Article 1. Construction and Sufficiency.

§ 39-1. Fee presumed, though word “heirs” omitted.

When real estate is conveyed to any person, the same shall be held and construed to be a conveyance in fee, whether the word “heir” is used or not, unless such conveyance in plain and express words shows, or it is plainly intended by the conveyance or some part thereof, that the grantor meant to convey an estate of less dignity.

History. 1879, c. 148; Code, s. 1280; Rev., s. 946; C.S., s. 991.

Cross References.

As to presumption of conveyance in fee simple when deed and registry of conveyance destroyed, see G.S. 8-21 .

Legal Periodicals.

As to use of fee simple form deed to convey other than a fee, see 39 N.C.L. Rev. 283 (1961).

For case law survey as to real property, see 45 N.C.L. Rev. 964 (1967).

For article, “Doubt Reduction Through Conveyancing Reform — More Suggestions in the Quest for Clear Land Titles,” see 46 N.C.L. Rev. 284 (1968).

For article, “The Rule in Wild’s Case in North Carolina,” see 55 N.C.L. Rev. 751 (1977).

For note on the continued use of the Artis-Oxendine rule in the construction of deeds, see 13 Wake Forest L. Rev. 478 (1977).

For article, “Class Gifts in North Carolina — When Do We ‘Call The Roll’?,” see 21 Wake Forest L. Rev. 1 (1985).

For article, “Does the Fee Tail Exist in North Carolina?,” see 23 Wake Forest L. Rev. 767 (1988).

CASE NOTES

Analysis

I.General Consideration

This section changes the common-law rule that in order to convey a fee simple the word “heirs” should appear either in the premises or the habendum of the deed. Carolina Real Estate Co. v. Bland, 152 N.C. 225 , 67 S.E. 483, 1910 N.C. LEXIS 247 (1910).

The rule of construction in this section prevails over common-law rules to the extent that they conflict. Robinson v. King, 68 N.C. App. 86, 314 S.E.2d 768, 1984 N.C. App. LEXIS 3209 (1984).

Even prior to the enactment of the section the courts of this State commenced to draw away from the strictness of the common-law rule in this respect, and a perusal of a large number of cases bearing upon and controlling the subject show a marked tendency to mitigate the harshness of the law. So an exception as to devises and equitable estates had already been made. Hollowell v. Manly, 179 N.C. 262 , 102 S.E. 386, 1920 N.C. LEXIS 219 (1920); Whichard v. Whitehurst, 181 N.C. 79 , 106 S.E. 463, 1921 N.C. LEXIS 22 (1921); Smith v. Proctor, 139 N.C. 314 , 51 S.E. 889, 1905 N.C. LEXIS 129 (1905).

Deeds Executed Prior to Effective Force of Section. —

Although a deed to lands executed and delivered prior to the effective force of this section would not pass an estate in fee simple if the deed entirely omitted the word “heirs” or other appropriate words of inheritance, a deed executed before such date to a school committee “and their successors in office in fee simple” was sufficient to pass a fee simple title of the lands conveyed therein. Tucker v. Smith, 199 N.C. 502 , 154 S.E. 826, 1930 N.C. LEXIS 162 (1930).

Section Provides Same Rule for Deeds as for Devises. —

This section provides the same rule of construction of deeds as is contained in G.S. 31-38 for construction of devises. Vickers v. Leigh, 104 N.C. 248 , 10 S.E. 308, 1889 N.C. LEXIS 188 (1889).

Decisions Construing G.S. 31-38 Are Pertinent. —

Decisions construing G.S. 31-38 , pertaining to the construction of wills, are pertinent in construing this section, since the statutes are similar in wording and effect. Artis v. Artis, 228 N.C. 754 , 47 S.E.2d 228, 1948 N.C. LEXIS 397 (1948).

Fee Simple Presumed Unless Contrary Intention Appears. —

All conveyances of land executed since the passage of this section are to be taken to be in fee simple, unless the intent of the grantor is plainly manifest in some part of the instrument to convey an estate of less dignity. It is the legislative will that the intention of the grantor and not the technical words of the common law shall govern. Triplett v. Williams, 149 N.C. 394 , 63 S.E. 79, 1908 N.C. LEXIS 363 (1908).

By this section a deed, though not using the word “heirs,” is a conveyance in fee, unless the contrary intention appears. Holloway v. Green, 167 N.C. 91 , 83 S.E. 243, 1914 N.C. LEXIS 61 (1914).

The law favors creation of a fee simple estate unless it is clearly shown a lesser estate was intended. Vestal v. Vestal, 49 N.C. App. 263, 271 S.E.2d 306, 1980 N.C. App. LEXIS 3369 (1980).

If it appeared that the word “heirs” was omitted because of ignorance, inadvertence or mistake, the word would be supplied so as to pass title in fee in accordance with the intention of the grantor. Vickers v. Leigh, 104 N.C. 248 , 10 S.E. 308, 1889 N.C. LEXIS 188 (1889).

Presumption Held Rebutted. —

The presumption of fee raised by this section was rebutted by the fact that the deed intended to convey only a life estate, which was manifest from the many restraining expressions contained therein. Boomer v. Grantham, 203 N.C. 230 , 165 S.E. 698, 1932 N.C. LEXIS 360 (1932).

Section Inapplicable When Lesser Estate Intended. —

This section does not apply when the deed discloses an intent to convey an estate less than a fee simple. Etheridge v. United States, 218 F. Supp. 809, 1963 U.S. Dist. LEXIS 7541 (E.D.N.C. 1963).

Intent to Create a Life Estate. —

This section does not apply where the granting clause of the deed in plain and explicit words shows that the intention of the grantor was to grant merely a life estate, and the habendum clause creates no estate contradictory or repugnant to that given in the granting clause. Griffin v. Springer, 244 N.C. 95 , 92 S.E.2d 682, 1956 N.C. LEXIS 664 (1956).

Language in Deed Must Clearly Convey Less than Fee Simple. —

The language of the deed must clearly manifest the intention of the parties to convey less than a fee simple absolute. Etheridge v. United States, 218 F. Supp. 809, 1963 U.S. Dist. LEXIS 7541 (E.D.N.C. 1963).

This section does not change a common-law conveyance of inheritance to a conveyance of less effectiveness, i.e., to one conveying only a life estate. Whitley v. Arenson, 219 N.C. 121 , 12 S.E.2d 906, 1941 N.C. LEXIS 275 (1941).

Absence of Words of Inheritance and Presence of Language Limiting Estate to Life of Grantee. —

Under this section, the absence of words of inheritance, such as the use of the word “heir,” combined with the presence of language limiting the estate to the term of the grantee’s life, should be interpreted to convey a life estate. Robinson v. King, 68 N.C. App. 86, 314 S.E.2d 768, 1984 N.C. App. LEXIS 3209 (1984).

Construction of Deed as Imposing Condition Subsequent Is Not Favored. —

The law does not favor a construction of the language contained in a deed which would constitute a condition subsequent unless the intention of the parties to create such a restriction upon the title is clearly manifested. Mattox v. State, 280 N.C. 471 , 186 S.E.2d 378, 1972 N.C. LEXIS 1266 (1972).

A fee upon a condition subsequent is not created unless the grantor expressly reserves the right to reenter or provides for a forfeiture or for a reversion or that the instrument shall be null and void. Mattox v. State, 280 N.C. 471 , 186 S.E.2d 378, 1972 N.C. LEXIS 1266 (1972).

If a deed contains both the apt words to create a condition and an express clause of reentry, reverter, or forfeiture, an estate on condition subsequent is created. Mattox v. State, 280 N.C. 471 , 186 S.E.2d 378, 1972 N.C. LEXIS 1266 (1972).

Effect of Restraint upon Alienation. —

Where a conveyance is construed under this section to be in fee, any attempt of restraint upon alienation is void, but where relevant, the words therein used may be construed to ascertain whether the intent of the grantor was to convey a fee or an estate of less dignity. Holloway v. Green, 167 N.C. 91 , 83 S.E. 243, 1914 N.C. LEXIS 61 (1914).

Determining Whether Grant Is of Easement Appurtenant or in Gross. —

The fact that the words “heirs and assigns” are not entered after the name of the grantee of an easement is not controlling in determining whether the easement granted is an easement appurtenant or in gross. Shingleton v. State, 260 N.C. 451 , 133 S.E.2d 183, 1963 N.C. LEXIS 760 (1963); Gibbs v. Wright, 17 N.C. App. 495, 195 S.E.2d 40, 1973 N.C. App. LEXIS 1391 (1973).

II.Conflicting Clauses

The intention of the parties must be gathered from the whole instrument in conformity with established principles, and the division of the deed into formal parts is not permitted to prevail against such intention; for substance, not form, is the object sought. Etheridge v. United States, 218 F. Supp. 809, 1963 U.S. Dist. LEXIS 7541 (E.D.N.C. 1963).

Conflict Between Granting Clause and Habendum. —

Where a quitclaim deed was ambiguous in that the granting clause gave all right, title, and interest to the grantee, while the habendum clause gave her the land “for and during the term of her natural life,” the trial court properly held that the grantee acquired only a life estate under the deed. Robinson v. King, 68 N.C. App. 86, 314 S.E.2d 768, 1984 N.C. App. LEXIS 3209 (1984).

The granting clause of a deed was to one of the grantor’s sons, his heirs and assigns, and following the description, “this deed is conveyed to the said grantee to him his lifetime and then to his boy children,” with habendum to the said son “and his heirs and not to assign only to his brothers their only use and behoof forever” with warranty to the said son “and his heirs and assigns.” It was held that the portion of the habendum restraining assignment except to the brothers of the grantee was equally consistent with an assignment of a life estate and with an assignment of the fee, and to hold that the grant to the “son and his heirs” conveyed the fee simple would require that other portions of the instrument expressive of the intent of the grantor be disregarded; thus in accordance with the intention of the grantor as gathered from the entire instrument the deed conveyed a life estate to the son with remainder to the son’s male children, the intent of the grantor to convey an estate of less dignity than a fee being apparent. Jefferson v. Jefferson, 219 N.C. 333 , 13 S.E.2d 745, 1941 N.C. LEXIS 319 (1941).

In event of any repugnancy between granting clause and preceding or succeeding recitals, granting clause will prevail. Elliot v. Cox, 100 N.C. App. 536, 397 S.E.2d 319, 1990 N.C. App. LEXIS 1069 (1990).

Section as Curing Repugnancy between Granting Clause and Habendum. —

The premises of a deed to land read, among other things, “unto said M.G., her heirs and assigns,” and the habendum, “to herself, the said M.G. during her lifetime, and at her death said land is to be equally divided between” her children. It was held that since under this section, the same estate would have passed if the word “heirs,” an established formula, had been omitted in the granting clause, there was no repugnance in this deed between the granting clause and habendum. The limitation of the estate in the habendum, and the creation of an estate in remainder therein, were conclusive proof that there was no intention of the grantor to create an estate in fee, but an estate for life to M.G. with a remainder over to her children. Triplett v. Williams, 149 N.C. 394 , 63 S.E. 79, 1908 N.C. LEXIS 363 (1908).

Rejection of Repugnant Clause Where Granting Clause and Habendum Convey Fee. —

Where the granting clause and the habendum convey the entire estate in fee simple, and the warranty is in harmony therewith, a clause in any other part of the instrument which undertakes to divest or limit the fee simple title will be rejected as repugnant to the estate and interest conveyed. Artis v. Artis, 228 N.C. 754 , 47 S.E.2d 228, 1948 N.C. LEXIS 397 (1948); Pilley v. Smith, 230 N.C. 62 , 51 S.E.2d 923, 1949 N.C. LEXIS 560 (1949).

Where the granting clause in a deed purported to convey the fee and the habendum and warranties were in harmony therewith, a clause in the description referring to the property conveyed as a right-of-way 100 feet wide did not limit the conveyance to an easement, and the contention that a fee simple was conveyed was supported by this section. McCotter v. Barnes, 247 N.C. 480 , 101 S.E.2d 330, 1958 N.C. LEXIS 560 (1958).

When the granting clause, the habendum, and the warranty in a deed are clear and unambiguous, and fully sufficient to pass immediately a fee simple estate to the grantee or grantees, a paragraph inserted between the description and the habendum in which grantor seeks to reserve a life estate in himself or another, or to otherwise limit the estate conveyed, will be rejected as repugnant to the estate and interest therein conveyed. Lackey v. Hamlet City Bd. of Educ., 258 N.C. 460 , 128 S.E.2d 806, 1963 N.C. LEXIS 420 (1963).

Where a reverter clause and purposes for which property was to be held as expressed in the habendum were not irreconcilable with or repugnant to the granting clause, a fee simple determinable was conveyed, it being apparent that the grantors intended to convey an estate of less dignity than a fee simple absolute. Lackey v. Hamlet City Bd. of Educ., 258 N.C. 460 , 128 S.E.2d 806, 1963 N.C. LEXIS 420 (1963).

Provisions for Reverter Appearing Only in Description Not Valid. —

Provisions in a deed for the reverter of title to the grantor are not valid and effective where they appear only at the end of the description and are not referred to elsewhere in the deed. Whetsell v. Jernigan, 29 N.C. App. 136, 223 S.E.2d 397, 1976 N.C. App. LEXIS 2393 , aff'd, 291 N.C. 128 , 229 S.E.2d 183, 1976 N.C. LEXIS 939 (1976).

III.Illustrative Cases

The language “for the purpose above named for the term of this conveyance” clearly limits the effect of the conveyance to less than a fee simple absolute. Etheridge v. United States, 218 F. Supp. 809, 1963 U.S. Dist. LEXIS 7541 (E.D.N.C. 1963).

Deed to Husband and Wife and Heirs of Wife. —

A deed to a husband and wife, and only to the heirs of the latter, does not pass the fee to the former by virtue of this section, for as to him it is plainly intended that the grantor meant to convey an estate of less dignity. Sprinkle v. Spainhour, 149 N.C. 223 , 62 S.E. 910, 1908 N.C. LEXIS 329 (1908).

Deed Held to Create Fee on Condition Subsequent. —

The words used in a deed “upon condition however,” then fully setting out the conditions, followed by a provision that “if and when” the grantee fails to carry out the specified conditions, “the said land shall revert to, and the title shall vest in the grantor, her heirs and assigns, with the same force and effect as if this deed had not been made, executed or delivered,” were sufficient to show the grantor intended to create a fee on condition subsequent, and by this language did create such estate. Mattox v. State, 280 N.C. 471 , 186 S.E.2d 378, 1972 N.C. LEXIS 1266 (1972).

Deed Held Not to Impose Condition Subsequent. —

A habendum in a deed to incorporators and trustees of a college, “To have and to hold the aforesaid lands and premises to the party of the second part and their successors in office forever, for the only proper use and behalf of said Claremont Female College as foresaid,” did not have the effect of appropriating the specific property to school purposes under condition subsequent, but was held to express only the purpose of the grantor in making the deed, and as to third persons the power of the trustees or other corporate authority to convey the property was not impaired. Claremont College v. Riddle, 165 N.C. 211 , 81 S.E. 283, 1914 N.C. LEXIS 247 (1914).

No Clear Expression of Reversion or Termination. —

A deed conveyed a fee simple absolute rather than a fee simple determinable, where the deed conveying land to the United States contained no clear expression of reversion or termination, despite the phrase “use and occupy” in the granting clause and the word “term” in the warranty clause, in which grantor warranted peaceable possession “for the purposes above named for the term of this covenant.” Station Assocs. v. Dare County, 350 N.C. 367 , 513 S.E.2d 789, 1999 N.C. LEXIS 242 (1999).

Deed Held to Create Defeasible Fee. —

The section was applied where the intent of the donor, appearing by proper construction of a deed, was to give a defeasible fee simple estate of his granddaughter, which was to become absolute upon the birth of a child to her. Sharpe v. Brown, 177 N.C. 294 , 98 S.E. 825, 1919 N.C. LEXIS 118 (1919).

Section Applied to Reservation of Easement. —

This section was applied in holding that a reservation of an easement was a reservation in fee, as no contravening intent appeared from the conveyance. Ruffin v. Seaboard Air Line Ry., 151 N.C. 330 , 66 S.E. 317, 1909 N.C. LEXIS 266 (1909).

Retention of Mineral Rights. —

Under this section where a deed conveys land “with the exception of one half of all the mineral found upon the premises, which is hereby expressly reserved,” the grantor retains the fee in one half the mineral rights. Central Bank & Trust Co. v. Wyatt, 189 N.C. 107 , 126 S.E. 93, 1925 N.C. LEXIS 255 (1925).

Deed Allowing Removal of Structures from Conveyed Land. —

Since the parties stipulated in the deed that the defendant be allowed to remove from the conveyed land all structures whenever it thought proper, it is obvious that the parties intended a conveyance in other than fee simple. Etheridge v. United States, 218 F. Supp. 809, 1963 U.S. Dist. LEXIS 7541 (E.D.N.C. 1963).

§ 39-1.1. In construing conveyances court shall give effect to intent of the parties.

  1. In construing a conveyance executed after January 1, 1968, in which there are inconsistent clauses, the courts shall determine the effect of the instrument on the basis of the intent of the parties as it appears from all of the provisions of the instrument.
  2. The provisions of subsection (a) of this section shall not prevent the application of the rule in Shelley’s case.

History. 1967, c. 1182.

Legal Periodicals.

For comment on the rule in Shelley’s case, see 4 Wake Forest Intra. L. Rev. 132 (1968).

For note on the continued use of the Artis-Oxendine rule in the construction of deeds, see 13 Wake Forest L. Rev. 478 (1977).

For article, “The Rule Against Perpetuities in North Carolina,” see 57 N.C.L. Rev. 727 (1979).

For note as to the transfer of land by wills in light of Stephenson v. Rowe, 315 N.C. 330 , 338 S.E.2d 301 (1986), see 65 N.C.L. Rev. 1488 (1987).

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 N.C. LEXIS 939 (1976); Johnson v. Burrow, 42 N.C. App. 273, 256 S.E.2d 811, 1979 N.C. App. LEXIS 2827 (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 N.C. App. LEXIS 1138 (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 N.C. LEXIS 939 (1976); Gamble v. Williams, 39 N.C. App. 630, 251 S.E.2d 625, 1979 N.C. App. LEXIS 2545 (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, 1977 N.C. App. LEXIS 1920 (1977); Hurdle v. Outlaw, 55 N.C. 75 , 1854 N.C. LEXIS 188 (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 N.C. App. LEXIS 2720 (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 N.C. App. LEXIS 3209 (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, 1990 N.C. App. LEXIS 136 (1990).

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 N.C. LEXIS 1992 (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 N.C. App. LEXIS 200 (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 N.C. App. LEXIS 1069 (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 N.C. App. LEXIS 1249 (2018).

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 N.C. App. LEXIS 1138 (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 N.C. App. LEXIS 1138 (1990); Robertson v. Hunsinger, 132 N.C. App. 495, 512 S.E.2d 480, 1999 N.C. App. LEXIS 200 (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 N.C. App. LEXIS 1138 (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 N.C. App. LEXIS 1138 (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 N.C. App. LEXIS 1069 (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 N.C. App. LEXIS 1069 (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 N.C. App. LEXIS 1069 (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 N.C. App. LEXIS 1138 (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., 2012 Bankr. LEXIS 236 (Bankr. E.D.N.C. Jan. 25, 2012).

§ 39-2. Vagueness of description not to invalidate.

No deed or other writing purporting to convey land or an interest in land shall be declared void for vagueness in the description of the thing intended to be granted by reason of the use of the word “adjoining” instead of the words “bounded by,” or for the reason that the boundaries given do not go entirely around the land described: Provided, it can be made to appear to the satisfaction of the jury that the grantor owned at the time of the execution of such deed or paper-writing no other land which at all corresponded to the description contained in such deed or paper-writing.

History. 1891, c. 465, s. 2; Rev., s. 948; C.S., s. 992.

Cross References.

As to vagueness of description in paper-writing offered as evidence, see G.S. 8-39 .

Legal Periodicals.

For note as to the transfer of land by wills in light of Stephenson v. Rowe, 315 N.C. 330 , 338 S.E.2d 301 (1986), see 65 N.C.L. Rev. 1488 (1987).

CASE NOTES

This section does not operate retrospectively. See Lowe v. Harris, 112 N.C. 472 , 17 S.E. 539, 1893 N.C. LEXIS 237 (1893); Hemphill v. Annis, 119 N.C. 514 , 26 S.E. 152, 1896 N.C. LEXIS 326 (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 N.C. LEXIS 21 (1927); Powell v. Allen, 75 N.C. 450 , 1876 N.C. LEXIS 318 (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 N.C. LEXIS 1992 (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 N.C. LEXIS 92 (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 N.C. LEXIS 355 (1930); Holloman v. Davis, 238 N.C. 386 , 78 S.E.2d 143, 1953 N.C. LEXIS 455 (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 N.C. LEXIS 156 (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 N.C. LEXIS 54 (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 N.C. LEXIS 240 (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 N.C. LEXIS 403 (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 N.C. LEXIS 401 (1925).

§ 39-3. [Repealed]

Repealed by Session Laws 1961, c. 52.

§ 39-4. Conveyances by infant trustees.

When an infant is seized or possessed of any estate in trust, whether by way of mortgage or otherwise, for another person who may be entitled in law to have a conveyance of such estate, or may be declared to be seized or possessed, in the course of any proceeding in the superior court, the court may decree that the infant shall convey and assure such estate, in such manner as it may direct, to such other person; and every conveyance and assurance made in pursuance of such decree shall be as effectual in law as if made by a person of full age.

History. 1821, c. 1116, ss. 1, 2; R.C., c. 37, s. 27; Code, s. 1265; Rev., s. 1036; C.S., s. 994.

Legal Periodicals.

For discussion of section, see 3 N.C.L. Rev. 110 (1925).

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 N.C. LEXIS 5 (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 N.C. LEXIS 174 (1874); Turner v. Gaither, 83 N.C. 357 , 1880 N.C. LEXIS 78 (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 N.C. LEXIS 486 (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 N.C. LEXIS 486 (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 N.C. LEXIS 486 (1941).

§ 39-5. Official deed, when official selling or empowered to sell is not in office.

When a sheriff, coroner, or tax collector, in virtue of his office, sells any real or personal property and goes out of office before executing a proper deed therefor, he may execute the same after his term of office has expired; and when he dies or removes from the State before executing the deed, his successor in office shall execute it. When a sheriff or tax collector dies having a tax list in his hands for collection, and his personal representative or surety, in collecting the taxes, makes sale according to law, his successor in office shall execute the conveyance for the property to the person entitled.

