tively fraudulent, and may be sustained when, and only when. the parties make clear proof that, notwithstanding the indebtedness of the grantor, the conveyance was made in actual good faith and in such an amount as to leave at the time a reasonable surplus for the satisfaction of creditors.1 § 973. What conveyances subsequent creditors may avoid. As to the second class, usually called "subsequent creditors," it seems likewise to be settled that a conveyance made with an actual and direct intent to defraud creditors may be impeached by subsequent as well as by existing ones; but that conveyances simply voluntary are, at least where no creditors of the first class exist also, neither conclusively nor presumptively fraudulent, but will be deemed so where proof is given of an intention to defraud such subsequent creditors.3 1 Illustrations of this already appear in previous notes. See also Kain v. Larkin (1892), 131 N. Y. 300, 30 N. E. R. 105; Pike v. Miles, 23 Wis. 164, 99 Am. Dec. 148; Bull v. Bray, 89 Cal. 286, 26 Pac. R. 873, 13 L. R. A. 576; Cook v. Johnson, 1 Beas. (N. J. Eq.) 51, 72 Am. Dec. 381. 2 Mulock v. Wilson, 19 Colo. 296, 35 Pac. R. 532; Day v. Cooley, 118 Mass. 524; Bassett v. McKenna, 52 Conn. 437; Wyman v. Brown, 50 Me. 139; Lowry v. Fisher, 2 Bush (Ky.), 70, 92 Am. Dec. 475; Horbach v. Hill, 112 U. S. 144. In Hagerman v. Buchanan, 45 N. J. Eq. 292, 17 Atl. R. 946, 14 Am. St. R. 732, it is said, in reference to the right of subsequent creditors to attack, that "the rule has been quite uniform that an actual fraudulent intent to defraud some creditor must bě proved." In Seals v. Robinson, 75 Ala. 363, it is said that, "if actual fraud is shown, it is not of importance whether it was directed against existing or subsequent creditors; either can successfully impeach and defeat the conveyance, so far as it breaks in upon the right to satisfaction of their debts. . . . The right of the subsequent creditor depends upon the existence of actual fraud in the transaction; the burden of proving it rests upon him.” 3 In a late case in Arkansas (Rudy v. Austin (1892), 56 Ark. 73, 19 S. W. R. 111, 35 Am. St. R. 85) it is said: "Against subsequent creditors a voluntary conveyance executed by a grantor in debt at the time is not void unless actually fraudulent. To make it fraudulent, proof of actual . or intentional fraud is required. As to what will be sufficient proof of such fraud, the authorities are obscure and conflicting. In order for a subsequent creditor to avoid a voluntary conveyance it is not sufficient to show that there are 'debts still outstanding, which the grantor owed at the time he made it,' as held in Toney v. McGehee, 38 Ark. 427. Mere indebtedness is no evidence of fraud as to such creditors. But the insolvency of the grantor at the time the benefit of, subsequent creditors, the complaint should aver that the instrument to be avoided was executed with intent to defraud subsequent as well as existing creditors. Barrow v. Barrow, 108 Ind. 345, 9 N. E. R. 371; Stumph v. Bruner, 89 Ind. 556; Stevens v. Works, 81 Ind. 445; Lynch v. Raleigh, 3 Ind. 273." Hutchinson v. First Nat. Bank, 133 Ind. 271, 36 Am. St. R. 537, 30 N. E. R. 952. $974. Where creditors of both classes.