CHAPTER XI.

FRAUDULENT CONVEYANCES.

Explanatory. In commercial transactions, credit is given in reliance on the debtor's honesty and his financial ability to pay, the latter being determined largely by the amount of property which the debtor owns. If, therefore, a debtor conveys away his property fraudulently after having been given credit on the strength of being the owner of it, this usually constitutes a conveyance in fraud of creditors which the law will not tolerate. Such fraudulent conveyances are void at common law, but were expressly prohibited and declared to be void by a famous English statute passed in the year 1570 (13 Elizabeth), the general provisions of which have been re-enacted in almost every state of the Union, including Wisconsin. We will first quote our statutes on this subject.

When conveyances of realty void. — “Every conveyance of any estate or interest in land, or the rents and profits of lands and every charge upon lands or upon the rents and profits thereof, made or created with the intent to defraud prior or subsequent purchasers for a valuable consideration of the same lands, rents or profits, as against such purchasers, shall be void."

Conveyances not fraudulent, when.-"No such conveyance or charge shall be deemed fraudulent in favor of a subsequent purchaser who shall have actual or legal notice thereof at the time of his purchase, unless it shall appear that the grantee in such conveyance or person to be benefited by such charge was privy to the fraud intended."

Conveyances with power of revocation, void.-"Every conveyance or charge of or upon any estate or interest in lands containing any provision for the revocation, determination or alteration of such estate or interest or any part thereof, at the will of the grantor, shall be void as against

subsequent purchasers from such grantor for a valuable consideration of any estate or interest so liable to be revoked or determined, although the same be not expressly revoked, determined or altered by such grantor by virtue of the power reserved or expressed in such prior conveyance or charge." Such conveyances valid, when.-"Where a power to revoke a conveyance of any lands or the rents and profits thereof and to reconvey the same shall be given to any person other than the grantor in such conveyance, and such person shall thereafter convey the same lands, rents or profits to a purchaser for a valuable consideration, such subsequent conveyance shall be valid in the same manner and to the same extent as if the power of revocation were recited therein and the intent to revoke the former conveyance expressly declared."

Same subject. - "If a conveyance to a purchaser, under either of the two last preceding sections, shall be made before the person making the same shall be entitled to execute his power of revocation, it shall nevertheless be valid from the time the power of revocation shall actually vest in such person in the same manner and to the same extent as if then made."

Void conveyances of personalty.-"All deeds of gift, all conveyances and all transfers or assignments, verbal or written, of goods, chattels or things in action, made in trust for the use of the person making the same, shall be void as against the creditors, existing or subsequent, of such person.

Fraud presumed if possession not changed.-"Every sale made by a vendor, of goods and chattels in his possession or under his control, and every assignment of goods and chattels, unless the same be accompanied by an immediate delivery and be followed by an actual and continued change of possession of the things sold or assigned, shall be presumed to be fraudulent and void as against the creditors of the vendor or the creditors of the person making such assignment or subsequent purchasers in good faith; and shall be conclusive evidence of fraud unless it shall be made to appear on the part of the person claiming under such sale or assignment that the same was made in good faith without any intent to defraud such creditors or purchasers.'

Creditors defined.-"The term "creditors", as used in

the last section, shall be construed to include all persons who shall be creditors of the vendor or assignor at any time whilst such goods and chattels shall remain in his possession or under his control."

Excepted cases.-"Nothing contained in the two last sections shall be construed to apply to contracts of bottomry or respondentia, nor to assignments or hypothecations of vessels or goods at sea or in foreign ports, or without this state; provided, the assignee or mortgagee shall take possession of such ship, vessel or goods as soon as may be after the arrival thereof within this state." (These terms are defined and explained in the chapter on Interest and Usury.)

Conveyances in fraud of creditors void. "Every conveyance or assignment, in writing or otherwise, of any estate or interest in land, or in goods, or things in action, or any rents or profits issuing therefrom and every charge upon lands, goods or things in action or upon the rents or profits thereof, made with the intent to hinder, delay or defraud creditors or other persons of their lawful actions, damages, forfeitures, debts or demands; and every bond or other evidence of debt given, action commenced, order or judgment suffered, with the like intent as against the person so hindered, delayed or defrauded, shall be void."

Grants of trust to be in writing. "Every grant or assignment of any existing trust in lands, goods or things in action, unless the same shall be in writing subscribed by the party making the same or by his agent lawfully authorized, shall be void."

