Schoeppel v. Pfannensteil

• Decision Date: 12 February 1927
• Docket Number: 27,091
• Citation: 122 Kan. 630,253 P. 567
• Parties: ANDREW F. SCHOEPPEL, Trustee of the Estate of E. B. Hopper, Bankrupt, Appellee, v. ELIAS PFANNENSTEIL, Appellant
• Court: Kansas Supreme Court

253 P. 567

122 Kan. 630

ANDREW F. SCHOEPPEL, Trustee of the Estate of E. B. Hopper, Bankrupt, Appellee, v. ELIAS PFANNENSTEIL, Appellant

No. 27,091

Supreme Court of Kansas

February 12, 1927

Decided January, 1927.

Appeal from Ness district court; ROSCOE H. WILSON, judge.

Judgment reversed.

SYLLABUS

SYLLABUS BY THE COURT.

FRAUDULENT CONVEYANCES--Bulk-sales Act--Sale of Undivided Interest by One Partner to Copartner. A sale of an undivided half interest in a partnership stock of merchandise by one partner to his fellow partner is not governed by the bulk-sales act.

K. W Pringle and G. Austin Brown, both of Wichita, for the appellant.

Lorin T. Peters, of Ness City, for the appellee.

Dawson, J. Johnston, J., Dawson, J., dissenting.

OPINION

DAWSON, J.:

This appeal presents the question whether the sale of an undivided half interest in a partnership stock of merchandise by one partner to his fellow partner is governed by the bulk-sales act.

Briefly, the facts were these:

For some time prior to October 1, 1922, E. B. Hopper and Elias Pfannensteil, defendant herein, were partners engaged in merchandising and owned and operated a mercantile store in Ness City. On that date defendant purchased the undivided half interest of Hopper for $ 4,000 in cash. Neither partner made any effort to comply with the provisions of the bulk-sales act, nor was any notice given touching the dissolution of the partnership except by oral information to some of the commercial travelers who supplied the partnership store with goods. Prior to October 1, 1922, Hopper's part of the work in conducting the business of the partnership was chiefly that of bookkeeper, for which service he had been drawing $ 125 per month from the business, and after the sale of his interest and retirement from the firm, Hopper served the defendant as an employee without change in the nature of his duties or in his monthly stipend.

On July 1, 1924, Hopper filed a voluntary petition in bankruptcy and was adjudged a bankrupt on the following day. His liabilities exceeded his assets; some of his creditors concerned in the outcome of this lawsuit were creditors of Hopper at the time of the sale of his undivided half interest in the store to defendant.

Plaintiff herein, the federal trustee in bankruptcy, made demand on defendant for an accounting based on the assumed continuing interest of Hopper in the mercantile stock, so far as concerned his creditors, because of Hopper's and defendant's noncompliance with the bulk-sales act. The demand being resisted, this action was begun. Plaintiff's petition, filed January 15, 1925, recited the foregoing facts, invoked his rights under the bulk-sales act as official representative of Hopper's creditors, and prayed for legal and equitable relief.

Defendant's answer contained a general denial, and pleaded his purchase of Hopper's interest in the partnership stock of goods for a valuable consideration on October 1, 1922, and his subsequent exclusive ownership thereof.

At the trial the matters leading to the decisive question of law involved herein were developed by stipulation and without material dispute. The court made findings of fact as outlined above, and found that the value of Hopper's interest in the store at the time of its sale to defendant was $ 3,000, and gave judgment in favor of plaintiff for that sum.

Defendant appeals, urging various errors, the chief of which raises the question whether the sale of Hopper's undivided half interest in the stock of merchandise to his fellow partner was void as against plaintiff and the creditors of Hopper whose interests he represents because it was not made in conformity with the provisions of the bulk-sales statute, which reads:

"R. S. 58-101. The sale or disposal of any part or the whole of a stock of merchandise or the fixtures pertaining thereto, otherwise than in the ordinary course of his trade or business, shall be void as against the creditors of the seller, unless the purchaser receives from the seller a list of names and addresses of the creditors of the seller certified by the seller under oath to be a complete and accurate list of his creditors and unless the purchaser shall, at least seven days before taking possession of the property, or before paying therefor, notify in person or by registered mail, every creditor whose name and address is stated in said list, or of whom he has knowledge of the proposed sale."

