Mill & Logging Supply Co. v. West Tenino Lumber Co.

• Decision Date: 21 January 1954
• Docket Number: No. 32474,32474
• Citation: 265 P.2d 807,44 Wn.2d 102
• Court: Washington Supreme Court
• Parties: MILL & LOGGING SUPPLY CO., Inc. v. WEST TENINO LUMBER CO., Inc.

Page 102

44 Wn.2d 102

265 P.2d 807

MILL & LOGGING SUPPLY CO., Inc. v. WEST TENINO LUMBER CO., Inc.

No. 32474.

Supreme Court of Washington, Department 2.

Jan. 21, 1954.

Parr & Baker, Olympia, Donley & Ingram, Aberdeen, for appellant.

Bogle, Bogle & Gates, Seattle, for respondent.

FINLEY, Justice.

This suit was brought against West Tenino Lumber Company, a corporation, to obtain a money judgment in connection with certain machinery and supplies allegedly sold to Ulysses S. Herrington for use in a mill, owned by him prior to November 23, 1948, but now said to be owned by the defendant corporation. The latter moved to have plaintiff's amended complaint stricken, and, alternatively, demurred on the grounds that it did not state facts sufficient to constitute a cause of action. The trial court denied the motion to strike but sustained the general demurrer. The plaintiff, refusing to plead further, stood upon its amended complaint and is now appealing from the trial court judgment of dismissal.

The important facts alleged in the amended complaint are as follows: Prior to November 23, 1948, one Ulysses S. Herrington was the owner of the Herrington Milling Company at Tenino, Washington. T. M. Draper and Baldwin Chain Service, Inc., both being assignors of the appellant, sold machinery, mill fixtures, and supplies to the Herrington Milling Company. Unknown to appellant and its assignors, on November 23, 1948, Herrington gave to the Thurston County Investment Company, a partnership, a bill of sale to the Herrington Milling Company. No bulk sales affidavit was filed by Herrington. The amended complaint further states that, on June 25, 1949, the Thurston County Investment Company transferred all of its right, title, and interest to the respondent, the West Tenino Lumber Company, Inc.; that the appellant and its two assignors continued to deal with Herrington, selling mill supplies, machinery, and equipment to him until early in 1950; that, during this time Herrington continued to hold himself out as the owner of the mill, and that, at all times during which appellant and its assignors transacted business with the Herrington Milling Company, it was with the understanding that Herrington was the owner. Allegedly, in March, 1950, a receiver was appointed for the Herrington Milling Company, and it was then disclosed that either Thurston County Investment Company or West Tenino Lumber Company had owned the Herrington Milling Company since November 23, 1948. Purportedly, early in 1950, the Herrington Milling Company was indebted to appellant in the sum of $5,757.84; and was indebted to appellant's assignors, T. M. Draper and Baldwin Chain Service, Inc., in the sums of $4,000 and $4,918, respectively. The complaint states that the machinery, supplies, and equipment sold to the Herrington Milling Company were placed in the mill used to manufacture lumber for the benefit and profit of respondent and its predecessor, the Thurston County Investment Company.

Appellant's complaint concluded by alleging that the Herrington Milling Company (acquired and owned by respondent) was enriched in the amount of $14,658.02, and prayed for a judgment in that amount.

The problem presented by this appeal is whether appellant's amended complaint stated a cause of action under either of two theories: (1) That failure to comply with the bulk sales act rendered respondent liable for losses suffered by appellant; (2) That respondent has been unjustly enriched at appellant's expense and, consequently, is liable to the latter. In this opinion we affirm the trial court, hold that no cause of action was stated, and the demurrer was properly sustained as to theory (1), mentioned above, but we reverse the trial court, and hold to the contrary as to theory (2).

There are at least two reasons why appellant may not recover upon the theory that the respondent did not comply with the bulk sales act. The act, Rem.Rev.Stat. (Sup.), § 5833, (cf. RCW 63.08.050), provides, in part 'Whenever any person shall bargain for, or purchase, all or substantially all of any stock of goods, wares or merchandise, * * * and/or all or substantially all of the fixtures and equipment used in and about the business of the vendor, in bulk, for cash or credit, and shall pay any part of the purchase price, or execute, or deliver to the vendor thereof, or to his order, or to any person for his use, any promissory note or other evidence of indebtedness for said purchase price, or any part thereof, without first having demanded and received from said vendor or from his agent, the statements provided for in section 5832 [providing for an affidavit of vendor listing creditors], * * * and without filing the verified statements in the office of the County Auditor at least five days before the consummation of the purchase as provided in the preceding section, such sale, or transfer, shall be fraudulent and void as to creditors of the vendor, * * *.' (Emphasis supplied.)

