Scheve v. Vanderkolk

Barnes, J. This action was commenced by a creditor of one George Lightbody, deceased, for the appointment of a receiver, and for the disposal of a stock of goods, wares and implements which had been sold in violation of the provisions of section 2651, Rev. St. 1913, commonly called the “Bulk Sales Law,” against the purchase of the stock at bulk sale, in possession. A receiver was appointed, all of the creditors of Lightbody intervened, and by proper pleadings asked for the same judgment which the original plaintiff had prayed for. On the final hearing the district court found that the sales were void, found the amount due each of the creditors, ordered the stock of implements sold, and distributed the proceeds among the several plaintiffs according to the amounts of their claims, dismissed the action as to the defendants Yanderkolk and Milligan, and the copartnership, composed of Sandman, Koenig and Bishop, has appealed. It appears that George Lightbody of Harbine, which is a small village in Jefferson county, on October 25, 1911, sold his stock of implements to W. E. Yanderkolk, without complying with the bulk sales law; that within five days thereafter Vanderkolk sold the stock to William Milligan, without complying with said law, and on November 1, 1911, Milligan sold the stock to Charles Sandman, Lewis B. Koenig and William T. Bishop, partners; doing business as Koenig & Company, without complying-with the provisions of the section above mentioned. It further appears that Sandman, one of the partners, was the president of the State Bank of Harbine, and at all! times from July 21, 1911, until after November 2, of that year, knew that the plaintiff was surety for Lightbody on a note for $2,000 due the bank, and which the plaintiff was; obliged to pay. On November 2, 1911, Lightbody died intestate and insolvent. On November 23, 1911, and before the appointment of an administrator of his estate, the plaintiff brought this action, asking for a receiver to take charge of said goods, sell the same, and apply the to the payment of the debts of decedent. The goods were206 sold by order of the court, and a decree was entered that all the sales were fraudulent and void as having been made in contravention and defiance of the bulk sales law. The court rendered a judgment in favor of the several creditors, and ordered the proceeds of the sale to be distributed pro rata. It is the contention of the appellant that the creditors’ claims must have been reduced to judgment and executions returned nulla bona before this action could be maintained; and it is argued that a creditor whose claim has not been reduced to judgment, and who has neither a general nor specific lien on his debtor’s property, is not entitled to have such property impounded as security for the claim. Neither is he entitled to a decree canceling fraudulent transfers already made. That this is the rule in ordinary cases must be conceded. But this rule, like all others, has its exceptions, and’ the transactions, of which complaint is made, seem to be. within the exception. Smith, Equitable Remedies of Creditors, sec. 167. It is further contended that the claims of the creditors should have been filed and alloAved in the probate court before this action could be maintained. It must be observed, however, that this is not a probate proceeding. Lightbody had parted with his interest in the property before his death, and immediately died insolvent. His heirs had no interest in the property, and could not have invoked the provisions of the bulk sales law. The creditors were the only parties who could complain. The insolvency of Lightbody was alleged in thejpetition and was admitted by the answer. An execution would not run against the administrator of the insolvent estate. Kennedy v. Creswell, 101 U. S. 641; Smith, Equitable Remedies of Creditors, sec. 167; Steere v. Hoagland, 39 Ill. 264; Smalley v. Mass, 72 Ia. 171. The courts, wherever this question has been presented, have held that the creditors would not be required to do a vain thing. In Merchants Nat. Bank v. McGee, 108 Ala. 304, it was said: “A simple contract creditor may file a -bill to subject property alleged to have been fraudulently [207] conveyed by his deceased debtor, while in life, on an averment of deficiency of legal assets.” It was further said: “The theory on which the bill proceeds, in such cases, is that the fraudulent donee stands in the relation, and is chargeable, as an executor de son tort; and he is allowed to make any defenses, which the debtor in life,' or the rightful personal representative, could have made. * * * It does not follow, where a deceased debtor who had fraudulently conveyed his property in his lifetime, and dies insolvent, and there is a deficiency of legal assets out of which a creditor’s claim can be satisfied, and there has been no administration on his estate, that a simple contract creditor is debarred on that account to file his bill against the fraudulent grantee for the purpose of reaching and subjecting the property fraudulently conveyed to the satisfaction of his claim.” We think that in the light of the foregoing authorities appellant’s contention cannot be sustained. The constitutionality of the bulk sales law is not assailed in this case. But it is contended that a second purchaser takes the property without, regard to the provisions of the statute, and therefore the creditors in this case cannot maintain an action against the defendant Koenig & Company to subject the property to the payment of their claims. A like question was before the supreme court of Michigan in Humiston, Keeling & Co. v. Yore, 148 N. W. (Mich.) 266. It was there said: “The admitted violation of the bulk sales law (Pub. Acts 1905, No. 223), declaring the sale in bulk of any part or the whole of a stock of merchandise otherwise than in the ordinary course of business void as against creditors, gives a court of equity jurisdiction of a bill by a creditor, joining other creditors of the seller, to reach and' apply the property by declaring the purchaser a receiver in trust for creditors, and by an injunction and an accounting.” The question was again before that court in Coffey v. McGahey, 148 N. W. (Mich.) 356. That was a case very like the one at bar. There the creditor had sold his [208] merchandise in bulk without a compliance with the bulk sales law, and the purchaser had sold and delivered the property to another. It was there said: “Under the bulk sales act (Pub. Acts 1905, No. 223), providing that creditors, upon knowledge that the requirements of the act have not been followed, may apply to have the purchaser become a receiver and account to creditors, the rule that a creditor must obtain a judgment at law before resorting to' equity does not apply; and, apart from the statute, the rule is subject to exceptions, where a judgment cannot be had because the debtor is dead, has absconded from the state, and has no property therein.” It was further said: “Under the bulk sales act, * * * ‘ a bill in behalf of complainant and all other creditors of the seller upon the theory that the statute made the debtor’s sale absolutely void, and that his creditors could apply the property to their claims, by receivership, injunction, and an accounting, and not on the theory of a creditor’s bill or a bill in aid of execution, the complainant would not be denied equitable relief, on the ground that he had an adequate remedy at law, though the equitable remedy is not exclusive.” It was said in the opinion in that case: “Any and all creditors may, as soon as knowledge comes to them that the requirements of the statute have not been followed, proceed immediately, not to set aside the sale, but to impound the property or its proceeds. Upon application of any of the creditors, ‘any purchaser shall become a receiver and be held accountable,’ etc., is the reading of the statute, and for this- reason the judgment creditor rule does not apply.” The supreme court of Michigan has also held that in such cases it is optional with the creditor to proceed by garnishment or to ask to have a receiver, and it is immaterial that the purchaser of the stock was ignorant of the requirements of the statute; that such sale is void, and the purchaser is a trustee for the creditors. It may be observed that the provisions of the Michigan statutes are but declaratory of the equity provisions which are usually enforced by courts of equity in this country. [209] It appears, in the case at bar, that the several purchasers of the stock of implements in question were ignorant of the existence of the bulk sales law, but that fact can avail them nothing, because no one will be presumed to be ignorant of the law. While it may seem a hardship to deprive Koenig & Company of the stock of implements in question, we fail to see how the courts could grant them any relief. It is quite apparent that the decree of the district court, which declared the sales void, and that the defendant Koenig & Company, who purchased and had possession of the stock of implements in question, were trustees for the benefit of the creditors, was right, and it was not error to dismiss the action as to Yanderkolk and Milligan, who had parted with the possession of the stock of implements in question. The judgment of the district court is Affirmed. Reese, C. J., Sedgwick and Hamer,. JJ., not sitting.