U.S. Supreme Court
Jewell v. Knight, 123 U.S. 426 (1887)
Jewell v. Knight
Argued November 3-4, 1887
Decided December 6, 1887
123 U.S. 426
Questions certified to this Court upon a division of opinion of two judges in the Circuit Court must be distinct points of law, clearly stated, so that they can be definitely answered without regard to other issues of law or of fact, and not questions of fact, or of mixed law and fact involving inferences of fact from particular facts stated in the certificate, nor yet the whole case, even if divided into several points.
Whether a sale and delivery of a debtor's stock of goods, by way of preference of a bona fide creditor, is fraudulent against other creditors involves a question of fact depending upon all the circumstances, and cannot be referred to this Court by certificate of division of opinion.
Bill in equity by general creditors of John Knight against him, his wife, Stoughton A. Fletcher and Francis M. Churchman. After a hearing upon pleadings and proofs before the circuit judge and the district judge, the bill was dismissed and they signed the following certificate of division of opinion:
"The defendant John Knight was a merchant engaged in the railway supply business at Indianapolis. He had been engaged in such business for several years prior to May 3, 1879. The defendants Fletcher & Churchman were his bankers, and the defendant Elija J. Knight is his wife."
"The complainants are Eastern manufacturers or merchants residing at Hartford, Connecticut, and Pittsburgh, and have sold goods to Knight for which they have never been paid."
"In December, 1878, Knight borrowed from his wife $10,000, which she raised by mortgaging her separate real estate. He gave her a note at the time of the loan evidencing the indebtedness. There is no evidence impeaching the bona fides of this transaction between Knight and his wife. The money so raised was used by Knight in his business."
"Knight was also indebted to Fletcher & Churchman in the sum of $10,000, which indebtedness was evidenced by various promissory notes, of which a note for $4,000 matured March
6, 1879, and other notes for $6,000 matured at different dates up to April 18, 1879."
"Afterwards, on March 1, 1879, a note due one day after date was given by Knight to Fletcher & Churchman as collateral security for the other notes. The object of giving this note was to put it in the power of Fletcher & Churchman to sue and obtain judgment at any time they desired."
"Besides these, Knight owed mercantile debts to manufacturers and dealers living in other cities to a considerable amount, to-wit, about $12,000. He was also indebted to George P. Bissell, trustee, for borrowed money to the amount of $45,867.85, which was secured by a mortgage upon real estate, and default had been made in payment of interest on this mortgage debt, but of this debt Knight was personally hound for the payment of $28,770.90 only. Knight and Churchman then supposed that Knight was personally liable fur the whole debt."
"Foreclosure proceedings had been commenced by Bissell in January, 1879, and Knight, about that time, had some negotiations with Bissell the object of which was to induce him to agree to take the mortgaged property in full satisfaction of the mortgage debt, and exonerate Knight's personal estate. Bissell refused, and pressed his suit with the purpose, as he informed Knight, of taking personal judgment against Knight, collecting what he could by levy and sale of his personal property, and enforcing his mortgage lien for the balance."
"Fletcher & Churchman were apprised of Bissell's suit and of his purpose to take personal judgment against Knight and levy upon his personal property, and they were also apprised of Knight's efforts to settle with Bissell, and informed Knight that if those efforts were fruitless, they would protect themselves, and requested Knight to execute for them a cognovit upon which they could take judgment at any time they saw fit. Mrs. Knight insisted that she should be put on an equal footing with Fletcher & Churchman, and it was finally agreed that the cognovit should include her debt also, and it was so made and executed on March 17, 1879, and delivered into Churchman's custody to take judgment when he saw fit. By
this arrangement it was in the power of Fletcher & Churchman and Mrs. Knight at any time to take judgment; it was left wholly to them to determine when judgment should be taken, though Knight begged them to postpone as long as they could, saying he still had hopes of settling with Bissell. Fletcher & Churchman did not agree to delay, but it was understood between them and Knight that unless it became necessary for their protection against Bissell or any other person (there being, however, no expectation of suit by any other person, nor that there would be any necessity for the use of the cognovit if Bissell could be persuaded to take the property covered by his mortgage in satisfaction of his demand), they would not take judgment until Knight could see Bissell again, and accordingly they did wait until May 1, 1879, before they took any steps to put their claim in judgment. Knight did not see or communicate with Bissell until April 28, 1879, when, as Knight had expected, Bissell came out to Indianapolis. Knight then saw him, and again requested Bissell to take the mortgaged property for the debt, but Bissell refused to do so, and Knight made no further effort to induce him to make that arrangement. Meanwhile, from the date of the cognovit to May 1, a period of six weeks, Knight held himself out as a solvent merchant worthy of credit, and, with the knowledge of the other defendants, went on with his business as usual, buying and selling goods."
"His standing as a businessman was good, and he could buy goods on credit for any reasonable amount during that time, and did buy to replenish his stock as he had been in the habit of doing, during which time his purchases amounted to $4,113.94, and his sales amounted to $5,249.64."
"Knight had been dealing with the complainants, Spang, Chalfant & Co., during a period of four years, and with the complainants, Pliny Jewell & Sons, for eighteen months prior to May 1, 1879. The goods for which he owed Jewell & Sons were purchased as follows: February 19, 1879, $379.36; April 22, 1879, $45.57, for which February purchase, on April 14, 1879, he gave them his acceptance, payable July 2, 1879. The goods for which he owed Spang, Chalfant & Co. were purchased
as follows: December 17, 1878, $75.94; April 7, 1879, $849.80, on 90 days' credit. No part of either debt was paid."
