creditor purchasing goods from his debtor at a price in excess of the debt is a participant in the debtor's fraud, where he knows that the excess so paid is to be placed by the latter beyond the reach of his other creditors, although there was no purpose to aid him in his design." A transfer of property by a debtor to a creditor will be held fraudulent where the latter at the same time endeavors to hold property for the debtor, to keep it for him from his creditors, or to aid the debtor in covering up his property and defeating his other creditors.78 But the purchaser from an insolvent debtor who 49 S. W. 1095; Proetzel v. Buck Stove, etc., Co. (Civ. App. 1894), 26 S. W. 1110; Stuart v. Smith (Civ. App. 1893), 21 S. W. 1026. But see Haas v. Kraus, 75 Tex. 106, 12 S. W. 394. Vt.-Prout v. Vaughn, 52 Vt. 451. 521. W. Va.-Murdoch v. Baker, 46 W. Va. 78, 32 S. E. 1009; Hart v. Sandy, 39 W. Va. 644. Can. Merritt v. Niles, 28 Grant Ch. (U. C.) 346. Where necessity compels larger purchase.-A purchasing creditor from an insolvent must have a bona fide debt, and purchase at a fair price, and to the extent only of satisfying his debt, unless necessity compels a larger purchase, in which event the buyer's notice of the seller's fraudulent intent is not sufficient to invalidate the sale unless participated in by the buyer. Fly v. Screeton, 64 Ark. 184, 41 S. W. 764; Wood v. Keith, 60 Ark. 425, 30 S. W. 756. Such necessity must be a reasonable necessity arising from the natural situation or condition of the property. Levy v. Williams, 79 Ala. 171; Maddox v. Reynolds, 69 Ark. 541, 64 S. W. 266. 77. McVeagh v. Baxter, 82 Mo. 518; Murdoch v. Baker, 46 W. Va. 78, 32 S. E. 1009; Hart v. Sandy, 39 W. Va. 644, 20 S. E. 665; Gillespie v. Allen, 37 W. Va. 675, 17 S. E. 184. Transfers of the property of an insolvent with the intent to hinder and defraud his creditors, known to the purchaser, are void as against creditors, although a full consideration is paid. Herman v. McKenney, 47 Fed. 758. 78. Blumenthal v. Michel, 33 App. Div. (N. Y.) 636, 54 N. Y. Supp. 81; Schram v. Taylor, 51 Kan. 547, 33 Pac. 315; Hadley v. Adsit, 3 Kan. App. 122, 42 Pac. 836; Thompson v. Furr, 57 Miss. 478; Holt v. Creamer, 34 N. J. Eq. 181; Sweet's petition, 20 R. I. 557, 40 Atl. 502. The rule applies to a judgment by confession. Gale v. Tode, 148 N. Y. 270; Sowles v. Witters, 55 Fed. 159. See also Confession of judgment, chap. II, § 11, supra. Putting purchase price into homestead.-A scheme by an insolvent debtor and a preferred creditor to dispose of the entire stock of such debtor, to put the purchase price into a homestead for the benefit of the debtor, and fraudulently apply the balance to pay the creditor, is illegal in so far, at least, as the preferred creditor is concerned. Carson pays him a sum of money as the purchase price, or a creditor who receives in payment goods exceeding in value his debt, cannot be held to a fraudulent intent, where by agreement the purchaser or seller applies the cash or notes constituting the purchase price, or the excess, in payment of other debts of the seller, the sale being otherwise fair." And the fact that the property transferred by a debtor, or the security given to a creditor, is largely in excess of the debt, is not conclusive of fraud, particularly if the creditor act in good faith and a fair sum is paid for the difference between value of the property and the amount of the debt;80 it is but a badge of fraud, and only becomes a fraud in law when the purpose is to protect the debtor's interest from other creditors.81 This is held to be the rule even though all the property of the debtor is included in the transfer.82 § 11. Recital of false consideration.-Recital of a false consideration in an absolute conveyance intended as a mortgage to v. Hawley, 82 Minn. 204, 84 N. W. 746. See Powell v. Jeffries, 5 Ill. 387. See also Purchase of homestead and payment of liens, chap. IV, § 45, supra. 