Gale Encyclopedia Of American Law 3Rd Edition Volume 4 P55 pps

Fraud must be proved by showing that the defendant’s actions involved five separate ele-ments: 1 a false statement of a material fact, 2 knowledge on the part of theDEFENDANTthat the sta

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(1776), theTREATY OF PARIS(1783), and the U.S.

Constitution (1787)—Benjamin Franklin holds

a revered place in the history of U.S law

Through his great success as a newspaper

publisher, journalist, writer, civic leader,

scien-tist, politician, and diplomat, and as an

inven-tor, Franklin became an international celebrity

in his day and an icon of the American

character to later generations

Franklin’s varied career had a lasting effect

on U.S law and politics As a leading local

figure, he established and shaped many of the

fundamental institutions of Philadelphia and

colonial Pennsylvania Before the Revolutionary

War (1775–83), Franklin served as envoy to

Great Britain for several colonies Though he

first advocated reconciliation with Britain, he

eventually supported the cause of American

INDEPENDENCE He was assigned the task of

securing an alliance with France during the

war, and his political skill and prestige helped

gain vital support for his young country as it

fought the world’s greatest military power After

the war, Franklin used his diplomatic ingenuity

to negotiate a successful peace treaty with

Britain Franklin also helped persuade the

CONSTITUTIONAL Convention of 1787 to reach

important compromises on the particulars of

the Constitution, and his support of that

DOCUMENT greatly improved its chances of

RATIFICATION

Franklin was born January 17, 1706, in

Boston, into a devout Puritan household His

only formal education consisted of two years of

grammar school, after which he began work for

his father, who was a tallow chandler, or candle

maker At age 12 he was apprenticed to his

half-brother, James Franklin, a printer and the

founder of the New England Courant, the fourth newspaper established in the British colonies In his teenage years, Franklin began to improve himself by reading on his own, including the works of such authors as John Bunyan, Plutarch, Daniel Defoe, Cotton Mather, Joseph Addison, andJOHN LOCKE Franklin employed his literary talents early, and wrote for the Courant articles satirizing Boston life and politics He became a manager of the newspaper, but then abruptly moved to Philadelphia in 1723 after disagreements with his brother

Franklin arrived in Philadelphia at age 17 with only one Dutch dollar and a copper shilling in his pocket He found work in a print shop and prospered enough to start his own

Benjamin Franklin LIBRARY OF CONGRESS

Benjamin Franklin 1706–1790

❖

1706 Born,

Boston, Mass.

◆

1718 Apprenticed to his older brother James, a printer

1723 Moved to Philadelphia

◆◆

1728 Started his own printing business

1730 Became sole owner of

the Pennsylvania

Gazette

1732–57 Poor

Richard's Almanack

published

◆

1748 Retired from business to concentrate on natural philosophy, writing, politics, and diplomacy 1751–64

Served in Pennsylvania Assembly

1757–75 Served as Pennsylvania Assembly's agent

in England (except for 1762–64)

◆

1776 Signed the Declaration of Independence

◆

1775–83 American Revolution

1790 Died, Philadelphia, Pennsylvania

1787 Signed U.S Constitution

1783 Signed Treaty of Paris, which gave the U.S complete independence from Britain

◆

1778–85 Served as first U.S

minister to France FRANKLIN, BENJAMIN 529

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printing business in 1728 In 1730 Franklin became sole owner of the Pennsylvania Gazette, which he transformed from a failing enterprise into a very influential newspaper He also had success in other publishing ventures, including Poor Richard’s Almanack (1732–57), an annual that presented practical information, satire, proverbs, and aphorisms In 1730 Franklin married Deborah Read, with whom he had two children He also had two illegitimate children, one of whom, William Franklin, later became governor of New Jersey

In 1727, still a rising young businessman, Franklin formed a club of tradesmen called the Junto, which met each week for discussion This group became highly influential in the life of Philadelphia and Pennsylvania Under his leadership, it founded a circulating library, the first of its kind in the colonies, in Philadelphia

in 1731; the American Philosophical Society in 1743; a city hospital in 1751; and an academy that developed into the University of Pennsyl-vania Franklin led the group in making many other civicIMPROVEMENTSas well

