188
FEDERAL REPORTER.
able that a. twentieth part of the whole would be actually rea.ched for taxation if they were not exempt. Such accumulations tend to the extinction of pauperism, to the encouragement of economy, and to the general thrift and comfort of the masses of the people. It is as much the part ofa wise policy on the part of the state to encourage them as it is to encourage benevolent and charitable institutions. Such an exemption reduces the burden of taxation on other moneyed capital. None of the exemptions which have thus been considered manifest any unfriendly discrimination on the part of the state as between the shares of national banks and moneyed capital generally. Taken together, they form a much less important part of moneyed capital generally than was exempt by the state laws in the case of Hepburn v. School Directors, where the exemption was treated as not disturbing the rule of equality of the act of congress. Compared with the exemptions considered in Boyer v. Boyer, they are insignificant. It is therefore held that they are not of a character to justify the complainant's contention. The conclusion reached is in accord -with the recent decision of the court of appeals of this state in McMahon v. Palmer, 6 N. E. Rep. 400, where it was held by the court, upon a full consideration of the question presented here, that the taxing system of this state does not result in taxing national bank shares at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of the state. The motion for an injunction is denied.
KRIPPENlJORF
v.
HYDE
and others. October 4,1886.)
(Ot'rcuit Oourt, lJ. Indiana. 1.
FRAUDULENT CONVEYANCES-PREFERENCE-GIVING A FAT,SE CREDIT-"BoOMINa" AN INSOLVENT CONCERN.
If a creditor of a commercial firm, whose insolvency is known to him but not to the public, helps the firm to keep going, and to extend largely the scope of its business and credit, under a promise of preference over other creditors in case of disaster, which under the circumstances is clearly probable, and the firm, having obtained large quantities of goods on credit, turns them over to this creditor in payment of his demands, keeping nothing for other creditors, the transfer of the goods will be deemed fraudulent.
2.
SAME-PREFERENCE UNLAWFUL.
Upon the facts of the case, held, that the preference given was unlawful.
In Chancery. D. V. Burns and Rankin D. Jones, for complainant. A. W. Ha,tch and Lew Wallace, for defendants.
KRIPPENDORF V. HYDE.
789
WOODS, J. The chief question here is whether or not Krippen. dorf's purchase of certain goods of Frey & Maag was made in good faith on his part. He claims to have taken the goods in payment of demands to the amount of $22,000 which he held against Frey & Magg for moneys loaned and other considerations. The goods con· sisted of two stocks of shoes,-one at Indianapolis and the other at Chi. cago. At or near the time when these were delivered to Krippendorf a third stock, at Fort Wayne, was turned over to a Mrs. Chase, in discharge of an indebtedness of Frey & Maag to her, and Maag also conveyed away certain real estate, neither he nor Frey retaining any property subject to execution. The respondents at once instituted a suit in attachment in this court against Frey & Maag, and caused the goods at Indianapolis to be seized, the alleged cause for attachment being that the defendants had disposed of their property with intent to defraud their creditors. On the final hearing the attach· ment was sustained, and the goods ordered to be sold to satisfy the demands of the plaintiffs, (respondents here,) amounting in the aggregate to the sum of $21,947.60. In order to retain possession of the goods pending the attachment suit, Krippendorf gave the stat. utory delivery bond, and, after the determination of the suit, in lieu of the goods, brought the appraised value thereof into court, and filed a petition or ancillary bill, (see Krippendorj v. Hyde, 110 U. S. 276; S. C. 4 Sup. Ct. Rep. 27,) claiming the money as his own, on the ground that he had bought the goods for value, and without notice of the fraudulent intent of Frey & Maag. This claim the master has sustained, and, in addition, has reported that the respondents were themselves censurable for having given credit to Frey & Maag. A careful study of the evidence has led me to the conclusion that this report ought not to be confirmed. I do not deem it necessary to consider whether or not the judg. ment in the principal case establishes, for the purposes of this pro· cedure, the fraudulent intent of Frey & Maag; because if it be con· ceded that, as against Krippendorf, it is now essential to the case of the reepondents that, in addition to the general charge of fraudu. lent intent contained in the affidavit for attachment, the sale to Krippendorf should be shown to have been fraudulent on their part, the evidence leaves no room for doubt of the fact, and, with hardly less certainty, in my judgment, excludes every reasonable pretense that Krippendorf purchased in good faith, and in ignorance of the fraud of the sellers. The evidence discloses many circumstances, the details of which need not be stated here, which excite grave suspicion of the truth of the transactions between Frey & Maag, and between them and Krip. pendorf, as explained by them and by him; but if it be conceded, as asserted, that, in 1881, Krippendorf gave Maag credit for $4,300 worth of shoes, sold for the use of Frey; and that he indorsed for Frey, first in the sum of $2,000, and, again, for $5,000, and after.
