2021 Georgia Code
Title 18 - Debtor and Creditor
Chapter 2 - Debtor and Creditor Relations
Article 4 - Uniform Voidable Transactions Act
§ 18-2-78. Conditions for Voidability of Transfer or Obligation; Judgment

1. A transfer or obligation is not voidable under paragraph (1) of subsection (a) of Code Section 18-2-74 against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee.
2. To the extent a transfer is avoidable in an action by a creditor under paragraph (1) of subsection (a) of Code Section 18-2-77, the following rules apply:
   1. Except as otherwise provided in this Code section, the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection (c) of this Code section, or the amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against:
      1. The first transferee of the asset or the person for whose benefit the transfer was made; or
      2. An immediate or mediate transferee of the first transferee, other than:
         1. A good faith transferee who took for value; or
         2. An immediate or mediate good faith transferee of a person described in division (i) of this subparagraph.
   2. Recovery pursuant to paragraph (1) of subsection (a) or subsection (b) of Code Section 18-2-77 of or from the asset transferred or its proceeds, by levy or otherwise, is available only against a person described in paragraph (1) of this subsection.
3. If the judgment under subsection (b) of this Code section is based upon the value of the asset transferred, the judgment must 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:
   1. A lien on or a right to retain any interest in the asset transferred;
   2. Enforcement of any obligation incurred; or
   3. A reduction in the amount of the liability on the judgment.
5. A transfer is not voidable under paragraph (2) of subsection (a) of Code Section 18-2-74 or Code Section 18-2-75 if the transfer results from:
   1. Termination of a lease upon default by the debtor when the termination is pursuant to the lease and applicable law; or
   2. Enforcement of a security interest in compliance with Article 9 of the Uniform Commercial Code, other than acceptance of collateral in full or partial satisfaction of the obligation it secures.
6. A transfer is not voidable under subsection (b) of Code Section 18-2-75:
   1. To the extent the insider gave new value to or for the benefit of the debtor after the transfer was made unless 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 the 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 Code section:
   1. A party that seeks to invoke subsection (a), (d), (e), or (f) of this Code section has the burden of proving the applicability of that subsection;
   2. Except as otherwise provided in paragraphs (3) and (4) of this subsection, the creditor has the burden of proving each applicable element of subsection (b) or (c) of this Code section;
   3. The transferee has the burden of proving the applicability to the transferee of subparagraph (b) (1) (B) of this Code section; and
   4. A party that seeks adjustment under subsection (c) of this Code section has the burden of proving the adjustment.
8. The standard of proof required to establish matters referred to in this Code section is preponderance of the evidence.

(Code 1981, §18-2-78, enacted by Ga. L. 2002, p. 141, § 3; Ga. L. 2015, p. 996, § 4A-1/SB 65.)

- Power of person possessing voidable title to transfer goods to good faith purchaser for value, § 11-2-403.

Effect of sale to person without notice of equity, § 23-1-19.

- For annual survey on business associations, see 70 Mercer L. Rev. 19 (2018). For annual survey on real property law, see 70 Mercer L. Rev. 209 (2018).

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Code 1933, § 28-202 and former § 18-2-23 are included in the annotations for this Code section.

- Former Code 1933, §§ 28-101, 28-102, 28-201 and 28-202 provided creditors with a right to set aside fraudulent transfers, and this remedy was available to any creditor at time of transfer who thereafter reduced their claim to a judgment lien. United States v. Hickox, 356 F.2d 969 (5th Cir. 1966) (decided under former Code 1933, § 28-202).

- Former Civil Code 1910, §§ 3224 and 3225, being in pari materia, were to be construed together. Warren v. Citizens Nat'l Bank, 145 Ga. 503, 89 S.E. 520 (1916) (decided under former Civil Code 1910, § 3225).

Fraudulent conveyance statute, former §§ 18-2-22 and18-2-23 should be considered in pari materia. FDIC v. United States, 654 F. Supp. 794 (N.D. Ga. 1986) (decided under former § 18-2-23).

