CASE NOTES

• I. General Consideration.
• II. Conflicting Clauses.
• III. Illustrative Cases.

CASE NOTES

Legislative Intent. - By the passage of this section it would appear that it is the legislative will that the intention of the grantor and not the technical words of the common law shall govern. Whetsell v. Jernigan, 291 N.C. 128, 229 S.E.2d 183 (1976); Johnson v. Burrow, 42 N.C. App. 273, 256 S.E.2d 811 (1979).

When the legislature passed this section, it was their primary intention to abolish past rules of construction which required courts to disregard certain clauses if they contradicted the granting clause of a deed. Instead, for conveyances executed after 1 January 1968, the courts would, under this section, consider equally all clauses in a deed when as the intent of parties. Mason-Reel v. Simpson, 100 N.C. App. 651, 397 S.E.2d 755 (1990).

This section does not apply to conveyances executed prior to January 1, 1968. Whetsell v. Jernigan, 291 N.C. 128, 229 S.E.2d 183 (1976); Gamble v. Williams, 39 N.C. App. 630, 251 S.E.2d 625 (1979).

Construction of Conveyances Executed Prior to January 1, 1968. - Since the General Assembly provided that this section should apply to all conveyances executed after January 1, 1968, the court should not change the proposition voiced in Artis v. Artis, 228 N.C. 754, 47 S.E.2d 228 (1948) and Oxendine v. Lewis, 252 N.C. 669, 114 S.E.2d 706 (1960) and other earlier cases in interpreting conveyances executed prior to that date. Waters v. North Carolina Phosphate Corp., 32 N.C. App. 305, 232 S.E.2d 275, cert. denied, Webb v. Bowler, 50 N.C. 362 (1858); Hurdle v. Outlaw, 55 N.C. 75 (1854).

In construing deeds executed prior to January 1, 1968, courts must look to common-law rules. Frye v. Arrington, 58 N.C. App. 180, 292 S.E.2d 772 (1982).

This section is inapplicable to a quitclaim deed that was executed in 1924. Robinson v. King, 68 N.C. App. 86, 314 S.E.2d 768 (1984).

Deeds executed prior to January 1, 1968, are to be construed according to common law rules, as opposed to the statutory rule of construction found in subsection (a) of this section. Ives v. Real-Venture, Inc., 97 N.C. App. 391, 388 S.E.2d 573, cert. denied, 327 N.C. 139, 394 S.E.2d 174 (1990), reconsideration denied, 328 N.C. 271, 400 S.E.2d 452 (1991).

Construction so as to Effectuate Intent. - In construing a conveyance of an easement, whether or not executed prior to January 1, 1968, the effective date of this section, the deed is to be construed in such a way as to effectuate the intention of the parties, as gathered from the entire instrument. Higdon v. Davis, 315 N.C. 208, 337 S.E.2d 543 (1985).

In construing a conveyance, the intention of the parties is to be given effect whenever that can be done consistently with rational construction. Robertson v. Hunsinger, 132 N.C. App. 495, 512 S.E.2d 480 (1999).

Deed is to be construed by the court, and meaning of its terms is question of law, not of fact. Elliot v. Cox, 100 N.C. App. 536, 397 S.E.2d 319 (1990).

Trial court erred in submitting the issue of the interpretation of the terms of a deed of trust to the jury because the interpretation of the terms of a deed of trust was a question for the court to decide. Bank of Am., N.A. v. Schmitt, 263 N.C. App. 19, 823 S.E.2d 396 (2018), appeal dismissed, 824 S.E.2d 424, 2019 N.C. LEXIS 302 (2019).

The meaning of the terms of the deed is a question of law, not of fact. Mason-Reel v. Simpson, 100 N.C. App. 651, 397 S.E.2d 755 (1990).

Intent of Parties to Be Determined by Judge. - In light of the purpose of subsection (a) of this section, the statute's requirement that "the courts" interpret the deed did not change the traditional rule that it is the judge's role to determine the intent of the parties. It was not the legislature's intent to change who interprets the intent of the parties in a deed; rather, the statute was an effort by the legislature to state how "the courts" should interpret the deed. Therefore, under the statute it is the judge's role to determine the intent of the parties. Mason-Reel v. Simpson, 100 N.C. App. 651, 397 S.E.2d 755 (1990); Robertson v. Hunsinger, 132 N.C. App. 495, 512 S.E.2d 480 (1999).

Court Has Power to Determine Intent But Not Issues of Fact. - Generally, where there is no waiver of jury trial or agreement as to facts nor evidence offered, the court is without power to decide a controverted issue of fact raised by the pleadings. However, ambiguous deeds traditionally have been construed by the courts according to rules of construction, rather than by having juries determine factual questions of intent. Mason-Reel v. Simpson, 100 N.C. App. 651, 397 S.E.2d 755 (1990).

Ascertaining Intent of Parties. - In some situations it is necessary to look beyond the four corners of the deed to ascertain the intent of the parties. Intention, as a general rule, must be sought in the terms of the instrument; but if the words used leave the intention in doubt, resort may be had to the circumstances attending the execution of the instrument and the situation of the parties at that time; the tendency of the modern decisions is to treat all uncertainties in a conveyance as ambiguities to be explained by ascertaining, in the manner indicated the intention of the parties; where trial judge chose not to hear evidence of "circumstances attending the execution of the instrument and the situation of the parties at that time," and instead, reasoned that he was able to determine the intent of the parties by considering the entire deed, summary judgment was proper. Mason-Reel v. Simpson, 100 N.C. App. 651, 397 S.E.2d 755 (1990).

Deed is to be construed to ascertain intention of grantor as expressed in language used, construed from four corners of instrument. Elliot v. Cox, 100 N.C. App. 536, 397 S.E.2d 319 (1990).

Introductory Recital Repugnant to Granting Clause. - Introductory recital that defendants claimed created tenancy by entirety was repugnant to granting clause and had to be disregarded. Elliot v. Cox, 100 N.C. App. 536, 397 S.E.2d 319 (1990).

Introductory Recital Was Not Given Effect Over Granting Habendum and Warranty Clauses. - Introductory recital, by virtue of being first in deed, not given effect over granting habendum and warranty clauses which were in accord with each other but inconsistent with introductory recital. Elliot v. Cox, 100 N.C. App. 536, 397 S.E.2d 319 (1990).

Jury Trial Held Unnecessary. - Where the cause of action is in fraud, the defendants would have a basic right to a jury trial. However, judge in action to quiet title based on fraud and on construction of deed considered only the intent of the parties in the deed in question and did not reach the issue of fraud. Once the intent was determined from the four corners of the deed, "fraud" no longer mattered and no jury trial was necessary. The judge was able to dispose of the case on a judgment on the pleadings. Mason-Reel v. Simpson, 100 N.C. App. 651, 397 S.E.2d 755 (1990).

No Inconsistent Clauses Present in Quitclaim Deed. - There were no inconsistent clauses in a quitclaim deed conveyed by lender to debtor that needed to be resolved pursuant to G.S. 39-1.1(a) and, even if there were, G.S. 39-1.1 did not allow the lender to unilaterally resuscitate an extinguished deed of trust, even if the instrument evidenced that the lender had such an intention. Angell v. Wells Fargo Bank, N.A. (In re Harper), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2012).

Applied in Waters v. North Carolina Phosphate Corp., 50 N.C. App. 252, 273 S.E.2d 517 (1981); Biggers v. Evangelist, 71 N.C. App. 35, 321 S.E.2d 524 (1984).

Cited in Metcalf v. Black Dog Realty, LLC, 200 N.C. App. 619, 684 S.E.2d 709 (2009).

CASE NOTES

This section does not operate retrospectively. See Lowe v. Harris, 112 N.C. 472, 17 S.E. 539 (1893); Hamphill v. Annis, 119 N.C. 514, 26 S.E. 152 (1896).

Section Applies Only Where There Is a Description. - In Harris v. Woodard, 130 N.C. 580, 41 S.E. 790 (1902), it was said that the statute applies only where there is a description which can be aided, but not when there is no description. Bryson v. McCoy, 194 N.C. 91, 138 S.E. 420 (1927); Powell v. Allen, 75 N.C. 450 (1876).

Construction so as to Effectuate Intent. - In construing a conveyance of an easement, whether or not executed prior to January 1, 1968, the effective date of this section, the deed is to be construed in such a way as to effectuate the intention of the parties, as gathered from the entire instrument. Higdon v. Davis, 315 N.C. 208, 337 S.E.2d 543 (1985).

A deed which fails to describe any land is as void now as it was prior to the passage of this section. Moore v. Fowle, 139 N.C. 51, 51 S.E. 796 (1905).

Description Too Vague and Indefinite. - A deed which fails to describe with certainty the property sought to be conveyed, does not fix a beginning point or any of the boundaries, and contains no reference to anything extrinsic by reference to which the description could be made certain, is too vague and indefinite to admit of parol evidence of identification, and it being impossible to identify the land sought to be conveyed, the deed is inoperative, this section not applying to such cases. Katz v. Daughtrey, 198 N.C. 393, 151 S.E. 879 (1930); Holloman v. Davis, 238 N.C. 386, 78 S.E.2d 143 (1953).

Description Capable of Being Reduced to Certainty. - A description contained in a deed or contract to convey lands is sufficiently definite to admit of parol evidence of identification when it is capable of being reduced to certainty by reference to something extrinsic to which the instrument refers. Patton v. Sluder, 167 N.C. 500, 83 S.E. 818 (1914).

Descriptions Held Sufficient. - A description in a mortgage of a life estate in lands as being in a certain county and township, containing 20 acres more or less, a part of a certain estate, and giving the names of two parties whose lands join it, is sufficient to admit parol evidence to fit the locus in quo to the description in the instrument, and is not void for vagueness of description under this section. Bissette v. Strickland, 191 N.C. 260, 131 S.E. 655 (1926).

A description of land in a deed, which designates all that tract of land in two certain counties, lying on "both sides of old road between" designated points, and bounded by lands of named owners, "and others," being parts of certain State grants, conveyed by the patentee or enterer to certain grantees, etc., is sufficient under this section to admit of parol evidence in aid of the identification of the lands as those intended to be conveyed. Buckhorn Land & Timber Co. v. Yarbrough, 179 N.C. 335, 102 S.E. 630 (1920).

When land is described as adjoining or bounded by certain other tracts, and (1) there are certain other identifying terms such as "known as the A tract," or (2) there are references to an identifiable muniment or source of title, such as the same land conveyed by B to C, or (3) the land is designated by such a term as the home place of D, or (4) adjoining landowners are named and it is shown that grantor has no other land in the vicinity which may be embraced within such bounds, the description is not void for vagueness and it may be aided by parol evidence. Peel v. Calais, 224 N.C. 421, 31 S.E.2d 440 (1944).

Sufficiency of Description in Will. - Where a will leaves to the widow of the testator for life, "at least 75 acres of land . . . to include the dwelling house and to be located as she may want it to be, and as near four-square as is consistent," it is sufficient under this section to be located by parol evidence. Heirs at Law of Freeman v. Ramsey, 189 N.C. 790, 128 S.E. 404 (1925).

Applied in Biggers v. Evangelist, 71 N.C. App. 35, 321 S.E.2d 524 (1984).

Cited in Brown v. Hurley, 243 N.C. 138, 90 S.E.2d 324 (1955).

§ 39-3: Repealed by Session Laws 1961, c. 52.

CASE NOTES

The general rule is that contracts of an infant are voidable at the option of the infant, and when avoided, the contract is null and void ab initio. Pippen v. Mutual Benefit Life Ins. Co., 130 N.C. 23, 40 S.E. 822 (1902).

Exception for Necessaries. - To the general rule, there is one exception as old as the rule itself: "An infant may bind himself for necessaries." Jordan v. Coffield, 70 N.C. 110 (1874); Turner v. Gaither, 83 N.C. 357, 35 Am. Rep. 574 (1880).

Section Calls for Proceeding in Equity. - The language of this section that "the court may decree" is indicative of a proceeding in equity. Riddick v. Davis, 220 N.C. 120, 16 S.E.2d 662 (1941).

Remedy is Exclusive. - The remedy prescribed by this section, relating to the foreclosure of a deed of trust, must be, under our form of civil procedure, an action in the nature of an equitable proceeding to foreclose a mortgage. No other remedy is given by statute. Hence, it is exclusive and must be resorted to, and in the manner prescribed. Riddick v. Davis, 220 N.C. 120, 16 S.E.2d 662 (1941).

Trustors are necessary parties to an action by a purchaser at a foreclosure sale to obtain authority for an infant trustee to execute the deed. Riddick v. Davis, 220 N.C. 120, 16 S.E.2d 662 (1941).

Cited in Coker v. Virginia-Carolina Joint-Stock Land Bank, 208 N.C. 41, 178 S.E. 863 (1935).

CASE NOTES

Section Does Not Extend to Clerks. - This section does not extend to clerks, and they cannot exercise the power herein conferred after going out of office. Shew v. Call, 119 N.C. 450, 26 S.E. 33 (1896).

A tax deed executed by an "ex-sheriff" may be authorized under this section. Southern Immigration, Imp. & Mfg. Co. v. Rosey, 144 N.C. 370, 57 S.E. 2 (1907); McNair v. Boyd, 163 N.C. 478, 79 S.E. 966 (1913).

Deed Executed by Successor in Office. - A deed made by a succeeding sheriff or coroner operates by virtue of this section to pass the title to what was sold. Isler v. Andrews, 66 N.C. 552 (1872); Edwards v. Tipton, 77 N.C. 222 (1877).

Successor May Demand Evidence of Sale and Payment. - Before a successor in office can be required to make a conveyance sought under this section he is entitled to demand clear and conclusive evidence that a sale was made by his predecessor, and also that the purchase price was paid. Harris v. Irwin, 29 N.C. 432 (1847); Isler v. Andrews, 66 N.C. 552 (1872).

Deeds as Evidence. - A sheriff's deed made pursuant to this section after he has gone out of office is still subject to the rule that such deeds are prima facie evidence of sale and execution. But the recitals in a deed made by a successor of the sheriff are only hearsay, as they constitute his opinion based on information and not his own knowledge. Curlee v. Smith, 91 N.C. 172 (1884). See McPherson v. Hussey, 17 N.C. 323 (1833); Edwards v. Tipton, 77 N.C. 222 (1877).

Power to Correct Deeds. - A sheriff's deed is under control of the court, and the court can compel a sheriff to correct his deed; if the sheriff who executes the deed dies, the court can compel his successor to correct the deed, pursuant to this section, hence, the court may on motion during the trial of a suit correct such a deed. Millsaps v. McCormick, 71 N.C. 531 (1874).

CASE NOTES

The constitutionality of this section was upheld in Stanback v. Citizen's Nat'l Bank, 197 N.C. 292, 148 S.E. 313 (1929).

The 1929 amendment to this section is constitutional as applied to trusts created before the effective date of the amendment. Stanback v. Citizen's Nat'l Bank, 197 N.C. 292, 148 S.E. 313 (1929), distinguishing Roe v. Journegan, 175 N.C. 261, 95 S.E. 495 (1918), and Roe v. Journegan, 181 N.C. 180, 106 S.E. 680 (1921).

1943 Amendment Is Constitutional. - Even though the statutory power of revocation of a voluntary conveyance of future interests in lands limited to persons not in esse be regarded as a vested right, the 1943 amendment to this section, giving the grantor six months after its effective date to exercise the right of revocation or to file notice of intention to do so, is a reasonable limitation, and therefore the application of the limitation of the amendment to deeds executed prior to its effective date is constitutional. Pinkham v. Unborn Children of Pinkham, 227 N.C. 72, 40 S.E.2d 690 (1946).

Purpose of 1943 Amendment. - The 1943 amendment was no doubt enacted to resolve a doubtful situation which had arisen through uncertainty as to the effect of this section on the revocability of trusts, and the incidence of federal taxation on trusts already set up, or hereafter to be created. It was intended to bring North Carolina into line with other states where the irrevocability of trusts could be assured to the grantor or settlor when made. Pinkham v. Unborn Children of Pinkham, 227 N.C. 72, 40 S.E.2d 690 (1946).

Revocation within Six Months of Effective Date of 1943 Amendment. - This section was applied, as to revocation within six months after the effective date of the 1943 amendment, in Kirkland v. Deck, 228 N.C. 439, 45 S.E.2d 538 (1947).

Contingent Interests May Be Affected by Retroactive Laws. - Though vested rights may not be affected by retroactive laws, contingent interests may be affected thereby, and where there is a voluntary trust with the limitation over upon a contingency determinable at some future time as to the persons who take thereunder, the power of revocation of a trust given by this section is not within the constitutional inhibition. Stanback v. Citizen's Nat'l Bank, 197 N.C. 292, 148 S.E. 313 (1929).

Mere expectancies of future contingent interests provided for persons not in esse do not constitute vested rights such as would deprive the legislature of the power to enact this section authorizing revocation of a voluntary grant. MacMillan v. Branch Banking & Trust Co., 221 N.C. 352, 20 S.E.2d 276 (1942).

Section before 1929 Amendment Not Retroactive. - This section as it stood before the 1929 amendment did not apply to deeds executed prior to its enactment. Roe v. Journegan, 175 N.C. 261, 95 S.E. 495 (1918); Roe v. Journegan, 181 N.C. 180, 106 S.E. 680 (1921). See Stanback v. Citizen's Nat'l Bank, 197 N.C. 292, 148 S.E. 313 (1929).

Power of Revocation Is Not a Vested Right. - The right to revoke a voluntary conveyance of future interests in lands limited to persons not in esse is a personal power and privilege created by this section and not a vested right within constitutional protection. Pinkham v. Unborn Children of Pinkham, 227 N.C. 72, 40 S.E.2d 690 (1946).

Trustor May Not Withdraw Vested Interest of One in Esse When Trust Created. - This section gives the trustor no right to withdraw a vested interest in property held by one who was in esse when the trust was created, but only to withdraw a future contingent interest to some person or persons not in esse or not determinable until the happening of a future event. Washington v. Ellsworth, 253 N.C. 25, 116 S.E.2d 167 (1960).

Equity Jurisdiction Over Trusts Is Not Involved. - In determining the validity a deed revoking a voluntary conveyance of future interests limited to persons not in esse, the equitable jurisdiction of the court over trust estates is not involved. Pinkham v. Unborn Children of Pinkham, 227 N.C. 72, 40 S.E.2d 690 (1946).

Power of Revocation Rests Solely in Grantor. - The power to revoke future interests conveyed by voluntary deeds to persons not in esse under the provisions of this section, rests solely in the grantor conveying such interests, and where deeds are executed by owner of lands to each of his children for the purpose of dividing his lands among them, the fact that each of the children joins in the deeds to the others gives them no right upon the death of the grantor to revoke the contingent limitation over to unborn children of one of them, since they cannot succeed the grantor in the power of revocation and are strangers to that power. Pinkham v. Unborn Children of Pinkham, 227 N.C. 72, 40 S.E.2d 690 (1946).

A waiver of the right of revocation by the trustor of a voluntary trust when made without consideration, does not preclude the trustor from exercising his right to revoke under this section. MacMillan v. Branch Banking & Trust Co., 221 N.C. 352, 20 S.E.2d 276 (1942).

Voluntary Trusts. - A trust estate in personalty created by the donor in consideration of $1.00 and natural love and affection is a voluntary trust revocable by the donor under this section. Stanback v. Citizen's Nat'l Bank, 197 N.C. 292, 148 S.E. 313 (1929).

Deed in Marriage Settlement. - Where a woman received property without restriction from her father's estate and executed a deed in marriage settlement in trust without consideration, the deed was a voluntary trust in contemplation of this section. MacRae v. Commerce Union Trust Co., 199 N.C. 714, 155 S.E. 614 (1930).

Trust Revocable Where Vesting of Remainder Depended on Future Contingency. - Where a voluntary trust was created for the life of the donor's nephew or until he reached the age of 50 years, and at the termination to the nephew's issue or in the absence of issue to his next of kin, those who would take in remainder would take upon a contingency, the vesting of which depended upon the uncertain happening of a future event, and the trust might be revoked by the donor. Stanback v. Citizen's Nat'l Bank, 197 N.C. 292, 148 S.E. 313 (1929).

Trust for Benefit of Children Who May Be Born of Marriage. - Where a woman executes a trust deed of settlement upon her marriage for the benefit of her children who may be born of the marriage, depending upon their reaching a certain age, the trust interest subject to be changed by her during her life, after the birth of children their interests do not ipso facto become vested, and she may revoke the trust upon giving a sufficient deed to that effect and in compliance with the statute. MacRae v. Commerce Union Trust Co., 199 N.C. 714, 155 S.E. 614 (1930).

Revocation with Consent of Only Beneficiary of Remainder in Esse. - Plaintiff executed a voluntary trust in personalty with direction that the income therefrom be paid to her for life and upon her death the trust estate be distributed to her surviving children, and in the event plaintiff should die without issue, the trust estate should be paid to a named beneficiary if living and if he were not then living then to plaintiff's heirs generally. Plaintiff had no children, and executed an instrument in writing revoking the trust upon the payment of a specified sum to the only beneficiary of the remainder in esse, who consented to the revocation of the trust upon the payment to him of the amount agreed. It was held that under the provisions of this section plaintiff was entitled to the revocation of the trust. MacMillan v. Branch Banking & Co., 221 N.C. 352, 20 S.E.2d 276 (1942).

Law Governing Power of Revocation of Trust Settlement. - Where the daughter of a British subject took property absolutely from the trustees under his will upon her marriage, and married in North Carolina, executing in this State a deed of settlement in trust, without consideration, for beneficiaries of this State, upon certain contingencies, the lex loci contractu governing the marriage settlement was that of North Carolina and the settlement was controlled by the provisions of our statutes as to its revocation. MacRae v. Commerce Union Trust Co., 199 N.C. 714, 155 S.E. 614 (1930).

When Child "in Being". - Grantor executed deed to his son for life and then to his son's children in fee. Thereafter the grantor and the grantee undertook to revoke the restrictive provision in the deed and joined in conveying the title to a third person. A child was born of the marriage of the grantee in the original deed less than 280 days after the attempted revocation. It was held that the child was in esse at the time of the attempted revocation and therefore the revocation was ineffectual. For the purpose of capacity to take under a deed, and for the purpose of inheritance, it will be presumed, in the absence of evidence to the contrary, that a child is in esse 280 days prior to its birth. Mackie v. Mackie, 230 N.C. 152, 52 S.E.2d 352 (1949).

Applied in Cutter v. American Trust Co., 213 N.C. 686, 197 S.E. 542 (1938); Wachovia Bank & Trust Co. v. Sevier, 41 N.C. App. 762, 255 S.E.2d 636 (1979).

Cited in Starling v. Taylor, 1 N.C. App. 287, 161 S.E.2d 204 (1968).

CASE NOTES

The restriction upon the right to create a remainder in personal property after a life estate by deed, or other written instrument, has been eliminated by this section. Ridge v. Bright, 244 N.C. 345, 93 S.E.2d 607 (1956).

CASE NOTES

Future Interests in Personal Property. - As to personal property permanent in nature the generally accepted rule is that the same future interests that are permissible in the field of real property law are also permissible in the law of personal property. Poindexter v. Wachovia Bank & Trust Co., 258 N.C. 371, 128 S.E.2d 867 (1963).

The grantee can take no greater estate than that possessed by his grantor. Jernigan v. Lee, 279 N.C. 341, 182 S.E.2d 351 (1971).

The grantee of a future interest takes it subject to the same conditions or contingencies imposed upon his grantor. Jernigan v. Lee, 279 N.C. 341, 182 S.E.2d 351 (1971).

Contingent interests are transmissible to executors, and are not lost by the death of the person before the event happens on which they are to vest in possession. Jernigan v. Lee, 279 N.C. 341, 182 S.E.2d 351 (1971).

Contingent Interests May Be Sold, Assigned, Transmitted, or Devised. - Contingent interests, such as contingent remainders, springing uses and executory devises may be sold, assigned, transmitted, or devised provided the identity of the persons who will take the estate upon the happening of the contingency be ascertained. Jernigan v. Lee, 279 N.C. 341, 182 S.E.2d 351 (1971).

Contingent interests may be assigned both in real and personal estate, and by any mode of conveyance by which they might be transferred had they been vested remainders. Jernigan v. Lee, 279 N.C. 341, 182 S.E.2d 351 (1971).

Contingent future interests are subject to execution by a judgment creditor of a remainderman. North Carolina Nat'l Bank v. C.P. Robinson Co., 319 N.C. 63, 352 S.E.2d 684 (1987), overruling Watson v. Dodd, 68 N.C. 528 (1873), and Bourne v. Farrar, 180 N.C. 135, 104 S.E. 170 (1920), to the extent that they are inconsistent with this holding.

The interest in an executory devise or bequest is transmissible to the heir or executor of one dying before the happening of the contingency upon which it depends. Jernigan v. Lee, 279 N.C. 341, 182 S.E.2d 351 (1971).

Executory devises are not considered as mere possibilities, but as certain interests and estates. Jernigan v. Lee, 279 N.C. 341, 182 S.E.2d 351 (1971).

Applied in Duplin County Bd. of Educ. v. Carr, 15 N.C. App. 690, 190 S.E.2d 653 (1972).

CASE NOTES

Cited in White v. Farabee, 212 N.C. App. 126, 713 S.E.2d 4 (2011).

CASE NOTES

• I. General Consideration.
• II. Execution by Both Hus-  band and Wife.
  • A. In General.
  • B. Husband's Acknowledgment and Proof of Execution.
• III. Effect of Feme Covert's Deed.