In 1748, now wealthy from his printing and publishing interests, Franklin retired from business He devoted the rest of his life to natural philosophy, writing, politics, and diplo-macy In the area of natural philosophy, or science, Franklin’s ingenuity and curiosity gained him world renown as both an inventor and a theoretician He designed an improved stove, later dubbed the Franklin stove, that was widely used, as well as bifocal glasses and a new type of clock He began to study ELECTRICITYin

1746 His ideas and experiments on this subject—including the famous experiment that involved a kite with a metal key attached to it— identified the electrical nature of lightning His work with electricity gained him many honor-ary degrees, including membership in the Royal Society in 1756 and in the French Academy of Sciences in 1772 He also developed a theory of heat absorption and was among the first to describe the Gulf Stream ocean current

Franklin’s study of natural philosophy was interrupted by an involvement in politics and diplomacy that ultimately dominated the last part of his life In Pennsylvania, he was a member of the Quaker party, which sought to democratize the colony’s politics and wrest power from its original founders, the Penn family He served as a representative to the

Pennsylvania ASSEMBLY from 1751 to 1764 In

1754, he represented Pennsylvania at the Albany Congress, which had been called to unite the colonies in a war against the French and Indians There, he unsuccessfully presented the Plan of Union, which would have estab-lished partial self-government for the colonies The British did not approve of Franklin’s plan because they felt it gave too much power to the colonies, and the colonial assemblies rejected it because they felt it gave the British monarch too much power Franklin also shared with another person the office of deputy postmaster for the colonies, from 1753 to 1774 In this office, he did a great deal to increase the frequency and efficiency of mail delivery

Franklin began a long and successful diplomatic career when he went to England in

1757 as the agent of the Pennsylvania Assembly

He remained in Britain through 1762 and met many leading figures of British society, includ-ing the philosopherDAVID HUMEand the author

Dr Samuel Johnson After spending two more years in Pennsylvania, he returned to England in

1764 to serve again as the Pennsylvania Assembly’s agent, and remained in Britain as

an agent for various colonies in turn, until 1775 During his years abroad, he witnessed firsthand the growing rift between Britain and the colonies

In the controversy over the 1765STAMP ACT, Franklin emerged as the American colonies’ chief spokesperson and defender The act imposed a tax on publications and papers and provoked an outrage in the colonies As the first

of a series of major disputes between the colonies and Britain, the Stamp Act catalyzed the American colonies’ desire for independence and united them in opposition to Britain Franklin opposed the Stamp Act before Britain’s House of Commons His articulate answers before Parliament were published widely and earned him much admiration in America and abroad Franklin also opposed such controver-sial acts of Parliament as the TOWNSHEND ACTS

(1767) and the Tea Act (1773) Although he originally worked for reconciliation with Brit-ain, Franklin left for America in March 1775 convinced of the need for American indepen-dence

Immediately upon his return to Philadelphia, Franklin was chosen to be a member of the SecondCONTINENTAL CONGRESS He again sketched

GIVE UP ESSENTIAL

PURCHASE A LITTLE

DESERVE NEITHER

—B ENJAMIN F RANKLIN

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a plan of union for the colonies He also was one

of a committee of five, includingJOHN ADAMSand

THOMAS JEFFERSON, appointed in 1776 to draft the

Declaration of Independence, the document that

formally announced the colonies’ break from

Britain Franklin signed the document, thereby

becoming a revolutionary at age seventy Soon

after, the Continental Congress sent Franklin

and two others to negotiate a critical treaty

with France Before he left, the wealthy Franklin

also loaned the struggling Congress several

thousand pounds

Franklin was greeted as a hero in France,

where translations of his scientific and literary

works had gained him much admiration

He was treated by all classes of society as a

great oracle, and his image was reproduced

widely in prints, medallions, jewelry, and

snuffboxes.“His reputation in Europe,” Adams

commented, “was more universal than that of

Leibnitz or Newton, Frederick or Voltaire, and

his character more beloved and esteemed than

any or all of them.”

