Ellis Jones Drug Co. v. Coker

• Decision Date: 11 June 1928
• Docket Number: 26955
• Citation: 117 So. 545,151 Miss. 102
• Court: Mississippi Supreme Court
• Parties: ELLIS JONES DRUG CO. v. COKER et al. [*]

117 So. 545

151 Miss. 102

ELLIS JONES DRUG CO. v. COKER et al. ^[*]

No. 26955

Supreme Court of Mississippi

June 11, 1928

Division A

1. FRAUDULENT CONVEYANCES. Failure on sale of partnership property to give notice to individual creditors of partner held not violation of Bulk Sales Law (Hemingway's Code 1927, section 3335).

Failure on sale of partnership property to give notice required by Bulk Sales Law (Hemingway's Code 1927, section 3335) to individual creditors of a member of partnership who were not creditors of such partnership held not to constitute a violation of such law, since provision therein for notice is to protect creditors of seller only.

2 PARTNERSHIP. Ascertaining partner's interest, partnership debts must be taken into consideration at time of sale of assets.

In ascertaining a partner's interest in partnership, it is necessary to take into consideration all the debts of partnership at time of sale of assets.

3. FRAUDULENT CONVEYANCES. Bill of sale held competent affecting fair market value of partnership goods at time of sale (Bulk Sales Law).

In determining interest in partnership covered by chattel mortgage at time of sale of assets in compliance with Bulk Sales Law (Laws 1908, chapter 100), fair market value of stock of goods at time of sale must be taken into consideration, though bill of sale was competent evidence as one way of proving value thereof.

4 PARTNERSHIP. Partner may execute valid mortgage on his own private interest in partnership property.

A partner, where several individuals engage in a partnership enterprise, may execute a valid mortgage on his own private interest in partnership property, and mortgagee is entitled to interest of mortgagor therein after debts are paid and claims and liens as between partners adjusted.

5. CHATTEL MORTGAGES. Mortgage on interest in partnership held not void because partners remained in possession, buying and selling and disposing of stock of goods.

Mortgage executed on interest in partnership property held not void because after its execution the partnership remained in possession, buying and selling and disposing of the stock of goods.

6. CHATTEL MORTGAGES. Mortgage on partnership interest held not avoided because name of partnership was thereafter changed.

Mortgage on interest in partnership held not avoided because name of partnership was thereafter changed, so long as mortgagor remained a member of the partnership.

HON. HARVEY MCGEHEE, Chancellor.

APPEAL from chancery court of Bolivar county, Second district, HON. HARVEY MCGEHEE, Chancellor.

Suit by the Ellis Jones Drug Company against R. L. Coker and N. L. Chapman. From the decree, complainant appeals, and defendant N. L. Chapman cross-appeals. Reversed and remanded.

Reversed and remanded.

Somerville & Somerville, for appellant.

Roberts & Hallam, for appellees.

Argued orally by A. D. Somerville, for appellant.

OPINION

MCGOWEN, J.

The appellant, Ellis Jones Drug Company, filed its bill for injunction against R. L. Coker and N. L. Chapman, seeking to enjoin the foreclosure of a trust deed executed by N. L. Chapman in favor of R. L. Coker, on drug store fixtures. The facts essential to a decision of the case are as follows:

In January, 1920, N. L. Chapman desired to become a member of a partnership at Shaw, Miss., then operated by J. R. Germany and H. L. Jackson, and, for this purpose, Chapman borrowed three thousand dollars from the appellee Coker, which money was paid to H. L. Jackson, executing to secure same a deed of trust in the usual form on "my one-third interest in Jackson's Delta Drug Store." It does not appear from the evidence that Jackson and Germany knew that Chapman had executed such trust deed.

In June, 1921, Jackson retired from the partnership and Chapman and Germany continued to operate the drug store under the name of "Delta Drug Store," and a year later, being indebted to Ellis Jones Drug Company, the partnership of Chapman & Germany executed a deed of trust in favor of Ellis Jones Drug Company on the fixtures in the drug store, describing each article.