CASE NOTES

Cited in Faucette v. Griffin, 35 N.C. App. 7, 239 S.E.2d 712 (1978).

CASE NOTES

Acknowledgment of Husband Still Required. - The acknowledgment of the husband or proof of his execution of the deed is still required to pass the title or interest of the wife. Graves v. Johnson, 172 N.C. 176, 90 S.E. 113 (1916).

Need Not Be at Same Time or Before Same Officer. - It is not necessary that the husband should actually sign at the same time as the wife, or in her presence; nor is it necessary that the proof or acknowledgment of the execution should be at the same time or before the same officer. Lineberger v. Tidwell, 104 N.C. 506, 10 S.E. 758 (1889).

CASE NOTES

When Assent of Wife Required. - An unembarrassed owner of land, no matter when the land was acquired, can convey the same, absolutely, or by way of trust or mortgage, free of all homestead rights, without the assent of his wife, subject only to her right of dower (dower was abolished by G.S. 29-4) except in the following cases: (1) Where the land in question has been allotted to him as a homestead, either on his own petition or by an officer, in accordance with law; (2) where no homestead has been allotted, but there are judgements against him which constitute a lien on the land, and upon which execution might issue and make it necessary to have his homestead allotted; (3) where no homestead has been allotted, but he has made a mortgage, reserving an undefined homestead, which mortgage constitutes a lien on the land that could not be foreclosed without allotting a homestead; (4) where the conveyance is fraudulent as to creditors, and no homestead has been allotted in other lands. Hughes v. Hodges, 102 N.C. 236, 102 N.C. 262, 9 S.E. 437 (1889).

By the eighth section of the tenth article of the Constitution (see N.C. Const., Art. X., § 2(4)), a deed made by the owner of a homestead without the voluntary signature and assent of his wife is void. Wittkowsky v. Gidney, 124 N.C. 437, 32 S.E. 731 (1899).

Where a deed of trust was purported to be signed by both debtors but debtor wife's name in the notarial acknowledgment was omitted, defendants were not prohibited from eliciting proof or acknowledgment at trial by the court's receipt of evidence of her signature by affidavit, or her oral evidence through either direct or cross-examination testimony. Mullaney v. Bank of Am., N.A. (In re Mullaney), - Bankr. - (Bankr. E.D.N.C. May 15, 2018).

When Probate Does Not Authorize Registration. - Where the probate of a deed recites the acknowledgment and privy examination of the wife of the grantor only, it is insufficient and does not authorize registration. Hatcher v. Hatcher, 127 N.C. 200, 37 S.E. 207 (1900).

§ 39-10: Repealed by Session Laws 1977, c. 375, s. 16.

CASE NOTES

When Privy Examination Was Not Taken. - In an action to invalidate a deed to lands because, in fact, the privy examination of the feme covert, the owner and plaintiff, had not been taken, though it was expressed to have been taken, as required in the certificate of the justice of the peace (now magistrate) the plaintiff may by clear, cogent, and convincing proof show that her examination had not been taken at all, and when, under a proper charge thereon from the judge, the jury has found that such examination was not taken, the verdict will stand, though the grantee may not have been fixed with notice. Davis v. Davis, 146 N.C. 163, 59 S.E. 659 (1907).

When Privy Examination Was Not Taken - Irregularity. - Where the privy examination of a wife was not taken, or was taken in a manner insufficient to fulfill the requirements of the law, though the grantee had no knowledge thereof, the matter is open to judicial investigation. Benedict v. Jones, 129 N.C. 470, 40 S.E. 221 (1901). But see Brite v. Penny, 157 N.C. 110, 72 S.E. 964 (1911).

Presence and Undue Influence of Husband. - The presence and undue influence of the husband at the ceremony of the privy examination would not vitiate a certificate to a deed in all respects regular as against the grantee, unless the grantee had notice of it, and the burden would be upon the plaintiff attacking the validity of the deed for that reason. Brite v. Penny, 157 N.C. 110, 72 S.E. 964 (1911), citing Butner v. Blevins, 125 N.C. 585, 34 S.E. 629 (1899); Davis v. Davis, 146 N.C. 163, 59 S.E. 659 (1907).

Fraud of Probate Officer. - Where a married woman has signed a mortgage or deed of trust to secure borrowed money, she may not have it set aside upon allegation of fraud of a probate officer in taking her separate examination, when she admits that the examination was taken in substantial compliance with the requirement of the statute, and she signed the conveyance, and there is no evidence that the mortgagee participated in the fraud. Whitaker v. Sikes Co., 187 N.C. 613, 122 S.E. 468 (1924).

Even if the justice (now magistrate) practice a fraud upon her, where she does not allege that the party to whom the instrument was made, had any knowledge thereof, or participated in any way in the alleged fraud, she is precluded now from having it adjudged invalid and set aside. Whitaker v. Sikes Co., 187 N.C. 613, 122 S.E. 468 (1924).

Note Procured by Duress. - Upon the principle embodied in this section, a note given by a husband and wife, where the husband procured the wife's execution by duress, is voidable only, and is good in the hands of a bona fide holder. L.A. Randolph Co. v. Lewis, 196 N.C. 51, 144 S.E. 545 (1928).

Guilt of Grantee Must Be Alleged. - A defense by a married woman that her privy examination as to her execution of a deed was procured by fraud and imposition is unavailing unless supported by an allegation that the grantee had notice of or participated in the same. Wachovia Nat'l Bank v. Ireland, 122 N.C. 571, 29 S.E. 835 (1898).

Innocent Purchaser Protected from Guilty Grantee. - This section protects the title of an innocent purchaser for value from a grantee who did have notice of such fraud, duress or undue influence. Butner v. Blevins, 125 N.C. 585, 34 S.E. 629 (1899).

As to married woman's attack upon certificate of acknowledgment and privy examination, see Lee v. Rhodes, 230 N.C. 190, 52 S.E.2d 674 (1949).

CASE NOTES

Dower Right Subject to Defeat. - The dower right (since abolished by G.S. 29-4) of a feme covert may be defeated by a mortgage of the husband alone, when for part of the purchase money. State ex rel. Corporation Comm'n v. Dunn, 174 N.C. 679, 94 S.E. 481 (1917).

Deeds of Trust Substituted for Purchase-Money Deed. - Where two deeds of trust are executed and substituted for the original purchase-money deed of trust, which is canceled, the wife of the grantee acquires no dower right in land, the original debt for the purchase money not having been extinguished. Case v. Fitzsimons, 209 N.C. 783, 184 S.E. 818 (1936).

CASE NOTES

What Deeds Are Cured Under Subsection (a). - The plain language of subsection (a) of this section purports to cure deeds which are void because of failure to conduct a private examination of the wife. Subsection (a) does not purport to cure, and does not in fact cure, deeds which are void because the certifying officer taking the acknowledgment of the wife failed to state in his certificate his findings of fact and conclusions that the conveyance is not "unreasonable or injurious to her," as required under former G.S. 47-39 and G.S. 52-12. West v. Hays, 82 N.C. App. 574, 346 S.E.2d 690 (1986).

Deed Validated under Subsection (b). - In determining the validity of a 1922 deed from a wife to a husband which was required to be in writing and acknowledged before a certifying officer who was required to make a private examination of the wife touching upon her voluntary execution of the contract, where the only omission was the certificate that the deed was not unreasonable or injurious to her and the deed was in all other respects regular, and there was no contention that there was any defect in the premises, the granting clause, the description, the habendum, or the warranties or that there was anything about the deed which was not regular except the lack of the certificate of the certifying officer as to injury or unreasonableness, this was certainly one of the situations to which this section was intended to apply. Otherwise, the curative statute would be stripped of all meaning. The deed was validated by subsection (b) of this section. Johnson v. Burrow, 42 N.C. App. 273, 256 S.E.2d 811 (1979).

This section would not validate a deed which failed to comply with former G.S. 52-12; even if this section would operate to validate the deed for failure of the certifying officer to conduct a private examination, the deed would still be invalid because the certifying officer failed to find whether or not the deed was unreasonable or injurious to the wife. Dunn v. Pate, 98 N.C. App. 351, 390 S.E.2d 712, appeal dismissed and cert. denied, 327 N.C. 427, 395 S.E.2d 676 (1990).

A contract between a husband and wife to make a joint will was void as to the wife because it was not executed by her in accordance with former G.S. 52-6, and its invalidity was not affected by the curative statutes, G.S. 52-8 and this section, where both curative statutes were enacted after the rights of the parties under the contract vested upon the death of the husband, and the contract was not "in all other respects regular" except for the failure to privately examine the wife as required by the curative statutes. Mansour v. Rabil, 277 N.C. 364, 177 S.E.2d 849 (1970).

Cited in Faucette v. Griffin, 35 N.C. App. 7, 239 S.E.2d 712 (1978); DeJaager v. DeJaager, 47 N.C. App. 452, 267 S.E.2d 399 (1980).

CASE NOTES

Cited in Gastonia Personnel Corp. v. Rogers, 276 N.C. 279, 172 S.E.2d 19 (1970).

CASE NOTES

G.S. 39-13.5 Creates Exception to Rule in Subsection (b) of This Section. - G.S. 39-13.5 requires that in order to create a tenancy by the entirety by division deed, the tenant in common must clearly state his intention in the granting clause. Where this was not done, the intention can be supplied by G.S. 39-13.3(b). G.S. 39-13.5 creates an exception to the rule of G.S. 39-13.3(b) that unless a contrary intent is shown, a deed to a husband and wife vests an estate in them as tenants by the entirety. Under G.S. 39-13.5, it is necessary to say so in the granting clause in order to create a tenancy by the entirety by a division deed. Brown v. Brown, 59 N.C. App. 719, 297 S.E.2d 619 (1982), cert. denied, 307 N.C. 696, 301 S.E.2d 388 (1983).

Effect of Separation Agreement on Tenancy by Entirety. - Subsection (c) of this section was not applicable in a divorce action on the issue of whether a separation agreement contractually altered the character of the ownership of a tenancy by the entirety. Branstetter v. Branstetter, 36 N.C. App. 532, 245 S.E.2d 87 (1978).

Wife May Convey as Freely as Husband. - This section and former G.S. 52-6 express a clear legislative intent that so long as the provisions of former G.S. 52-6 are complied with, a wife may convey her separate property to her husband, or to her husband and herself, as freely and with the same consequences as the husband may convey his property to his wife. Skinner v. Skinner, 28 N.C. App. 412, 222 S.E.2d 258, cert. denied, 289 N.C. 726, 224 S.E.2d 674 (1976).

Property Not Removed from Equitable Distribution Act by Dissolution of Tenancy by Entirety. - Though conveyances from wife to husband dissolved the tenancy by the entirety in the parcels of land and vested title thereto solely in husband, as G.S. 39-13.3(c) provides, he nevertheless acquired title to the property thereunder, not by gift, but during the course of the marriage and before the parties separated, and property so acquired, so the General Assembly has declared, is ipso facto marital property. Thus, contrary to husband's contention, dissolving the tenancy by the entirety did not remove the property involved from the ambit of the Equitable Distribution Act, and the trial judge did not err in finding and concluding otherwise. Beroth v. Beroth, 87 N.C. App. 93, 359 S.E.2d 512, cert. denied, 321 N.C. 296, 362 S.E.2d 778 (1987).

Bankruptcy. - Where widow of deceased Chapter 7 debtor sought to reopen his case to allow her to amend debtor's exemptions, and ultimately grant judicial lien avoidance nunc pro tunc, she lacked standing as personal representative of debtor's estate to act with regard to property because it was never part of probate estate, as it was owned as entireties property. In re Kennedy, - Bankr. - (Bankr. M.D.N.C. Apr. 6, 2016).

Cited in Council v. Pitt, 272 N.C. 222, 158 S.E.2d 34 (1967); Young v. Young, 43 N.C. App. 419, 259 S.E.2d 348 (1979); Biesecker v. Biesecker, 62 N.C. App. 282, 302 S.E.2d 826 (1983); Davis v. Davis, 360 N.C. 518, 631 S.E.2d 114 (2006).

CASE NOTES

"Free Trader". - Characterization of a plaintiff as a "free trader" is, in effect, no more than a shorthand description of a woman's freedom to convey realty under this section. The term is derived from practice under old statutes before 1965, and is currently devoid of legal significance. Britt v. Smith, 6 N.C. App. 117, 169 S.E.2d 482 (1969).

§ 39-13.5: Recodified as G.S. 41-56(c) by Session Laws 2020-50, s. 1(b), effective June 30, 2020.

CASE NOTES

This section is reflective of changed circumstances in economic relationship and responsibilities among married persons and expresses a public policy of this State that their rights in property should be equalized. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Rights of Judgment Creditor Upon Dissolution of Marriage or Death. - A judgment creditor with a claim against one spouse may not have a lien against the entirety property, but the judgment creditor does have rights with respect to the property upon dissolution of the marriage or upon the death of the judgment debtor's spouse. In re Ulmer, 211 Bankr. 523 (Bankr. E.D.N.C. 1997).

This section expressly changes the common-law incidents of tenancy by the entirety for all real property acquired on and after January 1, 1983. Boyce v. Boyce, 60 N.C. App. 685, 299 S.E.2d 805, cert. denied, 308 N.C. 190, 302 S.E.2d 242 (1983).

Applicability to tenancies by the entireties which existed prior to January 1, 1983. - Provisions of subsection (a) of this section should generally be construed to apply to tenancies by the entirety which preexisted the effective date of the statute (January 1, 1983) and such application is not, in and of itself, unconstitutional. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

The General Assembly has clearly manifested its intention that this section, including the "equal right to control" provision of subsection (a), apply to estates by the entirety created before January 1, 1983. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

A tenant in common has a right to demand an accounting from a co-tenant; furthermore, plaintiff 's action for an accounting was still ripe because the statute of limitations did not begin running until her demand for an accounting was refused. Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636 (1988), rev'd on other grounds, 325 N.C. 428, 383 S.E.2d 656 (1989).

Rent from Entireties Property Was Not Entireties Property. - Turnover of rents from real property held as tenants by entirety was ordered, as North Carolina did not recognize estate by entirety in personal property, and rent derived from real property held as tenants by entirety was not entireties property and thus, rents were property of estate and not exempt under applicable nonbankruptcy law. Although North Carolina statute gave married women equal rights to use and control income from entireties property, this did not mean that income from property was entireties property. In re Adams, 506 B.R. 688 (Bankr. E.D.N.C. 2014).

Affirmative Defense. - Where neither the defendants' original nor amended answer included an affirmative defense, the defense was waived even though the lease for land held by a husband and wife was not signed by the wife. Purchase Nursery, Inc. v. Edgerton, 153 N.C. App. 156, 568 S.E.2d 904 (2002).

Dismissal of Complaint. - Because a wife never signed a contract for sale or an authorized agency, pursuant to G.S. 39-13.6(a), the trial court, inter alia, properly granted the husband and wife's N.C. R. Civ. P. 12(b)(6) motion to dismiss a buyer's complaint for breach of contract and specific performance for failing to state a legally sufficient claim. Burgin v. Owen, 181 N.C. App. 511, 640 S.E.2d 427, appeal dismissed, 361 N.C. 425, 647 S.E.2d 98, cert. denied, 361 N.C. 690, 652 S.E.2d 257, 2007 N.C. LEXIS 1026 (Oct. 11, 2007).

The claim of a vested property right may not rest upon state enforcement of common law which is unconstitutionally discriminatory. Thus, to the extent that defendant husband's claims to the exclusive right of control and income of pre-1983 estates by the entirety were based solely upon the common-law incidents of the tenancy, they would fail, as the right recognized by the common law could not be said to be a "vested property right." Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Burden of Proving Vested Rights. - There may be circumstances under which a husband's rights to income and control of pre-1983 tenancy by the entirety property, to the exclusion of his wife, may be classified as "vested rights" for reasons other than the common-law incidents of that estate. In such cases, the burden will be upon the husband to demonstrate facts showing why his rights are "vested rights" such that application of the "equal control" provisions of subsection (a) of this section to the estate would violate due process. Perry v. Perry, 80 N.C. App. 169, 341 S.E.2d 53 (1986), appeal dismissed, 320 N.C. 170, 357 S.E.2d 925 (1987).

Claimant spouse's assertion of the "innocent owner" defense provided by 18 U.S.C.S. § 983(d) in her claim to a camper, failed because the spouse could not establish that the camper was owned as tenants by the entirety; the spouse had not presented any evidence regarding the "co-owner" requirement of G.S. 41-2.5, nor had the spouse presented any evidence regarding the general requirement with entireties properties that spouses be identified either by name or title in the ownership document. United States v. 1999 Starcraft Camper Trailer, - F. Supp. 2d - (M.D.N.C. Oct. 10, 2006).

Once the parties were divorced, they no longer held the property as tenants by the entirety but as tenants in common. Smith v. Smith, 249 N.C. 669, 107 S.E.2d 530 (1959); Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636 (1988), rev'd on other grounds, 325 N.C. 428, 383 S.E.2d 656 (1989).

Attribution of Income for Child Support Purposes. - Although under the Child Support Guidelines income from rental property is included in the calculation of a parent's gross income, because father and his wife owned property in tenancy by the entirety, he was considered to have received only one-half of the income, or $487.50 per month; it was therefore error for the trial court to attribute the full amount of rental income from the property to father. Kennedy v. Kennedy, 107 N.C. App. 695, 421 S.E.2d 795 (1992).

Property Not Available to Satisfy Debts Held Solely by One Tenant. - Debtor's exemptions were properly claimed as property held as tenants by the entirety and the property was not available to the trustee to satisfy general unsecured debt that was held solely in the name of debtor. In re Knapp, 285 B.R. 176 (Bankr. M.D.N.C. 2002).

Chapter 7 debtor's motion to avoid judicial lien under 11 U.S.C.S. § 522(f) was granted even though she and her non-debtor spouse owned the property as tenants by the entirety under G.S. 39-13.6(a), as the debtor's interest in the entireties property was property of her estate under 11 U.S.C.S. § 541(a), the creditor's judgment was against the debtor and her non-debtor spouse, and a trustee would be entitled to sell the entireties property, as there were joint creditors. However, 11 U.S.C.S. § 522(f) had to be applied after the debtor's interest was determined by subtracting the total of two deeds of trust from the value of the property, and then dividing that amount in half to arrive at the value of the debtor's interest in the property; as her exemption (under G.S. 1C-1601(a)(1)) plus the amount of the judgment lien exceeded the value of her interest by more than the amount of the judgment, she was entitled to avoid the entire judgment lien. In re Staples, - Bankr. - (Bankr. M.D.N.C. June 7, 2000).

Bankruptcy Trustee's Sale of Entireties Property. - Consistent with North Carolina law applicable outside of bankruptcy, the court concluded that following the Trustee's sale the proceeds from the entireties property was subject to the claims of joint creditors only. Although the case law was divided on the issue, the better view was that the bankruptcy trustee's sale of entireties property did not destroy the tenancy by the entirety. In re Surles, - Bankr. - (Bankr. M.D.N.C. Apr. 29, 2003).

Deed of Trust Executed By Only One Spouse. - Bankruptcy court granted a Chapter 7 trustee's motion for summary judgment on his claims that a deed of trust a husband executed to secure a loan he received did not create a properly perfected security interest under G.S. 39-13.6(b), and was avoidable under 11 U.S.C.S. § 544(a), because it was executed solely by the husband on real property he owned as a tenant by the entireties with his wife. The trustee filed an adversary proceeding against the husband, the wife, a bank, and an insurance company that held the deed of trust, and although he reached a settlement with the husband and wife, neither the bank nor the insurance company filed a response or brief in opposition to the trustee's motion for summary judgment within the 20-day period allowed by Bankr. M.D.N.C. R. 7056-1(c). Saslow v. PRLAP, Inc. (In re Taylor), - Bankr. - (Bankr. M.D.N.C. Jan. 20, 2010).

Inability to Take Reasonable Measures. - Husband could not take reasonable measures to comply with a court order because (1) the husband could not force the husband's second wife to sell a house the husband owned with the second wife as tenants by the entirety, and (2) any reduction in the husband's withholding from the husband's gross income for taxes still would not have enabled the husband to comply. Spears v. Spears, 245 N.C. App. 260, 784 S.E.2d 485 (2016).

Ineffective Power of Attorney. - Creditor did not hold a properly secured lien against property held by a Chapter 7 debtor and his wife as tenants by the entirety because a power of attorney executed by the wife in favor of the debtor did not authorize the granting of a lien on the property in favor of the creditor. In re Doerfer, - Bankr. - (Bankr. M.D.N.C. Nov. 1, 2006).

Tenancy by the Entirety Not Created. - Quitclaim deed conveyed a one-half undivided remainder interest in the real property to the wife and the debtor as tenants in common because neither party was named or described as "wife" or "husband," and the use of the phrase "in equal shares" in the conveyance was inconsistent with an intention to create a tenancy by the entirety, under G.S. 39-13.6(b). In re Gonzales, - Bankr. - (Bankr. E.D.N.C. June 24, 2013), aff'd, 2014 U.S. Dist. LEXIS 39145 (E.D.N.C. 2014).

Cited in Dobbins v. Paul, 71 N.C. App. 113, 321 S.E.2d 537 (1984); Lawrence v. Lawrence, 100 N.C. App. 1, 394 S.E.2d 267 (1990); Beckhart v. Nationwide Tr. Serv. Inc., - F. Supp. 2d - (E.D.N.C. Aug. 20, 2012).

§ 39-13.7: Recodified as G.S. 41-65 by Session Laws 2020-50, s. 1(b), effective June 30, 2020.

§ 39-14: Repealed by Session Laws 1943, c. 543.

OFFICIAL COMMENT (2014)

1. The definition of "affiliate" is derived from Bankruptcy Code § 101(2) (1984).
2. The definition of "asset" is substantially to the same effect as the definition of "assets" in § 1 of the Uniform Fraudulent Conveyance Act. The definition in this Act, unlike that in the earlier Act, does not, however, require a determination that the property is liable for the debts of the debtor. Thus, for example, an unliquidated claim for damages resulting from personal injury or a contingent claim of a surety for reimbursement, subrogation, restitution, contribution, or the like, may be counted as an asset for the purpose of determining whether the holder of the claim is solvent as a debtor under § 2 of this Act, even if applicable law does not allow such an asset to be levied on and sold by a creditor. Cf. Manufacturers & Traders Trust Co. v. Goldman (In re Ollag Construction Equipment Corp.), 578 F.2d 904, 907-09 (2d Cir. 1978).
3. The definition of "claim" is derived from Bankruptcy Code § 101(4) (1984). Because the purpose of this Act is primarily to protect unsecured creditors against transfers and obligations injurious to their rights, the words "claim" and "debt" as used in the Act generally have reference to an unsecured claim and debt. As the context may indicate, however, usage of the terms is not so restricted. See, e.g., §§ 1(1)(i)(B) and 1(9).
4. The definition of "creditor" in combination with the definition of "claim" has substantially the same effect as the definition of "creditor" under § 1 of the Uniform Fraudulent Conveyance Act. As under that Act, the holder of an unliquidated tort claim or a contingent claim may be a creditor protected by this Act.
5. The definition of "debt" is derived from Bankruptcy Code § 101(11) (1984).
6. The definition of "debtor" had no analogue in the Uniform Fraudulent Conveyance Act.
7. The definition of "electronic" is the standard definition of that term used in acts prepared by the Uniform Law Commission as of 2014.
8. The definition of "insider" is derived from Bankruptcy Code § 101(28) (1984). In this Act, as in the Bankruptcy Code, the definition states that the term "includes" certain listed persons; it does not state that the term "means" the listed persons. Hence the definition is not exclusive, and the statutory list is merely exemplary. See also Bankruptcy Code § 102(3) (1984). Accordingly, a person may be an "insider" of a debtor that is an individual, corporation or partnership even though the person is not designated as such by the statutory list. For example, a trust may be found to be an "insider" of a beneficiary. Similarly, a court may find a person living with an individual debtor for an extended time in the same household or as a permanent companion to have the kind of close relationship intended to be covered by the term "insider." See also, e.g., Browning Interests v. Allison (In re Holloway), 955 F.2d 1008 (5th Cir.1992) (former spouse of debtor was an "insider" because of their close and continued personal relationship, even though they had long ago divorced and remarried others). Likewise, a person may be an "insider" of a debtor that is not an individual, corporation or partnership. See, e.g., In re Longview Aluminum, L.L.C., 657 F.3d 507 (7th Cir. 2011) (holding, under the Bankruptcy Code definition, that an individual serving on the Board of Managers of, and having a 12% membership interest in, a limited liability company was an "insider" of the company; the company's organic documents vested management authority "in the Board of Managers and the Members").
9. The definition of "lien" is derived from paragraphs (30), (31), (43), and (45) of Bankruptcy Code § 101 (1984), which define "judicial lien," "lien," "security interest," and "statutory lien" respectively.
10. The definition of "organization" is derived from Uniform Commercial Code § 1-201(b)(25) (2014).
11. The definition of "person" is the standard definition of that term used in acts prepared by the Uniform Law Commission as of 2014. Section 11 renders a "protected series" of a "series organization" a "person" for purposes of this Act, even though the "protected series" may not qualify as a "person" under paragraph (11) of this section.
12. The definition of "property" is derived from Uniform Probate Code § 1-201(33) (1969). Property includes both real and personal property, whether tangible or intangible, and any interest in property, whether legal or equitable.
13. The definition of "record" is the standard definition of that term used in acts prepared by the Uniform Law Commission as of 2014.
14. The definition of "relative" is derived from Bankruptcy Code § 101(37) (1984) but is explicit in its references to the spouse of a debtor in view of uncertainty as to whether the common law determines degrees of relationship by affinity.
15. The definition of "sign" is the standard definition of that term used in acts prepared by the Uniform Law Commission as of 2014.
16. The definition of "transfer" is derived principally from Bankruptcy Code § 101(48) (1984). The definition of "conveyance" in § 1 of the Uniform Fraudulent Conveyance Act was similarly comprehensive, and the references in this Act to "payment of money, release, lease, and the creation of a lien or encumbrance" are derived from the Uniform Fraudulent Conveyance Act. While the definition in the Uniform Fraudulent Conveyance Act did not explicitly refer to an involuntary transfer, the decisions under that Act were generally consistent with an interpretation that covered such a transfer. See, e.g., Hearn 45 St. Corp. v. Jano, 283 N.Y. 139, 27 N.E.2d 814, 128 A.L.R. 1285 (1940) (execution and foreclosure sales); Lefkowitz v. Finkelstein Trading Corp., 14 F. Supp. 898, 899 (S.D.N.Y. 1936) (execution sale); Langan v. First Trust & Deposit Co., 277 App.Div. 1090, 101 N.Y.S.2d 36 (4th Dept. 1950), aff'd, 302 N.Y. 932, 100 N.E.2d 189 (1951) (mortgage foreclosure); Catabene v. Wallner, 16 N.J.Super. 597, 602, 85 A.2d 300, 302 (1951) (mortgage foreclosure). The 2014 amendments add a reference to transfer by "license," which is derived from the definition of "proceeds" in Uniform Commercial Code § 9-102(a)(64)(A) (2014).
17. The definition of "valid lien" had no analogue in the Uniform Fraudulent Conveyance Act. A valid lien includes an equitable lien that may not be defeated by a judicial lien creditor. See, e.g., Pearlman v. Reliance Insurance Co., 371 U.S. 132, 136 (1962) (upholding a surety's equitable lien in respect to a fund owing a bankrupt contractor).