History. R.C., c. 37, s. 30; Code, s. 1267; 1891, c. 242; Rev., ss. 950, 951; C.S., s. 995; 1971, c. 528, s. 36.

Cross References.

As to authority of sheriff to execute deed to land sold under execution, see G.S. 1-309 .

As to sheriff’s deed for trust estate, see G.S. 1-316 .

As to sheriff’s deed on sale of equity of redemption, see G.S. 1-317 .

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 N.C. LEXIS 310 (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 N.C. LEXIS 151 (1907); McNair v. Boyd, 163 N.C. 478 , 79 S.E. 966, 1913 N.C. LEXIS 196 (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 N.C. LEXIS 128 (1872); Edwards v. Tipton, 77 N.C. 222 , 1877 N.C. LEXIS 61 (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 N.C. LEXIS 74 (1847); Isler v. Andrews, 66 N.C. 552 , 1872 N.C. LEXIS 128 (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 N.C. LEXIS 41 (1884). See McPherson v. Hussey, 17 N.C. 323 , 1833 N.C. LEXIS 2 (1833); Edwards v. Tipton, 77 N.C. 222 , 1877 N.C. LEXIS 61 (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 N.C. LEXIS 144 (1874).

§ 39-6. Revocation of deeds of future interests made to persons not in esse.

The grantor in any voluntary conveyance in which some future interest in real estate is conveyed or limited to a person not in esse may, at any time before he comes into being, revoke by deed such interest so conveyed or limited. This deed of revocation shall be registered as other deeds; and the grantor of like interest for a valuable consideration may, with the joinder of the person from whom the consideration moved, revoke said interest in like manner. The grantor, maker or trustor who has heretofore created or may hereafter create a voluntary trust estate in real or personal property for the use and benefit of himself or of any other person or persons in esse with a future contingent interest to some person or persons not in esse or not determined until the happening of a future event may at any time, prior to the happening of the contingency vesting the future estates, revoke the grant of the interest to such person or persons not in esse or not determined by a proper instrument to that effect; and the grantor of like interest for a valuable consideration may, with the joinder of the person from whom the consideration moved, revoke said interest in like manner: Provided, that in the event the instrument creating such estate has been recorded, then the deed of revocation of such estate shall be likewise recorded before it becomes effective: Provided, further, that this section shall not apply to any instrument hereafter executed creating such a future contingent interest when said instrument shall expressly state in effect that the grantor, maker, or trustor may not revoke such interest: Provided, further, that this section shall not apply to any instrument heretofore executed whether or not such instrument contains express provisions that it is irrevocable unless the grantor, maker, or trustor shall within six months after the effective date of this proviso either revoke such future interest, or file with the trustee an instrument stating or declaring that it is his intention to retain the power to revoke under this section: Provided, further, that in the event the instrument creating such estate has been recorded, then the revocation or declaration shall likewise be recorded before it becomes effective.

History. 1893, c. 498; Rev., s. 1045; C.S., s. 996; 1929, c. 305; 1941, c. 264; 1943, c. 437.

Cross References.

As to validation of certain deeds of revocation not in conformity with this section, see G.S. 39-6.1 .

As to registration of deeds, see G.S. 47-17 et seq.

Legal Periodicals.

For comment on the 1941 amendment, see 19 N.C.L. Rev. 507 (1941).

For article on this section, see 20 N.C.L. Rev. 278 (1942).

For comment on the 1943 amendment, see 21 N.C.L. Rev. 359 (1943).

For article, “The Rule Against Perpetuities in North Carolina,” see 57 N.C.L. Rev. 727 (1979).

For survey of 1979 property law, see 58 N.C.L. Rev. 1509 (1980).

CASE NOTES

The constitutionality of this section was upheld in Stanback v. Citizens Nat'l Bank, 197 N.C. 292 , 148 S.E. 313, 1929 N.C. LEXIS 214 (1929).

The 1929 amendment to this section is constitutional as applied to trusts created before the effective date of the amendment. Stanback v. Citizens Nat'l Bank, 197 N.C. 292 , 148 S.E. 313, 1929 N.C. LEXIS 214 (1929) (distinguishing) Roe v. Journegan, 175 N.C. 261 , 95 S.E. 495, 1918 N.C. LEXIS 51 (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 N.C. LEXIS 369 (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 N.C. LEXIS 369 (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 N.C. LEXIS 337 (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. Citizens Nat'l Bank, 197 N.C. 292 , 148 S.E. 313, 1929 N.C. LEXIS 214 (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 & Co., 221 N.C. 352 , 20 S.E.2d 276, 1942 N.C. LEXIS 467 (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 N.C. LEXIS 51 (1918); Roe v. Journigan, 181 N.C. 180 , 106 S.E. 680, 1921 N.C. LEXIS 38 (1921). See Stanback v. Citizens Nat'l Bank, 197 N.C. 292 , 148 S.E. 313, 1929 N.C. LEXIS 214 (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 N.C. LEXIS 369 (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 N.C. LEXIS 455 (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 N.C. LEXIS 369 (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 N.C. LEXIS 369 (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 & Co., 221 N.C. 352 , 20 S.E.2d 276, 1942 N.C. LEXIS 467 (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. Citizens Nat'l Bank, 197 N.C. 292 , 148 S.E. 313, 1929 N.C. LEXIS 214 (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 N.C. LEXIS 230 (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. Citizens Nat'l Bank, 197 N.C. 292 , 148 S.E. 313, 1929 N.C. LEXIS 214 (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 N.C. LEXIS 230 (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 N.C. LEXIS 467 (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 N.C. LEXIS 230 (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 N.C. LEXIS 591 (1949).

§ 39-6.1. Validation of deeds of revocation of conveyances of future interests to persons not in esse.

All deeds or instruments heretofore executed, revoking any conveyance of future interest made to persons not in esse, are hereby validated insofar as any such deed of revocation may be in conflict with the provisions of G.S. 39-6 .

All such deeds of revocation heretofore executed are hereby validated and no such deed of revocation shall be held to be invalid by reason of not having been executed within the six-month period prescribed in the third proviso of G.S. 39-6 .

History. 1947, c. 62.

Legal Periodicals.

For article, “The Rule Against Perpetuities in North Carolina,” see 57 N.C.L. Rev. 727 (1979).

§ 39-6.2. Creation of interest or estate in personal property.

Any interest or estate in personal property which may be created by last will and testament may also be created by a written instrument of transfer.

History. 1953, c. 198.

Legal Periodicals.

For comment on this section, see 31 N.C.L. Rev. 408 (1953).

For article, “The Rule Against Perpetuities in North Carolina,” see 57 N.C.L. Rev. 727 (1979).

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 N.C. LEXIS 416 (1956).

§ 39-6.3. Inter vivos and testamentary conveyances of future interests permitted.

  1. The conveyance, by deed or will, of an existing future interest shall not be ineffective on the sole ground that the interest so conveyed is future or contingent. All future interests in real or personal property, including all reversions, executory interests, vested and contingent remainders, rights of entry both before and after breach of condition and possibilities of reverter may be conveyed by the owner thereof, by an otherwise legally effective conveyance, inter vivos or testamentary, subject, however, to all conditions and limitations to which such future interest is subject.
  2. The power to convey as provided in subsection (a), can be exercised by any form of conveyance, inter vivos or testamentary, which is otherwise legally effective in this State at the date of such conveyance to transfer a present estate of the same duration in the property.
  3. This section shall apply only to conveyances which become operative to transfer title on or after October 1, 1961.

History. 1961, c. 435.

Legal Periodicals.

For article, “The Rule Against Perpetuities in North Carolina,” see 57 N.C.L. Rev. 727 (1979).

For article, “The North Carolina Historic Preservation and Conservation Agreements Act: Assessment and Implications for Historic Preservation,” see 11 N.C. Cent. L.J. 362 (1980).

For article, “Class Gifts in North Carolina — When Do We ‘Call The Roll’?,” see 21 Wake Forest L. Rev. 1 (1985).

For a comment on the acquisition, abandonment, and preservation of rail corridors in North Carolina, see 75 N.C.L. Rev. 1989 (1997).

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 N.C. LEXIS 434 (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 N.C. LEXIS 782 (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 N.C. LEXIS 782 (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 N.C. LEXIS 782 (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 N.C. LEXIS 782 (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 N.C. LEXIS 782 (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 N.C. LEXIS 1824 (1987) (overruling) Watson v. Dodd, 68 N.C. 528 , 1873 N.C. LEXIS 142 (1873) (and) Bourne v. Farrar, 180 N.C. 135 , 104 S.E. 170, 1920 N.C. LEXIS 51 (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 N.C. LEXIS 782 (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 N.C. LEXIS 782 (1971).

§ 39-6.4. Creation of easements, restrictions, and conditions.

  1. The holder of legal or equitable title of an interest in real property may create, grant, reserve, or declare valid easements, restrictions, or conditions of record burdening or benefiting the same interest in real property.
  2. Subsection (a) of this section shall not affect the application of the doctrine of merger after the severance and subsequent reunification of title to all of the benefited or burdened real property or interests therein.

History. 1997-333, s. 1.

§ 39-6.5. Elimination of seal.

The seal of the signatory shall not be necessary to effect a valid conveyance of an interest in real property; provided, that this section shall not affect the requirement for affixing a seal of the officer taking an acknowledgment of the instrument.

History. 1999-221, s. 2.

Editor’s Note.

Session Laws 1999-221, s. 5, made this section effective June 25, 1999, and applicable to instruments registered before, on, or after that date, except that they shall not apply to litigation pending on that date or to any instrument directly or indirectly involved in litigation pending on that date.

§ 39-6.6. Subordination agreements.

  1. A subordination agreement shall be given effect in accordance with its terms and is not required to state any interest rate, principal amount secured, or other financial terms.
  2. The trustee of a deed of trust shall not be a necessary party to a subordination agreement unless the deed of trust provides otherwise.
  3. For purposes of G.S. 1-47 , a subordination agreement is deemed a conveyance of an interest in real property.
  4. This section is not exclusive. No subordination agreement that is otherwise valid shall be invalidated by this section.
  5. This section applies to a subordination agreement regardless of when the agreement was signed by the party or parties thereto, except that this section does not apply to an agreement that (i) is the subject of litigation pending on the effective date of this subsection, and (ii) was filed or recorded before October 1, 2003.
  6. In this section:
    1. “Interest in real property” includes all rights, title, and interest in and to land, buildings, and other improvements of an owner, tenant, subtenant, secured lender, materialman, judgment creditor, lienholder, or other person, whether the interest in real property is evidenced by a deed, easement, lease, sublease, deed of trust, mortgage, assignment of leases and rents, judgment, claim of lien, or any other record, instrument, document, or entry of court.
    2. “Subordination agreement” means a written commitment or agreement to subordinate or that subordinates an interest in real property signed by a person entitled to priority.

History. 2003-219, s. 1; 2005-212, s. 1.

Effect of Amendments.

Session Laws 2005-212, s. 1, effective July 20, 2005, rewrote the section.

§ 39-6.7. Construction of conveyances to or by trusts.

  1. A deed, will, beneficiary designation, or other instrument that purports to convey, devise, or otherwise transfer any ownership or security interest in real or personal property to a trust shall be deemed to be a transfer to the trustee or trustees of that trust.
  2. A deed or other instrument which purports to convey or otherwise transfer any ownership or security interest in real or personal property by a trust shall be deemed to be a transfer by the trustee or trustees of that trust. This rule of construction shall apply:
    1. Regardless of whether the instrument is signed by the trustee or trustees as such, or by the trustee or trustees purportedly for or on behalf of the trust; and
    2. Regardless of whether the instrument by which the trustee or trustees acquired title transferred that title to the trustee or trustees as such, or purportedly to the trust.
  3. A deed or other instrument by which the trustee or trustees of a trust convey or otherwise transfer any ownership or security interest in real or personal property shall be deemed sufficient:
    1. Regardless of whether the instrument is signed by the trustee or trustees as such, or by the trustee or trustees purportedly for or on behalf of the trust; and
    2. Regardless of whether the instrument by which the trustee or trustees acquired title transferred that title to the trustee or trustees as such, or purportedly to the trust.
  4. The trustee or trustees of a trust may convey or otherwise transfer any ownership or security interest in real or personal property as trustee or trustees even though the deed or instrument by which the trustee or trustees acquired title purported to convey or transfer that title to the trust.
  5. Nothing in this section shall be construed to limit the manner in which title to real or personal property may be conveyed or transferred to or by trustees.

History. 2007-106, s. 53.

Editor’s Note.

Session Laws 2007-106, s. 56, made this section effective October 1, 2007, and applicable to (i) all trusts created, and to all conveyances, devises, beneficiary designations, or other transfers occurring before, on, or after that date; (ii) all judicial proceedings concerning trusts or transfers to or by trusts commenced on or after that date; and (iii) all judicial proceedings concerning trusts or transfers to or by trusts commenced before that date unless the court finds that application of a particular provision of this act would substantially interfere with the effective conduct of the judicial proceedings or prejudice the rights of the parties, in which case the law as it existed on September 30, 2007, shall apply.

Article 2. Conveyances by Husband and Wife.

§ 39-7. Instruments affecting married person’s title; joinder of spouse; exceptions.

  1. In order to waive the elective life estate of either husband or wife as provided for in G.S. 29-30 , every conveyance or other instrument affecting the estate, right or title of any married person in lands, tenements or hereditaments must be executed by such husband or wife, and due proof or acknowledgment thereof must be made and certified as provided by law.
  2. A married person may bargain, sell, lease, mortgage, transfer and convey any of his or her separate real estate without joinder or other waiver by his or her spouse if such spouse is incompetent and a guardian or trustee has been appointed as provided by the laws of North Carolina, and if the appropriate instrument is executed by the married person and the guardian or trustee of the incompetent spouse and is probated and registered in accordance with law, it shall convey all the estate and interest as therein intended of the married person in the land conveyed, free and exempt from the elective life estate as provided in G.S. 29-30 and all other interests of the incompetent spouse.
  3. Subsection (a) shall not be construed to require the spouse’s joinder or other waiver of the elective life estate of such spouse as provided for in G.S. 29-30 where a different provision is made or provided for in the General Statutes including, but not limited to, G.S. 39-13 , 39-13.3, 39-13.4, 31A-1(d), and 52-10.

History. C.C.P., s. 429; subsec. 6; 1868-9, c. 277, s. 15; Code, s. 1256; 1899, c. 235, s. 9; Rev., s. 952; C.S., s. 997; 1945, c. 73, s. 4; 1957, c. 598, s. 3; 1965, c. 855.

Cross References.

As to property of married women secured to them, see N.C. Const., Art. X, § 4.

As to abolition of dower, see G.S. 29-4 .

As to acknowledgment at different times and places and before different officers, and order of acknowledgment, see G.S. 39-8 .

For validation of certain instruments executed without private examination of married woman, see G.S. 39-13.1 .

For repeal of laws requiring private examination of married women, see G.S. 47-14.1 .

As to husband’s acknowledgement and wife’s acknowledgement before the same officer, see G.S. 47-40 .

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

Legal Periodicals.

For comment on this section prior to the 1957 and 1965 amendments, see 12 N.C.L. Rev. 68 (1934).

For note on wife’s conveyance of her realty by virtue of husband’s power of attorney, see 31 N.C.L. Rev. 228 (1953).

For comment on the enforceability of marital contracts, see 47 N.C.L. Rev. 815 (1969).

CASE NOTES

Analysis

I.General Consideration

Editor’s Note. —

Many of the cases cited in the notes to this section construe the section prior to the 1965 amendment.

Constitutionality. —

This section is constitutional. Council v. Pridgen, 153 N.C. 443 , 69 S.E. 404, 1910 N.C. LEXIS 107 (1910); Jackson v. Beard, 162 N.C. 105 , 78 S.E. 6, 1913 N.C. LEXIS 319 (1913); Graves v. Johnson, 172 N.C. 176 , 90 S.E. 113, 1916 N.C. LEXIS 260 (1916).

This section is not in conflict with the constitutional provision which secures to the wife her entire estate, notwithstanding her coverture. Southerland v. Hunter, 93 N.C. 310 , 1885 N.C. LEXIS 64 (1885).

Compliance with Section Necessary. —

Unless the formalities of this section are complied with, the deed is absolutely void. Jackson v. Beard, 162 N.C. 105 , 78 S.E. 6, 1913 N.C. LEXIS 319 (1913).

Compliance with the statutory requirement in effect at the time the deed was executed was necessary to its validity. Failure to comply with the requirements rendered the deed of a married woman to her husband absolutely void. Noble v. Pittman, 241 N.C. 601 , 86 S.E.2d 89, 1955 N.C. LEXIS 422 (1955).

The section admits no distinction between legal and equitable interests, and embraces every “estate, right or title,” which a married woman may possess in land, and such is the construction put upon it by the court. Clayton v. Rose, 87 N.C. 106 , 1882 N.C. LEXIS 24 (1882).

Creation of Trust. —

A woman under coverture cannot create a trust in land by parol or in any other manner except by embodying it in a written instrument executed in accordance with this section. Ricks v. Wilson, 154 N.C. 282 , 70 S.E. 476, 1911 N.C. LEXIS 260 (1911).

A power of attorney given by a married woman to dismiss an action concerning her land need not be registered to give it validity. Hollingsworth v. Harman, 83 N.C. 153 , 1880 N.C. LEXIS 33 (1880).

Deed Executed Same Day That Absolute Divorce Decree Was Rendered. —

Where a decree of absolute divorce was rendered and a quitclaim deed from the wife to the husband was executed on the same day, and the requirements necessary to the validity of a deed from a married woman to her husband as prescribed by the statute then in effect were not observed, it was held that if the deed was executed and delivered prior to the rendition of the divorce decree, it would be void, and if it was executed and delivered subsequent thereto, it would be valid. An instruction that if the deed were executed and delivered at approximately the same time as the rendition of the divorce decree as a simultaneous transaction, the deed would be valid, was error. Noble v. Pittman, 241 N.C. 601 , 86 S.E.2d 89, 1955 N.C. LEXIS 422 (1955).

Liability of Married Woman for Breach of Contract. —

Since the enactment of the Martin Act (G.S. 52-2), it is held that contracts wrongfully broken by married women will subject them to liability for damages, even though they cannot be compelled to convey unless they have been privily examined according to forms of law. In other words they may be liable for damages, although specific performance cannot be required. Lipinsky v. Revell, 167 N.C. 508 , 83 S.E. 820, 1914 N.C. LEXIS 159 (1914); Royal v. Southerland, 168 N.C. 405 , 84 S.E. 708, 1915 N.C. LEXIS 69 (1915); Warren v. Dail, 170 N.C. 406 , 87 S.E. 126, 1915 N.C. LEXIS 415 (1915).

II.Execution by Both Husband and Wife
A.In General

It is necessary that a wife’s deed be signed by the husband and acknowledged by both husband and wife. Joiner v. Firemen's Ins. Co., 6 F. Supp. 103, 1934 U.S. Dist. LEXIS 1669 (D.N.C. 1934).

Veto Power of Husband. —

While the husband has no interest in the wife’s property, he has a “veto” power over the alienation of her realty by withholding his written assent, without which her conveyances of realty are invalid. Stallings v. Walker, 176 N.C. 321 , 97 S.E. 25, 1918 N.C. LEXIS 244 (1918).

Husband and Wife Must Execute Same Instrument. —

This section clearly contemplates that the same instrument of writing shall be executed by both husband and wife. Green v. Bennett, 120 N.C. 394 , 27 S.E. 142, 1897 N.C. LEXIS 86 (1897); Slocomb v. Ray, 123 N.C. 571 , 31 S.E. 829, 1898 N.C. LEXIS 103 (1898).

Reason for Joinder of Husband. —

The purpose of this section in making the requirements as to the deeds of a feme covert is stated by Chief Justice Smith in Ferguson v. Kinsland, 93 N.C. 337 (1885), as follows: “The requirement that the husband should execute the same deed with the wife was to afford her his protection against the wiles and insidious arts of others, while her separate and private examination was to secure her against coercion and undue influence from him.” And Conner, J., in Ball v. Paquin, 140 N.C. 83 , 52 S.E. 410 (1905), says: “For the purpose of throwing around her the protection of her husband’s counsel and advice, the legislature declared that with certain exceptions she could not contract without the written consent of her husband.” Jackson v. Beard, 162 N.C. 105 , 78 S.E. 6, 1913 N.C. LEXIS 319 (1913).

Husband May Execute First. —

The deed is nonetheless effectual to pass the title of the wife because the husband executes it before she does. Lineberger v. Tidwell, 104 N.C. 506 , 10 S.E. 758, 1889 N.C. LEXIS 231 (1889).

Binding Dower Interest by Mortgage. —

To bind the dower interest by mortgage the husband and wife must join in the execution of the deed; separate conveyances will not comply with the requirement of this section. Slocomb v. Ray, 123 N.C. 571 , 31 S.E. 829, 1898 N.C. LEXIS 103 (1898) (decided prior to the enactment of G.S. 29-4 which abolished dower) .

Effect of Husband’s Minority. —

The part of this section requiring execution by the husband when his wife’s lands are conveyed is contractual in its nature; hence when the husband is a minor the conveyance is subject to the usual rules applying to infant’s contracts, and he may avoid or ratify it upon reaching his majority. Jackson v. Beard, 162 N.C. 105 , 78 S.E. 6 (1913). But see G.S. 39-13.2 which makes married persons under 18 competent to execute certain deeds .

B.Husband’s Acknowledgment and Proof of Execution

Acknowledgment or Proof of Execution Necessary to Pass Title. —

The law has been changed to permit the acknowledgment of the husband to be taken after that of the wife and before a different officer (see G.S. 39-8 ), but this section still requires the acknowledgment of the husband or proof of his execution of the deed to pass the title or interest of the wife; and the principle that the General Assembly has power to prescribe the form in which the assent of the husband to the execution of a deed by the wife shall be evidenced, is unimpaired, and was fully recognized in Warren v. Dail, 170 N.C. 406 , 87 S.E. 126, 1915 N.C. LEXIS 415 (1915); Graves v. Johnson, 172 N.C. 176 , 90 S.E. 113, 1916 N.C. LEXIS 260 (1916).

