
    LAZELL, MARSH ET AL. v. POWELL, WELLS, AND JAMES.
    (S. C., Thomp. Cas., 195-204.)
    Nashville,
    December Term, 1859.
    1. ERAUD. In procuring credit makes confederate liable personally.
    Where a person as principal and a confederate form a fraudulent scheme to impose upon wholesale merchants by getting their goods in the name of the principal, an inexperienced young man, just twenty-one years old, under the pretense of setting up a legitimate mercantile business, and then by breaking, and appropriating to their own use the proceeds for which they might be able to sell the goods, and thus entirely avoid the paying for them, and in pursuance of this scheme, the confederate, by his misrepresentations, obtains credit for the principal and imposes him upon the wholesale merchants as worthy of trust and confidence, and after g-etting the goods, and opening most of them, and selling a few months, the whole stock is then sold in gross to a third person for the purpose of defrauding the said wholesale merchant creditors, whose debts being unpaid, they will be entitled to a decree ag’ainst both the pz-incipal and his said confederate, jointly, for the whole amount of the debts contracted. [Vendee participating in fraud makes sale void. Note 45 under sec. 3143 of the Code.]
    2. SAME. Attachment will hold goods in hands of fraudulent vendee.
    Where in such case the third person purchasing the goods does so at a feigned or greatly inadequate consideration, with knowledge of the object of his vendor to defeat and defraud his said wholesale merchant creditors, and with the design to aid him in his such dishonest purpose, such sale is null and void for fraud, and an attachment in chancery will hold such of the goods as may be found and levied upon in the hands of such third person as purchaser. [See Arendale v. Morgan, 5 Sneed, 703, 712; Gag-e v. Epperson, 2 Head, 669.]
    3. SAME. Fraudulent purchaser personally liable for proceeds of property sold.
    The third person so fraudulently purchasing the goods will also be compelled to account in chancery to the original owners and sellers for the value of the g-oods sold or disposed of by him after his purchase and before the attachment was levied. [See notes 59-61 under sec. 3143 of the Code.]
    Cited and overruled oh this point: Tubb v. Williams, 7 Hum., 371. But the holding- in this case limited to actions at law was held good in Richards v. Ewing-, 11 Hum., 332. See Solinsky v. Bank, 1 Pickle, 372.
    4. SAME. Fraudulent purchasers not indemnified or reimbursed, when.
    The sale in such case to the fraudulent vendee is absolutely void, because fraudulent in fact; and for this reason, as well as for the reason that the title to the g-oods never-passed out of the wholesale merchants, the original owners, as to this fraudulent vendee purchasing with notice of the fraud in the original purchase, and concurring in "carrying it out, no indemnity or reimbursement will be allowed him for payments made or debts assumed in pursuance of the trade to certain other creditors of his fraudulent vendor, but he will be required to account fully for the value of the property so fraudulently purchased by him. [See notes 51-57, and 64-75, under sec. 3143 of the Code.]
    Cited with approval: Sands v. Codwise, 4 Johns., 599; Boyd v. Dunlap, 1 John. Chy., 482.
    Cited and distinguished: Ames v. Blunt, 5 Paige, 22; Grover v. Wakeman, Tl Wendell, 186; Peacock v. Tompkins, Meig-s, 330.
    5. SAME. Same. General rule stated.
    The correct doctrine in all such cases where there is actual fraud must be.that the defrauded creditors are entitled to the full value of their debtor’s property, thus fraudulently conveyed, without regard to the loss that may fall upon those who have conspired to defeat them. Indemnity or reimbursement is not the policy of the law, nor is it law nr, all, in cases of actual fraud.
    6. SAME. Innocent purchaser exempt from liability.
    Where the owner parts with the possession of his goods, through the actual fraud of another, he cannot, it seems, reach them in the hands of an innocent purchaser, as in a- case of felonious possession. [Notes 60, 61 under sec. 3143 of tlie Code; Arendale v. Morgan, 5 Sneed, 703; Hawkins v. Davis, 8 Bax., 507 (S. C., 5 Bax., 698-700); Taylor v. Pope, 5 Cold., 422; Parham, v. Biley, 4 Cold., 10. But where the possession of goods are acquired by a felony, a sale or any number of sales, even to innocent purchasers, will not divest the original owner of his property. Arendale v. Morgan, 5 Sneed, 712; Chesney v. Bodgers, 1 Heis., 239, 242; Parham v. Biley, 4 Cold., 10.]
    7. SAME. Conveyance of land for fraudulent sale of goods, canceled.
    A conveyance of land made by the fraudulent vendee to the fraudulent vendor as part of the consideration for the slock of goods, will be canceled where the creditor attaches and recovers the goods or their proceeds.
    8. SAME. Notes for land fraudulently conveyed, canceled, when.
    Where a fraudulent conveyance of land is set aside at the suit of creditors, and the land is subjected and appropriated to the satisfaction of their debts, the notes given by the fraudulent conveyee for the purchase money will be canceled.
   Caruthers, J.,