During the first years of the Revolutionary

War, Franklin worked in France to secure war

supplies and build credibility with the French,

who were reluctant at first to cast their lot with

an untested new country France and the United

States finally signed an alliance in 1778, after

which Franklin became the first U.S minister to

France Fulfilling the myriad duties of that office

with great diplomatic skill, he continued to gain

crucial supplies and money for the U.S cause

In 1781, after defeat at the Battle of Yorktown

had persuaded the British to give up the war,

Franklin participated in delicate peace talks with

Britain He had much to do with the favorable

terms of peace set forth in the Treaty of Paris,

which finally gave the United States complete

independence from Britain

Franklin returned to the United States in

1785 After serving three years as president of

the Executive Council of Pennsylvania, he was

chosen as a member of the Constitutional

Convention, which met in Philadelphia in

1787 Now 81, he attended the convention

regularly for more than four months and served

as unofficial host to the delegates Although

Franklin’s calls for a single national legislative

chamber and for an executive board (as

opposed to a president) were not honored, his

arguments helped the convention reach the

important compromises that were necessary to

secure agreement on the document In particu-lar, Franklin called for mutual compromise on the sticky issue of the number of representatives

to be allotted to each state in the national legislature Of this disagreement, which pitted small states against large states, Franklin commented,

If a property representation takes place, the small states contend that their liberties will

be in danger If an equality of votes is to be put in its place, the large states say their money will be in danger When a broad table

is to be made, and the edges of the planks do not fit, the artist takes a little from both, and makes a good joint

Later, Franklin urged other members of the convention to approve the final version of the Constitution “I CONSENT, Sir, to this Constitu-tion,” he declared to the convention, “because I expect no better, and because I am not sure that

it is not the best The Opinions I have had of its Errors, I sacrifice to the Public Good.” In the following battle for ratification of the Constitu-tion, Franklin used his considerable reputation

to promote its success

For the last few years of his life, Franklin retired to Philadelphia In his last public act, he signed a memorial to Congress for theABOLITION

ofSLAVERY He died in Philadelphia on April 17,

1790, at the age of 84 Among his many lasting literary works is his autobiography

FURTHER READINGS Brands, H.W 2002 The First American: The Life and Times

of Benjamin Franklin New York: Random House.

Franklin, Benjamin 2003 The Autobiography of Benjamin Franklin: with Related Documents Ed Louis P Masur.

New York: St Martin ’s.

——— 1999 Benjamin Franklin: Autobiography and Other Writings Edited by Ormond Seavey New York: Oxford Univ Press.

Isaacson, Walter 2004 Benjamin Franklin: An American Life New York: Simon & Schuster.

Lemay, J.A Leo 1993 Reappraising Benjamin Franklin: A Bicentennial Perspective Cranbury, NJ: Associated Univ.

Murrey, Christopher J., ed 2002 Benjamin Franklin:

Biographical Overview and Bibliography New York:

Nova Science.

CROSS REFERENCE Constitution of the United States.

FRAUD

A false representation of a matter of fact—whether

by words or by conduct, by false or misleading allegations, or by concealment of what should

FRAUD 531

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have been disclosed—that deceives and is intended

to deceive another so that the individual will act upon it to her or his legal injury

FRAUDis commonly understood as dishonesty calculated for advantage A person who is dishon-est may be called a fraud In the U.S legal system, fraud is a specific offense with certain features

Fraud is most common in the buying or selling

of property, including real estate, personal prop-erty, and intangible propprop-erty, such as stocks,

BONDS, and copyrights State andFEDERALstatutes criminalize fraud, but not all cases rise to the level

of criminality Prosecutors have discretion in determining which cases to pursue Victims may also seekREDRESSin civil court

Fraud must be proved by showing that the defendant’s actions involved five separate ele-ments: (1) a false statement of a material fact, (2) knowledge on the part of theDEFENDANTthat the statement is untrue, (3) INTENTon the part

of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) INJURY to the alleged victim as a result

These elements contain nuances that are not all easily proved First, not all false statements are FRAUDULENT To be fraudulent, a false statement must relate to a material fact It should also substantially affect a person’s decision to enter into a contract or pursue a certain course of action A false statement of fact that does not bear on the disputed transaction will not be considered fraudulent

Second, the defendant must know that the statement is untrue A statement of fact that is simply mistaken is not fraudulent To be fraudu-lent, a false statement must be made with intent to deceive the victim This is perhaps the easiest element to prove, once falsity and materiality are proved, because most material false statements are designed to mislead

Third, the false statement must be made with the intent to deprive the victim of some

