Louisiana Voidable Transaction UVTA Fraudulent Transfer UFTA

 

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VOIDABLE TRANSACTIONS & FRAUDULENT TRANSFERS

 

LOUISIANA REVOCATORY ACTION & OBLIQUE ACTION

a/k/a Louisiana Fraudulent Transfer or Conveyance

 

Louisiana Revocatory Action and Oblique Action

(Non-Uniform / Civil Law Equivalent)

LSA-C.C. Art. 2036 et seq.

 

{ Check Currency - Current Only As Of January 1, 2020 }

 

 

Art. 2036. Act of the obligor that causes or increases his insolvency

 

An obligee has a right to annul an act of the obligor, or the result of a failure to act of the obligor, made or effected after the right of the obligee arose, that causes or increases the obligor’s insolvency.

 

REVISION COMMENTS--1984

 

(a) This Article is new. It changes the law insofar as it abandons the notion of fraud contained in the source articles. Otherwise, it reproduces the substance of C.C. Arts. 1969, 1970, 1971, 1972, 1975, 1977, 1985, 1986, 1988, and 1994 (1870).

 

(b) This Article substitutes an act of the obligor that causes or increases his insolvency for the notion of an act in fraud of creditors contained in the source articles. As used in those articles, the word “fraud” has a meaning which is difficult to determine but which appears different from its meaning in other contexts. In this revision, the criterion for the revocatory action is an objective one. It may be satisfied by an act done negligently as well as intentionally.

 

(c) The revocatory or Paulian action, an institution derived from Roman law, is the civil law analogue to the common law suit to set aside a fraudulent conveyance.

 

(d) The term “act” in this Article encompasses contracts, acts of payment, and any “contrivance” employed by an obligor to defeat his obligee’s rightful claim. See Newman v. Baer, 50 La.Ann. 323, 23 So. 279 (1897). According to the jurisprudence, any arrangement, whether made through judicial machinery or otherwise, whereby an obligor tries to give an obligee an advantage over others may be attacked by the injured obligees. See, e.g., Muse v. Yarborough, 11 La. 521 (1838), (obligor confessed judgment to one obligee in prejudice of the rights of others); Bank of Patterson v. Urban Co., 114 La. 788, 38 So. 561 (1905), (obligor filed answer and consented to quick trial of suit).

 

(e) The expression, “... the result of a failure to act of the obligor” contemplates situations in which an obligor becomes insolvent, or his insolvency increases, because of his failure to act, as when the obligor fails to defend himself in a law suit, and the resulting judgment creates or increases his insolvency.

 

(f) Under this Article, anteriority of the debt and insolvency of the debtor are prerequisites to the revocatory action, in accordance with traditional doctrine received by the Louisiana jurisprudence. See Tate, “The Revocatory Action in Louisiana Law,” Essays on the Civil Law of Obligations 133 (Dainow ed. 1969); Landry, “The Revocatory Action in the Quebec Civil Code: General Principles,” Id. at 115. An obligee’s claim does not have to be liquidated to judgment to be considered an anterior debt. Holland v. Gross, 195 So. 828 (La.App.2nd Cir.1940); Ventrilla v. Tortorice, 160 La. 516, 107 So. 390 (1926).

 

(g) The articles in this section do not address situations in which an already insolvent obligor gives an unfair advantage to one of his creditors. Situations of that kind are regulated by federal bankruptcy law. See 11 U.S.C. § 547.

 

(h) An obligor’s payment of a just and due debt may not be annulled under this Article. Although it reduces his assets, it also reduces his liabilities by the same amount. If the obligor gives a thing in payment of such a debt, C.C. Art. 2658 (1870) controls. See Morgan v. Gates, 396 So.2d 1386 (La.App.2nd Cir.1981).

 

Art. 2037. Insolvency

 

An obligor is insolvent when the total of his liabilities exceeds the total of his fairly appraised assets.

 

REVISION COMMENT--1984

 

This Article reproduces the substance of C.C. Arts. 1971 and 1985 (1870). It does not change the law.

 

Art. 2038. Onerous contract made by the obligor

 

An obligee may annul an onerous contract made by the obligor with a person who knew or should have known that the contract would cause or increase the obligor’s insolvency. In that case, the person is entitled to recover what he gave in return only to the extent that it has inured to the benefit of the obligor’s creditors.

 

An obligee may annul an onerous contract made by the obligor with a person who did not know that the contract would cause or increase the obligor’s insolvency, but in that case that person is entitled to recover as much as he gave to the obligor. That lack of knowledge is presumed when that person has given at least four-fifths of the value of the thing obtained in return from the obligor.

