Estate of David Holt Ralston ( 2013 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
October 25, 2012 Session
ESTATE OF DAVID HOLT RALSTON
Appeal from the Chancery Court for Rutherford County
No. 100008CV Donald P. Harris, Judge
No. M2012-00597-COA-R3-CV - Filed April 29, 2013
The trial court granted summary judgment to a judgment creditor of the decedent’s estate on
a claim that the decedent fraudulently deeded an interest in real property to his wife so she
would receive it free from the claims of his legitimate creditors after his death. The trial
court’s judgment was based on circumstances surrounding the property transfer that satisfied
the elements of fraudulent conveyance under both Tenn. Code Ann. § 66-3-305(a)(1) and
(a)(2). The widow denies that there was any fraudulent intent behind the transfer of the
disputed property to her, but insists that it arose naturally from the love and affection that
existed between husband and wife. We affirm the trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
P ATRICIA J. C OTTRELL, P.J., M.S., delivered the opinion of the Court, in which A NDY D.
B ENNETT and R ICHARD H. D INKINS, JJ., joined.
W. Kennerly Burger, Murfreesboro, Tennessee, for the appellant, Estate of Fred R. Hobbs
and Sherry Hobbs.
Rachel Ralston, Michael Scott Lattier, Kingsport, Tennessee, for the appellee, Estate of
David Holt Ralston, Deceased, by John Ralston, Personal Representative.
OPINION
I. B ACKGROUND AND C HRONOLOGY
The late Fred Hobbs was the defendant in three previous cases involving his misuse
of a power of attorney to fraudulently transfer to himself property belonging to his elderly
uncles, David and Charles Ralston. The judgments rendered against Mr. Hobbs in all three
cases were affirmed by this court. Ralston v. Hobbs, 306 S.W.3d 213 (Tenn. Ct. App. 2009);
Estate of Ralston v. Estate of Hobbs, M2011-01037-COA-R3-CV, 2012 WL 1379861 (Tenn.
Ct. App. Apr. 18, 2012) (Perm. app. denied Aug. 15, 2012); Estate of Ralston ex. rel Ralston
v. Hobbs, M2009-02442-COA-R3-CV, 2010 WL 4272692 (Tenn. Ct. App. Oct. 28, 2010).1
The relevance of these previous cases is that the judgments resulting from them,
totaling almost $1.5 million, were still unpaid when Fred Hobbs died, leaving one of his
surviving uncles and the estate of another as judgment creditors of his estate. The transfer
by deed of the property in question rendered the estate of Fred Hobbs insolvent and, thus,
unable to pay his judgment creditors.
At issue in this case is a deed to a 27 acre farm in which Fred Hobbs quit claimed his
interest in the property to himself and his wife, Sherry Hobbs, as tenants by the entireties.
The timing of the execution and recordation of the deed in the present case and the relation
of those acts to the timing of the filings in the earlier cases against Fred Hobbs is relevant to
the arguments of both parties in this case, so a chronology of those events is in order.
January 21, 2001 Fred Hobbs and Sherry Read Hobbs marry after entering into a
prenuptial agreement. Their agreement provided that their assets and
liabilities would be individually owned and separately maintained. The
proof showed that Sherry Hobbs had substantial property of her own at
the time of marriage. One year earlier, Fred Hobbs had declared that
he had no significant assets and was insolvent, and he received a
bankruptcy discharge of about $80,000 in debt. The proof also showed
that the couple maintained separate accounts and separate title to all
their property throughout their marriage.
March 29, 2005 Fred Hobbs purchases a 27 acre piece of property, taking title to the
property by warranty deed in his name only. The property includes a
house which the parties moved into in May of 2005.2
November 8, 2005 John Ralston, Personal Representative of the Estate of David Holt
Ralston, files a complaint against Fred Hobbs in the Chancery Court of
1
Two of the cases resulted in money judgments against Fred Hobbs. The other (Estate of Ralston
v. Estate of Hobbs, 2012 WL 1379861) only involved an order to sell certain real property owned by Mr.