LEGAL RIGHT Fourth, the victim’s reliance on the false statement must be reasonable Reliance on a patently absurd false statement generally will not give rise to fraud; however, people who are especially gullible, superstitious, or ignorant or who are illiterate may recoverDAMAGESfor fraud

if the defendant knew and took advantage of their condition

Finally, the false statement must cause the victim some injury that leaves her or him in a worse position than she or he was in before the fraud

A statement of belief is not a statement of fact and thus is not fraudulent Puffing, or the expression of a glowing opinion by a seller, is likewise not fraudulent For example, a car dealer may represent that a particular vehicle is

“the finest in the lot.” Although the statement may not be true, it is not a statement of fact, and

a reasonable buyer would not be justified in relying on it

The relationship between parties can make a difference in determining whether a statement

The SEC provides for

civil and criminal

penalties in corporate

fraud In December

2008 Bernard Madoff

was arrested on a

count of securities

fraud and later

admitted that the

asset management

division of his

investment firm was a

Ponzi scheme.

AP IMAGES

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is fraudulent A misleading statement is more

likely to be fraudulent when one party has

superior knowledge in a transaction, and knows

that the other is relying on that knowledge, than

when the two parties possess equal knowledge

For example, if the seller of a car with a bad

engine tells the buyer the car is in excellent

running condition, a court is more likely to find

fraud if the seller is an auto mechanic as

opposed to a sales trainee Misleading

state-ments are most likely to be fraudulent where

one party exploits a position of trust and

confidence, or aFIDUCIARYrelationship

Fiducia-ry relationships include those between attorneys

and clients, physicians and patients,

stock-brokers and clients, and the officers and

partners of a corporation and its stockholders

A statement need not be affirmative to be

fraudulent When a person has a duty to speak,

silence may be treated as a false statement This

can arise if a party who has knowledge of a fact

fails to disclose it to another party who is justified

in assuming its nonexistence For example, if a

real estate agent fails to disclose that a home is

built on a toxic waste dump, the omission may be

regarded as a fraudulent statement Even if the

agent does not know of the dump, the omission

may be considered fraudulent This is

construc-tive fraud, and it is usually inferred when a party is

a fiduciary and has a duty to know of, and

disclose, particular facts

Fraud is an independent criminal offense,

but it also appears in different contexts as the

means used to gain a legal advantage or

accomplish a specific crime For example, it is

fraud for a person to make a false statement on

a license application in order to engage in the

regulated activity A person who did so would

not be convicted of fraud Rather, fraud would

simply describe the method used to break the

law or regulation requiring the license

Fraud resembles theft in that both involve

some form of illegal taking, but the two should

not be confused Fraud requires an additional

element of FALSE PRETENSES created to induce a

victim to turn over property, services, or money

Theft, by contrast, requires only the

unautho-rized taking of another’s property with the intent

to permanently deprive the other of the property

Because fraud involves more planning than does

theft, it is punished more severely

Federal and state criminal statutes provide

for the punishment of persons convicted of

fraudulent activity Interstate fraud and fraud on the federal government are singled out for federal prosecution The most common federal fraud charges are for mail and wire fraud Mail and wire fraud statutes criminalize the use of the mails or interstate wires to create or further a scheme to

DEFRAUD(18 U.S.C.A §§ 1341, 1342)

Tax fraud against the federal government consists of the willful attempt to evade or defeat the payment of taxes due and owing (I.R.C

§ 7201) Depending on the defendant’s intent, tax fraud results in either civil penalties or criminal punishment Civil penalties can reach

an amount equal to 75 percent of the underpayment Criminal punishment includes

FINES and IMPRISONMENT The degree of intent necessary to maintain criminal charges for tax fraud is determined on a case-by-case basis

by the INTERNAL REVENUE SERVICE and federal prosecutors

There are other federal fraud laws For example, the fraudulent registration ofALIENSis punishable as a misdemeanor under federal law (8 U.S.C.A § 1306) The “victim” in such a fraud is the U.S government Fraud violations

of banking laws are also subject to federal prosecution (18 U.S.C.A §§ 104 et seq.)

