit Lines, Inc., 430 S.W.2d 57 (Tex. Civ. App.-Houston [14thDist.] 1968, writ granted).2 37 AM. JUR. 2d, Fraudulent Conveyances § 1 (1968).[Vol. I1Bingham: Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior tPublished by Digital Commons at St. Mary's University, 1969This right is based on the theory that. since the creditor has a claimagainst his debtor, he has a right to have the claim satisfied out of hisdebtor's property.3 Therefore, any transfer with the intent to hinder,delay, or defraud the creditor is inequitable and should not be allowed.4Every state allows some form of fraudulent conveyance action,and most, including Texas, have statutes based on the early Englishcommon law fraud statutes of 50 Edw. III, c. 6 (1376) and 13 Eliz. I,c. 5 (1570). 5 Approximately twenty states have adopted the UniformFraudulent Conveyance Statute which specifically allows the holder ofan unliquidated claim to maintain an action under the statute. 6 In1967, Texas chose not to adopt the uniform statute but revised andreenacted articles 3996 through 3999 into chapter 24 of the Texas Busi-ness and Commerce Code. Section 24.02, the article upon which theinstant case is based, is essentially a reenactment of article 3996. Inorder to have a conveyance set aside as a fraud on a creditor, it must beproved that the debtor transferred certain property with the intent todefraud his creditors,7 that the creditors were or will be hindered,delayed or defrauded 8 and that the transferee had knowledge of thedebtor's intent." A bona fide purchaser for value without knowledge ofthe fraud is protected under the statute.'0 Badges or circumstanceswhich are evidence of fraud include secrecy," failure to record,' 2 closerelationship of parties, 13 pendency of suits against the grantor,14 trans-fer without delivery, 15 and conveyances between husband and wife' 6 orother closely related members of the family.' 7 Lack of consideration ina voluntary conveyance is covered by section 24.03.18The defrauded creditor must resort to court action before he will be30cklawaha River Farms Co. v. Young, 74 So. 644 (Fla. 1917).41d.5 37 AM. JUR. 2d, Fraudulent Conveyances § 3 (1968).6 REPORT OF THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS,1918; 37 AM. JUR. 2d, Fraudulent Conveyances § 3 (1968).7 Cates v. Clark, 24 S.W.2d 450 (Tex. Civ. App.-Eastland 1930, writ ref'd).8 Rivera v. White, 94 Tex. 538, 63 S.W. 125 (1901); Couger v. Costello, 10 S.W.2d 746(Tex. Civ. App.-Eastland 1928, no writ).9 Blum v. McBride, 69 Tex. 60, 5 S.W. 641 (1887); Belt v. Texas Co., 204 S.W.2d 653(Tex. Civ. App.-Amarillo 1947, writ ref'd n.r.e.); Texas Life Insurance Co. v. Goldberg,184 S.W.2d 333 (Tex. Civ. App.-Vaco 1944, no writ).10 Hamm v. Drew, 83 Tex. 77, 18 S.W. 434 (1892); Snyder v. Roberts, 13 Tex. 598 (1855).11.Edmundson v. Silliman, 50 Tex. 106 (1878).12 Matula v. Lane, 56 S.W. 112 (Tex. Civ. App. 1900, no writ).13 Reynolds v. Lansford, 16 Tex. 287 (1856); Tinsley v. Corbett, 66 S.W. 910 (Tex. Civ.App. 1902, writ ref'd).14 Briscoe v. Bronaugh, 1 Tex. 326 (1846); Texas Sand Co. v. Shield, 381 S.W.2d 48 (Tex.Sup. 1964).15 Boltz v. Engelke, 43 S.W. 47 (Tex. Civ. App. 1897, no writ).16 Byrd v. Taylor, 40 S.W.2d 942 (Tex. Civ. App.-Texarkana 1931, writ dism'd).17 Howard v. Bolin Warehouses, Inc., 422 S.W.2d 489 (Tex. Civ. App.-Texarkana 1967,no writ).18 Snow v. Harding, 180 S.W.2d 965 (Tex. Civ. App.-San Antonio 1944, writ ref'dW.o.m.).1969] CASE NOTES2St. Mary's Law Journal, Vol. 1 [1969], No. 2, Art. 8https://commons.stmarytx.edu/thestmaryslawjournal/vol1/iss2/8ST. MARY'S LAW JOURNALentitled to recover property fraudulently conveyed 9 because the trans-fer is not void, but only voidable at the option of the person protectedby the statute.20 Depending on the circumstances, he may elect betweentwo remedies. 