Hobbs to satisfy a money judgment against him.
2
Sherry Hobbs acknowledged that at the time of her marriage to Fred Hobbs, she owned one
residence in Davidson County and another one in Bedford County.
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Rutherford County (Suit # 1) to rescind twelve deeds executed through
the misuse of a power of attorney to farmland that had been owned by
David Ralston worth over $1 million.
December 22, 2005 Fred Hobbs enters into Agreed Order not to transfer, mortgage, lease,
give, or deal in any property that was ever in the name of David
Ralston.
February 23, 2006 David Ralston’s brother, Thomas Ralston, files a complaint (Suit # 2)
against Fred Hobbs for fraudulent use of power of attorney to withdraw
all the funds from Thomas Ralston’s bank accounts. He seeks damages
of $279,000 plus interest.
January 11, 2007 Fred Hobbs executes quitclaim deed that is the subject of this lawsuit,
conveying his interest in the 27 acre property to himself and his wife
Sherry Hobbs, as tenants by the entireties. Sherry Hobbs paid no
consideration for the property and was unaware of the execution of the
quitclaim deed.
February 14, 2007 Fred Hobbs is diagnosed with liver cancer.
April 17, 2007 John Ralston dismisses suit #1 without prejudice, to allow him to refile
the action and name certain indispensable parties.
Summer 2007 Fred Hobbs adds Sherry Hobbs’ name to the titles to four vehicles that
had been his property.
October 30, 2007 Suit #1 refiled
March 12, 2008 Quitclaim deed of January 11, 2007 recorded
July 7, 2008 Chancery Court enters summary judgment against Fred Hobbs in Suit
#2, and awards Thomas Ralston $491,000.
November 2, 2009 Chancery Court enters judgment against Fred Hobbs in Suit # 1 and
awards the Estate of David Ralston $962,000 for the value of property
Mr. Hobbs fraudulently acquired and subsequently sold.
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January 5, 2010 John Ralston, Personal Representative of the Estate of David Holt
Ralston, files the instant, “Complaint to Avoid Fraudulent Transfers”
against Fred Hobbs and Sherry Hobbs, seeking rescission of the
quitclaim deed to the 27 acre property under the Uniform Fraudulent
Transfer Act, Tenn. Code Ann. § 66-3-301 et seq.
June 24, 2010 Fred Hobbs dies. His will names Sherry Hobbs as his beneficiary and
as the executrix of his estate.
The Estates of David Ralston and Thomas Ralston subsequently filed claims against
the Estate of Fred Hobbs for the unpaid judgments against him. On September 24, 2010,
Sherry Hobbs filed a notice that the estate was insolvent.
II. T HE I NSTANT S UIT
As we noted above, John Ralston filed his “Complaint to Avoid Fraudulent Transfers”
prior to the death of Fred Hobbs. Mr. Ralston alleged that Fred Hobbs executed the
quitclaim deed of January 11, 2007 in an attempt to “hinder, delay or defraud his creditors.”
He asked the court to exercise its powers under Tenn. Code Ann. § 36-3-308 to rescind the
quitclaim deed so the 27 acre property could be returned to the estate of Fred Hobbs and used
to satisfy the legitimate claims of his creditors. Sherry Hobbs filed an Answer to the
Complaint on February 16, 2010. She denied that the quitclaim deed was made to hinder or
defraud any party, and asserted that it was a routine transaction, actuated by the normal love
and affection between husband and wife.
On May 13, 2011, Mr. Ralston amended his complaint, substituting as defendants
“Sherry Hobbs, individually and as representative of the Estate of Fred Hobbs.” He also
asserted additional claims to avoid transfers by Fred Hobbs to his wife of certain vehicles,
farm equipment, livestock, and interests in a farming operation.
