RPLR November 2017




Fraudulently conveying to a nobody: PGA v Hulven


THE EDITOR’S TAKE: The two holdings of this decision make it doubly provocative. First, the ruling that a fraudulent conveyance occurred in 2004, when the owner of the property executed a deed of trust to “a completely fictitious public entity” created by him that secured a “completely fake” obligation, was, I thought, surprising. The beneficiary of that phony security instrument was, at that time, entirely nonexistent (not being created until 9 months later), making it tempting to characterize the transaction as void rather than as fraudulent [138] under our long-standing jurisprudential doctrine that a deed requires both a grantor and grantee for its validity. Wilson v White (1890) 84 C 239, 242. (“There must be a grantee, to whom delivery is made, and in whom the title can vest. If there be no grantee, and the deed is to a mere fictitious name, it is obvious that it is a nullity.”) That rule appears to apply to deeds of trust as well as to deeds of grant. Allgood v Allgood (SC 1926) 132 SE 48. That there was, in addition to no actual obligee or beneficiary, no real obligation that could support this arrangement seems only to strengthen that conclusion. However, for the appellate court in PGA, a fraudulent conveyance appears to need less support than a real conveyance, its opinion being that “[t]ransfers to bogus corporations that are wholly owned and controlled by the debtor are ‘transfers’ for purposes of the UFTA.” 14 CA5th at 173 (referring to the former Uniform Fraudulent Transfer Act (UFTA), which has been amended and renamed the Uniform Voidable Transactions Act effective January 1, 2016).


Although I found the authorities and reasons given for this assertion to be rather dubious, that seems now to be our rule, meaning that clocks may start differently for these voidable transactions (formerly known as fraudulent transfers) than for other kinds of arrangements.


Second, the holding that the trigger for the clock is so early creates extra trouble for undiligent creditors, who might otherwise expect there to be some relief against draconian drop-dead dates by way of doctrines of delayed discovery or waiver or forfeiture. But according to the court, the time limit in CC §3439.09(c) is a statute of repose rather than a statute of limitations, making it a complete bar to any recovery 7 years after that transaction first occurred.


This second conclusion of the court of appeal is less problematic than its first one concerning when the time period starts, because our statute’s provisions of alternate time periods (4 years after the transfer or 1 year after its discovery, and then, “notwithstanding” those periods, 7 years after the event), do support that conclusion. This provision for an overriding 7-year period is not part of the Uniform Voidable Transaction Act (2014), which California mostly copied in 2015; however, the Official Commentary to that Uniform Act declares a purpose to “bar the right rather than the remedy on expiration”—the typical effect of a statute of repose rather than of limitations.


What is unknown is whether there is a “third” rule that can come into play, when the debtor has filed for bankruptcy, in which the general time period is 2 years (under 11 USC §548(a)(1)), starting with the date of filing the petition, and which can be extended for up to 10 years by 11 USC §548(e)(1). As to that issue, we may just have to wait and see.—Roger Bernhardt


40 Real Property Law Reporter 137 (Cal CEB Nov. 2017), © The Regents of the University of California, reprinted with permission of CEB.