790
wards assumed and paid both debts, that, about the first of Sep.. tember, Maag went into partnership with Frey in the tobaoco busi. ness at Cincinnati, (a business whioh, having oontinually absorbed large sums, had yielded no returns, and by April, 1882, had been practically abandoned as worthless;) and that in January, 1882, Maag admitted Frey into the shoe business at Indianapolis, (giving him an equal interest in property worth six or eight thousand dollars, forwhich, if their testimony is to be credited, Frey paid and promised to pay nothing;) and if it be further granted that these separate individual liabilities (Frey's for $7,000 and Maag's for $4,300) were assumed by the firm upon suoh an agreement and consideration as made them partnership obligations as against any who thereafter should give credit to the firm in the due oourse of business,-it remains trueindeed, the facts assumed make it true-that Frey & Maag, in the beginning, not to mention their tobacco liabilities, of which dod could hardly have been entirely ignorant, were indebted to Krip. pendorf alone in a sum greater by three or four thousand dollars than the value of all they owned, both in partnership and ally, and in this situation were proposing to push, or, as dorf has expressed it, "to boom," a scheme of business which, by the very terms of the agreement for starting it, was made insolvent, and unworthy of that oommercial credit which was essential to its prosecu. tion. His therefore not to be supposed that Frey & Maag, or Krippendorf, believed it reasonably possible for them to conduct their enterprise upon a considerable scale with advantage to themselves, or with safety to him, as their "confidential creditor," without a strong probability-they could not well have deemed it less than a certainty-of inflicting losses upon others of whom they should obtain oredit. It was in thisoondition of their affairs, the essential faots of which, it cannot be doubted, he well understood, that, instead of demanding security for or payment of the large amount already due him, and instead of supplying them with goods of his own firm's manufacture, Krippendorf, besides indorsing for $3,000 at Chicago, consented to advance to Frey & Maag such sums of money as they should need between Apl'il and September, 1882; they promising that the proceeds of sales meantime should be paid to him, and that, if they became embarrassed, they would pay him in preference to other creditors. In his last examination Krippendorf denies any recollection of this promise for a preference, though by his testimony in the attachment case he seems to have admitted the fact. But whatever the primary understanding between them was, it is claimed that loans were made prior to September 20th, when the sale of goods in question took place, to the amount of $13,500 or more, and in exoess of repayments to the amount of $11,000; making his en· tire demand at that time, aside from the Chioago indorsement, about $22,000, in payment of which the goods in the stores
791
Indianapolis and Chicago were sold and turned over to him. It is to be noted that no appraisement was had, and that, without see lng the goods, Krippendorf agreed, upon the statements of Frey & Maag, to take them in full discharge of his demand. It appears, too, that these loans of money were made in most instances, if not always, by check or draft, sent by mail from Cincinnati, where Krip. pendorf resided, to Indianapolis j and it is shown that notes, checks, and drafts were frequently sent in that way by him to them, and by them to him, during the period of the transactions in question j and yet not a letter or line of correspondence, though called for, is in evidence. Krippendorf's testimony is that there was no ence j his explanation being that none was necessary, because of Frey's frequent visits to him at Cincinnati. Maag, I believe, says he did not preserve letters. It is impossible to believe that all these checks and drafts, covering large sums of money, went by mail, unaccompanied by any communication or statement which, if. produced, would show the real character and purpose of the several transactions j and for this and other reaSOllS there must arise doubts on the subject of which the respondents may fairly claim the benefit. But waiving this consideration, and conceding the facts in this reElpect to be as alleged, the if Krippenmerits of the case are not essentially different j dorf gave credit to Frey & Maag, as asserted, he did it under cirwhich compel an inference of bad faith, or conscious disregard on his part of the rights of others, which, under the .circumstances, he was bOUlld to respect. It is a familiar and salutary rule which holds men responsib e for the natural and reasonable consequences of their acts and conduct as if the particulal' consequences which do follow had been intended j Rnd that Frey & Maag and Krippendorf must all have known that the proposed scheme of business necessarily involved heavy purchases on credit, when credit was not merited, and could not be had of prudent merchants possessed of knowledge of the facts, is quite apparent j and that by making these loans he was contributing directly to the establishment and maintenance of this credit Krippendorf must have understood. The loans were asked, as he himself bas testified, for the purpose of paying mercantile bills, and correspond quite nearly in amount with the aggregate of the sums paid upon such demands by Frey & Maag during the period in which the loans were made, and during which the respondents gave to Frey & Maag credit for goods. This fact, however, does not necessarily corroborate the testimony that the loans were made to the extent stated, because there is wanting a satisfactory account of the amount and disposition of the proceeds of sales made during lhe time the business had been going. I do not doubt, as in Smith v. Craft, 17 Fed. Rep. 705, I held, that a preference of one creditor over others is not invalid because given