Mr. Ralston filed a motion for summary judgment on August 19, 2011, accompanied
by a memorandum in support of the motion, a statement of undisputed facts, and excerpts
from discovery depositions. The excerpt from Sherry Hobbs’ deposition contains her
responses to repeated questions about numerous deeds conveying property to Fred Hobbs as
well as deeds conveying property from Fred Hobbs to others. She testified that throughout
their marriage, she and her husband kept their assets and business dealings entirely separate:
“Mr. Hobbs took care of his business and I took care of my business.”
The excerpt from Fred Hobbs’ deposition of January 5, 2010 contains his answers to
questions about the extent of his property ownership. He denied that he owned any real
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property other than what had already been recorded: “Everything that I own’s of record and
it’s all in Rutherford County, so you know, you can double check.” This deposition was
taken after Myrtle Hobbs conveyed over 65 acres to Fred Hobbs by quitclaim deed, a deed
that in accordance with his instructions, was not recorded until after his death.
Sherry Hobbs filed a motion to dismiss the Complaint on November 14, 2011. She
argued that the fraudulent conveyance claim was barred by the operation of res judicata
because it could have been adjudicated in the prior lawsuit brought by John Ralston against
Fred Hobbs on behalf of the Estate of David Ralston. On the same day, she filed a response
to Mr. Ralston’s motion for summary judgment, in which she again asserted the defense of
res judicata and also challenged plaintiff’s claim of fraud on both legal and factual grounds.
The trial court heard oral argument on Mr. Ralston’s summary judgment motion on
November 21, 2011. The court set out its decision in a Memorandum Opinion entered on
January 23, 2012, and in an order entered on February 16, 2012. In the Memorandum
Opinion, the trial court summarized the factual background of this case, including the prior
judgments against Fred Hobbs. The court then went on to analyze those facts in light of the
“badges of fraud” set out in Tenn. Code Ann. §66-3-305(b).
The court reasoned that the undisputed facts showed that the circumstances
surrounding the quitclaim deed at issue closely matched nine of the eleven badges of fraud
described in the statute, and thus that the conveyance was fraudulent as to Fred Hobbs’
creditors. The court concluded that the conveyance was made “with actual intent to hinder,
delay, or defraud creditors” under Tenn. Code Ann. § 66-3-305(a)(1), and was also
fraudulent under Tenn. Code Ann. § 66-3-305(a)(2). It accordingly granted the plaintiff’s
motion for summary judgment and rescinded the transfer of real property in the January 11,
2007 quitclaim deed, as well as the transfers of interest in the vehicles. This appeal followed.
III. A NALYSIS
A. The Standard of Review
A trial court’s decision on a motion for summary judgment enjoys no presumption of
correctness on appeal. Martin v. Norfolk Southern Railway Co., 271 S.W.3d 76, 84 (Tenn.
2008); Blair v. West Town Mall, 130 S.W.3d 761, 763 (Tenn. 2004). We review the
summary judgment decision as a question of law. Id. Accordingly, this court must review
the record de novo and make a fresh determination of whether the requirements of Tenn. R.
Civ. P. 56 have been met. Eadie v. Complete Co., Inc., 142 S.W.3d 288, 291 (Tenn. 2004);
Blair v. West Town Mall, 130 S.W.3d 761, 763 (Tenn. 2004). Those requirements are that
the filings supporting the motion show that there is no genuine issue of material fact and that
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the moving party is entitled to judgment as a matter of law. Tenn. R. Civ. P. 56.04; Blair,
