Peters Branch International Shoe Co. v. Gunn

• Decision Date: 08 March 1920
• Docket Number: 20948
• Citation: 121 Miss. 679,83 So. 742
• Court: Mississippi Supreme Court
• Parties: PETERS BRANCH INTERNATIONAL SHOE CO. v. GUNN

83 So. 742

121 Miss. 679

PETERS BRANCH INTERNATIONAL SHOE CO. v. GUNN

No. 20948

Supreme Court of Mississippi

March 8, 1920

March 1920

APPEAL from the chancery court of Jones county, HON. G. C. TANN Chancellor.

1. FRAUDULENT CONVEYANCE. Sale of stock of goods in violation of bulk sales law is void.

A sale of a stock of goods in violation of the Bulk Sales Law Is fraudulent and void.

2. CREDITORS MAY RECOVER GOODS FRAUDULENTLY SOLD IN BULK OR HOLD THE BUYER FOR VALUE.

Where a stock of goods was sold in violation of the Bulk Sales Law, a creditor may proceed against the property if it remains in the hands of the purchaser, or waive the tort and sue the purchaser for the value of the goods or he may pursue both remedies.

3. FRAUDULENT CONVEYANCE. Disposal by buyer of goods fraudulently sold in bulk does not affect his liability.

The fact that the buyer of a stock of goods who had not complied with the Bulk Sales Law had disposed of them before the creditors' suit was filed, does not affect his liability for he stands In the position of a trustee of the property for the creditors.

4. FRAUDULENT CONVEYANCE. Payment of proceeds of void sale in bulk to other creditors does not relieve buyer.

The application by the seller of goods in violation of the Bulk Sales Law, of the proceeds of the sale to the payment of some of his creditors, does not affect the buyer's liability to a creditor who had not received any of the proceeds.

5. FRAUDULENT CONVEYANCE. Existence of other creditors not made parties does not affect right of complainant creditor.

A creditor may recover from the buyer of goods sold in violation of the Bulk Sales Law the full amount of his claim if it is less than the value of the goods, though there may be other creditors, not made parties to the suit, whose total claims greatly exceed the value of the goods.

Hon. G C. TANN, Chancellor.

Suit by the Peters Branch International Shoe Company against R. B Gunn and H. P. Hurlbert. Decree for complainant against defendant Hurlbert, but in favor of defendant Gunn and complainant appeals.

The facts are fully stated in the opinion of the court.

Decree reversed.

Chambers & Trenholm, for appellant.

Appellant respectfully contends that it is entitled to a personal decree against appellee for the amount of its claim against the said Ewart & Hurlbert, with legal interest and all cost of the court, provided the amount of its claim, without interest or costs, does not exceed the reasonable value of the goods which it claims were fraudulently transferred by its debtors to appellee; or that it is entitled to a decree against appellee for the value of the goods remaining in appellee's hands at the time the answer was filed, with interest and costs, the value of said goods being less than appellant's claim; or that it is at least entitled to a decree against appellee for what would have been its pro rata share of the proceeds of said sale. Since the several grounds assigned as error tends to the same result, that is a decree in favor of appellant and against appellee for a sum of money, we will consider them together.

Chapter 100 of the Laws of 1908, as construed and applied by the decisions of this court renders absolutely void as to the creditors such sale as is here shown to have been made. There are two questions, therefore, for determination in this case.

(1) Is the creditor to be without remedy because the fraud has been consummated without his knowledge? (2) Will the payment of the proceeds of a fraudulent sale to one or more of seller's creditors relieve the purchaser of his duty under the act?

If the first question be answered in the negative, there will be the further question as to whether the creditor is entitled to recover the full amount of his claim provided it does not exceed the reasonable value of the goods; whether he will be limited to the value of the goods remaining in the possession of the purchaser; or whether he will be limited to his pro rata share of the value of the goods involved in fraudulent sale, having regard for all of the other debts of the seller.

The learned chancellor entertained the view that the creditor was entitled to the remedy sought in his case as a general proposition, thus answering in the negative, the first question for determination; but that the requirements of the Act had been met when the proceeds of the sale reached one or more of the creditors, thus answering the second question in the affirmative. We submit that he was right as to the first proposition, and wrong as to the second.