21 One holding a judgment lien against a debtor maycause execution to be issued under the judgment and levy on the prop-erty conveyed without necessity of a separate suit.22 Until the creditorhas a right to levy on the property by execution or attachment or hasa judgment which he may have abstracted, his only remedy is an actionin equity for a decree annulling the conveyance as a fraud and a hin-drance in the collection of the amount due to him.23Although it is usually a creditor, i.e., one who actually loans moneyto a debtor and later has problems in collection of the amount due,who takes advantage of the fraudulent conveyance statute, the lawhas long recognized that persons other than true creditors are pro-tected by the statute. The language quoted by Justice Smith in thiscase of first impression in Texas, "Upon common-law principles, how-ever, one who at the time a transfer of property is made has a right torecover damages in tort may avoid the transfer as fraudulent if thetransfer is made for the purpose of defeating his right," was first setforth in the case of Fox v. Hills,2 4 an 1815 Connecticut case that inter-preted the common law and that set a course that was followed inseveral other cases25 in that state including the Murphy case 26 cited bythe Texas court. These cases were based on the English statute of 13Eliz. I, c. 5 (1570), which was an embodiment of the common law ofEngland at the time of its enactment27 and stated in substance that aconveyance in fraud of creditors or other persons is null and voidagainst such creditors or other persons. In the case of Corry v. Shea,28by the Wisconsin Supreme Court, an interpretation of the Wisconsinstatute29 and the statute of 13 Eliz. I on which it was based, led thecourt to hold that "protection extends not only to creditors but to allothers who have a cause of action or suit and embraces claims forslander, trespass and other torts.' 3019 Stockbridge v. Crockett, 38 S.W. 401 (Tex. Civ. App. 1896, no writ).20 Rilling v. Schultze, 95 Tex. 352, 67 S.W. 401 (1902); Hollis v. Hollis, 226 S.W.2d 129(Tex. Civ. App.-Amarillo 1949, writ dism'd).21 Rutherford v. Carr, 66 Tex. 101, 87 S.W. 815 (1905).22 Snow v. Harding, 180 S.W.2d 965 (Tex. Civ. App.-San Antonio 1944, writ ref'dw.o.m.); American Employers Insurance Co. v. Davis, 153 S.W.2d 501 (Tex. Civ. App.-Galveston 1941, no writ).23 Eckert v. Wendel, 120 Tex. 618, 40 S.W.2d 796 (1931), noted in 76 A.L.R. 855 (1931);see also Texas Sand Company v. Shield, 381 S.W.2d 48 (Tex. Sup. 1964).24 Fox v. Hills, 1 Conn. 295 (1815).25 White v. Amenta, 148 A. 345 (Conn. 1930); De Feo v. Hindinger, 120 A. 814 (Conn.1923).26 Murphy v. Dantowitz, 114 A.2d 194 (Conn. 1955).27 GRIFFITS, CREDITORS' BILLS, in CREDITORS' RIGHTS IN TEXAS, p. 157 (McKnight ed. 1963).28 128 N.W. 892 (Wis. 1910).29 WISCONSIN STATUTES OF 1898 § 2320. (W.S.A. c. 242).30 Corry v. Shea, 128 N.W. 892 (Wis. 1910).[Vol. I3Bingham: Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior tPublished by Digital Commons at St. Mary's University, 1969The Wisconsin statute is very similar to the original Texas Fraud-ulent Conveyance Statute of 1840.31 However, although it is stated thatthis early Texas statute is based on the statute of 13 Eliz. 1,32 the Texasversion did not include the words "or other persons" but applied onlyto creditors per se.3 3 In the Revised Civil Statutes effective July 24,1879, article 246534 was enacted as a revision of article 3876, and thelegislature added the words "or other persons" to the statute, bringingit almost exactly in line with the statute of 13 Eliz. I, the Wisconsinstatute, and the decisions by the Wisconsin and Connecticut courts.Relying on article 2465 and its later reenactments, Texas courts haveheld that one having a valid tort claim and demand for unliquidateddamages may be a creditor entitled to protection under the fraudulentconveyance statute.35 These cases dealt with actions brought afterjudgment on the claim. The plaintiffs sought to avoid the general rulethat a subsequent creditor cannot attack a prior conveyance of whichhe had notice at the time he became a creditor. 