This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2000).
IN COURT OF APPEALS
Hennepin County District Court
File No. 00016039
Thomas J. Lallier, Thomas A. Harder, Foley & Mansfield, P.L.L.P, 1108 Nicollet Mall, Minneapolis, MN 55403 (for respondent)
Tony P. Trimble, Matthew W. Haapoja, Trimble & Associates, Ltd., 11700 Minnetonka Boulevard, Minneapolis, MN 55305 (for appellants)
Considered and decided by Randall, Presiding Judge, Toussaint, Chief Judge,* Stoneburner, Judge.
Lorenz sued Grand Tours, Inc. (GT) in 1996 to collect accounts receivable. The parties settled the lawsuit in September 1997 by an agreement that required GT to make periodic payments to Lorenz.
During the fall of 1997, appellant Richfield Bus Company, a Minnesota corporation that operates a charter-tour bus company, provided bus services to GT. At the beginning of 1998, GT owed Richfield more than $31,000. On February 13, 1998, GT and Richfield co-signed a demand promissory note for a $75,000 loan from Highland Bank to GT. Absent earlier demand, the note was due on August 15, 1998. As security for the note, GT executed a security agreement dated January 30, 1998, granting Bank a security interest in substantially all of GT’s assets. The security agreement provides that GT will be in default if “I do or fail to do something which causes you to believe that you will have difficulty collecting the amount I owe you.” The agreement further provides that if GT is in default Bank may demand immediate payment and/or require GT to gather the property and make it available to Bank in a reasonable fashion.
Bank filed a financing statement on February 11, 1998, perfecting its security interest in GT’s assets. There is no evidence in the record that GT was insolvent in February 1998.
GT then defaulted in its settlement payments to Lorenz. On April 28, 1998, Lorenz gave GT notice of the default. In July 1998, Lorenz requested enforcement of the settlement agreement from the district court.
On September 15, 1998, Bank, GT and Richfield executed a replacement note with all of the terms of the original note, but extending the due date to February 15, 1999. GT’s president, Karl Sanders, executed a guaranty to the replacement note that also acknowledged Bank’s right to demand payment if GT became insolvent.
On September 30, 1998, the district court ordered judgment against GT for $30,000 plus attorney fees and enjoined GT, for one year, from
directly or indirectly owning, managing, operating, controlling, participating in, or being connected in any manner with the ownership, management, operation or control of any business which involves or is related to charter tour bus business.
Richfield and Bank were aware of this order. On October 2, 1998, GT, Sanders, Richfield, through its president, appellant Holter, and Bank, executed an “Agreement for Voluntary Surrender of Collateral.” The agreement declared GT in default and acknowledged Bank’s demand for payment in full of the note. GT, Sanders and Richfield consented to Bank’s immediate foreclosure of Bank’s security interest in the collateral and GT voluntarily surrendered possession of the collateral to Bank, agreeing that Bank could immediately proceed to dispose of the collateral “in accordance with provisions of the Minnesota Uniform Commercial Code.” The debtors agreed to waive any notice requirements of the UCC.
Richfield immediately made arrangements to pay obligations to keep the buses with GT tours on the road. On October 7, 1998, Richfield satisfied the note in the amount of $72,957.77, and Bank and Richfield executed a non-recourse assignment, assigning to Richfield all of Bank’s interest in the note, security agreement, UCC filings, and agreement for voluntary surrender. Bank wrote on the note: “sold without recourse to Richfield Bus Company on 10/2/98 Highland Bank by Craig Zemke.” Craig Zemke is Bank’s senior vice president who signed all of the relevant documents on Bank’s behalf.
Holter stated in his deposition that he understood that he was “paying the loan off.” He said that he had “to make good on the fact that [he] had signed [his] name on the loan.” Holter also testified that Richfield did not have the intention of taking over GT. He stated: “We only wanted assets, if they didn’t pay.” In reference to paying off the $75,000 note, he said, “[w]e would have been allowed to take what we wanted. The assets? Sure. We would want them * * * .”
Richfield then opened a charter tour division to operate a tour company with GT’s assets. This division is called Heartland Tours, Twin Cities.
Lorenz’s judgment against GT was entered on October 28, 1998. Lorenz sued Richfield in November 1998, seeking satisfaction of its judgment against GT from Richfield on the grounds that the transfer of assets to Richfield was fraudulent under the Minnesota Fraudulent Transfer Act and that Richfield was liable for the judgment as GT’s successor. Lorenz also sought an injunction prohibiting Richfield from operating a bus business in Minnesota for 12 months.
