Frank v. Stearns

• Decision Date: 16 November 1923
• Docket Number: 22511
• Parties: PEARL E. FRANK, TRUSTEE, APPELLEE, v. FRANK E. STEARNS, APPELLANT: LESLIE WINTER, APPELLEE
• Court: Nebraska Supreme Court

195 N.W. 949

198 N.W. 480, 111 Neb. 101

PEARL E. FRANK, TRUSTEE, APPELLEE, v. FRANK E. STEARNS, APPELLANT: LESLIE WINTER, APPELLEE

No. 22511

Supreme Court of Nebraska

November 16, 1923

APPEAL from the district court for Morrill county: RALPH W. HOBART JUDGE. Reversed.

REVERSED.

Mothersead & York, for appellant.

Halligan Beatty & Halligan and C. G. Perry, contra.

Heard before MORRISSEY, C. J., LETTON, DEAN, DAY and GOOD, JJ., and ROSE, JJ., REDICK and SHEPHERD, and BLACKLEDGE, District Judges.

OPINION

DAY, J.

Claiborne G. Perry, as trustee in bankruptcy of Noah E. Workman, brought this action against Frank E. Stearns and Leslie Winter, to recover the value of certain merchandise claimed to be the property of the bankrupt, and which it is alleged the defendants converted to their own use. A jury was waived and trial had to the court, resulting in a judgment in favor of the defendant Leslie Winter, and dismissing the action against him. As against defendant Stearns, the court found in favor of the plaintiff, and rendered judgment for $ 3,220.13. Defendant Stearns appeals.

It appears that in November, 1914, Workman owned and operated a hardware and furniture store in the town of Bayard, Nebraska. He also conducted an implement business, and bought and sold grain. In the latter part of November of that year, he sold the hardware and furniture stock to the defendant Stearns, who took possession of the stock and commenced to operate the store, selling merchandise to the trade, and replenishing the stock from time to time. At the time of the sale the inventory indicated the value of the stock to be approximately $ 7,650. Stearns paid $ 1,600 in cash at the time of the transfer of the stock to him, and for the balance agreed to turn over certain mortgages to be thereafter agreed upon. This part of the transaction was never consummated. In March, 1915, Workman was adjudged a bankrupt, Perry was appointed receiver, and later the creditors elected Perry trustee in bankruptcy. While acting as receiver, on March 31, 1915, Perry commenced an action in replevin against Stearns and Winter to obtain possession of the stock of hardware and furniture, based upon the theory that the stock belonged to the bankrupt estate, because the sale to Stearns was made in contravention of the bulk sales law. Later Perry, as trustee, intervened alleging that, as trustee, he was entitled to the possession of the stock, and also alleging that the defendants Stearns and Winter, while wrongfully in possession of the stock, had sold merchandise therefrom to the amount and value of $ 3,246.50, and had converted the same to their own use. The sheriff under the writ of replevin took possession of all the stock of merchandise in the possession of the defendants, including the fixtures, and such merchandise then in the store purchased by Stearns since he took possession of the stock. Upon the trial of the replevin suit, the jury returned two verdicts, one finding that at the commencement of the action the plaintiff "was entitled to the possession of the certain stock of goods in dispute, to wit, the stock of goods purchased by defendant from Noah E. Workman." The other verdict found in favor of the defendant Stearns, that "he was the owner of and entitled to the possession of all fixtures purchased by him from Noah E. Workman, being the fixtures in dispute in this action; and also that he was the owner of and entitled to the possession of all goods purchased by him after the purchase of said stock of goods in dispute from the said Noah E. Workman, and added to said stock, and we find his damages for the detention of said fixtures and said goods in the sum of $ 980.50."

On November 23, 1915, the court entered judgment based on the two verdicts. The judgment recited that the plaintiff have and recover of the defendant the possession of "the stock of goods purchased by the defendant from Noah E. Workman, and * * * that the defendant Frank E. Stearns was at the commencement of this action the owner of and entitled to the possession of all fixtures purchased by him from Noah E. Workman, being the fixtures in dispute in this action, and also that he was the owner of and entitled to the possession of all goods purchased by him after the purchase of said stock of goods in dispute from the said Noah E. Workman, and added to said stock, and that he recover from the plaintiff the sum of $ 980.50, his damages by reason of the premises."

Whatever may be said of the manner in which the replevin action was tried, no appeal was taken from the judgment.

In February, 1916, Perry commenced the present action to recover the value of the merchandise which had been sold during the period the stock was in possession of Stearns and Winter, but for unexplained reasons the action was not brought to trial until in February, 1921.

In January, 1920, Pearl E. Frank, trustee, was substituted as party plaintiff, and by leave of court filed an amended petition. A demurrer was filed to this petition upon the ground that it did not state facts sufficient to constitute a cause of action. The demurrer was overruled, and an answer filed.

It is first urged that the court erred in not sustaining the demurrer. It is argued that the petition fails to state a cause of action, because it is not alleged that the trustee in bankruptcy did not have in his hands sufficient assets to pay all the creditors of the bankrupt. It is undoubtedly true that the trustee in bankruptcy would have no standing to prosecute this action if in fact the assets in his hands were sufficient to pay the debts, and the petition should allege facts showing the right of the trustee to maintain the action. In some form it must appear that the assets are insufficient to pay the debts. The amended petition alleged that Workman was adjudged a bankrupt; that the plaintiff was the trustee in bankruptcy; that, at the time of the sale of the stock to Stearns, Workman was insolvent; and that at the time of the sale Stearns knew that Workman was insolvent. The amended petition contained other averments not pertinent to the point now being considered.

Are the allegations of the petition equivalent to a charge that the trustee did not have sufficient assets in his hands to pay the debts of the bankrupt? It may be conceded that in some instances an act of bankruptcy may exist, and the bankrupt still have assets sufficient to pay his debts. So that we pass the allegation that Workman was duly adjudged a bankrupt. But, it is charged that he was "insolvent." What interpretation is to be given to this term in the light of the general allegation of the amended petition? "Insolvency," as that term is ordinarily used, is not the same thing as a mere failure to pay debts, but, as applied to an individual or a corporation, it means an insufficient amount of property to pay debts. In construing a petition the court will give the language used its ordinary and well-understood meaning. If Workman was insolvent and the trustee had in his hands all of the assets of the bankrupt, he would still have insufficient funds to pay the debts. We think, when fairly construed, the amended petition stated a cause of action, and that the court did not err in overruling the demurrer.

It is next urged by the defendant that the court erred in not holding that the cause of action was barred by the statute of limitations. This contention is based upon the idea that a cause of action was stated for the first time in the amended petition. As before stated, the original petition was filed in February, 1916. The amended petition was filed in January, 1920. The acts of conversion occurred prior to March 31, 1915. We think, however, that the defendant is in error in the contention that a new cause of action is set up in the amended petition. The gist of the cause of action in both petitions is the wrongful conversion of the property by the defendants. The amended petition is but an amplification of the facts. No new or independent cause of action is set up. The trial court was right in holding that the statute of limitations had not run against the cause of action.

It is next urged that the controversy between the parties had become res judicata. This claim is based upon the theory that Perry, as trustee, in his petition of intervention in the replevin suit, prayed for the possession of the property described in the writ of replevin, and also for $ 3,500, the value of that portion of the stock wrongfully sold by the defendant. It is claimed by the plaintiff that the portion of the petition of intervention which seeks to recover the value of the goods purchased by Stearns, and which had been sold by him before the replevin suit was instituted, was stricken from the petition of intervention. There is a recital in the proceedings in the replevin action, "Motion to...