Issue: Under Minnesota law, can equity be used to support the validity of a transfer against a claim for constructive fraud under Minnesota Uniform Fraudulent Transfer Act?
|Area of Law:||Bankruptcy & Creditors Rights|
|Keywords:||Constructive fraud; The Minnesota Uniform Fraudulent Transfer Act (MUFTA); Insider-transfer claims|
|Cited Cases:||763 N.W.2d 686; 602 N.W.2d 243; 283 N.W.2d 877|
Insider-transfer claims under the Minnesota Uniform Fraudulent Transfer Act (MUFTA) are essentially constructive (rather than actual) fraud cases. See, e.g., Thommes v. Thommes, No. A11–1591, 2012 WL 2368877 (Minn. Ct. App. June 25, 2012), **4-5; In re Northgate Computer Sys., Inc., 240 B.R. 328, 367 (Bankr. D. Minn. 1999).
Constructive fraud is defined as an act done or omitted that amounts to positive fraud, or is construed as a fraud by the court because of its detrimental effect upon public interests and public or private confidence, even though the act is not done or omitted with an actual design to perpetrate positive fraud or injury upon other persons.
37 Am. Jur. 2d Fraud and Deceit § 9 (2012). Stated another way, “‘constructive fraud’ arises by operation of law from a course of conduct which, if sanctioned by law, would secure an unconscionable advantage.” Id. A bank should not be allowed to exercise its muscle over a third-party to secure an unconscionable advantage. The Court’s upholding the mortgage, by contrast, would not cause a detrimental impact on public interests or a loss of public or private confidence. In fact, if large financial institutions were allowed to bully innocent private creditors, public confidence in the banking industry could experience further decline, even beyond the monumental losses of trust experienced in recent years.
Constructive fraud claims are based on principles of equity. See 30A C.J.S. Equity § 52 (2012) (“In addition to cases […]