"On or about May 1, 1879, Churchman, of Fletcher & Churchman, heard that Bissell was pressing his suit to judgment, and he therefore requested Ayres, the attorney named in the cognovit, to proceed at once to take judgment, and judgment was entered upon the cognovit in the Superior Court of Marion County May 1, 1879, for $20,352.22, the amount due Fletcher & Churchman and Mrs. Knight. Execution was promptly issued and came to the hands of the sheriff May 1, 1879. No levy was made, though the lien of the execution attached to the personal property of Knight when the writ came to the sheriff's hands, provided that such a writ, issued upon a judgment so obtained, could create a lien."
"On May 3, 1879, Knight suggested to Fletcher & Churchman and Mrs. Knight that more money could be realized out of his stock of goods by selling then May 3, 1879, Knight suggested to Fletcher & Churchman and Mrs. Knight that more money could be realized out of his stock of goods by selling then May 3, 1879, Knight suggested to Fletcher & Churchman and Mrs. Knight that more money could be realized out of his stock of goods by selling them out from the store in the usual way than by sale on execution. He gave it as his opinion that the stock was worth $20,000. Ayres, who was Mrs. Knight's counsel, was thereupon consulted about the sale of the goods to Fletcher & Churchman and Mrs. Knight, and advised it. Thereupon an agreement was made between Knight and Fletcher & Churchman and Mrs. Knight that Knight should turn over the goods to them in satisfaction of their judgment against him and of his debts to them. The stock on hand was really not worth $20,000, but was $5,000 or $6,000 short of that, as shown by subsequent invoice and sales after the arrangement was made. Fletcher & Churchman and Mrs. Knight took possession of the stock of goods on May 3, 1879, and put Knight in to sell out the stock as their agent in the ordinary course of business. There was no agreement as to his salary, though he took out of the proceeds of sales ten to fifteen dollars per week for his services."
"The business was carried on by Fletcher & Churchman and Mrs. Knight in this way until August 12, 1879, when Fletcher & Churchman became dissatisfied and the partnership was dissolved. The goods and proceeds of sales were divided between Fletcher & Churchman and Mrs. Knight equally, and
Fletcher & Churchman's share of the goods was removed from the store. The goods on hand amounted to $9,449.88. The money realized from sales amounted to $5,156.52. Mrs. Knight's half of these amounts was applied in payment of the indebtedness of Knight to her, and Fletcher & Church man's share on the indebtedness of Knight to them. But as the amount received by Fletcher & Churchman fell short of paying his debt to them in the sum of $2,805, they demanded of Knight that he should give them a new note for this sum, on the ground that he had overstated the amount of goods at the time they purchased them. Knight thereupon gave them a note for this balance."
"The complainants Jewell & Sons recovered judgment against John Knight in the Superior Court of Marion County on March 23, 1881, for $440.20 and costs, and the complainants, Spang, Chalfant & Co., recovered judgment against Knight in the Circuit Court of the United States for the District of Indiana for $1,032 on May 3, 1881. Execution was issued on the judgment in favor of P. Jewell & Sons on April 21, 1851, and on April 22, 1881, it was returned nulla bona. Execution was issued on the judgment in favor of Spang, Chalfant & Co. on May 4, 1881, and returned on the same day nulla bona. And nothing has since been paid upon either of these judgments."
"After this transfer of the goods by Knight to Fletcher & Churchman and Mrs. Knight, Knight had no property subject to execution, and was insolvent. The plaintiffs sold goods to Knight as stated, believing him solvent and in ignorance of the, execution of said cognovit."
"That upon the hearing of the said cause before the Honorable Thomas Drummond, Judge of the Circuit Court of the United States for the District of Indiana, and the Honorable William A. Woods, District Judge of the United States for said district, sitting with said circuit judge, the above facts were found, and thereupon it became a question:"
"1st. Whether or not the delay from March 17 to May 1, 1879, in taking judgment upon the warrant of attorney, had the effect to render the purchase which was thereafter made
by the defendants Fletcher & Churchman and Mrs. Knight of the stock of goods of said John Knight voidable by the plaintiffs."
"Second. The bona fides of the original indebtedness of Knight to Fletcher & Churchman and Mrs. Knight not being questioned, whether or not, to render said sale void as to the complainants or other creditors, it must not also appear that the same was made by said John Knight with the fraudulent intent to cheat, hinder and delay said creditors, and that said Fletcher & Churchman and Mrs. Knight had knowledge of that fact at the time they made the purchase."
"Third. Whether or not, if such sale is voidable by the plaintiffs, it can be avoided by them for the payment of the entire indebtedness of said John Knight to them, or only for the payment of so much of said indebtedness as was contracted after the execution of said warrant of attorney."
"Fourth. Whether or not under the circumstances the sale by Knight to the other defendants was fraudulent as to the complainants' claims for goods sold during the time the cognovit was held -- March 17 to May 1, 1879."
"Fifth. Whether, under the circumstances, the sale by Knight to the other defendants was fraudulent as to the complainants' claims for goods sold prior to March 17, 1879."
"Upon each and all of the above questions the opinions of said judges are and were opposed, and that the points upon which they so disagree may be ruled upon by the Supreme Court, in pursuance of the statutes in such case made and provided, the said judges have caused the above points upon which they have disagreed and are so opposed to be stated under their direction, with the facts so found upon which the disagreement occurred, and that the same be certified and be made part of the record in this cause, which is done accordingly. "