- Where creditors of both classes exist-that is, where there are creditors at the time of the conveyance, and afterwards, before their debts are paid, other debts to other persons are created the authorof the conveyance is at least prima "In an action brought by, or for facie evidence of a fraudulent intent as to them, because a transfer of property under such circumstances affords a reasonable ground of presumption that the intention with which it was made was to put beyond the reach of creditors, future as well as present, the property to which they had a right to resort for the payment of their debts.' This presumption would necessarily arise if the grantor contracted debts immediately or so soon thereafter as to show that he reasonably had in contemplation the contracting of such debts at the time the transfer was made. From his inability to pay and the voluntary alienation, the conclusion would naturally follow that he did not intend to pay such debts when they were contracted, and that the conveyance of the property was intended to delay or prevent the collection thereof under due process of law. Winchester v. Charter, 12 Allen (Mass.), 606; s. C., 97 Mass. 140: Morrill v. Kilner, 113 Ill. 318, 322; Moritz v. Hoffman, 35 Ill. 553; Taylor v. Coenen, L. R. 1 Ch. Div. 636, 641; Reade v. Livingston, 3 Johns. Ch. 501, 502, 8 Am. Dec. 520; Redfield v. Buck,, 35 Conn. 328, 337, 95 Am. Dec. 241; Ridgeway v. Underwood, 4 Wash. C. C. 129; Howe v. Ward, 4 Greenl. (Me.) 195, 206: Sexton v. Wheaton, 8 Wheat. (U. S.) 229, 252; Horn v. Water Co., 13 Cal. 62, 73 Am. Dec. 569; Bump, Fr. Conv. 322; 2 Bigelow, Fraud, 99, 181, 200; May. Fr. Conv. 75; 1 Am. Lead. Cas. (5th ed.) 42; 2 Pomeroy, Eq. Jur., § 973." Where a man voluntarily conveys the greater part of his property to his wife, so that she and the children would have a home no matter "what turned up," and soon thereafter incurred debts and became insolvent, the conveyance was held to be a fraud upon the subsequent creditors. Jackson v. Plyler, 38 S. C. 496, 37 Am. St. R. 782, 17 S. E. R. 255. Voluntary conveyance in view of grantor's future indebtedness, and with an intent to place his property beyond the reach of his creditors, is fraudulent as against them and will be set aside. Cramer v. Reford, 17 N. J. Eq. 367, 90 Am. Dec. 594; Black v. Nease, 37 Pa. St. 433; Case v. Phelps, 39 N. Y. 164. The fact that the grantor enters into a hazardous business, or engages in a speculative enterprise, at or soon after the execution of a voluntary conveyance, is strong evidence of fraud upon subsequent creditors. Hagerman v. Buchanan, 45 N. J. Eq. 292, 17 Atl. R. 946, 14 Am. St. R. 732; City Nat. Bank v. Hamilton, 34 N. J. Eq. 158; Beeckman v. Montgomery, ities are more in conflict. The English and some American cases declare that if the conveyance is voidable by such existing creditors, it may, in virtue of their right to avoid it, be successfully attacked by such subsequent creditors, even though otherwise the latter could not assail it; but other, and perhaps 14 N. J. Eq. 106, 80 Am. Dec. 229; Mullen v. Wilson, 44 Pa. St. 413, 84 Am. Dec. 461; Carr v. Breese, 81 N. Y. 584. It may, however, be rebutted. Hagerman v. Buchanan, supra. That conveyance made with intent to defeat subsequent creditors is voidable as to them, see also Laughton v. Harden, 68 Me. 208; Rose v. Brown, 11 W. Va. 122; Shand v. Hanley, 71 N. Y. 319; Wallace v. Penfield, 106 U. S. 260, 1 S. Ct. 216; Payne v. Stanton, 59 Mo. 158. conveyance made with an actual intent to cheat, hinder or defraud either existing or subsequent creditors is void as to creditors both prior and subsequent.” In Claflin v. Mess, 30 N. J. Eq. 211, it is said: "A subsequent creditor may also impeach a voluntary deed, simply on the ground that it was made with intent to defraud existing creditors. 