The case of Southerland v. Hunter, 93 N.C. 310 (1885), which has been approved on this point in Lineberger v. Tidwell, 104 N.C. 506 , 10 S.E. 758 (1889), and in Slocomb v. Ray, 123 N.C. 571 , 31 S.E. 829 (1898), construes § 1256 of the Code (1883), Revisal, § 952, Consolidated Statutes, § 992, which is this section, and it is there held that a deed signed by the husband, but not proved as to him, was ineffectual to pass the title of the wife, although her acknowledgment and private examination were taken. The fact that the General Assembly saw fit to change the statute requiring proof as to the husband and wife to be taken before the same officer, and that proof as to the husband should precede proof as to the wife, after the decisions of McGlennery v. Miller, 90 N.C. 215 (1884), and Ferguson v. Kinsland, 93 N.C. 337 (1885), and left the statute unchanged as to the requirements that the deed must be proved as to the husband to pass the title or interest of the wife, after the decision in Southerland v. Hunter, furnishes the strongest possible evidence that the General Assembly thought the latter a safeguard which ought to be retained. Graves v. Johnson, 172 N.C. 176 , 90 S.E. 113, 1916 N.C. LEXIS 260 (1916).

Time of Acknowledgment. —

While the husband and wife must both be parties to the same deed, there is manifestly no requirement in the language of the section that the act of acknowledgment by both should be contemporaneous. Lineberger v. Tidwell, 104 N.C. 506 , 10 S.E. 758, 1889 N.C. LEXIS 231 (1889).

Acknowledgment after Wife’s Death. —

A deed to lands is only complete upon delivery, and a married woman’s deed to her lands requires the written consent of her husband under the form provided for by this section requiring that such conveyance be signed by both the husband and wife; and a deed made and signed in due form by the wife, in which thereafter the husband writes in his name as a grantor, and after her death acknowledges its execution before the clerk, is invalid to pass title. Hensley v. Blankinship, 174 N.C. 759 , 94 S.E. 519, 1917 N.C. LEXIS 190 (1917).

Consent Proved and Recorded after Wife’s Death. —

No title is conveyed by a married woman’s deed of her separate property where her husband’s consent thereto was not proved and recorded until after the death of the wife. Green v. Bennett, 120 N.C. 394 , 27 S.E. 142, 1897 N.C. LEXIS 86 (1897).

III.Effect of Feme Covert’s Deed

How Lands of Feme Covert Bound. —

In Green v. Branton, 16 N.C. 500 (1830), the court says that a feme covert can be bound as to her land in only two ways: First, by her deed executed jointly with her husband with her privy examination thereto, and, secondly, by the judgment of a competent court. Smith v. Ingram, 130 N.C. 100 , 40 S.E. 984, 1902 N.C. LEXIS 28 (1902).

Delivery of Deed Not Presumed. —

The delivery of a deed will not be presumed from the acknowledgment of the husband and the acknowledgment and privy examination of the wife. Tarlton v. Griggs, 131 N.C. 216 , 42 S.E. 591, 1902 N.C. LEXIS 272 (1902).

When Deed is Inoperative. —

In Scott v. Battle, 85 N.C. 184 (1881), it is held that a feme covert’s deed, not executed in the prescribed mode, is wholly inoperative. Clayton v. Rose, 87 N.C. 106 , 1882 N.C. LEXIS 24 (1882).

A purchase-money deed given by a feme covert, living with her husband, in which the husband does not join and which does not contain any privy examination of the wife, is void because not complying with this section and Art. X, § 6 (see now N.C. Const., Art. X, § 4). Hardy v. Abdallah, 192 N.C. 45 , 133 S.E. 195, 1926 N.C. LEXIS 220 (1926).

A married woman is not estopped by a deed not executed in the mode prescribed by the statute. Towles v. Fisher, 77 N.C. 437 , 1877 N.C. LEXIS 121 (1877); Smith v. Ingram, 130 N.C. 100 , 40 S.E. 984, 1902 N.C. LEXIS 28 (1902).

§ 39-7.1. Certain instruments affecting married woman’s title not executed by husband validated.

No conveyance, power of attorney, or other instrument affecting the estate, right or title of any married woman in lands, tenements or hereditaments which was executed by such married woman prior to June 8, 1965, shall be invalid for the reason that the instrument was not also executed by the husband of such married woman.

History. 1965, c. 857; 1973, c. 853, s. 1.

Legal Periodicals.

For survey of 1978 property law, see 57 N.C.L. Rev. 1103 (1979).

§ 39-8. Acknowledgment at different times and places; before different officers; order immaterial.

In all cases of deeds, or other instruments executed by husband and wife and requiring registration, the probate of such instruments as to the husband and due proof or acknowledgment of the wife may be taken before different officers authorized by law to taken probate of deeds, and at different times and places, whether both of said officials reside in this State or only one in this State and the other in another state or country. And in taking the probate of such instruments executed by husband and wife, it is immaterial whether the execution of the instrument was proven as to or acknowledged by the husband before or after due proof as to or acknowledgment of the wife.

History. 1895, c. 136; 1899, c. 235, s. 9; Rev., s. 953; C.S., s. 998; 1945, c. 73, s. 5.

Cross References.

For repeal of laws requiring private examination of married women, see G.S. 47-14.1 .

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 N.C. LEXIS 260 (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 N.C. LEXIS 231 (1889).

§ 39-9. Absence of wife’s acknowledgment does not affect deed as to husband.

When an instrument purports to be signed by a husband and wife the instrument may be ordered registered, if the acknowledgment of the husband is duly taken, but no such instrument shall be the act or deed of the wife unless proven or acknowledged by her according to law.

History. 1889, c. 235, s. 8; 1901, c. 637; Rev., s. 954; C.S., s. 999; 1945, c. 73, s. 6.

Cross References.

For provision that clerk of superior court pass on certificate of acknowledgment and order registration, see G.S. 47-14 .

For repeal of laws requiring private examination of married women, see G.S. 47-14.1 .

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 , 9 S.E. 437, 1889 N.C. LEXIS 30 (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 N.C. LEXIS 78 (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., 2018 Bankr. LEXIS 1435 (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 N.C. LEXIS 53 (1900).

§ 39-10. [Repealed]

Repealed by Session Laws 1977, c. 375, s. 16.

§ 39-11. Certain conveyances not affected by fraud if acknowledgment or privy examination regular.

No deed conveying lands nor any instrument required or allowed by law to be registered, executed by husband and wife since the eleventh of March, 1889, if the acknowledgment or private examination of the wife is thereto certified as prescribed by law, shall be invalid because its execution or acknowledgment was procured by fraud, duress or undue influence, unless it is shown that the grantee or person to whom the instrument was made participated in the fraud, duress or undue influence, or had notice thereof before the delivery of the instrument. Where such participation or notice is shown, an innocent purchaser for value under the grantee or person to whom the instrument was made shall not be affected by such fraud, duress or undue influence.

History. 1889, c. 389; 1899, c. 235, s. 10; Rev., s. 956; C.S., s. 1001; 1945, c. 73, s. 7.

Cross References.

For repeal of laws requiring private examination of married women, see G.S. 47-14.1 .

As to sufficiency of probate and registration without livery, see G.S. 47-17 .

Legal Periodicals.

For discussion of section, see 12 N.C.L. Rev. 71 (1934).

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 N.C. LEXIS 18 (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 N.C. LEXIS 101 (1901). But see Brite v. Penny, 157 N.C. 110 , 72 S.E. 964, 1911 N.C. LEXIS 15 (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 N.C. LEXIS 15 (1911) (citing) Butner v. Blevins, 125 N.C. 585 , 34 S.E. 629, 1899 N.C. LEXIS 265 (1899); Davis v. Davis, 146 N.C. 163 , 59 S.E. 659, 1907 N.C. LEXIS 18 (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 N.C. LEXIS 358 (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 N.C. LEXIS 358 (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 N.C. LEXIS 275 (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 N.C. LEXIS 306 (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 N.C. LEXIS 265 (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 N.C. LEXIS 600 (1949).

§ 39-12. Power of attorney of married person.

Every competent married person of lawful age is authorized to execute, without the joinder of his or her spouse, instruments creating powers of attorney affecting the real and personal property of such married person naming either third parties or, subject to the provisions of G.S. 52-10 or 52-10.1, his or her spouse as attorney-in-fact. When such a married person executes a power of attorney authorized by the preceding sentence naming his or her spouse as attorney in fact the acknowledgment by the spouse of the grantor is not necessary. Such instruments may confer upon the attorney, and the attorney may exercise, any and all powers which lawfully can be conferred upon an attorney-in-fact, including, but not limited to, the authority to join in conveyances of real property for the purpose of waiving or quitclaiming any rights which may be acquired as a surviving spouse under the provisions of G.S. 29-30 .

History. 1798, c. 510; R.C., c. 37, s. 11; Code, s. 1257; Rev., s. 957; C.S., s. 1002; 1965, c. 856; 1977, c. 375, s. 7; 1979, c. 528, s. 8.

Cross References.

As to registration of power of attorney, see G.S. 47-28 .

Editor’s Note.

Session Laws 1979, c. 525, which added the second sentence, provided, in s. 9, that: “A power of attorney executed by a married person naming his or her spouse as attorney in fact during the period between January 1, 1978, and the effective date of this act [May 8, 1979] shall not be invalid because the spouse named as attorney in fact did not acknowledge the power of attorney if otherwise executed in accordance with G.S. 39-12 ,” and provided, in s. 12, that the amendment to this section would not affect pending litigation.

§ 39-13. Spouse need not join in purchase-money mortgage.

A mortgage or deed of trust given by the purchaser of real property to secure a loan, the proceeds of which were used to pay all or a portion of the purchase price of the encumbered real property, regardless of whether the secured party is the seller of the real property or a third-party lender, shall be good and effectual against the purchaser’s spouse as well as the purchaser, without requiring the spouse to join in the execution of the mortgage or deed of trust.

History. 1868-9, c. 204; Code, s. 1272; Rev., s. 958; 1907, c. 12; C.S., s. 1003; 1965, c. 852; 2018-80, s. 1.1; 2020-50, s. 3(a); 2020-69, s. 6(a).

Editor’s Note.

Session Laws 2018-80, s. 4.1, as amended by Session Laws 2020-50, s. 3(a), and as amended by Session Laws 2020-69, s. 6(a), provides, in part: “The remainder of this act is effective when this act becomes law [June 25, 2018] and applies to mortgages and deeds of trust entered into before, on, or after that date and to other instruments under G.S. 47-18.3 executed before, on, or after August 1, 2020.”

Effect of Amendments.

Session Laws 2018-80, s. 1.1, effective June 25, 2018, rewrote the section. For applicability, see editor’s note.

Legal Periodicals.

For article analyzing North Carolina’s tenancy by the entirety reform legislation of 1982, see 5 Campbell L. Rev. 1 (1982).

Cross References.

As to abolition of dower, see G.S. 29-4 .

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 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 N.C. LEXIS 350 (1936).

§ 39-13.1. Validation of certain deeds, etc., executed by married women without private examination.

  1. No deed, contract, conveyance, leasehold or other instrument executed since the seventh day of November, 1944, shall be declared invalid because of the failure to take the private examination of any married woman who was a party to such deed, contract, conveyance, leasehold or other instrument.
  2. Any deed, contract, conveyance, lease or other instrument executed prior to February 7, 1945, which is in all other respects regular except for the failure to take the private examination of a married woman who is a party to such deed, contract, conveyance, lease or other instrument is hereby validated and confirmed to the same extent as if such private examination had been taken, provided that this section shall not apply to any instruments now involved in any pending litigation.

History. 1945, c. 73, s. 211/2; 1969, c. 1008, s. 1.

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 N.C. App. LEXIS 2507 (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 N.C. App. LEXIS 2827 (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, 1990 N.C. App. LEXIS 407 (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 N.C. LEXIS 621 (1970).

§ 39-13.2. Married persons under 18 made competent as to certain transactions; certain transactions validated.

  1. Any married person under 18 years of age is authorized and empowered and shall have the same privileges as are conferred upon married persons 18 years of age or older to:
    1. Waive, release or renounce by deed or other written instrument any right or interest which he or she may have in the real or personal property (tangible or intangible) of the other spouse; or
    2. Jointly execute with his or her spouse, if such spouse is 18 years of age or older, any note, contract of insurance, deed, deed of trust, mortgage, lien of whatever nature or other instrument with respect to real or personal property (tangible or intangible) held with such other spouse either as tenants by the entirety, joint tenants, tenants in common, or in any other manner.
  2. Any transaction between a husband and wife pursuant to this section shall be subject to the provisions of G.S. 52-10 or 52-10.1 whenever applicable.
  3. No renunciation of dower or curtesy or of rights under G.S. 29-30(a) by a married person under the age of 21 years after June 30, 1960, and until April 7, 1961, shall be invalid because such person was under such age. No written assent by a husband under the age of 21 years to a conveyance of the real property of his wife after June 30, 1960, and until April 7, 1961, shall be invalid because such husband was under such age.

History. 1951, c. 934, s. 1; 1955, c. 376; 1961, c. 184; 1965, c. 851; c. 878, s. 2; 1971, c. 1231, s. 1; 1977, c. 375, s. 8.

Legal Periodicals.

For brief comment on this section, see 29 N.C.L. Rev. 379 (1951).

For article on tenancy by the entirety in North Carolina, see 41 N.C.L. Rev. 67 (1962).

For article, “The Contracts of Minors Viewed from the Perspective of Fair Exchange,” see 50 N.C.L. Rev. 517 (1972).

§ 39-13.3. Conveyances between husband and wife.

  1. A conveyance from a husband or wife to the other spouse of real property or any interest therein owned by the grantor alone vests such property or interest in the grantee.
  2. Recodified as G.S. 41-56(b) by Session Laws 2020-50, s. 1(b), effective June 30, 2020.
  3. Recodified as G.S. 41-63(4) by Session Laws 2020-50, s. 1(b), effective June 30, 2020.
  4. The joinder of the spouse of the grantor in any conveyance made by a husband or a wife pursuant to the foregoing provisions of this section is not necessary.
  5. Any conveyance authorized by this section is subject to the provisions of G.S. 52-10 or 52-10.1, except that acknowledgment by the spouse of the grantor is not necessary.

History. 1957, c. 598, s. 1; 1965, c. 878, s. 3; 1977, c. 375, s. 9; 2020-50, s. 1(b).

Cross References.

As to rules for construction, see G.S. 12-3 .

As to rules for construction pertaining to “husband and wife,” see G.S. 12-3(16) .

Legal Periodicals.

For article on tenancy by the entirety in North Carolina including brief discussion of this section, see 41 N.C.L. Rev. 67 (1962).

For article on joint ownership of corporate securities in North Carolina, see 44 N.C.L. Rev. 290 (1966).

For comment on tenancy by the entirety in North Carolina, see 59 N.C.L. Rev. 997 (1980).

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 N.C. App. LEXIS 3201 (1982).

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 N.C. App. LEXIS 2541 (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, 1976 N.C. App. LEXIS 2719 , cert. denied, 289 N.C. 726 , 224 S.E.2d 674, 1976 N.C. LEXIS 1377 (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, 1987 N.C. App. LEXIS 2961 (1987), disapproved, Armstrong v. Armstrong, 322 N.C. 396 , 368 S.E.2d 595, 1988 N.C. LEXIS 372 (1988).

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, 2016 Bankr. LEXIS 4596 (Bankr. M.D.N.C. Apr. 6, 2016).

§ 39-13.4. Conveyances by husband or wife under deed of separation.

Any conveyance of real property, or any interest therein, by the husband or wife who have previously executed a valid and lawful deed of separation which authorizes said husband or wife to convey real property or any interest therein without the consent and joinder of the other and which deed of separation or a memorandum of the deed of separation setting forth such authorization is recorded in the county where the land lies, shall be valid to pass such title as the conveying spouse may have to his or her grantee and shall pass such title free and clear of all rights in such property and free and clear of such interest in property that the other spouse might acquire solely as a result of the marriage, including any rights arising under G.S. 29-30 , unless an instrument in writing canceling the deed of separation or memorandum thereof and properly executed and acknowledged by said husband and wife is recorded in the office of said register of deeds. The instrument which is registered under this section to authorize the conveyance of an interest in real property or the cancellation of the deed of separation or memorandum thereof shall comply with the provisions of G.S. 52-10 or 52-10.1.

All conveyances of any interest in real property by a spouse who had previously executed a valid and lawful deed of separation, or separation agreement, or property settlement, which authorized the parties thereto to convey real property or any interest therein without the consent and joinder of the other, when said deed of separation, separation agreement, or property settlement, or a memorandum of the deed of separation, separation agreement, property settlement, setting forth such authorization, had been previously recorded in the county where the property is located, and when such conveyances were executed before October 1, 1981, shall be valid to pass such title as the conveying spouse may have to his or her grantee, and shall pass such to him free and clear of rights in such property and free and clear of such interest in such property that the other spouse might acquire solely as a result of the marriage, including any rights arising under G.S. 29-30 , unless an instrument in writing canceling the deed of separation, separation agreement, or property settlement, or memorandum thereof, properly executed and acknowledged by said husband and wife, is recorded in the office of said register of deeds. The instrument which is registered under this section to authorize the conveyance of an interest in real property or the cancellation of the deed of separation, separation agreement, property settlement, or memorandum thereof shall comply with G.S. 52-10 or 52-10.1.

History. 1959, c. 512; 1973, c. 133; 1977, c. 375, s. 10; 1981, c. 599, ss. 10, 11.

Cross References.

As to rules for construction pertaining to “husband and wife,” see G.S. 12-3(16) .

Legal Periodicals.

For article analyzing North Carolina’s tenancy by the entirety reform legislation of 1982, see 5 Campbell L. Rev. 1 (1982).

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 N.C. App. LEXIS 1148 (1969).

§ 39-13.5.

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

§ 39-13.6. Control of real property held in tenancy by the entirety.

  1. Recodified as G.S. 41-58 by Session Laws 2020-50, s. 1(b), effective June 30, 2020.
  2. Recodified as G.S. 41-56(a) by Session Laws 2020-50, s. 1(b), effective June 30, 2020.
  3. Recodified as G.S. 41-59(b) by Session Laws 2020-50, s. 1(b), effective June 30, 2020.

History. 1981 (Reg. Sess., 1982), c. 1245, s. 1; 1983, c. 449, ss. 1, 2; 2020-50, s. 1(b).

Cross References.

As to rules for construction, see G.S. 12-3 .

Legal Periodicals.

For article analyzing North Carolina’s tenancy by the entirety reform legislation of 1982, see 5 Campbell L. Rev. 1 (1982).

For article discussing the doctrine of color of title in North Carolina, see 13 N.C. Cent. L.J. 123 (1982).

For survey of 1982 law relating to family law, see 61 N.C.L. Rev. 1155 (1983).

For comment discussing the status of the presumption of purchase money resulting trust for wives in light of Mims v. Mims, 305 N.C. 41 , 286 S.E.2d 779 (1982), see 61 N.C.L. Rev. 576 (1983).

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).

For note on the retroactive application of G.S. 39-13.6 under a vested rights analysis, see 65 N.C.L. Rev. 1195 (1987).

For note, “McLean v. McLean: North Carolina Adopts the Gift Presumption in Equitable Distribution,” see 68 N.C. L. Rev. 1269 (1990).

For article, “A Spouse’s Right to Control Assets During Marriage: Is North Carolina Living in the Middle Ages?”, see 18 Campbell L. Rev. 203 (1996).

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 N.C. App. LEXIS 2142 (1986).

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 B.R. 523, 1997 Bankr. LEXIS 1329 (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, 1983 N.C. App. LEXIS 2526 (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 N.C. App. LEXIS 2142 (1986).

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 N.C. App. LEXIS 2142 (1986).

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 N.C. App. LEXIS 1068 (1988), rev'd, 325 N.C. 428 , 383 S.E.2d 656, 1989 N.C. LEXIS 474 (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, 2014 Bankr. LEXIS 841 (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 N.C. App. LEXIS 1073 (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, 2007 N.C. App. LEXIS 363 , cert. denied, 361 N.C. 690 , 652 S.E.2d 257, 2007 N.C. LEXIS 1026 (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 N.C. App. LEXIS 2142 (1986).

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 N.C. App. LEXIS 2142 (1986).

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, 2006 U.S. Dist. LEXIS 76839 (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 N.C. LEXIS 413 (1959); Beam v. Beam, 92 N.C. App. 509, 374 S.E.2d 636, 1988 N.C. App. LEXIS 1068 (1988), rev'd, 325 N.C. 428 , 383 S.E.2d 656, 1989 N.C. LEXIS 474 (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 N.C. App. LEXIS 790 (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, 2002 Bankr. LEXIS 1407 (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, 2000 Bankr. LEXIS 2204 (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, 2003 Bankr. LEXIS 2455 (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), 2010 Bankr. LEXIS 207 (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 N.C. App. LEXIS 134 (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, 2006 Bankr. LEXIS 3085 (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, 2013 Bankr. LEXIS 2529 (Bankr. E.D.N.C. June 24, 2013), aff'd, 2014 U.S. Dist. LEXIS 39145 (E.D.N.C. Mar. 11, 2014).

§ 39-13.7.

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

§ 39-14. [Repealed]

Repealed by Session Laws 1943, c. 543.

Article 3. Fraudulent Conveyances. [Repealed]

§§ 39-15 through 39-23. [Repealed]

Repealed by Session Laws 1997-291, s. 1.

Article 3A. Uniform Voidable Transactions Act.

Editor’s Note.

Permission to include the Official Comments was granted by the National Conference of Commissioners on Uniform State Laws and The American Law Institute. It is believed that the Official Comments will prove of value to the practitioner in understanding and applying the text of this Chapter.

The Official Comments appearing under individual sections in this Article have been printed by the publisher as received, without editorial change, and relate to the Article as originally enacted. However, not all sections in this Article may carry Official Comments. Furthermore, Official Comments may or may not have been received or updated in conjunction with subsequent amendments to this Article and, therefore, may not reflect all changes to the sections under which they appear.

Where they appear in this Article, the term “Amended Comment” usually means that an error in the original comment has been corrected by a subsequent amendment, and a “Supplemental Comment” pertains to a later development, such as an amendment to the statute text. North Carolina Comments explain where the General Assembly has enacted variations to the text of the Uniform Act.

North Carolina Introductory 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.

Prior to enactment of the Uniform Fraudulent Transfer Act (the “UFTA”), the statutory law of fraudulent conveyances in North Carolina was governed principally by former N.C. Gen. Stat. § 39-15, which in turn was a substantial reenactment of the Statute of 13 Elizabeth (1570). See Bank of New Hanover v. Adrian, 116 N.C. 537 , 21 S.E. 792 (1895). As a reenactment of Elizabethan law, the statute was written in archaic language and was difficult to interpret.