The Federal Sentencing Guidelines recom-mend consideration of the intended victims of fraud in the sentencing of fraud defendants The guidelines urge an upward departure from standard sentences if the intended victims are especially vulnerable For example, if a defendant markets an ineffective cancer cure, that scheme, if found to be fraudulent, would warrant more punishment than a scheme that targets persons generally, and coincidentally happens toINJUREa vulnerable person federal courts may require persons convicted of fraud to give notice and an explanation of theCONVICTIONto the victims of the fraud (18 U.S.C.A § 3555)

All states maintain a general criminal

STATUTE designed to punish fraud In Arizona the statute is called the fraudulent scheme and artifice statute It reads, in pertinent part, that

“[a]ny person who, PURSUANT to a scheme or artifice to defraud, knowingly obtains any benefit by means of false or fraudulent pre-tenses, representations, promises or material omissions” isGUILTYof aFELONY(Ariz Rev Stat

Ann § 13-2310(A))

States further criminalize fraud in a variety

of settings, including trade and COMMERCE,

FRAUD 533

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SECURITIES, taxes, real estate, gambling,INSURANCE, government benefits, and credit In Hawaii, for example, fraud on a state tax return is a felony warranting a fine of up to $100,000 or three years

of imprisonment, or both, and a fraudulent corporate tax return is punished with a fine of

$500,000 (Haw Rev Stat § 231-36) Other fraud felonies include fraud in the manufacture or distribution of a controlled substance (§ 329-42) and fraud in government ELECTIONS (§ 19-4)

Fraud in the application for and receipt of public assistance benefits is punished according to the illegal gain: fraud in obtaining over $20,000 in food coupons is a class B felony; fraud in obtaining over $300 in food coupons is a class C felony; and all other public assistance fraud is a misdemeanor (§ 346-34) Alteration of a mea-surement device is fraud and is punished as a misdemeanor (§ 486-136)

In civil court, the remedy for fraud can vary

In most states, a plaintiff may recover “the benefit of the bargain.” This is a measure of the difference between the represented value and the actual value of the transaction In some states, a plaintiff may recover as actual damages only the value of the property lost in the fraudulent transaction All states allow a plaintiff

to seek PUNITIVE DAMAGES in addition to actual damages This right is exercised most commonly

in cases where the fraud is extremely dangerous

or costly Where the fraud is contractual, a plaintiff may choose to cancel, or RESCIND, the contract A court order of RESCISSION returns all property and restores the parties to their precontract status

Fraud is also penalized by administrative agencies and professional organizations that seek to regulate certain activities Under state statutes, a professional may lose a license to work if the license was obtained with a false statement

One particularly well publicized area of fraud

is CORPORATE FRAUD Corporate fraud cases are largely governed by the Securities Exchange Act

of 1934 (15 USCA §§ 78a et seq.), along with other rules and regulations propagated by the

SECURITIES AND EXCHANGE COMMISSION These laws were a response to the market turmoil during the 1930s and well-publicized corporate fraud cases

The Securities Exchange Act and the SEC

regulate anything having to do with the trad-ing or selltrad-ing of securities and stocks They govern fraudulent behavior ranging from stock

manipulation to INSIDER TRADING They also provide for civil and criminal penalties for corporate fraud

Despite the act and the SEC, in the early part of the twenty-first century, corporate fraud began to seem endemic Such well-known companies as energy trader Enron, TELECOMMU-NICATIONS company WorldCom, cable provider Adelphia, and other lesser-known firms went into BANKRUPTCYas a result of corporate fraud

In light of these events, Congress decided to tighten up corporate fraud requirements with the passages of the Sarbanes-Oxley Act of 2002 (U.S PL 107-204)

Among other features, Sarbanes-Oxley re-quired expanded and more frequent disclosure by public companies of their finances to prevent fraud It created a Public Company ACCOUNTING

Oversight Board to register and regulate account-ing firms and accountaccount-ing practices It also enhanced the SEC’s power to monitor and investigate compliance with securities laws, adding stiff penalties for fraudulent behavior by corpora-tions, their officers, and their accountants FURTHER READINGS

Clemency, John 2002 “Corporate Fraud: Where Should the Buck Really Stop? Corporate Fraud Perspective ” On the Edge —American Bankruptcy Institute Journal 21 (November).

Podgor, Ellen S 1999 “Criminal Fraud.” American Univ Law Review 48 (April) Available online at http://www wcl.american.edu/journal/lawrev/48/pdf/podgor.pdf? rd=1; website home page: http://www.wcl.american.edu (accessed September 3, 2009).