Subparagraphs (i), (ii), and (iii) provide clarification by excluding from the term not only generally exempt property but also an interest in a tenancy by the entirety in many states and an interest that is generally beyond reach by unsecured creditors because subject to a valid lien. This Act, like the Uniform Fraudulent Conveyance Act and the Statute of 13 Elizabeth, declares rights and provides remedies for unsecured creditors against transfers that impede them in the collection of their claims. The laws protecting valid liens against impairment by levying creditors, exemption statutes, and the rules restricting levyability of interest in entireties property are limitations on the rights and remedies of unsecured creditors, and it is therefore appropriate to exclude property interests that are beyond the reach of unsecured creditors from the definition of "asset" for the purposes of this Act.

A creditor of a joint tenant or tenant in common may ordinarily collect a judgment by process against the tenant's interest, and in some states a creditor of a tenant by the entirety may likewise collect a judgment by process against the tenant's interest. See 2 American Law of Property 10, 22, 28-32 (1952); Craig, An Analysis of Estates by the Entirety in Bankruptcy , 48 Am.Bankr.L.J. 255, 258-59 (1974). The levyable interest of such a tenant is included as an asset under this Act.

The definition of "assets" in the Uniform Fraudulent Conveyance Act excluded property that is exempt from liability for debts. The definition did not, however, exclude all property that cannot be reached by a creditor through judicial proceedings to collect a debt. Thus, it included the interest of a tenant by the entirety although in nearly half the states such an interest cannot be subjected to liability for a debt unless it is an obligation owed jointly by the debtor with his or her cotenant by the entirety. See 2 American Law of Property 29 (1952); Craig, An Analysis of Estates by the Entirety in Bankruptcy , 48 Am.Bankr.L.J. 255, 258 (1974). The definition in this Act requires exclusion of interests in property held by tenants by the entirety that are not subject to collection process by a creditor without a right to proceed against both tenants by the entirety as joint debtors.

The reference to "generally exempt" property in § 1(2)(ii) recognizes that all exemptions are subject to exceptions. Creditors having special rights against generally exempt property typically include claimants for alimony, taxes, wages, the purchase price of the property, and labor or materials that improve the property. See Uniform Exemptions Act § 10 (1979) and the accompanying Comment. The fact that a particular creditor may reach generally exempt property by resorting to judicial process does not warrant its inclusion as an asset in determining whether the debtor is insolvent.

Because this Act is not an exclusive law on the subject of voidable transfers and obligations (see Comment 9 to § 4), it does not preclude the holder of a claim that may be collected by process against property generally exempt as to other creditors from obtaining relief from a transfer of such property that hinders, delays, or defrauds the holder of such a claim. Likewise the holder of an unsecured claim enforceable against tenants by the entirety is not precluded by the Act from pursuing a remedy against a transfer of property held by the entirety that hinders, delays, or defrauds the holder of such a claim.

Nonbankruptcy law is the law of a state or federal law that is not part of the Bankruptcy Code, Title 11 of the United States Code. The definition of an "asset" thus does not include property that would be subject to administration for the benefit of creditors under the Bankruptcy Code unless it is subject under other applicable law, state or federal, to process for the collection of a creditor's claim against a single debtor.

The differences between the definition in this Act and that in the Bankruptcy Code are slight. In this Act, the definition has been restricted in clauses (i)(C), (ii)(E), and (iii)(D) to make clear that a partner is not an insider of an individual, corporation, or partnership if any of these latter three persons is only a limited partner. The definition of "insider" in the Bankruptcy Code does not purport to make a limited partner an insider of the partners or of the partnership with which the limited partner is associated, but it is susceptible of a contrary interpretation and one which would extend unduly the scope of the defined relationship when the limited partner is not a person in control of the partnership. The definition of "insider" in this Act also omits the reference in Bankruptcy Code § 101(28)(D) (1984) to an elected official or relative of such an official as an insider of a municipality.

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

The definitions of "affiliate," "insider" and "relative" in subdivisions (1), (7) and (11) relate to liability for transfers to insiders described in N.C. Gen. Stat. § 39-23.5(b). This subsection had no counterpart under prior North Carolina law and, accordingly, these definitions have no prior North Carolina equivalent insofar as fraudulent conveyance law is concerned.

The definition of "asset" in subdivision (2) excludes property to the extent it is encumbered by a lien, is generally exempt from the claims of creditors or is held as entireties property. The intent of this definition is that only those transfers that adversely affect unsecured creditors can occasion liability. This is consistent with prior North Carolina law, which disregarded transfers of assets that were entireties property, L & M Gas Co. v. Leggett, 273 N.C. 547, 553, 161 S.E.2d 23, 27-28 (1968), or were subject to a resulting trust, Kelly Springfield Tire Co. v. Lester, 190 N.C. 411, 415, 130 S.E. 45, 47 (1925).

The definition of "claim" in subdivision (3) is broad and includes potential liability on contingent claims. This seems consistent with prior North Carolina law: N.C. Gen. Stat. § 1A-1, Rule 18(b), allows a claim for fraudulent conveyance to be joined with a claim to establish the indebtedness that provides the foundation for the fraudulent conveyance claim. Subdivisions (4), (5) and (6) (providing definitions of "creditor," "debt" and "debtor") are based on the definition of "claim."

The definition of "transfer" in subdivision (12) is broad; this breadth appears to be consistent with prior North Carolina law. See Howard, 50 N.C. L. Rev. at 876-77 (1972).

The remaining definitions (of "lien," "valid lien," "person" and "property" in subdivisions (8), (13), (9) and (10)) appear to be straightforward. Prior North Carolina fraudulent conveyance law does not appear to have concerned itself with defining or explaining these terms.

SUPPLEMENTAL NORTH CAROLINA COMMENT (2015)

The amendments to the definition of "person" were not adopted because they deleted the specific reference to partnerships, based on the assumption that the Revised Uniform Partnership Act would apply within a state. That Uniform Act has not been enacted in this State as of the date of enactment of this act, so the drafters were of the opinion that the definition of "person" should not be changed to avoid an unintended consequence.

Editor's Note. - Session Laws 2015-23, s. 1, rewrote the Article 3A heading, which formerly read "Uniform Fraudulent Transfer Act."

Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Session Laws 2017-204, s. 7.1 contains severability clause.

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, rewrote the introductory language, which formerly read: "As used in this Article"; added "any of the following" at the end of the introductory language of subdivisions (1), (2), and (7); inserted "in fact" in subdivision (1)a.2.; inserted "discretionary" in subdivision (1)b.1.; added the exception at the beginning of subdivision (3); added subdivisions (6a), (8a), (10a), and (11a); inserted "license" in subdivision (12); and made minor stylistic changes. For applicability and effective date, see editor's note.

Session Laws 2017-204, s. 3.3(a), effective August 11, 2017, added subdivision (14).

Session Laws 2018-142, s. 7(a), effective December 15, 2018, in subdivisions (7)a., b., and c., inserted "any of the following" at the end of the introductory language; deleted subdivision (14); and made minor stylistic changes.

Legal Periodicals. - For comment, "Saving No One: Unifying Approaches to the UVTA Savings Clause," see 52 Wake Forest L. Rev. 695 (2017).

CASE NOTES

• I. General Consideration.
• II. What Conveyances Fraudulent.
  • A. In General.
  • B. Intent.
  • C. Badges of Fraud.
• III. Rights and Liabilities of Parties and Purchasers.
• IV. Rights and Remedies of Creditors.
• V. Pleading and Practice.
• VI. Marriage Settlements.

OFFICIAL COMMENT (2014)

1. Subsection (a) is derived from the definition of "insolvent" in Bankruptcy Code § 101(29)(A) (1984). The definition in subsection (a) contemplates a fair valuation of the debts as well as the assets of the debtor. The 2014 amendments reword subsection (a) in order to eliminate the elegant variation in the original text between "the sum of" debts and "all of" assets, and to make clearer that "fair valuation" applies to debts as well as to assets. No change in meaning is intended.
2. Subsection (b) establishes a rebuttable presumption of insolvency from the fact of general nonpayment of debts as they become due. Such general nonpayment is a ground for the filing of an involuntary petition under Bankruptcy Code § 303(h)(1) (1978). See also U.C.C. § 1-201(23) (1962) (defining a person to be "insolvent" who "has ceased to pay his debts in the ordinary course of business"). The 2014 amendments to this Act clarify that general nonpayment of debts does not count nonpayment as a result of a bona fide dispute. That was the intended meaning of the language before 2014, as stated in the official comments, and the cited provisions of the Bankruptcy Code and the Uniform Commercial Code have been similarly clarified. See Bankruptcy Code § 303(h)(1) (2014); U.C.C. § 1-203(b)(23) (2014) (defining "insolvent" to include "having generally ceased to pay debts in the ordinary course of business other than as a result of bona fide dispute").
3. Subsection (c) follows the approach of the definition of "insolvency" in Bankruptcy Code § 101(29) (1984) by excluding from the computation of the value of the debtor's assets any value that can be realized only by avoiding a transfer of an interest formerly held by the debtor or by discovery or pursuit of property that has been concealed or removed with intent to hinder, delay, or defraud creditors.
4. Subsection (d) has no analogue in Bankruptcy Code § 101(29) (1984). It makes clear that a person is not rendered insolvent under this section by counting as a debt an obligation secured by property of the debtor that is not counted as an asset. See also Comment 2 to § 1 and Comment 1 to § 2.

Financial accounting standards may permit or require fair value measurement of an asset or a debt. The fair value of an asset or a debt for financial accounting purposes may be based on standards that are not appropriate for use in subsection (a). For example, Fin. Accounting Standards Bd., Accounting Standards Codification Paras. 820-10-35-17 to -18 (2014) (formerly Statement of Financial Accounting Standards No. 157: Fair Value Measurement Para. 15 (2006)) requires for financial accounting purposes that the "fair value" of a liability reflect nonperformance risk (i.e., the risk that the debtor will not pay the liability as and when due). By contrast, proper application of subsection (a) excludes any adjustment to the face amount of a liability on account of nonperformance risk. Such an adjustment would be contrary to the purpose of subsection (a), which is to assess the risk that the debtor will not be able to satisfy its liabilities. Only in unusual circumstances would the "fair valuation" for the purpose of subsection (a) of a liquidated debt be other than its face amount. Examples of such circumstances include discounting the face amount of a contingent debt to reflect the probability that the contingency will not occur, and discounting the face amount of a non-interest-bearing debt that is due in the future in order to reduce the debt to its present value.

As under the definition of the term "insolvent" in § 2 of the Uniform Fraudulent Conveyance Act, exempt property is excluded from the computation of the value of the assets. See § 1(2). For similar reasons interests in valid spendthrift trusts and interests in tenancies by the entireties that are not subject to process by a creditor of only one tenant are not included. See Comment 2 to § 1. Because a valid lien also precludes an unsecured creditor from collecting the creditor's claim from the encumbered interest in a debtor's property, both the encumbered interest and the debt secured thereby are excluded from the computation of insolvency under this Act. See § 1(2) and subsection (d) of this section.

Subsection (b) defines the effect of the presumption to be (in paraphrase) that the burden of persuasion on the issue of insolvency shifts to the defendant. That conforms to the default definition of the effect of a presumption in civil cases set forth in Uniform Rules of Evidence (1974 Act), Rule 301(a) (later Rule 302(a) (1999 Act as amended 2005)). It also conforms to the Final Draft of Federal Rule 301 as submitted to the United States Supreme Court by the Advisory Committee on Federal Rules of Evidence in 1973. "The so-called 'bursting bubble' theory, under which a presumption vanishes upon the introduction of evidence which would support a finding of the nonexistence of the presumed fact, even though not believed, is rejected as according presumptions too 'slight and evanescent' an effect." Advisory Committee's Note to Rule 301, 56 F.R.D. 183, 208 (1973). See also 1 J. Weinstein & M. Berger, Evidence Para. 301[01] (1982). It should be noted that the Federal Rule of Evidence as finally enacted gave by default a different effect to presumptions in civil cases, in effect adopting the "bursting bubble" definition. See Fed. R. Evid. 301 (1975) (carried forward in the 2011 revision). The statement of the effect of the presumption in subsection (b) was added by the 2014 amendments to this Act, but subsection (b) was intended to have the same meaning before 2014, as stated in the official comments.

The presumption is established in recognition of the difficulties typically imposed on a creditor in proving insolvency in the bankruptcy sense, as provided in subsection (a). See generally Levit, The Archaic Concept of Balance-Sheet Insolvency, 47 Am.Bankr.L.J. 215 (1973). Not only is the relevant information in the possession of a debtor that is apt to be noncooperative, but the debtor's records are apt to be incomplete and inaccurate. As a practical matter, insolvency is most cogently evidenced by a general cessation of payment of debts, as has long been recognized by the laws of other countries and is now reflected in the Bankruptcy Code. See Honsberger, Failure to Pay One's Debts Generally as They Become Due: The Experience of France and Canada , 54 Am.Bankr.L.J. 153 (1980); J. MacLachlan, Bankruptcy 13, 63-64, 436 (1956). In determining whether a debtor is paying its debts generally as they become due, the court should look at more than the amount and due dates of the indebtedness. The court should also take into account such factors as the number of the debtor's debts, the proportion of those debts not being paid, the duration of the nonpayment, and the existence of bona fide disputes or other special circumstances alleged to constitute an explanation for the stoppage of payments. The court's determination may be affected by a consideration of the debtor's payment practices prior to the period of alleged nonpayment and the payment practices of the trade or industry in which the debtor is engaged. The case law that has developed under Bankruptcy Code § 303(h)(1) (1984) has not required a showing that a debtor has failed or refused to pay a majority in number and amount of the debtor's debts in order to prove general nonpayment of debts as they become due. See, e.g., Hill v. Cargill, Inc. (In re Hill) , 8 B.R. 779, 3 C.B.C.2d 920 (Bankr. D.Minn. 1981) (nonpayment of three largest debts held to constitute general nonpayment, although small debts were being paid); In re All Media Properties, Inc ., 5 B.R. 126, 6 B.C.D. 586, 2 C.B.C.2d 449 (Bankr. S.D.Tex. 1980) (missing significant number of payments or regularly missing payments significant in amount said to constitute general nonpayment; missing payments on more than 50% of aggregate of claims said not to be required to show general nonpayment; nonpayment for more than 30 days after billing held to establish nonpayment of a debt when it is due); In re Kreidler Import Corp ., 4 B.R. 256, 6 B.C.D. 608, 2 C.B.C.2d 159 (Bankr. D.Md. 1980) (nonpayment of one debt constituting 97% of debtor's total indebtedness held to constitute general nonpayment).

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

The drafters of the Uniform Fraudulent Conveyance Act identified confusion about the concept of insolvency as one of the three basic uncertainties in then-existing fraudulent conveyance law. See Prefatory Note to Uniform Fraudulent Conveyance Act; Howard, 50 N.C. L. Rev. at 875. N.C. Gen. Stat. § 39-23.2, in conjunction with the definitions of "asset" and "debt" (and the various definitions that are employed in connection with those terms), appears to eliminate this uncertainty. There seems to be little substantive change to North Carolina law, although uncertainty as to the meaning of North Carolina law makes this conclusion debatable.

North Carolina fraudulent conveyance cases have long determined solvency by contrasting a person's assets with his liabilities, and have rejected a test concerning whether the person is able to pay his debts in the ordinary course of business. Silver Valley Mining Co. v. North Carolina Smelting Co., 119 N.C. 417, 418-19, 25 S.E. 954, 954-55 (1896); Unaka and City National Bank of Johnson City, Tennessee v. Lewis, 201 N.C. 148, 153, 159 S.E. 312, 314 (1931). But see Sample v. Jackson, 223 N.C. 335, 339, 26 S.E.2d 876, 879 (1943) (dictum) (stating that the North Carolina test is ability to pay debts). Also cf. N.C. Gen. Stat. § 25-1-201(23) (UCC definition of "insolvent" is a person who "has ceased to pay his debts in the ordinary course of business.")

Under former North Carolina fraudulent conveyance law, "insolvency" may not have been an element of a fraudulent conveyance so much as solvency (the retention of property "fully sufficient" for the satisfaction of creditors) was a defense. See former N.C. Gen. Stat. § 39-17; Howard, 50 N.C. L. Rev. at 882-85. But see Virginia-Carolina Laundry Supply Corp. v. Scott, 267 N.C. 145, 150, 148 S.E.2d 1, 4 (1966) (holding it was an attacking creditor's burden to demonstrate that transferor was insolvent). Whether a debtor had retained property "fully sufficient" to satisfy his creditors was a jury issue; the courts generally took a case-by-case approach and allowed juries to consider all relevant factors. Garland v. Arrowood, 177 N.C. 371, 373, 99 S.E. 100, 102 (1919). Cf. Williams v. Hughes, 136 N.C. 58, 48 S.E. 518 (1904) (property retained held as a matter of law not to be fully sufficient). Rules for determining whether retained property was "fully sufficient" did emerge: exempt property was not to be considered; contingent liabilities were to be valued at the amount of the debtor's probable ultimate liability. Williams v. Hughes, supra; Shuford v. Cook, 169 N.C. 52, 55, 85 S.E. 142, 144 (1915).

Subsection (b) creates a presumption that a person not generally paying his debts is insolvent. While there appear to be no North Carolina fraudulent conveyance cases that have recognized such a presumption, subsection (b) is consistent with North Carolina definitions of insolvency in some other contexts. See N.C. Gen. Stat. § 25-1-201(23) (UCC definition of insolvency); N.C. Gen. Stat. § 58-30-10(13) (definition of insolvency for purposes of laws dealing with insolvent insurance companies); N.C. Gen. Stat. § 53-1(3) [Repealed. See now G.S. 53C-1-1 et seq.] (statute dealing with bank insolvency and including bank's inability to meet deposit liabilities within definition).

The definition of insolvency as it relates to partnerships (subsection (c)) appears to be without precedent in North Carolina fraudulent conveyance law, but follows from the concept of a partnership as an association of partners each of whom is liable for the partnership's debts. See N.C. Gen. Stat. § 59-45. Outside the context of fraudulent conveyance law, North Carolina has considered a partnership to be insolvent when the debts of the partnership have exceeded the assets of the partnership itself. Farmer v. Head, 175 N.C 273, 275-76, 95 S.E 567, 568 (1918).

No North Carolina cases have been located addressing the exclusion of assets that have been the subject of fraudulent transfers (subsection (d)) and the exclusion of debts to the extent they are secured (subsection (e)).

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, made minor stylistic changes in subsections (a) and (b); in subsection (b), inserted "other than as a result of a bona fide dispute" in the first sentence and added the second sentence; and deleted former subsection (c), which read: "A partnership is insolvent under subsection (a) of this section if the sum of the partnership's debts is greater than the aggregate, at a fair valuation, of all of the partnership's assets and the sum of the excess of the value of each general partner's nonpartnership assets over the partner's nonpartnership debts." For applicability and effective date, see editor's note.

OFFICIAL COMMENT (2014)

1. This section defines when "value" is given for a transfer or an obligation. "Value" is used in that sense in various contexts in this Act, frequently with a qualifying adjective. Used in that sense the word appears in the following provisions:
2. Section 3(a) is adapted from Bankruptcy Code § 548(d)(2)(A) (1984). See also § 3(a) of the Uniform Fraudulent Conveyance Act. The definition in Section 3 is not exclusive. "Value" is to be determined in light of the purpose of the Act to protect a debtor's estate from being depleted to the prejudice of the debtor's unsecured creditors. Consideration having no utility from a creditor's viewpoint does not satisfy the statutory definition. The definition does not specify all the kinds of consideration that do not constitute value for the purposes of this Act - e.g., love and affection. See, e.g., United States v. West, 299 F. Supp. 661, 666 (D.Del. 1969).
3. Section 3(a) does not indicate what is "reasonably equivalent value" for a transfer or obligation. Under this Act, as under Bankruptcy Code § 548(a)(2) (1984), a transfer for security is ordinarily for a reasonably equivalent value notwithstanding a discrepancy between the value of the asset transferred and the debt secured, because the amount of the debt is the measure of the value of the interest in the asset that is transferred. See, e.g., Peoples-Pittsburgh Trust Co. v. Holy Family Polish Nat'l Catholic Church, Carnegie, Pa., 341 Pa. 390, 19 A.2d 360 (1941). If the debt is a voidable obligation under this Act, a transfer to secure it as well as the obligation would be vulnerable to attack as voidable. A transfer to satisfy or secure an antecedent debt owed an insider is also subject to avoidance under the conditions specified in Section 5(b).
4. Section 3(a) of the Uniform Fraudulent Conveyance Act has been thought not to recognize that an unperformed promise could constitute fair consideration. See McLaughlin, Application of the Uniform Fraudulent Conveyance Act, 46 Harv.L.Rev. 404, 414 (1933). Courts construing these provisions of the prior law nevertheless have held unperformed promises to constitute value in a variety of circumstances. See, e.g., Harper v. Lloyd's Factors, Inc., 214 F.2d 662 (2d Cir. 1954) (transfer of money for promise of factor to discount transferor's purchase-money notes given to fur dealer); Schlecht v. Schlecht, 168 Minn. 168, 176-77, 209 N.W. 883, 886-87 (1926) (transfer for promise to make repairs and improvements on transferor's homestead); Farmer's Exchange Bank v. Oneida Motor Truck Co., 202 Wis. 266, 232 N.W. 536 (1930) (transfer in consideration of assumption of certain of transferor's liabilities); see also Hummel v. Cernocky, 161 F.2d 685 (7th Cir. 1947) (transfer in consideration of cash, assumption of a mortgage, payment of certain debts, and agreement to pay other debts). Likewise a transfer in consideration of a negotiable note discountable at a commercial bank, or the purchase from an established, solvent institution of an insurance policy, annuity, or contract to provide care and accommodations clearly appears to be for value. On the other hand, an unperformed promise by an individual to support a parent or other transferor has generally been held not to constitute value. See, e.g., Springfield Ins. Co. v. Fry, 267 F. Supp. 693 (N.D.Okla. 1967); Sandler v. Parlapiano, 236 App.Div. 70, 258 N.Y.Supp. 88 (1st Dep't 1932); Warwick Municipal Employees Credit Union v. Higham, 106 R.I. 363, 259 A.2d 852 (1969); Hulsether v. Sanders, 54 S.D. 412, 223 N.W. 335 (1929); Cooper v. Cooper, 22 Tenn.App. 473, 477, 124 S.W.2d 264, 267 (1939); Note, Rights of Creditors in Property Conveyed in Consideration of Future Support, 45 Iowa L.Rev. 546, 550-62 (1960). This Act adopts the view taken in the cases cited in determining whether an unperformed promise is value.
5. Subsection (b) rejects the rule of such cases as Durrett v. Washington Nat. Ins. Co., 621 F.2d 201 (5th Cir. 1980) (nonjudicial foreclosure of a mortgage avoided as a voidable transfer when the property of an insolvent mortgagor was sold for less than 70% of its fair value); and Abramson v. Lakewood Bank & Trust Co., 647 F.2d 547 (5th Cir. 1981), cert. denied, 454 U.S. 1164 (1982) (nonjudicial foreclosure held to be voidable transfer if made without fair consideration). Subsection (b) adopts the view taken in Lawyers Title Ins. Corp. v. Madrid (In re Madrid), 21 B.R. 424 (B.A.P. 9th Cir. 1982), aff'd on another ground, 725 F.2d 1197 (9th Cir. 1984), that the price bid at a regularly conducted and noncollusive foreclosure sale determines the fair value of the property sold for purposes of voidable transfer law. See also BFP v. Resolution Trust Corp., 511 U.S. 531, 537 n.3 (1994) (similarly construing Bankruptcy Code § 548; opinion expressly limited to foreclosure of real estate mortgages).
6. Subsection (c) is an adaptation of Bankruptcy Code § 547(c)(1) (1984). A transfer to an insider for an antecedent debt may be voidable under § 5(b).