 

REVISION COMMENTS--1984

 

(a) This Article reproduces the substance of C.C. Arts. 1979, 1980, 1981, and 1982 (1870), but it changes the law insofar as it provides that a contract made by an insolvent obligor with a party in good faith may be annulled regardless of the amount given by the latter.

 

(b) Under this Article, the amount paid by the third person who contracted with the obligor is no longer a criterion for the annulment of the contract. It only determines whether or not that party was in good faith, and thus whether or not he is entitled to any recovery.

 

(c) The Louisiana jurisprudence has often asserted the relevance of knowledge of the obligor’s insolvency on the part of one contracting with him in determining the recovery to which the latter is entitled. Ventrilla v. Tortorice, 160 La. 516, 107 So. 390 (1926); Chaffe v. Gill, 43 La.Ann. 1054, 10 So. 361 (1891). See also E.J. Hart & Co. v. Mrs. M.J. Bowie et al., 34 La.Ann. 323 (1882); Seixas v. Citizens’ Bank, 38 La.Ann. 424 (1886); First National Bank of Shreveport v. Pierson, 180 La. 48, 156 So. 171 (1934).

 

Art. 2039. Gratuitous contract made by the obligor

 

An obligee may attack a gratuitous contract made by the obligor whether or not the other party knew that the contract would cause or increase the obligor’s insolvency.

 

REVISION COMMENT--1984

 

This Article is new. It changes the law insofar as it allows annulment of any gratuitous contract that causes or increases the insolvency of an obligor, regardless of the proportion of his assets to his liabilities. The formula provided in C.C. Art. 1980 (1870) has been eliminated because it is not functional. Only one Louisiana decision has relied on it. Planters of Pine Bluff, Inc. v. Gallion Gin, Inc., 228 So.2d 152 (La.App.2nd Cir.1969).

 

Art. 2040. Contract made in course of business

 

An obligee may not annul a contract made by the obligor in the regular course of his business.

 

REVISION COMMENT--1984

 

This Article reproduces the substance of C.C. Art. 1986 (1870). It does not change the law.

 

Art. 2041. Action must be brought within one year

 

The action of the obligee must be brought within one year from the time he learned or should have learned of the act, or the result of the failure to act, of the obligor that the obligee seeks to annul, but never after three years from the date of that act or result.

 

The three year period provided in this Article shall not apply in cases of fraud.

 

REVISION COMMENTS--1984

 

(a) This Article is new. As “insolvency” is substituted for “fraud” as the criterion for availability of the revocatory action, the prescriptive period should be one year from the day the obligee learned of the harm. Otherwise, a devious obligor could prejudice his obligee’s claim and conceal his actions for a year, thereby escaping liability altogether. This approach to prescription conforms with that adopted by Louisiana courts in the field of delicts and quasi-delicts. Nevertheless, to protect the security of transactions, the revocatory action may not be brought after three years from the date of the act or the result of the failure to act of the obligor.

 

(b) The prescriptive period of C.C. Art. 1994 (1870) runs from date of judgment. Since the revised articles on revocatory action have been drafted to cover unliquidated claims, the “date of judgment” is not a relevant starting point for determining when prescription has run.

 

(c) If the obligees are represented by a trustee in bankruptcy, then the two-year prescriptive period of 11 U.S.C. § 108 prevails.

 

Art. 2042. Obligee must join obligor and third persons

 

In an action to annul either his obligor’s act, or the result of his obligor’s failure to act, the obligee must join the obligor and the third persons involved in that act or failure to act.

 

A third person joined in the action may plead discussion of the obligor’s assets.

 

REVISION COMMENT--1984

 

This Article is new. It changes the law only insofar as it provides that the obligee must join the obligor and the third persons who concurred with him in the making of the attacked act. Prior jurisprudence merely permitted such joinder. E.J. Hart & Co. v. Mrs. M.J. Bowie et al., 34 La.Ann. 323 (1882); Ventrilla v. Tortorice, 160 La. 516, 107 So. 390 (1926); and Gast v. Gast, 206 La. 285, 19 So.2d 138 (1944).

 

Art. 2043. Assets transferred must be returned

 

If an obligee establishes his right to annul his obligor’s act, or the result of his obligor’s failure to act, that act or result shall be annulled only to the extent that it affects the obligee’s right.

 

REVISION COMMENTS--1984

 

(a) This Article reproduces the substance of C.C. Arts. 1977 and 1988 (1870). It does not change the law.

 

(b) Under this Article, the effect of the revocatory action is that the attacked transaction is annulled only insofar as annulment will benefit the complaining creditor, and the returned property is applied to the payment of that creditor. See Martin Lebreton Ins. Agency v. Phillips, 364 So.2d 1032 (La.1978).