Conveyances void as to creditors, void as to heirs. -"Every conveyance, charge, instrument or proceeding declared to be void. . . . . as against creditors or purchasers shall be equally void against the heirs, successors, personal representatives or assignees of such creditors or purchasers."

Fraudulent intent a question of fact.-"The question of fraudulent intent. . . .. shall be deemed a question of fact and not of law, nor shall any conveyance or charge be adjudged fraudulent as against creditors or purchasers solely on the ground that it was not founded on a valuable consideration."

Purchasers without notice protected.-"The provisions of this title (that is, the last preceding four sections) shall not be construed in any manner to affect or impair the

title of a purchaser for a valuable consideration unless it shall appear that such purchaser had previous notice of the fraudulent intent of his immediate grantor or of the fraud rendering void the title of such grantor."

Statutes explained.--The foregoing statutes apply only to property subject to sale on execution. Exempt property may be given away or transferred in any manner by a debtor and creditors cannot complain. The reader must bear in mind that under the federal bankruptcy law, all preferences given within four months before the filing of a petition in bankruptcy are voidable by the trustee. Under the federal law, "a person shall be deemed to have given a preference if, being insolvent, he has procured or suffered a judgment to be entered against himself in favor of any person, or made a transfer of any of his property, and the effect of the enforcement of such judgment or transfer will be to enable any one of his creditors to obtain a greater percentage of his debt than any other of such creditors of the same class." Want of valuable consideration and intent to defraud, or acts which tend to defraud creditors, must generally be proved by the party attacking the sale as fraudulent, but in a contest between the creditors of a husband and the wife, if the wife claims ownership of the property by a purchase, the burden of proof is upon her to show, by clear and satisfactory evidence, such purchase, and that the purchase was for a valuable consideration, paid by her out of her separate estate, or by some other person for her. "In all such cases the burden of proof showing the bona fides of the purchase is upon her, and she must show by clear and satisfactory evidence that the purchase was made in good faith, with her separate estate, or for a consideration moving from some person other than her husband. In all such cases the presumptions are in favor of the creditors, and not in favor of the title of the wife." Inadequacy of consideration may be a badge of fraud, and may always be considered in connection with other facts in determining whether a deed was not made with intent to defraud creditors. To avoid a sale based on a valuable consideration as being in fraud of creditors, both parties must be connected with the fraudulent design, i.e., before a sale made by a grantor with the intent to defraud his creditors will be set aside as against his grantee, it must be made to appear that such grantee participated in or had knowledge of such intent, but

when a conveyance is merely voluntary, i. e., without consideration, even though the vendee is innocent of all fraud, the conveyance will not stand as against the vendor's creditors. In an action to impeach a sale for fraud as against the vendor's creditors, our Supreme Court said: "In cases of this nature, besides the relation of debtor and creditor, two facts are to be shown in order to establish the defence; first, fraud on the part of the vendor of the property in making the sale, and, second, knowledge of such fraud on the part of the vendee or purchaser at the time of purchasing, or knowledge of such other facts or circumstances by the vendee as ought to have put him upon inquiry and would have led to the ascertainment of the truth, or as will afford reasonable ground for the inference that he purposely or negligently omitted to make those inquiries which an ordinarily cautious and prudent man in the same situation would have made. Knowledge by the vendee of the fraudulent intent, or the existence within his knowledge of other facts and circumstances naturally and justly calculated to awaken suspicion of it in the mind of a man of ordinary care and prudence, thus making it his duty to pause and inquire, and a wrong on his part not to do so, before consummating the purchase, is essential in order to charge the vendee in every such case with a knowledge of facts so calculated to arouse suspicion, and the vendee cannot shut his eyes, but must look about him and inquire."

The fact that the parties are closely related, as in case of a transfer by a husband to his wife, will not make the transaction presumtively fraudulent, although subject to close scrutiny by the court. If a deed is given with the intention of defrauding creditors, it is fraudulent and void as to such creditors, nothwithstanding it is founded on a valid consideration. Whether an intent to defraud creditors exists, is a question for the jury to decide. Where a person settled practically all his property upon his wife, immediately after entering into a new partnership, such settlement was held void. "If the settlement is unreasonable in amount in view of the property and circumstances of the husband, or if there is an intention in fact to defraud existing creditors, or creditors whose rights are expected to shortly supervene, or creditors whose rights may and do so supervene, the settler purposing to throw the hazards of business in which he is