4(a)(2) ("reasonably equivalent value");

4(b)(8) ("value ... reasonably equivalent");

5(a) ("reasonably equivalent value");

8(a) ("reasonably equivalent value");

8(b)(1)(ii)(A) and (d) ("value");

8(f)(1) ("new value"); and

8(f)(3) ("present value").

"Value" is also used in other senses in this Act, to which this section is not relevant. See, e.g. , §§ 8(b)(1), 8(c) ("value" in the sense of the value of a transferred asset).

Subsection (b) prescribes the effect of a sale meeting its requirements, whether the asset sold is personal or real property. It applies only to a sale under a mortgage, deed of trust, or security agreement. Subsection (b) thus does not apply to a sale foreclosing a nonconsensual lien, such as a tax lien. However, the subsection does apply to a foreclosure by sale of the interest of a vendee under an installment land contract in accordance with applicable law that requires or permits the foreclosure to be effected by a sale in the same manner as the foreclosure of a mortgage. See G. Osborne, G. Nelson, & D. Whitman, Real Estate Finance Law 83-84, 95-97 (1979).

If a lien given an insider for a present consideration is not perfected as against a subsequent bona fide purchaser or is so perfected after a delay following an extension of credit secured by the lien, foreclosure of the lien may result in a transfer for an antecedent debt that is voidable under Section 5(b). Subsection (b) does not apply to an action under Section 4(a)(1) to avoid a transfer or obligation because made or incurred with actual intent to hinder, delay, or defraud any creditor.

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

Subsection (a) concerns itself with what constitutes "value." The term, qualified with adjectives (principally "reasonably equivalent value") appears throughout N.C. Gen. Stat. § 39-23.4, -23.5 and -23.8. Two actions are stated to constitute the giving of "value": transfers of property and securing or satisfying prior debt.

Prior North Carolina law has dealt with what constitutes "full value" or "good consideration," terms that were employed in former N.C. Gen. Stat. § 39-16 and -19. The inquiry has generally focused on the amount of consideration, however, rather than on its character. Two types of consideration that have been analyzed in prior law are prior indebtedness (so-called "antecedent debt") and unfulfilled ("executory") promises. As to antecedent debt, prior North Carolina law laid down the same rule as that set out in subsection (a): antecedent debt qualified as consideration. See Fowle v. McLean, 168 N.C. 537, 541, 84 S.E. 852, 854 (1915). See also Howard, 50 N.C. L. Rev. at 880-81.

Executory promises of support constituted consideration under prior North Carolina law, subject to a number of exceptions and limits. Services furnished to relatives were presumed to be gratuitous; the relationship of the parties could go far toward raising a presumption that a transfer involved fraudulent intent. See Howard, 50 N.C. L. Rev. at 881-82. Subsection (a) excludes from the definition of value unperformed promises to furnish support, subject only to an exception for a promise made in the ordinary course of the provisor's business. This blanket exclusion represents a change from prior North Carolina law. Subsection (a) does not expressly address unperformed promises other than to furnish support. But see Official Comment 4.

Subsection (b) rejects the so-called "Durrett" rule. See Durrett v. Washington National Ins. Co., 621 F.2d 201 (5th Cir. 1980) (dealing with the Bankruptcy Act provision analogous to Bankruptcy Code § 548(a)(2)); Official Comment 5. The Durrett rule has been rejected by the United States Supreme Court. BFP v. Resolution Trust Corp., 511 U.S. 531 (1994). There is no North Carolina law on this subject. However subsection (b) is consistent with the philosophy of North Carolina's unique Part 6 of Article 9 of the UCC (N.C. Gen. Stat. § 25-9-601 et seq. ), which adopts a conclusive presumption that a sale conducted in a certain manner is commercially reasonable.

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

CASE NOTES

Reasonably Equivalent Value. - When fraudulent transfers were alleged, it was error to grant summary judgment in favor of transferees because no facts supported piercing the corporate veil as to two corporations, so no antecedent debt payment constituted reasonably equivalent value, when a debtor transferred funds to the transferees, creating fact issues under G.S. 39-23.5, G.S. 39-23.4, and G.S. 39-23.8. Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013).

Because Transferee Was Net Loser in Debtor's Ponzi Scheme, No Material Issue of Fact Existed Regarding Whether Transferee "Gave Value." - Defendant transferee was a net loser because he invested approximately $210,000 more in debtor's Ponzi scheme than he received in return. Under the facts, which clearly showed that the transferee was a net loser, there was no material issue of fact regarding whether the transferee "gave value" under 11 U.S.C.S. § 548(c) nor as to the extent of the value given by the transferee, such value being equal to the full amount of the payments received from debtor. Ivey v. Cole (In re Whitley), - Bankr. - (Bankr. M.D.N.C. May 1, 2013).

OFFICIAL COMMENT (2014)

1. Section 4(a)(1) is derived from § 7 of the Uniform Fraudulent Conveyance Act, which in turn was derived from the Statute of 13 Elizabeth, c. 5 (1571).  Factors appropriate for consideration in determining actual intent under Section 4(a)(1) are specified in subsection (b).
2. Section 4, unlike § 5, protects creditors of a debtor whose claims arise after as well as before the debtor made or incurred the challenged transfer or obligation. Similarly, there is no requirement in § 4(a)(1) that the intent referred to be directed at a creditor existing or identified at the time of transfer or incurrence. For example, promptly after the invention in Pennsylvania of the spendthrift trust, the assets and beneficial interest of which are immune from attachment by the beneficiary's creditors, courts held that a debtor's establishment of a spendthrift trust for the debtor's own benefit is a voidable transfer under the Statute of 13 Elizabeth, without regard to whether the transaction is directed at an existing or identified creditor. Mackason's Appeal, 42 Pa. 330, 338-39 (1862); see also, e.g., Ghormley v. Smith, 139 Pa. 584, 591-94 (1891); Patrick v. Smith, 2 Pa. Super. 113, 119 (1896). Cf. Restatement (Third) of Trusts § 58(2) (2003) (setting forth a substantially similar rule as a matter of trust law). Likewise, for centuries § 4(a)(1) and its predecessors have been employed to invalidate nonpossessory property interests that are thought to be potentially deceptive, without regard to whether the deception is directed at an existing or identified creditor. See, e.g., McGann v. Capital Sav. Bank & Trust Co., 89 A.2d 123, 183-84 (Vt. 1952) (seller's retention of possession of goods after sale held voidable); Superior Partners v. Prof'l Educ. Network, Inc., 485 N.E.2d 1218, 1221 (Ill. App. Ct. 1985) (similar); Clow v. Woods, 5 Serg. & Rawle 275 (Pa. 1819) (holding that a nonpossessory chattel mortgage is voidable, in the absence of a system for giving public notice of such interests such as is today supplied by Article 9 of the Uniform Commercial Code).
3. Section 4(a)(2) is derived from §§ 5 and 6 of the Uniform Fraudulent Conveyance Act but substitutes "reasonably equivalent value" for "fair consideration."  The transferee's good faith was an element of "fair consideration" as defined in § 3 of the Uniform Fraudulent Conveyance Act, and lack of fair consideration was one of the elements of a fraudulent transfer as defined in four sections of the Uniform Fraudulent Conveyance Act.  The transferee's good faith is irrelevant to a determination of the adequacy of the consideration under this Act, but lack of good faith may be a basis for withholding protection of a transferee or obligee under § 8.
4. Unlike the Uniform Fraudulent Conveyance Act, this Act does not prescribe different tests for voidability of a transfer that is made for the purpose of security and a transfer that is intended to be absolute.  The premise of this Act is that when a transfer is for security only, the equity or value of the asset that exceeds the amount of the debt secured remains available to unsecured creditors and thus cannot be regarded as the subject of a voidable transfer merely because of the encumbrance resulting from an otherwise valid security transfer.  Disproportion between the value of the asset securing the debt and the size of the debt secured does not, in the absence of circumstances indicating a purpose to hinder, delay, or defraud creditors, constitute an impermissible hindrance to the enforcement of other creditors' rights against the debtor-transferor.  Cf. U.C.C. § 9-401(b) (2014) (providing that a debtor's interest in collateral subject to a security interest is transferable notwithstanding an agreement with the secured party prohibiting transfer).
5. Subparagraph (i) of § 4(a)(2) is an adaptation of § 5 of the Uniform Fraudulent Conveyance Act but substitutes "unreasonably small [assets] in relation to the business or transaction" for "unreasonably small capital."  The reference to "capital" in the Uniform Fraudulent Conveyance Act might be interpreted, incorrectly, to refer to the par value of stock or to the consideration received for stock issued.  The special meanings of "capital" in corporation law have no relevance in the law of voidable transfers.  The subparagraph focuses attention on whether the amount of all the assets retained by the debtor was inadequate, i.e., unreasonably small, in light of the needs of the business or transaction in which the debtor was engaged or about to engage.
6. Subsection (b) is a nonexclusive catalogue of factors appropriate for consideration by the court in determining whether the debtor had an actual intent to hinder, delay, or defraud one or more creditors.  Proof of the existence of any one or more of the factors enumerated in subsection (b) may be relevant evidence as to the debtor's actual intent but does not create a presumption that the debtor has made a voidable transfer or incurred a voidable obligation.  The list of factors includes most of the so-called "badges of fraud" that have been recognized by the courts in construing and applying the Statute of 13 Elizabeth and § 7 of the Uniform Fraudulent Conveyance Act.  Proof of the presence of certain badges in combination establishes voidability conclusively - i.e., without regard to the actual intent of the debtor - when they concur as provided in § 4(a)(2) or in § 5.  The fact that a transfer has been made to a relative or to an affiliated corporation has not been regarded as a badge of fraud sufficient to warrant avoidance when unaccompanied by any other evidence of intent to hinder, delay, or defraud creditors.  The courts have uniformly recognized, however, that a transfer to a closely related person warrants close scrutiny of the other circumstances, including the nature and extent of the consideration exchanged.  See 1 G. Glenn, Fraudulent Conveyances and Preferences § 307 (Rev. ed. 1940).  The second, third, fourth, and fifth factors listed are all adapted from the classic catalogue of badges of fraud provided by Lord Coke in Twyne's Case, 3 Coke 80b, 76 Eng.Rep. 809 (Star Chamber 1601).  Lord Coke also included the use of a trust and the recitation in the instrument of transfer that it "was made honestly, truly, and bona fide," but the use of the trust is voidable only when accompanied by indicia of intent to hinder, delay, or defraud creditors, and recitals of "good faith" can no longer be regarded as significant evidence of intent to hinder, delay, or defraud creditors.
7. In considering the factors listed in § 4(b) a court should evaluate all the relevant circumstances involving a challenged transfer or obligation. Thus the court may appropriately take into account all indicia negativing as well as those suggesting intent to hinder, delay, or defraud creditors, as illustrated in the following reported cases:
8. The phrase "hinder, delay, or defraud" in § 4(a)(1), carried forward from the primordial Statute of 13 Elizabeth, is potentially applicable to any transaction that unacceptably contravenes norms of creditors' rights. Section 4(a)(1) is sometimes said to require "actual fraud," by contrast to § 4(a)(2) and § 5(a), which are said to require "constructive fraud." That shorthand is highly misleading. Fraud is not a necessary element of a claim for relief under any of those provisions. By its terms, § 4(a)(1) applies to a transaction that "hinders" or "delays" a creditor, even if it does not "defraud" the creditor. See, e.g., Shapiro v. Wilgus, 287 U.S. 348, 354 (1932); Means v. Dowd, 128 U.S. 273, 288-89 (1888); Consove v. Cohen (In re Roco Corp.), 701 F.2d 978, 984 (1st Cir. 1983); Empire Lighting Fixture Co. v. Practical Lighting Fixture Co., 20 F.2d 295, 297 (2d Cir. 1927); Lippe v. Bairnco Corp., 249 F. Supp. 2d 357, 374 (S.D.N.Y. 2003). "Hinder, delay, or defraud" is best considered to be a single term of art describing a transaction that unacceptably contravenes norms of creditors' rights. Such a transaction need not bear any resemblance to common-law fraud. Thus, the Supreme Court held a given transfer voidable because made with intent to "hinder, delay, or defraud" creditors, but emphasized: "We have no thought in so holding to impute to [the debtor] a willingness to participate in conduct known to be fraudulent…. [He] acted in the genuine belief that what [he] planned was fair and lawful. Genuine the belief was, but mistaken it was also. Conduct and purpose have a quality imprinted on them by the law." Shapiro v. Wilgus. 287 U.S. 348, 357 (1932).
9. This Act is not an exclusive law on the subject of voidable transfers and obligations. See § 1, Comment 2. For example, the Uniform Commercial Code supplements or modifies the operation of this Act in numerous ways. Instances include the following:
10. Subsection (c) was added in 2014. Sections 2(b), 4(c), 5(c), 8(g), and 8(h) together provide uniform rules on burdens and standards of proof relating to the operation of this Act.
11. Subsection (c) allocates to the party making a claim for relief under § 4 the burden of persuasion as to the elements of the claim. Courts should not apply nonstatutory presumptions that reverse that allocation, and should be wary of nonstatutory presumptions that would dilute it. The command of § 13 - that this Act is to be applied so as to effectuate its purpose of making uniform the law among states enacting it - applies with particular cogency to nonstatutory presumptions. Given the elasticity of key terms of this Act (e.g., "hinder, delay, or defraud") and the potential difficulty of proving others (e.g., the financial condition tests in § 4(a)(2) and § 5), employment of divergent nonstatutory presumptions by enacting jurisdictions may render the law nonuniform as a practical matter. It is not the purpose of subsection (c) to forbid employment of any and all nonstatutory presumptions. Indeed, in some instances a judicially-crafted presumption applied under this Act or its predecessors has won such favor as to be codified as a separate statutory creation. Examples include the bulk sales laws, the absolute priority rule applicable to reorganizations under Bankruptcy Code § 1129(b)(2)(B)(ii) (2014), and the so-called "constructive fraud" provisions of § 4(a)(2) and § 5(a) of this Act itself. However, subsection (c) and § 13 mean, at the least, that a nonstatutory presumption is suspect if it would alter the statutorily-allocated burden of persuasion, would upset the policy of uniformity, or is an unwarranted carrying-forward of obsolescent principles. An example of a nonstatutory presumption that should be rejected for those reasons is a presumption that the transferee bears the burden of persuasion as to the debtor's compliance with the financial condition tests in § 4(a)(2) and § 5, in an action under those provisions, if the transfer was for less than reasonably equivalent value (or, as another example, if the debtor was merely in debt at the time of the transfer). See Fidelity Bond & Mtg. Co. v. Brand, 371 B.R. 708, 716-22 (E.D. Pa. 2007) (rejecting such a presumption previously applied in Pennsylvania).

Section 4(a)(1) has the meaning elaborated in the preceding paragraph, but it is of course possible that a jurisdiction in which this Act is in force might enact other legislation that modifies the results of the particular examples given to illustrate that meaning. For example, some states have enacted legislation authorizing the establishment and funding of self-settled spendthrift trusts, subject to specified conditions. In such a state, such legislation will supersede the historical interpretation referred to in the preceding paragraph, either expressly or by necessary implication, with respect to allowed transfers to such a statutorily-validated trust. See, e.g. , Del. Code. Ann. tit. 12, § 3572(a), (b) (2014). See also Comment 8. Likewise, the historical skepticism of nonpossessory property interests has been superseded as to security interests in personal property by the Uniform Commercial Code. See Comment 9.

Subparagraph (ii) of § 4(a)(2) is an adaptation of § 6 of the Uniform Fraudulent Conveyance Act, which relates to a debtor that has or will have debts beyond the debtor's ability to pay as they become due (a condition that is sometimes referred to as "insolvency in the equity sense"). Subparagraph (ii) carries forward the previous Act's language capturing a debtor that "intends" or "believes" that the debtor is or will be unable to pay the debtor's debts as they become due, and adds to that language capturing a debtor that "reasonably should have believed" the same. The added language makes clear that subparagraph (ii) also captures a debtor that, on the basis of objective assessment, has or will have debts beyond the debtor's ability to pay as they become due, regardless of the debtor's subjective belief.

1. Whether the transfer or obligation was to an insider: Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574, 1582-83 (2d Cir. 1983) (insolvent debtor's purchase of two residences in the name of his spouse and the creation of a dummy corporation for the purpose of concealing assets held to evidence intent to hinder, delay, or defraud creditors); Banner Construction Corp. v. Arnold, 128 So.2d 893 (Fla.Dist.App. 1961) (assignment by one corporation to another having identical directors and stockholders constituted a badge of fraud); Travelers Indemnity Co. v. Cormaney, 258 Iowa 237, 138 N.W.2d 50 (1965) (transfer between spouses said to be a circumstance that shed suspicion on the transfer and that with other circumstances warranted avoidance); Hatheway v. Hanson, 230 Iowa 386, 297 N.W. 824 (1941) (transfer from parent to child said to require a critical examination of surrounding circumstances, which, together with other indicia of intent to hinder, delay, or defraud creditors, warranted avoidance); Lumpkins v. McPhee, 59 N.M. 442, 286 P.2d 299 (1955) (transfer from daughter to mother said to be indicative of intent to hinder, delay, or defraud creditors, but transfer held not to be voidable due to adequacy of consideration and delivery of possession by transferor).
2. Whether the transferor retained possession or control of the property after the transfer: Harris v. Shaw, 224 Ark. 150, 272 S.W.2d 53 (1954) (retention of property by transferor said to be a badge of fraud and, together with other badges, to warrant avoidance of transfer); Stephens v. Reginstein, 89 Ala. 561, 8 So. 68 (1890) (transferor's retention of control and management of property and business after transfer held material in determining transfer to be voidable); Allen v. Massey, 84 U.S. (17 Wall.) 351 (1872) (joint possession of furniture by transferor and transferee considered in holding transfer to be voidable); Warner v. Norton, 61 U.S. (20 How.) 448 (1857) (surrender of possession by transferor deemed to negate allegations of intent to hinder, delay, or defraud creditors).
3. Whether the transfer or obligation was concealed or disclosed: Walton v. First National Bank, 13 Colo. 265, 22 P. 440 (1889) (agreement between parties to conceal the transfer from the public said to be one of the strongest badges of fraud); Warner v. Norton, 61 U.S. (20 How.) 448 (1857) (although secrecy said to be a circumstance from which, when coupled with other badges, intent to hinder, delay, or defraud creditors may be inferred, transfer was held not to be voidable when made in good faith and transferor surrendered possession); W.T. Raleigh Co. v. Barnett, 253 Ala. 433, 44 So.2d 585 (1950) (failure to record a deed in itself said not to evidence intent to hinder, delay, or defraud creditors, and transfer held not to be voidable).
4. Whether, before the transfer was made or obligation was incurred, a creditor sued or threatened to sue the debtor: Harris v. Shaw, 224 Ark. 150, 272 S.W.2d 53 (1954) (transfer held to be voidable when causally connected to pendency of litigation and accompanied by other badges of fraud); Pergrem v. Smith, 255 S.W.2d 42 (Ky.App. 1953) (transfer in anticipation of suit deemed to be a badge of fraud; transfer held voidable when accompanied by insolvency of transferor who was related to transferee); Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D.Ark. 1963) (although threat or pendency of litigation said to be an indicator of intent to hinder, delay, or defraud creditors, transfer was held not to be voidable when adequate consideration and good faith were shown).
5. Whether the transfer was of substantially all the debtor's assets: Walbrun v. Babbitt, 83 U.S. (16 Wall.) 577 (1872) (sale by insolvent retail shop owner of all of his inventory in a single transaction held to be voidable); Cole v. Mercantile Trust Co., 133 N.Y. 164, 30 N.E. 847 (1892) (transfer of all property before plaintiff could obtain a judgment held to be voidable); Lumpkins v. McPhee, 59 N.M. 442, 286 P.2d 299 (1955) (although transfer of all assets said to indicate intent to hinder, delay, or defraud creditors, transfer held not to be voidable because full consideration was paid and transferor surrendered possession).
6. Whether the debtor had absconded: In re Thomas, 199 F. 214 (N.D.N.Y. 1912) (when debtor collected all of his money and property with the intent to abscond, intent to hinder, delay, or defraud creditors was held to be shown).
7. Whether the debtor had removed or concealed assets: Bentley v. Young, 210 F. 202 (S.D.N.Y. 1914), aff'd, 223 F. 536 (2d Cir. 1915) (debtor's removal of goods from store to conceal their whereabouts and to sell them held to render sale voidable); Cioli v. Kenourgios, 59 Cal.App. 690, 211 P. 838 (1922) (debtor's sale of all assets and shipment of proceeds out of the country held to be voidable notwithstanding adequacy of consideration).
8. Whether 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: Toomay v. Graham, 151 S.W.2d 119 (Mo.App. 1941) (although mere inadequacy of consideration said not to be a badge of fraud unless it is grossly inadequate, transfer held to be voidable when accompanied by other badges of fraud); Texas Sand Co. v. Shield, 381 S.W.2d 48 (Tex. 1964) (inadequate consideration said to be an indicator of intent to hinder, delay, or defraud creditors, and transfer held to be voidable because of inadequate consideration, pendency of suit, family relationship of transferee, and fact that all nonexempt property was transferred); Weigel v. Wood, 355 Mo. 11, 194 S.W.2d 40 (1946) (although inadequate consideration said to be a badge of fraud, transfer held not to be voidable when inadequacy not gross and not accompanied by any other badge; fact that transfer was from father to son held not sufficient to establish intent to hinder, delay, or defraud creditors).
9. Whether the debtor was insolvent or became insolvent shortly after the transfer was made or obligation was incurred:  Harris v. Shaw, 224 Ark. 150, 272 S.W. 2d 53 (1954) (insolvency of transferor said to be a badge of fraud and transfer held voidable when accompanied by other badges of fraud); Bank of Sun Prairie v. Hovig, 218 F. Supp. 769 (W.D. Ark. 1963) (although the insolvency of the debtor said to be a badge of fraud, transfer held not voidable when debtor was shown to be solvent, adequate consideration was paid, and good faith was shown, despite the pendency of suit); Wareheim v. Bayliss, 149 Md. 103, 131 A. 27 (1925) (although insolvency of debtor acknowledged to be an indicator of intent to hinder, delay, or defraud creditors, transfer held not to be voidable when adequate consideration was paid and whether debtor was insolvent in fact was doubtful).
10. Whether the transfer occurred shortly before or shortly after a substantial debt was incurred:  Commerce Bank of Lebanon v. Halladale A Corp., 618 S.W. 2d 288, 292 (Mo.App. 1981) (when transferors incurred substantial debts near in time to the transfer, transfer was held to be voidable due to inadequate consideration, close family relationship, the debtor's retention of possession, and the fact that almost all the debtor's property was transferred).
11. Whether the debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor: The wrong addressed by § 4(b)(11) is collusive and abusive use of a lienor's superior position to eliminate junior creditors while leaving equity holders in place, perhaps unaffected.  The kind of disposition sought to be reached is exemplified by that found in Northern Pacific Co. v. Boyd, 228 U.S. 482, 502-05 (1913), the leading case in establishing the absolute priority doctrine in reorganization law.  There the Court held that a reorganization whereby the secured creditors and the management-owners retained their economic interests in a railroad through a foreclosure that cut off claims of unsecured creditors against its assets was in effect a voidable disposition. See Bruce A. Markell, Owners, Auctions and Absolute Priority in Bankruptcy Reorganizations, 44 Stan.L.Rev. 69, 74-83 (1991). For cases in which an analogous injury to unsecured creditors was inflicted by a lienor and a debtor, see Voest-Alpine Trading USA Corp. v. Vantage Steel Corp., 919 F.2d 206 (3d Cir. 1990) (lender foreclosed on assets of steel company at 5:00 p.m. on a Friday, then transferred the assets to an affiliate of the debtor; lender made a loan to the affiliate to enable it to purchase at the foreclosure sale on almost the same terms as the old loan; new business opened Monday morning); Jackson v. Star Sprinkler Corp. of Florida, 575 F.2d 1223, 1231-34 (8th Cir. 1978); Heath v. Helmick, 173 F.2d 157, 161-62 (9th Cir. 1949); Toner v. Nuss, 234 F. Supp. 457, 461-62 (E.D.Pa. 1964); and see In re Spotless Tavern Co., Inc., 4 F. Supp. 752, 753, 755 (D.Md. 1933).

Diminution of the assets available to the debtor's creditors is not necessarily required to "hinder, delay, or defraud" creditors. For example, the age-old legal skepticism of nonpossessory property interests, which stems from their potential for deception, has often resulted in their avoidance under § 4(a)(1) or its predecessors. See Comments 2 and 7(b); cf. Comment 9. A transaction may "hinder, delay, or defraud" creditors although it neither reduces the assets available to the debtor's creditors nor involves any potential deception. See, e.g., Shapiro v. Wilgus , 287 U.S. 348 (1932) (holding voidable a solvent individual debtor's conveyance of his assets to a wholly-owned corporation for the purpose of instituting a receivership proceeding not available to an individual).

