O'connor v. Smith

• Decision Date: 08 September 1948
• Court: Virginia Supreme Court
• Parties: O'CONNOR. v. SMITH.

188 Va. 214

49 S.E.2d 310

O'CONNOR.

v.SMITH.

Supreme Court of Appeals of Virginia.

Sept. 8, 1948.

Appeal from Law and Equity Court of City of Richmond; Willis D. Miller, Judge.

Suit instituted by petition for attachment by J. Wellford Smith, trustee in bankruptcy for Dolly C. Smith, bankrupt, against K. A. O'Connor, to have amount of debts contracted by bankrupt prior to her sale of equipment and fixtures which she acquired in operation of a restaurant business to defendant declared a lien in favor of plaintiff on property levied on. From decree for plaintiff, defendant appeals.

Reversed and dismissed.

Before HUDGINS, C. J., and EGGLESTON, SPRATLEY, BUCHANAN, and STAPLES, JJ.

William Old, of Chester, and J. M. Turner, of Richmond, for appellant.

May, Simpkins, Young & Rudd, of Richmond, for appellee.

STAPLES, Justice.

This suit was originally instituted by a petition for an attachment by J. Wellford Smith, Trustee in Bankruptcy for Dolly C. Smith. The attachment was issued and levied upon certain equipment and fixtures which had been acquired by the defendant (appellant), K. A. O'Connor, from the bankrupt, Dolly C. Smith, by deed dated October 31, 1944. The equipment and fixtures had been employed by the bankrupt in the operation of a restaurant business owned by her. The ground of the attachment was that the property had been transferred to the defendant without compliance with and in violation of section 5187 of the Code, generally known as the Bulk Sales Act.

The same deed which transferred the said personal property to the defendant also conveyed to him a parcel of land situated in the City of Richmond, upon which was located the restaurant building in which theproperty levied on was located. On June 8, 1944, about four months prior to said conveyance, the bankrupt, Dolly C. Smith, had acquired the said real estate and most of the equipment and fixtures in question by deed from Carl P. Parrish, et als. for the consideration of $55,000, of which $50,000 was evidenced by purchase money notes and secured by two deeds of trust upon all the property, real and personal, which was embraced in the deed. The part of the debt secured by the second lien deed of trust was in the sum of $20,000. The bankrupt, Dolly C. Smith, operated a restaurant in the building for several months after she acquired it, but found she was unable to earn enough to pay the monthly notes secured by the second deed of trust. Having been threatened with foreclosure, she sold, conveyed, and transferred to the defendant, as above stated, the real estate, and all the fixtures and equipment used in her business. The defendant assumed the payment of the $50,000 debt. Shortly after his purchase, he paid the entire $20,000 secured by the second deed of trust.

Simultaneously with this sale by the bankrupt to the defendant, he, in turn, leased back to her the building, and the equipment and fixtures. She then continued to operate the restaurant there until February 1, 1945, when she sold out to one Terry D. Maxcy. On the day of this sale to Maxey, the defendant also executed to him a similar lease. The bankrupt disappeared about that time and has not been heard from since.

She was adjudicated an involuntary bankrupt April 9, 1945, and on May 4 the plaintiff, J. Wellford Smith, was appointed her trustee in bankruptcy. On May 11 he, as trustee, filed his petition for the attachment, the ground of which, as above stated, was that the transfer of the fixtures and equipment from the bankrupt to the defendant by the said deed of October 31, 1944, was in violation of section 5187 of the Code.

After the filing and deposition of demurrers and the consequent amendment of the pleadings, several months later an order was entered transferring the cause to the equity side of the court and referring it to the Commissioner in Chancery to make inquiries and reports as to certain matters deemed pertinent.

One of the questions referred to the Comissioner was whether section 5187 of the Code, the Bulk Sales Act, was applicable to the restaurant business which had been conducted by the bankrupt prior to her sale of the fixtures and equipment to the defendant on October 31, 1944. The Commissioner reported that said section was applicable and had not been complied with. He also reported a statement of debts contracted by the bankrupt prior to her said sale of the property to defendant amounting to $6313.48 as constituting a lien in favor of the plaintiff on the property levied on.

On July 9, 1947, the decree here appealed from was entered. It confirmed the report of the commissioner and rendered a personal judgment in favor of the plaintiff, J. Wellford Smith, Trustee, against the defendant, K. A. O'Connor, for the said sum of $6313.48. To review that decree this appeal was awarded.

The main question raised in the case, and the only one which we find it necessary to decide, is whether section 5187 of the Code is applicable to the sale of the fixtures and equipment by the bankrupt to the defendant.

The purpose of the Code section is thus expressed in its caption: "To prevent persons engaged in buying and selling merchandise, while indebted, from selling their entire stock of merchandise in bulk, or selling the major portion thereof, otherwise than in the ordinary course of trade." (Italics ours). Fixtures are not embraced in this statement of its purpose but are included in the prohibition contained in the body of the statute against the sale in bulk "of any part or the whole of a stock of merchandise, or the fixtures pertaining to the conduct of said business, otherwise than in the ordinary course of trade" without complying with the conditions prescribed in the Act. It is admitted that neither the bankrupt nor the defendant made any effort to comply with the Act.

The Virginia Bulk Sales statute conforms closely to the general pattern of sim-ilar Acts which have been adopted in most of the States. The question of the applicability of its provisions to the restaurant business we have not heretofore been called upon to consider. However, the great weight of authority in other States supports the view that such statutes are restricted to persons who are engaged in the purchase and sale of merchandise. The general rule is thus stated in 37 C.J.S., Fraudulent Conveyances § 479, at pages 1330 and 1331:

"In general, bulk sales laws apply to sales of any stock of goods, wares, or merchandise in bulk by a merchant, trader, or dealer having a fixed place of business; and in most instances they are limited to such persons, * * *. Unless they carry what may be designated as a stock of merchandise, particular statutes have been held not to apply to sales by manufacturers, including the seller of a manufacturing plant which sells its product merely as an incident to the business; retailers not selling goods bought for resale but only goods produced or manufactured by themselves; bakeries; pea canneries; farmers; persons engaged in the logging and lumbering business; shoemakers; hotel keepers; restaurant keepers; proprietors of lunch wagons; proprietors of boarding house businesses; * * *." (Italics ours).

The decisions of the courts of the various States on this question have been assembled in a comprehensive annotation in 168 A.L.R. pages 738-752, inclusive. The overwhelming majority of the cases are shown there to be in accord that a restaurant business is not one involving the carrying of a stock of merchandise or the buying and selling of merchandise.

The language of the Virginia Act requires a construction in conformity with these conclusions. It expressly applies only to "persons engaged in buying and selling merchandise, " and refers to the "entire stock of merchandise". A restaurant business is of an essentially different type. It is more closely related to dining rooms of hotels, boarding houses, hospitals, and ed ucational institutions. The principal investment of the owner of a restaurant consists of his equipment for cooking, preparing, storing and preserving foods, such as stoves and grills, pots and pans, refrigerators and store rooms. There must be included also, of course, the china, silverware, linen, tables and chairs which are necessary for serving meals to the patrons.

The general rule, independent of statute, is that a deed of...