CACI No. 4207. Affirmative Defense - Good Faith (Civ. Code, § 3439.08(a), (f)(1))

Judicial Council of California Civil Jury Instructions (2020 edition)

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4207.Affirmative Defense - Good Faith (Civ. Code, § 3439.08(a),
(f)(1))
[Name of defendant] is not liable to [name of plaintiff] [on the claim for
actual fraud] if [name of defendant] proves both of the following:
[Use one of the following two sets of elements:]
[1. That [name of defendant] took the property from [name of debtor]
in good faith; and
2. That [he/she/nonbinary pronoun/it] took the property for a
reasonably equivalent value.]
[or]
[1. That [name of defendant] received the property from [name of
third party], who had taken the property from [name of debtor] in
good faith; and
2. That [name of third party] had taken the property for a
reasonably equivalent value.]
“Good faith” means that [name of defendant/third party] acted without
actual fraudulent intent and that [he/she/nonbinary pronoun/it] did not
collude with [name of debtor] or otherwise actively participate in any
fraudulent scheme. If you decide that [name of defendant/third party]
knew facts showing that [name of debtor] had a fraudulent intent, then
[name of defendant/third party] cannot have taken the property in good
faith.
New June 2006; Revised June 2016, November 2017
Directions for Use
This instruction presents a defense that is available to a good-faith transferee for
value in cases involving allegations of actual fraud under the Uniform Voidable
Transactions Act (formerly the Uniform Fraudulent Transfer Act). (See Civ. Code,
§ 3439.08(a), (f)(1).) Include the bracketed language in the first sentence if the
plaintiff is bringing claims for both actual fraud and constructive fraud.
The Legislative Committee Comments - Assembly to Civil Code section 3439.08(a)
provides that the transferee’s knowledge of the transferor’s fraudulent intent may, in
combination with other facts, be relevant on the issue of the transferee’s good faith.
(See Annod Corp. v. Hamilton & Samuels (2002) 100 Cal.App.4th 1286, 1299 [123
Cal.Rptr.2d 924], emphasis added.) However, another sentence of the same comment
provides “knowledge of facts rendering the transfer voidable would be inconsistent
with the good faith that is required of a protected transferee.” This language
indicates that if the transferee knew facts showing that the transferor had a
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fraudulent intent, there cannot be a finding of good faith regardless of any
combination of facts; and one court has so held. (See Nautilus, Inc. v. Yang (2017)
11 Cal.App.5th 33, 46 [217 Cal.Rptr.3d 458].) The committee believes that Nautilus
presents the better rule.
Sources and Authority
• Transaction Not Voidable as to Good-Faith Transferee for Reasonable Value.
Civil Code section 3439.08(a).
• Transferee’s Burden of Proving Good Faith and Reasonable Value. Civil Code
section 3439.08(f)(1).
• When Value is Given. Civil Code section 3439.03.
• “If a transferee or obligee took in good faith and for a reasonably equivalent
value, however, the transfer or obligation is not voidable. Whether a transfer is
made with fraudulent intent and whether a transferee acted in good faith and
gave reasonably equivalent value within the meaning of section 3439.08,
subdivision (a), are questions of fact.” (Nautilus Inc., supra, 11 Cal.App.5th at p.
40, internal citation and footnote omitted.)
• “The Legislative Committee comment to Civil Code section 3439.08, subdivision
(a), provides that ‘good faith,’ within the meaning of the provision, ‘means that
the transferee acted without actual fraudulent intent and that he or she did not
collude with the debtor or otherwise actively participate in the fraudulent scheme
of the debtor. The transferee’s knowledge of the transferor’s fraudulent intent
may, in combination with other facts, be relevant on the issue of the transferee’s
good faith . . . .’ ” (Annod Corp., supra, 100 Cal.App.4th at p. 1299, internal
citations omitted.)
• “ ‘Fraudulent intent,’ ‘collusion,’ ‘active participation,’ ‘fraudulent scheme’ - this
is the language of deliberate wrongful conduct. It belies any notion that one can
become a fraudulent transferee by accident, or even negligently. It certainly
belies the notion that guilty knowledge can be created by the fiction of
constructive notice.” (Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1859
[37 Cal.Rptr.2d 63], original italics.)
• “We read Brincko [v. Rio Props. (D.Nev., Jan. 14, 2013, No. 2:10-CV-00930-
PMP-PAL) 2013 U.S.Dist. Lexis 5986, pp. *51-*52] as requiring actual
knowledge by the transferee of a fraudulent intent on the part of the
transferor - not merely constructive knowledge or inquiry notice. To that extent,
we agree with Brincko’s construction of the proper test for application of the
good faith defense. However, our formulation of the test (1) does not use the
words ‘suggest to a reasonable person’ because that phrase might imply inquiry
notice - a concept rejected in Lewis and Brincko - and (2) avoids use of the
words ‘voidable’ and ‘fraudulent transfer’ because those concepts are
inconsistent with the Legislative Committee comment to section 3439.08.
Accordingly, we hold that a transferee does not take in good faith if the
transferee had actual knowledge of facts showing the transferor had fraudulent
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intent.” (Nautilus, Inc., supra, 11 Cal.App.5th at p. 46, original italics.)
• “[T]he trial court erred in placing the burden of proof on [plaintiff] to prove the
good faith defense did not apply.” (Nautilus, Inc., supra, 11 Cal.App.5th at p.
41.)
• “[U]nder section 3439.08, subdivision (b)(1)(A), judgment for a fraudulent
transfer may be entered against ‘[t]he first transferee of the asset or the person
for whose benefit the transfer was made.’ ” (Lo v. Lee (2018) 24 Cal.App.5th
1065, 1072 [234 Cal.Rptr.3d 824], original italics.)
• “Contrary to plaintiff’s suggestion, the fact that a person received any kind of
‘benefit,’ no matter how intangible or indirect, from a fraudulent transaction does
not necessarily subject that person to liability. There are limits to the legal
assessment of the type of ‘benefit’ that will subject a beneficiary to liability for
the debtor’s alleged fraudulent transfer. The benefit received must be ‘direct,
ascertainable and quantifiable’ and must bear a ‘ “necessary correspondence to
the value of the property transferred.” ’ ‘ “[T]ransfer beneficiary status depends
on three aspects of the ‘benefit’: (1) it must actually have been received by the
beneficiary; (2) it must be quantifiable; and (3) it must be accessible to the
beneficiary.” ’ ” (Lo,supra, 24 Cal.App.5th at p. 1073.)
Secondary Sources
Ahart, California Practice Guide: Enforcing Judgments & Debts, Ch. 3-C,
Prejudgment Collection - Prelawsuit Considerations, ¶ 3:324. (The Rutter Group)
Wiseman & Reese, California Practice Guide: Civil Procedure Before Trial Claims
& Defenses, Ch. 5(III)-C, Fraud - Fraudulent Transfers - Particular Defenses,
¶ 5:580 et seq. (The Rutter Group)
23 California Forms of Pleading and Practice, Ch. 270, Fraudulent Conveyances,
§§ 270.35[2], 270.44[1], 270.47[2], [3] (Matthew Bender)
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