"Good faith for value" defense applies differently to 11 U.S.C. § 548 and state law claims. In particular: (i) under § 548(c), regardless of the type of fraud, the transfer is not avoidable if the transferee took for value and in good faith to the extent of the value given; (ii) with respect to actual fraud under state law, the transfer is not avoidable if the transferee took for reasonably equivalent value and in good faith under O.C.G.A. § 18-2-78(a); and (iii) in contrast, with respect to constructive fraud under state law, there is no defense to avoidability, but the transferee's liability is reduced to the extent it gave value to the debtor in good faith under § 18-2-78(d)(3). Trauner v. Delta Air Lines, Inc. (In re Think Retail Sols., LLC), Bankr. (Bankr. N.D. Ga. July 5, 2019).

One induced to sell goods to a bankrupt by fraud cannot reclaim from trustee. In re Whatley Bros., 199 F. 326 (N.D. Ga. 1912) (decided under former Civil Code 1910, § 3225).

- If the fraudulent grantee sells to an innocent purchaser, any unpaid purchase money due on such sale will be impounded as an equitable asset of the debtor for the distribution to the debtor's creditors. Beasley v. Smith, 144 Ga. 377, 87 S.E. 293 (1915) (decided under former Civil Code 1910, § 3225).

- Contrary to the trial court's conclusion, reasonable grounds for suspicion alone do not suffice to render a subsequent purchaser's title void, and when the buyer acquired the automobile for value, and had no notice that the seller's title was obtained through fraud, the buyer received good title. Hall v. Hidy, 263 Ga. 422, 435 S.E.2d 215 (1993) (decided under former § 18-2-23).

- It was error to charge that purchaser from one who is fraudulent grantee takes no title as against creditors if the individual has grounds to reasonably suspect fraud in conveyance to the grantor. Hinkle v. James Smith & Son, 133 Ga. 255, 65 S.E. 427 (1909) (decided under former Civil Code 1895, § 2695).

- When it was clearly evident that both the trustee and the contingent beneficiary of a trust had reasonable grounds to suspect that the purpose of the second security deed against certain property and the assignment thereof to the trust, at least in part, was done with the intent of the assignor to delay or defraud creditors in violation of former § 18-2-22(2), neither the trustee nor the beneficiary was a subsequent purchaser entitled to the protections of former § 18-2-23. FDIC v. United States, 654 F. Supp. 794 (N.D. Ga. 1986) (decided under former § 18-2-23).

- Bankruptcy court rejected a Chapter 11 trustee's argument that investors who received payments from affiliated businesses that were accused of operating a Ponzi scheme did not give value for the payments and could not assert a defense under 11 U.S.C. § 548(c) or Georgia law against the trustee's action seeking recovery of those payments under 11 U.S.C. §§ 544(b) and 548(a)(1)(A) and (a)(1)(B), and Georgia law, as fraudulent transfers. The investors had a claim for the return of principal the investors invested, based on fraud, the investors gave value for payments the investors received up to the amount of the principal the investors invested because the payments satisfied their claim, and their right to keep the payments did not depend on whether the investments the investors made were characterized as debt or equity. In re Int'l Mgmt. Assocs., LLC, Bankr. (Bankr. N.D. Ga. Dec. 1, 2009), aff'd, 661 F.3d 623 (11th Cir. 2011)(Unpublished).

When an investor asserted a fraudulent transfer claim against a bank to which a consultant who allegedly defrauded the investor made a down payment on a house, it was error to dismiss the claim based on the bank's assertion that the bank, under O.C.G.A. § 18-2-74(a)(1), took the consultant's funds in good faith and for a reasonably equivalent value because: (1) the investor's complaint did not admit or otherwise demonstrate such an affirmative defense; and (2) the investor had no obligation to anticipate the affirmative defense. Speedway Motorsports, Inc. v. Pinnacle Bank, 315 Ga. App. 320, 727 S.E.2d 151 (2012).

- There was no showing of transferees' good faith in fraudulent transfers from bankruptcy debtors since the lack of information from the debtors, the refusal of the debtors to allow transferees to conduct due diligence, and the usurious interest paid by the debtors clearly indicated that the transactions were fraudulent; thus, the transfers from bankruptcy debtors were avoidable. Kerr v. Audio Answers, Inc. (In re Christou), Bankr. (Bankr. N.D. Ga. Sept. 28, 2009).