delivered the opinion of the court:

The complainants, in these various attachment bills and petitions, consolidated, are citizens of New York and Philadelphia, and creditors of defendant, Powell, for large quantities of drugs and medicines sold to him in the summer of 1858.

The charges are that Powell and Wells formed a fraudulent scheme to' impose upon complainants by getting their goods in the name of the former, an inexperienced young man, then just twenty-one, under the pretense of setting up a drug store in Nashville for a legitimate retail business, and then breaking, and appropriating the proceeds for winch they might be able to sell them, to their own use, and entirely avoid the paying for them. That in pursuance of this scheme, after opening most of the- drugs, though not all, and selling a few months, the whole stock, in gross, was sold out to defendant, James, who is charged with complicity in the fraud, and is the uncle of Powell, for a feigned or greatly inadequate consideration, and the possession delivered to him. This was done about the 1st of September, 1858. Soon after that these bills were filed, and the drugs, etc., then on hand, attached. The whole amount of the purchases in the eastern cities from complainants and others, was about $16,000.

There is no doubt, and it is distinctly admitted in. the argument, that the intention of Powell from the first was to perpetrate a gross fraud, to the full extent that it is charged. He declines to answer the bill, and disclosed the scheme to make a fortune, in the mode adopted, to several friends before he went on to make the purchases. It was deliberate and premeditated on his part. There can be just as little doubt, from the proof, that Wells, who- was his cousin, participated in his designs, and was to be interested with him, in the spoils. He, by his misrepresentation, obtained credit for Powell, and imposed him upon complainants as worthy of trust and confidence. There can be no question but that the case made out renders him liable to the full extent of Powell; and the decree against them jointly, for the whole amount of the debts contracted, was clearly correct. Hpon this part of the case we have no- difficulty.

The extent to which James should be made liable presents more difficulty. The proof is not quite sufficient to implicate him in the original fraud, so- as to make him responsible with the other two for the whole debt. Yet it is manifest that the purchase of the drugs from his nephew, Powell, was designed to aid him in his dishonest purpose to defraud his eastern creditors. He pretended to pay hjm in a large tract of land in Mississippi, at $15 per acre, worth not more than $5, if so much, and $2,000 towards his local and home debts in his own town. Some of them he has paid, and, perhaps,' assumed others. James, in his answer, states the consideration to have been $12,265; paid by 676 acres of land in Mississippi, at $15 per acre, $10,140; cash down, $125; and $2,000, to be applied to his local debts. He says his motive for buying was that he discovered Powell was addicted to drinking and gambling, and that the land would be better for his creditors than the drugs, which were in danger of being lost in his hands on account of his ■want of skill and reckless habits. It is presumed that in this statement he only had reference to- his home creditors, as it is proved by his own declarations thát he was anxious to defeat the others. He said that it was not his intention to defeat the home creditors, but as to those North, he cared nothing about them, and expressed an entire willingness, and even delight, that their debts should be lost. He referred to some runaway negroes of his that had escaped to that section, and seemed to think that such losses as these were a just retribution upon them for their iniquities on the subject of fugitive slaves. All these, together with the additional facts, that he had no acquaintance with the drug business, was a near relation of Powell, the inadequacy of the consideration, and his knowledge of the object of Powell to defeat and defraud his creditors, must in law invalidate and annul the sale to him for fraud. The attachment will,-therefore, hold the drugs against his claim.

