Sasco 1997 NI, LLC v. Zudkewich

A-1330-98T1 (N.J. Super. App. Div. 1999) (Unpublished)
  • Opinion Date: December 21, 1999

FRAUDULENT TRANSFERS; STATUTE OF LIMITATION—For the purpose of applying the one-year “discovery” tolling provision of the Uniform Fraudulent Transfer Act’s statute of limitations, the recording of a deed constitutes constructive notice that starts the discovery period running.

After it obtained a default judgment against a guarantor, a judgment creditor conducted an asset search which revealed that the guarantor had transferred his personal home to his wife without adequate consideration about eight years earlier. Based on that information, the creditor filed a complaint against the borrower and his wife, alleging violation of the Uniform Fraudulent Transfers Act (UFTA), fraud, conversion, and unjust enrichment. The lower court dismissed the suit because it was not timely filed. Under the UFTA, the cause of action with respect to a fraudulent transfer is extinguished unless the action is brought within four years after the transfer was made or the obligation was incurred or, “if later, within one year after the transfer was or could reasonably have been discovered by the claimant.” The creditor argued to the lower court, “that it was not its business practice to conduct asset searches of guarantors until after obtaining a judgment against the guarantor.” Clearly, the four-year limitation period had expired before the suit was filed. With respect to the one-year provision, the lower court held that the transfer could reasonably have been discovered at the time it was made. It cited N.J.S. 46:21-1, which provides that a recorded deed “shall, from that time, be notice to all such judgment creditors, purchasers and mortgagees of the execution of the deed . recorded and of the contents thereof.” Based on the recording, the lower court reasoned that the creditor could have found out about the transfer at any time thereafter and therefore its suit was barred by the UFTA. On appeal, the creditor argued that it was unreasonable to trigger the one-year extension before judgment had been obtained. The Appellate Division rejected that view. “The language of the statute is clear. The one-year period begins to run once the transfer ‘could reasonably have been discovered.’” The Court held that the creditor could have performed an asset search much earlier and discovered the property transfer. Instead, it waited until after it obtained the judgment. Therefore, the harm resulted from the creditor’s business decision. The UFTA “expressly limits a creditor’s right to set aside a transfer to the time period in the statute, notwithstanding the date a party obtains a final judgment.” Therefore, “the statute bars the right rather than the remedy on expiration of the statutory periods prescribed.” The creditor also argued that all subsequent uses of the proceeds obtained when the wife sold the house in question constituted additional fraudulent transfers. The Court rejected that argument, saying that the only transfer at issue was the original one from the husband to his wife.