Ribstein, Larry 2002 “Market vs Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act

of 2002 ” Journal of Corporation Law 28, no 1 (fall) Available online at http://papers.ssrn.com/sol3/papers cfm?abstract_id=332681; website home page: http:// papers.ssrn.com (accessed July 25, 2009).

CROSS REFERENCE Internet Fraud.

FRAUDULENT The description of a willful act commenced with the specific intent to deceive or cheat, in order to cause some financial detriment to another and to engender personal financial gain

FRAUDULENT CONVEYANCE

A transfer of property that is made to swindle, hinder, or delay a creditor, or to put such property beyond his or her reach

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For example, a man transfers his bank

account to a relative by putting the account in

the relative’s name He informs the relative that

he has not relinquished ownership of the funds,

but merely wants to isolate the money from the

reach of his creditors This is a FRAUDULENT

CONVEYANCEthat can be set aside by the court at

the request of the defrauded creditor

A creditor who seeks to set aside a

FRAUDULENTconveyance must comply with state

statutes Most states have adopted some version

of either the Uniform Fraudulent Transfer Act

(UFTA) or the older Uniform Fraudulent

Conveyance Act (UFCA) Generally, the

indi-vidual must acquire a lien (a right or claim) or a

judgment (a court decision) against a debtor’s

property A judgment is usually required to

show with certainty the existence of a valid and

enforceable debt, but it can be dispensed with,

depending upon the particular circumstances of

the case In many jurisdictions, a court will not

set aside the conveyance if the debtor owns

property, other than that which has been

fraudulently conveyed, that is sufficient to pay

the debt

Fraudulent Intent

Just because an individual in debt makes a

conveyance of his or her property does not

mean that it is a fraudulent conveyance Whether

a transaction constitutes a fraudulent conveyance

depends upon the existence of the INTENT to

DEFRAUDat the time that the challenged transfer

was made Because it may be difficult for the

courts to determine an individual’s intent, rules

have been established to help in the process

Such rules are called “badges of fraud.” For

example, if theTRANSFER OF ASSETSwas concealed,

anINFERENCEofFRAUDcan be made The failure to

record a conveyance, such as a DEED to land,

might indicate the existence of fraud Another

example is if the transfer included virtually all of

the debtor’s assets

If a voluntary conveyance renders a debtor

insolvent or leaves the debtor without the

means of paying the debts existing at the time

of the conveyance, it is fraudulent and without

any legal effect, regardless of the intent of the

parties

Family Relationships

A conveyance by one spouse to the other based

upon a FICTITIOUS or nominal consideration is

generally treated as fraudulent if it is made to

defeat the spouse’s creditor’s claims However,

if one spouse pays the other theMARKET VALUEof the property, the transfer is valid and will not be set aside as a fraudulent conveyance Where a conveyance between spouses is made in consid-eration of love and affection, it is voluntary and fraudulent if it renders the debtor spouse unable

to pay existing personal debts

Property purchased in the name of one spouse (e.g., the wife), but paid for with the funds of the other (e.g., the husband), can

be challenged by the husband’s existing creditors

ABONA FIDEdebt due by one spouse to the other, which can be established by showing that the spouses dealt with each other as debtor and creditor, is sufficient consideration to support a conveyance of property in payment of a debt as long as the debt bears a reasonable proportion to the value of the property conveyed

Creditors will lose their attack upon a conveyance between family members unless the transfer is for a grossly inadequate consid-eration and is surrounded by other circum-stances that establish fraud

Preferences

A debtor, although insolvent or in failing financial circumstances, can prefer one or more

of his creditors by paying these persons first, provided no fraudulent intent exists to cheat the other creditors The debtor’s motives for a preference among the creditors are IMMATERIAL

unless they establish fraudulent intent The property transferred must not unreasonably exceed the amount of the claim, and the transaction must not provide for special benefits

to the creditor A debtor can give a preference to his creditors because as ABSOLUTE owner of his personal property, the debtor can do with it as

he pleases, as long as the law is not violated By law, however, certain debts—such as those owed to the United States, or debts created by secured transactions—must be satisfied before any others

The existence of a family relationship between the debtor and preferred creditor does not, in itself, affect the validity of a preference

The relationship between the parties is just one factor to be considered, and is given commen-surate weight, along with other factors, in determining the GOOD FAITHof the transaction

