## Facts

- Bernard Blumenstein sold a landing craft, the **MERMAID I**, to Martin Dredging, Inc. (Martin) under a written “Conditional Sale Agreement” intended to secure payment of the purchase price.
- The conditional sale agreement was **not recorded**.
- The agreement required an initial down payment of **4,000 shares of Martin stock** and installment payments on an **$11,000** balance.
- Martin used the MERMAID I on an initial underwater gold-mining project near Nome, Alaska, and later acquired a second vessel, the **MERMAID II**.
- Martin obtained insurance for the MERMAID II through **Philips Insurance Center, Inc. (Philips)**.
- After the initial work, Martin **beached the MERMAID I** at its original location and focused on operations involving the MERMAID II.
- The MERMAID II venture failed, and Martin became **insolvent** and unable to pay Blumenstein the remaining amount owed for the MERMAID I.
- In September 1967, Blumenstein proposed that Martin **quitclaim** its interest in the MERMAID I back to him in exchange for Blumenstein’s **relinquishment of his claim for payment**; Martin executed a quitclaim deed in October 1967.
- After the quitclaim, Blumenstein went aboard the MERMAID I and performed acts consistent with ownership, including **removing equipment and preparing the vessel for winter**, but he did **not** move the vessel from the beach.
- Philips, unpaid for insurance premiums, obtained a **judgment** against Martin and caused the MERMAID I to be **attached** to satisfy Philips’s judgment.
- After seeing the attachment notice on the vessel, Blumenstein filed an **intervening complaint** in Philips’s action, asserting that he owned the MERMAID I by virtue of the quitclaim deed executed before the attachment.
- Philips responded that the quitclaim was a **fraudulent conveyance** because Martin was insolvent and Blumenstein allegedly did not take sufficient possession to make the transfer effective against creditors.
- The trial court ruled for Philips, treating the transfer as fraudulent and giving Philips’s attachment priority; Blumenstein appealed.

## Issues

1. Whether Martin’s quitclaim transfer of the MERMAID I to Blumenstein, made while Martin was insolvent and in satisfaction of an antecedent debt, was a **fraudulent conveyance** as to Philips.
2. Whether, assuming the transfer was not fraudulent, Blumenstein’s ownership obtained by quitclaim (and his acts of control over a beached vessel) was effective against Philips’s **subsequent attachment lien**.

## Decision

- The Supreme Court of Alaska **reversed** the judgment for Philips.
- The court held that the quitclaim transfer to Blumenstein was **not shown to be fraudulent** merely because Martin was insolvent and the transfer preferred Blumenstein over another creditor.
- The court concluded that Blumenstein’s ownership interest obtained before the attachment **prevailed** over Philips’s later attachment of the vessel.

## Legal Principles

- A debtor’s payment or transfer to satisfy a legitimate, preexisting debt may lawfully **prefer one creditor over another**; insolvency and preference alone do not establish fraudulent conveyance.
- A transfer is fraudulent as to creditors only when supported by evidence (direct or circumstantial) of an **intent to hinder, delay, or defraud** creditors, or when the surrounding facts otherwise justify such a finding under fraudulent transfer doctrine.
- Conveyance of property in **satisfaction of an antecedent debt** constitutes consideration; absent proof of sham or improper intent, such consideration supports the validity of the transfer against other creditors.
- Whether a transferee has taken sufficient “possession” or control to make a transfer effective against third parties depends on the **nature and location of the property**; for a large vessel sitting beached and inactive, possession may be shown by acts of dominion and responsibility without physically relocating the vessel.
- A judgment creditor’s attachment reaches only the debtor’s interest in the property at the time of attachment; if the debtor has already made a valid transfer, the creditor generally cannot gain priority by attaching afterward.

## Conclusion

The Alaska Supreme Court held that Martin’s quitclaim reconveyance of the MERMAID I to Blumenstein, made in exchange for Blumenstein’s surrender of his unpaid purchase-price claim, was not proved to be a fraudulent conveyance, and that Blumenstein’s pre-attachment ownership and control of the beached vessel defeated Philips’s later attachment lien.


Blumenstein v. Philips Insurance Center, Inc., 490 P.2d 1213 (1971)