A transaction that does not place an asset entirely beyond the reach of creditors may nevertheless "hinder, delay, or defraud" creditors if it makes the asset more difficult for creditors to reach. Simple exchange by a debtor of an asset for a less liquid asset, or disposition of liquid assets while retaining illiquid assets, may be voidable for that reason. See, e.g., Empire Lighting Fixture Co. v. Practical Lighting Fixture Co. , 20 F.2d 295, 297 (2d Cir. 1927) (L. Hand, J.) (credit sale by a corporation to an affiliate of its plant, leaving the seller solvent with ample accounts receivable, held voidable because made with intent to hinder creditors of the seller, due to the comparative difficulty of creditors realizing on accounts receivable under then-current collection practice). Overcollateralization of a debt that is made with intent to hinder the debtor's creditors, by rendering the debtor's equity in the collateral more difficult for creditors to reach, is similarly voidable. See Comment 4. Likewise, it is voidable for a debtor intentionally to hinder creditors by transferring assets to a wholly-owned corporation or other organization, as may be the case if the equity interest in the organization is more difficult to realize upon than the assets (either because the equity interest is less liquid, or because the applicable procedural rules are more demanding). See, e.g., Addison v. Tessier , 335 P.2d 554, 557 (N.M. 1959); First Nat'l Bank. v. F. C. Trebein Co. , 52 N.E. 834, 837-38 (Ohio 1898); Anno., 85 A.L.R. 133 (1933).

Under the same principle, § 4(a)(1) would render voidable an attempt by the owners of a corporation to convert it to a different legal form ( e.g. , limited liability company or partnership) with intent to hinder the owners' creditors, as may be the case if an owner's interest in the alternative organization would be subject only to a charging order, and not to execution (which would typically be available against stock in a corporation). See, e.g., Firmani v. Firmani , 752 A.2d 854, 857 (N.J. Super. Ct. App. Div. 2000); cf. Interpool Ltd. v. Patterson , 890 F. Supp. 259, 266-68 (S.D.N.Y. 1995) (similar, but relying on a "good faith" requirement of the former Uniform Fraudulent Conveyance Act rather than that act's equivalent of § 4(a)(1)). If such a conversion is done with intent to hinder creditors, it contravenes § 4(a)(1) regardless of whether it is effected by conveyance of the corporation's assets to a new entity or by conversion of the corporation to the alternative form. In both cases the owner begins with the stock of the corporation and ends with an ownership interest in the alternative organization, a property right with different attributes. Either is a "transfer" under the designedly sweeping language of § 1(16), which encompasses "every mode…of…parting with an asset or an interest in an asset." Cf., e.g., United States v. Sims (In re Feiler) , 218 F.3d 948 (9th Cir. 2000) (debtor's irrevocable election under the Internal Revenue Code to waive carryback of net operating losses is a "transfer" under the substantially similar definition in the Bankruptcy Code); Weaver v. Kellogg , 216 B.R. 563, 573-74 (S.D. Tex. 1997) (exchange of notes owed to the debtor for new notes having different terms is a "transfer" by the debtor under that definition).

In § 4(a)(1), the phrase "hinder, delay, or defraud," like the word "intent," is a term of art whose words do not have their dictionary meanings. For example, every grant of a security interest "hinders" the debtor's unsecured creditors in the dictionary sense of that word. Yet it would be absurd to suggest that every grant of a security interest contravenes § 4(a)(1). The line between permissible and impermissible grants cannot coherently be drawn by reference to the debtor's subjective mental state, for a rational person knows the natural consequences of his actions, and that includes the adverse consequences to unsecured creditors of any grant of a security interest. See, e.g., Dean v. Davis , 242 U.S. 438, 444 (1917) (equating an act whose "obviously necessary effect" is to hinder, delay, or defraud creditors with an act intended to hinder, delay, or defraud creditors); United States v. Tabor Court Realty Corp. , 803 F.3d 1288, 1305 (3rd Cir. 1986) (holding that the trial court's finding of intent to hinder, delay, or defraud creditors properly followed from its finding that the debtor could have foreseen the effect of its act on its creditors, because "a party is deemed to have intended the natural consequences of his acts"); In re Sentinel Management Group Inc. , 728 F.3d 660, 667 (7th Cir. 2013). Whether a transaction is captured by § 4(a)(1) ultimately depends upon whether the transaction unacceptably contravenes norms of creditors' rights, given the devices legislators and courts have allowed debtors that may interfere with those rights. Section 4(a)(1) is the regulatory tool of last resort that restrains debtor ingenuity to decent limits.

Thus, for example, suppose that entrepreneurs organize a business as a limited liability company, contributing assets to capitalize it, in the ordinary situation in which none of the owners has particular reason to anticipate personal liability or financial distress and no other unusual facts are present. Assume that the LLC statute has the creditor-thwarting feature of precluding execution upon equity interests in the LLC and providing only for charging orders against such interests. Notwithstanding that feature, the owners' transfers of assets to capitalize the LLC is not voidable under § 4(a)(1) as in force in the same state. The legislature in that state, having created the LLC vehicle having that feature, must have expected it to be used in such ordinary circumstances. By contrast, if owners of an existing business were to reorganize it as an LLC under such a statute when the clouds of personal liability or financial distress have gathered over some of them, and with the intention of gaining the benefit of that creditor-thwarting feature, the transfer effecting the reorganization should be voidable under § 4(a)(1), at least absent a clear indication that the legislature truly intended the LLC form, with its creditor-thwarting feature, to be available even in such circumstances.

Because the laws of different jurisdictions differ in their tolerance of particular creditor-thwarting devices, choice of law considerations may be important in interpreting § 4(a)(1) as in force in a given jurisdiction. For example, as noted in Comment 2, the language of § 4(a)(1) historically has been interpreted to render voidable a transfer to a self-settled spendthrift trust. Suppose that jurisdiction X, in which this Act is in force, also has in force a statute permitting an individual to establish a self-settled spendthrift trust and transfer assets thereto, subject to stated conditions. If an individual Debtor whose principal residence is in X establishes such a trust and transfers assets thereto, then under § 10 of this Act the voidable transfer law of X applies to that transfer. That transfer cannot be considered voidable in itself under § 4(a)(1) as in force in X, for the legislature of X, having authorized the establishment of such trusts, must have expected them to be used. (Other facts might still render the transfer voidable under X's enactment of § 4(a)(1).) By contrast, if Debtor's principal residence is in jurisdiction Y, which also has enacted this Act but has no legislation validating such trusts, and if Debtor establishes such a trust under the law of X and transfers assets to it, then the result would be different. Under § 10 of this Act, the voidable transfer law of Y would apply to the transfer. If Y follows the historical interpretation referred to in Comment 2, the transfer would be voidable under § 4(a)(1) as in force in Y.

1. U.C.C. § 2-402(2) (2014) recognizes the generally prevailing rule that retention of possession of goods by a seller may be voidable, but limits the application of the rule by negating any imputation of voidability from "retention of possession in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification." (Indeed, independently of § 2-402(2), retention of possession of goods in good faith and current course of trade by a merchant-seller for a commercially reasonable time after a sale or identification should not in itself be considered to "hinder, delay, or defraud" any creditor of the merchant-seller under § 4(a)(1).)
2. Section 2A-308(1) provides a rule analogous to § 2-402(2) for situations in which a lessor retains possession of goods that are subject to a lease contract. Section 2A-308(3) provides that retention of possession of goods by the seller-lessee in a sale-leaseback transaction does not render the transaction voidable by a creditor of the seller-lessee if the buyer bought for value and in good faith.
3. This Act does not preempt statutes governing bulk transfers, including Article 6 of the Uniform Commercial Code in jurisdictions in which it remains in force.
4. Section 9-205 precludes treating a security interest in personal property as voidable on account of various enumerated features it may have. Among other things, § 9-205 immunizes a security interest in tangible property from being avoided on account of the secured party not being in possession of the property, notwithstanding the historical skepticism of nonpossessory property interests.
   1. Both the Official Comments and the North Carolina Comments to this Act are printed in the General Statutes as annotations. See § 4 of Session Law 2015-23 (authorizing the Revisor of Statutes to print the comments "as annotations"). Furthermore, the commentaries to the statutes, even official comments, are not law. Official and other drafters comments are used by our courts as persuasive precedent or to show legislative intent, but they are not binding. See, e.g., Parsons v. Jefferson-Pilot Corp., 333 N.C. 420, 425, 426 S.E.2d 685, 689 (1993) ("[N]either the Official Comment nor the North Carolina Commentary to N.C.G.S. 55-16-02 were enacted into law and … are not controlling [but] we accord them some weight in our efforts to determine the intent of our legislature"); Electric Supply Co. v. Swain Elec. Co., Inc., 328 N.C. 651, 657, 403 S.E.2d 291, 295 (1991) ("[T]he commentaries printed with the North Carolina General Statutes, which were not enacted into law by the General Assembly, are not treated as binding authority by this Court"); State v. Williams, 315 N.C. 310, 327, 338 S.E.2d 75, 85 (1986) ("We consider the official commentary [to G.S. 15A-1235] to be merely persuasive authority … and … therefore not binding on us"); see also Conley's Creek Limited Partnership v. Smokey Mountain Country Club Property Owners Association, Inc., ____ N.C. App. ]]], 805 S.E.2d 147, 151 (2017); Miller v. First Bank, 206 N.C. App. 166, 171, 696 S.E.2d 824, 827 (2010); Rentenbach Constructors, Inc. v. CM Partnership, 181 N.C. App. 268, 271, 639 S.E.2d 16, 18 (2007); State v. Evans, 145 N.C. App. 324, 330, 550 S.E.2d 853, 857-58 (2001).
   2. No North Carolina appellate case directly on point has been reported to the drafters as of October 5, 2018.

This Act operates independently of rules in an organic statute applicable to a business organization that limit distributions by the organization to its equity owners. Compliance with those rules does not insulate such a distribution from being voidable under this Act. It is conceivable that such an organic statute might contain a provision preempting the application of this Act to such distributions. Cf. Model Business Corporation Act § 152 (optional provision added in 1979 preempting the application of "any other statutes of this state with respect to the legality of distributions"; deleted 1984). Such a preemptive statute of course must be respected if applicable, but choice of law considerations may well render it inapplicable. See, e.g., Faulkner v. Kornman (In re The Heritage Organization, L.L.C.) , 413 B.R. 438, 462-63 (Bankr. N.D. Tex. 2009) (action under the Texas enactment of this Act challenging a distribution by a Delaware limited liability company to its members; held, a provision of the Delaware LLC statute imposing a three-year statute of repose on an action under "any applicable law" to recover a distribution by a Delaware LLC did not apply, because choice of law rules directed application of the voidable transfer law of Texas).

Pursuant to subsection (c), proof of intent to "hinder, delay, or defraud" a creditor under § 4(a)(1) is sufficient if made by a preponderance of the evidence. That is the standard of proof ordinarily applied in civil actions. Subsection (c) thus rejects cases that have imposed an extraordinary standard, typically "clear and convincing evidence," by analogy to the standard commonly applied to proof of common-law fraud. That analogy is misguided. By its terms, § 4(a)(1) applies to a transaction that "hinders" or "delays" a creditor even if it does not "defraud," and a transaction to which § 4(a)(1) applies need not bear any resemblance to common-law fraud. See Comment 8. Furthermore, the extraordinary standard of proof commonly applied to common-law fraud originated in cases that were thought to involve a special danger that claims might be fabricated. In the earliest such cases, a court of equity was asked to grant relief on claims that were unenforceable at law for failure to comply with the Statute of Frauds, the Statute of Wills, or the parol evidence rule. In time, extraordinary proof also came to be required in actions seeking to set aside or alter the terms of written instruments. See Herman & MacLean v. Huddleston , 459 U.S. 375, 388-89 (1983) and sources cited therein. Those reasons for extraordinary proof do not apply to claims for relief under § 4(a)(1).

For similar reasons, a procedural rule that imposes extraordinary pleading requirements on a claim of "fraud," without further gloss, should not be applied to a claim under § 4(a)(1). The elements of a claim under § 4(a)(1) are very different from the elements of a claim of common-law fraud. Furthermore, the reasons for such extraordinary pleading requirements do not apply to a claim under § 4(a)(1). Unlike common-law fraud, a claim under § 4(a)(1) is not unusually susceptible to abusive use in a "strike suit," nor is it apt to be of use to a plaintiff seeking to discover unknown wrongs. Likewise, a claim under § 4(a)(1) is unlikely to cause significant harm to the defendant's reputation, for the defendant is the transferee or obligee, and the elements of the claim do not require the defendant to have committed even an arguable wrong. See Janvey v. Alguire , 846 F. Supp. 2d 662, 675-77 (N.D. Tex. 2011); Carter-Jones Lumber Co. v. Benune , 725 N.E.2d 330, 331-33 (Ohio App. 1999). Cf. Federal Rules of Civil Procedure, Appendix, Form 21 (2010) (illustrative form of complaint for a claim under § 4(a)(1) or similar law, which Rule 84 declares sufficient to comply with federal pleading rules).

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

This section and N.C. Gen. Stat. § 39-23.5 are the primary provisions of the UFTA, as they define which transfers are voidable.

This section differs from the version promulgated by the NCCUSL in three respects. The General Assembly deleted the phrase "or reasonably should have believed" in subsubdivision (a)(2)b. and added subdivision (b)(12). Because the drafters believed that this change converted constructive intent from an element of a conveyance deemed fraudulent to a factor to be considered in determining intent, the phrase "actual intent" was changed to "intent" in subsubdivision (a)(2)b. and the introductory language of subsection (b). The General Assembly also added subdivision (b)(13).

The reference to "obligation incurred" in subsection (a) represents a change from prior North Carolina law, and reflects a recognition that a debtor can harm creditors by incurring a fraudulent debt as well as by making a fraudulent transfer.

Except for the change described in the preceding sentence, subdivision (a)(1) does not change fraudulent transfer law in North Carolina. Under prior law, once a creditor had shown actual fraud on the part of the debtor, the transfer was void whether the creditor's claim was in existence at the time of the transaction or arose subsequently. See generally Howard, 50 N.C. L. Rev. at 887. Subdivision (a)(1) is subject to an important limitation: under N.C. Gen. Stat. § 39-23.8(a), a transfer or obligation is not voidable under subdivision (a)(1) against a person who took in good faith and for a reasonably equivalent value. With that limitation, subdivision (a)(1) is consistent with prior North Carolina law. See former N.C. Gen. Stat. § 39-19; Aman v. Walker, 165 N.C. 224, 227, 81 S.E. 162, 164 (1914) (principle four).

Subdivision (a)(2) is intended to address transactions for less than "reasonably equivalent value" that leave a debtor undercapitalized ( see Official Comment 4) and applies both to present and subsequent creditors. It should be contrasted with N.C. Gen. Stat. § 39-23.5(a), which addresses transactions for less than "reasonably equivalent value" made when a debtor is or becomes "insolvent" but which applies only to creditors whose claims arose before the transaction.

Prior North Carolina law invalidated transactions for less than a "reasonably fair price" when the debtor failed "to retain property fully sufficient and available to pay his debts then existing." Aman v. Walker, 165 N.C. 224, 227, 18 S.E. 162, 164 (1914) (principle two). The rule clearly applied to transactions occurring when a debtor was "insolvent" in a "balance sheet" sense. See North Carolina Comment to N.C. Gen. Stat. § 39-23.2. Under prior law a subsequent creditor could use the fact that a conveyance left a business with "unreasonably small capital" as evidence of fraud, but the creditor nevertheless would have to prove fraudulent intent in order to void the conveyance. Howard, 50 N.C. L. Rev. at 888.

Subdivision (a)(2) refers to transactions causing a debtor to incur debts beyond the debtor's ability to pay as they become due. As noted, under prior law when a debtor engaged in a transaction for less than a "reasonably fair price" and failed "to retain property fully sufficient and available to pay his creditors then existing," the transaction generally was voidable only by a creditor whose claim was in existence as of the time of the transaction in question. See North Carolina Comment to N.C. Gen. Stat. § 39-23.5. Subdivision (a)(2) broadens prior law since it can be invoked "whether the creditor's claim arose before or after" the transaction.

Subsection (b) is a non-exclusive list of "badges of fraud" that can be considered in establishing a debtor's fraudulent intent within the meaning of subdivision (a)(1). North Carolina law has long recognized "badges of fraud" in fraudulent conveyance litigation, see, e.g., Peebles v. Horton, 64 N.C. 374, 377 (1870), and decisions have identified several of the factors enumerated in subsection (b). Among these factors are close family relationship ( Wurlitzer Dist. Corp. v. Schofield, 44 N.C. App. 520, 529, 261 S.E.2d 688, 694 (1980), Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 130, 252 S.E.2d 826, 833 (1979), Unaka & City Nat'l Bank v. Lewis, 201 N.C. 148, 156, 159 S.E. 312, 316-17 (1931), Peeler v. Peeler, 109 N.C. 628, 634, 14 S.E. 59, 62 (1891)); retention of possession ( Piedmont Sav. Bank v. Levy, 138 N.C. 274, 50 S.E. 657 (1905)); secrecy ( Reiger v. Davis, 67 N.C. 185, 189 (1872)); and pending litigation ( Helms v. Green, 105 N.C. 251, 262, 11 S.E. 470, 474 (1890)). As noted above, subdivision (b)(12) incorporates language deleted from UFTA § 4(a), where it would have had a more automatic effect, rather than being a "factor" that "may" be considered, and subdivision (b)(13) is wholly new.

Under prior law certain combinations of "badges of fraud" could give rise to a rebuttable presumption of fraudulent intent. Howard, 50 N.C. L. Rev. at 891-893. According to Official Comment 5, however, proof of the existence of any one or more of the factors enumerated in subsection (b) may be relevant evidence as to the debtor's intent but does not create a presumption that the debtor has engaged in a fraudulent transaction.

SUPPLEMENTAL NORTH CAROLINA COMMENT

The North Carolina drafters have become aware of controversy involving the correctness and application of the last paragraph of Comment 8 of the Official Comment to this section, to the effect that a transfer by a person in a state that does not recognize self-settled spendthrift trusts to such a trust created under the laws of a state that does recognize such trusts would be voidable in itself. The drafters take no position on this issue but note the following two points:

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, rewrote the section heading; substituted "voidable" for "fraudulent" near the beginning of subsection (a); made a minor stylistic change in subdivision (b)(11); and added subsection (c). For applicability and effective date, see editor's note.

Legal Periodicals. - For comment, "Saving No One: Unifying Approaches to the UVTA Savings Clause," see 52 Wake Forest L. Rev. 695 (2017).

CASE NOTES

Applicability. - In fraudulent transfer action in bankruptcy, defendant's claim that it was not liable under the Uniform Fraudulent Transfer Act because it was not a creditor was rejected because scope of Act was not limited to fraudulent payments to a creditor. Finley Grp. v. Working Media Grp. Atlanta, LLC (In re Redf Mktg., LLC), 536 B.R. 646 (Bankr. W.D.N.C. 2015).

No Jurisdiction to Enter Order Against Non-Party. - Trial court erred by ordering a wife's son to pay a husband the majority of equity the son gained during the wife's fraudulent "gift/transfer" to him of real property because it lacked jurisdiction to enter such an order against the son, who was a non-party to the action.

Complaint Stated Claim. - Plaintiffs stated a claim for relief regarding avoidance of a fraudulent transfer under North Carolina law, as the complaint contained detailed facts to support each legal element, including identification of the parties, dates, and property at issue, details regarding the transfer transaction, and other material facts. Westbrook v. Parker (In re Parker), 581 B.R. 468 (Bankr. E.D.N.C. 2018).

Intent to Defraud. - Evidence was insufficient to establish that payments made by a corporation to its president were made with intent to defraud. Norman Owen Trucking, Inc. v. Morkoski, 131 N.C. App. 168, 506 S.E.2d 267 (1998).

Government was entitled to enforce a tax lien against a bankruptcy debtor's account to satisfy the tax liability of a taxpayer who had no interest in the debtor, since the taxpayer's transfer of judgment proceeds to the taxpayer's spouse who then used the proceeds to fund the debtor was fraudulent; the transfer was to the spouse as an insider for no monetary consideration, the taxpayer retained control of the funds by writing checks on the spouse's account, the taxpayer transferred substantially all of the taxpayer's assets, and the taxpayer knew or should have known that the funds were taxable. Schofield-Johnson, LLC v. United States (In re Schofield-Johnson, LLC), 462 B.R. 539 (Bankr. M.D.N.C. 2011).

Trustee's complaint adequately alleged a debtor's fraudulent intent for purposes of 11 U.S.C.S. § 548(a)(1)(A) and G.S. 39-23.4(a)(1) and thus satisfied Fed. R. Civ. P. 9. The complaint included particulars as to the identity of the transfers sought to be avoided, including the date, transferor, transferee, method of transfer, and amount of each alleged transfer; further, the complaint alleged that the debtor was operating a Ponzi scheme and provided specific facts related to the scheme. Ivey v. Swofford (In re Whitley), 463 B.R. 775 (Bankr. M.D.N.C. 2012).

Company's former shareholders were not liable as transferees, under 26 U.S.C.S. § 6901(h), for the company's unpaid taxes because they were not liable under state substantive law, G.S. 39-23.5; even though they might have conducted further inquiry, it would not likely have revealed the purchaser's post-closing plans to evade the taxes. Starnes v. Comm'r, 680 F.3d 417 (4th Cir. 2012).

Bankruptcy court dismissed a Chapter 7 trustee's complaint seeking an order which required a grain dealer to turn over more than a million bushels of grain it withdrew from a corporation's silos more than ninety days before the corporation declared bankruptcy, after it learned that the corporation was selling its grain without its permission. The trustee's claim seeking an order under 11 U.S.C.S. § 542 which required the dealer to turn over the grain failed because it did not allege facts that supported a reasonable inference that the dealer possessed the grain or retained control of it after the corporation declared bankruptcy, and the evidence did not show that the corporation made a preferential transfer under 11 U.S.C.S. § 547 or a fraudulent transfer under 11 U.S.C.S. § 548, or G.S. 39-23.1 et seq. when it allowed the dealer to take its grain. Angell v. C.A. Perry & Son, Inc. (In re Tanglewood Farms, Inc.), - Bankr. - (Bankr. E.D.N.C. Apr. 4, 2013).

It was error to grant summary judgment in favor of a creditor, under G.S. 39-23.4(a)(1), because there were genuine issues of material fact as to whether (1) a debtor transferred funds in question with fraudulent intent and (2) a transferee took the funds in good faith. Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013).

Plaintiff established that defendant's transfer of properties to a trust established by his wife were made with actual intent to defraud for purposes of the North Carolina Uniform Voidable Transactions Act (UVTA) where defendant and his wife had a long and clear history of using her name to conceal defendant's money, property interests, and other assets. Both defendant and his wife jointly planned and executed the transfer of the properties with the specific intent to hinder plaintiff's collection efforts related to a judgment, the trust was a mechanism used in effectuating this transfer, and the transfer was part of a broader scheme to structure their assets to deliberately evade plaintiff's collection efforts. Hoch v. Hoch (In re Hoch), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2018).

Actual Intent to Hinder, Delay, or Defraud Creditor. - Transfers were part of a concerted effort to keep cash and assets out of the company and protected from debtor's creditors by the attempted transfer to debtor and his wife as tenants by the entireties. The evidence, including the incredulity of their own testimony, overwhelmingly displayed that the transfers were made with the actual intent to hinder, delay, or defraud the creditor. Sparkman v. Coley (In re Coley), 608 B.R. 625 (Bankr. E.D.N.C. 2019).

Constructive Fraud. - Judgment for defendant on debtors' claim for constructively fraudulent transfer was warranted because the evidence at trial did not support the conclusion (or even the inference) that debtors intended to, or believed that they would, incur debts beyond their personal ability to pay. Parker v. McClain (In re Parker), - Bankr. - (Bankr. E.D.N.C. May 18, 2017).

Ponzi Schemes. - "Ponzi scheme presumption" of actual fraud arises in fraudulent transfer actions brought under G.S. 39-23.4(a)(1). Ivey v. Swofford (In re Whitley), 463 B.R. 775 (Bankr. M.D.N.C. 2012).

Trustee had sufficiently alleged claims under 11 U.S.C.S. § 548(a)(1)(A) and G.S. 39-23.4(a)(1) when he alleged that individuals transferred funds to the debtor for the purpose of investing in factoring programs; that the debtor was conducting very little or no actual commerce or legitimate commercial activities, but represented that he was conducting legitimate business operations; that no actual profits or earnings were produced in any material fashion from the operation of the fictitious factoring program; and that to the extent any alleged profits or returns were made on the investments, they were funded through additional funds obtained from additional investors into the fictitious factoring program. The trustee had therefore successfully invoked the "Ponzi presumption" under which payments made in furtherance of such a scheme were presumed to be fraudulent. Ivey v. Swofford (In re Whitley), 463 B.R. 775 (Bankr. M.D.N.C. 2012).

Assets Concealed. - Debtor concealed assets from the reach of creditors under this section since a debtor effectively concealed assets by removing them from the reach of a creditor, notwithstanding whether the creditor knew about the assets. Jenkins v. Ward (In re Jenkins), - F. Supp. 2d - (W.D.N.C. Sept. 6, 2013).

Lines of Credit. - Chapter 7 trustee stated a valid claim for recovery under 11 U.S.C.S. §§ 544(b) and 548(a)(1)(B) and the North Carolina Uniform Fraudulent Transfer Act, G.S. 39-23.1 et seq., of forty-two payments that were made to an LLC on a line of credit a corporation obtained less than two years before it declared bankruptcy because the line of credit was a constructively fraudulent transfer. The corporation's schedules demonstrated that the corporation was insolvent at the time it obtained the line of credit or became insolvent as a result of obligations it incurred under the line of credit. In re Tanglewood Farms, Inc., - Bankr. - (Bankr. E.D.N.C. Apr. 8, 2013).