130 S.W.3d at 764.
The moving party has the burden of demonstrating it is entitled to judgment as a
matter of law and that there are no material facts in dispute. Martin, 271 S.W.3d at 83;
McCarley v. West Quality Food Service, 960 S.W.2d 585, 588 (Tenn. 1998). To be entitled
to summary judgment, a defendant moving party must either (1) affirmatively negate an
essential element of the non-moving party’s claim or (2) show that the nonmoving party
cannot prove an essential element of the claim at trial. Hannan v. Alltel Publishing Co., 270
S.W.3d 1, 9 (Tenn. 2008). If the party seeking summary judgment makes a properly
supported motion, the burden shifts to the nonmoving party to set forth specific facts
establishing the existence of a genuine issue of material fact. Martin, 271 S.W.3d at 84;
Hannan, 270 S.W.3d at 5; Staples v. CBL & Associates, 15 S.W.3d 83, 86 (Tenn. 2000)
(citing Byrd v. Hall, 847 S.W.2d, 208, 215 (Tenn. 1993)).
B. The Res Judicata Argument
Sherry Hobbs’ first argument on appeal is that Mr. Ralston’s claims are barred by the
doctrine of res judicata. But even a cursory examination of the record indicates that the
doctrine does not apply. Res judicata is a claim preclusion doctrine that bars a second suit
between the same parties or their privies on the same cause of action with respect to all the
issues which were or could have been litigated in the former suit. Richardson v. Tenn. Bd.
of Dentistry, 913 S.W.2d 446, 459 (Tenn. 1995); Brown v. Brown, 29 S.W.3d 491, 495
(Tenn. Ct. App. 2000); Collins v. Greene County Bank, 916 S.W.2d 941, 945 (Tenn. Ct. App.
1995).
Res judicata serves an important function in our legal system. It promotes finality in
litigation by barring parties from re-litigating claims that have already been decided.
Moulton v. Ford Motor Co., 533 S.W.2d 295, 296 (Tenn. 1976); In re Estate of Boote, 198
S.W.3d 699, 718-19 (Tenn. Ct. App. 2005). As this court has stated, “[a] plaintiff is only
entitled to one bite of the apple and he may not relitigate the same again and again in hopes
of a different result.” Gerber v. Holcomb, 219 S.W.3d 914, 919 (Tenn. Ct. App. 2006).
Parties asserting a res judicata defense must demonstrate that: (1) a court of competent
jurisdiction rendered the prior judgment; (2) the prior judgment was final and on the merits;
(3) the same parties or their privies were involved in both proceedings; and (4) both
proceedings involved the same cause of action. Young v. Barrow, 130 S.W.3d 59, 64 (Tenn.
Ct. App. 2003); Lee v. Hall, 790 S.W.2d 293, 294 (Tenn. Ct. App. 1990). The present case
does not involve the same parties or their privies as did the suit that produced the prior
judgment, nor does it involve the same cause of action.
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The prior suit against Fred Hobbs and other parties was based upon Mr. Hobbs’
misuse of a power of attorney to withdraw funds from David Ralston’s bank accounts for his
own personal use. Sherry Hobbs was not named as a defendant in that lawsuit, and there was
no suggestion either in that suit or in the current one that she was privy to any transactions
involving David Ralston’s bank accounts. The current suit involves a dispute over a piece
of real property in which David Ralston never possessed any interest. There are no
allegations that the funds fraudulently obtained from David Ralston’s accounts were used to
purchase that property. The challenged conveyance in the present case did not involve the
misuse of a power of attorney, but rather a quitclaim deed used to defraud creditors.
Sherry Hobbs acknowledges that the present claims were not adjudicated in the prior
suit, but she contends that she is nonetheless entitled to the benefits of res judicata, for the
doctrine may be applied, not only to claims that were actually litigated in a prior suit, but also
to claims that could have been litigated in the same suit. Creech v. Addington, 281 S.W.3d
363, 376 (Tenn. 2009); Massengill v. Scott, 738 S.W.2d 629, 631 (Tenn. 1987). The obvious
benefits of that provision are the promotion of judicial economy and the prevention of
piecemeal litigation that can drive up legal costs for all parties.
