Pratt Paper Co. v. Eiffler

• Decision Date: 22 June 1923
• Docket Number: 35356
• Citation: 194 N.W. 370,196 Iowa 199
• Parties: PRATT PAPER COMPANY, Appellee, E. L. MCCONKIE, Intervener, Appellant, v. CARL P. EIFFLER et al., Appellees
• Court: Iowa Supreme Court

194 N.W. 370

196 Iowa 199

PRATT PAPER COMPANY, Appellee, E. L. MCCONKIE, Intervener, Appellant, v. CARL P. EIFFLER et al., Appellees

No. 35356

Supreme Court of Iowa, Des Moines

June 22, 1923

Appeal from Story District Court.--R. M. WRIGHT, Judge.

ACTION by the trustee in bankruptcy, to have a sale by the bankrupt of an entire stock of goods and fixtures adjudged void, under the Bulk Sales Act. The trial court granted the intervener relief to the extent of $ 300, and denied all other relief prayed for. The intervener appeals.--Modified and affirmed.

Modified and affirmed.

Fred E Hansen, for appellant.

Neiman & Winans and Charles H. Hall, for appellees.

FAVILLE J. PRESTON, C. J., EVANS and ARTHUR, JJ., concur.

OPINION

FAVILLE, J.

Graves & Company were a copartnership, doing business as jewelers in the city of Nevada. On April 1, 1921, said firm entered into a certain contract with the appellee Eiffler, by which contract Eiffler purchased the entire stock of merchandise and fixtures belonging to Graves & Company. By the terms of the contract, $ 500 was paid in cash by the purchaser at said time, and it was provided that an inventory should be taken of the stock, and possession given the 1st day of May following. The inventory was accordingly taken, and aggregated $ 4,800. On May 2d, Graves & Company executed a bill of sale to Eiffler for said stock and fixtures. Eiffler took possession of the property at said time, and paid to Graves & Company $ 1,500 in cash, and executed and delivered to said company notes for $ 2,800, being the balance of the purchase price, $ 1,500 of said amount being due March 1, 1922, and $ 1,300 due March 1, 1923. The $ 1,300 notes were nonnegotiable instruments. On said May 2, 1921, a supplemental contract was entered into between said parties, which provided for the delivery of possession of the stock to the purchaser upon the payment of $ 1,500 in cash and the execution of notes to the amount of $ 2,800, which were to be secured by chattel mortgage upon said stock. This supplemental contract provided that the notes due March 1, 1923, should be drawn as nonnegotiable notes, and that within 60 days the purchaser should take up said notes, and issue negotiable notes in place thereof, in the event that he had not been held liable in the meantime for any indebtedness which Graves & Company might be owing to its creditors; and said contract recited that this arrangement was made for the purpose of securing the purchaser against all liability growing out of the failure of Graves & Company in paying its creditors for which the purchaser could be liable under the Bulk Sales Law. The supplemental contract also provided that it was agreed between the seller and the purchaser that the notice to creditors provided for under the statute was waived under this agreement. The $ 2,000 which was paid by the purchaser to the seller was all paid out by the latter to its outstanding creditors, with the exception of $ 300. It was agreed between the parties that, at the time Eiffler purchased the stock and made settlement for the same and took possession thereof, he had no knowledge of the existence of the creditors of Graves & Company, and that he acted in good faith, and with no intent to defraud, and was assured by Graves & Company that they would pay their creditors in full out of the purchase price of this stock. He, however, obtained no list of creditors, as required by the Bulk Sales Law. Within a week after the date of settlement, May 2, 1921, the purchaser learned of the existence of creditors of Graves & Company, whereupon he immediately communicated with the National Jewelers' Board of Trade, for the purpose of ascertaining the extent of the creditors and the amounts, if any, owed by Graves & Company. Through this source he learned of a number of creditors of Graves & Company, and on May 7, 1921, five days after he had completed the purchase and taken possession of the stock, he addressed a letter, by registered mail, to each of the creditors of whom he had gained knowledge. This letter advised the several creditors to whom it was addressed that he had purchased the stock of jewelry and fixtures of Graves & Company, and had taken possession thereof, and that, under the terms of his settlement, Graves & Company were not fully released for a period of sixty days from and after May 2d, and advised the creditors that, if they had any claims against Graves & Company, and expected to hold the stock and fixtures liable, they were required to make such claims within sixty days. None of said creditors took any action in said matter, except the plaintiff herein, who, on June 21, 1921, instituted this action to set aside said transfer under the Bulk Sales Law. On June 28th, Graves & Company filed a petition in bankruptcy, and were adjudged bankrupt, and the appellant, McConkie, was duly appointed trustee of said bankrupt estate. He intervened in said action, and by said intervention seeks to have said sale adjudged to be null and void, and prays an accounting by the purchaser for the value of said stock, and that he be held as a receiver therefor, under the provisions of the Bulk Sales Law. It is agreed that the fair and reasonable market value of the stock of merchandise and fixtures, on May 1, 1921, was the purchase price of $ 4,800. It also appears that Graves & Company scheduled claims in the bankruptcy proceedings to the extent of $ 12,000, and that the trustee in bankruptcy had, outside of the stock of goods in controversy, assets of said bankrupt estate of the value of approximately $ 1,200. It also appears that the notes for $ 2,800 given by the purchaser were delivered by Graves & Company to the First National Bank of Nevada, which was a creditor of said company prior to the commencement of this action. These notes were subsequently listed by Graves & Company in the bankruptcy proceedings, as part of their assets. The trial court found that the entire proceeds of the sale had been delivered to the creditors of Graves & Company, except the sum of $ 300, for which amount he entered judgment in favor of the trustee in bankruptcy, and against the purchaser. The plaintiff's petition was dismissed, and the court established the title of the purchaser in the stock of goods and fixtures, subject to a lien in favor of the trustee in bankruptcy thereon for the said sum of $ 300.