The purchasing of a stock of goods in bulk, without having obtained and filed the required bulk sales affidavit, simply renders the sale or transfer fraudulent and void. Under the foregoing circumstances, no other factors or relationships being involved, clearly a creditor's legal remedy against the purchaser of a stock of goods in bulk depends upon the establishment, legally, of a debt against the vendor. This cannot be done in a suit directly against the bulk sales purchaser without first obtaining a judgment, or at least commencing an action against the vendor. In Rothchild Bros. v. Trewella, 36 Wash. 679, 79 P. 480, 68 L.R.A. 281, a creditor of Kennedy sued the purchaser of Kennedy's business and stock in trade. No action had been instituted by the creditor against Kennedy to obtain a judgment covering the indebtedness and the purchaser-defendant had never assumed nor promised to pay the indebtedness. This court, in reversing a trial court judgment in favor of the creditor-plaintiff, said:

'The sole question presented on this appeal is this: Can a creditor of a vendor who sells property in bulk, without a compliance with the above-mentioned act, maintain a direct action at law against the purchaser to recover the amount of his debt? We think that he cannot. The only effect of a failure to comply with the requirements of the act, so far as the purchaser is concerned, is to render the sale fraudulent and void. It does not differ from any other transfer made in fraud of creditors, except in the matter of the proof of the fraud. It gives the creditor no direct remedy against the purchaser, either in terms or by implication. * * * It seems to be firmly established that the only remedy which the law affords a creditor against a fraudulent transfer of property by his debtor is to sue his debtor, and reach the property fraudulently transferred by attachment or garnishment. These remedies would seem to be adequate in all cases where the subject of the transfer is tangible personal property. * * *' (Emphasis supplied.)

Secondly, appellant's amended complaint fails to state a cause of action under the bulk sales act because the latter does not apply to bulk sales made by manufacturing businesses. The act, Rem.Rev.Stat. (Sup.), § 5835 (cf. RCW 63.08.010), provides, in part:

'Any sale, * * * of all or substantially all of any stock of goods, wares or merchandise, and/or all or substantially all of the fixtures and equipment used in and about the business of a vendor engaged in the business of buying and selling and dealing in goods, wares or merchandise, of any kind or description, or in the business of operating a restaurant, cafe, beer parlor, tavern, hotel, club or gasoline service station, * * * shall be deemed a sale and transfer in bulk, in contemplation of this act: * * *.' (Emphasis supplied.)

The above italicized words describe the type of businesses affected by the act. The plain meaning of these words would seem to indicate that only mercantile businesses are affected and that manufacturing businesses are not. A review of the cases and the legislative history of the act confirms this construction.

The bulk sales act was originally enacted in 1901, Laws of 1901, ch. 109, p. 222. As originally enacted, the limiting words, 'engaged in the business of buying and selling and dealing in goods, wares or merchandise, of any kind or description,' which define vendor in the present statute, were not contained in the 1901 act.

An analysis of the pertinent cases shows that the aforementioned omission of the limiting words caused some confusion as to which types of businesses were governed by the act. This court first construed the act in 1903, in McDaniels v. J. J. Connelly Shoe Co., 30 Wash. 549, 71 P. 37, 39, 60 L.R.A. 947, saying:

'[The act] * * * was intended to prevent retail dealers in goods, wares, and merchandise from defrauding their creditors. * * *

'* * * It is well known that the business of retailing goods, wares, and merchandise is conducted largely upon credit, and furnishes an opportunity for the commission of frauds upon creditors not usual in other classes of business. * * *'

However, in Plass v. Morgan, 36 Wash. 160, 78 P. 784, 785, this court took a different view. The vendor in that case had sold 'all the goods, wares, and merchandise in bulk' of his business of conducting a boarding house and restaurant. The statute at that time did not expressly include restaurants within its scope. In rejecting respondent's argument, that the act applied exclusively to mercantile business, the court said:

'It was the evident intent of the Legislature to prevent the perpetration of fraud upon the creditors of people who are engaged in business, and, while there seems to be no authority submitted on this proposition, and none that we have been able to obtain, we do not see our way clear to exempt the defendant in this case from the liabilities imposed by this statute, or to deprive his creditors of...