- Georgia law allowing the recovery of general and punitive damages for fraudulent conveyances survived the enactment of Georgia's Uniform Fraudulent Transfers Act, O.C.G.A. § 18-2-70 et seq. Interfinancial Midtown, Inc. v. Choate Constr. Co., 343 Ga. App. 793, 806 S.E.2d 255 (2017).

- Judgment creditor could seek relief under the Uniform Fraudulent Transfers Act (now Uniform Voidable Transactions Act), O.C.G.A. § 18-2-70 et seq., against the judgment debtor, as well as any recipient of the transfers the debtor made, O.C.G.A. §§ 18-2-77 and18-2-78, but the creditor could not pursue the judgment debtor's mother and sister or their corporation because they did not receive any interest in the properties from the judgment debtor. RES-GA YPL, LLC v. Rowland, 340 Ga. App. 713, 798 S.E.2d 315 (2017).

- Based on evidence of the sale of judgment debtors' business to their long-time close friends and evidence that the friends were aware that the business owed money, a genuine issue of material fact remained as to whether the debtors transferred their assets with actual intent to hinder, delay, or defraud their creditor under O.C.G.A. § 18-2-74(a)(1). Therefore, the trial court's grant of summary judgment was reversed. Abbott Oil Co. v. Rogers, 302 Ga. App. 439, 691 S.E.2d 561 (2010), cert. denied, No. S10C1026, 2010 Ga. LEXIS 583 (Ga. 2010).

Creditor failed to show good faith under O.C.G.A. § 18-2-78 in receiving fraudulent transfers from a bankruptcy debtor as returns on the creditor's investments in the debtor's Ponzi scheme, and thus the creditor was not entitled to summary judgment; the creditor was an educated and sophisticated businessman and, despite the creditor's assertion that the creditor had no reason to doubt the debtor who previously brokered mortgages for the creditor, the facts that the creditor invested substantial funds, received no promissory notes, and was paid no interest were sufficient to indicate that the creditor should have been suspicious of the nature of the transactions. In re Christou v. Cressaty Metals, Inc., Bankr. (Bankr. N.D. Ga. Sept. 23, 2010).

O.C.G.A. § 18-2-78(e) was inapplicable to the transfer. The transfer occurred as part of the Settlement Agreement after the transferee sued the debtor and, as such, the transferee did not enforce a security interest in compliance with Article 9 of the Uniform Commercial Code; moreover, there was not a segregated, discrete fund in which the transferee could have exercised the transferee's security interest. Perkins v. Crown Fin., LLC (In re Int'l Mgmt. Assocs., LLC), Bankr. (Bankr. N.D. Ga. Feb. 9, 2016)(Unpublished).

Cited in Dime Savs. Bank v. Sandy Springs Assocs., 261 Ga. 485, 405 S.E.2d 491 (1991).

RESEARCH REFERENCES

Am. Jur. 2d.

- 37 Am. Jur. 2d, Fraudulent Conveyances and Transfers, § 92.

- 37 C.J.S., Fraudulent Conveyances, § 144.

- Right of grantee or transferee to be reimbursed for expenditures in payment of taxes or encumbrances on property where conveyance or transfer is in fraud of creditors, 8 A.L.R. 527.

Delivery of key as satisfying condition of immediate delivery and actual or continued change of possession to uphold sale of personal property against subsequent purchaser or third persons generally, 56 A.L.R. 518.

Persons asserting claim on theory of agency or trust as within term "creditors" in statutes relating to proof of claims against insolvent bank, 89 A.L.R. 383.

Right to set aside, for benefit of heirs and distributees, a conveyance or transfer by decedent in fraud of his creditors, 148 A.L.R. 230.

Rule denying relief to one who conveyed his property to defraud his creditors as applicable where the threatened claim which occasioned the conveyance was never established, 21 A.L.R.2d 589; 6 A.L.R.4th 862.

Right of creditors to attack as fraudulent a conveyance by third person to debtor's spouse, 35 A.L.R.2d 8.

Right of secured creditor to have set aside fraudulent transfer of other property by his debtor, 8 A.L.R.4th 1123.