Thompson v. Furr

Chalmers, J., delivered the opinion of the court. William B. Brewer, being indebted to J. H. Thompson & Co., went to Benjamin King, a member of that firm, accompanied by H. H. Furr, and stating that he had sold his lands to Furr, and desired, with the notes taken for the deferred payment, to secure his indebtedness to the firm, requested King to prepare the necessary papers, to which request King acceded. The scheme as developed was this: Brewer was to convey, or pretend to convey, to Finer the whole of his land for a nominal consideration of twelve hundred dollars, of which six hundred were to be secured by notes of the purchaser, and six hundred to be [483] expressed in the deed as having been paid in cash. In reality, no cash was to be paid, and only a half interest in the land was to be sold ; for though the deed was to purport to convey the whole, it was to be accompanied by a secret defeasance, whereby Furr was to obligate himself to reconvey to Brewer a half interest upon demand. The notes for six hundred dollars, which constituted the consideration of the half interest really sold, were to be transferred to J. H. Thompson & Co. as collateral, for the debt due them by Brewer, and were to be protected by a lien reserved in the deed. When the scheme was unfolded to King, he objected that if the defeasance was executed to Brewer, it might be used to defeat the lien of the notes as to one half of the land, and insisted that the notes be allowed to operate as a charge upon the whole land. It was consequently agreed that the defeasance should be executed to King, and Furr accordingly delivered to him an obligation to convey a half interest in the land upon demand, it being understood, of course, that King would not make such demand until the notes transferred to him as collateral were paid, and when he received the conveyance that he would hold as trustee for Brewer. Bloom & Co. were existing creditors of Brewer at the date of this transaction, and getting wind of it, sued out an attachment, and levied it on the land. Having sustained their attachment, reduced their demand to judgment and bought the land under a venditioni exponas, this contest has arisen between them and J. H. Thompson & Co., as to their respective rights. Bloom & Co. insist that the transaction, out of which the notes held by Thompson & Co. grew, was fraudulent, and that the latter, having notice of the fraud, acquired no rights under it which can be interposed to defeat the just demands of creditors. Thompson & Co. insist that it was only an acquisition by them of a security for a valid debt, and that they cannot be affected by any fraud intended towards other creditors, if any such there were. It must have been perfectly manifest to King, when the scheme concocted between Brewer and Furr was disclosed to him, that the design was to mislead and defraud somebody. A deed to the whole land, reciting a consideration of twelve hundred dollars, was to be placed on [484] record. Six hundred dollars only were to be paid, and a half interest only to pass, the end being accomplished by the contemporaneous delivery of a secret obligation to reconvey the other half. The obvious result and manifest purpose was to secrete and hide out Brewer’s continued ownership of one half the land, so as to protect it from the attacks of creditors. King admits that he suspected this, though he did not know that Brewer was in debt except to his wife. He says that either on the day of the transaction or a short time previously, he had heard that Brewer’s wife had a claim against him for alimony, and though nothing was said on the subject, he suspected that the scheme was devised in order to defeat her claim. So suspecting, he perfected the negotiation and put it in shape for the sake of protecting the debt due his firm. However innocent of intentional fraud or moral mala fides he may have been, with whatever sincerity he may have supposed that he had a right to do this, — and that he did so suppose is apparent from the readiness and frankness with which he details the facts, — the law will not tolerate such a transaction. A creditor has a perfect right to protect his own interests, but in so doing he must not lend himself to any scheme whereby others may be defrauded; and he does this whenever he knowingly accepts the benefits of an arrangement by which others are deceived and misled, and the interests of the debtor thereby improperly protected from the'lawful demands of his creditors. One of the surest tests of a fraudulent conveyance is, that it reserves to the grantor an advantage inconsistent with its avowed purpose, or an unusual indulgence. Whenever this is the case, the grantee who has accepted it, either with express knowledge of its character or reasonable ground to suspect it, forfeits its advantages, no matter how meritorious the consideration he may have paid, or how just the debt protected by it. Especially is this so, when, as in this case, it consists merely in the voluntary reception of a security for a pre-existing indebtedness. In such a case the conveyance would be avoided by the fraudulent intent of the grantor, though the grantee had no notice of it, because, having paid nothing for its acquisition, he is not damnified by its loss. Farmers’ Bank v. Douglass, 11 S. & M. 469; Harney v. Pack, 4 S. & M. 229; Pope v. Pope, 40 [485] Miss. 516. In tbe case at bar there is a union of fraudulent intent on the part of the grantor, of knowledge on the part of the grantees, and of a conveyance to protect a pre-existing debt without the advance of any present consideration. The chancellor rightly decreed it void as to existing creditors. Decree affirmed.