In 1914 the North Carolina Supreme Court clarified fraudulent conveyance law in Aman v. Walker, 165 N.C. 224 , 815 S.E. 162 (1914), by articulating five distinct rules governing recovery under former N.C. Gen. Stat. § 39-15. Most published decisions after that date used Aman v. Walker as their point of reference in deciding fraudulent conveyance issues under North Carolina law. Prior to enactment of the UFTA, however, fraudulent conveyance law in North Carolina was developed by a series of ad hoc appellate decisions that are not altogether uniform or consistent.

The UFTA was drafted by the National Conference of Commissioners on Uniform State Laws (the “NCCUSL”) and approved by that organization in 1984. It subsequently was approved by the American Bar Association in 1985. It is the modern successor to the Uniform Fraudulent Conveyance Act, which was promulgated by the NCCUSL in 1918. Among other changes from the old act, the UFTA was broadened to make clear that it reaches transfers of personal as well as real property. The UFTA further is intended to function more congruently with the Uniform Commercial Code (codified as Chapter 25 of the North Carolina General Statutes) and the United States Bankruptcy Code (Title 11, U.S. Code).

While there are a number of differences between the UFTA and the old Uniform Fraudulent Conveyance Act, there are a number of close parallels, and interpretations of the Uniform Fraudulent Conveyance Act can be useful in understanding the intent of the various provisions of the UFTA. A 1972 note by E. Cader Howard that appeared in the North Carolina Law Review comparing the Uniform Fraudulent Conveyance Act with North Carolina law therefore is of special relevance in considering the changes effected by enactment of the UFTA in North Carolina. Note, “The Law of Fraudulent Conveyances in North Carolina: An Analysis and Comparison With the Uniform Fraudulent Conveyances Act,” 50 N.C. L. Rev. 872 (1972).

For purposes of the North Carolina comments that follow, the rules articulated by Aman v. Walker are identified as the respective “principles”; and the note by E. Cader Howard is cited as “Howard,” with appropriate page references to the North Carolina Law Review

OFFICIAL COMMENT

Scope of Repeal. S.L. 1997-291 repealed former fraudulent conveyance law in Article 3 of Chapter 39 of the General Statutes.

The insurance law contains its own provisions concerning fraudulent transfers by insurance companies within one year prior to insolvency. See N.C. Gen. Stat. § 58-30-140. This statute, based on the comparable provision in bankruptcy law (11 U.S.C. § 548), complements general fraudulent conveyance law and concerns itself solely with transfers made within one year prior to the filing of a petition for liquidation or rehabilitation of an insurance company. N.C. Gen. Stat. § 58-30-140 is not affected by the enactment of the UFTA.

Other references to fraudulent conveyances or transfers are found in Rule 18(b) of the Rules of Civil Procedure; in N.C. Gen. Stat. § 25-2-402(b) and 25-2A-308(2) (sales and leases under the UCC); and in N.C. Gen. Stat. § 105-242 (dealing with the time within which judgments for taxes are enforceable). None of these statutes is affected by the enactment of the UFTA.

Legal Periodicals.

For 1997 legislative survey, see 20 Campbell L. Rev. 433 (1997).

§ 39-23.1. Definitions.

In this Article, the following definitions apply:

  1. Affiliate. — Any of the following:
    1. A person that directly or indirectly owns, controls, or holds with power to vote, twenty percent (20%) or more of the outstanding voting securities of the debtor, other than a person that holds the securities:
      1. As a fiduciary or agent without sole discretionary power to vote the securities; or
      2. Solely to secure a debt, if the person has not in fact exercised the power to vote.
    2. A corporation twenty percent (20%) or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor or a person that directly or indirectly owns, controls, or holds, with power to vote, twenty percent (20%) or more of the outstanding voting securities of the debtor, other than a person that holds the securities:
      1. As a fiduciary or agent without sole discretionary power to vote the securities; or
      2. Solely to secure a debt, if the person has not in fact exercised the power to vote.
    3. A person whose business is operated by the debtor under a lease or other agreement, or a person substantially all of whose assets are controlled by the debtor.
    4. A person that operates the debtor’s business under a lease or other agreement or controls substantially all of the debtor’s assets.
  2. Asset. — Property of a debtor, but the term does not include any of the following:
    1. Property to the extent it is encumbered by a valid lien.
    2. Property to the extent it is generally exempt under nonbankruptcy law.
    3. An interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant.
  3. Claim. — Except as used in “claim for relief,” a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.
  4. Creditor. — A person that has a claim.
  5. Debt. — Liability on a claim.
  6. Debtor. — A person that is liable on a claim.

    (6a) Electronic. — Relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.

  7. Insider. — Includes any of the following:
    1. If the debtor is an individual, any of the following:
      1. A relative of the debtor or of a general partner of the debtor.
      2. A partnership in which the debtor is a general partner.
      3. A general partner in a partnership in which the debtor is a general partner.
      4. A corporation of which the debtor is a director, officer, or person in control.
    2. If the debtor is a corporation, any of the following:
      1. A director of the debtor.
      2. An officer of the debtor.
      3. A person in control of the debtor.
      4. A partnership in which the debtor is a general partner.
      5. A general partner in a partnership in which the debtor is a general partner.
      6. A relative of a general partner, director, officer, or person in control of the debtor.
    3. If the debtor is a partnership, any of the following:
      1. A general partner in the debtor.
      2. A relative of a general partner in, a general partner of, or a person in control of the debtor.
      3. Another partnership in which the debtor is a general partner.
      4. A general partner in a partnership in which the debtor is a general partner.
      5. A person in control of the debtor.
    4. An affiliate, or an insider of an affiliate as if the affiliate were the debtor.
    5. A managing agent of the debtor.
  8. Lien. — A charge against or an interest in property to secure payment of a debt or performance of an obligation and includes a security interest created by agreement, a judicial lien obtained by legal or equitable process or proceedings, a common-law lien, or a statutory lien.

    (8a) Organization. — A person other than an individual.

  9. Person. — An individual, partnership, corporation, association, organization, government or governmental subdivision or agency, business trust, estate, trust, or any other legal or commercial entity.
  10. Property. — Anything that may be the subject of ownership.

    (10a) Record. — Information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.

  11. Relative. — An individual related by consanguinity within the third degree as determined in accordance with G.S. 104A-1 , a spouse, or an individual related to a spouse within the third degree as so determined, and includes an individual in an adoptive relationship within the third degree. (11a) Sign. — With present intent to authenticate or adopt a record, to do any of the following:
    1. Execute or adopt a tangible symbol.
    2. Attach to or logically associate with the record an electronic symbol, sound, or process.
  12. Transfer. — Every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset and includes payment of money, release, lease, license, and creation of a lien or other encumbrance.
  13. Valid lien. — A lien that is effective against the holder of a judicial lien subsequently obtained by legal or equitable process or proceedings.
  14. Repealed by Session Laws 2018-142, s. 7(a), effective December 14, 2018.

History. 1997-291, s. 2; 2015-23, s. 1; 2017-204, s. 3.3(a); 2018-142, s. 7(a).

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

Analysis

I.General Consideration

Editor’s Note. —

Many of the cases cited below were decided under former G.S. 39-15 through 39-23.

A prior similar provision is a substantial reenactment of the statute 13 Eliz., c. 5, s. 2. Bank of New Hanover v. Adrian, 116 N.C. 537 , 21 S.E. 792, 1895 N.C. LEXIS 244 (1895).

Prior to enactment of a prior similar provision it was necessary to invoke the aid of a court of equity to have a deed declared void for fraud, and where, under a statutory provision, deeds were pronounced void as against creditors in order to secure a formal declaration of their invalidity, the moving party must have asked for relief that would have been formerly administered solely in a court of equity. Farthing v. Carrington, 116 N.C. 315 , 22 S.E. 9, 1895 N.C. LEXIS 212 (1895).

At an early period in the judicial history of this State, it was held that courts of law might hear evidence and pass even incidentally upon the question whether a deed was fraudulent under 13 Eliz. Logan v. Simmons, 18 N.C. 13 , 1834 N.C. LEXIS 7 (1834); Lee v. Flannagan, 29 N.C. 471 , 1847 N.C. LEXIS 83 (1847); Hardy & Bro. v. Skinner, 31 N.C. 191 , 1848 N.C. LEXIS 169 (1848); Helms v. Green, 105 N.C. 251 , 11 S.E. 470, 1890 N.C. LEXIS 230 (1890).

The statute of 13 Eliz., is declaratory of the common law so far as regards existing creditors; in this sense the statute is sometimes spoken of as being in affirmance of the common law. The remedy given to subsequent creditors rests entirely upon the enactment of the statute. Long v. Wright, 48 N.C. 290 , 1856 N.C. LEXIS 79 (1856).

The case of Aman v. Walker, 165 N.C. 224 , 81 S.E. 162 (1914), is the cornerstone of the North Carolina fraudulent conveyance law. Chrysler Credit Corp. v. Burton, 599 F. Supp. 1313, 1984 U.S. Dist. LEXIS 21191 (M.D.N.C. 1984).

Section Applies to State. —

The statute dealing with fraudulent conveyances applies to the State as well as to individuals, and the State cannot rely on its prerogative. Hoke v. Henderson, 14 N.C. 12 , 1831 N.C. LEXIS 41 (1831).

It applies to voluntary conveyances of personalty, as well as realty, as against creditors. Garrison v. Brice, 48 N.C. 85 , 1855 N.C. LEXIS 124 (1855).

It Prevents Passing of Any Estate. —

A prior similar provision made fraudulent conveyances absolutely void, and in that way prevented the passing of any estate whatever, as against creditors of the grantor. Flynn v. Williams, 29 N.C. 32 , 1846 N.C. LEXIS 10 (1846).

It Applies Only to Conveyances Made by Debtor. —

The section operating, as it does, to wholly avoid the conveyances coming within its purview, it can be applied only to conveyances made by the debtor himself. Gowing v. Rich, 23 N.C. 553 (1841); United States v. Haddock, 144 F. Supp. 720 (E.D.N.C. 1956). In accord with the main volume. See Havee v. Belk, 775 F.2d 1209, 1985 U.S. App. LEXIS 24370 (4th Cir. 1985).

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 N.C. App. LEXIS 870 (2016).

Plaintiff’s cause of action under the North Carolina Uniform Voidable Transactions Act (UVTA) failed because revocation of defendant’s signatory authority on his wife’s deposit account was not a “transfer” as defined under the UVTA. Hoch v. Hoch, 2018 Bankr. LEXIS 181 (Bankr. E.D.N.C. Jan. 25, 2018).

Mortgagor Considered Owner. —

In expounding the statute against fraudulent conveyances, the mortgagor is considered the owner of the estate, and the mortgagee but an encumbrancer. Wall v. White, 14 N.C. 105 , 1831 N.C. LEXIS 73 (1831).

For discussion of what constituted valuable consideration under prior similar provisions, see North Carolina Nat'l Bank v. Evans, 296 N.C. 374 , 250 S.E.2d 231, 1979 N.C. LEXIS 1152 (1979); Smith-Douglass v. Kornegay, 70 N.C. App. 264, 318 S.E.2d 895, 1984 N.C. App. LEXIS 3636 (1984).

Deed of Gift Insufficient Consideration. —

Where plaintiffs received their property by deed of gift, the transfer was for insufficient consideration. Thus, the government need only show that the taxpayers were insolvent in order to void the conveyance, and thereby maintain a lien upon plaintiffs’ property. Ross v. United States, 861 F. Supp. 406, 1994 U.S. Dist. LEXIS 11893 (E.D.N.C. 1994).

Notice of Claim Sufficient. —

Where plaintiff alleged and presented evidence of a claim under former G.S. 39-17 instead of former G.S. 39-15 , under the notice pleading requirements of G.S. 1A-1 , Rule 8(a), his complaint adequately stated a claim under former G.S. 39-15 because it gave sufficient notice of the claim to enable the defendants to answer and prepare for trial; the complaint was sufficient to put defendants on notice, and the plaintiff was not held to the more stringent requirements found under former G.S. 39-17. Lewis v. Blackman, 116 N.C. App. 414, 448 S.E.2d 133, 1994 N.C. App. LEXIS 1033 (1994).

Question for Jury. —

Whether a conveyance, whatever its form, was in substance and fact a conveyance by the debtor-bankrupt, or by another such as a pledgee, is a jury question. Havee v. Belk, 775 F.2d 1209, 1985 U.S. App. LEXIS 24370 (4th Cir. 1985).

Summary judgment is generally inappropriate in an action for fraud because the existence of fraud necessarily involves a question concerning the existence of fraudulent intent, and the intent of a party is a state of mind generally within the exclusive knowledge of the party and that state of mind must, by necessity, be proved by circumstantial evidence. Lewis v. Blackman, 116 N.C. App. 414, 448 S.E.2d 133, 1994 N.C. App. LEXIS 1033 (1994).

The statute 27 Elizabeth, from which former G.S. 39-16 is derived, enacts that conveyances of land, made with intent to defraud purchasers, shall only, as against purchasers for good consideration, be void. Under the act it was, of course, held that notice of the fraudulent deed did not impeach the title of the purchaser, because the bad faith of the deed vitiated it, and, with notice of the deed, the purchaser had also notice of the fraud. The legislature thought proper in 1840 to alter this, and to declare that no person shall be deemed a purchaser unless he purchased the land for the full value thereof, without notice, at the time of his purchase, of the conveyance by him alleged to be fraudulent. Hiatt v. Wade, 30 N.C. 340 (1848). See also dissenting opinion in Bank of New Hanover v. Adrian, 116 N.C. 537 , 21 S.E. 792, 1895 N.C. LEXIS 244 (1895).

Section Construed with Registration Act. —

A prior similar provision and the Registration Act (G.S. 47-17 to 47-20) were both intended to prevent fraud, and must be construed together with that view. Austin v. Staten, 126 N.C. 783 , 36 S.E. 338, 1900 N.C. LEXIS 318 (1900), limited, Janney v. Robbins, 141 N.C. 400 , 53 S.E. 863, 1906 N.C. LEXIS 119 (1906).

First Bona Fide Purchaser from Vendor or Vendee Protected. —

The statute of 27 Elizabeth being intended for the benefit of purchasers, the first bona fide purchaser, whether from the fraudulent vendor or vendee, is within its operation. Hoke v. Henderson, 14 N.C. 12 , 1831 N.C. LEXIS 41 (1831).

Equity Will Not Deprive of Legal Advantage. —

No one has claims to the consideration of a court of equity superior to those of a purchaser without notice; and there is no case in which the court has interfered to deprive such a purchaser of a legal advantage. Crump v. Black, 41 N.C. 321 , 1849 N.C. LEXIS 226 (1849).

“Purchaser” Defined. —

The term “purchaser” was not used in a prior similar provision in its technical sense for one who comes to an estate by his own act. It was to be received in its popular meaning as denoting one who buys for money and buys fairly and of course at a fair price. Fullenwider v. Roberts, 20 N.C. 420 , 1839 N.C. LEXIS 74 (1839).

Good faith and a fair price are requisite to constitute a good purchase. Fullenwider v. Roberts, 20 N.C. 420 , 1839 N.C. LEXIS 74 (1839).

What Is Full Value. —

The second purchaser must now, as before the Act of 1885, still be a bona fide purchaser, and for full value. We do not mean to say that he should have paid every dollar the land was worth, but he should have paid a reasonably fair price, such as would indicate fair dealing and not be suggestive of fraud. Austin v. Staten, 126 N.C. 783 , 36 S.E. 338, 1900 N.C. LEXIS 318 (1900), limited, Janney v. Robbins, 141 N.C. 400 , 53 S.E. 863, 1906 N.C. LEXIS 119 (1906).

Purchase for “a Petty Sum”. —

When the consideration is pecuniary, a “petty” sum as compared to the value of the land would not help a second over the head of a first conveyance. Fullenwider v. Roberts, 20 N.C. 420 , 1839 N.C. LEXIS 74 (1839).

One-Half or Two-Thirds Value. —

Under a prior similar provision a man could not be held to be a purchaser for a valuable consideration who gives for the land not more than one half or two thirds of the value. Harris v. DeGraffenreid, 33 N.C. 89 (1850).

A mortgage to secure a present loan constitutes the mortgagee a purchaser for value within the meaning of the section. Fowle v. McLean, 168 N.C. 537 , 84 S.E. 852, 1915 N.C. LEXIS 102 (1915).

Mortgage to Secure Past Indebtedness. —

And the same principle obtains in reference to mortgages and deeds of trust to secure a past indebtedness, except as to an estate or interest existent in the property conveyed. Potts v. Blackwell, 57 N.C. 58 , 1858 N.C. LEXIS 179 (1858); Brem v. Lockhart, 93 N.C. 191 , 1885 N.C. LEXIS 37 (1885); Fowle v. McLean, 168 N.C. 537 , 84 S.E. 852, 1915 N.C. LEXIS 102 (1915).

A deed in trust to sell property and pay certain creditors is supported by a valuable consideration, and is valid against a prior deed of gift as being a subsequent sale to a purchaser for a valuable consideration under this section. Ward v. Wooten, 75 N.C. 413 , 1876 N.C. LEXIS 308 (1876).

Assignee of Fraudulent Vendee. —

An assignee for the benefit of creditors of a fraudulent vendee, incurring no new liability on the faith of his title, is not protected. Wallace v. Cohen, 111 N.C. 103 , 15 S.E. 892, 1892 N.C. LEXIS 129 (1892).

Assignee of a fraudulent vendee takes title subject to any equity, or other right, that attaches to the property in the hands of the debtor. Carpenter v. Duke, 144 N.C. 291 , 56 S.E. 938, 1907 N.C. LEXIS 141 (1907).

Possession by Third Person Legal Notice. —

Where one purchases land which he knows to be in the possession of a person other than the vendor, he is affected with legal notice and must inquire into the title of the possessor. Bost v. Setzer, 87 N.C. 187 , 1882 N.C. LEXIS 45 (1882).

It is clear that the possession here spoken of is not a possession continued by the fraudulent donor, but is that of the donee himself or his tenant, taken under the conveyance, and that such possession of the donee or for him amounts to notice in respect only to those tracts or parcels to which that possession extends, and cannot affect a person who buys a parcel which is not, at the time of his purchase, in the possession of the fraudulent donee. Wade v. Hiatt, 32 N.C. 302 , 1849 N.C. LEXIS 112 (1849).

Burden of Proof. —

Where both parties claim by deed from a common grantor, the deed of the plaintiff being the younger, but registered first, the plaintiff makes out a prima facie case, and the burden of proof is shifted upon the defendant to attack the bona fides of the plaintiff’s deed, and to defeat it, if he can, by establishing fraud. Austin v. Staten, 126 N.C. 783 , 36 S.E. 338, 1900 N.C. LEXIS 318 (1900), limited, Janney v. Robbins, 141 N.C. 400 , 53 S.E. 863, 1906 N.C. LEXIS 119 (1906).

Section Applies Only to Gifts Inter Vivos. —

A prior similar provision makes a qualification in the maxim “A man must to just before he is generous” in cases where the donor, at the time of the gift retained property, fully sufficient and available for the satisfaction of all of his then creditors. But this modification is confined to gifts inter vivos. In respect to legacies, or gifts by will, there has been no modification of the maxim; on the contrary, the legislation upon the subject tends to enforce a strict adherence to it, and the assent of an executor to a legacy, before he has paid all of the debts of the testator, is void as to creditors. Pullen v. Hutchins, 67 N.C. 428 , 1872 N.C. LEXIS 265 (1872).

When Conveyance May Be Set Aside as Fraudulent. —

Before a conveyance may be set aside as fraudulent, the finder of fact must find that the conveyance was voluntary, that the conveyance was made without fair and reasonable consideration and that the conveyance was either made with the intent to defraud creditors or made so that at the time of the conveyance the transferor did not retain sufficient property to satisfy his then existing debts. Valdese Gen. Hosp. v. Burns, 79 N.C. App. 163, 339 S.E.2d 23, 1986 N.C. App. LEXIS 2052 (1986).

Voluntariness of Conveyance. —

A conveyance is voluntary when it is not for value, i.e., when the purchaser does not pay a reasonably fair price such as would indicate unfair dealing and be suggestive of fraud. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

When Voluntary Deed Void Per Se. —

A voluntary deed of land or other property made to a son by a father unable to pay his debts is void per se as to creditors; indeed, such a deed to any person is void, and such a deed appearing, the court declares it void in law. McCanless v. Flinchum, 89 N.C. 373 , 1883 N.C. LEXIS 252 (1883).

It is a well-settled rule of law in this State that no voluntary deed can be upheld as against creditors, when the bargainor is unable to pay his debts at the time of the execution of the deed. McCanless v. Flinchum, 89 N.C. 373 , 1883 N.C. LEXIS 252 (1883).

Protection for All Creditors. —

One need not be a judgment creditor to be entitled to the protection of this section. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

Rights of Prior and Subsequent Creditors. —

The controlling principle is stated in Aman v. Walker, 165 N.C. 224 , 81 S.E. 162 (1914), as follows: “If the conveyance is voluntary, and the grantor did not retain property fully sufficient and available to pay his debts then existing, it is invalid as to creditors; but it cannot be impeached by subsequent creditors without proof of the existence of a debt at the time of its execution, which is unpaid, and when this is established and the conveyance avoided, subsequent creditors are let in and the property is subjected to the payment of creditors generally.” Sutton v. Wells, 177 N.C. 524 , 99 S.E. 365, 1919 N.C. LEXIS 159 (1919).

Creditor’s Action Prior to Transfer of Assets. —

A creditor beginning an action prior to the transfer of assets by defendant is entitled to attack the transfer as fraudulent as to him, although he does not obtain judgment against the defendant until after the transfer of the assets has been accomplished. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

Plaintiff was a creditor of defendant as defined by the North Carolina Uniform Voidable Transactions Act (UVTA) where it was undisputed that he held a claim against defendant at the time the properties were transferred to a trust established by defendant’s wife because he had filed a lawsuit against defendant two years prior that was still pending at the time of the transfer. Even though plaintiff’s claim had not been reduced to judgment, he nevertheless was a creditor as defined by the statute and defendant was a debtor under the UVTA. Hoch v. Hoch, 2018 Bankr. LEXIS 181 (Bankr. E.D.N.C. Jan. 25, 2018).

Where Grantor Retains Sufficient Property to Pay Debts. —

A conveyance of lands to husband and wife by entireties which was paid for by the husband will not be considered as fraudulent with respect to his creditors, when he retained property amply sufficient to pay them at the time of the deed. Finch v. Cecil, 170 N.C. 114 , 86 S.E. 991, 1915 N.C. LEXIS 352 (1915).

