This section is from the book "The Law Of Real Property and Other Interests In Land", by Herbert Thorn Dike Tiffany. Also available from Amazon: A Treatise on the Modern Law of Real Property and Other Interests in Land .
Sec. 586. General considerations.
587. Conveyances in fraud of creditors.
589. Conveyances in violation of the bankrupt act.
590. Transfers by disseisees.
591. The homestead exemption.
592. Restrictions in creation of estate.
(a) Fee simple estate.
(b) Fee tail estate.
(c) Life estate.
(d) Estate for years.
(e) Involuntary alienation.
(f) Equitable interests.
(g) Spendthrift trusts.
As a general rule the owner of an estate in land has full power to make any disposition thereof, transferring either all his rights in the land or a part only. There are, however, certain restrictions imposed by law upon the right of transfer. One class of such restrictions, those growing out of the legal incapacity of certain classes of persons to transfer any interests in land, or, in some Cases, to acquire them, will be considered in the next chapter. Of the other restrictions upon the right of the owner of land to transfer his land when and as he chooses, those imposed by the rule against perpetuities,1 by the prohibition of invalid conditions,2 by the law as to charitable trusts,3 and for the purpose of protecting marital rights,4 have been before discussed.
There remain to be considered the restrictions arising from the prohibition of conveyances in fraud of
1. Ante, Sec.Sec. 179-189.
2. Ante, Sec. 81.
3. Ante, Sec. 117.
4. Ante, Sec.Sec. 220, 243.
(2279) creditors,5 the prohibition of conveyances in fraud of subsequent purchasers,6 those imposed by the bankrupt act,7 those existing, in a few states, as a result of a statutory prohibition of the conveyance of land in the adverse possession of another.8 The restrictions previously enumerated are imposed solely upon the voluntary transfer of interests in land by the person entitled thereto. There also exist, in many of the states, statutes of great importance, exempting from forced sale in behalf of a creditor the "homestead" or residence of the debtor, and these statutes also usually prohibit a conveyance of such homestead without the assent of the owner's wife, they thus effecting a restriction upon both the voluntary and involuntary transfer of his title.9 Frequently, although the law imposes no restriction upon the right of the owner of land to dispose thereof, or of his creditors to enforce payment therefrom, the instrument by which he is given title to the land undertakes to restrict his rights, or those of his creditors, in this regard.10
587. Conveyances in fraud of creditors. By St. 13 Eliz. c. 5,11 it was provided "that all and every feoffment, gift, grant, alienation, bargain, and conveyance of lands, tenements, hereditaments, goods and chattels, . . . and all and every bond, suit, judgment, and execution," made to hinder, delay, or defraud creditors or others "of their just and lawful actions, suits, debts, accounts, damages," etc., should be deemed, as against that person or persons, his heirs and successors, whose actions, suits, etc., are or might be in any wise disturbed, hindered, delayed, or defrauded, utterly void. This statute has been frequently asserted to be merely declaratory of the common law, and probably at the present day, even in the absence of any statute, the rights of creditors would be protected at law or in equity as against such a fraudulent attempt by the debtor to avoid paying his debts.12 In most of the states, however, there is an express statute essentially similar to the English statute.13 In at least two states the law embodied in the statute has been adopted as part of the common law of the state.14
5. Post, 587.
6. Post. 588.
7. Post, 589.
8. Post. 590.
9. Post, 591.
10. Post, 592.
11. A. D. 1570
The statutes directed against fraudulent conveyances do not ordinarily prohibit the preference by a debtor in failing circumstances of one or more of his creditors, provided the property conveyed for the purpose of effecting such preference does not exceed the bona fide amount of the debt or debts, and no benefit is reserved to the grantor.15 It is only by reason of an express prohibition of such preferences, such as is found in the bankrupt act, and in the statutes of some of the states, that they can be regarded as invalid.
The creditors protected by the terms of the statutes above referred to include not only those who are such at the time of the conveyance alleged to be fraudulent, but also those persons who may thereafter become creditors. So, in case one makes a conveyance of property with the present intention of entering into a hazardous business, or of otherwise creating debts, with the knowledge that the conveyance will probably affect his ability to pay such debts, the conveyance will be void as against the persons with whom the debts are contracted.16
12. Bigelow, Fraudulent Conveyances, ch. 2.
13. 1 Stimson's Am. St. Law, Sec. 4591.