1 Am. Lead. Cas. 40; 1 Story's Eq. Juris., § 361; King v. Wilcox, 11 Paige, 594. But in such a case, in order to establish a good title to relief, he must show that at the time of the commencement of his suit there were debts still outstanding which the grantor owed at the time he made the deed, otherwise no foundation is laid for avoiding it as a fraud upon antecedent creditors; for if the grantor has paid all his debts incurred prior to the conveyance, that fact fully repels all idea of fraud as to them. Hurd on Fraud. Con. 52; 1 Am. Lead. Cas. 41; Spirett v. Willows, 3 De G., J. & S. 292; Freeman v. Pope, L. R. 9 Eq. 205, 5 Ch. App. 536; Lush v. Wilkinson, 5 Ves 387; Kidney v. Consomaher, 12 Ves. 156." But see Gardner v. Kleinke, 46 N. J. Eq. 90, 18 Atl. R. 457. The requirement of prior debts still existing at the time of suit, instead of at the time of contracting the later debts, seems to be repudiated in later English cases. Taylor v. Coenen, 1 Ch. D. 636; Ex parte Russell, 19 Ch. D. 588. See also Redfield v. Buck, 35 Conn. 328; McLane v. Johnson, 43 Vt. Among the American cases see Toney v. McGehee, 38 Ark. 419, where it is said: “A voluntary conveyance may be impeached by a subsequent creditor on the ground that it was made in fraud of existing creditors; but to do so he must show either that actual fraud was intended, or that there were debts still outstanding which the grantor owed at the time he made it" [citing 1 Story's Eq. Juris., § 361; Claflin v. Mess, 30 N. J. Eq. 211; Pope v. Wilson, 7 Ala. 690; Smith v. Greer, 3 Humph. 118; Reade v. Livingston, 3 Johns. Ch. 480, 8 Am. Dec. 520], though the latter part of the rule seemed to be denied in the later case of Rudy v. Austin, 56 Ark. 73, 35 Am. St. R. 85, 19 S. W. R. 111. But in the still later case of May v. State Nat. Bank, 59 Ark. 614, 28 S. W. R. 431, it is said that under the statute in Arkansas "a voluntary the majority, of the more recent American cases deny, in the language of one of them, "that one class of creditors may avoid a conveyance merely on the ground that it was intended to, and if sustained will, defraud another class."1 $975. creditors. Subrogation of subsequent to rights of existing If the conveyance is avoided by the existing creditors it is said to be the rule that the subsequent creditors are 48. The section quoted from Story's Eq. Juris. (§ 361) can scarcely be deemed to support the views for which it is cited, and it is at least probable that the court in such cases as Claflin v. Mess, supra, meant no more than to declare the rule already noticed in the text, that a conveyance made with an express intention to defraud creditors could be assailed by the subsequent as well as by the existing creditors. In Hutchinson v. Kelly (1842), 1 Rob. (Va.) 123, 39 Am. Dec. 250, it is said to be "the fair conclusion from the current of decisions" "to admit subsequent creditors to relief against a fund fraudulently alienated where the conveyance has been or might be successfully impeached by prior creditors." In Clark v. French (1843), 23 Me. 221, 39 Am. Dec. 618, a distinction is made between those cases in which the conveyance is made for a valuable consideration but with fraudulent intent, and those in which the conveyance is simply voluntary or subject to a secret trust and confidence. In the former it is not, while in the latter it is, subject to defeat by subsequent creditors. 