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In re Macquown

September 26, 1983.



Aldisert and Weis, Circuit Judges and Re,*fn* Chief Judge.

Author: Weis


WEIS, Circuit Judge.

In a proceeding addressing a creditor's objection to discharge, the bankruptcy judge ruled that the pertinent date to be used in deciding whether realty was transferred within a year of bankruptcy is the day the deed was recorded, not when it was executed. He also found, and the district court agreed, that the debtor had made the conveyance with intent to defraud creditors. We find no reversible error and affirm.

The principal creditor filed a complaint in the bankruptcy court contending that under the terms of section 14(c) of the Bankruptcy Act of 1898 (formerly 11 U.S.C. § 32(c)) debtor should not be discharged. After an evidentiary hearing, the bankruptcy judge accepted the creditor's position and denied the discharge. On appeal, the district court affirmed.

Debtor Richard MacQuown opened a margin account in November 1974 with creditor, the brokerage firm of Dean Witter Reynolds. He traded in Mexican peso futures and suffered severe reversals in 1976. Disputes between MacQuown and the broker over these losses were submitted to arbitration in 1977 and a judgment of approximately $200,000 against debtor was ultimately entered in the federal district court no November 13, 1978. That judgment was affirmed on appeal to this court on September 7, 1979. One week later MacQuown filed his petition for bankruptcy.

The creditor's complaint presented several grounds in support of the denial of discharge, and evidence was presented on all of them. However, the bankruptcy judge based his ruling on only one point: the debtor's transfer of his interest in his home to his wife. The correctness of that ruling is the only issue of substance presented on appeal.*fn1

In August 1977, the debtor's wife executed a will leaving her entire estate to her children. In December of that same year, debtor and his wife executed a deed transferring the family residence, which they held as tenants by the entireties, to the wife alone. There was no consideration for the transfer, and the deed was not recorded until June 13, 1979. In the summer of 1979, Mrs. MacQuown was diagnosed as having cancer. She died in December of the same year.

By virtue of the wife's will, the property in question is presently owned by the debtor's children. Debtor still lives in the home, but without a formal lease or any fixed rental obligation. He does, however, pay the taxes, maintenance costs, and utilities associated with the premises.

Creditor contended that debtor transferred the property to his wife with intent to hinder, delay, or defraud his creditors in violation of section 14(c)(4). Debtor responded that creditors had no claim against the entireties' property at the time of the transfer and, therefore, it could not have been made with intent to defraud. He also contended that the property was transferred as of the date of the deed, December 27, 1977, rather than on the day it was recorded in 1979. That being so, argues debtor, the transfer would not have occurred within one year of bankruptcy as required by section 14(c)(4).

The bankruptcy judge found that Dean Witter became a "creditor" in 1976. He then considered whether the critical date for measuring the one-year period of section 14(c)(4) was the day the deed was executed or the day it was recorded. Noting the absence of any controlling case law, the bankruptcy judge analogized the situation to that under section 67(d)(5) of the old Bankruptcy Act (formerly 11 U.S.C. § 107(d)(5)), which provides that a transfer is made when a subsequent bona fide purchaser cannot acquire rights superior to the transferee.

The court recognized that in Pennsylvania an unrecorded deed is effective as between the parties, but as to a judgment creditor and bona fide purchaser, recordation is required. Accordingly, he ruled that the determining factor was the recordation date of the deed at issue here. Since that date fell within a year of bankruptcy, section 14(c)(4) was applicable. He also held that the gratuitous transfer of the property raised a presumption of the intent required by section 14(c)(4), and that debtor did not sustain his burden of rebutting that presumption.

On appeal, the district court concluded that the factual findings of the bankruptcy court were not clearly erroneous and accepted the holding that the ...

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