The precise question requiring present solution is new in this state. The cases in other jurisdictions involving the point are not numerous, nor are they quite harmonious. By our statute a bulk sale "of any portion or the whole of a stock of merchandise" in disregard of the statutory regulations is unqualifiedly void as against the creditors of the seller. (Coleman, Trustee, v. Costello, 115 Kan. 463, 223 P. 289.) In this respect our statute is typical of the general run, although in Coleman, Trustee, v. Costello, supra, we noted that the Iowa statute merely declares that bulk sales made in violation of that statute are presumptively fraudulent; and the supreme court of West Virginia, in Marlow v. Ringer, 79 W.Va. 568, L. R. A. 1917D, 619, notes that the bulk-sales laws of Idaho, Oklahoma and Oregon are to the same effect. Some of the state courts have also declared that such acts are in derogation of the common law and therefore to be strictly construed (Yancey et al. v. Lamar-Rankin Drug Co., 140 Ga. 359) which would be no excuse for such interpretation under our code (R. S. 60-102), and we have repeatedly said the statute is remedial and therefore to be liberally construed to promote its object and to assist the litigants in obtaining justice. (Kemmerle v. Wilson, 110 Kan. 247, 203 P. 297.)

Among cases analogous to the one here presented was that of Daly v. Drug Co., 127 Tenn. 412, Ann. Cas. 1914 B 1101, where one Anderson, a druggist, sold a half interest in his business to one Elledge without complying with the bulk-sales statute of Tennessee. Anderson was heavily indebted but informed Elledge that his debts were relatively small and that he, Anderson, would pay them individually. Later, creditors of Anderson made their appearance and demanded payment of their claims. Elledge disclaimed all obligation and said he would resist all such claims in court. Soon afterwards Anderson died and Anderson's creditors sued Elledge to hold him liable for the value of goods to the extent of the interest he had acquired from Anderson. The trial court nonsuited certain of the plaintiff creditors, and they appealed. The supreme court reversed the judgment, and delivered an instructive opinion, from which we quote:

"We are of the opinion that the case before us falls within the terms of the act. The language of the act is: 'A sale of any portion of a stock of merchandise otherwise than in the ordinary course of trade in the regular and usual prosecution of the seller's business, or a sale of an entire stock of merchandise in bulk, shall be presumed to be fraudulent and void as against the creditors of the seller, unless,' etc. A half interest is a portion of the stock. We do not think the act means that it must be a distinct portion or part severed from the whole stock. The sale of a half interest by a merchant for the purpose of taking the vendee into partnership is within the purpose and reason of the act, since it very materially changes the relation of the vendor's creditors to the stock, if such sale be valid. Before the sale a creditor could levy upon the whole stock. After the sale, if valid, the creditor of such vendor could not levy upon any of the stock, but only upon the vendor's interest in the whole, and in order to obtain this he would have to file a bill in equity and have an accounting with the new partner. So the former owner of the stock might admit three new persons into the business, and so reduce his own holding to a one-fourth interest, and so on as to smaller fractions--at the same time putting the proceeds into his own pocket and holding them beyond the reach of his creditors." (p. 421.)

In Marlow v. Ringer, supra, the supreme court of West Virginia held that the transfer by a retail grocery merchant of a half interest in his business and stock of goods to another, in consideration of such other person placing in the store a quantity of goods equal in value to the stock then owned by the merchant, with a view to the formation of a copartnership to continue the business at the same location, constituted a sale of merchandise in bulk, otherwise than in the ordinary course of the seller's trade or business, and was void in toto as against the creditors of the merchant because of noncompliance with the bulk-sales law.

On the other hand, in Taylor v. Folds, 2 Ga.App. 453, it was held that a sale by one partner of an interest in a partnership bakery business to his two associates was not void although there had been no attempt of the vendor or vendees to conform to the provisions of the bulk-sales act. The court said:

"A sale by one partner of his interest in a mercantile business to his other partners is not within the letter of the act; and the courts will not by construction give the act such an extension as to include it." (p. 454.)

In Yancey et al. v. Lamar-Rankin Drug Co. 140 Ga. 359 the supreme court...