36 Although these caseshave mentioned that there must be a judgment in order to maintain theaction to set aside the conveyance, the facts of the cases showed that ajudgment was in existence, and the necessity of obtaining a judgmentprior to maintenance of the action was not in issue. Even though thequestion had not been presented prior to the instant case, since 1879the Texas Fraudulent Conveyance Statute, by the inclusion of thewords "or other persons," seems to have allowed a claimant with un-liquidated damages to maintain an action to set aside a fraudulentconveyance prior to obtaining a liquidated demand by judgment. Thewording of the latest revision,37 section 24.02, allowing the action tobe maintained when the transfer was intended to defraud "interestedpersons of that to which he is or may become entitled" seems to clearlyallow a claimant, in the event he should think it necessary, to file suitand obtain a judgment to set aside the conveyance prior to a finaljudgment being rendered in the tort suit.A logical step from holding the tort claimant to be a creditor wouldbe to allow him to maintain a fraudulent conveyance action at anytime after his cause of action accrues. In the majority of the states in31 TEX. LAWS 1840, An Act to Prevent Frauds and Fraudulent Conveyances § 2; 2H. Gammel, LAWS OF TEXAS 202 (1898).82 Bryant v. Kelton & Uzzell, 1 Tex. 415 (1846).33 TEx. LAWS 1840, An Act to Prevent Frauds and Fraudulent Conveyances § 2, 2H. Gammel, LAWS OF TEXAS 202 (1898).34 TEX. Civ. STAT. art. 2465 (1879).35 Cole v. Terrell, 71 Tex. 549, 9 S.W. 668 (1888); Holden v. McLaury, 60 Tex. 228(1883); Colby v. McClendon, 116 S.W.2d 505 (Tex. Civ. App.-Amarillo 1938, no writ);Robertson v. Hefley, 118 S.W. 1159 (Tex. Civ. App. 1909, no writ).36 Lehmberg v. Biberstein, 51 Tex. 457 (1879); Collier v. Perry, 149 S.W.2d 292 (Tex. Civ.App.-El Paso 1941, writ dism'd jdgmt cor.).37 TEX. Bus. & COMM. CODE ANN. § 24.02 (1968).1969] CASE NO TES4St. Mary's Law Journal, Vol. 1 [1969], No. 2, Art. 8https://commons.stmarytx.edu/thestmaryslawjournal/vol1/iss2/8ST. MARY'S LAW JOURNALwhich this question has been raised, the courts have taken the positionthat their statutes were broad enough to include tort claimants ascreditors. While many of these states have adopted the Uniform Fraud-ulent Conveyance Statute which specifically allows a tort claimantwith an unliquidated claim to maintain an action,3 8 in 1963 theSupreme Court of Mississippi, under a statute39 which purports to coveronly creditors, reversed an earlier case 40 and allowed an action by atort claimant prior to judgment.41 In this case the court reasoned thatsince, in the case of Mclnnis v. Wiscassett Mills, 28 So. 725 (a case muchlike Colby v. McClendon, supra), the tort claimant had been held to bea creditor within the protection of the statute, it was within the letterand spirit of the law to allow the fraudulent conveyance action priorto judgment as well as after judgment. In 1964, the Ohio SupremeCourt reversed the earlier case of Pennell v. Walker,42 and held thatthe statute43 currently in force included a tort claimant within itsprotection and the claimant could bring the action prior to judgment.A review of the cases in the sixteen states that comprise the majorityindicates that all the holdings have been based on the principle thatthe state statute included a tort claimant in addition to one having atort judgment as a party entitled to protection.Four states support the minority view. 44 In California,45 New Jersey,46and Washington,47 there appear to be no cases exactly on point, butthe courts, when writing on other subjects, have recognized the rulethat a judgment must be taken prior to seeking to set aside a fraud-ulent conveyance. This rule appears to be based on the 1861 UnitedStates Supreme Court case of Adler v. Fenton48 where the Court heldthat, in the absence of special legislation, a general creditor cannotbring action against his debtor prior to the debt becoming due. Thiswas an action for tortious interference with collection of a debt andseems to be quite different from a suit to set aside a