The United States Bankruptcy Court for the Middle District of North Carolina holds that a Ponzi scheme raises a presumption of fraud in fraudulent transfer actions brought under the North Carolina Fraudulent Transfer Act, G.S. 39-23.4(a)(1). Ivey v. First Citizens Bank & Trust Co. (In re Whitley), - Bankr. - (Bankr. M.D.N.C. Feb. 7, 2013).

Proof of Insolvency. - Debtor's transfer of real property two years prior to the petition date to family members would not support a claim for fraudulent transfer under 11 U.S.C.S. §§ 548, 550, and G.S. 39-23.4, absent evidence that the debtor was insolvent at the time of, or was rendered insolvent by, the transfer. Oliver v. Cooper (In re Bateman), - Bankr. - (Bankr. E.D.N.C. Apr. 2, 2012).

Where chapter 7 trustee failed to establish insolvency on the part of the debtor at the time of certain allegedly fraudulent transfers to debtor's children, the complaint failed to meet the requirements of either G.S. 39-23.4 or 11 U.S.C.S. § 548, and the claims were subject to dismissal. Oliver v. Cooper (In re Bateman), - Bankr. - (Bankr. E.D.N.C. July 26, 2012).

Real Property Transfers Found Fraudulent. - Summary judgment was properly granted to a bank seeking to set aside real property transfers by a loan guarantor to her children and their spouses based on the following statutory factors: transferring the property to insiders; retaining control and income of the property after the transfers; making the transfers after a suit had been threatened or initiated; transferring almost all of the transferor's assets; and receiving less than reasonably equivalent value for deeded property. Triangle Bank v. Eatmon, 143 N.C. App. 521, 547 S.E.2d 92 (2001).

Trial court correctly concluded that a wife's transfer of property to her son constituted a fraudulent transfer because the transfer was to an insider, the transfer was concealed from the husband, the property was gifted to the son after the wife filed her complaint for equitable distribution, and the wife made the transfer without receiving a reasonable equivalent value in exchange; thus, the trial court had jurisdiction to order that the transfer of the deed be avoided.

Reasonably Equivalent Value. - In a case in which an investment company alleged a violation of G.S. 39-23.4 and it appealed the trial court's grant of a G.S. 1A-1, N.C. R. Civ. P. 12(b)(6) motion to dismiss for failure to state a claim filed by a development company, a real estate company, the majority shareholder of the development company, and his wife, who controlled the real estate company, that claim was not subject to dismissal for failure to state a claim based on the protections available to a person who took in good faith and for a reasonably equivalent value pursuant to G.S. 39-23.8(a). Fischer Inv. Capital, Inc. v. Catawba Dev. Corp., 200 N.C. App. 644, 689 S.E.2d 143 (2009).

Trustee's claims under 11 U.S.C.S. § 548(a)(1)(B) and G.S. 39-23.4(a)(2) were dismissed. The complaint was fatally deficient because it affirmatively showed that reasonably equivalent value was received for each transfer. Ivey v. Swofford (In re Whitley), 463 B.R. 775 (Bankr. M.D.N.C. 2012).

Voluntary Nature of Payments. - Evidence was insufficient to establish that payments made by a corporation to its president were voluntary or "not for value" where there was no evidence as to the value, or lack thereof, of services provided by the president to the corporation in return for the payments. Norman Owen Trucking, Inc. v. Morkoski, 131 N.C. App. 168, 506 S.E.2d 267 (1998).

Good Faith Transferee. - Government was entitled to enforce a tax lien against a bankruptcy debtor's account to satisfy the tax liability of a taxpayer who had no interest in the debtor, since the taxpayer's transfer of judgment proceeds to the taxpayer's spouse who then used the proceeds to fund the debtor was fraudulent, and the debtor was not a good-faith transferee; the spouse clearly was aware of the source of the funds and knew that the taxpayer had a substantial tax liability at the time of the transfer, and the spouse's knowledge was imputed to the debtor. Schofield-Johnson, LLC v. United States (In re Schofield-Johnson, LLC), 462 B.R. 539 (Bankr. M.D.N.C. 2011).

Piercing Corporate Veil. - In a case in which an investment company alleged violations of G.S. 39-23.4 and G.S. 39-23.5 and it appealed the trial court's grant of a G.S. 1A-1, N.C. R. Civ. P. 12(b)(6) motion to dismiss for failure to state a claim filed by a development company, a real estate company, the majority shareholder of the development company, and his wife, who controlled the real estate company, the investment company's complaint alleged sufficient facts to state a claim for piercing the development company's corporate veil, since its pleading asserted facts that, if proven to be true, would establish all the elements of the instrumentality rule utilized in North Carolina to determine whether the corporate veil should be pierced. Fischer Inv. Capital, Inc. v. Catawba Dev. Corp., 200 N.C. App. 644, 689 S.E.2d 143 (2009).

Summary Judgment Not Warranted. - Former shareholders were not entitled to summary judgment against the United States for a refund of taxes and assessable penalties that were allegedly erroneously assessed and collected from them because issues of fact existed on their state law claim regarding whether post-sale transfers collapsed into the sale of the corporation. Andrew v. United States, - F. Supp. 2d - (M.D.N.C. Nov. 27, 2013).

When fraudulent transfers were alleged, it was error to grant summary judgment in favor of transferees because no facts supported piercing the corporate veil as to two corporations, so no antecedent debt payment constituted reasonably equivalent value, when a debtor transferred funds to the transferees, creating fact issues under G.S. 39-23.5, G.S. 39-23.4, and G.S. 39-23.8. Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013).

With the exception of claims that were time-barred, there were genuine issues of fact which precluded a bankruptcy court from granting a former employee's motion for summary judgment on Chapter 11 debtors' claims that the employee was liable in damages because he made fraudulent transfers in violation of the North Carolina Uniform Fraudulent Transfer Act, G.S. 39-23.4, breached his fiduciary duty to the debtors, committed fraud, misrepresentation, negligence, and conversion, and engaged in unfair or deceptive trade practices; the debtors were not precluded from seeking recovery under G.S. 39-23.4 because the employee worked for companies the debtors owned and entered into an agreement to settle claims the companies filed. In re Parker, - Bankr. - (Bankr. E.D.N.C. Aug. 10, 2015).

In a case involving claims brought under the North Carolina Uniform Voidable Transactions Act (UVTA), neither party was entitled to summary judgment where neither party could show that there was no genuine issue of material fact regarding intent when properties were transferred, or whether debtor's affirmative defense of being a good faith transferee for value might succeed. Hoch v. Hoch (In re Hoch), 577 B.R. 202 (Bankr. E.D.N.C. 2017).

Former Officers Not Liable for Transfer of Corporation's Assets. - Former officers of an insolvent corporation were granted summary judgment on plaintiff's claim of fraudulent conveyance under G.S. 39-23.4(a), as the complained-of sale of the corporation's inventory occurred after the officers had resigned and was forced by a secured creditor. United States Trouser, S.A. de C.V. v. Int'l Legwear Group, Inc., - F. Supp. 2d - (W.D.N.C. Dec. 13, 2012).

Judicial Estoppel. - When fraudulent transfers were alleged, it was error to grant summary judgment in favor of sellers asserting the claim because the sellers were judicially estopped from claiming a judgment debtor and a transferee were separate entities, since the sellers successfully asserted in prior litigation that the debtor and transferee were one and the same. Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013).

Law of the Case. - State court's findings in an order involving claims brought under the North Carolina Uniform Voidable Transactions Act (UVTA) were the law of the case for purposes of action removed to bankruptcy court because debtor did not meet her burden of demonstrating an intervening change in controlling law with respect to those claims. Hoch v. Hoch (In re Hoch), 577 B.R. 202 (Bankr. E.D.N.C. 2017).

Transfer Occurred. - While the bankruptcy judge should have used North Carolina law to determine whether a transfer occurred, North Carolina's definition of transfer was virtually identical to that provided under the United States Bankruptcy Code, and the error was harmless; a transfer occurred since the debtor conditionally parted with the property by directing it to be deposited into the wife's bank account on the condition that he remain able to use it for his purposes. Jenkins v. Ward (In re Jenkins), - F. Supp. 2d - (W.D.N.C. Sept. 6, 2013).

Transfers Held Avoidable as Fraudulent. - Where there was no genuine dispute that chapter 7 debtor's wife was the transferee of proceeds of lawsuits filed by the debtor, those transfers were avoidable as actually fraudulent pursuant to 11 U.S.C.S. §§ 548(a)(1)(A), 544(b), and 550(a)(1), and also G.S. 39-23.4(a)(2) and G.S. 39-23.5(a). Ward v. Jenkins (In re Jenkins), - Bankr. - (Bankr. W.D.N.C. Dec. 12, 2012).

Pursuant to 11 U.S.C.S. § 548 and 550, trustee was allowed to recover property fraudulently transferred by debtor to his wife prior to filing for bankruptcy because the evidence showed several badges of fraud with respect to these transfers, including badges of fraud listed under North Carolina's version of the Uniform Fraudulent Transfer Act (UFTA), G.S. 39-23.4(b), leading to the conclusion that the debtor sought to shield assets from creditors by transferring them to his spouse, and the parties' separation and eventual divorce was simply a tactic to shield any appearance of impropriety. Trustee, however, was not permitted to recover all the property listed in the complaint because some of the transfers occurred more than two years before the petition was filed or were otherwise not supported by competent evidence. Teague v. Thompson (In re Teague), - Bankr. - (Bankr. W.D.N.C. Apr. 29, 2013).

Actual fraud was proven under 11 U.S.C.S. § 544 and this section where a creditor had obtained a judgment against the debtor prior to the bankruptcy petition, and the debtor's wife's repeated admissions that the debtor transferred the funds with the purpose of retaining access to them for his own use, spoke so directly to the intent of the parties as to vitiate any genuine issues of material fact; the transfer was fraudulent and designed to allow the debtor to continue to use the funds even as they were placed outside the reach of the creditors. Jenkins v. Ward (In re Jenkins), - F. Supp. 2d - (W.D.N.C. Sept. 6, 2013).

Bankruptcy trustee who claimed that he was entitled to avoid transfers a debtor made to his wife before he declared Chapter 7 bankruptcy was entitled to recover an additional $55,989 from the debtor's wife because the court limited the amount of recovery in its original judgment to fraudulent transfers that occurred less than two years before the debtor declared bankruptcy when the trustee also asserted a claim under G.S. 39-23.4, which was subject to a four-year statute of limitations pursuant to G.S. 39-23.9; the debtor's wife was not entitled to an adjustment of the amount she owed to account for support the debtor owed under a separation agreement because the separation agreement was a sham. Crawford v. Teague (In re Teague), - Bankr. - (Bankr. W.D.N.C. Mar. 7, 2014).

Claims Time Barred. - G.S. 39-23.9 barred a creditor's claims under G.S. 39-23.4(a)(1) and G.S. 39-23.5(a) because: (1) the claims arose from a transfer occurring more than four years before suit was filed, and (2) the creditor had notice of the transfer over one year before filing suit as due diligence would have given the creditor inquiry notice that the transfers were made without consideration. KB Aircraft Acquisition, LLC v. Berry, 249 N.C. App. 74, 790 S.E.2d 559 (2016).

OFFICIAL COMMENT (2014)

1. Subsection (a) is derived from § 4 of the Uniform Fraudulent Conveyance Act.  It adheres to the limitation of the protection of that section to a creditor whose claim arose before the transfer or obligation described.  As pointed out in Comment 3 accompanying § 4, this Act substitutes "reasonably equivalent value" for "fair consideration."
2. Subsection (b) renders a preferential transfer - i.e., a transfer by an insolvent debtor for or on account of an antecedent debt - to an insider voidable when the insider had reasonable cause to believe that the debtor was insolvent.  This subsection adopts for general application the rule of such cases as Jackson Sound Studios, Inc. v. Travis, 473 F.2d 503 (5th Cir. 1973) (security transfer of corporation's equipment to corporate principal's mother perfected on eve of bankruptcy of corporation held to be voidable); In re Lamie Chemical Co., 296 F. 24 (4th Cir. 1924) (corporate preference to corporate officers and directors held voidable by receiver when corporation was insolvent or nearly so and directors had already voted for liquidation); Stuart v. Larson, 298 F. 223 (8th Cir. 1924), noted 38 Harv.L.Rev. 521 (1925) (corporate preference to director held voidable).  See generally 2 G. Glenn, Fraudulent Conveyances and Preferences 386 (Rev. ed. 1940). Subsection (b) overrules such cases as Epstein v. Goldstein, 107 F.2d 755, 757 (2d Cir. 1939) (transfer by insolvent husband to wife to secure his debt to her sustained against attack by husband's trustee); Hartford Accident & Indemnity Co. v. Jirasek, 254 Mich. 131, 139, 235 N.W. 836, 389 (1931) (mortgage given by debtor to his brother to secure an antecedent debt owed the brother sustained as not voidable).
3. Subsection (b) does not extend as far as § 8(a) of the Uniform Fraudulent Conveyance Act and Bankruptcy Code § 548(b) (1984) in rendering voidable a transfer made by an insolvent partnership to a partner. A general partner is an insider of the partnership, but a transfer by the partnership to the partner nevertheless is not vulnerable to avoidance under § 5(b) unless the transfer is for an antecedent debt and the partner has reasonable cause to believe that the partnership is insolvent. By contrast, the cited provisions of the Uniform Fraudulent Conveyance Act and the Bankruptcy Code make any transfer by an insolvent partnership to a general partner voidable. Avoidance of the partnership transfer without reference to the partner's state of mind and the nature of the consideration exchanged would be unduly harsh treatment of the creditors of the partner and unduly favorable to the creditors of the partnership.
4. Subsection (c) was added in 2014. Sections 2(b), 4(c), 5(c), 8(g), and 8(h) together provide uniform rules on burdens and standards of proof relating to the operation of this Act. The principles stated in Comment 11 to § 4 apply to subsection (c).

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

As in N.C. Gen. Stat. § 39-23.4(a), subsection (a) here adds "obligation incurred" as potential subjects of fraudulent transfer law. In other respects subsection (a) corresponds to principle two of Aman v. Walker, 165 N.C. 224, 227, 81 S.E. 162, 164 (1914), which invalidated conveyances for less than a "reasonably fair price" where the debtor "did not retain property fully sufficient and available to pay his debts then existing." Subsection (a) is narrower than prior law in one respect, however. Prior law gave standing to challenge a transaction only to creditors with claims in existence at the time of the transaction that remained unpaid, see Powell Bros. v. McMullan Lumber Co., 153 N.C. 52, 58, 68 S.E. 926, 928-29 (1910), but once the transaction was voided, subsequent creditors could participate in the redistribution of assets recovered. Subsection (a), however, states only that the defined category of transactions "is fraudulent as to a creditor whose claim arose before" the transaction.

The effect of subsection (b) is to create a cause of action for "insider preferences" roughly comparable to similar claims under § 547 of the United States Bankruptcy Code (11 U.S.C. § 547). Unlike 11 U.S.C. § 547, however, subsection (b) contains the requirement that the insider must have had "reasonable cause to believe" the debtor was insolvent. N.C. Gen. Stat. § 39-23.8(f) contains several defenses addressed specifically to subsection (b).

Subsection (b) has no counterpart under prior North Carolina law.

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, rewrote the section heading; substituted "voidable" for "fraudulent" near the beginning of subsection (a); and added subsection (c). For applicability and effective date, see editor's note.

CASE NOTES

Voluntary Nature of Payments. - Evidence was insufficient to establish that payments made by a corporation to its president were voluntary or "not for value" where there was no evidence as to the value, or lack thereof, of services provided by the president to the corporation in return for the payments. Norman Owen Trucking, Inc. v. Morkoski, 131 N.C. App. 168, 506 S.E.2d 267 (1998).

Intent to Defraud. - Evidence was insufficient to establish that payments made by a corporation to its president were made with intent to defraud. Norman Owen Trucking, Inc. v. Morkoski, 131 N.C. App. 168, 506 S.E.2d 267 (1998).

Company's former shareholders were not liable as transferees, under 26 U.S.C.S. § 6901(h), for the company's unpaid taxes because they were not liable under state substantive law, G.S. 39-23.5; even though they might have conducted further inquiry, it would not likely have revealed the purchaser's post-closing plans to evade the taxes. Starnes v. Comm'r, 680 F.3d 417 (4th Cir. 2012).

Showing That Debtor Insolvent at Time of Transfer. - In a case in which an investment company alleged a violation of G.S. 39-23.5 and it appealed the trial court's grant of a G.S. 1A-1, N.C. R. Civ. P. 12(b)(6) motion to dismiss for failure to state a claim filed by a development company, a real estate company, the majority shareholder of the development company, and his wife, who controlled the real estate company, the investment company's complaint complied with the requirement that a claim advanced pursuant to G.S. 39-23.5(a) include a showing that the debtor be insolvent at the time of the transfer or that the debtor became insolvent as a result of the transfer or obligation. Fischer Inv. Capital, Inc. v. Catawba Dev. Corp., 200 N.C. App. 644, 689 S.E.2d 143 (2009).

Reasonably Equivalent Value. - Fund manager was denied summary judgment as to a Chapter 11 trustee's G.S. 39-23.5 fraudulent conveyance claim because a material factual dispute existed as to whether the Chapter 11 debtor had received reasonably equivalent value when it paid a $500,000 acquisition fee to the manager, after the manager deposited investment money with the debtor's corporate parent. Hutson v. Bay Harbour Mgmt., L.C. (In re E-Z Serve Convenience Stores, Inc.), 350 B.R. 203 (Bankr. M.D.N.C. 2006).

Bank was entitled to summary judgment on the receiver's fraudulent transfer claim because the LLC received the loan proceeds the bank lent to the LLC's members and the payments the LLC made with money from the receiver's company were made in exchange for reasonably equivalent value and thus were not constructively fraudulent. Miller v. First Bank, 206 N.C. App. 166, 696 S.E.2d 824 (2010).

Plaintiff's claim arose before the alleged fraudulent transfer and it was clear that defendant two did not pay defendant one for the transfer of its assets and business; therefore, defendant one did not receive reasonably equivalent value when its assets and business were transferred to defendant two, and summary judgment was properly granted in plaintiff's favor for fraudulent transfer. General Fid. Ins. Co. v. WFT, Inc., - N.C. App. - , 837 S.E.2d 551 (2020).

Antecedent Debt. - When fraudulent transfers were alleged, it was error to grant summary judgment in favor of transferees because no facts supported piercing the corporate veil as to two corporations, so no antecedent debt payment constituted reasonably equivalent value, when a debtor transferred funds to the transferees, creating fact issues under G.S. 39-23.5, G.S. 39-23.4, and G.S. 39-23.8. Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013).

Piercing Corporate Veil. - In a case in which an investment company alleged violations of G.S. 39-23.4 and G.S. 39-23.5 and it appealed the trial court's grant of a G.S. 1A-1, N.C. R. Civ. P. 12(b)(6) motion to dismiss for failure to state a claim filed by a development company, a real estate company, the majority shareholder of the development company, and his wife, who controlled the real estate company, the investment company's complaint alleged sufficient facts to state a claim for piercing the development company's corporate veil, since its pleading asserted facts that, if proven to be true, would establish all the elements of the instrumentality rule utilized in North Carolina to determine whether the corporate veil should be pierced. Fischer Inv. Capital, Inc. v. Catawba Dev. Corp., 200 N.C. App. 644, 689 S.E.2d 143 (2009).

Law of the Case Doctrine Enforced. - As a mechanism for promoting judicial economy and as a means of deterring forum shopping, the law of the case doctrine was enforced by the bankruptcy court under the circumstances. Even if, assuming arguendo, the court did not apply the law of the case doctrine in this instance, the trustee had met all necessary elements of the fraudulent transfer claim. Watts v. Slough (In re Slough), - Bankr. - (Bankr. E.D.N.C. Aug. 25, 2005).

Judicial Estoppel. - When fraudulent transfers were alleged, it was error to grant summary judgment in favor of sellers asserting the claim because the sellers were judicially estopped from claiming a judgment debtor and a transferee were separate entities, since the sellers successfully asserted in prior litigation that the debtor and transferee were one and the same. Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013).

Transfers Held Avoidable as Fraudulent. - Where there was no genuine dispute that chapter 7 debtor's wife was the transferee of proceeds of lawsuits filed by the debtor, those transfers were avoidable as actually fraudulent pursuant to 11 U.S.C.S. §§ 548(a)(1)(A), 544(b), and 550(a)(1), and also G.S. 39-23.4(a)(2) and G.S. 39-23.5(a). Ward v. Jenkins (In re Jenkins), - Bankr. - (Bankr. W.D.N.C. Dec. 12, 2012).

Claim Time Barred. - G.S. 39-23.9 barred a creditor's claims under G.S. 39-23.4(a)(1) and G.S. 39-23.5(a) because: (1) the claims arose from a transfer occurring more than four years before suit was filed, and (2) the creditor had notice of the transfer over one year before filing suit as due diligence would have given the creditor inquiry notice that the transfers were made without consideration. KB Aircraft Acquisition, LLC v. Berry, 249 N.C. App. 74, 790 S.E.2d 559 (2016).

OFFICIAL COMMENT (2014)

1. One of the uncertainties in the law governing the avoidance of transfers and obligations of the nature governed by this Act is the time at which the cause of action arises. Section 6 clarifies that point in time. For transfers of real property other than a fixture, paragraph (1)(i) fixes the time as the date of perfection against a good-faith purchaser from the transferor. For transfers of fixtures and assets constituting personalty, paragraph (1)(ii) fixes the time as the date of perfection against a judicial lien creditor not asserting rights under this Act. Perfection under paragraph (1) typically is effected by notice-filing, recordation, or delivery of unequivocal possession. See U.C.C. §§ 9-310, 9-313 (2014) (security interest in personal property generally is perfected by notice-filing or delivery of possession to transferee); 4 American Law of Property §§ 17.10-17.12 (1952) (recordation of transfer or delivery of possession to grantee required for perfection against bona fide purchaser from grantor). The provision for postponing the time a transfer is made until its perfection is an adaptation of Bankruptcy Code § 548(d)(1) (1984). When no steps are taken to perfect a transfer that applicable law permits to be perfected, the transfer is deemed by paragraph (2) to be perfected immediately before the filing of an action to avoid it; without such a provision to cover that eventuality, an unperfected transfer arguably would be immune to attack. Some transfers may not be amenable to perfection as against a bona fide purchaser or judicial lien creditor. In the event that a transfer may not be perfected as provided in paragraph (1), paragraph (3) provides that the transfer occurs for the purpose of this Act when the transferor effectively parts with an interest in the asset.
2. Paragraph (4) requires the transferor to have rights in the asset transferred before the transfer is made for the purpose of this section.  This provision makes clear that the purpose of this section may not be circumvented by notice-filing or recordation of a document evidencing an interest in an asset to be acquired in the future. Cf. Bankruptcy Code § 547(e) (1984); U.C.C. § 9-203(b)(2) (2014).
3. Paragraph (5) had no analogue in the Uniform Fraudulent Conveyance Act.  It is intended to resolve uncertainty arising from Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979, 989-91, 997 (2d Cir. 1981), insofar as that case holds that an obligation of guaranty may be deemed to be incurred when advances covered by the guaranty are made rather than when the guaranty first became effective between the parties.  Compare Rosenberg, Intercorporate Guaranties and the Law of Fraudulent Conveyances: Lender Beware, 125 U.Pa.L.Rev. 235, 256-57 (1976).

An obligation may be avoided under this Act if it is incurred under the circumstances specified in § 4(a) or § 5(a). The debtor may receive reasonably equivalent value in exchange for an obligation incurred even though the benefit to the debtor is indirect. See Rubin v. Manufacturers Hanover Trust Co ., 661 F.2d at 991-92; Williams v. Twin City Co ., 251 F.2d 678, 681 (9th Cir. 1958); Rosenberg, supra , at 243-46.

Under paragraph (5), an oral obligation is incurred when it becomes effective between the parties, and later confirmation of the oral obligation by a record does not reset the time of incurrence to that later time.

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

Subdivision (1) provides a general rule that is consistent with the rule found in bankruptcy law, see 11 U.S.C. §§ 548(d), 547(e)(1), and with the insolvency law North Carolina applies to insurance companies, see N.C. Gen. Stat. § 58-30-140(b).

Subdivision (4), providing that a transfer does not become effective until the debtor has rights in the collateral, mirrors the comparable provision in Article 9 of the UCC, N.C. Gen. Stat. § 25-9-203(1)(c).

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, substituted "record, when the record signed" for "writing, when the writing executed" in subdivision (5)b.; and made a minor stylistic change. For applicability and effective date, see editor's note.

CASE NOTES

Cited in Strawbridge v. Sugar Mt. Resort, Inc., 243 F. Supp. 2d 472 (W.D.N.C. 2003); Miller v. First Bank, 206 N.C. App. 166, 696 S.E.2d 824 (2010).

