Real Property – Uniform Voidable Transactions Act – Badges of Fraud

Transfer of real property was voidable as to creditor because the transfer “was done with the intent to hinder, delay, or defraud” the creditor in contravention of the Uniform Voidable Transactions Act.

We affirmed the trial court’s order

This case concerned the transfer of real property from Surface Source USA NC, Inc. to Defendant USA Opel Flooring, Inc. The trial court determined this transfer was voidable as to Opel’s creditor, Plaintiff Anhui Omi Vinyl Co. Ltd., because the transfer “was done with the intent to hinder, delay, or defraud” Omi in contravention of the Uniform Voidable Transactions Act. Opel appealed from the trial court’s order entering judgment in favor of Omi in the amount of $1,139,971.21 plus interest.

Opel argued on appeal that the trial court erred by entering judgment in favor of Omi on both theories of liability: fraudulent transfer and mere continuation. We disagreed. Our Supreme Court has long recognized the general principle that a transaction tainted by the intent to defraud a creditor may be voidable as to that creditor. Moreover, it is well established that the presence of certain “badges of fraud” may indicate that a transaction that is not void on its face may nevertheless be found to be voidable as fraudulent. The trial court made numerous findings of fact to support its conclusion that “[t]he transfer of the Surface Source Building from Surface Source to [Opel] was done with the intent to hinder, delay, or defraud” Omi and that, consequently, the transfer was “voidable as to [Omi] under N.C. Gen. Stat. [§] 39- 23.4(a).”

Yu was the President, CEO, and 10% owner of Surface Source, and he directed Surface Source employees to form Opel—of which he also owned a percentage—and establish its bank account. Surface Source transferred the Surface Source Building while the Omi suit was pending. And the transfer was made without Omi’s knowledge. In addition to those statutory badges of fraud, the trial court’s findings of fact also invoke the badges of fraud present when a “debtor does not retain property sufficient to pay [its] then-existing debts.” The trial court found as fact that the Surface Source Building was “Surface Source’s only asset” at the time of the transaction, and Surface Source became insolvent upon the transfer of its only asset. Opel did not challenge any of these findings of fact, which renders them binding on appeal.

Under the Uniform Voidable Transactions Act, even though a transfer is voidable as to a creditor against the transferor, the same transfer may not be voidable against the transferee under the good-faith exception. Opel contended the trial court erred by failing to apply the N.C. Gen. Stat. § 39-23.8(a) defense, because the transfer of the Surface Source Building was made in good faith and for reasonably equivalent value. Because the trial court’s binding findings of fact support the conclusion that neither Surface Source nor Opel acted in good faith in transferring the Surface Source Building, we need not address whether the transfer was made for “reasonably equivalent value[.]”

Finally, Opel alleged the trial court’s order “suffers from a fatal logical flaw.” Opel asserted that “[v]oiding the transaction cannot permit Omi to recover because the [Surface Source Building] was fully encumbered to secured creditors who had priority over Omi.” Not only is this assertion irrelevant, Opel misapprehends the nature of the relief that the trial court ordered The trial court did not, in fact, void the transfer of the Surface Source Building. The trial court merely entered “a judgment against [Opel] in an amount equal to [Omi]’s judgment against Surface Source.” This is a remedy that the trial court is indisputably authorized to enter by statute. Further, the fact that the Surface Source Building was encumbered by liens held by secured creditors does not create “a fatal logical flaw” in the trial court’s order sufficient to mandate reversal. Rather, as Omi noted, the trial court’s entry of judgment against Opel—in the same amount as Omi’s judgment against Surface Source—merely restores Omi to its status quo position: as a judgment creditor, no more and no less.

Affirmed.

Anhui Omi Vinyl Co. Ltd. v. USA Opel Flooring Inc. (Lawyers’ Weekly No. 011-203-24, 17 pp.) (Valerie Zahcary, J.) Appealed from Davidson County Superior Court (George C. Bell, J.) Wyatt Early Harris Wheeler, by Donavan J. Hylarides, James R. Hundley, and Molly R. Ciaccio, for plaintiff-appellee; Williams Mullen, by Camden R. Webb and Killian K. Wyatt, for defendant-appellant. North Carolina Court of Appeals