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ORBACH v. PAPPA

October 29, 1979

STEPHEN J. ORBACH, as Trustee of PAUL D. PAPPA, Bankrupt, Plaintiff, against MARY PAPPA, Defendant.


The opinion of the court was delivered by: SAND

This is an action by the Trustee in Bankruptcy of Paul D. Pappa, *fn1" to set aside as fraudulent a conveyance by the bankrupt to his wife, the defendant, of their residence which was originally held as a tenancy by the entirety. *fn2" Plaintiff also seeks to have this Court declare that the alleged fraudulent conveyance terminated the tenancy by the entirety and converted the Pappas' interest in said property to a tenancy in common, or joint tenancy. The Court finds that the conveyance at issue herein was fraudulent, and that the transfer was thus null and void as against the Trustee in Bankruptcy. However, the Court rejects the Trustee's claim that the attempted transfer transforms the ownership of said property from a tenancy by the entirety to a tenancy in common or joint tenancy. Consequently, the Trustee is limited to the relief available to a creditor against a debtor's interest in property held by the entirety. The discussion that follows constitutes our findings of fact and conclusions of law pursuant to F.R.Civ.P. 52.

The Trustee's claim is predicated upon § 70(e) of the Bankruptcy Act, 11 U.S.C. § 110(e), which provides in pertinent part:

 
"(e)(1) A transfer made . . . by a debtor adjudged a bankrupt . . . which, under any Federal or State law applicable thereto, is fraudulent as against or voidable for any other reason by any creditor of the debtor having a claim provable under this title, shall be null and void as against the trustee of such debtor.
 
(2) All property of the debtor affected by any such transfer shall be and remain a part of his assets and estate, discharged and released from such transfer and shall pass to, and every such transfer or obligation shall be avoided by, the trustee for the benefit of the estate . . . The trustee shall reclaim and recover such property or collect its value from and avoid such transfer or obligation against who(m)ever may hold or have received it, except a person as to whom the transfer or obligation specified in paragraph (1) of this subdivision is valid under applicable Federal or State laws."

 The elements of the cause of action to which a trustee becomes subrogated under § 70 are determined not by the Bankruptcy Act, but by state law or federal law other than the Act. Buchman v. American Foam Rubber, 250 F. Supp. 60 (S.D.N.Y. 1965). Plaintiff claims that the transfer was in violation of Article 10 of the Debtor and Creditor Law of the State of New York. *fn3" Section 273 of that Article provides:

 
"Every conveyance made . . . by a person who is or will be thereby rendered insolvent is fraudulent as to the creditors without regard to his actual intent if the conveyance is made or the obligation is incurred without a fair consideration."

 From the evidence presented at trial, the conclusion is inescapable and the Court finds that the conveyance involved herein did render the bankrupt insolvent under the state law. *fn4" The significant factual issue at trial concerned the existence of fair consideration to support the transaction, which if established, would validate the transfer despite insolvency.

 Fair consideration is defined by state statute: *fn5"

 
"Fair consideration is given for property, or obligation,
 
(a) When in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or
 
(b) When such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained."

 What constitutes fair consideration under this section must be determined upon the facts and circumstances of each particular case. Halsey v. Winant, 258 N.Y. 512, 523, 180 N.E. 253, 256, Cert. denied, 287 U.S. 620, 53 S. Ct. 20, 77 L. Ed. 539 (1932). In an intrafamily transaction, it is well-settled that a heavier burden is placed on the grantee to establish fair consideration for the transfer. Liggio v. Liggio, 53 A.D.2d 543, 385 N.Y.S.2d 33 (1st Dept. 1976).

 The evidence adduced at trial demonstrated that the defendant procured a two thousand dollar loan from Chemical Bank, allegedly to pay debts and living expenses that her husband would otherwise be obligated to pay. There is no indication, however, of any agreement between the defendant and her spouse requiring him to repay the loan. Defendant also claims that her mother and family voluntarily advanced between five and six thousand dollars for the Pappas' living expenses, but it is unclear whether the money was advanced prior to the conveyance, or if either of the Pappas was obligated to repay.

 Although a promise of future support is not fair consideration within the meaning of the statute, See Petition of National City Bank of New York, 269 A.D. 1040, 58 N.Y.S.2d 620 (2d Dept. 1945), antecedent debt is fair consideration and is sufficient to validate the transfer even if the debt arises out of the husband's obligation of support. Vinlis Construction Co. v. Roreck, 67 Misc.2d 942, 325 N.Y.S.2d 457 (Sup.Ct. Nassau Co. 1971); Aff'd, 43 A.D.2d 911, 351 ...


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