Both parties moved for summary judgment. The district court granted Lorenz’s motion for summary judgment on the issue of fraudulent transfer, concluding that GT transferred assets to Richfield on October 2, 1998 with actual intent to hinder, delay or defraud Lorenz and that GT transferred its assets without receiving reasonable value and intending to incur, or reasonably believing it would incur, debts beyond its ability to pay as they became due. Minn. Stat. § 513.44(a)(1), (2)(ii) (2000). The district court denied Lorenz’s summary judgment motions with respect to damages and injunctive relief and denied Richfield’s summary judgment motion. The matter proceeded to trial to the court only on the issue of the actual value of the collateral transferred on October 2 so that damages could be determined.
At trial, Holter asserted that he, rather than Richfield, owned GT’s assets. The district court allowed Lorenz to add Holter as a defendant at the close of the trial.
During the trial, Richfield sought to introduce testimony from Zemke. The district court advised Zemke that his testimony could be used against him in a criminal proceeding, that if he testified he was waiving his “Fifth Amendment right under the Constitution,” and suggested that he consult with an attorney before deciding to testify. Zemke agreed. When he returned to the witness stand, Zemke stated that he had spoken with an attorney, he was willing to testify, but he was not willing to waive his “rights.” The district court told him he could not testify if he was not willing to waive his rights “[b]ecause of your situation in this case. You’re either going to answer all questions or no questions.” Because he would not waive his Fifth Amendment rights, the district court did not allow him to testify.
Finding that the value of GT’s assets transferred to Richfield exceeded the amount of Lorenz’s judgment against GT, the district court ordered judgment in favor of Lorenz for $30,932.77 plus attorney fees and costs. This appeal followed.
On a summary judgment appeal, this court asks whether there are any genuine issues of material fact and whether the district court erred it its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). A motion for summary judgment shall be granted
if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law.
Minn. R. Civ. P. 56.03. In this case, both parties moved for summary judgment, asserting that there are no material issues of fact.
Under Minnesota’s Fraudulent Transfer Act:
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(2) without receiving a reasonable equivalent value in exchange for the transfer or obligation, and the debtor:
(i) 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
(ii) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.
Minn. Stat. § 513.44(a) (2000).
The district court first examined whether the events complained of qualify as a “transfer” within the meaning of the act. See In re Butler, 552 N.W.2d 226, 231 (Minn. 1996) (recognizing that whether a particular event qualifies as a “transfer” under the Act is a threshold question).
“Transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease and creation of a lien or other encumbrance.
Minn. Stat. § 513.41 (12) (2000).
The district court found that a transfer occurred on October 2, 1998 when GT voluntarily surrendered the collateral to Bank. But the district court failed to consider that, under the statute, a finding of “transfer” is dependent on whether any of the items purportedly transferred constitute “assets.” In re Wintz Cos., 230 B.R. 848, 860 (B.A.P. 8th Cir. 1999).
“Asset” means property of a debtor, but the term does not include:
(i) property to the extent it is encumbered by a valid lien.
Minn. Stat. § 513.41 (2)(i) (2000). A “valid lien” as it applies to the above definition is “a lien that is effective against the holder of a judicial lien subsequently obtained by legal or equitable process or proceedings.” Minn. Stat. § 513.41 (13) (2000). The statute also ascribes a particular meaning to the term “lien.”
“Lien” means a charge against or an interest in property to secure payment of a debt or performance of an obligation, and includes a security interest created by agreement * * * .
Minn. Stat. § 513.41 (8) (2000).
Lorenz does not dispute that, on October 2, 1998, substantially all of GT’s assets were subject to Bank’s valid security interest created in January 1998. The district court erred by concluding that a “transfer” within the meaning of Minn. Stat. § 513.44(a) occurred on October 2, 1998 without examining whether any of the items purportedly transferred constituted “assets” as defined in the statute. Based on the information before the court at the time of summary judgment, GT’s assets were all encumbered by a valid lien, taking them out of the statutory definition of assets. Because no “assets” were involved, no “transfer,” as defined by the act, occurred on October 2, 1998, mandating summary judgment against Lorenz on its claims under the act.
This analysis is consistent with the purpose of the act which is to “prevent debtors from putting property which is available for the payment of their debts beyond the reach of their creditors.” In re Butler, 552 N.W.2d at 232 (emphasis added) (quoting Kummet v. Thielen, 210 Minn. 302, 306, 298 N.W. 245, 247 (1941)). Lorenz, as an unsecured creditor, was unable to reach GT’s property after Bank’s security interest was perfected. Lorenz is presumed to have been aware of Bank’s perfected security interest from the date the financing statement was filed in February 1998. See Corporate Financers, Inc. v. Voyageur Trading Co., 519 N.W.2d 238, 242 (Minn. App. 1994) (“[F]iling of the financing statement serves as notice to the world that a secured party of record may have a secured interest in the collateral described and invites further inquiry to disclose the complete state of affairs.”), review denied (Minn. Sept. 16, 1994).
