DEFENSES OF THE TRANSFEREE
If an avoidable transaction is found, then the next question is whether the transferee has a defense. The UVTA provides for two "universal" defenses, i.e., defenses that are good against all tests:
Assuming the Creditor's action is timely, the transferee is left with showing that the transferee was in "good faith" and gave at least something of value to the Debtor in exchange — this latter clause will decide whether a good faith transferee has a complete defense (if the transferee gave "reasonably equivalent value" to the Debtor, or a possible partial defense (if the transferee did not, but did give some lesser value). However, if a transferee is not in good faith, then the transferee is neither entitled to a full or partial defense, except as provided in § 8(e) and (f), i.e., a transferee not in good faith is not entitled to this defense in any part.
The term "good faith" is not defined by the UVTA, so we must look to decisional law for guidance on its meaning.
Here we find yet another significant mis-organization of the UVTA. The Uniform Fraudulent Conveyances Act of 1918 did not separately provide for a good faith defense. Instead, that the transferee was in good faith was part and parcel of the definition of "fair consideration" under § 3 of the UFCA. When the UFCA became the UFTA in 1984, and the term "fair consideration" was discarded, a new § 9(a) and (d) was created to provide for the defense of a transferee in good faith. This made sense.
What didn't make sense was that in the new § 9 of the UFTA, the drafters also included a new §9(b) and (c) which for the first time provided that a creditor could elect a money judgment to be paid by the transferee instead of mere avoidance. These provisions should logically have been put in the also-new creditor's remedies section, which became §7 of the UFTA, but apparently because they also tested the transferee's good faith, they were instead installed in §8.
We have examined the transferee's good faith, but what of the debtor's good faith? Other than being evidence to prove that the debtor did not have an intent to defraud his creditors, which of course is only and exclusively relevant to the Intent Test of § 4(a)(1), that the debtor may have acted in good faith in making the transfer is simply irrelevant, except as maybe to conspiracy or punitive damages, etc.
The UVTA also provides for specific defenses that are peculiar to certain of the tests or several of them, and these are considered on the pages for each test.
- Insolvency Test
- Overextending Insolvency Test
- Sinking Insolvency Test
- Intent Test
- Insider Preference Test
ARTICLES ON DEFENSES
- 2017.04.01 ... The UVTA Baedeker: Can The Transferee Assert A Defense?