(Code 1981, §18-2-78, enacted by Ga. L. 2002, p. 141, § 3; Ga. L. 2015, p. 996, § 4A-1/SB 65.)
Cross references.- 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.
Law reviews.- 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.
Basis of right to set aside fraudulent transfers.- 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).
Construction in pari materia with other statutes.
- 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).
Impoundment of unpaid purchase money from sale.
- 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).
Suspicion alone insufficient.
- 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).
Charge that grounds to suspect fraud in grantor's acquisition vitiates conveyance.
- 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).
Protection of trustee and contingent beneficiary.
- 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).
Reasonably equivalent value.- 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).
Transfers were avoidable.- 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).
Damages available.
- 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).
Suit against non-transferees of property barred.
- 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).
Summary judgment improper.
- 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.
C.J.S.- 37 C.J.S., Fraudulent Conveyances, § 144.
ALR.
- 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.