 

(c) The effect of the revocatory action inures in the first place to the benefit of the creditor who succeeds in that action, even against a creditor of superior rank who did not bring such an action. See Stubbs v. Lee, 105 La. 642, 30 So. 169 (1901).

 

(d) Under this Article, when attacking creditors bring revocatory actions at about the same time, the effect of the action brought by one of them inures to the benefit of all such creditors. See Walton & Son v. Bemiss, 16 La. 140 (1840).

 

Art. 2044. Insolvency by failure to exercise right

 

If an obligor causes or increases his insolvency by failing to exercise a right, the obligee may exercise it himself, unless the right is strictly personal to the obligor.

 

For that purpose, the obligee must join in the suit his obligor and the third person against whom that right is asserted.

 

REVISION COMMENTS--1984

 

(a) This Article is new. It does not change the law, however. It gives express formulation to a principle that the redactors of 1825 regarded as too obvious to need stating.

 

(b) Identification of those actions which are “strictly personal” is left to the discretion of the courts, guided by the provisions of the relevant articles of this revision. See revised C.C. Arts. 1765 and 1766 (Rev.1984), supra; Succession of Henican, 248 So.2d 385 (La.App.4th Cir.1971).

 

(c) The creditor’s right in the oblique action is similar to the right of a third party beneficiary or the innocent victim of an accident to enforce an insurance contract to which he is not a party. The creditor in an oblique action, like the third party beneficiary or the accident victim, exercises a right which the law gives him to benefit from an obligation to which he is not a party. The debtor in the oblique action should thus not be allowed to claim that he did not intend the creditor’s advantage, as such a defense would not be permitted in the case of the third party beneficiary or the accident victim.

 

 

RECENT ARTICLES

 

2020.06.30 ... Attorney Fees Held Awardable Under Nevada Fraudulent Transfer Law In Morgan Stanley Opinion

2020.06.11 ... Bank That Was Financially Involved With Debtor Gets Caught Up In Fraudulent Transfer Case In Wilson

2020.05.21 ... Utah Supreme Court Rejects Mixed Motive Test For Intentional Fraudulent Transfers In Jones Case

2020.01.06 ... Twyne’s Case And The Most Infamous Flock Of Sheep In Anglo-American Law

2019.12.07 ... New York Finally Modernizes Its Fraudulent Transfer Laws By Adopting The Uniform Voidable Transactions Act

2019.10.29 ... Repeal Of Kentucky’s Fraudulent Transfer Law In Favor Of UVTA Causes Headaches In Orchard

2019.10.19 ... Texas Homestead Gets Constitutional Protection From Fraudulent Transfer Claim In Lapides

 

 

Many more articles on voidable transactions law found here

 

UVTA - LOGICAL ORGANIZATION

(Designed For Litigators)

 

Click here to go to the Voidable Transactions Decision Chart

 

Overview of UVTA -- The process and result

 

Learn The Vocabulary Of The Act (Main Page)

 

Has A Voidable Transaction Occurred? (Main Page)

 

Does The Transferee Have A Defense? (Main Page)

 

What Remedies Are Available? (Main Page)

 

Other Helpful Provisions (Main Page)

 

UVTA - NUMERICAL ORGANIZATION

(Confusing & Difficult To Use)

 

The Uniform Law Commission's complete copy of the UVTA with comments in PDF format is available here. The webpage for the UVTA, showing states that have enacted and much other information regarding the Act is found here.

 

1 - Definitions

(1) Affiliate -- (2) Asset -- (3) Claim -- (4) Creditor -- (5) Debt -- (6) Debtor -- (7) Electronic -- (8) Insider -- (9) Lien -- (10) Organization -- (11) Person -- (12) Property -- (13) Record -- (14) Relative -- (15) Sign -- (16) Transfer -- (17) Valid Lien

2 - Insolvency - How insolvency is calculated

3 - Value - Issues relating to calculating value

4 - Transfer Or Obligation Voidable As To Present Or Future Creditor

(a)(1) {Intent Test} - To hinder, delay or defraud any creditor

(a)(2)(i) {Overextending Insolvency Test} - The debtor engages in a transaction for which it does not have the financial strength

(a)(2)(ii) {Sinking Insolvency Test} - The debtor is not technically insolvent but headed for insolvency

(b) {Badges of Fraud} - Circumstances available to prove the debtor's intent

5 - Transfer or Obligation Voidable As To Present Creditor

(a) {Insolvency Test} - The test preferred by creditors

(b) {Insider Preference Test} - Not really a fraudulent transfer test at all

6 - When Transfer Is Made Or Obligation Is Incurred - Determines the time of the transfer

7 - Remedies Of Creditor

      {Non-Money Judgment Remedies} - Avoidance, attachment, etc.

