Chapter 19 - § 19.8 • MATTERS AFFECTING VALIDITY

• Jurisdiction: Colorado

§ 19.8 • MATTERS AFFECTING VALIDITY

§ 19.8.1—Void Deeds

A void deed cannot pass title, and is wholly ineffective to interrupt one's right to possession of the property described.³⁵⁵ A forged deed is void and conveys no title.³⁵⁶

A purported conveyance, encumbrance, judicial sale, or other transfer of common elements or any other part of a cooperative is void unless made in compliance with C.R.S. § 38-33.3-312.³⁵⁷ A purported conveyance or other voluntary transfer of an entire cooperative, unless made in compliance with C.R.S. § 38-33.3-218, is void.³⁵⁸

Failure of consideration does not render a deed void³⁵⁹ but, particularly in support cases, may provide equitable grounds for a court to consider reconveyance of the property.³⁶⁰ A showing of fraud³⁶¹ or a specific promise to reconvey is not required.³⁶²

§ 19.8.2—Voidable Deeds

Mistake

A mistake, even though a material one, renders a deed not void but voidable in equity.³⁶³ Equitable relief will be granted in cases of mistake when the fact concerning which the mistake is made is material to the transaction, affecting its substance and not merely its incidents, and the mistake itself is so important that it determines the conduct of the mistaken parties.³⁶⁴ A court of equity may either decree reformation of the deed correcting the mistake, or declare a trust in favor of the grantee.³⁶⁵

One who executes an instrument without exercising ordinary care and prudence cannot have it set aside on the ground that he or she was ignorant of its contents.³⁶⁶ One with full knowledge, or the means of full and accurate knowledge, of the acreage contained in certain land cannot have the deed set aside on the ground that it conveyed more land than he or she supposed it conveyed.³⁶⁷

The mere fact that a deed describes property including property not owned by the grantor is no reason to have the deed set aside with respect to the property not owned by the grantor.³⁶⁸

Fraud (Misrepresentation)

Fraudulent acts generally render a deed voidable, but not void.³⁶⁹ If a deed is voidable for fraud, it will nevertheless convey good title to a bona fide purchaser.³⁷⁰

In order that a misrepresentation may support an action or be of any avail whatever as a ground for relief in equity, it is essential that it should be material in its nature, and should be a determining ground of the transaction. There must be false and material representations, and the party seeking relief should have acted on the faith and credit of such representations. It is not enough that it may have remotely or indirectly contributed to the transaction, or may have supplied a motive to the other party to enter into it. The representation must be the very ground on which the transaction has taken place.³⁷¹ Representations as to value, cost, or quality of property, if made with the purpose of having them accepted by the party to whom they are made as fact, and so relied upon, are treated as representations of fact.³⁷² A statement literally true is actionable if made to create an impression substantially false.³⁷³ One seeking to set aside a deed on the basis of fraud must show that the alleged false statement was made either with knowledge of its falsity or with reckless ignorance as to its truth or falsity, and that it was made with the intent to deceive.³⁷⁴ Where such misrepresentations are shown, equity will grant relief, either by setting aside the conveyance or by converting the offending party into a trustee of the property, for the person defrauded.³⁷⁵ It is immaterial whether the vendor had knowledge of the falsity of the representations.³⁷⁶

Failure to investigate does not preclude one from charging another with misrepresentation,³⁷⁷ but one who has made an independent investigation cannot have a deed set aside for misrepresentation.³⁷⁸ One who fails to read a deed cannot claim that he or she did not know that it transferred title to real property.³⁷⁹ One who accepts a deed without reading it cannot complain that it did not contain warranties supposedly agreed upon.³⁸⁰

It was formerly held that the evidence must be clear and convincing³⁸¹ or even "beyond a reasonable doubt."³⁸² Now, however, the burden of proof in any civil action is by a preponderance of the evidence.³⁸³