Ms. Hobbs argues that the plaintiff could have added the claim against her to the
earlier case while it was still pending, as would be allowed under the liberal provisions of
Tenn. R. Civ. P. 18.01 (permitting the joinder of “as many claims, legal or equitable, in
contract or tort, as the party has against an opposing party.”). We note, however, that Fred
Hobbs did not execute the quitclaim deed at issue until after Mr. Ralston filed the initial
lawsuit against him and that he did not record the deed until after that lawsuit was dismissed
without prejudice and subsequently refiled. It is unclear from the record if Mr. Ralston was
even made aware of the existence of the quitclaim deed prior to the death of Fred Hobbs and
his widow’s filing of the notice of insolvency.
Further, it is well established that “[a] prior judgment or decree does not prohibit the
later consideration of rights that had not accrued at the time of the earlier proceeding or the
re-examination of the same question between the same parties when the facts have changed
or new facts have occurred that have altered the legal rights and relations of the parties.”
White v. White, 876 S.W.2d 837, 839-840 (Tenn. 1994); State ex rel. Cihlar v. Crawford, 39
S.W.3d 172, 178 (Tenn. Ct. App. 2000). Sherry Hobbs did not obtain an undivided interest
in the property at issue until after the death of her husband, by which time final judgment had
already been rendered in the initial case. Thus, the rights under challenge in this lawsuit had
not fully accrued at the time of the prior judgment.
C. Tenn. Code Ann. § 66-3-305(a)(1)
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Tennessee courts have long been authorized to reverse or rescind conveyances if they
were made to “delay, hinder or defraud creditors.” M. & N. Freight Lines v. Kimbel Lines,
170 S.W.2d 186 (Tenn. 1943); Robinson v. Frankel, 3 S.W. 652, 653 (Tenn. 1887)``;
Churchill v. Wells, 47 Tenn. 364, 370 (1870). A determination of whether a conveyance is
fraudulent depends upon the facts and circumstances of each case. Macon Bank & Trust Co.
v. Holland, 715 S.W.2d 347, 349 (Tenn. Ct. App. 1986). Fraudulent transferors rarely
disclose their intent in a way that is capable of direct evidence, so persons seeking to set
aside a fraudulent transfer must frequently resort to circumstantial evidence. McConnico v.
Third Nat’l Bank, 499 S.W.2d 874, 887 (Tenn. 1973).
Such circumstantial indicators of fraud are often called “badges of fraud,” and have
been described as “any facts that throw suspicion on the transaction and call for an
explanation.” Macon Bank & Trust Co. v. Holland, 715 S.W.2d at 349. Among the
circumstances creating a strong inference of fraud are when a conveyance is made “[w]ithout
a fair consideration, leaving the grantor insolvent.” Hicks v. Whiting, 258 S.W. 784, 794
(Tenn. 1924). The basic framework for identification of fraudulent transfers has been
incorporated into the provisions of the Uniform Fraudulent Transfer Act, Tenn. Code Ann.
§ 66-3-301 et seq., but has been somewhat refined to improve its effectiveness.
Tennessee Code Annotated § 66-3-305 is captioned “Transfers Fraudulent as to
Present and Future Creditors,” meaning that under the appropriate circumstances, a transfer
can be deemed fraudulent in regard to a creditor whose claim had not yet matured at the time
the transfer was made. The statute sets out two ways whereby a plaintiff can establish that
a conveyance of property was fraudulent.
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor, whether the creditor’s claim arose before or after the transfer was
made or the obligation was incurred, if the debtor made the transfer or incurred
the obligation:
(1) With actual intent to hinder, delay, or defraud any creditor of the debtor;
or
(2) Without receiving a reasonably equivalent value in exchange for the
transfer or obligation, and the debtor:
(A) Was engaged or was about to engage in a business or a
transaction for which the remaining assets of the debtor were
unreasonably small in relation to the business or transaction; or
(B) Intended to incur, or believed or reasonably should have
believed that the debtor would incur, debts beyond the debtor’s
ability to pay as they became due.