8 - Defenses, Liability, And Protection Of Transferee Or Obligee

{Main Provisions} -The transferee's good faith for-value defense

(b) and (c) {Money Judgment Remedy} - Alternative remedy for creditors when avoidance is not good enough

9 - Extinguishment Of Claim For Relief - Similar to Statutes of Limitation

10 - Governing Law - Conflicts of Laws provisions

11 - Application To Series Organization - Applies to intra-series transfers

12 - Supplementary Provisions - Allows application of other law to issues unresolved by the UVTA

13 - Uniformity Of Application And Construction - Court opinions from other states may be looked to for guidance

14 - Relation To Electronic Signatures In Global And National Commerce - Waste of statutory space

15 - Short Title - From fraudulent transfers to voidable transactions

16 - Repeals; Conforming Amendment - Information for enacting legislatures

 

OTHER SOURCES OF

FRAUDULENT TRANSFER LAW

 

Fraudulent Transfers In Bankruptcy - Main Page

 

28 U.S.C. § 3301, et seq. - Where United States is the creditor

 

Common Law Fraudulent Transfer - Still exists in most states

 

Criminal Statutes -- Jurisdictions that criminalize fraudulent transfers

 

Fraudulent Conveyances Act of 1571 a/k/a Statute of 13 Elizabeth - The medieval statute to which the modern American UVTA traces some of its roots.

 

Statutes Of The U.S. Jurisdictions -- State and Territorial Voidable Transaction and Fraudulent Transfer Laws

 

TOPICAL COURT OPINIONS

 

DEFINITIONS

     Creditor Definition - Court opinions on the definition of creditor

     Debtor Insider Affiliate Relative Organization Person Definitions   - Court opinions on the definitions of debtor, insider, etc.

     Claim And Debt Definitions  - Court opinions on the definitions of claim and debt

     Asset And Property Definitions  - Court opinions on the definitions of assets and property

     Lien And Valid Lien Definitions  - Court opinions on the definitions of lien and valid lien

     Transfer Definition  - Court opinions on the definition of transfer

     Value And Reasonably Equivalent Value (REV) Definition  - Court opinions on the definitions of value and reasonably equivalent value

     Insolvency Definition  - Court opinions on the definition of insolvency

TESTS

     Insolvency Test  - Court opinions relating to the Insolvency Test

     Insider Preference Test  - Court opinions relating to the Insider Preference Test

     Overextending Insolvency Test  - Court opinions relating to the Overextending Insolvency Test

     Sinking Insolvency Test  - Court opinions relating to the Sinking Insolvency Test

     Intent Test  - Court opinions relating to the Intent Test

           Badges Of Fraud  - Court opinions relating to the Badges of Fraud

DEFENSES

     Extinguishment Periods a/k/a (incorrectly) Statute Of Limitations  - Court opinions relating to the extinguishment periods

     Transferee Good Faith  - Court opinions relating to the transferee good faith for-value defense

REMEDIES

     Non-Money Remedies  - Court opinions relating to avoidance and other non-money remedies

     Money Judgment Remedies  - Court opinions relating to money judgments

     Attorney Fees -- Court opinions relating to awards of attorney fees

     Punitive Damages - Court opinions relating to punitive and exemplary damages

OTHER

     Burdens of Proof  - Court opinions relating to the burdens of proof

     Conflict Of Laws  - Court opinions relating to conflict of laws

     Uniformity  - Court opinions relating to uniformity with the laws of other jurisdictions

     Supplementary Law  - Court opinions relating to the interplay of the UVTA with other law

     Jurisdictional Issues - Court opinions relating to jurisdiction of UVTA actions.

BANKRUPTCY

     Section 548  - Court opinions relating to 11 USC 548

 

OTHER RESOURCES

 

 

OTHER INFORMATIONAL WEBSITES

by Jay Adkisson

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business, by the author of the best-selling book on the topic: Adkisson's Captive Insurance Companies.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

  • Creditor-Debtor - An explanation of common creditor remedies, strategies and tactics to enforce a judgment, including a discussion of common debtor asset protection strategies.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Charging Orders - The confusing remedy against a debtor's interest in an LLC or partnership is explained in reference to the Uniform Partnership Act, the Uniform Limited Partnership Act, and the Uniform Limited Liability Company Act.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Anti-SLAPP Laws - A collection of and commentary about Anti-SLAPP laws and significant court decisions on the subject within the United States, and special section on California Anti-SLAPP.

 

 

Voidable Transactions:

Fraudulent Transfers In American Law

 

by Jay D. Adkisson (Available 2021)

 

Click here for more information

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© 2020 Jay D. Adkisson. All rights reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site https://voidabletransactions.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.