Where a husband makes a gift of land to his wife, without any valuable consideration, but it is admitted he had no fraudulent intent, and he retains property sufficient to pay his debts in existence at the time of the gift, it is not fraudulent as to creditors. Taylor v. Eatman, 92 N.C. 601 , 1885 N.C. LEXIS 267 (1885).

Sufficiency of Property Retained. —

In an action to set aside a deed, evidence that the grantor retained $11,625 to pay debts to the amount of $11,500 was not sufficient to show that the grantor retained property sufficient to pay his debts, in view of the fact the $1,000 worth of the property was of a perishable nature, and the debtor was entitled to $1,000 worth of real estate as his homestead exemption, and $500 worth of property as his personal property exemption. Williams v. Hughes, 136 N.C. 58 , 48 S.E. 518, 1904 N.C. LEXIS 218 (1904).

Creditor’s motion for summary judgment was properly granted where the record showed that the creditor met his burden of proof by uncontroverted evidence that immediately after the conveyances in question, defendant owed plaintiff $56,000, and that she had property worth only $300.00. North Carolina Nat'l Bank v. Johnson Furn. Co., 34 N.C. App. 134, 237 S.E.2d 313, 1977 N.C. App. LEXIS 1596 (1977).

Deed of gift may be fraudulent, though the donor honestly believed that he had property sufficient, at the time of the gift, to satisfy all his debts then existing, when in fact he was mistaken. Black v. Sanders, 46 N.C. 67 , 1853 N.C. LEXIS 76 (1853).

Corporation Sold Subject to Its Corporate Debt. —

A corporation holds its property subject to the payment of the corporate debts, and when a corporation sells or transfers its entire property to a purchaser, knowing the fact, the latter is chargeable with knowledge that the property is subject to the corporate debts and that equity will, in proper cases, allow the corporate creditors to follow the property into the hands of the purchaser, for satisfaction of their claims. Budd Tire Corp. v. Pierce Tire Co., 90 N.C. App. 684, 370 S.E.2d 267, 1988 N.C. App. LEXIS 603 (1988).

When a corporation purchases all or substantially all of the assets of another corporation for grossly inadequate consideration, the transfer will be deemed fraudulent as to the selling corporation’s creditors, regardless of whether the parties had the actual intent to defraud. Budd Tire Corp. v. Pierce Tire Co., 90 N.C. App. 684, 370 S.E.2d 267, 1988 N.C. App. LEXIS 603 (1988).

Good will is an asset capable of being fraudulently conveyed, and where the good will is put beyond reach of creditors, equity will allow a money damage award equal to the value of the good will. Budd Tire Corp. v. Pierce Tire Co., 90 N.C. App. 684, 370 S.E.2d 267, 1988 N.C. App. LEXIS 603 (1988).

Where one corporation purchases all or substantially all of the assets of another corporation, including the good will, in a manner deemed fraudulent, the selling corporation’s creditors may follow the good will into the hands of the purchasing corporation and obtain a money damage award equal to its value. Budd Tire Corp. v. Pierce Tire Co., 90 N.C. App. 684, 370 S.E.2d 267, 1988 N.C. App. LEXIS 603 (1988).

Judgment in Partition Proceeding as Voluntary Transfer. —

A bankrupt was allotted an undivided interest in certain lands as his homestead, and the remainder in such undivided interest was sold to make assets, and at the sale was bought by the bankrupt’s wife. The land was then partitioned by order of court, and in the partition proceeding the husband acknowledged the interest in remainder of his wife. It was held that, if the sale of the reversionary interest to the wife was invalid, the judgment in the partition proceeding estopped the husband from denying the interest of his wife, and operated as a gift to her within the meaning of this section, and in the absence of allegations that the husband had debts at the time of the partition, and that he did not retain sufficient assets to pay them, the land could not be reached by a subsequent creditor of the husband. Wallace v. Phillips, 195 N.C. 665 , 143 S.E. 244, 1928 N.C. LEXIS 179 (1928).

Transfer in Consideration of Support of Debtor for Life. —

A contract was made in consideration of support by a son of his father and mother for life, for $100 and certain shares of stock of the father, of the value of $7,000, and the father did not retain sufficient property out of which to pay his then existing creditors. The son acted in good faith without notice or knowledge. It was held that the transfer of the stock to the son was not valid as against his father’s creditors beyond the amount he had expended for the support for which he was liable under the terms of the contract. People's Bank & Trust Co. v. Mackorell, 195 N.C. 741 , 143 S.E. 518, 1928 N.C. LEXIS 199 (1928).

Transfer in Consideration of Support of Debtor’s Invalid Children. —

Where a deed from father to son provided that the grantee should support his invalid brothers (naming them) and comply with the conditions imposed, it was not voluntary within the meaning of this section, but rests upon a valuable consideration. Worthy v. Brady, 91 N.C. 265 , 1884 N.C. LEXIS 60 (1884).

Deed Made for Benefit of Debtor’s Family. —

Where a deed, conveying all of a debtor’s property, and made without consideration, expresses on its face that it is made for the benefit of the debtor and his family, the court can itself pronounce it fraudulent and void as against a then existing creditor. Sturdivant v. Davis, 31 N.C. 365 , 1849 N.C. LEXIS 16 (1849).

Where Grantor Afterwards Pays Debt. —

A voluntary conveyance to a son is not avoided by the fact that the grantor was indebted at the time, if he afterwards paid the debt. Smith v. Reavis, 29 N.C. 341 , 1847 N.C. LEXIS 44 (1847).

Gifts of Visible Estate and Retention of Choses in Action. —

Gifts of visible estate cannot be defeated where the debtor has resources in stocks or other securities of value to meet his liabilities. Worthy v. Brady, 91 N.C. 265 , 1884 N.C. LEXIS 60 (1884).

Holder of Bearer Note Secured by Deed of Trust Held Not Necessary Party. —

Where the note which a deed of trust purports to secure is payable to bearer, the plaintiff alleges it is “a false and fictitious paper-writing” and that the identity of the supposed bearer “remains unknown to plaintiff,” the trustee in the deed of trust which purports to secure the payment of such note is a party to the action and has participated actively in its defense, whatever may be the situation where the holder of the indebtedness is named in the deed of trust and known, the holder of the alleged note cannot be deemed a necessary party to the action to set aside the deed of trust which purports to secure it. Virginia-Carolina Laundry Supply Corp. v. Scott, 267 N.C. 145 , 148 S.E.2d 1, 1966 N.C. LEXIS 1000 (1966).

II.What Conveyances Fraudulent
A.In General

Rule Stated. —

The principles to be deduced from the authorities as to fraudulent conveyances, are: (1) If the conveyance is voluntary, and the grantor retains property fully sufficient and available to pay his debts then existing, and there is no actual intent to defraud, the conveyance is valid. (2) If the conveyance is voluntary, and the grantor does not retain property fully sufficient and available to pay his debts then existing, it is invalid as to creditors; but it cannot be impeached by subsequent creditors without proof of the existence of a debt at the time of its execution which is unpaid, and when this is established and the conveyance avoided, subsequent creditors are let in and the property is subjected to the payment of creditors generally. (3) If the conveyance is voluntary and made with the actual intent upon the part of the grantor to defraud creditors, it is void, although this fraudulent intent is not participated in by the grantee, and although property sufficient and available to pay existing debts is retained. (4) If the conveyance is upon a valuable consideration and made with the actual intent to defraud creditors upon the part of the grantor alone, not participated in by the grantee and of which intent he had no notice, it is valid. (5) If the conveyance is upon a valuable consideration, but made with the actual intent to defraud creditors on the part of the grantor, participated in by the grantee or of which he has notice, it is void. Aman v. Walker, 165 N.C. 224 , 81 S.E. 162, 1914 N.C. LEXIS 249 (1914); North Carolina Nat'l Bank v. Evans, 35 N.C. App. 322, 241 S.E.2d 379, 1978 N.C. App. LEXIS 2965 (1978), rev'd, 296 N.C. 374 , 250 S.E.2d 231, 1979 N.C. LEXIS 1152 (1979); Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979); Wurlitzer Distrib. Corp. v. Schofield, 44 N.C. App. 520, 261 S.E.2d 688, 1980 N.C. App. LEXIS 2501 (1980); Wilkinson v. United States, 741 F. Supp. 577, 1990 U.S. Dist. LEXIS 8464 (W.D.N.C. 1990).

Prerequisites for Establishing Fraud. —

When a conveyance is made by a debtor for valuable consideration, it is fraudulent and may be set aside only when the conveyance was (1) made with the intent to defraud creditors, and (2) the grantee either participated in the intent or had notice of it. Edwards v. Northwestern Bank, 39 N.C. App. 261, 250 S.E.2d 651, 1979 N.C. App. LEXIS 2501 (1979).

What Constitutes Transfer. —

There is no requirement that borrower must have seen the actual proceeds of the loan in order for her to be able to transfer those proceeds; the immediate application of the proceeds of the loan to the debt incurred by borrower’s husband, at her direction, constituted a transfer of funds. Butler v. NationsBank, 58 F.3d 1022, 1995 U.S. App. LEXIS 16402 (4th Cir. 1995).

Effect of Consideration. —

Although a purchaser may pay a full price for the property, yet if he purchased with the intent to aid his vendor to defeat the latter’s creditors his purchase will be void. Eigenbrun v. Smith, 98 N.C. 207 , 4 S.E. 122, 1887 N.C. LEXIS 252 (1887).

If the conveyance is upon a valuable consideration, but made with the actual intent to defraud creditors on the part of the grantor, participated in by the grantee, or of which he has notice, it is void. Orta v. Schafer, 284 F.2d 114, 1960 U.S. App. LEXIS 3117 (4th Cir. 1960) (quoting) Aman v. Walker, 165 N.C. 224 , 81 S.E. 162, 1914 N.C. LEXIS 249 (1914).

A valuable consideration in the law of fraudulent conveyance is not the same as a valuable consideration in the law of contracts. North Carolina Nat'l Bank v. Evans, 296 N.C. 374 , 250 S.E.2d 231, 1979 N.C. LEXIS 1152 (1979).

Valuable consideration is deemed to have been given by the transferee when he suffers a legal detriment and the transferor receives a corresponding benefit. Edwards v. Northwestern Bank, 39 N.C. App. 261, 250 S.E.2d 651, 1979 N.C. App. LEXIS 2501 (1979).

A deed of trust or a mortgage made to secure an existing debt is a conveyance for a valuable consideration. Edwards v. Northwestern Bank, 39 N.C. App. 261, 250 S.E.2d 651, 1979 N.C. App. LEXIS 2501 (1979).

Preferences. —

Every conveyance of property by an insolvent or embarrassed man, to the exclusive satisfaction of the claims of some of his creditors, has necessarily a tendency to defeat or hinder his other creditors in the collection of their demands. But if the sole purpose of such a conveyance be the discharge of an honest debt, it does not fall under operation of the statute against fraudulent conveyances. Hafner v. Irwin, 23 N.C. 490 , 1841 N.C. LEXIS 110 (1841).

But an agreement by which a conveyance, made for the purpose of preferring a creditor, is to be kept secret until the debtor has an opportunity to get beyond the reach of process issued by his other creditors, renders the conveyance fraudulent towards other creditors, as intended to hinder, delay, or defeat them. Hafner v. Irwin, 23 N.C. 490 , 1841 N.C. LEXIS 110 (1841).

Intent to defraud creditors may be presumed when the debtor does not retain property sufficient to pay his then-existing debts. Edwards v. Northwestern Bank, 39 N.C. App. 261, 250 S.E.2d 651, 1979 N.C. App. LEXIS 2501 (1979).

Conveyance to Trustee for Use of Creditors. —

A conveyance to a trustee for the use of creditors, if made with intent to defraud any one of the vendor’s creditors, is void, though the trustee be ignorant of such intent, and his conduct is bona fide. Eigenbrun v. Smith, 98 N.C. 207 , 4 S.E. 122, 1887 N.C. LEXIS 252 (1887). See Royster v. Stallings, 124 N.C. 55 , 32 S.E. 384, 1899 N.C. LEXIS 16 (1899).

Conveyance to Defeat Claim for Tort. —

A secret conveyance of a mill made to defeat, hinder or delay a party injured by the erection thereof in the recovery of his damages, is fraudulent and void as to such party, and the former owner of the mill, notwithstanding such conveyance, continues liable for the damage. Purcell v. McCallum, 18 N.C. 221 , 1835 N.C. LEXIS 12 (1835).

Where a deed was executed to evade the payment of any judgment that might be recovered against the grantor in an action for slander pending at the time of its execution, it is fraudulent, under a prior similar provision, as to his creditors. Helms v. Green, 105 N.C. 251 , 11 S.E. 470, 1890 N.C. LEXIS 230 (1890).

Voluntariness of Conveyance. —

A conveyance is voluntary when it is not for value, i.e., when the purchaser does not pay a reasonably fair price such as would indicate unfair dealing and be suggestive of fraud. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

A conveyance is deemed to be voluntary when the purchaser does not pay a reasonably fair price such as would indicate unfair dealing and be suggestive of fraud. North Carolina Nat'l Bank v. Evans, 296 N.C. 374 , 250 S.E.2d 231, 1979 N.C. LEXIS 1152 (1979).

A determination that a conveyance was not made for valuable consideration means that the conveyance was “voluntary.” North Carolina Nat'l Bank v. Evans, 296 N.C. 374 , 250 S.E.2d 231, 1979 N.C. LEXIS 1152 (1979).

A transfer is “voluntary” when the purchaser does not give value, i.e. does not pay a reasonably fair price. Butler v. NationsBank, 58 F.3d 1022, 1995 U.S. App. LEXIS 16402 (4th Cir. 1995).

A transfer is voluntary if the transferor does not receive reasonably equivalent value for her transfer. Butler v. NationsBank, 58 F.3d 1022, 1995 U.S. App. LEXIS 16402 (4th Cir. 1995).

If a conveyance is voluntary, and grantor fails to retain sufficient assets to pay his then-existing indebtedness, such conveyance is invalid as to creditors. Tuttle v. Tuttle, 38 N.C. App. 651, 248 S.E.2d 896, 1978 N.C. App. LEXIS 2302 (1978), cert. denied, 296 N.C. 589 , 254 S.E.2d 32, 1979 N.C. LEXIS 1236 (1979).

Secret Trusts. —

In Clement v. Cozart, 109 N.C. 173 , 13 S.E. 862 (1891), it was said that if a deed be made, showing upon its face a full valuable consideration, but upon the secret trust that the vendee shall not pay anything therefor, but shall hold the same in contemplation of insolvency for the benefit of the vendor, so as to protect and shield the property against any debts that he may owe at the time, or any liabilities that he may subsequently incur, under a prior similar provision such a deed would be void as to all persons whose claims “are, shall or might be” defrauded thereby. Morgan v. McLelland, 14 N.C. 82 , 1831 N.C. LEXIS 62 (1831).

Absolute Transfers Intended as Security. —

A deed absolute but executed upon a parol agreement for redemption, is, in law, fraudulent and void against the creditors of the vendor. Gregory v. Perkins, 15 N.C. 50 , 1833 N.C. LEXIS 37 (1833).

A deed absolute on its face, but intended as a mortgage only, is fraudulent and void against creditors and purchasers, and against subsequent as well as prior creditors. Halcombe v. Ray, 23 N.C. 340 , 1840 N.C. LEXIS 137 (1840).

A deed absolute on its face, which is mere security for a debt, is void as against creditors of the grantor. Bernhardt v. Brown, 122 N.C. 587 , 29 S.E. 884, 1898 N.C. LEXIS 309 (1898).

A bond given as a pretext to enable one person to set up a claim to the property of another, so as to defraud the creditors of that other, is void even as between the parties to the same. John G. Powell & Co. v. Inman, 53 N.C. 436 , 1862 N.C. LEXIS 31 (1862).

Feigned and Covinous Judgment. —

A feigned and covinous judgment is made utterly void as against the person who is in anywise hindered, delayed, or defrauded of his debts. Powell v. Howell, 63 N.C. 283 , 1869 N.C. LEXIS 56 (1869).

Assignment of Life Insurance Policy. —

A life insurance policy issued to one for the benefit of himself is an integral part of his estate, and a voluntary assignment thereof to his children, made when he is insolvent, is fraudulent and void. Burton v. Farinholt, 86 N.C. 260 , 1882 N.C. LEXIS 184 (1882).

Conveyance to Wife or to Wife and Self by Entireties. —

Complaint brought by individual who succeeded to the rights of existing creditor by virtue of bond and payment thereunder, alleging that while unable to pay a claim that had been pending against him for two years and while he had no other assets with which to pay his creditors, defendant husband gratuitously conveyed his solely owned real property to himself and defendant wife by the entireties and gratuitously had title to other land that he purchased later put in her name stated a claim for relief against defendant wife, as if the alleged circumstances were established the conveyances would be invalid to existing creditors as a matter of law. Nye v. Oates, 96 N.C. App. 343, 385 S.E.2d 529, 1989 N.C. App. LEXIS 1001 (1989).

Conveyance Following Separation Agreement. —

Despite contention of creditor of husband that separation agreement executed by husband and wife destroyed tenancy by the entirety and vested a property interest in husband against which creditor was entitled to levy, where husband and wife were not divorced until over 8 months following the conveyance of the marital property to husband’s parents, the property remained entirety property at the time of the conveyance, and could not be the subject of a conveyance in defraud of husband’s individual creditors. The trial court erred in ordering that creditor was entitled to receive the proceeds of the sale of this property. Dealer Supply Co. v. Greene, 108 N.C. App. 31, 422 S.E.2d 350, 1992 N.C. App. LEXIS 832 (1992).

Charitable Gifts. —

Although a bankruptcy trustee was not allowed under 11 U.S.C.S. § 548(a)(2) to recover shares of stock a corporation transferred to a nonprofit entity before the corporation declared Chapter 7 bankruptcy because the transfer qualified as a charitable contribution, the North Carolina Uniform Fraudulent Transfer Act, G.S. 39-23.1 et seq., did not contain the same limitation, and the bankruptcy court denied the nonprofit’s motion to dismiss the trustee’s claim seeking recovery of the stock as a constructively fraudulent transfer. Beaman v. Barth, 2011 Bankr. LEXIS 1033 (Bankr. E.D.N.C. Mar. 18, 2011).

When Insolvent Debtor Improves Wife’s Estate. —

An insolvent debtor cannot withdraw money from his own estate and give it to his wife to be invested by her in the purchase or improvement of her property, and to that extent, when it is done, creditors may subject the property so purchased or improved to the payment of their claims. Michael v. Moore, 157 N.C. 462 , 73 S.E. 104, 1911 N.C. LEXIS 74 (1911).

Money of Debtor Deposited in Wife’s Name. —

Where the wife participates in her husband’s depositing his money in her name at a bank for the purpose of defrauding his creditors, the attempted appropriation is void under a prior similar provision, which was enacted to prevent fraudulent gifts, and in an appropriate action the deposit will be considered and dealt with as if it stood in the name of the husband. Moore v. Greenville Banking & Trust Co., 173 N.C. 180 , 91 S.E. 793, 1917 N.C. LEXIS 268 (1917).

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., 2013 Bankr. LEXIS 1443 (Bankr. E.D.N.C. Apr. 8, 2013).

B.Intent

Intent as Essential Element. —

The intent is the essential and poisonous element in the transaction, and not merely the effect; since in every conveyance and appropriation of property, the property conveyed is placed beyond the creditor’s reach, and he is so far obstructed in the pursuit of his remedy against the debtor’s estate. But the inquiry is, was this the purpose of the assignment; and if so, and it was participated in by the assignee or party to take benefit under it, the assignment is invalid, though the debt or liability professed to be the object to be secured be bona fide due, and itself tinged with no vicious ingredient. Moore v. Hinnant, 89 N.C. 455 , 1883 N.C. LEXIS 269 (1883).

A prior similar provision was meant to prevent deeds, etc., fraudulent in their concoction, and not merely such as in their effect might delay or hinder other creditors. Moore v. Hinnant, 89 N.C. 455 , 1883 N.C. LEXIS 269 (1883).

Intent as Objective Element. —

Acts fraudulent in view of the law, because of their necessary tendency to delay or obstruct the creditor in pursuit of his legal remedy, do not cease to be such because the fraud as an independent fact was not then in mind. If a person does and intends to do that which from its consequences the law pronounces fraudulent, he is held to have intended the fraud inseparable from the act. Cheatham v. Hawkins, 80 N.C. 161 , 1879 N.C. LEXIS 45 (1879).

Sufficiency of Intent. —

It is not necessary that there should have been an intent to hinder, delay, and defraud. An intent either to hinder and delay, or an intent to defraud, is sufficient. Peeler v. Peeler, 109 N.C. 628 , 14 S.E. 59, 1891 N.C. LEXIS 278 (1891); Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

Intent Shown by Acts and Conduct. —

It is not necessary that intent to defraud be proven by expressed declarations, but it may be shown by the acts and conduct of the parties, from which it may be reasonably inferred. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

Intent Presumed. —

Intent to defraud may be presumed where the transferor fails to retain property sufficient to pay his or her debts. Butler v. NationsBank, 58 F.3d 1022, 1995 U.S. App. LEXIS 16402 (4th Cir. 1995).

Deed of Trust Executed with Intent to Delay. —

A deed of trust executed by a corporation, or an individual, for the purpose of gaining time at the expense of creditors, in order to dispose of property to advantage and prevent a sacrifice by a sale for cash, when the company or individual has the means and resources from which enough might be realized to pay all the debts, is fraudulent and void as against creditors. London v. Parsley, 52 N.C. 313 , 1859 N.C. LEXIS 96 (1859).

Fraud a Compound Question of Law and Fact. —

Fraud is a compound question of law and fact. The facts going to establish it are decided by a jury. Whether, when proved, they will amount to such a fraud as will vacate a grant is a question of law for the court to decide. Crow v. Holland, 12 N.C. 481 , 1828 N.C. LEXIS 56 (1828).

Intention Ascertained from “Badges of Fraud”. —

It is true that courts and juries cannot see and know the intent of an assignor except from his words and acts. Where he expresses his intent — his purpose — to be to defraud his creditors, we need not look further. This will avoid the assignment. But if he has not so declared his purpose, then we have to look to his acts to ascertain the intention with which the assignment was made — to what are called the “badges of fraud.” Royster v. Stallings, 124 N.C. 55 , 32 S.E. 384, 1899 N.C. LEXIS 16 (1899).