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The trial court found that the conveyance in this case was fraudulent under both Tenn.
Code Ann. § 66-3-305(a)(1) and (2). When considering whether a conveyance under (a)(1)
was made with “actual intent to hinder, delay, or defraud” a creditor, the legislature has set
out at Tenn. Code Ann. § 66-3-305(b) a list of eleven factors for the courts to consider,
which closely resemble the traditional “badges of fraud.” The trial court found that nine of
those factors existed in this case. We will briefly discuss each of the applicable factors.
(1) The transfer or obligation was to an insider.
The transfer was to Sherry Hobbs by creation of a tenancy by the entireties. Under
Tenn. Code Ann. § 66-3-302(7)(A)(I), a relative of the debtor is included in the definition
of an insider. Under Tenn. Code Ann. § 66-3-302(11) a spouse is included in the definition
of a relative.
(2) The debtor retained possession or control of the property transferred after
the transfer.
Fred Hobbs’ possession and control of the property did not change after he executed
the quitclaim deed.
(3) The transfer or obligation was disclosed or concealed.
It is undisputed that Fred Hobbs did not disclose the quitclaim deed to his wife or to
his creditors at the time it was executed and that he did not record it until fourteen months
after it was executed.
(4) Before the transfer was made or obligation was incurred, the debtor had been
sued or threatened with suit.
Two separate lawsuits had been filed against Fred Hobbs prior to his execution of the
quitclaim deed, both of which involved claims for substantial sums. Ms. Hobbs has
suggested on appeal that one of the lawsuits was dismissed without prejudice prior to the
execution of the quitclaim deed. But the timeline in the record, which she concedes is
accurate, shows that the dismissal occurred after the deed was executed, although before it
was recorded.
(5) The transfer was of substantially all the debtor’s assets.
Sherry Hobbs insists that this factor does not apply because when the quitclaim deed
was executed, Fred Hobbs held title to assets worth in excess of $1.5 million. However, the
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largest portion of those assets by far had to have been the farmland that Fred Hobbs had
acquired from David Ralston through the misuse of a power of attorney. Because of the
allegations of fraud against Fred Hobbs arising from his acquisition of that same property, he
was subject to an agreed order that prohibited him from transferring or conveying any
property that had ever belonged to David Ralston. Thus, the quitclaim deed amounted to a
transfer of substantially all of Fred Hobbs’ unencumbered assets. At the time of his execution
of the quitclaim deed, he did not own the property discussed next.
(6) The debtor removed or concealed assets.
In May of 2007, Fred Hobbs’ mother, Myrtle Hobbs, conveyed over 65 acres of
property to her son Fred Hobbs by quitclaim deed for no consideration. Fred Hobbs did not
record the deed or inform Sherry Hobbs of its existence. Shortly after her husband passed
away, Sherry Hobbs found the unrecorded deed in his personal safe, with a handwritten note
attached to it, reading “record this deed after my death.” She recorded the quitclaim deed to
the 65 acres on June 28, 2010. Fred Hobbs concealed his acquisition by deed of a 65 acre
property that he acquired from his mother, he failed to mention that property during sworn
testimony when called upon to respond under oath to a direct question about the extent of his
property, and he did not record the deed during his lifetime.
(7) The value of the consideration received by the debtor was reasonably
equivalent to the value of the asset transferred or the amount of the obligation incurred.
Sherry Hobbs contends on appeal that factor (8) does not apply in this case because
consideration existed for the quitclaim deed in the form of the love and affection between
husband and wife. However, consideration under the statute must be for “value,” which
Tenn. Code Ann. § 36-3-304(a) defines narrowly: “Value is given for a transfer or an
obligation if, in exchange for the value or obligation, property is transferred or an antecedent
debt is secured or satisfied.” The Comments to the Official Text of the statute further clarify
this definition: “[c]onsideration having no utility from a creditor’s viewpoint does not satisfy
the statutory definition.”
