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24755 - Windsor Properties, Inc. v. Dolphin Head Construction Co., et al.

Davis Adv. Sh. No. 5
S.E. 2d


THE STATE OF SOUTH CAROLINA

In The Supreme Court

      Windsor Properties, Inc,    Appellant/Respondent,

         v.

      Dolphin Head

      Construction Co., Inc.,

      Linda T. Liscio and

      Ralph Liscio,    Respondents/Appellants.

Appeal From Clarendon County

Marion S. Riggs, Special Referee

Opinion No. 24755

Heard September 17, 1997 - Filed January 26, 1998

AFFIRMED IN PART; REVERSED IN PART


M. M. Weinberg, Jr. and M. M. Weinberg, III, both of
Weinberg, Brown and McMillan, of Sumter, for
appellant/respondent.
Linwood S. Evans, Jr., of Sumter, for respondents/
appellants.

      TOAL, A.J.: In this action for collection on a note and for

reconveyance of property, the plaintiff Windsor Properties appeals the special

referee's denial of such reconveyance, and the defendants appeal the referee's

denial of their slander of title claim. We affirm in part and reverse in part.

p. 19


WINDSOR PROPERTIES, INC., v. DOLPHIN HEAD CONSTRUCTION CO., ET AL.

Factual/Procedural Background

      For several years, Randy Blackwell and Windsor Properties1 had a

business relationship with Ralph Liscio ("Ralph") and his wholly-owned

company Dolphin Head Construction whereby Windsor would finance the

construction and remodeling of houses by Dolphin Head. One of their joint

projects -- the purchase and renovation of the Brogdon property -- is at the

center of the dispute in the present case. The parties had planned to

renovate this property and to split the profits when the property was sold.

In February 1990, Blackwell loaned Dolphin Head $27,6502 for the purchase

and renovation of the Brogdon property. Brogdon was purchased in Dolphin

Head's name.

      Ralph's wife, Linda Liscio ("Linda"), owned a piece of property called

the Pointer house. On October 26, 1990, Windsor Properties made a loan in

the amount of $127,000 to Linda, taking as security her equity in the Pointer

house. This money was to be used to complete the Brogdon property.

Windsor got back all of the money due it on the $127,000 loan.

      Linda and Ralph decided to list for sale both the Brogdon property and

the Pointer house; they would move into whichever house did not sell first.

Blackwell knew that Linda's intent was to end up with one of these two

houses. The Pointer house was sold January 1, 1992.

      ln February 1992, Ralph approached William Coffey ("Attorney") about

deeding Brogdon from Dolphin Head to Linda. A deed was prepared by

Attorney to convey the property. The deed reads, "Five dollars and no other

consideration." Attorney testified that he did not recall having any input into

the fact that the deed recites five dollars and no other consideration. He

further stated: "I may have asked if there were any consideration being

passed, and I was told no, or we would have put it in there. We always

would ask that as a matter of policy." Attorney had no recollection of any

money changing hands. Linda testified that she did not pay anything when

she received the deed.


      1 Windsor Properties is owned by Blackwell and George Jordan.

      2The record is not consistent as to this figure. Blackwell testified to the

$27,650 figure; however, Ralph actually testified to a higher amount. Ralph

testified that Blackwell wrote a check for $38,000 to Dolphin Head.

Blackwell then advanced another $13,000 for renovations.

p. 20


WINDSOR PROPERTIES, INC., v. DOLPHIN HEAD CONSTRUCTION CO., ET AL.

      In the spring of 1992, Ralph wrote Attorney a letter that listed eight

separate debts (totaling some $180,500) he owed Blackwell and Jordan. In

the letter, Ralph proposed a scheme for repayment of these debts. Ralph

wrote in the letter that he anticipated that in the course of negotiations,

Blackwell would bring up the issue of Brogdon house. Ralph stated this

property "is in Linda's name; we have a mortgage of $75,000 on it and in no

way will Linda agree to pledging the remaining equity [on the house]."

(emphasis in original). Attorney passed on the letter to Blackwell. Blackwell

testified that he did not know, prior to receiving this letter, that the property

had been transferred to Linda.

      Soon after the letter was sent, Ralph negotiated Dolphin Head's debt

with Windsor, and they reached an agreement on May 1, 1992. Dolphin

Head executed a promissory note and a loan agreement in favor of Windsor

in the amount of $110,092. The note was personally guaranteed by Ralph.

At the same time, Windsor received a confession of judgment from Dolphin

Head and Ralph. The confession states that Dolphin Head and Ralph are

indebted to Windsor in the amount of $110,092.

      In August 1993, Ralph and Linda contracted to sell the Brogdon

property to certain purchasers. When Blackwell heard about the proposed

sale, he filed a lis pendens.

      In September 1993, Windsor brought this action against Dolphin Head,

Ralph, Linda, and another party. The complaint alleged that the May 1,

1992 note executed in favor of Windsor for $110,092 was in default. It

moreover alleged that Ralph conveyed the Brogdon property to Linda for no

consideration, thereby depriving Windsor of the right to obtain satisfaction

of all proceeds due to it by Dolphin Head. Windsor prayed for an order

reconveying the Brogdon property to Dolphin Head. The complaint

additionally alleged that Dolphin Head and Ralph had defaulted on a $50,000

loan.

