Harbeck, Stephen P

English

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Mountbatten Journal of Legal Studies
Twyne's Case Retold:
Still Good Law Four Hundred Years
Later
Stephen P Harbeck!
Introduction
Four hundred years ago, the Sheriff of Southampton rode forth to
help a creditor collect ajudgment. The judgment creditor, "e', was owed
two hundred pounds by the judgment debtor, Pierce. Pierce, it seems, also
owed another debt offour hundred pounds to Twyne ofHampshire. We
can infer from ensuing events that Pierce and Twyne were close friends;
on the other hand, Pierce and "C" had an arms-length, business
relationship.
Anticipating the judgment and the subsequent arrival of the Sheriff,
Pierce made 'a general deed of gift' of all his goods and chattells to his
friend Twyne. Even though Pierce had purportedly conveyed the assets
to Twyne, Pierce retainedpossessionof the assets, and treated them as his
own. He sold some of the goods, and, as for the livestock, 'he shore the
sheep, and marked them with his own mark.'
"C" obtained a writ ofexecution, and the Sheriff set out to satisfy
the judgment debt by seizing goods and chattels from Pierce. The Sheriff
was not exactly successful. In the words of the Star Chamber, 'divers
persons, by the command ofthe said Twyne, did with force resist the said
Sheriff.'
As one might expect, further litigation ensued. In short, the Star
Chamber held that Pierce's 'gift' to Twyne had 'the signs and marks of
General any Counsel, Securities Investor Protection CorporatDn. The Securities Investor
Protection Corporation, as a matter of policy, disclaims responsibility for any private
publication by of its employees. The views expressed herein are those of the author and
do not necessarily retlectthe views ofSIPC or of the author's colleagues upon the staff of
SIPC.
- 65-
Mountbatten Journal ofLegal Studies
fraud.' The supposed gift from Pierce to Twyne was set aside.2
The Star Chamber found that there were six indicia of fraud in
Twyne's Case, which required the court to void the purported gift from
Pierce to Twyne under the Statue ofFraudulent Conveyances, 13 Eliz C5,
1571.
First, the gift purported to transfer everything Pierce owned,
including his clothes, and other necessities. Such a 'general' transfer is
highly irregular.
Second, Pierce retained possession of the goods. He treated them
as his own.
Third, the deed of gift from Pierce to Twyne was made in secret.
Fourth, the transfer was made with "C's" litigation looming
ominously over Pierce.
Fifth, Twyne apparently held the goods in trust for Pierce, who had
full use of them. The court held that 'fraud is always apparelled and clad
with a trust, and a trust is the cover of fraud. '
Sixth, the deed of gift itself was suspicious. It recited, for no
apparent reason, that this was an honest, true, and bona fide gift, so he
drafted a clause which aroused suspicion. In short, the clause proved the
exact opposite of its terms.
The end result: The deed of gift was voided, and Twyne was
convicted of fraud. Further, Twyne and the 'divers persons' under his
command were convicted of rioting. Presumably, the Sheriff was more
successful in his next attempt to obtain the goods and deliver them to "C".
While the various 'badges offraud' set forth in Twyne's Case have
been developed and refmed over the last four centuries, the case has stood
the test of time as a common law precedent which courts in the United
States still find useful in the contemporary world.
Across the Atlantic and on to the present
Twyne's Case is still a valid common law precedent in the United
States today. In BFP v Resolution Trust Corp,3 the supreme Court has
Twyne's Case, Star Chamber, 1601, 3 Coke 80b, 76 Eng Rep 809.
511 US 531; 114 S Ct 1757 (1994).
- 66-
Mountbatten Journal of Legal Studies
recently held that a transfer of title to an asset without transfer of
possession, or a transfer for grossly inadequate consideration, would raise
a rebuttable presumption ofactual fraudulent intent. The Court cited the
English common law 'badges offraud' doctrine, as set forth in Twyne's
Case, as authority for that proposition.4
A recent federal district court opinion notes that although the state
of California has not expressly codified the 'badges of fraud' test for
determining the indicia of actual fraud, that state's version of the Uniform
Fraudulent Transfer Act can be traced 'back to Twyne's case, the seminal
badges-of-fraud decision.' 5
The federal law of bankruptcy in the United States provides that a
trustee of a bankrupt person or corporation may 'avoid' - that is, reverse
- fraudulent transfers.6 Accordingly, the United States Bankruptcy Courts
have relatively frequent occasion to rely on the 'badges of fraud' test, and