The chancellor ordered an account upon this branch of the case, to ascertain the value of the goods that went into his possession under the pretended purchase, and made him accountable for those taken by the attachment, as well as such as he had before sold or disposed of since his purchase.' To this last part of the decree objection is made, and the case of Tubb v. Williams, 7 Hum., is relied upon. It is true there is a remark in that case, on page 311, that:

“The statutes of Elizabeth, and our acts of 1801, enable the creditor to subject the specific property, fraudulently conveyed, while in the hands of the fraudulent donee or vendee, to the satisfaction of his claim, but they do not enable him to claim the proceeds of such property.”

The case is not reported, yet it is in the distinct recollection of one of the present members of the court, that soon after that decision, now relied upon, w^as fully considered and reversed, or regarded as a dictum. It never could have been the law. If it were so, a fraudulent donee or vendee could always avoid responsibility by an immediate sale of tbe property, with tbe proceeds in his pocket. Could it be possible that James, by a sale of the drugs on the next day after his fraudulent purchase, with the notes of his vendee in his possession for $12,000, would be protected against the honest creditors of Powell?

That part of the decree, then, by which James is required to account to complainants for the portion of the goods disposed of by him, or his agents, previous to the issuance of the attachments, is clearly correct. In taking the account on this branch of the case, the amount the goods were estimated to be worth by the parties at the time of the sale, will be taken as prima facie correct as against James. That is, he will be held accountable for the $12,000 worth of goods, except so far as he has delivered them over under the decree, unless he can show that there was a mistake as to their quantity and value, or some other legal cause to be exonerated.

But in this part of the decree there is an error in favor of defendant, James. He is to be allowed a credit for whatever he may have paid for said Powell since his purchase, and before the levy of these attachments. We do not understand this to be the rule in cases where a sale is set aside, as in this case, for actual or positive fraud. If that were so, it would be entirely unavailing to creditor to set aside the conveyance, where the full value of property was given, and the sale vacated because of the concurring purposes of the parties to defeat the creditors of the vendor.

Sands v. Codwise, 4 Johns. Rep., 599, was a case where a fraudulent sale was made by Comfort Sands, of a large amount of property, to his son, Henry Sands, to defeat his creditors. Upon a bill filed by them to* set it aside for fraud, the court held it to be void, aud in his opinion, Kent, C. J., says, that the question arises, "Whether the deeds ought not to stand as security to reimburse the sons for their advances, and to indemnify them against their outstanding paper.” On that question, he says: “The denial of this prayer appears to me to result necessarily from a decision against the validity of the deeds. On the ground of absolute fraud, the deeds were void to all intents and purposes. It is the same thing as if no such deeds had ever been executed. A fraudulent conveyance is no conveyance, as against the interests intended to be defrauded. This is the plain language and intelligent sense of the rule of the common law. It is impossible that those deeds can be permitted to stand as a security if they are to be adjudged void ab initio. If they have no lawful existence, it would be inconsistent and absurd to- recognize them for any lawful purpose. I presume there is no- instance to be met with of any reimbursement or indemnity afforded by a court of chancery to a particeps criminis in a case of positive fraud.........No right can be deduced from an act founded in actual fraud. The cases, in which a deed is set aside on terms are not at all analogous to the one before us.” He says to give such deeds partial effect would be giving countenance to fraud. Where a deed •is set aside because the bargain was hard or unconscientious, or for constructive fraud, he admits the rule may be different.

It is said in argument that in this case the decree of the vice chancellor allowing the fraudulent vendee to be discharged to the extent of any payments to the bona fide debts of his vendor, was affirmed. It will be found, upon examination of the final decree, that such is not the case, but that part is omitted and a credit allowed only for permanent improvements and taxes paid out.

