Massachusetts Agencies

Fraudulent Conveyances (Memo 3)

Fraud and Fraudulent Conveyances

Notwithstanding the fact that the conveyance may have been fraudulent, the sale to purchasers for value who are not participants in or have knowledge of any fraud will successfully put the property beyond the reach of creditors. Northborough National Bank v. Risley, 384 Mass. 348, 424 N.E.2d 522 (1981). See also White v. Graves, 107 Mass. 325 (1871), where it was said:

[A] person who has executed a deed, although induced to do so by fraud, can avoid it only as against the party who exercised the unlawful influence, or against one who took title under the deed with participation in or notice of the fraud, and not against one who took a title apparently good from those having capacity to convey it.

A mortgagee, of course, stands in the same position as a purchaser. Moreover, even if the mortgage to be granted is for less than the full value of the property, the mortgagee is protected to the extent of its loan. See G.L.c. 109A, §9(2).

The decision in Northborough National Bank was cited and distinguished in Fleet National Bank of Massachusetts v. Merriam, 45 Mass.App.Ct. 592, 699 N.E.2d 1266 (1998). In Northborough National Bank the court had limited recovery against the fraudulently conveyed property to the amount of the proceeds, while in Fleet National Bank of Massachusetts the court imposed on the parties who participated in the fraud the obligation to personally pay the claim of the creditor against whom the assets had been secreted. The court said:

In Northborough National Bank v. Risley . . . the court held that the transferee was not liable because he returned the net proceeds of the sale of the fraudulently conveyed asset to the debtor and because his knowledge was minimal, and he sought and received no benefit from the transaction * * * Here, neither the assets nor the proceeds were returned, and the trial judge found that the defendants were conscious participants in hiding the . . . property from [the] creditors so as to hinder, delay or defraud them. In those circumstances, the creditor can recover from the transferees of fraudulently conveyed property to the extent the liquidation proceeds of the fraudulently conveyed assets do not satisfy the second judgment in the fraudulent conveyances action. * * *

By hiding the property through fraudulent conveyance, the defendants put the creditor to a merry chase and, because of legal expenses, an expensive one. The responsibility, and, therefore, the liability for an amount due on the judgment over liquidation proceeds is theirs.

As to the rule where the party did not have the capacity to convey see Brewster v. Weston, 235 Mass. 14, 126 N.E. 271 (1920).