79. Fargerson v. Hall, 99 Ala. 209, 13 So. 302; Murphy v. Murphy, 74 Conn. 198, 50 Atl. 394; Troustine v. Lask, 4 Baxt. (Tenn.) 162; Tennant, etc., Shoe Co. v. Partridge, 82 Tex. 329, 18 S. W. 310. If the purchaser is justified in believing that the money paid by him for goods in excess of the amount of his debt is to be devoted to the payment of a bona fide indebtedness of the seller, such purchase is not necessarily fraudulent. St. Louis Coffin Co. v. Rubelman, 15 Mo. App. 280. 80. Nathan v. Sands, 52 Neb. 660, 72 N. W. 1030; Goldsmith v. Erickson, 48 Neb. 48, 66 N. W. 1029; Smith v. Phelan, 40 Neb. 765, 50 N. 81. Farmers', etc., Bank v. Orme, 5 Ariz. 304, 52 Pac. 473; Richards v. Schreiber, etc., Co., 98 Iowa, 422, 67 N. W. 569; Lycoming Rubber Co. v. King, 90 Iowa, 343, 57 N. W. 864. See also Badges of fraud; excess of security, chap. VI, § 5, supra. A confession of judgment in excess of the amount due the creditor does not show fraud on the part of the creditor, where she was inexperienced and relied on the statement of the judgment debtor, who was her brother, as to the amount due her. Merchants' Bldg., etc., Assoc. v. Barber (N. J. Ch. 1894), 30 Atl. 865. 82. Richards V. Schreiber, etc., Co., 98 Iowa, 422, 67 N. W. 569. See also Transfer of all the debtor's property, chap. VI, § 8, supra. 83 secure a smaller sum than that recited is strong evidence of participation in the grantor's fraudulent intent. A mortgage executed to hinder and delay the mortgagee's creditors, and which purposely exaggerates the mortgagee's demand, and the object of which is known to the mortgagee at the time of its execution, is void as against such creditors. If a creditor knowing the insolvency of his debtor, takes from him a deed of trust to secure the entire amount of his debt without disclosing the fact that he is indebted to the grantor on another transaction, not noticed in the deed, this would be a strong circumstance against him, and would probably be conclusive if the indemnity provided was fully adequate to the secured debt; but if the mortgaged property was insufficient to pay the secured debts by an amount exceeding the creditor's indebtedness to the grantor, or if there were other debts or liabilities, not provided for by the deed, exceeding the creditor's said indebtedness, this would be sufficient to rebut every inference of fraud or dishonesty.85 § 12. When creditor's intent is immaterial. The fraudulent intent of one or both parties to a sale by an insolvent debtor will not invalidate it as to his other creditors, if it was made in payment of a bona fide debt, not less than the fair value of the property, and was without reservation of any benefit to the debtor.86 A conveyance made by a debtor to secure his debt, if also made to hinder, delay, or defraud other creditors, is void as to them; and a deed, containing provisions to hinder, delay, or defraud creditors, will be void as to them, though taken by a creditor with the sole motive of securing his debts, and accepted by him with such provisions, because the debtor would give no other. In such case 83. Bailey v. Cheatham, 4 Ky. L. Rep. 351. 84. Stinson v. Hawkins, 13 Fed. 833, 4 McCrary, 500, 16 Fed. 850, 5 McCrary, 284; Taylor v. Wood (N. J. Ch.), 5 Atl. 818; Wallis v. Adoue, 76 Tex. 118, 13 S. W. 63. 85. Alabama L. Ins., etc., Co. v. Pettway, 24 Ala. 544. See also Fictitiousness of consideration, chap. VI, § 3, supra; False statements as to consideration, chap. VI, § 2, supra; Fictitious consideration, chap. VIII, § 4, supra. 86. Morrow v. 330, 24 So. 852. Campbell, 118 Ala. the necessary effect of the transfer would seem to control the intent of the creditor or render it immaterial. But it had been held that if a creditor takes a judgment, or conveyance, or payment in any form, to secure an actual debt, the transaction will be valid against other creditors, although he knew that the effect would be to postpone the others, that the debtor intended it to have that effect, and although he took it to aid that intent as well as to protect himself. The criterion is not the effect but the fraudulent intent.88 13. Participation of trustee imputable to beneficiary.