Fraud—Undue Influence³⁸⁴

A charge of undue influence is substantially a charge of a species of fraud.³⁸⁵ The essential condition precedent to the doctrine of undue influence is an inequality between the parties; there must be weakness on the one side and advantage taken of that weakness of the other, and it must appear that the dominant party either brought about the inequality in the condition, or finding it ready to his or her hand, utilized and traded on it to extract from the weaker party a gift or contract which he or she would not otherwise have made. Where such a relation exists between two persons, the law presumes in favor of the weaker party, against the dominant party (1) that the relation placed the dominant party in a position to exercise influence and dominion over the weaker party, (2) that such influence and dominion operated upon, and procured, the transaction, and (3) that the influence was improper and unfair, or "undue," influence. Whenever a person is in pecuniary necessity and distress, so that he or she would be likely to make any undue sacrifice, and advantage is taken of such condition to obtain from him or her a conveyance or contract which is unfair, made upon inadequate consideration, and the like, even though there be no actual duress or threat, equity may relieve defensively or affirmatively.³⁸⁶ The principle on which a court of equity acts in relieving against transactions on the ground of inequality of footing between the parties is not confined to cases where a fiduciary relationship is shown to exist, but extends to all the varieties of relations in which dominion may be exercised by one over another, and applies to every case where influence is acquired and abused, or where confidence is reposed and betrayed.³⁸⁷ However, the mere existence of a blood relationship³⁸⁸ or of an opportunity to exert undue influence on the grantor³⁸⁹ creates no presumption against the deed.

Inadequacy of Consideration

Mere inadequacy of consideration is not a sufficient ground for relief if the parties, being in the situation and having the ability to do so, have exercised their own independent judgment; the inadequacy must be accompanied by other inequitable incidents, or in itself must be so inequitable as to indicate fraud. Fraud is a fact that may be inferred from the evidence, and inadequacy of consideration is evidence from which fraud may be inferred. Such evidence may be weak or strong. Inadequacy so gross as to shock the conscience is such convincing evidence of fraud as to shift the burden of proof. Relief is given, however, not on the ground of the inadequacy, but on the ground of the fraud as evidenced by the inadequacy.³⁹⁰ The question to be determined is not whether the consideration was inadequate, but whether the transaction was in fact the result of independent judgment or was induced by coercion or imposition so as not to constitute the free and considered act of the party.³⁹¹

The burden of proof is upon the party who seeks rescission on the ground of undue influence.³⁹² Where the party seeking rescission has shown that the relative position of the parties is such as to raise a presumption of undue influence, the burden of going forward shifts to the other side.³⁹³ Nevertheless, the burden of proof remains with the party seeking rescission.³⁹⁴

§ 19.8.3—Fraudulent Conveyances

Until some lien or right has accrued to a creditor, the debtor retains dominion and control of his or her property, has the absolute power of disposition, and may transfer, convey, or encumber it at his or her pleasure to pay or protect any creditor. The debtor's power of disposition is complete and ample, and unless there is some fraudulent intent on his or her part to defraud his or her creditors in which the grantee participates, the conveyance is valid against those who thereafter proceed.³⁹⁵

A transfer made or obligation incurred by a debtor³⁹⁶ is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer³⁹⁷ was made or the obligation was incurred,³⁹⁸ if the debtor³⁹⁹ made the transfer or incurred the obligation:⁴⁰⁰

• With actual intent to hinder, delay, or defraud any creditor of the debtor.⁴⁰¹ The intent in question is the intent of the transferor at the time the transfer is made.⁴⁰² A fraudulent intent formed after the transaction is not sufficient.⁴⁰³ Whether a debtor intended to hinder, delay, or defraud creditors is a question of fact. The intent of the transferee can be imputed to the debtor when the transferee is in a position to dominate or control the disposition of the debtor's property.⁴⁰⁴
or

• Without receiving reasonably equivalent value in exchange for the transfer or obligation, and the debtor was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they become due.

C.R.S. § 38-8-105(2) lists a number of factors which may be considered in determining actual intent under C.R.S. § 38-8-105(1)(a):

• The transfer or obligation was to an insider
• The debtor retained possession or control of the property transferred after the transfer
• The transfer or obligation was disclosed or concealed⁴⁰⁵
• Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit
• The transfer was of substantially all of the debtor's assets
• The debtor absconded
• The debtor removed or concealed assets
• The value of the consideration received by the debtor was not reasonably equivalent⁴⁰⁶ to the value

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