14. Robinson v. Holt, 39 N. H. 557, 75 Am. Dec. 233; Howe v. Ward, 4 Me. 195.
15. Huntley v. Kingman, 152 U. S. 527, 38 L. Ed. 540; Southern White Lead Co. v. Haas, 73 Iowa, 399, 33 N. W. 657, 35 N. W. 494; Banfield v. Whipple, tracted, entirely without knowledge of the previous conveyance.25
14 Allen (Mass.) 13; Wilt v. Franklin, 1 Binn. (Pa.) 502, 2 Am. Dec. 474; Skipwith's Ex'r v. Cunningham, 8 Leigh (Va.) 271, 31 Am. Dec. 642; Bigelow, Fraud. Conv. ch. 32.
16. Rudy v. Austin, 56 Ark 73, 35 Am. St. Rep. 85, 19 S. W. 111; Redfield v Buck, 35 Conn. 328, 95 Am. Dec. 241; Moritz v. Hoffman, 35 111. 553; Winchester v. Charter, 12 Allen render it open to attack by subsequent creditors, unless it is made under circumstances showing actual fraud.21
If a conveyance is made with the intention of defrauding creditors, the fact that it is based on a valuable consideration will not render it valid as against them.17
A voluntary conveyance, that is, one not supported by a valuable consideration, is, in some states, void as against existing creditors, on a conclusive presumption of fraud on the part of the grantor.18 But in most jurisdictions, though a voluntary conveyance is presumptively fraudulent as against existing creditors, it is upheld if it can be shown that, at the time of making it, the grantor retained amply sufficient property to satisfy the claims of his creditors, and that it was owing only to the happening of unforeseen contingencies that he was unable to pay such claims.19 In a number of states the statute provides, in accordance with this view, that a conveyance is not necessarily void because voluntary.20 The fact that a conveyance is voluntary does not
(Mass.) 606; Snyder v. Free, 114 Mo. 360, 21 S. W. 847; Case v. Phelps, 39 N. Y. 164; Monroe v. Smith, 79 Pa. 459; Churchill v Wells, 7 Cold. (Tenn.) 364; Mackey v. Douglas, L. R. 14 Eq. 106; Er parte Russell, 19 Ch. Div. 588.
17. Twyne's Case, 3 Coke, 80b, 1 Smith, Lead. Cas. Eq. 1; Gragg v Martin, 12 Allen (Mass.) 498; Gable v. Columbus Cigar Co., 140 Ind. 563, 38 N. E. 474; Haymaker's Appeal, 53 Pa. St. 306; Billings v. Russell, 101 N. Y. 226, 4 N. E. 531; May. Fraud. Conv (yd Ed.) 85 et. sea.; Wail, Fraud. Conv. Sec.Sec. 207, 208.
18. Wooten v. Steele, 109 Ala. 55 Am. St. Rep. 947, 19 So. 972; Swartz v. Hazlett 8 Cal. 126; Severs v. Dodson, 53 N. J. Eq. 633, 51 Am. St. Rep. 641, 34 A. 7; Woody v. Dean,' 24 S. C.
499. See Marmon v. Harwood. 124 111. 104, 7 Am. St. Rep. 345, 16 N. E. 236.
19. Parish v. Murphree, 13 How. (U. S.) 92, 14 L. Ed. 65; Pratt v. Curtis, 2 Lowell 87, Fed. Cas. No. 11,375; Rudy v. Austin, 56 Ark. 73, 35 Am. St. Rep. 85 and note, 19 S. W. 111; Harting v. Jockers, 136 111. 627, 29 Am. St. Rep. 341, 27 N. E. 188; Lowry v. Fisher, 2 Bush (Ky.) 70, 92 Am. Dec. 475; Goodman v. Wineland, 61 Md. 449; Matthews v. Thompson, 186 Mass. 14, 66 L. R. A. 421, 104 Am. St. Rep. 550, 71 N. E. 93; Cole v. Tyler, 65 N. Y. 78; El-felt v. Hinch, 5 Or. 255; Clark v. Depew, 25 Pa. St. 509, 64 Am. Dec. 717.
