31 27 as should put him upon inquiry as to the grantor's fraudulent intent, where he knows or should have known the grantor to be unable to pay his debts in the ordinary course of business and the conveyance amounts to an unlawful preference, or where he pays an inadequate consideration,28 or where the sale is made in great haste," without any inventory,30 or where an inventory was taken at night and a bill of sale hastily prepared, or where the insolvent conveyed all of his property, or the consideration is in the form of promissory notes, or where he knew, or should have known, of the grantor's insolvency and of the effect which the conveyance would have on the interest of creditors, or where there are other suspicious circumstances attending the transaction.35 33 32 § 22. Inadequacy of consideration.-Inadequacy of consideration, or the fact that the purchaser of property did not pay its full value, is not alone sufficient to put the purchaser on inquiry or to constitute notice of fraud and render the purchase fraudulent;36 but it is a fact which may be considered in deter 32. Reid v. Loney, 22 Wash. 433, 61 Pac. 41. 33. Savage v. Hazard, 11 Neb. 323, 9 N. W. 83; Keyser v. Angle, 40 N. J. Eq. 481, 4 Atl. 641; Blum v. Simpson, 66 Tex. 84, 17 S. W. 402. 34. Paddock v. Jackson, 16 Tex. Civ. App. 655, 41 S. W. 700. 35. Slattery v. Stewart, 45 Ill. 293. 36. Hinds v. Keith, 57 Fed. 10, 6 C. C. A. 231; De Prato v. Jester (Ark. 1892), 20 S. W. 807; Thomas v. Van Meter, 164 Ill. 304, 45 N. E. 405; Zick v. Guebert, 142 Ill. 154, 31 N. E. 601, aff'g 41 Ill. App. 603; Farmers' Bank v. Worthington, 145 Mo. 91, 46 S. W. 745; State v. Mason, 112 Mo. 374; Blum v. Simpson, 66 Tex. 84, 17 S. W. 402, 71 Tex. 628, 9 S. W. 662; Copis v. Middleton, mining the purchaser's good faith. A conveyance of property, 38 however, at a grossly inadequate price, or where there are other suspicious facts and circumstances in addition to the fact that the price is inadequate," is sufficient to put the purchaser on 2 Madd. 410, 17 Rev. Rep. 226, 56 Eng. Reprint, 386; In re Cranston, 9 Morr. Bankr. Cas. 160. 37. Urdanger & Greenburg Bros. v. Doner, 122 Iowa, 533, 98 N. W. 317. 38. N. Y.-Moyer v. Bloomingdale, 39 App. Div. 227, 56 N. Y. Supp. 991, gross inadequacy of price at which one in possession of goods offers to sell them is of itself evidence to the purchaser of an infirmity in the vendor's title; Ross v. Caywood, 16 App. Div. 591, 44 N. Y. Supp. 985; Wood v. Hunt, 38 Barb. 302. U. S.-Wilson v. Jones, 76 Fed. 484. Ark.-Adler-Goldman Commission Co. v. Hathcock, 55 Ark. 579, 18 S. W. 1048, purchase of an insolvent merchant's entire stock at fifty per cent. of its invoice price. Cal.-Argenti v. San Francisco, 6 Cal. 677. Ind.-First Nat. Bank v. Smith, 149 Ind. 443, 49 N. E. 376, a conveyance of land worth $8,000 in consideration of a debt of $650. See also Jameson v. Dilley, 27 Ind. App. 429, 61 N. E. 601. Ky.-Adams v. Branch, 3 Ky. L. Rep. 178. Mich.-Bendetson v. Moody, 100 Mich. 553, 59 N. W. 252. Miss.-Pollock v. Butler (1898), 23 So. 577, purchase of property at thirty-five cents on the dollar. Pa.-Monessen Nat. Bank v. Lichtenstein, 207 Pa. St. 187, 56 Atl. 405, one-fourth the face value of a mortgage. Utah, 168, 70 Pac. 402, nominal consideration. 39. N. Y.-Union Nat. Bank v. Warner, 12 Hun, 306, where the grantee knew of the grantor's intent to defeat his creditors; Ross v. Caywood, 16 App. Div. 591, 44 N. Y. Supp. 985. Ala.-Smith V. Heineman, 118 Ala. 195, 24 So. 364, 72 Am. St. Rep. 150. Ill.-Hulman v. McBryde, 80 Ill. App. 592, where the purchaser intended to aid in the fraudulent design, and the one to whom he transferred the goods knew of the rights of the creditors. V. Welsing, 85 Iowa.