Family Relationship as Evidence of Intent. —

When property is sold to a family member for less than its reasonable value and the grantor is unable to pay his debts, the close family relationship is strong evidence of fraudulent intent. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

Consideration for the conveyance was another circumstance from which the jury inferred fraudulent intent; although defendants contended that there was valuable consideration in that grantee agreed to assume defendants’ indebtedness to a third party in the amount of $93,000 grantee was not making regular payments on the note and the noteholder, who was related to the individual defendants, was allowing grantee to pay off the debt by doing work for him. Dellinger Septic Tank Co. v. Sherrill, 94 N.C. App. 105, 379 S.E.2d 688, 1989 N.C. App. LEXIS 454 (1989).

Evidence of Other Debts Admissible to Show Intent. —

Where plaintiff’s evidence tended to show that defendants owed debts to plaintiff other than the 1981 judgment and that they had not been able to pay those debts, existence of the other debts was relevant on the issue of defendants’ intent. Dellinger Septic Tank Co. v. Sherrill, 94 N.C. App. 105, 379 S.E.2d 688, 1989 N.C. App. LEXIS 454 (1989).

Evidence Held Sufficient to Show Intent. —

There was sufficient evidence to support the jury’s finding that conveyance was made with the actual intent to defraud plaintiff where plaintiff’s evidence showed that defendants owed several debts to plaintiff which they were unable to pay and that plaintiff attempted to collect a $5,000 account balance shortly before the conveyance occurred. Dellinger Septic Tank Co. v. Sherrill, 94 N.C. App. 105, 379 S.E.2d 688, 1989 N.C. App. LEXIS 454 (1989).

Evidence Held Insufficient to Show Intent. —

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., 2013 Bankr. LEXIS 1372 (Bankr. E.D.N.C. Apr. 4, 2013).

C.Badges of Fraud

“Badges of Fraud” Defined. —

It frequently becomes necessary, in order to ascertain the debtor’s intentions, to look for what are designated as “badges of fraud.” These badges of fraud are suspicious circumstances that overhang a transaction, and where the parties to it withhold testimony that it is exclusively within their power to produce, and that would remove all uncertainty, if believed, as to its character, the law puts the interpretation upon such conduct most unfavorable to the suppressing party as it does in all cases where a party purposely or negligently fails to furnish evidence under his control and not accessible to his adversary. Helms v. Green, 105 N.C. 251 , 11 S.E. 470, 1890 N.C. LEXIS 230 (1890).

The usual badges of fraud are continuation of possession, or a secret trust, or some provision for the ease and comfort or benefit of the assignor, or the insertion of some feigned debt not due by the assignor. Royster v. Stallings, 124 N.C. 55 , 32 S.E. 384, 1899 N.C. LEXIS 16 (1899).

Retention of Possession Not Fraudulent Per Se. —

Possession retained by the vendor of chattel does not, per se, make the sale fraudulent in law. It is but presumptive evidence of fraud, proper to be left to a jury. To repel this presumption the vendee may show that consideration passed, though none is stated in the bill of sale. Howell v. Elliott, 12 N.C. 76 , 1826 N.C. LEXIS 51 (1826).

Permitting Mortgagor to Remain in Possession of and Sell Stock of Merchandise. —

Where mortgagees expressly agree to permit mortgagor to remain in possession of the stock of merchandise and sell the same in the usual course of trade, but do not require him to account for the proceeds of same, until he is adjudged bankrupt, the mortgage is presumptively fraudulent in law, and the burden is upon the mortgagor to rebut that presumption by proof that there were no preexisting debts at the time the mortgage was executed, or that the mortgagor had assets sufficient and available to pay the existing debts exclusive of the property embraced in the mortgage. In re Joseph, 43 F.2d 252, 1930 U.S. Dist. LEXIS 1278 (D.N.C. 1930). See Morris Plan Bank v. Cook, 55 F.2d 176, 1932 U.S. App. LEXIS 3730 (4th Cir. 1932).

Reservation of Exemptions. —

The reservation of exemptions allowed by law in a deed of assignment is no evidence of a fraudulent intent. Barber v. Buffaloe, 111 N.C. 206 , 16 S.E. 386, 1892 N.C. LEXIS 153 (1892).

Secrecy. —

It is a mark of fraud if the transaction is secret; and it is secret if it is done in the presence only of near relatives, who are such persons as may be relied on not to disclose what they know to the neighborhood, or if it is done at such distance from the neighborhood that it is unlikely that the affair will become known to them. Vick v. Kegs, 3 N.C. 126 (1800).

That the only parties present at a conveyance of all the vendor’s land in satisfaction of old debts were the vendor and vendee, who were brothers-in-law, and the subscribing witness, also a brother-in-law of the vendee, is a fact calculated to throw suspicion upon the transaction, i.e., is a badge of fraud. Peebles v. Horton, 64 N.C. 374 , 1870 N.C. LEXIS 113 (1870).

Relationship of the Parties and Lack of Adequate Consideration. —

Transfer of funds from a debtor’s lawsuit from the debtor to his wife was fraudulent and could be avoided and recovered by the trustee under 11 U.S.C.S. §§ 544 and 548, even if it was exempt under this section, where: (1) the debtor transferred the lawsuit proceeds into an account maintained by the wife, maintained access to the funds for his personal use and did not receive any consideration for them; (2) the relationship between parties and lack of adequate consideration established a presumption of actual fraudulent intent and shifted the burden to the wife; and (3) the wife did not meet her burden to rebut the presumption. Jenkins v. Ward, 2013 U.S. Dist. LEXIS 128936 (W.D.N.C. Sept. 6, 2013).

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.

Employing an attorney who resides at some distance, and in another county, to draw the deed of assignment, and making a provision therein authorizing public or private sale for cash, are not circumstances of fraud. Barber v. Buffaloe, 111 N.C. 206 , 16 S.E. 386, 1892 N.C. LEXIS 153 (1892).

Authorizing Private Sale. —

It is no ground for a court to pronounce a deed of trust fraudulent per se, as against other creditors, that the property conveyed was to be sold at a private sale. Burgin v. Burgin, 23 N.C. 453 , 1841 N.C. LEXIS 100 (1841). See Barber v. Buffaloe, 111 N.C. 206 , 16 S.E. 386, 1892 N.C. LEXIS 153 (1892).

Evidence of Fraud in Assignment for Creditors. —

In Barber v. Buffaloe, 122 N.C. 128 , 29 S.E. 336 (1898), it was held that there was sufficient evidence of fraud in an assignment for the benefit of creditors to take the case to the jury. There the party preferred, a relative of the assignor, went 16 miles on Sunday night with the attorney who drew the deed of assignment, bought in the property, with the debt secured, and allowed the assignor to remain in possession free of rent; this was evidence of a secret trust and benefit to the assignor, and the turning point in the case. Royster v. Stallings, 124 N.C. 55 , 32 S.E. 384, 1899 N.C. LEXIS 16 (1899).

Effect of Testimony as to Bona Fides of Transaction. —

The rule laid down in Reiger v. Davis, 67 N.C. 185 (1872), was that when a debtor, much embarrassed, conveys property of much value to a near relative, and the transaction is secret and no one is present to witness the trade but these near relatives, it is regarded as fraudulent, but when these relatives are made witnesses in the cause, and depose to the fairness and bona fides of the transaction, and that, in fact, there was no purpose of secrecy, it then becomes a question for the jury to determine the intent which influenced the parties, and to find it fraudulent, or otherwise, as the evidence may satisfy them. Helms v. Green, 105 N.C. 251 , 11 S.E. 470, 1890 N.C. LEXIS 230 (1890).

III.Rights and Liabilities of Parties and Purchasers

Conveyance Is Valid Between the Parties. —

The power of the court to set aside a fraudulent conveyance at the instance of creditors is derived from a prior similar provision, which has not penalized such a transaction by declaring the deed utterly void as against all persons and for all purposes, but has expressly limited the remedy to the aggrieved creditor and has left the deed as it stands between the parties. Lane v. Becton, 225 N.C. 457 , 35 S.E.2d 334, 1945 N.C. LEXIS 341 (1945).

Valid Against Maker. —

A conveyance made with an intent to defraud creditors is nevertheless valid against the maker and all others except creditors and those who purchase under a sale made for their benefit. Saunders v. Lee, 101 N.C. 3 , 7 S.E. 590, 1888 N.C. LEXIS 2 (1888).

When Parties in Pari Delicto. —

In York v. Merritt, 77 N.C. 213 (1877), the action was by the grantee against the grantor for possession of the land conveyed to defraud creditors. The court held that when the parties have united in a transaction to defraud another or others, or the public, or the due administration of justice, or which is against the public policy or contra bonos mores, the courts will not enforce it against either party. Bank of New Hanover v. Adrian, 116 N.C. 537 , 21 S.E. 792, 1895 N.C. LEXIS 244 (1895).

Grantee Must Be Purchaser for Value to Be Protected. —

North Carolina law protects bona fide purchasers from creditors of the grantor. In order to be protected a grantee must first be a purchaser for value. Chrysler Credit Corp. v. Burton, 599 F. Supp. 1313, 1984 U.S. Dist. LEXIS 21191 (M.D.N.C. 1984).

Deed of trust to secure a present loan constitutes the beneficiary a purchaser for value. Chrysler Credit Corp. v. Burton, 599 F. Supp. 1313, 1984 U.S. Dist. LEXIS 21191 (M.D.N.C. 1984).

Bona Fide Purchaser from Fraudulent Grantor. —

A bona fide purchaser of personal property, without notice, acquires a good title, though his vendor may have made a prior fraudulent conveyance to a third person. Plummer v. Worley, 35 N.C. 423 , 1852 N.C. LEXIS 68 (1852).

Purchaser with Notice of Former Fraudulent Conveyance. —

Since the passage of the Act of 1840 a purchaser of land with notice at the time of a former fraudulent conveyance is not protected in his purchase, although he paid value therefor. Hiatt v. Wade, 30 N.C. 340 , 1848 N.C. LEXIS 82 (1848); Triplett v. Witherspoon, 70 N.C. 589 , 1874 N.C. LEXIS 293 (1874).

Bona Fide Purchaser from Fraudulent Grantee. —

A purchaser for a valuable consideration, and without notice, from a fraudulent grantee, acquires a good title against the creditors of the fraudulent grantor. Saunders v. Lee, 101 N.C. 3 , 7 S.E. 590, 1888 N.C. LEXIS 2 (1888).

Whatever may be said about fairness or unfairness towards creditors, the legislative will gives preference to a bona fide purchaser, for valuable consideration at full price and without notice of the fraud and covin. Saunders v. Lee, 101 N.C. 3 , 7 S.E. 590, 1888 N.C. LEXIS 2 (1888).

Constructive Notice. —

A purchaser from a trustee, under a conveyance containing upon its face evidence of a fraudulent purpose to defeat creditors, takes with notice of such evidence. Eigenbrun v. Smith, 98 N.C. 207 , 4 S.E. 122, 1887 N.C. LEXIS 252 (1887).

Burden of Proof. —

Where a conveyance from an insolvent husband to his wife is attacked for fraud, the onus is upon the wife to show that a consideration, in the shape of money paid, the discharge of a debt due from him to her, or something of value, actually passed. Peeler v. Peeler, 109 N.C. 628 , 14 S.E. 59, 1891 N.C. LEXIS 278 (1891).

The burden is on the purchaser of property conveyed to defraud creditors to show that he bought for a valuable consideration and without notice. Cox v. Wall, 132 N.C. 730 , 44 S.E. 635, 1903 N.C. LEXIS 350 (1903).

Section Is Intended as Proviso. —

The purpose of the legislature in enacting former G.S. 39-19 was to constitute an independent provision, operating as a proviso to the other sections on fraudulent conveyances. Cox v. Wall, 132 N.C. 730 , 44 S.E. 635, 1903 N.C. LEXIS 350 (1903).

Scope and Effect. —

The proviso can only be made operative by giving to it the scope and effect of purging the original conveyance of the fraud with which it was tainted, by allowing the bona fides and the full valuable consideration of the second conveyance to supply the want of these qualities to the first, so as to perfect the title to the bona fide purchaser, by carrying it back to the donor and claiming the title from him, and thus prevent the title of the first purchaser from being impeached and made void. Young v. Lathrop, 67 N.C. 63 , 1872 N.C. LEXIS 174 (1872). See Cox v. Wall, 132 N.C. 730 , 44 S.E. 635, 1903 N.C. LEXIS 350 (1903).

How Grantee May Protect His Title. —

When a grantor executes a deed with intention to defraud his creditors, the grantee can only protect his title by showing that he is a purchaser for a valuable consideration, and without notice of a fraudulent intent on the part of his grantor. Cansler v. Cobb, 77 N.C. 30 , 1877 N.C. LEXIS 9 (1877); Saunders v. Lee, 101 N.C. 3 , 7 S.E. 590, 1888 N.C. LEXIS 2 (1888); Morgan v. Bostic, 132 N.C. 743 , 44 S.E. 639, 1903 N.C. LEXIS 351 (1903).

Bona Fide Purchaser from Fraudulent Vendor Gets Good Title. —

Under a prior similar provision, a purchaser for value and without notice of any fraud got good title by conveyance or transfer from a fraudulent vendor. People's Bank & Trust Co. v. Mackorell, 195 N.C. 741 , 143 S.E. 518, 1928 N.C. LEXIS 199 (1928).

Bona Fide Purchaser from Fraudulent Grantee Before Execution Sale. —

Where a fraudulent grantee of land conveyed it to a bona fide purchaser for value without notice of the fraud, after a creditor of the fraudulent grantor had obtained a judgment against him, but before the land was sold under an execution issued on such judgment and teste of the terms where it was obtained, it was held that by force of the proviso obtained in this section (4th section of the 50th ch. of the Rev. Code, 13 Eliz., c. 5, s. 6), the title of the bona fide purchaser from the fraudulent grantee was to be preferred to that of the purchaser under the execution of the creditor of the fraudulent grantor. Young v. Lathrop, 67 N.C. 63 , 1872 N.C. LEXIS 174 (1872).

Trustees and Mortgagees Take Subject to Equities. —

It is a settled principle, acted upon every day, that the trustee or mortgagee is a purchaser for a valuable consideration within the provisions of 13 and 27 Elizabeth; but it would seem they take subject to any equity that attached to the property in the hands of the debtor, and cannot discharge themselves from it on the ground of being purchasers without notice. Potts v. Blackwell, 56 N.C. 449 , 1857 N.C. LEXIS 219 (1857), dismissed, 57 N.C. 58 , 1858 N.C. LEXIS 179 (1858).

Good Consideration. —

“Good consideration” means valuable consideration, or a fair price. Young v. Lathrop, 67 N.C. 63 , 1872 N.C. LEXIS 174 (1872); Arrington v. Arrington, 114 N.C. 151 , 19 S.E. 351, 1894 N.C. LEXIS 31 (1894).

Conveyance to Daughter in Consideration of Services. —

Where A made a deed to his daughter, in consideration of services rendered and to be rendered in the future for attending upon him in his old age, with intent to defraud his creditors, the deed is void, even though the daughter had no knowledge of such fraudulent intent. Cansler v. Cobb, 77 N.C. 30 , 1877 N.C. LEXIS 9 (1877).

When Wife Takes with Notice of Fraud. —

Where a husband’s conveyance to his wife is executed with a fraudulent intent, and the wife, with a knowledge of his purpose, accepts the benefit of the act and claims under it, she puts herself beyond the pale of the protection offered to innocent purchasers by the section. Peeler v. Peeler, 109 N.C. 628 , 14 S.E. 59, 1891 N.C. LEXIS 278 (1891).

Section Relates to Matters of Defense. —

The matters herein stated were intended to be strictly of a defensive character, and are required to be averred and proved by the party who relies on their existence in order to validate a conveyance which the law has declared to be void because made with a fraudulent intent. Cox v. Wall, 132 N.C. 730 , 44 S.E. 635, 1903 N.C. LEXIS 350 (1903).

Burden of Proving Consideration and Lack of Notice. —

When a deed is made with a fraudulent intent, the law condemns it and pronounces it void, and it remains void, of course, until it is shown for some reason to be valid. Nothing else appearing, it is void, and he who claims under it must aver and prove whatever is necessary to sustain its validity. The burden is on the purchaser, therefore, to show, under the statute, that he purchased not only for value, but without notice. Cox v. Wall, 132 N.C. 730 , 44 S.E. 635, 1903 N.C. LEXIS 350 (1903) (distinguishing) Lassiter v. Davis, 64 N.C. 498 , 1870 N.C. LEXIS 156 (1870); Reiger v. Davis, 67 N.C. 185 , 1872 N.C. LEXIS 207 (1872). See Morgan v. Bostic, 132 N.C. 743 , 44 S.E. 639, 1903 N.C. LEXIS 351 (1903).

When Some of Debts Secured Are Fictitious. —

A purchaser for value without notice, under a deed in trust in which some of the debts secured are fictitious, gets a good title, even against the creditors of the fraudulent trustor. McCorkle v. Earnhardt, 61 N.C. 300 , 1867 N.C. LEXIS 114 (1867).

Mortgage Note Tainted with Usury. —

A prior similar provision does not purport to protect the innocent holder of a mortgage note which is tainted with usury, but the “purchaser of the estate or property” at the sale under the mortgage, who buys without notice of the usurious taint in the debt secured. The only case in our reports that seems to mitigate against the otherwise uniform tenor of the decisions on this subject is Coor v. Spicer, 65 N.C. 401 (1871), which held that a mortgage given to secure an usurious bond might be enforced in the hands of an innocent purchaser for value. The case recognizes the general rule, but takes mortgages out of it upon the supposed wording of the section. Aside from the fact that it is held expressly otherwise in the latter case of Moore v. Woodward, 83 N.C. 531 (1880), an examination of the section will show that Coor v. Spicer was a palpable inadvertence. Ward v. Sugg, 113 N.C. 489 , 18 S.E. 717, 1893 N.C. LEXIS 112 (1893).

Where a deed of trust is made to secure certain specified debts, one of which is tainted with usury, and a purchaser buys at the trustee’s sale for a valuable consideration without notice of the illegality of the consideration of the said debt, his title is not affected thereby. McNeill v. Riddle, 66 N.C. 290 , 1872 N.C. LEXIS 47 (1872).

IV.Rights and Remedies of Creditors

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.

Minor children are not creditors of their father for their past support furnished them by another, and for which their personal estate was not invaded, and a conveyance executed by him prior to the institution of their action may not be set aside by them under a prior similar provision. Bryant v. Bryant, 212 N.C. 6 , 192 S.E. 864, 1937 N.C. LEXIS 218 (1937).

Prior and Subsequent Creditors. —

Indebtedness at the time of making a voluntary conveyance of part only of the grantor’s property is, in respect to subsequent creditors seeking satisfaction out of the property conveyed, merely evidence of fraud, the consideration of which belongs to the jury; but in respect to prior creditors, where debts cannot be otherwise satisfied, it constitutes fraud in law to be declared by the court. O'Daniel v. Crawford, 15 N.C. 197 (1833).

A voluntary conveyance is necessarily and in law fraudulent when opposed to the claim of a prior creditor; as against subsequent creditors, whether the conveyance is fraudulent or not depends upon the bona fides of the transaction, and the question is one of intent, to be passed on by the jury. Clement v. Cozart, 109 N.C. 173 , 13 S.E. 862, 1891 N.C. LEXIS 190 (1891).

Action Commenced Prior to Transfer of Assets. —

A creditor beginning an action prior to the transfer of assets by defendant is entitled to attack the transfer as fraudulent as to him, although he does not obtain judgment against the defendant until after the transfer of the assets has been accomplished. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

Surety on Bond. —

The liability of a principal to indemnify a surety on a bond is an existing liability at the time the bond is executed, within the rule that a conveyance with intent to defraud creditors is void as to existing obligations. Graeber v. Sides, 151 N.C. 596 , 66 S.E. 600, 1909 N.C. LEXIS 328 (1909).

Void in Part, Void in Toto. —

If only a part of the consideration of a deed is fraudulent against creditors, the whole deed is void. Hafner v. Irwin, 23 N.C. 490 , 1841 N.C. LEXIS 110 (1841).

When Trustee in Bankruptcy May Have Conveyance Set Aside. —

A trustee in bankruptcy is entitled to have a fraudulent conveyance set aside and to recover the property transferred, if any creditor of the bankrupt would be entitled to do so. Cox v. Wall, 132 N.C. 730 , 44 S.E. 635, 1903 N.C. LEXIS 350 (1903).

Chapter 7 trustee was estopped from seeking recovery under 11 U.S.C.S. § 544 and G.S. 39-23.1 et seq. of payments a corporation made to a creditor while the corporation was in Chapter 11 bankruptcy and managing its business operating a granary as a debtor-in-possession pursuant to 11 U.S.C.S. § 1107. The trustee was bound by actions the corporation took while it acted as a debtor-in-possession, some of which were approved by the court, and he could not attack or take a position that was inconsistent with those actions. Angell v. Meherrin Agric. & Chem. Co., 2013 Bankr. LEXIS 1849 (Bankr. E.D.N.C. May 1, 2013).

What Constitutes Aid and Assistance. —

Aid or assistance is the doing of some act whereby the party is enabled, or it is made easier for him, to do the principal act, or effect some primary purpose. L.M. Wiley & Co. v. McRee, 47 N.C. 349 , 1855 N.C. LEXIS 56 (1855).

Where a party persuades a debtor, who is temporarily absent from the county of his residence, not to go back into that county, but to go to distant parts, and promises, if he will do so, to send his property from his residence to him, and does afterwards send such property to him, and aids him with money to abscond from where he then is, and goes part of the way with him, for the purpose of defrauding his creditors, he is liable under the section. Moore v. Rogers, 48 N.C. 90 , 1855 N.C. LEXIS 126 (1855).

Aid Consisting Mainly in Words. —

There is no distinction between frauds consisting mainly in acts, and those which consist mainly in words, the criterion of the plaintiff’s right of action and the defendant’s liability being that the plaintiff should have been damaged in consequence of the fraud of the defendant. March v. Wilson, 44 N.C. 143 , 1852 N.C. LEXIS 168 (1852).

Mere Advice Insufficient. —

Simply advising a debtor to run away, though the advice be given to delay, etc., is not equivalent to aiding and assisting, and will not sustain an action under the statute against the fraudulent removing of debtors. L.M. Wiley & Co. v. McRee, 47 N.C. 349 , 1855 N.C. LEXIS 56 (1855).

Carrying Debtor to Railway Station. —

Where a party, with his horse and buggy, carried a debtor to a railroad station, and there procured the money to enable him to leave the State, with the intent to assist him in the purpose of avoiding his creditors, it was held to be a fraudulent removal within this section. Moffit v. Burgess, 53 N.C. 342 , 1861 N.C. LEXIS 30 (1861).