      In their answer, Dolphin Head and Ralph declared that they had

executed a loan agreement, promissory note, and confession of judgment to

memorialize the indebtedness to Windsor, and admitted that the note was in

default. They also admitted that Dolphin Head had conveyed the Brogdon

property to Linda. By way of counterclaim against Windsor, they alleged

intentional interference with contract and slander of title. They specified

that "By deed dated February 6, 1992, Defendant Linda Liscio became the

owner of the [Brogdon] property . . . ." It was further declared that on

August 19, 1993, Linda entered into a contract for the sale of the Brogdon

p. 21


WINDSOR PROPERTIES, INC., v. DOLPHIN HEAD CONSTRUCTION CO., ET AL.

property to a third-party. On September 13, 1993, Windsor filed a lis

pendens that prevented her from conveying title in accordance with the terms

of the contract and created a cloud on the title, causing her damages of

$175,000.

      The matter was referred to a special referee to conduct a hearing and

issue an order directly appealable to this Court. The referee held that

Windsor should be awarded $107,092, with interest, and $36,934, with

interest, against Dolphin Head and Ralph individually, as well as $10,000 in

attorneys' fees. The order further found that Linda had paid adequate and

valuable consideration for the transfer of the Brogdon property by Dolphin

Head. Even though there was no consideration exchanged when the deed

was delivered, Linda had already reimbursed Blackwell for the purchase

price.

      In relation to the slander of title counterclaim against Windsor, the

referee held that the lis pendens on the Brogdon property should be canceled;

however, there was no evidence that Windsor acted maliciously when it

caused the lis pendens to be filed against the Brogdon property.

      Both parties have appealed. Windsor argues on appeal that the referee

erred in finding that the transfer of the Brogdon property was not fraudulent

within the meaning of the Statute of Elizabeth. The Liscios have appealed

the referee's denial of their slander of title claim.

Law/Analysis

A. Statute of Elizabeth

      Windsor contends that Dolphin Head's transfer of the Brogdon property

to Linda was fraudulent under the Statute of Elizabeth.3 We agree.

      The Statute of Elizabeth, as codified in S.C. Code Ann. ยง 27-23-10

(Supp. 1997), provides in relevant part:

Every ... conveyance of lands ... which may be had or made to

   3The Liscios initially argue that Windsor's Statement of Issue on Appeal

does not comply with Rule 207(b)(1)(B), SCACR, which requires that the

statement be "concise and direct." This argument is without merit.

Windsor's Statement of Issue on Appeal does concisely and directly identify

the question before this Court.

p. 22


WINDSOR PROPERTIES, INC., v. DOLPHIN HEAD CONSTRUCTION CO., ET AL.
or for any intent or purpose to delay, hinder, or defraud creditors
and others of their just and lawful . . .debts . . . must be
deemed and taken . . .to be clearly and utterly void, frustrate
and of no effect, any pretense, color, feigned consideration,
expressing of use, or any other matter or thing to the contrary
notwithstanding.

      We have held that under this statute, conveyances shall be set aside

under two conditions: First, where the transfer is made by the grantor with

the actual intent of defrauding his creditors where that intent is imputable

to the grantee, even though there is a valuable consideration; and, second,

where a transfer is made without actual intent to defraud the grantor's

creditors, but without consideration. McDaniel v. Allen, 265 S.C. 237, 217

S.E.2d 773 (1975). The present case involves the second scenario envisioned

by McDaniel. If the transfer was not made on a valuable consideration, no

actual intent to hinder or delay creditors needs be proven. Here, there is

extensive evidence that Dolphin Head received no consideration for its

transfer of Brogdon to Linda. The deed transferring the property stated:

"Five dollars and no other consideration." The attorney who drew up the

deed testified that he had no recollection of any money changing hands.

Linda herself testified that she did not pay anything when she received the

deed. On appeal, the Liscios' essentially argue that consideration existed in

the form of the thousands of dollars Linda advanced for the purchase and

renovation of Brogdon. There does not exist clear and convincing evidence

of this.

      It is well-established that:

Where transfers to members of the family are attacked either
upon the ground of actual fraud or on account of their voluntary
character, the law imposes the burden on the transferee to
establish both a valuable consideration and the bona fides of the
transaction by clear and convincing testimony.

Gardner v. Kirven, 184 S.C. 37, 41, 191 S.E. 814, 816 (1937); see also

Coleman v. Daniel, II, 261 S.C. 198, 199 S.E.2d 74 (1973); Matthews v.

