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Skagit Valley Publishing Co. v. Kajac Inc.

April 14, 1997

SKAGIT VALLEY PUBLISHING CO., RESPONDENT,
v.
KAJAC, INC.; APPELLANT, JACK SORGENFREI AND THE MARITAL COMMUNITY COMPOSED OF JACK SORGENFREI AND KATHY SORGENFREI; SAMMAMISH VALLEY PUBLISHING, INC.; COHO REALTY, INC.; DEFENDANTS, WILL KNEDLIK, APPELLANT, AND THE MARITAL COMMUNITY COMPOSED OF WILL KNEDLIK AND JANET BLUMBERG, FORMERLY KNOWN AS JANET KNEDLIK; EASTSIDE POTPOURRI, INC.; COLOR PRINT COMPANY, INC.; PACIFIC OFFSET, INC.; DEFENDANTS, GRAND RAPIDS INVESTMENT TRUST, A WASHINGTON LIMITED PARTNERSHIP, APPELLANT.



Appeal from Superior Court of King County. Docket No: 92-2-27528-7. Date filed: 07/25/94. Judge signing: Hon. Robert J. Wesley.

Authored by William W. Baker. Concurring: Faye C. Kennedy, Ann L. Ellington.

The opinion of the court was delivered by: Baker

BAKER, C.J. - Grand Rapids Investment Trust (Grand Rapids) enforced its secured interest by foreclosure, a right established under the Uniform Commercial Code (UCC). Skagit Valley Publishing Company (Skagit) alleges that the act of foreclosure was fraudulent under the Uniform Fraudulent Transfer Act (UFTA). We hold that Skagit's UFTA claim is not time barred and that the extinguishment period began on the date of the alleged fraudulent transfer (the foreclosure) and not upon filing of the underlying UCC financing statements. We decline to apply the extraordinary remedy of laches because Grand Rapids has failed to demonstrate that it has altered its position in such a manner that equity demands barring Skagit's claim.

Grand Rapids asks this court to establish a rule that the UCC provides an absolute safe harbor to creditors who enforce secured debts against defaulting debtors. We decline to adopt such a rule and hold that UCC compliance does not insulate a party from claims under UFTA. While the exercise of UCC rights may operate to cut off third party rights, a secured party is not free to perpetuate fraud in exercising its perfected rights. We decline to address additional arguments raised by Grand Rapids due to the inadequate record on review. We affirm the judgment entered in favor of Skagit.

Because this opinion will not be published, and the parties are familiar with the facts, we proceed without an introductory summary of the facts, including them within our Discussion only as necessary.

Discussion

Statute of Limitations

A fraudulent transfer claim under the "actual intent" fraud provision of UFTA is extinguished unless the action is brought within four years after the transfer was made. *fn1 UFTA defines "transfer" as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance." *fn2 A transfer is made with respect to an asset, not real property, "when the transfer is so far perfected that a creditor on a simple contract cannot acquire a judicial lien otherwise than under this chapter that is superior to the interest of the transferee". *fn3 If applicable law does not permit the transfer to be perfected under RCW 19.40.061(1), the transfer is made "when it becomes effective between the debtor and the transferee". *fn4

On December 4, 1992, Skagit brought a claim against Grand Rapids under UFTA to set aside, as a fraudulent transfer, a stipulated foreclosure of December 6, 1988. Grand Rapids had foreclosed by stipulated judgment against all the assets of the companies liable on a promissory note held by Skagit. The judgment granted Grand Rapids an immediate and irrevocable foreclosure as to every item of collateral serving as security. The financing statement related to the security interest underlying the foreclosure was initially filed on October 27, 1986, and then renewed, in a broader form, on November 8, 1988. Grand Rapids argues that the limitations period began to run upon the filing of the financing statement and that Skagit's claim is therefore barred. *fn5

Filing a UCC financing statement gives notice to the world that the named parties have entered into a secured transaction covering specific collateral, and invites further inquiry into the transaction. *fn6 In the context of UFTA claims, however, the constructive notice that follows from filing is limited to situations where "the facts upon which the fraud is predicated" are contained in the written instrument placed in the public record. *fn7 Because the financing statements did not contain or disclose the elements of Skagit's fraudulent transfer claim, the limitations period did not begin to run at the time Grand Rapids filed them. *fn8 The transfer attacked by Skagit as fraudulent is the foreclosure that occurred on December 6, 1988, the "disposing of or parting with an asset". *fn9 Skagit does not attack the "creation of a lien or other encumbrance." *fn10 UFTA differs from the repealed UFCA in that the premise under the new Act is that "the value of the interest transferred for security is measured by and thus corresponds exactly to the debt secured." *fn11 Under this premise it is clear that the creation of a security interest by filing a financing statement could not of itself give rise to a claim of actual fraud. A creditor attempting to set aside a transfer as fraudulent under UFTA has no basis for an actual fraud claim until the debtor makes a transfer with "actual intent to hinder, delay, or defraud". *fn12

Grand Rapids also argues that because a judgment lien "relates back to the date of the perfection of the security interest in such collateral", *fn13 any claim related to that security interest must begin to accrue at perfection of the security interest. We reject this argument because it fails to recognize that filing the security interest is not the basis of Skagit's fraudulent transfer claim.

We hold that the extinguishment period began on December 6, 1988, the date of the alleged fraudulent transfer: the foreclosure. Because UFTA applies, and because Skagit filed suit within four years, its fraudulent transfer claim is not barred under RCW 19.40.091(a). *fn14

Laches

The purpose of laches, an extraordinary remedy, is to prevent inJustice and hardship. *fn15 The doctrine should only be applied when a party with known rights fails to take steps to enforce them and the condition of the other party has in good faith become so changed that it cannot be restored to its former state. *fn16 Whether the doctrine applies depends on the inherent equities of the ...


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