In Boyd v. Dunlap, 1 John. Ch., 482, the same doctrine is restated thus. “A deed fraudulent in fact, is absolutely void, and is not permitted to stand as security for any purpose of reimbursement or indemnity; but it is otherwise with a deed obtained nnder suspicious or inequitable circumstances, or which is only constructively fraudulent.” He cites the case of Sands, and other cases, to sustain the position. We are referred to the cases of Ames v. Blunt, 5 Paige, p. 22; Grover v. Wakeman, 11 Wendell, 186, and our own case of Peacock v. Tompkins, Meigs’ Rep., 330, in support of the rule, that indemnity will be allowed to the fraudulent vendee for payments actually made to the creditors of the vendor. Those are ail cases of assignment for the benefit of creditors, and where the fraud was held to be •constructive and not actual. But, independent of that, and though the distinction seems to have been disregarded in some of the cases, we are not prepared to admit that the same rule would apply to absolute sales which are found to be void for fraud. In cases of assignment in trust for the benefit of creditors, we have followed the case of Peacock v. Tompkins, and have also recognized the'doctrine of Boyd v, Dunlap, as laying down the proper rules on this subject. In -the case before us, being a contest between the vendors of the goods and a purchaser with notice of the fraud in the original purchase, and concurring in carrying it out, we are bound to hold, that as to- him the title never passed out of the complainants, and therefore an application of their property, or its proceeds, by him to1 the debts of Powell, could, upon no correct principle; operate as a. discharge. These complainants, upon this view, would stand upon higher ground than the creditors of Powell, being still owners of the property converted by James. It might be very different with a purchaser from James, or Powell, without notice of fraud, if the complainants attempted to pursue the goods in their hands; because in such case, the complainants, having parted with the possession of their property, though by fraud, could not, perhaps, reach it in the hands of an innocent purchaser, as in a case of felonious possession.

But it is by no means certain that in any case where a sale and purchase is set aside in favor of the creditors, because it was made to hinder and delay or entirely dbfeat them in the collection of their debts, that any claim for money advanced to, or for the vendor can be reimbursed. If this Avere so, the remedy would be of no avail to creditors AAdien the purchasers had paid the value of the property. It Avould be only necessary for friends to intervene and pay the embarrassed debtor the full price of the property for the express purpose of enabling him to avoid his debts, with the proceeds in his pockets. The correct doctrine must be in all such cases, where there is actual fraud, that the defrauded creditors are entitled to the full value of their debtor’s property thus fraudulently conveyed, Avithout regard to the loss that may fall upon those who have conspired to defeat them. This will also operate as a just punishment for the guilty, and deter men from participating in the -perpetration of frauds upon honest creditors. If they are to be fully reimbursed upon detection in their fraud, there would be no restraint upon them. The heavier the loss upon them, the better will be the effect as an example, and the more the law will be exalted in the estimation of all good men. It would be but a mockery to allow men to enter into- these fraudulent arrangements, and enjoy the chances of success, and when detected, saved from all loss by full reimbursement. This is not the policy of the law, nor is it law at all, in cases of actual fraud. And this being such a case, there can be no credit to James for' any payments he may have made to Powell or his creditors, but he must account fully, as before stated.

The decree of the chancellor is also right in setting aside for the benefit of complainants the deeds of conveyance from Powell to James for his interest in remainder in the estate of his father, after the death of his grandmother.

The sale was made for the price of $4,000, on a credit of two, three, four and five years, for which notes were executed. The proof is, that the same was worth from six to eight thousand dollars. So-, the consideration was greatly inadequate, and the presumption cannot be resisted, in view of all the circumstances that the object of this conveyance^ with both parties, was to shield this property also from the creditors, and was most likely intended to be covered by James for the benefit of his failing nephew after the approaching storm had passed over. So this conveyance must be also set aside, and this interest appropriated to the satisfaction of complainant’s debts, so far as it may be necessary. The notes given by James in this purchase, as well as the deed for the Mississippi land in the other, will be canceled.

With the modification suggested in this opinion, the decree will be affirmed, and the cases remanded for further proceedings. The costs will be paid by defendants.

Decree affirmed.  