Smith v. Craft

• Decision Date: 27 July 1882
• Citation: 12 F. 856
• Parties: SMITH and others v. CRAFT and others. [1]
• Court: United States Circuit Court, District of Indiana

12 F. 856

SMITH and others v. CRAFT and others. ^[1]

United States Circuit Court, D. Indiana.

July 27, 1882

Horace Speed, for complainants.

Rand &amp Taylor and Baker, Hord & Hendricks, for respondents.

GRESHAM D.J.

The defendant Craft, who was a merchant at Indianapolis, on the fifth of April, 1879, executed to his co-defendant Churchman, in trust for Fletcher & Churchman, a bill of sale embracing his entire stock of watches, diamonds, jewelry and fixtures; also a lease upon the building in which he had carried on his business, one year of the term not having then expired. This was all the property that Craft owned, except his notes and accounts, which he estimated to be worth $1,000, and some real estate, which was encumbered for as much as it was worth. Fletcher & Churchman were bankers, and as such at different times had loaned money to Craft, on his agreement that if they would make the loans, and anything occurred by which he was unable to pay all his creditors, he would first pay or secure them. It is recited in the bill of sale that Craft is indebted to the bank in about the sum of $31,000, and that the sale is made in payment and satisfaction of this indebtedness, 'and the further consideration that said Churchman shall employ said Craft in said business, at the rate of $150 per month so long as said Churchman shall carry on or continue said business.'

Immediately after the execution of this instrument, Craft's employes were notified by Churchman and Craft of the sale, and that thereafter the business would be carried on by Craft as the agent of Fletcher & Churchman. After this change, Craft conducted the business as agent, with his old force of employes, just as before the transfer, until some time in August, when, by direction of Fletcher & Churchman, he commenced selling the remainder of the goods at auction, and in this way the stock was finally disposed of some time in October. During the time that Craft managed the business he paid himself and his co-employes weekly out of the proceeds.

The complainants, the Middleton Plate Company, Keller & Untermeier, William Smith & Co., and Freund & Co., are eastern merchants and manufacturers, with whom Craft had been dealing for many years, and to whom he was indebted for goods purchased prior to the sale to Fletcher & Churchman. After the sale, and before the commencement of this suit, on the twenty-seventh of June, 1881, the complainants obtained judgments against Craft for the amounts respectively due them, upon which executions issued and returns were made of no property.

The bill charges that the goods which the complainants sold to Craft on time, and for which their several judgments were taken, were part of the stock sold to Fletcher & Churchman; that they divided the proceeds with Craft, and that the transfer was intended by both Craft and Fletcher & Churchman to hinder and delay the complainants and the other creditors of Craft.

Fletcher & Churchman, in their answer, deny all fraud, and aver that on the twenty-seventh of December, 1878, Craft was indebted to them in the sum of $25,000, for which he gave his two notes, each for $12,500, payable in 30 and 60 days, and in the further sum of $7,313, that being the amount paid by them for Craft, at his request, in taking up a note which he had previously given to George F. McGinnis; that the sale by Craft to them was in good faith, and in full payment of his indebtedness; that they realized not more than $20,000 from the goods; that Craft got no part of the proceeds; that they have no knowledge that any of the goods purchased of either of complainants were in the stock at the time of the transfer; and that the sale of them was in good faith, as preferred creditors, with no intention of cheating, hindering, or delaying the complainants or other creditors.

Craft's answer denies that he received any part of the proceeds; denies all fraud; and avers that the sale was in good faith, in payment of an indebtedness which exceeded the value of the goods and fixtures and the unexpired lease.

Craft's credit seems to have been good with the complainants up to time of his failure, and yet it appears from the evidence that he was insolvent early in 1878. The judgments taken by the complainants were for goods sold after this time, and mostly within a few months before the sale to Fletcher & Churchman. The last purchase from Keller & Untermeier, amounting to $876, was as late as the twenty-sixth of March, and only 10 days before the transfer. It is probable that these goods were part of the stock sold to Fletcher & Churchman. That they got some of the goods purchased from the complainants, which had not been paid for, is clear enough. Craft swears that in the spring of 1878, and from that time until his final failure, he had the confidence of a sanguine business man that he would be able to keep up and pay all his debts, and I am satisfied that during this period he made payments to the complainants.

Fletcher & Churchman had been accommodating Craft with loans for a number of years. Churchman testifies that Craft always promised if the loans were made, and from any cause he was unable to pay all his debts, he would protect or secure Fletcher & Churchman. The loans made from time to time (on faith of these promises, it is to be presumed) amounted, in August, 1877, to as much as $20,000. These loans, and others made after that time, were regularly renewed every 90 days, and the interest paid in advance at the rate of 10 per cent. per annum, until the notes were given, which matured on the twenty-seventh of December, 1878. At this time Craft's indebtedness from loans, both he and Churchman say, amounted to $25,000, for which Craft gave his two notes for $12,500, payable in 30 and 60 days, instead of 90 days, as in all former renewals. About this time, and perhaps the same day, Fletcher & Churchman paid for Craft the McGinnis note, which was indorsed by Churchman. Instead of taking Craft's note for the amount thus paid for him, Fletcher & Churchman simply held the cancelled note as evidence of its payment by them. Prior to December 27, 1878, Craft had always been required to renew his notes promptly at maturity. The two notes given on this day became due in 30 and 60 days, as already stated, and they were allowed to remain due without renewal until the sale, on the fifth of April. Craft is not able to explain why Fletcher & Churchman required those notes to be made in 30 and 60 days, instead of 90 days, as in all former renewals, but supposes they had their own reasons for the change. He was not asked to renew these notes when they became due, and he requested no delay. But after thus testifying he says he thinks Fletcher & Churchman were waiting for him to make his annual invoice, on the first of April, before renewing again. Churchman testifies that when these notes were executed, on the twenty-seventh of December, he was anxious to have the indebtedness reduced; that Craft said he would cease buying goods, and he had no doubt he could fix the notes up in 30 or 60 days, or sell enough goods in that time to reduce the amount he was owing; and that when these notes became due he told Craft to let them stand, as they were in the hope that his sales would yet justify him in making some payments. Churchman gives no other reason for the change of time in the renewals, or for allowing them to stand after maturity until the transfer.

Craft completed his invoice on the first of April, which showed that his stock and fixtures amounted to 'somewhere in the neighborhood of $33,000,' exclusive of notes and accounts, which were estimated at 'about $1,000.' Recognizing that he was in 'deep water,' he went to the office of his counsel on the fifth of April and directed him to make out papers for an assignment. Just what was done under this direction does not appear; but, instead of making an assignment, Churchman was sent for, and arriving, was told that Craft had finished his inventory, could not pay all his debts, and was undecided as to what he had better do. Churchman then reminded Craft of his repeated promises, when he got the money from time to time, that if he failed and became unable to pay all his debts, he would secure or prefer Fletcher & Churchman. Craft admitted that he had made these promises, and there and then the bill of sale was prepared and executed. Churchman's information was, he says, that Craft was solvent, and he knew nothing to the contrary until he was sent for when the transfer was made. Craft testifies that it was made because Fletcher & Churchman had been his friends, and he felt it to be his duty to prefer them. Both...