-Mertens Iowa, 508, 52 N. W. 362, where the grantee could not satisfactorily show where he obtained the money to pay for the property and the grantor continued to exercise acts of ownership over it; Dunn v. Wolf, 81 Iowa, 688, 47 N. W. 887; Peterson v. Rome, 76 Iowa, 447, 41 N. W. 68. Ky.-Carter v. Richardson, 22 Ky. L. Rep. 1204, 60 S. W. 397, where the property was sold for fifty per cent. of its value and the seller demanded cash, and immediately after the sale left the place at night. Miss.-Pollock v. Butler (1898), 23 So. 577. N. J.-Kinmouth v. White (Ch. 1900), 47 Atl. 1, where the transfer was hurried through without an examination of title and the purchaser admitted notice of the debtor's financial condition. inquiry and to charge him with notice of fraud, rendering the conveyance fraudulent as to creditors. In New York, where the doctrine of constructive notice does not apply, a creditor of a seller of goods or real property cannot invalidate a sale for fraud without implicating the purchaser; inadequacy of price alone does not furnish proof of his fraud, but tangible facts must be proved from which a legitimate inference that the grantee had notice of the grantor's fraudulent intent can be drawn." Inadequacy of price, to show fraud in a conveyance, must be so great as to shock the moral sense and create the suspicion of fraud at once upon its being mentioned." Whether the price paid is so inadequate as to necessarily create a suspicion of fraud depends upon the circumstances and conditions attending the transaction.42 § 23. Sale of business and entire stock of goods.-Knowledge that the debtor sold his business and all his stock of merchandise does not put the purchaser on inquiry or charge him with knowledge or notice of the debtor's fraudulent purpose, where there are no other suspicious circumstances charging the purchaser with notice of debtor's fraudulent intent. But if the debtor be insolvent," or the price paid is so grossly disproportion Tex.-Yerbe v. Martin (Civ. App. 1897), 38 S. W. 541. Wyo.-Stirling v. Wagner, 31 Pac. 1032. 40. Jaeger v. Kelley, 52 N. Y. 274; Greenough v. Greenough, 21 Misc. Rep. 727, 47 N. Y. Supp. 1096, 32 App. Div. 631, 53 N. Y. Supp. 1104. See also Constructive or implied notice as equivalent to actual knowledge, chap. XIII, § 17, infra. 41. Feigley v. Feigley, 7 Md. 537, 61 Am. Dec. 375; Bierne v. Ray, 37 W. Va. 571, 16 S. E. 804. See also Effect of inadequacy of consideration, chap. VIII, § 37, supra. 42. Jackson v. Glaze, 3 Okla. 143, 41 Pac. 79. 43. Barker v. Boyd, 24 Ky. L. Rep. 1389, 71 S. W. 528; Butt v. King, 24 Ky. L. Rep. 1389, 71 S. W. 528; Spratlin v. Colson, 80 Miss. 278, 31 So. 814. Knowledge acquired by the purchaser of book accounts in a lump that the seller contemplated winding up his business would not affect the buyer with knowledge of either fraud or insolvency on the part of the seller. Doxsee v. Waddick, 122 Iowa, 599, 98 N. W. 483. 44. LeGierse v. Whitehurst, 66 Tex. 244. 45 ate to the value of the goods as to raise a presumption of fraud,ʻ or the purchaser has notice of other suspicious facts or circumstances, such as the pendency of suits against the debtor," the character of the sale is such as to necessarily put him on inquiry. The sale by a retail merchant of his entire stock is a transaction out of the ordinary course of business, which puts the purchaser on inquiry to ascertain the true condition of the seller's business and circumstances, and where the seller was insolvent, and within four months thereafter was adjudged a bankrupt, and the sale was in fact made to hinder, delay, or defraud creditors, in order to sustain his title, the burden rests on the purchaser to show that he took all reasonable and proper steps to ascertain the seller's financial condition