Peters Branch International Shoe Co. v. Gunn

Sykes, J., delivered the opinion of the court. The appellant, complainant, filed a bill in the chancery court of Jones county against H. P. Hurlbert and B. B. Gunn, alleging in substance that the defendant Huidbert, while engaged in the mercantile- business with his partner, became indebted to complainant for merchandise in the sum of four hundred, three dollars and thirty-five cents, which amount is past due and unpaid, and that Hurlbert and his partner, though requested so to do, have declined and refuse to pay the same; that their stock of merchandise was sold to the defendant R. B. Gunn in bulk in violation of the Bulk Sales Law (chapter 100, Laws 1908; sections 3129, 3130, 3131, 3132, Hemingway’s Code); the violation consisted in the failure of Gunn to demand- and the failure of Hurlbert to furnish, at least five days before the sale, the name, pláce of- residence, and post office address of each of the creditors of the said firm, and the amount due each, and that the said Gunn did not in good faith notify personally or by mail each of the creditors of the [694] mercantile firm of which the said Gunn had knowledge, or with the exercise of reasonable diligence could have acquired knowledge, of the proposed sale and the cost price of the merchandise proposed to be sold, and the prices to be paid therefor by the said Gunn; that because of this violation the said sale to Gunn is fraudulent and void as against complainant; that complainant is not-advised of the value of the stock of goods sold to the said Gunn, nor of the date of the sale, nor the terms upon which it was made, nor how -much of the stock of goods originally purchased by Gunn now remain in his possession. The bill prays for a discovery as to the inventory of the goods, the value of them, whether or not the Bulk Sales Law was attempted to be complied with, and the prices paid or to be paid by Gunn, and-the amount of this merchandise now remaining in Gunn’s hands. Complainant prays for a personal decree in its favor against Hurlbert and Gunn for the amount of complainant’s claim against Hurlbert and his partner, and for other and general relief. The defendant Hurlbert failing to answer the bill, a pro confesso and final decree were taken against him. The defendant Gunn in his answer admits the purchase in bulk of .the stock of goods from Hurlbert and his partner and that he had been in possession of them since he purchased them, selling and disposing of them in due course of trade. He attaches a copy of the bill of sale executed to him. He admits the violation of the Bulk Sales Law with reference to demanding the names, etc., of the creditors of Hurlbert and partner, and the failure to notify these -creditors, etc. He alleges that he paid in cash for the stock of merchandise to Hurlbert and partner the sum of five hundred and. sixty dollars; that Hurlbert and partner represented to him that they owed to other mercantile creditors some seven hundred and fifty or eight hundred dollars, and that they intended to take this money and the proceeds [695] from other personal property and satisfy all of their outstanding indebtedness; that Hurlbert and partner used and appropriated all of the money paid them by Gunn to the payment of their creditors, and as a matter of fact paid to other mercantile creditors over one thousand, seven hundred dollars; that the amount paid for the stock of merchandise, namely five hundred and sixty dollars was the actual, fair cash value of the stock of merchandise; that it was all paid to some of the creditors by the vendors, and therefore the defendant Gunn should not be held liable to any of the creditors of this mercantile firm. The answer states on information and belief that Hurlbert and partner owe various and sundry creditors over three thousand dollars and that, if Gunu is liable for any amount to the complainant, he is only liable for such ratio as the total sum due complainant bears to the total indebtedness. The defendant Gunn then makes his answer a cross-bill by praying that, if he is adjudged to be indebted to the complainant, he be allowed to recover from his codefend'ant, Hurlbert, for this amount. It was then agreed between counsel that the case be tried upon bill and answer, and that the facts alleged therein be considered as substantially correct as stated, and that said bill and answer be considered as evidence. The final decree of the lower court adjudged that the sale was made in violation of the Bulk Sales Law; that the amount paid by Gunn to Hurlbert was the reasonable value of the goods; that, since the proceeds ol! the sale were paid by Hurlbert to some of his creditors, though no part was paid to the complainants, it was ordered and adjudged that the complainant recover nothing from the defendant Gunn, but was allowed a personal decree against Hurlbert in the sum of four hundred and seventy dollars with interest. The appellee, Gunn, admits that the sale was a violation of the Bulk Sales Law. but contends that the [696] lower court was correct in dismissing the bill as to him. First, because no personal decree should be .rendered against the appellee in this proceeding; second, that appellee paid the market price for the stock of merchandise, and this money was paid to some of the creditors by Hurlbert. A sale- in violation of the Bulk Sales Law is fraudulent and void. Moore Dry Goods Co. v. Rowe, 97 Miss. 775, 53 So. Id., 99 Miss. 30, 54 So. 6659, Ann. Cas. 1913C, 1213. The bill in this case is in the nature of a creditors’ bill filed against both parties to this fraudulent and void sale seeking to recover the amount of the indebtedness due complainant. The complainant had the right to' proceed against the property if it remained in the hands of the fraudulent vendee, or, if disposed of by the fraudulent vendee in whole or in part, he may be' held liable for its value; in other words, the creidtor had the right to proceed against the property, or he' may treat the transactions as a tort against the property which should have been subjected, to his debt, which in this case was less than the value of the property; he may thus waive the tort and sue the fraudulent vendee for the value of the property, or he might pursue both remedies. This proposition is set forth in the case of Daly v. Sumpter Drug Co., 127 Tenn. 412, 155 S. W. 167, Ann. Cas. 1914B, 1101. The fact that the appellee, Gunn, had disposed of a part of this property before the suit was filed, makes no difference. Having acquired the property through fraudulent and void sale as to the creditors of the fraudulent seller, he stands in the position of a trustee of the property, responsible to the creditors for the disposal of such property. Appel Mercantile Co . v. Barker Dry Goods Co., 92 Neb. 669, 138 N. W. 1133; Fitz Henry v. Munter, 33 Wash, 629, 74 Pac. 1003; Rubber Co. v. Kaufman, 98 Neb. 562, 153 N. W. 585. [697] The fact that the fraudulent vendors of the property applied the proceeds of the sale to the payment of some of the creditors does not discharge this debt as to' either defendant. The sale was fraudulent and void and amounts in law to no sale at all. So far as the unpaid creditors are concerned, there has been no sale, but the property which -they could have subjected to the payment of their debts has been unlawfully converted to the use of the defendant Gunn. The answer of the defendant suggested that there were other creditors of the fraudulent vendors, but these creditors were not made parties to this suit, nor have they voluntarily intervened as such. Under the record in this case the appellant is entitled to_ recover against the defendant Gunn the amount of the debt due it, namely four hundred, and seventy dollars. This is less than the fair market value of the stock of merchandise attempted to be purchased by appellee. Reversed, and desree here for appellant.