Smith v. Craft, 123 U.S. 436 (1887)

Mr. Justice Gray

delivered the opinion of the court.

This case, also, comes before the court upon a. certificate of division of opinion, and resembles in many respects that of Jewell v. Knight, ante, 426, argued with it, and just decided. .

It is a bill in equity by several creditors, each of whose claims is for less than $5000, to set aside as fraudulent a sale made by their debtor, Craft, a dealer in watches and jewelry, of his whole stock in trade to Fletcher and Churchman, a banking partnership, known as Fletcher’s Bank.

The first question certified is, whether the understanding

"between the bank and Craft, that if the bank would lend him money from time to time, and that if anything should occur by which he was not able to pay his debts, he would secure the bank, constituted a fraud upon his other creditors, so as to invalidate the subsequent salé of his stock.

What the understanding here referred to was, or how long it had existed, can only be gathered from the statement of a different understanding at the time of the giving of the latest notes by Craft to the bank} from the recital of a conversation between Craft and Churcliman on the very day when the bank was first informed of Craft’s insolvency and when the bill of sale was executed ; and from the other circumstances set forth in the certificate of division.

As the debtor might lawfully prefer one of his creditors if there was no actual fraud, it cannot, in the absence of any finding upon that point, be said, as matter of law, either that the previous agreement to prefer was fraudulent, or that it was not; but the question of fraud or no fraud involved a question of fact, which, if this case had been on the common law side of the court, and either party had desired it, must have been submitted to a jury. Bank of Leavenworth v. Hunt, 11 Wall. 391; National Park Bank v. Whitmore, 104 N.Y. 297.

The second question certified is, whether the bill of sale was rendered void as to other creditors by containing a stipulation that the bank should “ employ said Craft in said business at the rate of $150 per month so long as ” the bank should “ carry on or continue said business.”

But whether such a stipulation is valid or invalid depends upon its intention. If its object appeared on its face to have been to secure a benefit to the debtor or his family, it would be fraudulent in law. Lukins v. Aird, 6 Wall. 78; McClurg v. Lecky, 3 Penrose & Watts, 83; Harris v. Sumner, 2 Pick. 129. But if its sole purpose was to obtain services necessary to wind up the business and turn the goods into money as promptly and economically as possible, for the benefit of the other party, it is valid. Wilcoxon v. Annesley, 23 Indiana. 285; Baxter v. Wheeler, 9 Pick. 21; Strong v. Carrier, 17

Conn. 319. As was well said by the Supreme Court of Indiana in Wilcoxon v. Annesley, "Where, as in this case, the purchase was of a stock of goods in a store, and an established trade existing, it seems but reasonable that, at a fair salary, the grantor might be employed, for a time at least, to continue in charge of the business, and that circumstance will not in itself prove the transaction fraudulent." 23 Indiana, 295.

The only facts stated in the certificate, (other than the bill of sale itself,) directly bearing upon the validity of the stipulation, are that the bank, with Craft as manager, carried on the business, reducing the stock as rapidly as possible, “with a view to closing it out,” for about six months, when the stock remaining was sold by auction; that the bank realized for the entire stock $20,000; and Craft received the sum of $150 a month, or about $900 in all, and, since the bill of sale, had no other interest, direct or indirect, in the stock of goods or its proceeds. It cannot be concluded as matter of law, either on the face of the bill of sale, or with the aid of this evidence of what was done under its provisions, that the compensation was unreasonable, or that the stipulation in question was fraudulent. . Whether, taken in connection with all the previous transactions between the parties, it was fraudulent in fact, was a question to be decided by the Circuit Court.

The third question certified is clearly irregular, as avowedly l’eferring the whole case to the decision of this court.

For these reasons, and upon the authorities collected in Jewell v. Knight, ante, 432, 433, this court lias ”,o authority to answer any of the questions certified, and the entry must be