and bought in good faith and for a present consideration." § 24. Knowledge or notice of the pendency of suits against the grantor. The fact that an action is pending against a grantor who conveys property is not sufficient in itself to show that the grantee knew of a fraudulent intent on the part of the grantor to defraud his creditors.48 But a conveyance by a person against whom suits are pending, of substantially all of his property," or to his attorney or some one holding intimate relations,50 or to a person who has knowledge of the grantor's liability to another for an injury done,51 may be sufficient to show knowledge on the part of the grantee of the grantor's fraudulent intent.52 45. Chipman v. Glennon, 98 Ala. 263, 13 So. 822; Reels v. Flynn, 28 Neb. 575, 44 N. W. 732, 26 Am. St. Rep. 351. 46. Williamson v. Wachenheim, 58 Iowa, 277, 12 N. W. 302. See also Transfer of all the debtor's property chap. VI, § 8, supra. 47. In re Knopf, 16 Am. B. R. 432, 144 Fed. 245. See also Walbrun v. Babbitt, 16 Wall. 581, 21 L. Ed. 489. 48. Stewart v. English, 6 Ind. 176; Graham v. Morgan, 83 Miss. 601, 35 So. 874. Notice of an attachment is not sufficient as notice of an intent to defraud. Moxley v. Haskin, 39 Kan. 653, 18 Pac. 820; Mannen v. Stebb.ns, 1 Kan. App. 261, 40 Pac. 1085. 49. Williamson r. Wachenheim, 58 Iowa, 277, 12 N. W. 302. 50. Summers v. Taylor, 80 Ky. 429. 51. Philbrick v. O'Connor, 15 Or. 15, 13 Pac. 612, 3 Am. St. Rep. 139. 52. See Transfer in anticipation of pending suit, chap. VI, § 7, supra. § 25. Knowledge that debtor is about to abscond. Where a party purchases property from a debtor whom he knows is about to abscond, it is presumed that he must have known that his vendor's object in selling his property was to deprive his creditors of their recourse to it and thus defraud them.53 The purchaser is affected by his knowledge of the circumstances with constructive notice of the vendor's fraudulent intent.54 § 26. What inquiry is sufficient. Reasonable inquiry, in view of the circumstances, respecting the debtor's condition, which are brought home to the purchaser, is required, and the exercise of due diligence and good faith in making the inquiry.55 The purchaser need not exhaust all sources of information,56 and mere opinions not based on a knowledge of the facts such as one could testify to, are of no value.57 When the facts and circumstances are such as to put a reasonable man on inquiry, that obligation is not satisfied by an inquiry of the chief actor in the suspected fraud, who has every motive for concealing the truth, when better and reliable sources of information are available." But a purchaser is not required to inquire of the parties defrauded.59 When a mortgage loan is made in good faith a search of the record title is sufficient, without inquiring who is in possession.60 § 27. Examination of books and papers.-A purchaser of a debtor's stock in trade who at the time particularly inquires as to 53. Danjean v. Blacketer, 13 La. Ann. 595. Contra, Hall v. Kissock, 11 U. C. Q. B. 9. 54. Tillinghast v. Champlain, 4 R. I. 173. 55. Williamson v. Brown, 15 N. Y. 354; Hoyt v. Shelden, 16 N. Y. Super. Ct. (3 Bosw.) 267; Hodges v. Coleman, 76 Ala. 103; Sanger v. Thomasson (Tex. Civ. App. 1898), 44 S. W. 408; Jackman v. Eau Claire Nat. Bank, 125 Wis. 465, 104 N. W. 98. 56. Stewart v. Cockrell, 2 Lea (Tenn.) 369. 57. Hodges v. Coleman, 76 Ala. 103, but if the purchaser is reasonably convinced that the transaction is fair and honest, it is not necessary for his protection that his informant should know "all the facts in evidence tending to show fraud." 58. Singer v. Jacobs, 11 Fed. 559, 3 McCrary, 638. 59. Hodges v. Coleman, 76 Ala. 103. 60. Harral v. Leverty, 50 Conn. 46, 47 Am. Rep. 608. |