The only transaction that qualifies as a transfer under the unambiguous language of the statute is GT’s grant of the security interest to Bank in February 1998. Lorenz has not alleged that the security interest was fraudulently created and there is no evidence in the record that would support such an allegation. GT, which was solvent at the time, gave the security interest to secure a $75,000 loan and Bank perfected the security interest pursuant to statutorily prescribed procedures.
The non-fraudulent nature of Bank’s security interest distinguishes this case from New Horizon Enters., Inc. v. Contemporary Closet Design, Inc., 570 N.W.2d 12 (Minn. App. 1997). New Horizon sued Contemporary Closet Design (CCD) for breach of contract in 1992. Id. at 13. After the lawsuit was brought, but before the arbitrator issued a judgment, CCD executed and delivered to Merlin Anderson, a director, officer and shareholder of CCD, security agreements and promissory notes related to outstanding loans. Id. Anderson filed a UCC-1 financing statement to perfect his interests in the security agreements on October 1, 1993. Id. at 13-14. In May 1995, the arbitrator awarded judgment in favor of New Horizon. Id. at 14. On June 16, 1995, Anderson incorporated a new business, Woodrow MFG, Inc. Id. Five days later Anderson transferred his rights in the security agreements to Woodrow. Id. Woodrow then foreclosed on all of CCD’s collateral. Id. at 14-15.
This court affirmed the district court’s finding that the transfer of assets from CCD to Woodrow through Anderson was subject to the Fraudulent Transfer Act and that the transfer of assets was, in fact, fraudulent. Id. at 15-16. The court stated that “[t]he relationship between the parties is a significant consideration,” noting that Anderson was an officer, director, and shareholder of both CCD and Woodrow. Id. (citation omitted). The transfer in New Horizon is distinguishable from the transactions in the instant case. There is no allegation in the instant case that the perfection of Bank’s security interest was in any way fraudulent or designed to set a fraudulent scheme in motion. And the court specifically and correctly found that GT did not make a transfer to an insider through a secured party.
Even if the October 2, 1998 transaction could be considered in any part a “transfer,” the district court ignored important provisions of the Uniform Commercial Code (UCC) to erroneously conclude that the October 2, 1998 transaction was fraudulent.
First, the district court implied that Bank improperly declared the note in default after an order was issued prohibiting GT from engaging in business for one year. Bank is not a party to the lawsuit and has never been given an opportunity to defend the implication that it has acted improperly or fraudulently or to explain the commercial reasonableness of its actions. The evidence before the district court at the time of summary judgment established that the note was a demand note and that Bank had a contractual right to declare a default if GT did anything that caused Bank to believe that it would have difficulty collecting on the note. The order suspending GT’s operations for a year for defaulting on the settlement agreement undisputedly constitutes a good faith basis for such a belief. The district court erred by implicitly determining that Bank acted fraudulently by declaring a default and demanding payment on the note on October 2, 1998.
There is also no basis for the district court’s implied faulting of GT for voluntarily surrendering the collateral once it was in default.
Unless otherwise agreed a secured party has on default the right to take possession of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace * * * . If the security agreement so provides the secured party may require the debtor to assemble the collateral and make it available to the secured party * * * .
Minn. Stat. § 336.9-503 (1998).
The district court emphasized the immediacy of the demand and surrender after the injunction as a “badge of fraud” but swift action was commercially reasonable in this case. It is undisputed that GT had clients in mid-tour on Richfield buses which also carried clients from Heartland Tours when GT was enjoined from further operation of its business. On the record before us, we conclude that there is no evidence to support the district court’s implicit determination that GT’s voluntary surrender of secured collateral to the secured party and agreement to waive notice regarding disposition of the collateral constitute indicia of fraud, even if the Fraudulent Transfer Act applies to the October 2, 1998 transaction.
The district court concluded that, as a matter of law, GT transferred assets to Bank, which fraudulently transferred assets to Richfield with actual intent to hinder, delay or defraud Lorenz contrary to the Fraudulent Transfer Act. Bank was not a debtor of Lorenz and did not transfer the collateral to an insider of Lorenz, the only two situations that would make the Fraudulent Transfer Act apply to Bank’s actions. Nonetheless, the court applied the “badges of fraud” analysis to determine that Bank’s disposition of the collateral constituted actual fraud in violation of the act. In re Butler, 552 N.W.2d at 231 (noting that because intent to hinder, delay or defraud creditors is seldom susceptible of direct proof, courts rely on “badges of fraud”). The district court found that five of the eleven factors set out in Minn. Stat. § 513.44(b), factors which are to be considered in determining actual intent, “are conclusively met” in this case. The factors are whether:
(1) the transfer or obligation was to an insider;
(2) the debtor retained possession or control of the property transferred after the transfer;
(3) the transfer or obligation was disclosed or concealed;
(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5) the transfer was of substantially all the debtor’s assets;
(6) the debtor absconded;
(7) the debtor removed or concealed assets;
(8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
(9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
(10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and
(11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Minn. Stat. § 513.44(b).