Twyne's Case. Thus, in in re Colandrea,7 the court first noted the
Statute of Fraudulent Conveyance Act, and then stated that '[t]he indicia
or badges of fraud first outlined in Twyne's case ... continued to be
recognised by the Maryland courts as part of the law of fraudulent
conveyances' under that state statute.8 Finally, the court in Colandrea
stated that 'the badges of fraud set out by the Star Chamber in Twyne 's
Case remain applicable in Maryland for the purpose ofshifting the burden
of proof to the transferee as to his bona fides with regard to the
conveyance. '9 A separate bankruptcy court has also noted that Twyne's
51 I US 531114, 540-41; S Ct 1757,1763.
Mussetter v Lyke, 10 F Supp 2d 944, 959 (n DIll 1998); see also Wyzard v Goller, 28
Cal Rptr 2nd 608, 612, 23 Cal App 4'" 1183, 1191 (1994).
A trustee in Bankruptcy may avoid fraudulent transfers by using the federal law relating
to fraudulent transfers, Bankruptcy Code s 548, II USC s 54X, or by using the laws of
several states, which also prohibit such transactions. State law is made applicable in
bankruptcy by Bankruptcy Code section 544(b), II USC section 544(b). Sce In re Miami
General Hospital, Inc, 124 BR383, 391, n 4 (Bkrtcy SD Fla 1991). It is often the case
that the state statutes allow a trustee to reach back further in time to avoid transfers which
would not be affected by Bankruptcy Code section 54X.
17 BR 568, (Bankr D Md, 1982).
17 BR 568, 579.
17 BR 568, 580.
- 67-
Mountbatten Journal of Legal Studies
Case forms part of the common law of the state of Illinois. 10
The bankruptcy appellate panel inIn re Black & White Cattle Co,! I
commented that '[t]he principle which deems the separation ofownership
and possession to be presumptively fraudulent is deeply engrained in our
jurisprudence. See, eg, Twyne 's Case ... '12 The court noted that as a
result of this presumption, the California state legislature enacted a statute
to protect purchasers and creditors dealing with feed lot operators who are
in possession of cattle belonging to another. 13 The California statute
requires the owner of dairy cattle which are delivered into the possession
of a feed lot operator to record, as a public record, the feeding agreement
so that others will be on notice of the owner's claim to the cattle. Upon
reflection, the California statutory scheme has an extraordinary relation to
Twyne's Case: the statute is designed to require a public record to
overcome the presumption that one in possession of livestock is not the
owner (Consider the consequences of such a law on Twyne and his
judgment debtor friend Pierce).
Bankruptcy Courts in the United Sates have recently relied on
Twyne's Case to avoid prosaic transactions, such as the transfer of real
estate between family members,14 and to reverse sophisticated financing
arrangements, such as a corporate leveraged buyout which had the effect
of paying the corporation's shareholders while creditors remained
unsatisified. 15
A BankruptcyCourt has also cited Twyne's Case for the proposition
that a debtor should be denied a discharge in bankruptcy, and the 'fresh
start' given to honest debtors, where the 'badges of fraud' test was applied
10
II
12
13
14
15
Matter ofRedo, Inc 60 BR 178, 180 (Bkrtcy ND III 1986).
30 BR 508 (9'h Cir Bankr App 1983).
30 BR 508, 512 A full reading of the case indicates that the court was probably not
conscious of the irony of expounding the principle that the presumption of fraud was
'engrained' in American jurisprudence in a case involving a cattle feeding lot.
Cal Civ Code section 2980 5.
In re Hegarty, 208 BR 760 (Bkrtcy D Mass 1997).
In re Bay Plastics, Inc., 187 BR 315 (Bkrtcy CD Cal 1995).
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Mountbatten Journal ofLegal Studies
to demonstrate, by circumstantial evidence, that the debtor intended to
evade his tax obligations. 16
Summary
As was noted by the court in In re Overmyer Telecasting Co, Inc,17
'fraud and deceit have come a long way since 1601.' That court stated,
in connection with complex layers ofcorporate fictions, that it had never
encountered such a systematic distortion of truth and of the legal system.
But, the court said, 'as clever as [the fraudulent actor's] system was, it
sti11left numerous badges of fraud'. And for that reason, American courts
will continue to honour the precedent established by Twyne's Case.
16
17
In re Berzan, 145 BR 247.250 (BkrtcyNO III 1992); In re Bailey, 145 BR 919 (Bkrtcy
NO III 1992).
23 BR 823, 917 (Bkrtcy NO Ohio 1982).
- 69-


Twyne's case retold: still good law four hundred years later

http://ssudl.solent.ac.uk/973/1/2000_4_1%262.pdf

Twyne's case retold: still good law four hundred years later

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