Matthews, 207 S.C. 170, 35 S.E.2d 157 (1945); Matthews v. Montgomery, 193

S.C. 118, 7 S.E.2d 841 (1940); First Union Nat. Bank v. Smith, 314 S.C. 459,

445 S.E.2d 457 (Ct. App. 1994). Here, the property was transferred from

Dolphin Head, wholly-owned by Ralph, to Linda. Accordingly, because this

p. 23


WINDSOR PROPERTIES, INC., V. DOLPHIN HEAD CONSTRUCTION CO., ET AL.

was in reality an intra-family transfer,4 the law imposes on Linda the burden

of establishing by clear and convincing evidence that there was consideration

and that the transaction was bona fide.

      Linda asserts that she made over $168,000 in payments for the

Brogdon property. An examination of the record reveals that the maximum

she could have paid, during the period preceding the conveyance of property

to her, was $40,965 to Blackwell for the purchase price of Brogdon, and

$79,528 for other costs connected to Brogdon. These numbers in isolation

would suggest that she has conveyed valuable consideration for Brogdon;

however, there are a number of problems with these figures. First, the

record contains no documentary evidence of these payments besides a single

chart prepared by Linda listing her contributions. The chart references

attachments (e.g. copies of checks), but none of these have been included in

the record on appeal. Because the law imposes on Linda, as the transferee,

the burden of establishing the validity of the transfer, she has the

responsibility of providing an adequate record. Cf General Accident Ins. Co.

v. Safeco Ins. Companies, 314 S.C. 63, 443 S.E.2d 813 (Ct. App. 1994).

      Second, assuming these contributions were being made, they were

offered at a time when Dolphin Head was still showing signs of ownership

of the property. This same chart shows that in March 1991, Dolphin Head

pledged the Brogdon property as security for a $31,849 mortgage loan, which

was to be "used by Dolphin Head for operating capital." Third, it is unclear

that the payments were going to Dolphin Head: One check is listed as being

made out to a plumber; another is described as being made out to "South

Carolina Federal for application to debt incurred to renovate Brogdon House."

      The other major problem with Linda's argument -- that she gave

valuable consideration -- is that it contradicts the position she took at the

hearing before the referee. There, the Liscio's attorney stated that the crux

of their argument was not on the basis of consideration, but rather, on the

basis of a prior satisfaction:

There was no money paid for the deed at the time the deed was
delivered. We concede that. There's never been a question about
that. The evidence has already been introduced that Dolphin
Head didn't buy this property. Mr. Blackwell bought the
property. He put up the money. Linda Liscio gave him the
money back. That's our position with regard to the deed. We

      4Linda testified, "Ralph Liscio and Dolphin Head to me were the same.'

p. 24


WINDSOR PROPERTIES, INC., v. DOLPHIN HEAD CONSTRUCTION CO., ET AL.
don't want there to be any misunderstanding about any -- we
don't claim that there was any money given in exchange for the
deed . . . .Our contention is Mr. Blackwell . . . bought the
property. Mrs. Liscio gave him his money back, and then she
funded the renovation.

(emphasis added).

      Finally, we reject Linda's argument because it contravenes the purpose

of the Statute of Elizabeth, which aims to prevent persons from defrauding

creditors by transferring their assets to third-parties. The focus of the

Statute is whether the grantor has reserved sufficient assets to satisfy his

obligations:

Where a conveyance is made without an actual intent to defraud
but without consideration, it is said that the conveyance will
stand if the grantor reserves a sufficient amount of property to
pay his creditors. But this means a sufficient amount of property
not merely at the time of the transfer, but an amount from which
in the final analysis the creditors are able to collect their
indebtedness in full.

Gardner, 184 S.C. at 42, 191 S.E. at 816 (internal citations omitted). In this

case, the deed transferring the property to Linda was executed three months

before Ralph and Dolphin Head executed a note and confession of judgment

evidencing their $110,092 debt to Windsor. The deed was executed

approximately two months before Ralph wrote Attorney and informed him

that he owed Windsor some $180,500. Dolphin Head and Ralph are

insolvent. The conveyance will not stand here because Dolphin Head and

Ralph have not reserved a sufficient amount of property to pay their creditor.

Linda has not demonstrated by clear and convincing evidence that the

transfer was for consideration and was bona fides. Accordingly, the referee

erred in failing to find that the Statute of Elizabeth had not been violated.

B. Lis Pendens

      The Liscios have cross-appealed, raising one issue. They assert that

the referee erred in concluding there was no evidence that Windsor was

acting maliciously when it filed the lis pendens against the Brogdon property,

thereby slandering the title to this property. Because we set aside the

transfer of Brogdon from Dolphin Head to Linda, the Liscios have no title to

this property, on the basis of which they may assert a slander of title action.

p. 25


WINDSOR PROPERTIES, INC., v. DOLPHIN HEAD CONSTRUCTION CO., ET AL.

CONCLUSION

      Based on the foregoing, the referee's order is REVERSED on the issue

of the violation of the Statute of Elizabeth. Accordingly, the transfer of the

Brogdon property from Dolphin Head to Linda is set aside. The referee's

order is AFFIRMED on the issue of slander of title.

FINNEY, C.J., MOORE, WALLER and BURNETT, JJ., concur.

p. 26