I. The first question we consider is whether or not the trustee in bankruptcy can maintain this action. Under the terms and provisions of the Bulk Sales Law of this state (Chapter 64, Acts of the Thirty-seventh General Assembly), the purchaser of a stock of merchandise and fixtures who fails to comply with the requirements of the act "shall, upon application of any of the creditors of the seller, transferor, or assignor, become a receiver and be held accountable to such creditors" for the goods that have so come into his possession.

Under the Bankruptcy Act (U. S. Comp. Stat., Section 9654, Paragraph 70), the title to all property of the bankrupt not exempt, passes to the trustee in bankruptcy for the benefit of the creditors of the bankrupt.

The trustee in bankruptcy, for some purposes, represents the creditors of the bankrupt. One of his duties is to take over the property of the bankrupt and administer it for the benefit of the creditors of the bankrupt. If the creditors of the bankrupt could maintain an action to set aside the transfer in question, because of failure to comply with the Bulk Sales Law, the right so to do vested in the trustee in bankruptcy. In re Clayton, 259 F. 911, 913; Niklaus v. Lessenhop, 99 Neb. 803 (157 N.W. 1019).

II. Was the sale in question voidable under the provisions of the Bulk Sales Act?

This act provides that a sale without compliance with its requirements is "void," as against the creditors of the seller. Of necessity, this means that the sale is "voidable" at the instance of the creditors of the seller, or of one (as a trustee in bankruptcy) who can act in their place and stead. The action is not based upon fraud in the transfer of the stock. In Carnall v. Kramer, 194 Iowa 359, 189 N.W. 755, we said:

"Our statute makes a purchase under the Bulk Sales Law without compliance with its terms voidable, as against creditors of the seller. It does not declare the same to be fraudulent. Such a sale under our law is voidable, regardless of whether there is any taint of fraud in connection with the transaction. The creditors of the seller are entitled, under this statute, to an accounting by the purchaser for the stock of goods sold, whether or not the purchase was in good faith. Where a sale of a stock of merchandise has been made without compliance with the Bulk Sales Statute, the purchaser becomes, under the statute, a receiver of the property, and must account therefor."

In this case we think it must be held that the sale was without substantial compliance with the provisions of the Bulk Sales Act. The purchaser did not demand and receive from the seller a written list of names and addresses of the creditors of the seller, with amount of the indebtedness due or owed to each and certified by the seller under oath to be a full, accurate, and complete list of his creditors and of his indebtedness. The statute requires this. Nothing of the kind was done. It is contended that the seller orally assured the purchaser that he had but few creditors, and that the seller would pay them out of the money received from the sale of the stock. But the purchaser had no right, under the statute, to accept such representations and promises in lieu of the matters provided for in the...