1 Fullington v. Northwestern, etc. Association, 48 Minn. 490, 51 N. W. R. 475, 31 Am. St. R. 663, where the court said: "The plaintiff is a subsequent creditor, so that the question is presented, Can a subsequent cred itor avoid a conveyance by his debtor, not intended to nor operating to defraud him, on the ground that it was executed with intent to defraud existing creditors? This court has always held he cannot. Bruggerman v. Hoerr, 7 Minn. 337, 82 Am. Dec. 97; Stone v. Myers, 9 Minn. 303, 86 Am. Dec. 104; Sanders v. Chandler, 26 Minn. 273, 3 N. W. R. 351: Hartman v. Weiland, 36 Minn. 223, 30 N. W. R. 815; Bloom v. Moy, 43 Minn. 397, 19 Am. St. R. 243, 45 N. W. R. 715. One expression in Walsh v. Byrnes, 39 Minn. 527, 40 N. W. R. 831, may point to a different conclusion, but the entire opinion is to the effect that to enable a subsequent creditor to avoid a transfer as fraudulent, it must appear that its purpose was, or that its effect will be, to defraud him. An intent to defraud existing creditors may, in connection with other circumstances, be evidence on the question of intent to defraud subsequent or prospective creditors. Union Nat. Bank v. Pray, 44 Minn. 168, 46 N. W. R. 304. There is no little confusion in the authorities on the point, there being many dicta to the effect, and some decisions directly holding, that a subsequent creditor may avoid a conveyance fraudulent as to existing creditors, and other decisions the majority of the more modern decisions-holding the contrary." 1 entitled to the benefit and will share pro rata with the existing creditors; but this can be true only where, as in bankruptcy or insolvency proceedings, a court of equity is making a general distribution of the assets, and cannot operate to prevent the diligent creditor who has secured a lien by levy or otherwise from retaining the priority he has acquired by his diligence.2 § 976. Creditors with notice. If the subsequent creditor became such with notice of the conveyance alleged to be fraudulent, and was therefore not deceived by the apparent condition of things, he cannot ordinarily complain.3 § 977. Bona fide purchasers from fraudulent vendee.It has been already seen that one who purchases in good faith and for a valuable consideration is not affected by the fraudulent intention of his grantors. And even though the original vendee may have participated in the fraudulent intention of his vendor, yet if such vendee pledges, mortgages or conveys to another who takes in good faith and for value, the latter will be protected against the creditors or subsequent vendees of the original vendor.5 1 Thus in Kehr v. Smith, 20 Wall. (U.S.)36, it is said: "It is well settled, where a deed is set aside as void as to existing creditors, that all the creditors, prior and subsequent, share in the fund pro rata," citing, among others, Savage v. Murphy, 34 N. Y. 508. 90 Am. Dec. 733; Robinson v. Stewart, 10 N. Y. 189; Thompson v. Dougherty, 12 Serg. & R. (Pa) 448; Henderson v. Hoke, 3 Dev. (N. C.) L. 12: Kissam v. Edmundson, 1 Ired. (N. C.) Eq. 180: Read v. Livingston, 3 Johns. (N. Y.) Ch. 481, 8 Am. Dec. 520; Sexton v. Wheaton, 8 Wheat. (U. S.) 229, 1 Am. Lead. Cas. 17. See also O'Brien v. Stambach, 101 Iowa, 40, 69 N. W. R. 1133. 2 See Wait on Fraudulent Conveyances (3d ed.), § 392, and cases cited. 3 Monroe v. Smith (1875), 79 Pa. St. 459; Kane v. Roberts (1874), 40 Md. 590; Lehmberg v. Biberstein (1879), 51 Tex. 457; Sledge v. Obenchain (1881), 58 Miss. 670. 4 See ante, § 952. 5 Hood v. Fahnestock, 8 Watts (Pa.), 489, 34 Am. Dec. 489; Anderson v. Roberts, 18 Johns. (N. Y.) 515, 9 Am. Dec. 235; Choteau v. Jones, 11 Ill. 300, 50 Am. Dec. 460; Howe v. Waysman, 12 Mo. 169, 49 Am. Dec. 126; Sydnor v. Roberts, 13 Tex. 598. 65 Am. Dec. 84; Danbury v. Robinson, 1 McCarter (N. J.), 213, 82 Am. Dec. 244; Herndon v. Kimball, 7 Ga. 432. 50 Am. Dec. 406; Young v. Lathrop, 67 N. C. 63, 12 Am. R. 603; McLeod v. O'Neill (Ky.), 22 S. W. R. 220. |