20. 1 Stimson's Am. St. Law Sec. 4598.
A fraudulent conveyance, though declared by the statute to be "void" as against creditors, is merely voidable by them, and, as between the parties thereto and their successors in interest, and as against other persons not creditors, it is perfectly valid.22 A convey-ance which is fraudulent as to one or more creditors is, it seems, invalid as to all;23 and, by some decisions, a convevance fraudulent as to existing creditors is re garded as voidable at the instance of subsequent creditors,24 though, in some states, such a view is considered to be applicable only under particular circumstances, as when there is a secret trust for the grantor, or the pre-existing debts remain unpaid, or the subsequent creditors were, at the time the debts were con21. See Elyton Land Co. v. Iron City Bottling Works, 109 Ala. 602, 20 So. 51; Kane v. Desmond, 63 Cal. 4G4; Moritz v. Hoffman, 35 111. 553; Winchester v. Charter, 12 Allen (Mass.) 606; Bullitt v. Taylor, 34 Miss. 708, 69 Am. Dec. 412; Hager-man v. Buchanan, 45 N. J. Eq. 292, 14 Am. St. Rep. 732 and note, 45 N. J. Eq. 292; Carr v. Breese, 81 N. Y. 584; Todd v. Nelson, 109 N. Y. 316, 16 N. E. 360; Morton v. Denham, 39 Ore. 227, 64 Pa. 384; Thompson v. Allen, 103 Pa. St. 44, 49 Am. Rep. 116.
22. Knight v. Glasscock, 51 Ark. 390, 11 S. W. 580; Lawton v. Gordon, 34 Cal. 36, 91 Am. Dec. 670; McElroy v. Hiner, 133 111. 156, 24 N. E. 435; Stillings v. Turner, 153 Mass. 534. 27 N. E. 671; Quimby v. Williams, 67 N. H. 489, 68 Am. St. Rep. 685, 41 Atl. 862; Anderson v. Roberts, sequent purchasers for valuable consideration, should, as against such persons and persons claiming under them, be void, unless the alienation be made for good consideration and bona fide. The expression "good" consideration, as used in the statute, has always been construed as meaning 'valuable" consideration.29
18 Johns. (N. Y.) 515, 9 Am. Dec. 235; Burt v. Timmons, 29 W. Va. 441, 6 Am. St. Rep. 664, 2 S. E. 780.
23. Lehman v. Kelly, 68 Ala. 192; Personette v. Cronkhite, 140 Ind. 586, 40 N. E. 59; Spuck V. Logan, 97 Md. 152, 99 Am. St. Rep. 427, 54 Atl. 989; Savage v. Knight, 92 N. C. 493, 53 Am. Rep. 423; Barrett v. Nealon, 119 Pa. St. 171, 4 Am. St. Rep. 628, 12 Atl. 861.
24. Pratt v. Curtis, 2 Lowell 87, Fed. Cas. No. 11,375; Jordan v. Collins, 107 Ala. 572, 18 So. 137; Bassett v. McKenna, 52 Conn. 437; Day v. Cooley, 118 Mass. 527; Walsh v. Byrnes, 39 Minn. 527, 40 N. W. 831; Treze-vant v. Terrell, 96 Tenn. 528, 33 S. W. 109; McLane v. Johnson, 43 Vt. 48; Lockhard v. Beckley, 10 W. Va. 87. See Bigelow, Fraud. Conv. 85 et seq.
Protection of bona fide purchasers. Although a conveyance is otherwise voidable as being in fraud of creditors, it will not be so treated in case the grantee is a purchaser for value without notice of the fraud. The Statute of Elizabeth and most of the state statutes contain an exception in favor of such a purchaser,26 but even in the absence of any statute, the exception has been recognized in pursuance of the usual equitable policy of protecting bona fide purchasers for value.27
The protection accorded to a bona fide purchaser for value is also extended to one who is, not the grantee in the fraudulent conveyance, but a purchaser from the grantee; and this, although the conveyance could have been avoided as against the original grantee, owing to his knowledge of the fraud, or because he did not pay a valuable consideration.28