(8) The debtor was insolvent or became insolvent shortly after the transfer was
made or the obligation was incurred.
Sherry Hobbs filed a notice of insolvency of the estate after her husband’s death. She
claims, however, that Fred Hobbs was not insolvent at the time the quitclaim deed was
executed. Tenn. Code Ann. § 66-3-303(a) defines insolvency as when “the sum of the
debtor’s debts is greater than all of the debtor’s assets, at a fair valuation.” Tennessee Code
Annotated § 66-3-303(d) further provides that “[a]ssets under this section do not include
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property that has been transferred, concealed, or removed with intent to hinder, delay, or
defraud creditors or that has been transferred in a manner making the transfer voidable under
this part.” Ms. Hobbs does not offer any theories about the reasons for the deterioration of
Fred Hobbs’ financial situation from alleged solvency to insolvency. The only conclusion
that can be drawn from the record is that it resulted from the loss of property he had acquired
from David Ralston.
(9) The transfer occurred shortly before or shortly after a substantial debt was
incurred.
The transfer occurred seven months before the trial court entered a substantial
judgment against Fred Hobbs in the case brought by Thomas Ralston, and twenty-two
months before a second, even more substantial judgment was entered against him in the case
brought by the Estate of David Ralston. Within the context of the normal timeline of an
ongoing lawsuit, it is reasonable to conclude that the transfer occurred “shortly before . . . a
substantial debt was incurred.” Additionally, at the time of the transfer, Fred Hobbs was
aware of the potential liability resulting from the lawsuits.
Despite the undisputed facts related to the above factors, Sherry Hobbs insists that
summary judgment is an inappropriate vehicle for determining whether Fred Hobbs intended
to defraud his creditors when he executed the quitclaim deed of January 11, 2007. She
argues that intent is a subjective matter, which cannot be resolved without “a full and
complete inquiry into all the relevant facts.” Our Supreme Court has stated that “[a] person
must be held to intend the fraud which his acts necessarily produce.” Churchill v. Wells, 47
Tenn. 364, 370 (1870).
The General Assembly has determined that a conveyance can be deemed fraudulent
if certain facts are proved. Tenn. Code Ann. § 66-3-305. Additionally, the legislature has
set out factors for the trial court to consider in determining whether a conveyance was made
with actual intent to defraud. Tenn. Code Ann. § 66-3-305(b). Thus, direct evidence of
actual intent is not necessary and is almost impossible to obtain. Herein, the trial court
considered all the statutory factors and the undisputed proof. Intent was, therefore, proved.
We have already found that Fred Hobbs did not receive “reasonably equivalent value”
for the purposes of the Uniform Fraudulent Transfer Act when he executed the quitclaim
deed at issue. Thus, the first prong of the test for fraudulent conveyance under this
subsection has been satisfied.
To satisfy the second prong, the proof must show that Fred Hobbs reasonably should
have believed that he would incur debts beyond his ability to pay as they became due. The
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undisputed proof shows that at the time Fred Hobbs married Sherry Hobbs, he had no
significant assets, since he had only recently received a discharge in bankruptcy. He
subsequently used a power of attorney to transfer David Ralston’s farmland and Thomas
Ralston’s life savings to himself. Lawsuits were filed for the recovery of all those assets
prior to the execution of the quitclaim deed at issue. Even though judgment had not yet been
rendered in those suits, it can hardly be disputed that Fred Hobbs had good reason to believe
that once the lawsuits ran their course, he would incur liabilities and debts that he could not
pay.
In sum, we conclude that the trial court did not err in granting summary judgment to
the plaintiff under Tenn. Code Ann. § 66-3-305(a)(1).
IV. CONCLUSION
The judgment of the trial court is affirmed. We remand this case to the Chancery
Court of Rutherford County for any further proceedings necessary. Tax the costs on appeal
to the appellant, Sherry Hobbs.
____________________________
PATRICIA J. COTTRELL, JUDGE
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