In considering the factors, however, the district court only considered that Richfield was a comaker of the note, and failed to correctly analyze the relationship between GT and Richfield. Under the undisputed circumstances surrounding the making of the note, Richfield signed the note as an accommodation maker.
(b) An accommodation party may sign the instrument as maker, drawer, acceptor, or endorser and * * * is obligated to pay the instrument in the capacity in which the accommodation party signs.
* * * *
(e) An accommodation party who pays the instrument is entitled to reimbursement from the accommodated party and is entitled to enforce the instrument against the accommodated party.
Minn. Stat. § 336.3-419(b), (e) (1998).
The district court relied heavily on its conclusion that Bank’s transfer of collateral to Richfield was made “for no consideration.” But as an accommodation party who paid off the loan, Richfield was entitled to an assignment of the collateral. See LeRoy v. Marquette Nat’l Bank of Minneapolis, 277 N.W.2d 351, 355 (Minn. 1979) (affirming district court’s holding that “a surety is entitled to be subrogated to the rights of the creditor upon payment of the debt and to equitable assignment of the security”). The district court correctly concluded that the transfer of collateral from Bank to Richfield was not a sale and correctly noted that Richfield did not dispose of the collateral pursuant to the UCC. See Minn. Stat.§ 336.9-504 (5) (1998) (providing that a person who is liable to a secured party under a guaranty, endorsement, repurchase agreement, or the like and who receives a transfer of collateral from the secured party thereafter has the rights and duties of the secured party and that such a transfer is not a sale or disposition under the article). Nonetheless, the assignment was not without consideration and was not fraudulent. The district court erred by concluding that the transfer of the collateral by Bank to Richfield was fraudulent. Richfield’s alleged failure to comply with the UCC’s provisions for disposition of the collateral after assignment might give rise to a remedy under the UCC but does not implicate the Fraudulent Transfer Act.
Both parties failed to give needed attention to the role of the UCC in this matter and neither provided any guidance to the district court on the interaction between the UCC and the Fraudulent Transfer Act. The only factors for evaluating fraud that might apply to the October 2, 1998 transactions are acts authorized by the UCC and are not, in this case, “badges of fraud.” Therefore, even if the October 2, 1998 transaction could be construed as a transfer under the act, the district court erred in concluding that the transfer was made with actual intent to hinder, delay, or defraud Lorenz and erred in concluding that the transfer was made for no value in violation of Minn. Stat. § 513.44(a) (2000).
Because we conclude that Richfield was entitled to summary judgment, we need not reach the issues of evidentiary rulings, addition of Holter as a defendant, determination of damages, or the award of attorney fees.
* The Honorable Daniel F. Foley, one of the founding members of this court, who continued to serve by appointment order from the supreme court after his retirement, fully participated in the consideration of this appeal. Due to Judge Foley’s untimely death before the filing of the opinion, Chief Judge Toussaint has been assigned as a substitute, and now joins the panel in issuing this decision.
 Bank filed a UCC-3 statement of assignment on January 11, 1999 indicating that Bank had made a total assignment of all its rights under the original financing statement to Richfield.
There is also a “Heartland Tours” in Rochester, Minnesota, owned by Richfield’s president’s son. Heartland Tours was a competitor of GT but, when neither could fill a bus, passengers from both companies would tour on the same bus.
Lorenz did not pursue its claim of successor liability on appeal.
 On appeal, Richfield argues that a genuine issue of material fact exists as to whether: (1) GT owed Richfield $72,957.77 at the time of the transfer; (2) Richfield had a perfected security interest in GT’s assets; and (3) a legitimate, supervening cause existed for the transfer of assets from GT to Richfield via Bank. Richfield does not, however, abandon its primary argument that, as a matter of law, the secured-creditor status of Bank as to all of GT’s assets removes this case from applicability of the Minnesota Fraudulent Transfer Act.
The district court stated that Bank declared GT in default “despite the fact that no payments had been missed.”
 Citations to the UCC in this case are to the statute that was in effect at the time of the transactions. A new version of the UCC became effective July 1, 2001. See 2000 Minn. Laws ch. 399, art. 1.
 See Minn. Stat. § 336.9-507 (1) (1998) (“[T]he debtor * * * has a right to recover from the secured party any loss caused by a failure to comply with the provisions.”).
Lorenz implied that it was entitled to notice of the transfer of collateral but failed to cite any authority for this claim.