City of Milan Hosp. v. Rex Ferrell

Citation: Not availableDocket: 02A01-9703-CH-00068

Court: Court of Appeals of Tennessee; January 14, 1998; Tennessee; State Appellate Court

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A legal dispute is presented before the Tennessee Court of Appeals involving plaintiffs City of Milan Hospital, SPN, Inc. d/b/a Bridal Originals, WBBJ-TV 7, and Landa Enterprises, who are judgment creditors of defendants Rex Ferrell, Leigh Ferrell, and Doris Capps. The case centers around the alleged fraudulent conveyance of a truck by Rex and Leigh Ferrell to Doris Capps, who is Leigh's grandmother. Capps provided financial support to the Ferrells to start a business called 'The New Mar-Sans,' and filed a UCC-1 financing statement for the business assets.

Prior to June 15, 1995, the plaintiffs had obtained judgments against the Ferrells, with WBBJ-TV 7 suing for $2,850, a claim that was later uncontested except by Capps. Capps pledged her certificates of deposit to help Rex buy a Dodge Dakota truck, which was titled in both Rex's and Leigh’s names, but without any lien noted. After a judgment creditor levied on the truck, Capps paid to satisfy the judgment and instructed the Ferrells to transfer the truck title to her as a protective measure, describing the transfer as a gift.

Capps subsequently used the truck title to secure a loan and sent $2,000 to the Ferrells, who continued to possess the truck until legal action was initiated. The Ferrells own a house valued at $120,000 with a mortgage of $89,500 and claim low income. The defendants’ testimonies during the trial were characterized by inconsistencies and a lack of transparency. The court affirmed part of the ruling while reversing and remanding other aspects.

Plaintiff seeks to invalidate the transfer of a vehicle to Defendant Capps based on T.C.A. 29-12-101, which enables creditors to contest fraudulent property conveyances aimed at obstructing debt recovery. The plaintiffs aim to have the vehicle sold to satisfy their debts, asserting that the transfer was a classic case of fraudulent conveyance. The defendants deny any wrongdoing; however, evidence suggests their intent was to prevent creditors, including the plaintiffs, from accessing the vehicle for debt satisfaction. Under Tennessee law, a lien on a vehicle is ineffective against creditors unless duly recorded, and no such lien was recorded by Capps, rendering any potential lien invalid against the plaintiffs. 

T.C.A. 67-3-305 establishes that any conveyance made by a person rendered insolvent is fraudulent to creditors if it occurs without fair consideration, regardless of intent. Insolvency, defined in T.C.A. 66-3-302, exists when a debtor's assets are less than their liabilities. While the Ferrells' real property may be sufficient to satisfy judgments, potential sale expenses and market conditions complicate this assessment. The action is also supported by T.C.A. 66-3-308, which deems any conveyance made with actual intent to hinder or delay creditors as fraudulent. Previous case law indicates that it suffices to show the conveyance's purpose was to obstruct creditors, regardless of any intent to defraud. Even transfers with valuable consideration can be voided if intended to hinder creditors. Legal principles assert that all non-exempt property serves as a fund for creditor benefit, and the law prioritizes just conduct over generosity, particularly when it harms creditors. The determination of intent to defraud is categorized as a legal question.

Seventeen 'badges of fraud' indicate transfers that may be set aside, with approximately nine present in this case, including: the debtor's financial distress, pending or threatened creditor actions, hurried transfers, conveyance of property as mere security, inadequate consideration, retention and enjoyment of the transferred property, transfers outside the usual course of business, and a close relationship between the parties. Evidence suggests the transfer of the truck aimed to hinder plaintiffs from collecting debts, rendering the conveyance void concerning them. The Bank of Milan, not a party to this action, retains its security interest in the truck, unaffected by this ruling. The lower court's judgment in favor of WBBJ-TV 7 against Rex Ferrell and Wendy Leigh Ferrell for $2,850.00 is affirmed, but the finding of no fraudulent transfer of the 1994 Dodge Dakota pickup truck is reversed, and the case is remanded for further proceedings. An injunction is reinstated to prevent Doris Capps from transferring or diminishing the truck's value until these proceedings conclude. The truck may be sold to satisfy the plaintiffs' and other creditors' judgments, with the understanding that the rights of the Bank of Milan remain intact. Costs of the appeal are assigned to the defendants, and the case is remanded for necessary further actions.