The partnership continued to operate until the 11th day of December, 1924, when, after some negotiations, Mr. Ellis being in Shaw, and insisting upon payment of his account, or that the business be sold to him, there was a sale of the stock of goods and fixtures, bills receivable etc., to Ellis Jones Drug Company, such sale being in writing, and a list of debts being attached to the bill of sale which were assumed to be paid by Ellis Jones Drug Company. The amount, eight thousand six hundred thirteen dollars, as proven in this case, left an additional five hundred dollars of debts which were not taken into consideration. The consideration of the sale was ten thousand five hundred twenty-four dollars, and this amount exceeded the indebtedness assumed to be paid in the sum of one thousand nine hundred sixty-one dollars, so Ellis Jones Drug Company paid each of the partners, Germany and Chapman, nine hundred eighty dollars.

Mr. Ellis testified that Chapman mentioned the Coker trust deed, and Mr. Ellis understood that Chapman would pay the nine hundred eighty dollars over to Coker, which he did not do.

On the following day Ellis Jones Drug Company sold the business to Germany.

The court below held that the trust deed from Chapman to Coker was void as appears from the decree, and further held that, as shown by the decree, the Bulk Sales Law was violated in the failure to give notice of the sale to creditors of individual members of the partnership, or, in other words, that no notice was given to Coker, who had an individual debt against Chapman, but no claim against the partnership, and that the sum of nine hundred eighty dollars paid by Ellis Jones Drug Company to Chapman was the amount of Coker's interest as mortgagee of Chapman in the partnership, and decreed the payment of the nine hundred eighty dollars by Ellis Jones Drug Company to Coker. Upon pleadings being properly made up, the court further decreed that, upon payment of said sum to Coker, Ellis Jones Drug Company should recover said amount so paid from Chapman.

Ellis Jones Drug Company prosecutes a direct appeal, and Chapman prosecutes a cross-appeal. It will not be necessary, in view of the conclusion we have reached, to consider the cross-appeal, as the case must be reversed upon the main decree, and that would leave the decree against Chapman without foundation.

1. Was the Bulk Sales Law violated in the failure to give notice to individual creditors of a member of the partnership who were not creditors of the partnership? Section 3335, Hemingway's 1927 Code (chapter 100, Laws of 1908), is as follows:

"A sale of any portion of a stock of merchandise, otherwise than in the ordinary course of trade, or in the regular and usual prosecution of the seller's business, and a sale of an entire stock of merchandise in gross, shall be presumed to be fraudulent and void as against the creditors of the seller, unless, at least, five days before the sale;

"(a) The seller shall have made a full and detailed inventory, showing the quantity, and, so far as can be done by the exercise of reasonable diligence, the cost price to him of each article sold; and

"(b) The purchaser shall have in good faith made full and explicit demand of the seller for the name, place of residence and business and post office address of each of his creditors, and the sum due each, and to which demand the seller shall have made full and truthful written answers; and

"(c) The purchaser shall have in good faith notified personally or by mail each of the seller's creditors, of whom he has knowledge, or with the exercise of reasonable diligence could have acquired knowledge, of the proposed sale and of the cost price of the merchandise proposed to be sold and of the price to be paid therefor by the proposed purchaser."

It will be observed that this statute provides that notice be given, and protects creditors of the seller.

The only question to be considered is whether Coker, a creditor of Chapman, was a creditor of the seller in the sale of this stock of goods in bulk. The seller in this case was the partnership, and not Chapman. We have no hesitancy in saying that Coker was not entitled to notice, laying down the rule that creditors of an individual member of a partnership are not entitled to the benefit of this statute, but that only creditors of the partnership are entitled to such notice where a sale of a stock of goods in bulk is made by a partnership. Dakota Trust & Savings Bank v. Hanson (C. C. A.), 5 F.2d 915; Parker v. Tapscott, 142 Miss. 768, 107 So. 561.

Counsel for appellee on the direct appeal insist that the rule is to the contrary because of the case of Kline v. Sims (Miss.), 149 Miss. 154, 114 So. 871. In that case, M. Kline, individually, was the seller of his stock of goods in bulk to M. Kline, Incorporated, and a creditor of M. Kline was not notified under the statute. M. Kline, individually, was the seller in that case, and the case was decided upon the facts, and nothing in the opinion is contrary to the view here announced, as there was no question but that M. Kline, individually, was the seller, and the creditors of the seller are entitled to notice. In the instant case, there is no question but that the seller was the partnership, Chapman & Germany, and not Chapman, individually. It was not the intention of the law to prevent sales of stocks of goods in bulk. It was the intention of the statute that when such sales are made the creditors of the seller should be protected by the terms of the statute.

2. It was shown that the debts which ...