OFFICIAL COMMENT (2014)

1. This section is derived from §§ 9 and 10 of the Uniform Fraudulent Conveyance Act.  Section 9 of that Act specified the remedies of creditors whose claims have matured, and § 10 enumerated the remedies available to creditors whose claims have not matured. A creditor holding an unmatured claim may be denied the right to receive payment from the proceeds of a sale on execution until the claim has matured, but the proceeds may be deposited in court or in an interest-bearing account pending the maturity of the creditor's claim.  The remedies specified in this section are not exclusive.
2. The availability of an attachment or other provisional remedy has been restricted by amendments of statutes and rules of procedure in response to Connecticut v. Doehr, 501 U.S. 1 (1991), Sniadach v. Family Finance Corp., 395 U.S. 337 (1969), and their progeny.  This judicial development and the procedural changes that followed in its wake do not preclude resort to attachment by a creditor in seeking avoidance of a transfer or obligation.  See, e.g., Britton v. Howard Sav. Bank, 727 F.2d 315, 317-20 (3d Cir. 1984); Computer Sciences Corp. v. Sci-Tek Inc., 367 A.2d 658, 661 (Del. Super. 1976); Great Lakes Carbon Corp. v. Fontana, 54 A.D.2d 548, 387 N.Y.S. 2d 115 (1st Dep't 1976).  Section 7(a)(2) continues the authorization for the use of attachment contained in § 9(b) of the Uniform Fraudulent Conveyance Act, or of a similar provisional remedy, when applicable law provides therefor, subject to the constraints imposed by the due process clauses of the United States and state constitutions.
3. Subsections (a) and (b) of § 10 of the Uniform Fraudulent Conveyance Act authorized the court, in an action on a voidable transfer or obligation, to restrain the defendant from disposing of his property, to appoint a receiver to take charge of his property, or to make any order the circumstances may require.  Section 10, however, applied only to a creditor whose claim was unmatured.  There is no reason to restrict the availability of these remedies to such a creditor, and the courts have not so restricted them.  See, e.g., Lipskey v. Voloshen, 155 Md. 139, 143-45, 141 Atl. 402, 404-05 (1928) (judgment creditor granted injunction against disposition of property by transferee, but appointment of receiver denied for lack of sufficient showing of need for such relief); Matthews v. Schusheim, 36 Misc. 2d 918, 922-23, 235 N.Y.S.2d 973, 976-77, 991-92 (Sup.Ct. 1962) (injunction and appointment of receiver granted to holder of claims for fraud, breach of contract, and alimony arrearages; whether creditor's claim was mature said to be immaterial); Oliphant v. Moore, 155 Tenn. 359, 362-63, 293 S.W. 541, 542 (1927) (tort creditor granted injunction restraining alleged tortfeasor's disposition of property).
4. As under the Uniform Fraudulent Conveyance Act, a creditor is not required to obtain a judgment against the debtor-transferor or to have a matured claim in order to proceed under subsection (a).  See §§ 1(3) and 1(4); American Surety Co. v. Conner, 251 N.Y. 1, 166 N.E. 783, 65 A.L.R. 244 (1929); 1 G. Glenn, Fraudulent Conveyances and Preferences 129 (Rev. ed. 1940).
5. The provision in subsection (b) for a creditor to levy execution on a transferred asset continues the availability of a remedy provided in § 9(b) of the Uniform Fraudulent Conveyance Act.  See, e.g., Doland v. Burns Lbr. Co., 156 Minn. 238, 194 N.W. 636 (1923); Montana Ass'n of Credit Management v. Hergert, 181 Mont. 442, 449, 453, 593 P.2d 1059, 1063, 1065 (1979); Corbett v. Hunter, 292 Pa.Super. 123, 128, 436 A.2d 1036, 1038 (1981); see also American Surety Co. v. Conner, 251 N.Y. 1, 6, 166 N.E. 783, 784, 65 A.L.R. 244, 247 (1929) ("In such circumstances he [the creditor] might find it necessary to indemnify the sheriff and, when the seizure was erroneous, assumed the risk of error"); McLaughlin, Application of the Uniform Fraudulent Conveyance Act, 46 Harv.L.Rev. 404, 441-42 (1933).
6. The remedies specified in § 7, like those enumerated in §§ 9 and 10 of the Uniform Fraudulent Conveyance Act, are cumulative.  Lind v. O. N. Johnson Co., 204 Minn. 30, 40, 282 N.W. 661, 667, 119 A.L.R. 940 (1939) (Uniform Fraudulent Conveyance Act held not to impair or limit availability of the "old practice" of obtaining judgment and execution returned unsatisfied before proceeding in equity to set aside a transfer); Conemaugh Iron Works Co. v. Delano Coal Co., Inc., 298 Pa. 182, 186, 148 A. 94, 95 (1929) (Uniform Fraudulent Conveyance Act held to give an "additional optional remedy" and not to "deprive a creditor of the right, as formerly, to work out his remedy at law"); 1 G. Glenn, Fraudulent Conveyances and Preferences 120, 130, 150 (Rev. ed. 1940).
7. If a transfer or obligation is voidable under § 4 or § 5, the basic remedy provided by this Act is its avoidance under subsection (a)(1). "Avoidance" is a term of art in this Act, for it does not mean that the transfer or obligation is simply rendered void. It has long been established that a transfer avoided by a creditor under this Act or its predecessors is nevertheless valid as between the debtor and the transferee. For example, in the case of a transfer of property worth $100 by Debtor to Transferee, held voidable in a suit by Creditor-1 who is owed $80 by Debtor, "avoidance" of the transfer leaves the $20 surplus with Transferee. Debtor is not entitled to recover the surplus. Nor is Debtor's Creditor-2 entitled to pursue the surplus by reason of Creditor-1's action (though Creditor-2 may be entitled to bring its own avoidance action to pursue the surplus). The foregoing principle is embedded in the language of subsection (a)(1), which prescribes "avoidance" only "to the extent necessary to satisfy the creditor's claim." Section 9(a) of the Uniform Fraudulent Conveyance Act was similarly limited. See, e.g., Becker v. Becker, 416 A.2d 156, 162 (Vt. 1980); De Martini v. De Martini, 52 N.E.2d 138, 141 (Ill. 1943); Markward v. Murrah, 156 S.W.2d 971, 974 (Tex. 1941); Society Milion Athena, Inc. v. National Bank of Greece, 22 N.E.2d 374, 377 (N.Y. 1939); National Radiator Corp. v. Parad, 8 N.E.2d 794, 796-97 (Mass. 1937); 1 G. Glenn, Fraudulent Conveyances and Preferences § 114, at 225 (Rev. ed. 1940). The transferee's mental state is irrelevant to the foregoing, but a good-faith transferee may also be afforded protection by § 8.

It follows that "avoidance" of an obligation under subsection (a)(1) likewise should not mean its cancellation, but rather a remedy that recognizes the existence of the obligation and the superiority of the plaintiff creditor's interest over the obligee's interest. Ordinarily that should mean subordination of the obligation to the plaintiff creditor's claim against the debtor. That would entail disgorgement by the obligee of any payments received or receivable on the obligation, to the extent necessary to satisfy the plaintiff creditor's claim, with the obligee being subrogated to the plaintiff creditor when the latter's claim is paid. Of course, if the obligation is unenforceable for reasons other than contravention of this Act, contravention of this Act does not render the obligation enforceable.

This Comment relates to the meaning of subsection (a)(1). If this Act is invoked in a bankruptcy proceeding, the remedial entitlements provided by the Bankruptcy Code may differ from those provided by this Act.

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

The remedies provided in N.C. Gen. Stat. § 39-23.7 are cumulative and are not exclusive. Subdivision (a)(1)'s remedy of avoiding the fraudulent transfer is consistent with prior North Carolina fraudulent conveyance law, which was derived from the Statute of 13 Elizabeth.

Attachment and other pre-judgment remedies or relief under subdivisions (a)(2) and (a)(3) are subject to applicable due process protections. They also are subject to the substantive and procedural requirements separately provided for those remedies under applicable law. See, e.g., N.C. Gen. Stat. §§ 1-440.1, et seq. ; 1A-1, Rule 65; 1-485, et seq. ; and 1-501, et seq.

Any request for pre-judgment or post-judgment relief against a transferee under subsections (a)(3) or (b), or against an asset in the hands of a transferee, necessarily requires due process as to the transferee. For example, such a transferee has a right to notice and an opportunity to appear and assert the defenses and protections available under § 39-23.8. This is consistent with prior North Carolina law, which also required that the transferee be given notice of a fraudulent conveyance action. See, e.g., Dawson Bank v. Harris, 84 N.C. 206, 212 (1881).

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, substituted "creditor" for "creditors" in the section heading; substituted "if available under applicable law; and" for "in accordance with the procedure prescribed by Article 35 of Chapter 1 of the General Statutes" in subdivision (a)(2); and made a punctuation change in the introductory language of subdivision (a)(3). For applicability and effective date, see editor's note.

CASE NOTES

No Jurisdiction to Enter Order Against Non-Party. - Trial court erred by ordering a wife's son to pay a husband the majority of equity the son gained during the wife's fraudulent "gift/transfer" to him of real property because it lacked jurisdiction to enter such an order against the son, who was a non-party to the action.

Plaintiff's Remedies. - Because properties had already been sold by the initial transferee to bona fide third-party purchasers, voiding the transfer from defendant to transferee was neither practical nor permitted under the North Carolina Uniform Voidable Transactions Act (UVTA). Because the properties had passed beyond the reach of plaintiff, he would be entitled to levy execution against the proceeds, but no tracing evidence was offered; however, he was entitled to an alternative remedy of a judgment against the initial transferee for the value of the asset transferred, subject to adjustment as the equities might require. Hoch v. Hoch (In re Hoch), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2018).

Transfer of Deed Avoided. - Trial court correctly concluded that a wife's transfer of property to her son constituted a fraudulent transfer because the transfer was to an insider, the transfer was concealed from the husband, the property was gifted to the son after the wife filed her complaint for equitable distribution, and the wife made the transfer without receiving a reasonable equivalent value in exchange; thus, the trial court had jurisdiction to order that the transfer of the deed be avoided.

Cited in Fischer Inv. Capital, Inc. v. Catawba Dev. Corp., 200 N.C. App. 644, 689 S.E.2d 143 (2009); Miller v. First Bank, 206 N.C. App. 166, 696 S.E.2d 824 (2010); Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013).

OFFICIAL COMMENT (2014)

1. Subsection (a) sets forth a complete defense to an action for avoidance under § 4(a)(1).  The subsection is an adaptation of the exception stated in § 9 of the Uniform Fraudulent Conveyance Act.  Pursuant to subsection (g), the person invoking this defense carries the burden of establishing good faith and the reasonable equivalence of the consideration exchanged.
2. Subsection (b) is derived from Bankruptcy Code §§ 550(a), (b) (1984). The value of the asset transferred is limited to the value of the levyable interest of the transferor, exclusive of any interest encumbered by a valid lien. See § 1(2).
3. Subsection (c) has no analogue in Bankruptcy Code § 550(a), (b) (1984). The measure of the recovery of a creditor against a transferee is usually limited to the value of the asset transferred at the time of the transfer. See, e.g., United States v. Fernon, 640 F.2d 609, 611 (5th Cir. 1981); Hamilton Nat'l Bank of Boston v. Halstead, 134 N.Y. 520, 31 N.E. 900 (1892); cf. Buffum v. Peter Barceloux Co., 289 U.S. 227 (1932) (transferee's objection to trial court's award of highest value of asset between the date of the transfer and the date of the decree of avoidance rejected because an award measured by value as of time of the transfer plus interest from that date would have been larger). The premise of § 8(c) is that changes in value of the asset transferred that occur after the transfer should ordinarily not affect the amount of the creditor's recovery. Circumstances may require a departure from that measure of the recovery, however, as the cases decided under the Uniform Fraudulent Conveyance Act and other laws derived from the Statute of 13 Elizabeth illustrate. Thus, if the value of the asset at the time of levy and sale to enforce the judgment of the creditor has been enhanced by improvements of the asset transferred or discharge of liens on the property, a good-faith transferee should be reimbursed for the outlay for such a purpose to the extent the sale proceeds were increased thereby. See Bankruptcy Code § 550(d) (1984); Janson v. Schier, 375 A.2d 1159, 1160 (N.H. 1977); Anno., 8 A.L.R. 527 (1920). If the value of the asset at the time of the transfer has been diminished by severance and disposition of timber or minerals or fixtures, the transferee should be liable for the amount of the resulting reduction. See Damazo v. Wahby, 269 Md. 252, 257, 305 A.2d 138, 142 (1973). If the transferee has collected rents, harvested crops, or derived other income from the use or occupancy of the asset after the transfer, the liability of the transferee should be limited in any event to the net income after deduction of the expense incurred in earning the income. Anno., 60 A.L.R.2d 593 (1958). On the other hand, adjustment for the equities does not warrant an award to the creditor of consequential damages alleged to accrue from mismanagement of the asset after the transfer.
4. Subsection (d) is an adaptation of Bankruptcy Code § 548(c) (1984). An insider that receives property or an obligation from an insolvent debtor as security for or in satisfaction of an antecedent debt of the transferor or obligor is not a good-faith transferee or obligee if the insider has reasonable cause to believe that the debtor was insolvent at the time the transfer was made or the obligation was incurred. If a foreclosure sale is voidable and does not qualify for the benefit of § 3(b) or § 8(e)(2) because it was not conducted in accordance with the requirements of applicable law, the buyer, if in good faith, will still be entitled to the benefit of subsection (d) to the extent of the price paid by the buyer.
5. Subsection (e)(1) rejects the rule adopted in Darby v. Atkinson (In re Farris), 415 F. Supp. 33, 39-41 (W.D.Okla. 1976), that termination of a lease on default in accordance with its terms and applicable law may constitute a voidable transfer.
6. Subsection (f) provides additional defenses against the avoidance of a preferential transfer to an insider under § 5(b).
7. Subsections (g) and (h) were added in 2014. Sections 2(b), 4(c), 5(c), 8(g), and 8(h) together provide uniform rules on burdens and standards of proof relating to the operation of this Act. The principles stated in Comment 11 to § 4 apply to subsections (g) and (h).
8. The provisions of § 8 are integral elements of the rights created by this Act. Accordingly, they should apply if this Act is invoked in a bankruptcy proceeding pursuant to Bankruptcy Code § 544(b) (2014). That follows from the fundamental principle that property rights in bankruptcy should be the same as outside bankruptcy, unless a federal interest compels a different result. See Butner v. United States, 440 U.S. 48, 55 (1979). Section 8(b) limits damages under this Act to the amount of the plaintiff creditor's claim, and that limitation is overridden in bankruptcy by the rule of Moore v. Bay, 284 U.S. 4 (1931), which Congress unmistakably maintained when it enacted the Bankruptcy Code. In the absence of a clear override by the Bankruptcy Code or other federal law, however, other aspects of § 8 should apply if this Act is invoked in bankruptcy. See, e.g., Decker v. Tramiel (In re JTS Corp.), 617 F.3d 1102, 1110-16 (9th Cir. 2010) (holding that § 8(d) applies to a claim for relief brought under this Act in a bankruptcy proceeding pursuant to Bankruptcy Code § 544(b)).

The requirement of Bankruptcy Code § 550(b)(1) (1984) that a transferee be "without knowledge of the voidability of the transfer" in order to be protected has been omitted as inappropriate. Knowledge of the facts rendering the transfer voidable would be inconsistent with the good faith that is required of a protected transferee. Knowledge of the voidability of a transfer would seem to involve a legal conclusion. Determination of the voidability of the transfer ought not to require the court to inquire into the legal sophistication of the transferee.

A transfer of property by the transferee of a voidable transfer might, on appropriate facts, be avoidable for reasons independent of the original voidable transfer. In such a case the subsequent transferee may be entitled to a defense under § 8(b) to an action based on the original voidable transfer, but that defense would not apply to an action based on the subsequent transfer that is independently voidable. For example, suppose that X transfers property to Y in a transfer voidable under this Act, and that Y later transfers the property to Z, who is a good-faith transferee for value. In general, C-1, a creditor of X, would have the right to a money judgment against Y pursuant to § 8(b), but C-1 could not recover under this Act from Z, who would be protected by § 8(b)(1)(ii)(A). However, it might be the case that Y's transfer to Z is independently voidable as to Y's creditors (including C-1, as creditor of Y by dint of its rights under this Act). Such might be the case if, for example, the value received by Y in exchange for the transfer is not reasonably equivalent and Y is in financial distress, or if Y made the transfer with intent to hinder, delay, or defraud any of its creditors. In such a case creditors of Y may pursue remedies against Z with respect to that independently voidable transfer, and the defense afforded to Z by § 8(b)(1)(ii)(A) would not apply to that action. Of course choice of law must be considered in such a situation: the jurisdiction whose law governs the voidability of the original transfer from X to Y and the consequent liability of Y and subsequent transferees need not be the same as the jurisdiction whose law governs the voidability of the independently voidable transfer from Y to Z and the consequent liability of Z and subsequent transferees.

Subsection (e)(2) protects a transferee that acquires a debtor's interest in an asset as a result of the enforcement by a secured party (which may but need not be the transferee) of rights pursuant to and in compliance with the provisions of Part 6 of Article 9 of the Uniform Commercial Code. Cf. Calaiaro v. Pittsburgh Nat'l Bank (In re Ewing) , 33 B.R. 288, 9 C.B.C.2d 526, CCH B.L.R. Para. 69,460 (Bankr. W.D.Pa. 1983) (sale of pledged stock held subject to avoidance under § 548 of the Bankruptcy Code), rev'd , 36 B.R. 476 (W.D.Pa. 1984) (transfer held not voidable because deemed to have occurred more than one year before bankruptcy petition filed). The global requirement of Article 9 that the secured party enforce its rights in good faith, and the further requirement of Article 9 that certain remedies be conducted in a commercially reasonable manner, provide substantial protection to the other creditors of the debtor. See U.C.C. §§ 1-304, 9-607(b), 9-610(b) (2014). The exemption afforded by subsection (e)(2) does not extend to acceptance of collateral in full or partial satisfaction of the obligations it secures. That remedy, contemplated by U.C.C. §§ 9-620 - 9-622 (2014), is sometimes referred to as "strict foreclosure." An exemption for strict foreclosure is inappropriate because compliance with the rules of Article 9 relating to strict foreclosure may not sufficiently protect the interests of the debtor's other creditors if the debtor does not act to protect equity the debtor may have in the asset.

Paragraph (1) is adapted from Bankruptcy Code § 547(c)(4) (1984), which permits a preferred creditor to set off the amount of new value subsequently advanced against the recovery of a voidable preference by a trustee in bankruptcy to the debtor without security. The new value may consist not only of money, goods, or services delivered on unsecured credit but also of the release of a valid lien. See, e.g., In re Ira Haupt & Co ., 424 F.2d 722, 724 (2d Cir. 1970); Baranow v. Gibraltor Factors Corp. (In re Hygrade Envelope Co.) , 393 F.2d 60, 65-67 (2d Cir.), cert. denied , 393 U.S. 837 (1968); In re John Morrow & Co ., 134 F. 686, 688 (S.D.Ohio 1901). It does not include an obligation substituted for a prior obligation. If the insider receiving the preference thereafter extends new credit to the debtor but also takes security from the debtor, the injury to the other creditors resulting from the preference remains undiminished by the new credit. On the other hand, if a lien taken to secure the new credit is itself voidable by a judicial lien creditor of the debtor, the new value received by the debtor may appropriately be treated as unsecured and applied to reduce the liability of the insider for the preferential transfer.

Paragraph (2) is derived from Bankruptcy Code § 547(c)(2) (1984), which excepts certain payments made in the ordinary course of business or financial affairs from avoidance by the trustee in bankruptcy as preferential transfers. Whether a transfer was in the "ordinary course" requires a consideration of the pattern of payments or secured transactions engaged in by the debtor and the insider prior to the transfer challenged under § 5(b). See Tait & Williams, Bankruptcy Preference Laws: The Scope of Section 547(c)(2) , 99 Banking L.J. 55, 63-66 (1982). The defense provided by paragraph (2) is available, irrespective of whether the debtor or the insider or both are engaged in business, but the prior conduct or practice of both the debtor and the insider-transferee are relevant.

Paragraph (3) has no analogue in Bankruptcy Code § 547 (1984). It reflects a policy judgment that an insider who has previously extended credit to a debtor should not be deterred from extending further credit to the debtor in a good-faith effort to save the debtor from a forced liquidation in bankruptcy or otherwise. A similar rationale has sustained the taking of security from an insolvent debtor for an advance to enable the debtor to stave off bankruptcy and extricate itself from financial stringency. Blackman v. Bechtel , 80 F.2d 505, 508-09 (8th Cir. 1935); Olive v. Tyler (In re Chelan Land Co.) , 257 F. 497, 5 A.L.R. 561 (9th Cir. 1919); In re Robin Bros. Bakeries, Inc ., 22 F. Supp. 662, 663-64 (N.D.Ill. 1937); see Dean v. Davis , 242 U.S. 438, 444 (1917). The amount of the present value given, the size of the antecedent debt secured, and the likelihood of success for the rehabilitative effort are relevant considerations in determining whether the transfer was in good faith.

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

Subsection (a) is consistent with former fraudulent conveyance law in North Carolina. See, e.g., former N. C. Gen. Stat. § 39-19; Aman v. Walker, 165 N.C. 224, 81 S.E.2d 162 (1914) (principle four). A transferee has the burden of establishing good faith and the reasonable equivalence of the consideration exchanged. Subsection (b) restricts a complaining creditor to relief equal to the lesser of the amount of his claim or the value of the property transferred, and in this respect is comparable to section 550(a) of the Bankruptcy Code, 11 U.S.C. § 550(a). Unlike former N.C. Gen. Stat. § 39-15, which provided only for avoidance of a conveyance in its entirety, subsection (b) establishes limits on a transferee's liability.

Subsection (c) is significant if the value of an asset has changed while in the hands of a transferee. As a matter of equity, when a transferee has enhanced the asset's value through improvements, the transferee should be entitled to retain the value of that increase despite avoidance of the transfer. Similarly, when a transferee has decreased the value (for example, by mining, harvesting timber or removing pre-existing improvements or fixtures), the transferee should be liable for the reduction. Subsection (c) allows a court, through application of equitable principles, to allocate post-transfer changes in value among the competing parties, which was not an issue specifically addressed under prior North Carolina statute or case law.

Subsection (d) provides that, when a transfer is avoided, a good faith transferee who gave less than reasonably equivalent value does not forfeit the value of the consideration given. It is an adaptation of section 548(c) of the Bankruptcy Code, 11 U.S.C. § 548(c), and preserves for a transferee specific rights in the property to the extent of actual value given. North Carolina's former fraudulent conveyance statutes did not provide similar protections for a good faith transferee, nor had the North Carolina courts addressed this issue.

Subsection (f) allows insiders certain additional defenses for transfers otherwise avoidable under N.C. Gen. Stat. § 39-23.5(b), which effectively balances that section's refusal to allow an insider's antecedent debt to qualify as reasonably equivalent value. Subsection (f) is derived from section 547(c) of the Bankruptcy Code, 11 U.S.C. § 547(c). The foundation of each of these defenses to "preferential" payment of insider debts - new value, ordinary course of business or financial affairs, and contemporaneous provision of value given in good faith to rehabilitate - is that encouraging normalized dealings with a financially distressed debtor may help that debtor avoid insolvency, receivership or bankruptcy, which is in the best interests of all creditors.

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, added "or obligee" to the section heading; inserted "given the debtor" in subsection (a); rewrote subsection (b); added "other than acceptance of collateral in full or partial satisfaction of the obligation it secures" at the end of subdivision (e)(2); substituted "except to the extent" for "unless" in subdivision (f)(1); added subsections (g) and (h); and made minor stylistic changes. For applicability and effective date, see editor's note.

Session Laws 2017-204, s. 3.3(b), effective August 11, 2017, in subsection (e), substituted "one or more of the following" for "from" in the introductory language, added subdivision (e)(3), and made related changes.

Session Laws 2018-142, s. 7(b), effective December 15, 2018, in subdivisions (b)(1) and (b)(1)b. and subsection (d), inserted "any of the following" at the end; in subsection (e), inserted "from" following "transfer results"; and made minor stylistic changes.

CASE NOTES

Plaintiff's Alternative Remedies. - Because properties had already been sold by the transferee (a trust established by defendant's wife) to bona fide third-party purchasers, voiding the transfer from defendant to transferee was neither practical nor permitted under the North Carolina Uniform Voidable Transactions Act (UVTA). However, plaintiff was entitled to an alternative remedy against defendant's wife and the trust, jointly and severally, as a result of the transfer because she failed to treat the trust as a separate entity and used it as a mere instrumentality to effectuate the transfer of the properties. Hoch v. Hoch (In re Hoch), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2018).

Reasonably Equivalent Value. - In a case in which an investment company alleged a violation of G.S. 39-23.4 and it appealed the trial court's grant of a G.S. 1A-1, N.C. R. Civ. P. 12(b)(6) motion to dismiss for failure to state a claim filed by a development company, a real estate company, the majority shareholder of the development company, and his wife, who controlled the real estate company, that claim was not subject to dismissal for failure to state a claim based on the protections available to a person who took in good faith and for a reasonably equivalent value pursuant to G.S. 39-23.8(a). Fischer Inv. Capital, Inc. v. Catawba Dev. Corp., 200 N.C. App. 644, 689 S.E.2d 143 (2009).

When fraudulent transfers were alleged, it was error to grant summary judgment in favor of transferees because no facts supported piercing the corporate veil as to two corporations, so no antecedent debt payment constituted reasonably equivalent value, when a debtor transferred funds to the transferees, creating fact issues under G.S. 39-23.5, G.S. 39-23.4, and G.S. 39-23.8. Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013).

Ponzi Schemes. - The United States Bankruptcy Court for the Middle District of North Carolina holds that a Ponzi scheme raises a presumption of fraud in fraudulent transfer actions brought under the North Carolina Fraudulent Transfer Act, G.S. 39-23.4(a)(1) and G.S. 39-23.8. Ivey v. First Citizens Bank & Trust Co. (In re Whitley), - Bankr. - (Bankr. M.D.N.C. Feb. 7, 2013).