—If the trustee in a deed of trust given to secure creditors is privy to, or has knowledge of, a fraudulent intent on the part of the grantor in executing the instrument, such knowledge will invalidate the instrument as to the beneficiaries, and generally he is the agent of the cestui que trust in all matters pertaining to the management of the trust property; and if he has any active duties to perform with respect thereto, and is not merely the repository of the title, having no previous connection with the property, whatever knowledge or notice impairs his legal title also impairs the equitable title of the beneficiaries. In some jurisdictions it is held that the participation of the trustee in the fraud is not imputable to an innocent beneficiary where the trustee was not the agent of the beneficiary in procuring the execution of the instrument.90 A mortgage given by a firm to one of its members, as nominal mortgagee, to secure to a bank a bona fide indebtedness, is not void as to subsequent attaching creditors, although made by the firm and received by the nominal mortgagee with intent to hinder and de 87. Garland v. Rives, 4 Rand. (Va.) 282, 15 Am. Dec. 756. See also Intent of grantor in general, chap. XIII, § 1, supra. 88. Whitman v. O'Brien, 29 Pa. Super. Ct. 208. 89. Batavia v. Wallace, 102 Fed. 240, 42 C. C. A. 310; State Grimm v. Manhattan Rubber Mfg. Co., 149 Mo. 181, 50 S. W. 321, 10 Am. & Eng. Corp. Cas. N. S. 338; Woodson v. Carson, 135 Mo. 521, 35 S. W. 1005, 37 S. W. 197; Crow v. Beardsley, 68 Mo. 435; Ross v. Ashton, 73 Mo. App. 254. Compare Hughes v. Kelley (Va.), 30 S. E. 387. 90. Jones v. Cullen, 100 Tenn. 1, 42 S. W. 873; Sutton v. Simon, 91 Tex. 638, 45 S. W. 559; Wade v. Odle, 21 Tex. Civ. App. 656, 54 S. W. 786. fraud the creditors of the firm, where the bank neither knew nor participated in the fraudulent intent." § 14. Participation of one creditor imputable to all. Where the transfer or security given by a debtor is to two or more persons in payment of a distinct indebtedness owing to each of them, it is not invalidated as to the valid claim of an innocent creditor by title failing in the other or others through participation in some fraud of the debtor, for inadequacy of consideration, or for other reasons.92 But where the creditor who participated in the fraudulent intent of the debtor acted as agent for the others in procuring the transfer or security," or is a partner of the others," the latter are bound by the knowledge which their agent or partner had of the fraudulent intent of the debtor to hinder, delay, or defraud his creditors. § 15. Time when knowledge or notice is acquired.-Knowledge or notice that a conveyance is fraudulent as to creditors acquired by the grantee subsequently to the transfer does not impair the grantee's title or affect his rights, as against other creditors," unless the grantee had such knowledge or notice be 91. First Nat. Bank v. Ridenour, 46 Kan. 707, 27 Pac. 150, 26 Am. St. Rep. 167 92. N. Y.-Commercial Bank V. Sherwood, 162 N. Y. 310, 56 N. E. 834. U. S.-Tefft v. Stern, 73 Fed. 591, 21 C. C. A. 67. Mass.-Prince v. Shepard, 9 Pick. 176. Tenn. -Jones v. Cullen, 100 Tenn. 1, 42 S. W. 873; Troustine v. Lask, 4 Baxt. 162. Tex.-Sullivan v. Thurmond (Civ. App.), 45 S. W. 393; Sonnentheil v. Texas Guaranty, etc., Co., 10 Tex. Civ. App. 274, 30 S. W. 945; Willis v. Murphy (Civ. App.), 28 S. W. 362; Kraus v. Haas, 6 Tex. Civ. App. 665, 25 S. W. 1025. But see Simon v. Ash, 1 Tex. Civ. App. 202, 20 S. W. 719. Compare Wise v. Tripp, 13 Me. 9; Thompson v. Johnson, 55 Minn. 515, 57 N. W. 223. 93. Morris v. Lindauer, 54 Fed. 23, 4 C. C. A. 162; Rownd v. State, 152 Ind. 39, 51 N. E. 914, 52 N. E. 395; Jaffray v. Wolf, 4 Okla. 303, 47 Pac. 496. 94. Gowing v. Warner, 30 Misc. Rep. (N. Y.) 593, 62 N. Y. Supp. 797. 95. U. S.-Yardley v. Sibbs, 84 Fed. 531. Ark.-Massie v. Enyart, 32 Ark. 251. |