Property Not Carried Entirely Out of County. —

Where a debtor removes out of a county with intent to defraud his creditors, a person who, knowing of such intent, helps him by carrying him or his property a part of the way in order to assist him in getting him out of the county, becomes bound for his debts, although he did not convey the debtor or his goods entirely out of the one county into another. Godsey v. Bason, 30 N.C. 260 , 1848 N.C. LEXIS 64 (1848).

Liability of Principal When Aid Rendered by Agent. —

Where an agent, having money of his principal in his hands for a fair and honest purpose, paid it to his son fraudulently to assist him in absconding, the mere fact that, in a settlement of accounts between the principal and the agent, the former allowed the latter’s bill for money thus applied does not amount to such a ratification as to subject the principal. Moore v. Rogers, 51 N.C. 297 , 1859 N.C. LEXIS 104 (1859).

Knowledge of Particular Debt Unnecessary. —

Where a person who has removed a debtor out of a county is sued by a creditor, it is not necessary to show that this person had a knowledge of any particular debt due from the debtor, but is sufficient if the circumstances of the case induce the jury to believe that the removal was made with a view to defraud creditors. Godsey v. Bason, 30 N.C. 260 , 1848 N.C. LEXIS 64 (1848).

Intent of Escaped Debtor Immaterial. —

The declaration of a debtor fraudulently removed, that “he intended to get the defendant into a scrape,” was held to be immaterial. Moffit v. Burgess, 53 N.C. 342 , 1861 N.C. LEXIS 30 (1861).

Action by Bail of One Arrested under Writ of Capias Ad Respondendum. —

The bail of a person arrested under a writ of capias ad respondendum may maintain an action on the case at common law against one for fraudulently aiding and assisting the principal to remove from the county, in consequence whereof he had to pay the debt sued on. March v. Wilson, 44 N.C. 143 , 1852 N.C. LEXIS 168 (1852).

Surety on Constable’s Bond Not Creditor. —

A surety on a constable’s bond, upon which there has been a breach, but no judgment nor payment by him, is not a creditor so as to entitle him to recover against one for fraudulently removing his principal. Booe v. Wilson, 46 N.C. 182 , 1853 N.C. LEXIS 105 (1853).

Measure of Damages. —

In an action under this section the measure of damages is the amount of the debt due by the debtor to the plaintiff. Godsey v. Bason, 30 N.C. 260 , 1848 N.C. LEXIS 64 (1848).

Same Jury in Suit by Different Creditors. —

An action on the case, brought by A against B, for fraudulently removing a debtor, is tried, and a verdict found for defendant. The same jury are tendered in a case of C against B for the same act of removing, and are challenged by the plaintiff. They are under a legal bias by reason of having decided the case of A against B, and the challenge ought to be allowed, and this although additional evidence is to be adduced in the second trial. Baker v. Harris, 60 N.C. 271 (1864).

Creditors Lacked Standing. —

Plaintiffs lacked standing to assert claims (1) that the joinder agreements executed by two defendants were fraudulent transfers in violation of G.S. 39-23.1 and unlawful distributions in violation of G.S. 55-8-33 and G.S. 55-6-40 , for which all defendants were liable, or alternatively, (2) for unauthorized execution, because such claims could have been brought by any of the corporation’s creditors who, like plaintiffs, were denied timely payment of the corporation’s debts when execution of the joinder agreements led to its insolvency. Angell v. Kelly, 336 F. Supp. 2d 540, 2004 U.S. Dist. LEXIS 19003 (M.D.N.C. 2004).

V.Pleading and Practice

Heightened Pleading Requirements for Fraud Not Applicable. —

Claims of debtor’s liquidating agent against the state to recover transfers from debtor under Bankruptcy Code sections and under the North Carolina Uniform Fraudulent Transfer Act were not subject to the heightened pleading requirements for fraud, as claims for fraudulent transfer involved no allegations of fraud on part of a transferee, only by the non-party transferor. Finley Group v. N.C. 2015 Bankr. LEXIS 736 (Bankr. W.D.N.C. Mar. 10, 2015).

Service on State Rather Than Agencies Proper. —

In an adversary proceeding brought by the liquidating agent for a debtor to recover transferred funds under the Bankruptcy Code and under North Carolina’s Uniform Fraudulent Transfer Act, service on the State, rather than on two State agencies, was proper, as the State was the transferee because payment to a State agency was tantamount to payment to the State itself. Thus, the State was the initial transferee. Finley Group v. N.C. 2015 Bankr. LEXIS 736 (Bankr. W.D.N.C. Mar. 10, 2015).

Necessary Allegations to Set Aside Gift. —

In order for a creditor to set aside a gift from a debtor to his wife as fraudulent against creditors, the complaint must allege that at the time of the alleged gift the donor had not retained property fully sufficient and available to pay his then existing creditors, and in the absence of such allegation a demurrer to the complaint is good. Wallace v. Phillips, 195 N.C. 665 , 143 S.E. 244, 1928 N.C. LEXIS 179 (1928).

Presumptions and Burden of Proof. —

Where there is any evidence tending to show that at the time of the alleged fraudulent conveyance the grantor retained property fully sufficient and available to satisfy his then creditors, the presumption of fraud formerly arising from a voluntary conveyance is removed by this section, and the indebtedness of the grantor is evidence only from which a fraudulent intent may be inferred. Thus a requested instruction is properly refused which requires the defendant to satisfy the jury by the greater weight of the evidence that he retained property fully sufficient and available. Shuford v. Cook, 169 N.C. 52 , 85 S.E. 142, 1915 N.C. LEXIS 145 (1915) (citing) Hobbs v. Cashwell, 152 N.C. 183 , 67 S.E. 495, 1910 N.C. LEXIS 235 (1910). But see Garland v. Arrowood, 177 N.C. 371 , 99 S.E. 100, 1919 N.C. LEXIS 135 (1919) (wherein it was said that where there is a voluntary gift or settlement, the burden of, at least, going forward with proof of retention of sufficient property is on the defendant) .

The burden is on plaintiff in an action to set aside a deed as being fraudulent as to creditors to prove that the grantor failed to retain property sufficient and available to pay his then existing creditors. Hood v. Cobb, 207 N.C. 128 , 176 S.E. 288, 1934 N.C. LEXIS 397 (1934).

The effect of a prior similar provision is to destroy any presumption of vitiating fraud in the making of a voluntary gift or settlement solely from the indebtedness of the donor or settler, and to make the failure to retain property fully sufficient and available for the satisfaction of creditors a requisite of such presumption. Hood v. Cobb, 207 N.C. 128 , 176 S.E. 288, 1934 N.C. LEXIS 397 (1934); Virginia-Carolina Laundry Supply Corp. v. Scott, 267 N.C. 145 , 148 S.E.2d 1, 1966 N.C. LEXIS 1000 (1966).

Even though it is shown that a conveyance by a debtor was voluntary (that is, not for value), the burden of proof is, nevertheless, upon the plaintiff to show that the grantor did not retain property sufficient to pay his debts. Virginia-Carolina Laundry Supply Corp. v. Scott, 267 N.C. 145 , 148 S.E.2d 1, 1966 N.C. LEXIS 1000 (1966).

Earlier decisions of the Supreme Court were to the effect that, notwithstanding this section, there was a presumption of fraudulent intent in the case of a voluntary conveyance by a debtor and the burden rested upon the party seeking to uphold the voluntary conveyance to show retention by the grantor of property sufficient to pay his then debts. These cases may no longer be regarded as correct statements of the law of this jurisdiction with regard to the question of which party must ultimately bear the burden of proof upon the question of retention by the grantor of sufficient property to pay his then existing debts. That burden is now placed upon the party attacking the conveyance. Virginia-Carolina Laundry Supply Corp. v. Scott, 267 N.C. 145 , 148 S.E.2d 1, 1966 N.C. LEXIS 1000 (1966).

The ultimate burden of proof rests upon the plaintiff to show either actual intent by the defendant grantors to defraud their creditors or failure by them to retain property sufficient to pay the then-existing debts. North Carolina Nat'l Bank v. Johnson Furn. Co., 34 N.C. App. 134, 237 S.E.2d 313, 1977 N.C. App. LEXIS 1596 (1977).

Intent Shown by Acts and Conduct. —

It is not necessary that intent to defraud be proven by expressed declarations, but it may be shown by the acts and conduct of the parties, from which it may be reasonably inferred. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

Family Relationship as Evidence of Intent. —

When property is sold to a family member for less than its reasonable value and the grantor is unable to pay his debts, the close family relationship is strong evidence of fraudulent intent. Nytco Leasing, Inc. v. Southeastern Motels, Inc., 40 N.C. App. 120, 252 S.E.2d 826, 1979 N.C. App. LEXIS 2614 (1979).

Evidence of Other Debts Admissible to Show Intent. —

Where plaintiff’s evidence tended to show that defendants owed debts to plaintiff other than the 1981 judgment and that they had not been able to pay those debts, existence of the other debts was relevant on the issue of defendants’ intent. Dellinger Septic Tank Co. v. Sherrill, 94 N.C. App. 105, 379 S.E.2d 688, 1989 N.C. App. LEXIS 454 (1989).

Transfer Is Evidence of Intent to Defraud. —

A prior similar provision provided that the transfer itself is evidence of an intention to defraud the creditor. New Amsterdam Cas. Co. v. Waller, 301 F.2d 839, 1962 U.S. App. LEXIS 5451 (4th Cir. 1962).

Evidence of Tax Valuation of Property Retained. —

In an action to set aside a deed as being fraudulent as to creditors, evidence of the tax valuation of the other lands of the debtor at the time of the conveyance is competent on the issue of intent to hinder, delay and defraud creditors as tending to show the debtor had reason to believe he was retaining property sufficient and available to pay his then existing creditors. Hood v. Cobb, 207 N.C. 128 , 176 S.E. 288, 1934 N.C. LEXIS 397 (1934).

If, in order to survive a motion for judgment of nonsuit, the plaintiff must offer evidence sufficient in itself to show that its debtors, the defendant grantors in the deed of trust, did not retain property sufficient to pay their indebtedness to the plaintiff (no other debts being shown in the record), the judgment of nonsuit must be sustained where the only evidence offered by the plaintiff, upon this point, consisted of the tax listings by such defendants of their tangible properties in a particular county. Such tax listings do not negative the possibilities that these defendants, after executing the deed of trust in question, retained, and still retain, bank accounts or other intangible properties in the county or elsewhere, or tangible property, real or personal, located in another county, sufficient to pay the claim of the plaintiff and whatever other indebtedness these defendants may owe. Therefore, the evidence introduced by the plaintiff is not sufficient, alone, to show that the defendant grantors did not retain property sufficient to pay their debts when they executed the deed of trust now under attack. Virginia-Carolina Laundry Supply Corp. v. Scott, 267 N.C. 145 , 148 S.E.2d 1, 1966 N.C. LEXIS 1000 (1966).

Subsequent Deed of Sale Not Evidence of Value. —

A commissioner’s deed of sale of part of the lands of the debtor, executed three years after the execution of the deed sought to be set aside as being fraudulent as to creditors, was held incompetent as evidence under this section, the issue being the value of all the debtor’s lands at the time of the voluntary deed attacked in the action. Hood v. Cobb, 207 N.C. 128 , 176 S.E. 288, 1934 N.C. LEXIS 397 (1934).

Evidence of Grantee’s Resulting Trust in Property Conveyed. —

Where a deed from a husband to his wife was sought to be set aside by his creditors for fraud, evidence tending to show that she had a resulting trust by reason of her having conveyed the same land to her husband without consideration moving to her was held inadmissible, under the principle that a grantor in a deed to lands may not engraft a resulting trust upon his conveyance of the fee simple title with full covenants and warranty of title. Kelly Springfield Tire Co. v. Lester, 192 N.C. 642 , 135 S.E. 778, 1926 N.C. LEXIS 369 (1926).

pursuant to 11 U.S.C.S. §§ 544, 548(a)(1)(B), 550 and 551 and G.S. 39-21.1 et seq., where the corporate debtor undertook the liability on a promissory note and security agreement but the loan proceeds were paid to a third party. Angell v. Endcom, Inc., 487 B.R. 705, 2013 Bankr. LEXIS 715 (Bankr. E.D.N.C. 2013)(decided under former G.S. 39-21.1 et seq.).

Evidence Sufficient to Carry Issue of Intent to Jury. —

Though the ultimate burden of proof rests upon the plaintiff to show either actual intent by the defendant grantors to defraud their creditors or failure by them to retain property sufficient to pay their then existing debts, when the plaintiff introduces an admission by the defendants that their deed of trust was “voluntary,” and introduces evidence that they were then indebted to the plaintiff, which debt has not been paid, this is evidence tending to show an intent to delay, hinder, and defraud creditors sufficient to carry the case to the jury for its determination of the issue, and a judgment of nonsuit is improperly granted. Virginia-Carolina Laundry Supply Corp. v. Scott, 267 N.C. 145 , 148 S.E.2d 1, 1966 N.C. LEXIS 1000 (1966).

When Question of Fraud for Jury. —

A prior similar provision only required the question of fraud to be submitted to a jury in cases where property fully sufficient and available to pay all creditors was retained by the donor. Black v. Sanders, 46 N.C. 67 , 1853 N.C. LEXIS 76 (1853). See Sturdivant v. Davis, 31 N.C. 365 , 1849 N.C. LEXIS 16 (1849).

Retention of Sufficient Property Is Question for Jury. —

It is a question of fact for the determination of the jury whether the donor had retained property amply sufficient to pay his creditors at the time of his making a gift, within the intent and meaning of the section, which determines the validity of the transaction. Garland v. Arrowood, 177 N.C. 371 , 99 S.E. 100, 1919 N.C. LEXIS 135 (1919).

Effect of Decree. —

When the court has declared a voluntary conveyance void as to the plaintiff, and decreed that it be “set aside, revoked, rescinded, and annulled,” it is avoided only as between the parties to the action. Sturges v. Portis Mining Co., 206 F. 534, 1913 U.S. Dist. LEXIS 1447 (D.N.C. 1913).

Bankruptcy. —

Bankruptcy court did not err when it found it had jurisdiction under 28 U.S.C.S. § 157 to decide adversary proceedings a Chapter 7 trustee filed against investors who filed claims against a debtor’s bankruptcy estate, alleging that transfers the debtor made to the investors while he operated a Ponzi scheme were fraudulent and could be recovered for the debtor’s bankruptcy estate under 11 U.S.C.S. § 544 and G.S. 39-23.1 et seq. The trustee’s claims were core proceedings which the bankruptcy court could hear under the U.S. Supreme Court’s decision in Stern v. Marshall, — U.S. —, 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), because the investors had filed claims against the debtor’s bankruptcy estate. Mason v. Ivey, 498 B.R. 540, 2013 U.S. Dist. LEXIS 120031 (M.D.N.C. 2013).

Bankruptcy Following Ponzi Scheme. —

Trustee, who was appointed to administer the bankruptcy case of a debtor who operated a Ponzi scheme before an involuntary bankruptcy petition was filed against the debtor, had standing under 11 U.S.C.S. § 544 and the North Carolina Fraudulent Transfer Act, G.S. 39-23.1 et seq., to seek an order avoiding transfers an investor received from the debtor because the trustee established the existence of a creditor who held an unsecured claim against the debtor’s estate and succeeded to the creditor’s right to seek avoidance of the transfers. Ivey v. Mason, 2014 Bankr. LEXIS 2074 (Bankr. M.D.N.C. May 7, 2014).

Bankruptcy court denied a debt counseling company’s motion to stay a Chapter 11 debtor’s adversary proceeding and compel arbitration under a Debt Mediation and Restructuring Agreement the parties entered before the debtor declared bankruptcy. The debtor’s claims under 11 U.S.C.S. §§ 544, 548 and 550, G.S. 39-23.1 et seq., and G.S. 75-1.1 , alleging fraudulent conveyance and unfair and deceptive trade practices, were core claims under 28 U.S.C.S. § 157(b)(2), the asset in dispute was the only asset left to be recaptured and redistributed in the debtor’s Chapter 11 case, and arbitration under the terms of the parties’ agreement would have caused great hardship to the debtor, as the debtor was administratively insolvent and had no available funds to pay counsel or its share of the costs of arbitration. Aeronautical Solutions, LLC v. Commer. Debt Counselling Corp., 2007 Bankr. LEXIS 4586 (Bankr. E.D.N.C. June 8, 2007).

VI.Marriage Settlements.

Gifts Between Husband and Wife. —

All gifts from a husband to his wife are good inter se, and against all persons claiming under them; and good against all persons, if he is not in debt at the time; but such gifts are voidable as to existing creditors, if their rights are not secured. Walton v. Parish, 95 N.C. 259 , 1886 N.C. LEXIS 250 (1886).

Husband May Surrender Curtesy Initiate. —

Since the Act of 1848, a husband has the right to surrender his estate as tenant by the curtesy initiate and let it merge in the reversion of his wife, who, with the assent of her husband, may sell the same and receive the whole of the purchase money. Teague v. Downs, 69 N.C. 280 (1873). See G.S. 29-4 which abolishes curtesy .

§ 39-23.2. Insolvency.

  1. A debtor is insolvent if, at a fair valuation, the sum of the debtor’s debts is greater than the sum of the debtor’s assets.
  2. A debtor that is generally not paying the debtor’s debts as they become due other than as a result of a bona fide dispute is presumed to be insolvent. The presumption imposes on the party against which the presumption is directed the burden of proving that the nonexistence of insolvency is more probable than its existence.
  3. Repealed by Session Laws 2015-23, s. 1, effective October 1, 2015, and applicable to a transfer made or obligation incurred on or after that date.
  4. Assets under this section do not include property that has been transferred, concealed, or removed with intent to hinder, delay, or defraud creditors or that has been transferred in a manner making transfer voidable under this Article.
  5. Debts under this section do not include an obligation to the extent it is secured by a valid lien on property of the debtor not included as an asset.

History. 1997-291, s. 2; 2015-23, s. 1.

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 /P¶ 820-10-35-17 to -18 (2014) (formerly Statement of Financial Accounting Standards No. 157: Fair Value Measurement ¶ 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 ¶ 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.

§ 39-23.3. Value.

  1. Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person.
  2. For the purposes of G.S. 39-23.4(a)(2) and G.S. 39-23.5 , a person gives a reasonably equivalent value if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the interest of the debtor upon default under a mortgage, deed of trust, or security agreement.
  3. A transfer is made for present value if the exchange between the debtor and the transferee is intended by them to be contemporaneous and is in fact substantially contemporaneous.

History. 1997-291, s. 2; 1998-217, s. 6.

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 N.C. App. LEXIS 1145 (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, 2013 Bankr. LEXIS 1802 (Bankr. M.D.N.C. May 1, 2013).

§ 39-23.4. Transfer or obligation voidable as to present or future creditor.

  1. A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
    1. With intent to hinder, delay, or defraud any creditor of the debtor; or
    2. Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
      1. Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
      2. Intended to incur, or believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.
  2. In determining intent under subdivision (a)(1) of this section, consideration may be given, among other factors, to whether:
    1. The transfer or obligation was to an insider;
    2. The debtor retained possession or control of the property transferred after the transfer;
    3. The transfer or obligation was disclosed or concealed;
    4. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
    5. The transfer was of substantially all the debtor’s assets;
    6. The debtor absconded;
    7. The debtor removed or concealed assets;
    8. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
    9. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
    10. The transfer occurred shortly before or shortly after a substantial debt was incurred;
    11. The debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor;
    12. The debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor reasonably should have believed that the debtor would incur debts beyond the debtor’s ability to pay as they became due; and
    13. The debtor transferred the assets in the course of legitimate estate or tax planning.
  3. A creditor making a claim for relief under subsection (a) of this section has the burden of proving the elements of the claim for relief by a preponderance of the evidence.

History. 1997-291, s. 2; 2015-23, s. 1.

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. 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).
  9. 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).
  10. 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:
  11. 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.
  12. 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 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).
  2. 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).
  3. 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).
  4. 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).
  5. 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).
  6. 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).
  7. 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).
  8. 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).
  9. 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).
  10. 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.

(a) 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).)

(b) 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.

(c) 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.

(d) 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.

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:

  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.

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, 536 B.R. 646, 2015 Bankr. LEXIS 2969 (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, 581 B.R. 468, 2018 Bankr. LEXIS 312 (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 N.C. App. LEXIS 1307 (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, 462 B.R. 539, 2011 Bankr. LEXIS 3649 (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, 463 B.R. 775, 2012 Bankr. LEXIS 313 (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, 2012 U.S. App. LEXIS 10948 (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., 2013 Bankr. LEXIS 1372 (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 N.C. App. LEXIS 1145 (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, 2018 Bankr. LEXIS 181 (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, 608 B.R. 625, 2019 Bankr. LEXIS 3283 (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, 2017 Bankr. LEXIS 1354 (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, 463 B.R. 775, 2012 Bankr. LEXIS 313 (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, 463 B.R. 775, 2012 Bankr. LEXIS 313 (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, 2013 U.S. Dist. LEXIS 128936 (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., 2013 Bankr. LEXIS 1443 (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., 2013 Bankr. LEXIS 521 (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, 2012 Bankr. LEXIS 1402 (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, 2012 Bankr. LEXIS 3423 (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 N.C. App. LEXIS 306 (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 N.C. App. LEXIS 1711 (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, 463 B.R. 775, 2012 Bankr. LEXIS 313 (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 N.C. App. LEXIS 1307 (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, 462 B.R. 539, 2011 Bankr. LEXIS 3649 (Bankr. M.D.N.C. 2011).

Facts, as found by the trial court, compelled the imputation of knowledge to defendants of the company’s fraudulent activities as the company knew the activities to be fraudulent at the time of their commission, consequently rendering the transfer of the subject property to defendants by the company to be voidable as to plaintiff and thus denying defendants’ ability, under the facts and circumstances, to be a good faith purchaser for value of the subject property. Cherry Cmty. Org. v. Sellars, 2022-NCSC-62, 2022- NCSC-62, 2022 N.C. LEXIS 427 (N.C. May 6, 2022).

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 N.C. App. LEXIS 1711 (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, 2013 U.S. Dist. LEXIS 168710 (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 N.C. App. LEXIS 1145 (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, 2015 Bankr. LEXIS 2663 (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, 577 B.R. 202, 2017 Bankr. LEXIS 3174 (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., 2012 U.S. Dist. LEXIS 177456 (W.D.N.C. Dec. 13, 2012), aff'd in part, vacated in part, 612 Fed. Appx. 158, 2015 U.S. App. LEXIS 7425 (4th Cir. 2015).

