The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1883-09-15
PREFERRING A CREDITOR
Judge Woods's Decision in the Case
of SnaIth ct al. VS.. w. H. Craft ct al.
He Disagrees with Judge Gresham In the
AIatter-The Case to Go to the United
States Supreme Court.

decision OF more Than ordinary interest," anu
Importance to the legal profession, on account OF
the questions of law involved, was rendered In
the federal court yesterday, by Judge Woods in
the case of Smith VS.. W. II. Craft ct al, which
has been riding the pillows OF litigation for more
than three years, and has become pretty well
known to those who give any attention to court
matters The causes upon which the case Is
based are briefly stated: That Craft, being in
solvent, made a transfer of his goods
in trade to Fletcher & Churchman,
I:.e bankers, in payment of his IN
debtedness to them. The suit is brought by
other creditors of Craft to set aside the trensfer
aud to have Fletcher & Churchman declared
trustees and, as such, accountable for the value
OF tho 1ods. There are two grounds upon
which, it is claimed in argument the trans
fer was unlawful and invalid. First, because of
the stipulation in the writing by which the as
signment was effected for the employment of
Craft to manage the business, and, second. be-
cause of the promise made by Craft to Fletcher
& Churohman, when obtaining credit with them,
shat he would protect the bank if anything
ever occurred by which he was not able to pay
his debts, and that, II he met with losses he
would secure the bank if the bank would loan
him money from time to time"
A decision was rendered in favor of the plain
lifts over y ear ago, by Judge Gresham In
which the transfer to Fletcher Churchman
was declared unlawful and was set aside. An
application was made for rehearing before
Judge Drummond, who, after the resignation of
Judge Gresham, directed his successor, Judge
Woods. to give the rehearing asked for.
In his decision, which Is contrary to that rem
dered by Judge Gresham, Judge Woods says:
"As to the agreement for employment, it may he
observed that it for no definite time, and
.,avaoN Tod NV aifh
party at will. Besides, it does not ap-
pear at whose instance nor for
whose benfit the stipulation was made.
Fraud is not to be presumed, and for all that is
shown Craft may have passed by opportunities
for employment on better terms in order to aid
Fletcher & Chnrchman to. make the best of the
stock of goods, which, 1t Is shown, was made
quate to pay in full the debt upon which it was
taken. The fact that Craft had failed in the
management of the business, as owner. is no evil
dence of the value of hrs services In the capao.
tty in which he was employed 1t cannot, there
fore, be said that this stipulation was extorted
for Crafts benefit and as condition upon which
the preference of Fletcher q Churchman over
other creditors granted"
AS to the promise to secure the bank, Judge
Woods says: cit is insisted that this was in the
nature of secret lien, and that the tendency of
the transaction was to give Craft delusive
'Oredit, and that the parties must have all
known this tendency they must all be held 60
have intended-indeed, to have contriyed-a
fraud upon all who should thereafter deal with
Craft UPON credit. The argument is plausible
but. In my judgment, not sound. In the first
place, the promise TO secure the bank had
force in law, and gave no additional sanction to
the obligation of the debtor beyond what was
involved III the contracting of the debt though
there are some decisions, under the bankrupt
law, which hold tat security given in fulfill
mont of previous promise will make good a
preference which otherwise would have been de-
clared unlawful. Such, indeed, seems to be the
established English rule (See statement of
aso ' Lowell wei S61J Diner aoG Gases q how
ever, are to the effect that such an oral
promise to give security is nuea-
tory and creates no obligation. Ii of any bind
ing or legal force, it is evident that the fulfill
Suent of such promise could not be deemed a
fraud; but il of no force in law, then, except as
1t binds the individual conscience of the debtor,
1t can not affect the exercise of his right to pre-
fer one creditor over Others 1t can operate only
as a motive, by which the debtor may or may
not In the end be controlled. But in respect to
the right to prefer, it is settled law that the
a9red into 9o NOT o1b S1 that nps " "e
ise to secure or to prefer creditor, made at the
time the credit is gwen may be fraudulent, but
1t must be when fraud Ia Intended, or when the
circumstances within the know ledge of the cred
1tor are such that he must know that injury to
others will probably result. But when. as in
this case, the debtor was doing an apparently
prosperous business, though largely on credit,
and advances were made TO MIN without a be-
lief any imperative reason for the belief that he
was or was likely TO become ,insolvent,it can not,
in my Judgment. be said that promise TO pro.
teot If disaster should come, cannot be per-
formed 1t may be true that such loan gives a
delusive credit, and is in the nature OF "a secret
lien. but the loan itself, without the promise of
protection, unless published to the world gives
a delusive credit, and while, as already shown,
there is no lien IN fact, because such promise
has no legal force, the law by no, means con
dennis every transaction in the nature OF a Sc
cret lien. In this State conditional sales are
upheld, and every factor, commission mer-
chant or bailee of goods, is clothed with the an
parent ownership of property which is not his,
and yet the secret rights of the real owner are
Indicated my views upon the two propositions
stated, do not find 1t necessary to decide
upon either of them, because they not
embraced in the averments TO the bill. The sub
stance of the charge of fraud contained IN the
bill Is in the averlnents to the effect that know
ing Crafts insolvency the defendants including
Fletcher g. Churchman, did not make it known,
hut concealed IL from the plaintiffs and others
who became creditors OF Craft; that they made
q pretended sale of the stock of goods In payment
OF pretended debt; that Graft continued in the
possession of the goods and made sales thereof;
applying part OF the proceeds to his use
and part TO the use Of Fletcher q Churchman,
with their consent and at their request; that the
defendants and each of them knew that Crafts
purchases of the plaintiffs and others were being
made upon a credit and upon misrepresentation
by Craft as to his financial conditions; that said
pretended sale was without consideration and
was effected by the defendants with the intent
TO hinder delay and defraud the plaintiffs and
other creditors of Craft and that if Craft was
Indebted TO Fletcher &Churchman, it kept
secret and concealed by them with the intent
that Craft should have and retain credit
with the plaintiffs and other dealers. These
Hvernents, as made, are not proven, or, to say
the least the evidence is not such as to warrant
the court In setting aside the conclusion of the
master that they are not proven; and They are
not comprehensive enough embrace the
grounds upon which counsel for the plaintiffs
predicate and press their right of recovery"
Tue decision of Judge Woods, therefore, is
gust contrary TO the one rendered by Judge
Gresham. It is understood that, on the division
of opinion, the will he taken to the Supreme
Court. The attorneys for the defendants are
Mcdonald. Ritter & Mason. and the plaintiffs are
represented by Horace Speed.
decision was also rendered yesterday by
Judge Woods in the case of Jewell ct al VS.
Knight ct al, the questions of law in which are
very much the same in tho case of Smith ct
nj. VS.. Craft ct al. The decision Is contrary TO
that of Judge Gresham, and, the division of
opinion, the will be taken to the Supreme
Court.