Taking up the first proposition: To hold that the creditors had no remedy because the fraud had been concealed until the goods had been resold by the purchaser, or so intermingled with his own as to be beyond identification, would be to permit the purchaser to profit by his wrong, a thing which will not under any circumstances be allowed by the courts of a civilized country. This proposition is too well settled to require the citation of any authority, as the contrary would disrupt society.

We have been unable to find a reported decision of this court where it was expressly held that the creditor could proceed in a court of equity, as in this case. However, in the case of Zachery v. Meridian Fertilizer Factory, No. 18343, this court, without a written opinion affirmed a decree of the chancery courts of Leake County in favor of the Meridian Fertilizer Factory, the creditor and against Zachery, the purchaser. In a case exactly like the one at bar, with the exception that the purchaser alone was made the defendant to the bill, and no claim was made that the proceeds of the sale went to creditors. It is true the question raised in this case does not seem to have been raised in the Zachery case but a glance at the case of Drug Company v. Manufacturing Company, 113 Miss. 130, will show that this court raises such questions of its own motion. In that case this court held that the contract sued on was violative of the public policy, and that the plaintiff could not recover, notwithstanding defendant admitted the contract to be legal. The court very properly said that regardless of the wishes of litigants, it would not allow a recovery unless there was a legal right. Apply that rule to the Zachery case. If the Fertilizer Company had no legal right to obtain a personal decree against Zachery in such a proceeding the supreme court should (and would) have of its own motion, denied a recovery, regardless of whether that specific question was raised or not.

If a creditor is not allowed to be allowed to pursue one whom the law had defined to be a fraudulent purchaser, simply because the fraud has been concealed so long that the goods have been placed beyond the reach of the creditors through the aid of a court of law, the main object of the Bulk Sales Law will have been circumvented.

Now if a court of law will avail the creditor nothing, will not a court of equity, which proceeds upon the theory that for every right there is a remedy (Mobile, etc., v. Davis, 62 Miss. 271) be the only and the proper place to turn in such an emergency, one may ask upon what theory the court could hold the purchaser liable in such a case. We answer, upon the theory that he is a trustee in his own wrong for the benefit of the creditors, in that he has become the possessor of the goods through a fraud upon such creditors, and such goods were what the creditors were relying upon, so far as they might go, for the satisfaction of their claims. At all events such goods were liable at the suit of the creditors, until they had been sold in ordinary course of trade and in the case at bar the sellers being partners, could not even claim exemptions out of such partnership asset, under well known decisions of this court. Therefore if the purchaser, by his own improper act, places these goods beyond the reach of the creditors, and if he be not allowed to profit by his own wrong he must be held accountable as a trustee. That the court of equity is the proper place to compel an accounting by a trustee, there can be no question.

The statute and decisions make transactions like the one here under consideration prima-facie fraudulent and void, and if this prima-facie case is not overcome and it was not overcome here, the fraud alleged and proven is absolute grounds for equity jurisdiction. We say, therefore, that regardless of a remedy at law, the creditor has a remedy in equity, and that the chancery court, if not the only forum, is proper forum for the determination of such a controversy.

As to the purchaser being a trustee for the creditors, we find that such a theory is supported by a number of states for the purpose of enforcing liability for the violation of similar Bulk Sales Law, in the state of Washington, under a similar Bulk Sales Law, with no direct trustee provision, the court of last resort held: "We also think that the object of this law was to hold the goods of debtor under such circumstances as a trust fund for the benefit of all the creditors, and to hold the purchaser in possession as a trustee for such creditors." There was no dissenting opinion. Fitz Henry v. Munter (Wash.), 74 Pacific, 1003; Owoso Carriage Co. v. Sweet (Texas), 179 S.W. 257. This case was approved by the Texas court of civil appeals in November, 1916, in the case of Mercantile Co. v. Huges (Texas), 189 S.W. 784; Rubber Company v. Kaufman (Neb.), 153 N.W. 585.

In another Nebraska case the court held: "One who obtains possession of a stock of merchandise in bulk in violation of the statute will be held to be a trustee for the benefit of the creditors of his vendor. Mercantile Co. v. Barker (Neb.), 138 N.W. 1133; Kohn v. Fishbach (Wash.), 78 Pacific, 199; Tinsley v. Warehouse...