Merit Clothing Co. v. Lees
| Decision Date | 12 February 1969 |
| Docket Number | No. 68--225,68--225 |
| Citation | 218 So.2d 779 |
| Parties | MERIT CLOTHING COMPANY, a corporation, et al., Appellants, v. Edward LEES and Keith Henry, a/k/a K. N. Henry, d/b/a O. Henry's, and Ernest L. Troke, Appellees. |
| Court | Florida District Court of Appeals |
Robert D. Sumner, Dade City, and Samuel Hyman, Tampa, for appellants.
Walter E. Hankinson, Jr., New Port Richey, for appellees.
Plaintiffs-appellants, various shoe and clothing companies, appeal a final summary judgment, in chancery, entered in favor of defendants-appellees and appeal the denial of their motion for summary judgment and the dismissal of their cause with prejudice.
On May 1, 1963, Ernest L. Troke, an appellee herein, sold a clothing store known as 'The Haberdashery' to William Phillips for $12,000. Cash in the sum of $1,000 was paid down and a promissory note secured by a chattel mortgage was given for the balance. The chattel mortgage covered the store's assets, including stock, inventory as from time to time on hand, fixtures, and equipment. The note was payable in monthly installments of $100 per month, commencing June 1, 1963, and included interest at the rate of 6% Per annum.
Merchandise was furnished by the plaintiffs below to William Phillips on credit during various periods after May 1, 1963, leaving balances due as follows:
Merit Clothing Co. May, 1964 to
March, 1966 ......... $2,103.05
The Arrow Company September, 1965 to
January, 1966 ........ 4,084.05
Parkton Company February, 1966 to
March, 1966 ............ 931.86
*Laverenz Shoe Co. From April, 1966 ....... 632.94
*Truval Shirt Co. From September
1965 ................. 2,462.85
*Freeman Shoe Co. From January, 1966 ..... 245.70
* (Did not appeal)
Before extending credit, appellants obtained credit reports on William Phillips from Dun & Bradstreet. These reports failed to reflect any note or mortgage outstanding against William Phillips in his business. By affidavits, appellants have asserted that they would not have extended credit had they known of the existence of the note secured by the chattel mortgage on the inventory of the business. Mr. Troke did not in fact record the note and mortgage until June 23, 1966.
In May, 1966, William Phillips left for Viet Nam to work in a civilian capacity. Appellees Edward Lees and Keith Henry were left working in the clothing store as employees. All installments due under the note to Mr. Troke were paid through June, 1966. None have been made since that time. After recording his mortgage on June 23, 1966, Ernest Troke (on June 29, 1966) received a Bill of Sale to all of the inventory and business from Ernestine G. Phillips in her individual capacity and as attorney-in-fact for her husband, William Phillips. No new consideration was given for the Bill of Sale and no attempt was made to comply with the Bulk Sales Act Chapter 726, Florida Statutes, F.S.A. Mr. Troke simply received this Bill of Sale in satisfaction of a pre-existing debt, to-wit: the note and mortgage executed in May, 1963.
Appellees Lees and Henry continued to operate the store and changed its name to 'O. Henry's' in July, 1966. Appellee Troke agreed to sell his interest in the business to Lees and Henry after the disposition of all creditors' claims.
In June, 1966, when payments on the note to Ernest Troke were discontinued, the balance due on the note was $9,229.
At the time of the sale of the merchandise to Mr. Troke, the business was indebted to 23 different creditors, including the three who are the appellants in this cause, in the amount of $26,391.94. This amount also included the $9,229 owed Mr. Troke. An inventory of the merchandise was taken at the time of the transfer to Mr. Troke and the wholesale value thereof was determined to be $10,217.53, a portion of which was represented by outdated and obsolete merchandise.
Appellee Keith Henry died on April 19, 1968, and Richard C. Williams was granted Letters of Administration c.t.a. in his estate on May 14, 1968, and is substituted as a party appellee herein.
Two questions are presented for our determination:
I. IS A VOLUNTARY CONVEYANCE OF ALL OF THE STOCK OF GOODS IN A RETAIL BUSINESS IN SATISFACTION OF A DEBT EVIDENCED BY AN UNRECORDED CHATTEL MORTGAGE SUBJECT TO CHAPTER 726, FLORIDA STATUTES, 1965, COMMONLY KNOWN AS THE BULK SALES ACT?
II. IS A VOLUNTARY CONVEYANCE OF ALL OF THE STOCK OF GOODS IN A RETAIL BUSINESS IN SATISFACTION OF A DEBT EVIDENCED BY A CHATTEL MORTGAGE EFFECTIVE TO DEFEAT THE CLAIMS OF GENERAL, UNSECURED CREDITORS EXISTING PRIOR TO THE CONVEYANCE, AND WITHOUT KNOWLEDGE OF THE MORTGAGE, WHEN THE SAID CHATTEL MORTGAGE IS NOT RECORDED AS REQUIRED BY SECTION 698.01, FLORIDA STATUTES, 1965?
The answer to each part of question one is in the affirmative. Section 726.05, Florida Statutes, 1965, F.S.A., provides:
'What sales deemed fraudulent; proviso.--Any sale or transfer of a stock of goods, wares or merchandise out of the usual or ordinary course of business or trade of the vendor, or whereby substantially the entire business or trade theretofore conducted by the vendor shall be sold or conveyed, or attempted to be sold or conveyed, to one or more persons, shall be deemed a fraudulent transaction or transfer in bulk in contemplation of §§ 726.02--726.06, provided, that nothing contained in said sections shall apply to sales by executors, administrators, receivers or any public officer under judicial process.'
The parties have not cited, nor has our research disclosed, and Florida case directly on point and construing §§ 726.02--726.06, Florida Statutes, 1965, F.S.A. It should also be noted here that all of Chapter 726, Florida Statutes, F.S.A., has been repealed and supplanted by the Uniform Commercial Code, effective January 1, 1967. However this appeal is governed by the law as it existed at the time of the transaction here involved.
From the wording of the above statutory provision, it is clear that Any transfer of a stock of goods whereby substantially the entire business theretofore conducted by the vendor shall be conveyed shall be deemed to be a fraudulent transaction if there is noncompliance with the provisions of the act.
It must now be decided whether the conveyance in the case sub judice is a 'transfer' within the purview of § 726.05, supra. In deciding, as we do, that a voluntary conveyance of all the stock of goods in a retail business in satisfaction of a pre-existing debt evidenced by a chattel mortgage is within Chapter 726. Florida Statutes, 1965, F.S.A., known as the Bulk Sales Act, we are following a similar case considered by the Arkansas Supreme Court in Ritchie Grocer Co. et al. v. W. D. Sanders et al., Ark.1956, 226 Ark. 775, 294 S.W.2d 54, 59 A.L.R.2d 1110. The Supreme Court of Arkansas speaking through Mr. Justice Holt stated at page 56:
'* * * Here we have the attempt of the mortgagor, Sanders, to transfer and deliver back to Ritchie his stock of merchandise in satisfaction of his pre-existing debt to Ritchie, at a time when Sanders had incurred the above debts to appellants, wholesale grocers. Since our bulk sales statute above applies to any 'transfer' we hold that the transfer here, in satisfaction of a pre-existing debt, violated the terms of our bulk sales statute. This appears to be the majority view of the courts in construing bulk sales statutes. In Michigan Law Review, Vol. 35, (1936--37) p. 748, where many cases are collected, we find this language:
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