A transaction involving a family relationship, however, will be more closely examined than if

it had taken place between strangers

FRAUDULENT CONVEYANCE 535

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Once a conveyance is declared void because of fraud, the court can do full justice by ordering a sale of property under its direction Every kind

of property that can be used for the payment of debts can be reclaimed by creditors in a proper case By statute many states exempt personal items—such as clothing, kitchen appliances, and household furniture—from being reached

by creditors to satisfy debts

The proceeds are used to pay off the costs of the lawsuit and to provide RESTITUTION to the creditors who brought the claims before the court A debtor who has fraudulently trans-ferred property to cheat his or her creditors might also be subject to statutory penalties and criminal prosecution, depending upon the law

in the debtor’s home state

Bankruptcy

In the context of BANKRUPTCYlaw, a fraudulent conveyance can be the basis for an objection to

DISCHARGE (the legal elimination of debt)

FEDERALlaw denies a discharge to a debtor who transfers property with intent to hinder, delay,

or defraud within the 12 months immediately prior to the filing of the bankruptcy petition or after the filing of bankruptcy petition

FURTHER READINGS Alces, Peter A 2002 The Law of Fraudulent Transactions.

Eagan, MN: Thomson/West.

Coulson, Richard E 1996 “Fraudulent Transfers: History, Overview, and Developments —State Law.” Consumer Finance Law Quarterly Report 50 (summer).

Glenn, Garrard 2001 Fraudulent Conveyances and Prefer-ences rev ed Buffalo, NY: Hein.

Suess, Erin 2002 “Fraudulent Conveyance Not Discharged When Debtor Files a Bankruptcy Action ” Daily Record (St Louis, MO/St Louis Countian) (May 8).

Wait, Frederick S 2008 A Treatise on Fraudulent Conveyances and Creditors’ Bills Charleston, SC:

BiblioBazaar.

FREE AGENCY

A legal status that allows a professional athlete to negotiate an employment contract with the team

of his or her choosing instead of being confined to one team Athletes may become free agents after they have served a specific amount of time under contract with a team

FREE AGENCY allows athletes who are at the peak of their careers to shop themselves out to teams that are willing to pay top dollar and offer the most comprehensive benefits and perks

In 1975 professionalBASEBALLwas the first major sport to adopt a formal free agency policy; football, basketball, and hockey followed Before free agency existed, sports franchises generally held complete control over individual players Their contracts contained reserve clauses, which specifically bound them to one team Players who grew unhappy with their team had little leverage; sometimes they might be released from a contract, but their only real hope was that they might be traded to another team Star athletes can benefit significantly from free agency When their contract is up, they may get lucrative offers from rival teams (often multiyear contracts worth millions of dollars) For athletes who are less successful, free agency means that if their contract is not renewed, they may be unable to find a spot on another team Still, the free agent system has helped athletes across the board because it forced teams to raise salaries for all players, not just free agents

From a team’s point of view, free agency can

be problematic because it makes it easier to lose star players; those same players also can demand higher salaries Teams bid for free agents, who usually sign with the highest bidder In

“restricted” free agency, a player is allowed to become a free agent subject to certain require-ments For example, a team might retain the right of first refusal, meaning that it can retain the player if it chooses to match a rival team’s offer Free agents can be restricted on the basis

of years served, or age In professional hockey, for example, a player may become a free agent after completing four seasons, but they hold restricted status if they are under 31 years

of age

In recent years, the term free agent has been used to describe individuals who work for themselves in a variety of situations—indepen-dent contractors, home office workers, and temporary employees, for example Even in-house employees whose skills are so specialized that they are especially attractive to other companies have been called free agents Strictly speaking, these people are not true free agents Independent contractors, like free agents, are allowed to sign on with any client or customer

of their choosing Usually, however, they are not contractually bound to any one client the way professional athletes are A freelance writer, for example, may contract with several clients at the

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same time Whereas some clients might ask the

writer to sign a promise not to divulge

proprietary information, in most cases the

writer is not actually prohibited from working

with specific companies Temporary workers

have slightly moreIN COMMON with free agents

They contract with an employment agency, and

they are restricted from accepting job offers

from the agency’s client companies Usually,

however, temporary workers are allowed to sign

up with more than one agency

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