conveyance. Inaddition, the objection of the Supreme Court in the Adler case is clearlyovercome in Texas by the statute's allowing "other interested persons"to maintain actions of fraudulent conveyance.4 9 In Rhode Island theFederal Court of Appeals, First Circuit, held that an injunction would38 UNIFORM FRAUDULENT CONVEYANCE ACT, 1918 § 1.39 MISSISSIPPI CODE OF 1942, § 265.40 Jones v. Jones, 30 So. 651 (Miss. 1901).41 Allred v. Nesmith, 149 So. 2d 29 (Miss. 1963).42 36 N.E.2d 150 (Ohio 1941).43 Of-o REVISED CODE, tit. 13 § 1336.01 (1964).44 73 A.L.R.2d 749 (1931).45 Chalmers v. Sheehy, 64 P. 709 (Cal. 1901).46Washington Nat. Bank v. Beatty, 76 A. 442 (N.J. 1910); Boid v. Dean, 21 A. 618 (N.J.1891).47 Allen v. Kane, 140 P. 534 (Wash. 1914).48 65 U.S. 407, 16 L. Ed. 696 (1861).49 TEX. Bus. & COMM. CODE ANN. § 24 (1968).[Vol. I5Bingham: Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior tPublished by Digital Commons at St. Mary's University, 1969CASE NOTESnot issue to prevent the fraudulent transfer of property in a personalinjury action, 50 However, in that suit the plaintiff failed to allege fraudon defendant's part. It would seem, therefore, that there is no solidminority position or reasoning against allowing a tort claimant tomaintain a fraudulent conveyance action prior to judgment.It should be noted that in the Connecticut case, 51 cited by the TexasSupreme Court in the instant case, it was held that plaintiff could joinher tort action with her fraudulent conveyance action and try both atthe same time. Although usually it would be best to join the actionsand dispense with both claims at once (unless the jury would beadversely influenced against the defendant by hearing evidence on theconveyance), section 24.0252 seems to clearly allow the fraudulent con-veyance action to be tried first. This might be an advantage to a plaintiffbecause the sooner the conveyance is set aside, the less likely a creditorof the transferee or a bona fide purchaser will enter the picture andeliminate the plaintiff's chance to recover the property. Although itseems that the defendant may still obtain a severance of the two causesof action, 53 as in the instant case, the severance seems to be less advan-tageous because the fraudulent conveyance action would not be subjectto dismissal but could be tried prior to the tort action.The Naumovich case,54 distinguished by the supreme court as noton point, is still authority for the rule that a temporary injunctionfrom another court will not issue to enjoin the sale of property infraud of a creditor. It would seem logical to allow an injunction to pre-vent a fraudulent transfer if a suit to set aside the transfer is to beallowed as soon as the sale is complete. Other states do not seem todistinguish between the two remedies, and with the blended systemof law and equity in Texas, the court will probably allow this oncethe point is presented.Justice Walker, in his concurring opinion,5 5 points out that thecourt's only holding is that the trial court erred in dismissing the suitto set aside. However, it would seem that a plaintiff interested incancelling a fraudulent conveyance before his tort suit was tried couldcertainly rely on the instant case and bring a cancellation action at anytime after his cause of action arose and the alleged fraudulent con-veyance was made.William H. Bingham, Jr.5O Martin v. James B. Berry Sons Co., 83 F.2d 857 (Ist Cir. 1936).51 Murphy v. Dantowitz, 114 A.2d 194 (Conn. 1955).52 TEX. Bus. & COMM. CODE ANN. (1968).53 TEx. R. Clv. P. 41.54 Naumovich v. Reese, 247 S.W.2d 417 (Tex. Civ. App.-Dallas 1952, no writ)..55 Hollins v. Rapid Transit Lines, Inc., 440 S.W.2d 57, 60 (Tex. Sup. 1969).1969]6St. Mary's Law Journal, Vol. 1 [1969], No. 2, Art. 8https://commons.stmarytx.edu/thestmaryslawjournal/vol1/iss2/8

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Tort Claimant May Seek to Set Aside Fraudulent Conveyance Prior to Reducing His Claim to Judgment.

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