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 N.C. App. LEXIS 1145 (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, 577 B.R. 202, 2017 Bankr. LEXIS 3174 (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, 2013 U.S. Dist. LEXIS 128936 (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, 2012 Bankr. LEXIS 5722 (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, 2013 Bankr. LEXIS 1742 (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, 2013 U.S. Dist. LEXIS 128936 (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, 2014 Bankr. LEXIS 885 (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 N.C. App. LEXIS 870 (2016).

§ 39-23.5. Transfer or obligation voidable as to present creditor.

  1. A transfer made or obligation incurred by a debtor is voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
  2. A transfer made by a debtor is voidable as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.
  3. Subject to G.S. 39-23.2(b) , a creditor making a claim for relief under subsection (a) or subsection (b) of this section has the burden of proving the elements of the claim for relief by a preponderance of the evidence.

History. 1997-291, s. 2; 2015-23, s. 1.

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 N.C. App. LEXIS 1307 (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 N.C. App. LEXIS 1307 (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, 2012 U.S. App. LEXIS 10948 (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 N.C. App. LEXIS 1711 (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., 350 B.R. 203, 2006 Bankr. LEXIS 3963 (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 N.C. App. LEXIS 1445 (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., 269 N.C. App. 181, 837 S.E.2d 551, 2020 N.C. App. LEXIS 17 (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 N.C. App. LEXIS 1145 (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 N.C. App. LEXIS 1711 (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, 2005 Bankr. LEXIS 3564 (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 N.C. App. LEXIS 1145 (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, 2012 Bankr. LEXIS 5722 (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 N.C. App. LEXIS 870 (2016).

§ 39-23.6. When transfer is made or obligation is incurred.

For the purposes of this Article:

  1. A transfer is made:
    1. With respect to an asset that is real property other than a fixture, but including the interest of a seller or purchaser under a contract for the sale of the asset, when the transfer is so far perfected that a good-faith purchaser of the asset from the debtor against which applicable law permits the transfer to be perfected cannot acquire an interest in the asset that is superior to the interest of the transferee; and
    2. With respect to an asset that is not real property or that is a fixture, when the transfer is so far perfected that a creditor on a simple contract cannot acquire a judicial lien otherwise than under this Article that is superior to the interest of the transferee.
  2. If applicable law permits the transfer to be perfected as provided in subdivision (1) of this section and the transfer is not so perfected before the commencement of an action for relief under this Article, the transfer is deemed made immediately before the commencement of the action.
  3. If applicable law does not permit the transfer to be perfected as provided in subdivision (1) of this section, the transfer is made when it becomes effective between the debtor and the transferee.
  4. A transfer is not made until the debtor has acquired rights in the asset transferred.
  5. An obligation is incurred:
    1. If oral, when it becomes effective between the parties; or
    2. If evidenced by a record, when the record signed by the obligor is delivered to or for the benefit of the obligee.

History. 1997-291, s. 2; 2015-23, s. 1.

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.

§ 39-23.7. Remedies of creditor.

  1. In an action for relief against a transfer or obligation under this Article, a creditor, subject to the limitations in G.S. 39-23.8 , may obtain:
    1. Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim;
    2. An attachment or other provisional remedy against the asset transferred or other property of the transferee if available under applicable law; and
    3. Subject to applicable principles of equity and in accordance with applicable rules of civil procedure:
      1. An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property;
      2. Appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or
      3. Any other relief the circumstances may require.
  2. If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds.

History. 1997-291, s. 2; 2015-23, s. 1.

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, 2018 Bankr. LEXIS 181 (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.

§ 39-23.8. Defenses, liability, and protection of transferee or obligee.

  1. A transfer or obligation is not voidable under G.S. 39-23.4(a)(1) against a person that took in good faith and for a reasonably equivalent value given the debtor or against any subsequent transferee or obligee.
  2. To the extent a transfer is avoidable in an action by a creditor under G.S. 39-23.7(a)(1), the following rules apply:
    1. Except as otherwise provided in this section, the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection (c) of this section, or the amount necessary to satisfy the creditor’s claim, whichever is less. The judgment may be entered against any of the following:
      1. The first transferee of the asset or the person for whose benefit the transfer was made.
      2. An immediate or mediate transferee of the first transferee, other than any of the following:
        1. A good-faith transferee that took for value.
        2. An immediate or mediate good-faith transferee of a person described in sub-sub-subdivision 1. of this sub-subdivision.
    2. Recovery pursuant to G.S. 39-23.7(a)(1) or G.S. 39-23.7(b) of or from the asset transferred or its proceeds, by levy or otherwise, is available only against a person described in sub-subdivision a. or b. of subdivision (1) of this subsection.
  3. If the judgment under subsection (b) of this section is based upon the value of the asset transferred, the judgment shall be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require.
  4. Notwithstanding voidability of a transfer or an obligation under this Article, a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to any of the following:
    1. A lien on or a right to retain an interest in the asset transferred.
    2. Enforcement of an obligation incurred.
    3. A reduction in the amount of the liability on the judgment.
  5. A transfer is not voidable under G.S. 39-23.4(a)(2) or G.S. 39-23.5 if the transfer results from one or more of the following:
    1. Termination of a lease upon default by the debtor when the termination is pursuant to the lease and applicable law.
    2. Enforcement of a security interest in compliance with Article 9 of Chapter 25 of the General Statutes, the Uniform Commercial Code, other than acceptance of collateral in full or partial satisfaction of the obligation it secures.
    3. The payment of taxes, debts, fines, penalties, or other obligations or amounts to the State or to any political subdivision of the State.
  6. A transfer is not voidable under G.S. 39-23.5(b) :
    1. To the extent the insider gave new value to or for the benefit of the debtor after the transfer was made, except to the extent the new value was secured by a valid lien;
    2. If made in the ordinary course of business or financial affairs of the debtor and the insider; or
    3. If made pursuant to a good-faith effort to rehabilitate the debtor, and the transfer secured present value given for that purpose as well as an antecedent debt of the debtor.
  7. The following rules determine the burden of proving matters referred to in this section:
    1. A party that seeks to invoke subsection (a), (d), (e), or (f) of this section has the burden of proving the applicability of that subsection.
    2. Except as otherwise provided in subdivisions (3) and (4) of this subsection, the creditor has the burden of proving each applicable element of subsection (b) or (c) of this section.
    3. The transferee has the burden of proving the applicability to the transferee of sub-sub-subdivision (b)(1)b.1. or 2. of this section.
    4. A party that seeks adjustment under subsection (c) of this section has the burden of proving the adjustment.
  8. The standard of proof required to establish matters referred to in this section is preponderance of the evidence.

History. 1997-291, s. 2; 2015-23, s. 1; 2017-204, s. 3.3(b); 2018-142, s. 7(b).

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. ¶ 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, 2018 Bankr. LEXIS 181 (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 N.C. App. LEXIS 1711 (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 N.C. App. LEXIS 1145 (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., 2013 Bankr. LEXIS 521 (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, 577 B.R. 202, 2017 Bankr. LEXIS 3174 (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, 2018 Bankr. LEXIS 181 (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, 2018 Bankr. LEXIS 181 (Bankr. E.D.N.C. Jan. 25, 2018).

Because defendants did not meet their burden of proof to show that they were a good faith purchaser of the subject property and that they paid a reasonably equivalent value for the land, the trial court erred in finding that defendants met the statutory burden of proof. Cherry Cmty. Org. v. Sellars, 2022-NCSC-62, 2022- NCSC-62, 2022 N.C. LEXIS 427 (N.C. May 6, 2022).

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, 2013 U.S. Dist. LEXIS 128936 (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, 2018 Bankr. LEXIS 181 (Bankr. E.D.N.C. Jan. 25, 2018).

§ 39-23.9. Extinguishment of claim for relief.

A claim for relief with respect to a voidable transfer or obligation under this Article is extinguished unless action is brought:

  1. Under G.S. 39-23.4(a)(1), not later than four years after the transfer was made or the obligation was incurred or, if later, not later than one year after the transfer or obligation was or could reasonably have been discovered by the claimant;
  2. Under G.S. 39-23.4(a)(2) or G.S. 39-23.5(a) , not later than four years after the transfer was made or the obligation was incurred; or
  3. Under G.S. 39-23.5(b) , not later than one year after the transfer was made.

History. 1997-291, s. 2; 2015-23, s. 1.

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 N.C. App. LEXIS 870 (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 N.C. App. LEXIS 870 (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 N.C. App. LEXIS 870 (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, 2018 Bankr. LEXIS 181 (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, 2014 Bankr. LEXIS 885 (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, 536 B.R. 646, 2015 Bankr. LEXIS 2969 (Bankr. W.D.N.C. 2015).

§ 39-23.9A. Governing law.

  1. In this section, the following rules determine a debtor’s location:
    1. A debtor who is an individual is located at the individual’s principal residence.
    2. A debtor that is an organization and has only one place of business is located at its place of business.
    3. A debtor that is an organization and has more than one place of business is located at its chief executive office.
  2. A claim for relief in the nature of a claim for relief under this Article is governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred.

History. 2015-23, s. 1.

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.”

§ 39-23.9B. Application to series organization.

  1. In this section, the following definitions apply:
    1. Protected series. — An arrangement, however denominated, created by a series organization that, pursuant to the law under which the series organization is organized, has the characteristics set forth in subdivision (2) of this subsection.
    2. Series organization. — An organization that, pursuant to the law under which it is organized, has all the following characteristics:
      1. The organic record of the organization provides for creation by the organization of one or more protected series, however denominated, with respect to specified property of the organization, and for records to be maintained for each protected series that identify the property of or associated with the protected series.
      2. Debt incurred or existing with respect to the activities of, or property of or associated with, a particular protected series is enforceable against the property of or associated with the protected series only, and not against the property of or associated with the organization or other protected series of the organization.
      3. Debt incurred or existing with respect to the activities or property of the organization is enforceable against the property of the organization only, and not against the property of or associated with a protected series of the organization.
  2. A series organization and each protected series of the organization is a separate person for purposes of this Article, even if for other purposes a protected series is not a person separate from the organization or other protected series of the organization.

History. 2015-23, s. 1.

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.”

§ 39-23.10. Supplementary provisions.

Unless displaced by the provisions of this Article, the principles of law and equity, including the law merchant and the law relating to principal and agent, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake, insolvency, or other validating or invalidating cause, supplement its provisions.

History. 1997-291, s. 2.

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.”

§ 39-23.11. Uniformity of application and construction.

This Article shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this Article among states enacting it.

History. 1997-291, s. 2; 2015-23, s. 1.

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.

A uniformity provision such as this appears in over two dozen uniform acts adopted in North Carolina. See, e.g., N.C. Gen. Stat. § 25-1-102(2)(c) (Uniform Commercial Code). The North Carolina courts have occasionally cited such a provision in connection with their construction of a uniform act. North Carolina Reinsurance Facility v. North Carolina Ins. Guaranty Ass’n., 67 N.C. App. 359, 372, 313 S.E.2d 253, 262 (1984) (applying N.C. Gen. Stat. § 58-155.17).

Effect of Amendments.

Session Laws 2015-23, s. 1, effective October 1, 2015, substituted “This Article” for “This act.” For applicability and effective date, see editor’s note.

§ 39-23.11A. Relation to Electronic Signatures in Global and National Commerce Act.

This Article modifies, limits, or supersedes the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001 et seq., but does not modify, limit, or supersede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or authorize electronic delivery of any of the notices described in Section 103(b) of that act, 15 U.S.C. Section 7003(b).

History. 2015-23, s. 1.

§ 39-23.12. Short title.

This Article, which was formerly cited as the Uniform Fraudulent Transfer Act, may be cited as the Uniform Voidable Transactions Act.

History. 1997-291, s. 2; 2015-23, s. 1.

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), ¶ 5; § 1, Comment 2, ¶ 6; § 4, Comment 9, ¶ 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).

Article 4. Voluntary Organizations and Associations. [Repealed]

§§ 39-24, 39-25. [Repealed]

Repealed by Session Laws 2006-226, s. 2(a), effective January 1, 2007.

§ 39-26.

Recodified as G.S. 59B-15(a) by Session Laws 2006-226, s. 2(b), effective January 1, 2007.

§ 39-27. [Repealed]

Recodified as G.S. 59B-15(b) by Session Laws 2006-226, s. 2(b), effective January 1, 2007.

Article 5. Sale of Building Lots in North Carolina. [Repealed]

§§ 39-28 through 39-32. [Repealed]

Repealed by Session Laws 1981, c. 358.

Article 5A. Control Corners in Real Estate Developments.

§§ 39-32.1 through 39-32.4. [Repealed]

Repealed by Session Laws 2017-27, s. 2, effective July 1, 2017.

History. G.S. 39-32.1 ; 1947, c. 816, s. 1; 1959, c. 1159; repealed by Session Laws 2017-27, s. 2, effective July 1, 2017. G.S. 39-32.2; 1947, c. 816, s. 2; repealed by Session Laws 2017-27, s. 2, effective July 1, 2017. G.S. 39-32.3; 1947, c. 816, s. 3; 1997-309, s. 1; repealed by Session Laws 2017-27, s. 2, effective July 1, 2017. G.S. 39-32.4; 1947, c. 816, s. 4; repealed by Session Laws 2017-27, s. 2, effective July 1, 2017.

Editor’s Note.

Former G.S. 39-32.1 through 39.32.4 pertained to control corners in real estate developments.

Article 6. Power of Appointment.

§§ 39-33, 39-34. [Repealed]

Repealed by Sessions Laws 2017-102, s. 13(a), effective July 12, 2017.

History. G.S. 39-33 ; 1943, c. 665, s. 1; repealed by Session Laws 2017-102, s. 13(a), effective July 12, 2017. G.S. 39-34; 1943, c. 665, s. 2; repealed by Session Laws 2017-102, s. 13(a), effective July 12, 2017.

Editor’s Note.

Former G.S. 39-33 pertained to method of release or limitation of power.

Former G.S. 39-34 pertained to method pre- scribed in G.S. 39-33 not exclusive.

§ 39-35.

Recodified as G.S. 31D-5-505 by Session Laws 2017-102, s. 13(b), effective July 12, 2017.

§ 39-36.

Recodified as G.S. 31D-4-403 .1 by Sessions Laws 2017-102, s. 13(c), effective July 12, 2017.

Article 7. Uniform Vendor and Purchaser Risk Act.

§ 39-37. Short title.

This Article may be cited as the Uniform Vendor and Purchaser Risk Act.

History. 1959, c. 514.

Legal Periodicals.

For article on installment land contracts in North Carolina, see 3 Campbell L. Rev. 29 (1981).

For comment, “Offer to Purchase and Contract: Buyer Beware,” see 8 Campbell L. Rev. 473 (1986).

§ 39-38. Uniformity of interpretation.

This Article shall be so interpreted and construed as to effectuate its general purpose to make uniform the law of those states which enact it.

History. 1959, c. 514.

Legal Periodicals.

For article on installment land contracts in North Carolina, see 3 Campbell L. Rev. 29 (1981).

For comment, “Offer to Purchase and Contract: Buyer Beware,” see 8 Campbell L. Rev. 473 (1986).

§ 39-39. Risk of loss.

Any contract hereafter made in this State for the purchase and sale of realty shall be interpreted as including an agreement that the parties shall have the following rights and duties, unless the contract expressly provides otherwise:

  1. If, when neither the legal title nor the possession of the subject matter of the contract has been transferred, all or a material part thereof is destroyed without fault of the purchaser, the vendor cannot enforce the contract, and the purchaser is entitled to recover any portion of the price that he has paid;
  2. If, when either the legal title or the possession of the subject matter of the contract has been transferred, all or any part thereof is destroyed without fault of the vendor, the purchaser is not thereby relieved from a duty to pay the price, nor is he entitled to recover any portion thereof that he has paid.

History. 1959, c. 514.

Legal Periodicals.

For article on options to purchase real property in North Carolina, see 44 N.C.L. Rev. 63 (1965).

For article on installment land contracts in North Carolina, see 3 Campbell L. Rev. 29 (1981).

For comment, “Offer to Purchase and Contract: Buyer Beware,” see 8 Campbell L. Rev. 473 (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 N.C. App. LEXIS 3259 (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, 1986 N.C. App. LEXIS 2313 , writ denied, 347 S.E.2d 33, 1986 N.C. LEXIS 2439 (N.C. 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, 1986 N.C. App. LEXIS 2313 , writ denied, 347 S.E.2d 33, 1986 N.C. LEXIS 2439 (N.C. 1986).

§§ 39-40 through 39-43.

Reserved for future codification purposes.

Article 8. Business Trusts.

§ 39-44. Definition.

The term “business trust” whenever used or referred to in this Article shall mean any unincorporated association, including an Illinois land trust, a Delaware statutory trust, or a Massachusetts business trust, engaged in any business or trade under a written instrument or declaration of trust under which the beneficial interest therein is divided into shares represented by certificates or shares of beneficial interest.

History. 1977, c. 768, s. 1; 2009-174, s. 1.

Effect of Amendments.

Session Laws 2009-174, s. 1, effective October 1, 2009, and applicable to all instruments recorded on or after that date, substituted “an Illinois land trust, a Delaware statutory trust, or” for “but not limited to” near the middle.

Legal Periodicals.

For survey of 1977 law on business associations, see 56 N.C.L. Rev. 939 (1977).

§ 39-45. Authority to acquire and hold real estate.

Business trusts are hereby authorized and empowered to acquire real estate and interests therein and to hold the same in their trust names and may sue and be sued in their trust names.

History. 1977, c. 768, s. 1.

§ 39-46. Title vested; conveyance; probate.

  1. Where real estate has been or may be hereafter conveyed to a business trust in its trust name or in the names of its trustees in their capacity as trustees of such business trust, the said title shall vest in said business trust, and the said real estate and interests therein may be conveyed, encumbered or otherwise disposed of by said business trust in its trust name by an instrument signed by at least one of its trustees, its president, a vice-president or other duly authorized officer, the said conveyance to be proven and probated in the same manner as provided by law for conveyances by corporations. Any conveyance, encumbrance or other disposition thus made by any such business trust shall convey good and sufficient title to said real estate and interests therein in accordance with the provisions of said conveyance; provided, however, that with respect to any such conveyance, encumbrance or other disposition effected after June 28, 1977, there must be recorded in the county where the land lies a memorandum of the written instrument or declaration of trust referred to in G.S. 39-44 . As a minimum such memorandum shall set forth the name, date and place of filing, if any, of such written instrument or declaration of trust, and the place where the written instrument or declaration of trust, and all amendments thereto, is kept and may be examined upon reasonable notice, which place need not be a public office. Such memorandum may include designation of trustees and duly authorized officers and the authority granted to them with regard to real estate matters, pursuant to subsection (b) of this section.
  2. Any business trust may convey or encumber an interest in real property that is transferable by either (i) an instrument duly executed by either an officer of the business trust other than one of its trustees, its president, a vice president, or other authorized agent identified in the recorded memorandum, or (ii) a declaration of trust described in subsection (a) of this section, if the conveyance has attached to it a signed resolution adopted by the board of trustees, as certified by an officer authorized to make such certifications of the business trust, authorizing the officer to execute, sign, seal, and deliver deeds, conveyances, or other instruments. This section is deemed to have been complied with if a resolution required by this subsection is recorded separately in the office of the register of deeds in the county where the land lies. Such a resolution shall be applicable to all instruments executed subsequently to the recording of the resolution and pursuant to its authority.Notwithstanding the foregoing, this section does not require a signed resolution adopted by the board of directors, as certified by an officer authorized to make such certifications, to be attached to an instrument or separately recorded in the case of an instrument duly executed by one of its trustees, its president, or a vice president of the business trust. All deeds, conveyances, or other instruments so executed shall, if otherwise sufficient, be valid and shall have the effect to pass the title to the real or personal property described in the instrument. Notwithstanding anything to the contrary in the trust agreement, and absent any provision otherwise in the recorded memorandum or declaration of trust required under subsection (a) of this section, when it appears on the face of an instrument registered in the office of the register of deeds that the instrument was signed in the ordinary course of business on behalf of a business trust by at least one of its trustees, its president, a vice president, or an assistant vice president, such an instrument shall be as valid with respect to the rights of innocent third parties for value without notice of a defect or breach of fiduciary duty as if executed pursuant to authorization from the board of trustees, unless the instrument reveals on its face a breach of fiduciary obligation. The provisions of this subsection shall not apply to parties who had actual knowledge of lack of authority or of a breach of fiduciary obligation.
  3. Nothing in this section shall be deemed to exclude the power of any representatives of a business trust to bind the business trust pursuant to express, implied, inherent, or apparent authority, ratification, estoppel, or otherwise.
  4. Nothing in this section shall relieve trustees or officers of a business trust from liability to the business trust or from any other liability that they may have incurred from any violation of their actual authority.

History. 1977, c. 768, s. 1; 2009-174, s. 2.

Effect of Amendments.

Session Laws 2009-174, s. 2, effective October 1, 2009, and applicable to all instruments recorded on or after that date, designated the previously existing provisions as subsection (a), and in subsection (a), deleted “and attested or countersigned by its secretary, assistant secretary or such other officer as is the custodian of its common seal, not acting in dual capacity, with its official seal affixed,” preceding “the said conveyance” in the first sentence, and added the last sentence; and added subsections (b) through (d).

§ 39-47. Prior deeds validated.

All deeds, leases, mortgages, deeds of trust or other conveyances heretofore executed in conformity with this Article and which are proper in all other respects are declared to be sufficient to pass title to real estate held by such business trusts in accordance with the provisions of such instruments.

History. 1977, c. 768, s. 1.

§§ 39-48, 39-49.

Reserved for future codification purposes.

Article 9. Disclosure.

§ 39-50. Death, illness, or conviction of certain crimes not a material fact.

In offering real property for sale it shall not be deemed a material fact that the real property was occupied previously by a person who died or had a serious illness while occupying the property or that a person convicted of any crime for which registration is required by Article 27A of Chapter 14 of the General Statutes occupies, occupied, or resides near the property; provided, however, that no seller may knowingly make a false statement regarding any such fact.

History. 1989, c. 592, s. 1; 1998-212, s. 17.16A(a).

§§ 39-51 through 39-59.

Reserved for future codification purposes.

Article 10. Real Property Tax Proration.

§ 39-60. Property tax proration on sale of real property.

Unless otherwise provided by contract, property taxes on the real property being sold shall be prorated between the seller and buyer of the real property on a calendar-year basis.

History. 2006-106, s. 7.

Editor’s Note.

Session Laws 2006-106, s. 10, made this Article effective for contracts entered into on or after October 1, 2006.