Summary Judgment Not Warranted. - In a case involving claims brought under the North Carolina Uniform Voidable Transactions Act (UVTA), neither party was entitled to summary judgment where neither party could show that there was no genuine issue of material fact regarding intent when properties were transferred, or whether debtor's affirmative defense of being a good faith transferee for value might succeed. Hoch v. Hoch (In re Hoch), 577 B.R. 202 (Bankr. E.D.N.C. 2017).

Good Faith Not Shown. - Where defendant transferred properties to a trust established by his wife, because the wife was the sole settlor and trustee and maintained sole control of the trust during her lifetime and because she failed to maintain the separate identity of the trust to third parties and treated the assets of the trust as her individual assets, then it was her conduct and lack of restraint that was relevant in ascertaining whether the trust took the properties in good faith and for reasonably equivalent value for purposes of the North Carolina Uniform Voidable Transactions Act (UVTA), G.S. 39-23.1 et seq. Hoch v. Hoch (In re Hoch), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2018).

Neither defendant's wife nor a trust that she established acted in good faith when purporting to "purchase" properties from defendant. Both defendant's wife and the trust at all times acted knowingly and with intent or scienter reasonably calculated to deceive, hinder, or delay plaintiff as a bona fide creditor of defendant. Hoch v. Hoch (In re Hoch), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2018).

Award to Trustee Proper. - While the bankruptcy judge misquoted G.S. 39-23.8, the error was harmless as 11 U.S.C.S. § 550 was properly applied to award the trustee the total amount of the proceeds from the debtor's lawsuit for the benefit of the estate since the transfers were avoided under 11 U.S.C.S. §§ 544 and 548. Jenkins v. Ward (In re Jenkins), - F. Supp. 2d - (W.D.N.C. Sept. 6, 2013).

Judgment Against Transferee for the Value of the Asset Transferred. - Because properties had already been sold by the initial transferee to bona fide third-party purchasers, voiding the transfer from defendant to transferee was neither practical nor permitted under the North Carolina Uniform Voidable Transactions Act (UVTA), G.S. 39-23.1 et seq. Because the properties had passed beyond the reach of plaintiff, he would be entitled to levy execution against the proceeds, but no tracing evidence was offered; however, he was entitled to an alternative remedy of a judgment against the initial transferee for the value of the asset transferred, subject to adjustment as the equities might require. Hoch v. Hoch (In re Hoch), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2018).

Cited in Quilling v. Cristell, - F. Supp. 2d - (W.D.N.C. Feb. 9, 2006); Miller v. First Bank, 206 N.C. App. 166, 696 S.E.2d 824 (2010).

OFFICIAL COMMENT (2014)

1. This section had no analogue in the Uniform Fraudulent Conveyance Act. Its purpose is to make clear that lapse of the statutory periods prescribed by the section bars the right and not merely the remedy. The section rejects the rule applied in United States v. Gleneagles Inv. Co., 565 F. Supp. 556, 583 (M.D.Pa. 1983) (state statute of limitations held not to apply to action by United States based on Uniform Fraudulent Conveyance Act). Another consequence of barring the right and not merely the remedy is that, under Restatement (Second) of Conflict of Laws § 143 (1971), if an action is brought in jurisdiction A and the action is determined to be governed by this Act as enacted in jurisdiction B, the action cannot be maintained if it is time-barred in jurisdiction B. The 1988 revision of §§ 142 and 143 of the Restatement (Second) of Conflict of Laws, which eliminated the right/remedy distinction, should not be applied to this Act. Because a voidable transfer or obligation may injure all of a debtor's many creditors, there is need for a uniform and predictable cutoff time.
2. Statutes of limitations applicable to the avoidance of transfers and obligations vary widely from state to state and are frequently subject to uncertainties in their application. See Hesson, The Statute of Limitations in Actions to Set Aside Fraudulent Conveyances and in Actions Against Directors by Creditors of Corporations, 32 Cornell L.Q. 222 (1946); Annos., 76 A.L.R. 864 (1932), 128 A.L.R. 1289 (1940), 133 A.L.R. 1311 (1941), 14 A.L.R.2d 598 (1950), and 100 A.L.R.2d 1094 (1965).  Together with § 6, this section should mitigate the uncertainty and diversity that have characterized the decisions applying statutes of limitations to actions to avoid transfers and obligations.  The periods prescribed apply, whether the action under this Act is brought by a creditor or by a purchaser at a sale on execution levied pursuant to § 7(b) and whether the action is brought against the original transferee or subsequent transferee. The prescription of statutory periods of limitation does not preclude the barring of an avoidance action for laches.  See § 12 and the accompanying Comment.
3. Subsection (a) provides that the four-year period ordinarily applicable to a claim for relief under § 4(a)(1) is extended to "one year after the transfer or obligation was or could reasonably have been discovered by the claimant." Antecedents to that "discovery rule" have long existed in common law and in other statutes, and courts may take different approaches to filling out the meaning of subsection (a) by reference to such precedents. Thus, subsection (a) literally starts the one-year period when the transfer was or could reasonably have been discovered by the claimant, but cases applying subsection (a) have held that the period starts only when the transfer and its wrongful nature were or could reasonably have been discovered. See, e.g., Freitag v. McGhie, 947 P.2d 1186 (Wash. 1997); State Farm Mut. Auto. Ins. Co. v. Cordua, 834 F. Supp. 2d 301, 306-08 (E.D. Pa. 2011). A recurring situation to which that distinction may be relevant is Spouse X's transfer of assets beyond the reach of creditors, made in anticipation of divorcing Spouse Y after the four-year period has elapsed and made for the purpose of thwarting Spouse Y's economic interests in the divorce. Spouse Y may well know of the transfer long before Spouse Y learns its wrongful purpose. Of course, even if the period specified in subsection (a) is held to have lapsed in a given case, law other than this Act might allow the transferred assets to be considered in making a division of assets in the ensuing divorce case.

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

The UFTA's limitations provisions make some change to the limitations period previously prescribed under North Carolina law. Under prior law, the limitations period applicable to fraudulent conveyances was three years and the limitations period began to run as of the time when the fraud was known or should have been discovered by the aggrieved party. Cowart v. Whitley, 39 N.C. App. 662, 664, 251 S.E.2d 627, 629 (1979).

The UFTA provides for three limitations periods. As to transfers made with actual intent to defraud, there is a four year statute that accrues upon the date of transfer, but with a proviso that an aggrieved party shall have a minimum limitations period of one year from the date the transfer was or reasonably could have been discovered. As to claims based on a transfer in which the debtor does not receive reasonably equivalent value, the limitations period is four years from the date of transfer. The limitations period for a transfer to an insider in payment of an antecedent debt is one year.

The introductory language of this section, which speaks in terms of a cause of action being "extinguished," is intended to indicate that lapse of the statutory period bars the right as well as the remedy. Thus, the discovery rule of N.C. Gen. Stat. § 1-52(9) would not apply to claims within subsections (b) or (c), even if such claims were made under circumstances such that N.C. Gen. Stat. § 1-52(9) would otherwise apply.

The defense of laches is available in appropriate cases. See N.C. Gen. Stat. § 39-23.10.

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, substituted "claim for relief" for "cause of action" in the section heading; substituted "not later than" for "within" throughout the section; substituted "claim for relief with respect to a voidable" for "cause of action with respect to a fraudulent or voidable" in the introductory language; and deleted "or the obligation was incurred" at the end of subdivision (3). For applicability and effective date, see editor's note.

Legal Periodicals. - For comment, "Saving No One: Unifying Approaches to the UVTA Savings Clause," see 52 Wake Forest L. Rev. 695 (2017).

CASE NOTES

Transfer. - "Transfer" in G.S. 39-23.9, barring fraudulent transfer claims after a certain time, meant when a transfer occurred, not when fraud became apparent to a creditor, because the statute said the limitations period for all fraudulent transfer claims began at the time of a transfer, or when a claimant should reasonably have known of the fraud. KB Aircraft Acquisition, LLC v. Berry, 249 N.C. App. 74, 790 S.E.2d 559 (2016).

Statute of Repose. - G.S. 39-23.9 was a statute of repose because: (1) the statute set a time for bringing actions related to an event other than a claimant's realization of injury, and (2) the statute contained no language providing an exception for equitable doctrines. KB Aircraft Acquisition, LLC v. Berry, 249 N.C. App. 74, 790 S.E.2d 559 (2016).

G.S. 39-23.9 barred a creditor's claims under G.S. 39-23.4(a)(1) and G.S. 39-23.5(a) because: (1) the claims arose from a transfer occurring more than four years before suit was filed, and (2) the creditor had notice of the transfer over one year before filing suit as due diligence would have given the creditor inquiry notice that the transfers were made without consideration. KB Aircraft Acquisition, LLC v. Berry, 249 N.C. App. 74, 790 S.E.2d 559 (2016).

Plaintiff's cause of action under the North Carolina Uniform Voidable Transactions Act (UVTA) G.S. 39-23.1 et seq., was barred by the statute of repose, as plaintiff was on inquiry notice that defendant had transferred proceeds to his wife's investment account more than one year prior to filing the lawsuit. Although defendant later made several misleading statements about the character of that account, there was no provision in the UVTA statute of repose for tolling the running of the statute in the face of fraudulent conduct by the transferor except possibly where the transferor's fraudulent conduct made it impossible for the plaintiff to discover the transfer, which was not the case here. Hoch v. Hoch (In re Hoch), - Bankr. - (Bankr. E.D.N.C. Jan. 25, 2018).

Illustrative Cases. - Bankruptcy trustee who claimed that he was entitled to avoid transfers a debtor made to his wife before he declared Chapter 7 bankruptcy was entitled to recover an additional $55,989 from the debtor's wife because the court limited the amount of recovery in its original judgment to fraudulent transfers that occurred less than two years before the debtor declared bankruptcy when the trustee also asserted a claim under G.S. 39-23.4, which was subject to a four-year statute of limitations pursuant to G.S. 39-23.9; the debtor's wife was not entitled to an adjustment of the amount she owed to account for support the debtor owed under a separation agreement because the separation agreement was a sham. Crawford v. Teague (In re Teague), - Bankr. - (Bankr. W.D.N.C. Mar. 7, 2014).

Fraudulent transfer claim by liquidating agent for debtor was timely filed because bankruptcy case was filed within four-year statute of limitations under state law and adversary proceeding was filed within two years of petition date. Finley Grp. v. Working Media Grp. Atlanta, LLC (In re Redf Mktg., LLC), 536 B.R. 646 (Bankr. W.D.N.C. 2015).

Cited in Strawbridge v. Sugar Mt. Resort, Inc., 243 F. Supp. 2d 472 (W.D.N.C. 2003).

OFFICIAL COMMENT (2014)

1. Section 10, added in 2014, is a simple and predictable choice of law rule applicable to claims for relief of the nature governed by the Act. It provides that a claim for relief in the nature of a claim for relief under the Act is governed by the local law of the jurisdiction in which the debtor is "located" at the time the challenged transfer is made or the challenged obligation is incurred. "Local" law means the substantive law of the referenced jurisdiction, and not its choice of law rules. Section 6 determines the time at which a transfer is made or obligation is incurred for purposes of the Act, including this section. Section 10 applies equally to a candidate jurisdiction that is a sister state and to a candidate jurisdiction that is a foreign nation.
2. The choice of law rule set forth in § 10(b) applies to any claim for relief in the nature of a claim for relief under this Act - in other words, any claim for relief sufficiently similar to a claim for relief under this Act as to warrant the application of this Act's choice of law rule. "This Act" of course refers to the enactment of this Act that is in force in the jurisdiction whose enactment of § 10(b) is being applied. Section 10(b) could not properly have been written to apply merely to "a claim for relief under this Act," for such a formulation would presuppose the applicability of the substantive provisions of this Act as in force in that jurisdiction. If a question should arise as to whether a given claim for relief is sufficiently similar to a claim for relief under this Act that § 10(b) should apply to it, tAs he answer is left to judicial determination.
3. As used in subsection (a), the terms "principal residence," "place of business," and "chief executive office" are to be evaluated on the basis of authentic and sustained activity, not on the basis of manipulations employed to establish a location artificially (e.g., by such means as establishing a notional "chief executive office" by use of straw-man officers or directors in a jurisdiction in which creditors' rights are substantially debased, or establishing a notional "principal residence" for a short term in such a jurisdiction for the purpose of making an asset transfer while there). Notwithstanding the adaptation of subsection (a) from U.C.C. § 9-307(b) (2014), the foregoing terms need not necessarily have the same meanings in both statutes. Debtors are likely to have greater incentive and ability to employ "asset tourism" for the purpose of seeking to evade the substantive rules of this Act than for the purpose of seeking to manipulate the perfection and priority rules of secured transactions law. Interpretation and application of this Act should so recognize.
4. "Location" under this Act is completely independent from the concept of "center of main interests" ("COMI"), as that term is used in Chapter 15 of the Bankruptcy Code. Chapter 15, which applies to transnational insolvency proceedings, requires United States courts to defer in various ways to a foreign proceeding in the jurisdiction of the debtor's COMI. Those consequences are quite different from the consequences of "location" under this Act. Furthermore, if the debtor is an organization, the debtor's jurisdiction of organization has no bearing on the debtor's "location" under subsection (a), by contrast to the presumption in Bankruptcy Code § 1516(c) (2014) that the jurisdiction in which the debtor has its registered office (i.e., its jurisdiction of organization) is its COMI.
5. Section 10(b) determines the governing law only for a claim for relief in the nature of a claim for relief under this Act. Furthermore, this Act, like the earlier Uniform Fraudulent Conveyance Act, has never purported to be an exclusive law on the subject of voidable transfers and obligations. See Comment 2 to § 15. Accordingly, the choice of law rule set forth in this § 10 is by no means applicable to all assertions that a transfer was made or an obligation incurred in contravention of law.

Basing choice of law on the location of the debtor is analogous to the rule set forth in U.C.C. § 9-301 (2014), which provides that the priority of a security interest in intangible property is generally governed by the local law of the jurisdiction in which the debtor is located. The analogy is apt, because the substantive rules of this Act are a species of priority rule, in that they determine the circumstances in which a debtor's creditors, rather than the debtor's transferee, have superior rights in property transferred by the debtor. In keeping with that analogy, the definition of the debtor's "location" in subsection (a) is identical to the baseline definition of that term in U.C.C. § 9-307(b) (2014). Subsection (a) does not include any of the exceptions to the baseline definition that are set forth in Article 9 of the Uniform Commercial Code, such as U.C.C. § 9-307(e) (2014) (providing that the location of a domestic corporation or other "registered organization" is its jurisdiction of organization), and U.C.C. § 9-307(c) (2014) (providing in effect that if the baseline definition would locate a debtor in a jurisdiction that lacks an Article 9-style filing system, then the debtor is instead located in the District of Columbia). Those exceptions are not included in subsection (a) because their primary purpose relates to the operation of Article 9's perfection rules, which have no analogue in this Act.

For example, suppose that the principal residence of Spouse X is State A and the principal residence of Spouse Y is State B. Spouse Y, anticipating a future divorce, transfers assets to Transferee for the purpose of thwarting X's economic interests in the divorce. Later a divorce action between X and Y is properly brought in the courts of State A, which has enacted this Act. Law other than this Act (presumably the family law of State A) will govern such matters as the classification of the transferred property as marital or separate and the remedies available against Y for wrongful dissipation of assets, such as awarding a larger share of marital property to X or imposing a lien on the separate property of Y. The choice of law rule set forth in § 10 does not apply to those matters, for they do not involve a claim for relief in the nature of a claim for relief under this Act. However, if Transferee is subject to personal jurisdiction in State A and X brings an action in State A against Transferee seeking avoidance of the transfer, or a money judgment against Transferee in lieu of avoidance, on the ground that the transfer had been made by Y with intent to hinder, delay, or defraud X, the choice of law rule set forth in § 10 would apply to that action, and as a result that action would be governed by the voidable transfer law of State B.

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

OFFICIAL COMMENT (2014)

This section, added in 2014, accommodates developments in business organization statutes exemplified by the Uniform Statutory Trust Entity Act §§ 401-404 (2009) and Del. Code Ann. tit. 6, § 18-215 (2012) (pertaining to Delaware limited liability companies). The definition of "series organization" in subsection (a)(2) is adapted from §§ 401-402 of the Uniform Statutory Trust Entity Act. If the statute under which an organization is organized permits it to divide its assets and debts among "protected series" (however denominated), such that assets and debts of, or associated with, each "protected series" are separated in accordance with subsections (a)(2)(ii) and (iii), and if the organization does so, then the provisions of this Act apply to each "protected series" as if it were a legal entity, regardless of whether it is considered to be a legal entity for other purposes. The conditions referred to in subsections (a)(2)(ii) and (iii) are satisfied if the law under which the organization is organized so provides. It does not matter whether the separation of assets and debts described in subsections (a)(2)(ii) and (iii) would be respected by another jurisdiction in which the organization does business, or would be given effect by the Bankruptcy Code in the bankruptcy of the organization. An organization may be a "series organization" having "protected series," as those terms are used in this section, even though the statute under which the organization is organized uses different terminology. This section uses the term "protected series," which is not used in either the Uniform Statutory Trust Entity Act or the Delaware provisions cited above, to emphasize that the application of this section does not depend upon the terminology used by the applicable statute.

The addition of this section to the Act does not imply any judgment about the desirability of legislation enabling the creation of protected series.

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

OFFICIAL COMMENT (2014)

This section is derived from § 11 of the Uniform Fraudulent Conveyance Act and Uniform Commercial Code § 1-103 (1984) (later § 1-103(b) (2014)). The section adds a reference to "laches" in recognition of the particular appropriateness of the application of this equitable doctrine to an untimely action to avoid a transfer under this Act. See Louis Dreyfus Corp. v. Butler , 496 F.2d 806, 808 (6th Cir. 1974) (action to avoid transfers to debtor's wife when debtor was engaged in speculative business held to be barred by laches or applicable statutes of limitations); Cooch v. Grier , 30 Del.Ch. 255, 265-66, 59 A.2d 282, 287-88 (1948) (action under the Uniform Fraudulent Conveyance Act held barred by laches when the creditor was chargeable with inexcusable delay and the defendant was prejudiced by the delay).

NORTH CAROLINA COMMENT

Editor's Note. - The North Carolina Comment below is the drafters' comment to the State's version of the Uniform Fraudulent Transfers Act as enacted in 1997.

This section is derived in part from section 1-103 of the Uniform Commercial Code. See N.C. Gen. Stat. § 25-1-103.

According to the Official Comment to this section, the defense of laches (which does not appear in UCC § 1-103) has been specifically added to the UFTA "in recognition of the particular appropriateness of the application of this equitable doctrine to an untimely action to avoid a fraudulent transfer."

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

CASE NOTES

Cited in Estate of Hurst v. Jones, 230 N.C. App. 162, 750 S.E.2d 14 (2013); KB Aircraft Acquisition, LLC v. Berry, 249 N.C. App. 74, 790 S.E.2d 559 (2016).

OFFICIAL COMMENT (2014)

1. The 2014 amendments change the short title of the Act from "Uniform Fraudulent Transfer Act" to "Uniform Voidable Transactions Act." The change of title is not intended to effect any change in the meaning of the Act. The retitling is not motivated by the substantive revisions made by the 2014 amendments, which are relatively minor. Rather, the word "Fraudulent" in the original title, though sanctioned by historical usage, was a misleading description of the Act as it was originally written. Fraud is not, and never has been, a necessary element of a claim for relief under the Act. The misleading intimation to the contrary in the original title of the Act led to confusion in the courts. See, e.g., § 4, Comment 10. The misleading insistence on "fraud" in the original title also contributed to the evolution of widely-used shorthand terminology that further tends to distort understanding of the provisions of the Act. Thus, several theories of recovery under the Act that have nothing whatever to do with fraud (or with intent of any sort) came to be widely known by the oxymoronic and confusing shorthand tag "constructive fraud." See §§ 4(a)(2), 5(a). Likewise, the primordial theory of recovery under the Act, set forth in § 4(a)(1), came to be widely known by the shorthand tag "actual fraud." That shorthand is misleading, because that provision does not in fact require proof of fraudulent intent. See § 4, Comment 8.
2. The Act, like the earlier Uniform Fraudulent Conveyance Act, has never purported to be an exclusive law on the subject of voidable transfers and obligations. See Prefatory Note (1984), Para. 5; § 1, Comment 2, Para. 6; § 4, Comment 9, Para. 1; § 10, Comment 5. It remains the case that the Act is not the exclusive law on the subject of voidable transfers and obligations.
3. The retitling of the Act should not be construed to affect references to the Act in other statutes or international instruments that use the former terminology. See, e.g., Convention on International Interests in Mobile Equipment, art. 30(a)(3), opened for signature Nov. 16, 2001, S. Treaty Doc. No. 108-10 (referring to "any rules of law applicable in insolvency proceedings relating to the avoidance of a transaction as a … transfer in fraud of creditors").
4. The 2014 amendments also make a correction to the text of the Act that is consonant with the change of the Act's title. As originally written, the Act inconsistently used different words to denote a transfer or obligation for which the Act provides a remedy: sometimes "voidable" (see original § 2(d), §§ 8(a), (d), (e), (f)), and sometimes "fraudulent" (see original § 4(a), §§ 5(a), (b), § 9). The amendments resolve that inconsistency by using "voidable" consistently or deleting the word as unnecessary. No change in meaning is intended.
5. The Act does not address the extent to which a person who facilitates the making of a transfer or the incurrence of an obligation that is voidable under the Act may be subject to liability for that reason, whether under a theory of aiding and abetting, civil conspiracy, or otherwise. The Act leaves that subject to supplementary principles of law. See § 12. Cf. § 8(b)(1)(i) (imposing liability upon, inter alia, "the person for whose benefit the transfer was made"). Other law also governs such matters as (i) the circumstances in which a lawyer who assists a debtor in making a transfer or incurring an obligation that is voidable under the Act violates rules of professional conduct applicable to lawyers, (ii) the circumstances in which communications between the debtor and the lawyer in respect of such a transfer or obligation are excepted from attorney-client privilege, and (iii) the extent to which criminal sanctions apply to a debtor, transferee, obligee, or person who facilitates the making of a transfer or the incurrence of an obligation that is voidable under the Act. Neither the retitling of the Act, nor the consistent use of "voidable" in its text per Comment 4, effects any change in the meaning of the Act, and those amendments should not be construed to affect any of the foregoing matters.

In addition, the word "Transfer" in the original title of the Act was underinclusive, because the Act applies to incurrence of obligations as well as to transfers of property.

Cross References. - As to arrest and bail in action for fraud on creditors, see G.S. 1-410, subdivision (5).

As to attachment in action for fraud, see G.S. 1-440.1 et seq.

As to preferences in deeds of trust or deeds of assignment for benefit of creditors, see G.S. 23-1 et seq.

As to registration of conveyances, contracts to convey, and leases of land, see G.S. 47-18.

As to registration, see the Connor Act, see G.S. 47-17 et seq.

As to statutes concerning married persons generally, see G.S. 52-1 et seq.

Editor's Note. - Session Laws 2015-23, s. 4 provides: "The Revisor of Statutes shall cause to be printed, as annotations to the published General Statutes, all relevant portions of the Official Comments to the Uniform Voidable Transactions Act and all explanatory comments of the drafters of this act as the Revisor may deem appropriate."

Effect of Amendments. - Session Laws 2015-23, s. 1, effective October 1, 2015, rewrote the section. For applicability and effective date, see editor's note.

Legal Periodicals. - For discussion of the constructive trust as a remedy for the defrauded creditor, see 45 N.C.L. Rev. 424 (1967).

For analysis and comparison of the law of fraudulent conveyances in North Carolina with the Uniform Fraudulent Conveyances Act, see 50 N.C.L. Rev. 873 (1972).

For article on North Carolina's new Exemption Act, see 17 Wake Forest L. Rev. 865 (1981).

For note, "Branch Banking & Trust Co. v. Wright - Creditors' Rights to Entireties Property Awarded to Nondebtor Spouse Upon Divorce," see 64 N.C.L. Rev. 1471 (1986).

CASE NOTES

Cited in Sprouse v. North River Ins. Co., 81 N.C. App. 311, 344 S.E.2d 555, cert. denied, 318 N.C. 284, 348 S.E.2d 344 (1986).

CASE NOTES

Risk of Loss of Property Subject to Executory Contract. - The vendee in an executory contract for the sale of land holds an equitable interest therein. Absent inability of the vendor to convey, or express stipulation to the contrary, the risk of loss of property subject to such a contract falls on the vendee, who is treated as the equitable owner. In re Taylor, 60 N.C. App. 134, 298 S.E.2d 163 (1982).

Risk of Loss Not Shifted to High Bidder Prior to Closing. - Under this Act the making of the high bid in a foreclosure sale does not operate to extinguish the seller's interests and shift all risks to the purchaser. Sprouse v. North River Ins. Co., 81 N.C. App. 311, 344 S.E.2d 555, cert. denied, 318 N.C. 284, 348 S.E.2d 344 (1986).

Nothing in this section shifts the risk of loss prior to closing to the high bidder. In fact, the high bidder cannot compel relinquishment of the premises until the price has been paid in full, and the mortgagor remains subject to personal liability on the note until then. Sprouse v. North River Ins. Co., 81 N.C. App. 311, 344 S.E.2d 555, cert. denied, 318 N.C. 284, 348 S.E.2d 344 (1986).

§§ 39-40 through 39-43: Reserved for future codification purposes.