Fecheimer-Keifer Co. v. Burton

Me. Justice Williams delivered the opinion of the Court. The bill was filed by complainants, wholesale merchants, to hold liable defendants Cooper & Brown as the purchasers of a stock of goods from defendant Burton, a retail merchant, in violation of the Bulk Sales Act (Acts 1901, ch. 133). — 684 — The value of the stock sold in bulk, without compliance with the statute’s provisions, was $924.85, and that sum was paid in notes by the vendees, Cooper & Brown. Both parties were without intent to defraud, and fraud in fact is thus negatived. Two of the three notes of Cooper & Brown were turned over to a brother of the vendor, on the day of sale, and on realization he paid the proceeds to bona fide creditors of D. L. Burton. A third' purchase money note executed by the vendee firm was transferred to this brother in his own right, he being a creditor of the vendor. The chancellor and the court of civil appeals held that, as the entire sum received for the stock of goods had been expended in the payment of this indebtedness of the vendor, D. L. Burton, complainants were without remedy, although they received no part of the consideration sum. It seems clear, since the sale was only fraudulent in law (Daly v. Drug Co., 127 Tenn., 412, 424, 155 S. W., 167), that the purchasers are entitled to stand in the place of the creditors whose demands against their vendor were thus paid by the purchase money notes, or the proceeds thereof. Those whose purchase of property has been under such a statute denounced as constructively fraudulent, and avoided by creditors of the seller, may stand in the place of other creditors whose demands have been thus paid. This was held in Adams v. Young, 200 Mass., 588, 86 N. E., 942, a case involving a sale in violation of the Massachu — 685 — setts Bulk Sale Act. Loos v. Wilkinson, 113 N. Y., 485, 21 N. E., 392, 4 L. R. A., 353, 10 Am. St. Rep., 495; Alley v. Connell, 3 Head, 578. But does it follow that the purchasers may pay, or cause to he paid, one- or more of the unsecured creditors of their vendor in full, and leave the other creditors of the same grade wholly unpaid, and successfully withstand a complaint hy the latter? The recoveries of all of the creditors of the seller cannot exceed, in the aggregate, the true value of the property fraudulently passed to the purchasers, and therefore converted. May the entire purchase price he paid hy the purchaser to one creditor, leaving the others remediless, where that price was the value of the stock of goods converted? If this may he done, it would seem that a single creditor, holding a demand against the seller equal in amount to the value of the stock of goods on hand, could purchase that stock without complying with the terms of the act, or contravening its provisions. In the case of Neas v. Borches, 109 Tenn., 398, 71 S. W., 50, 97 Am. St. Rep., 851, the purchaser was a creditor of the seller, hut.that fact was not remarked on for differentiation to save the sale there involved, which was held to he fraudulent. In Sampson v. Brandon Grocery Co., 127 Gra., 454, 56 S. E., 488, 9 Ann. Cas., 331, it was said: “The question presented hy this record is whether a sale of a stock of goods in hulk by a debtor to his — 686 — creditor, in partial payment or entire extinguishment of Ms debt, is valid, unless tbe sale is made agreeably to tbe terms of tbe act approved August 17, 1903 [Acts 1903, p. 92]. . . . Tbe salutory object would not be attained if sales by tbe debtor to tbe creditor in tbe extinguishment of bis debt were excepted. . . . “But it is contended that if tbe act of 1903 be applied to a salé of a stock of goods in bulk by a debtor to bis creditor, so much of Civ. Code [1895], sec. 2697, as permits a debtor to prefer a creditor by a sale without reservation of any benefit will be impliedly repealed. It is a well-recognized canon of statutory construction that a subsequent statute will not repeal a former if tbe two can be reconciled. Construing tbe act of 1903 and section 2697 together, we may easily reach tbe conclusion that sales of stock in bulk by a debtor to a creditor, in extinguishment of Ms debt, in whole or in part, are still permissible, but that such sales are null and void unless there be compliance with tbe terms of tbe act of 1903.” Tbe same rule as to a creditor purchaser was announced in Gallus v. Elmer, 193 Mass., 106, 78 N. E., 772, 8 Ann. Cas., 1067, and assumed in tbe decision of other cases cited in note, 9 Ann. Cas., 332. Both phases of tbe above decision by tbe Georgia court are approved by us as sound, when application is made of its principles to our Bulk Sales Act and our law touching the right of an insolvent debtor to prefer a creditor. If tbe preference, may not be made directly by way of a bulk sale to tbe creditor, it would — 687 — seem that the preference of one, with consequent exclusion of other, creditors, cannot he reached by indirection in the manner presented on this record. The true theory appears to us to be that declared by the supreme court of Washington, in Fitz Henry v. Munter, 33 Wash., 629, 74 Pac., 1003, where, in speaking of a like act, it was said: “The object of this law was to hold the goods of debtors under such circumstances as a trust fund for the benefit of all creditors, and to hold the purchaser in possession as a trustee for such creditors. This being so, the cause will have to be reversed, with instruction to distribute the funds pro rata to all of the creditors who are parties to the suit.” See, also, Kohn v. Fishback, 36 Wash., 69, 78 Pac., 199, 104 Am. St. Rep., 941; Appel Mercantile Co. v. Barker, 92 Neb., 669, 675, 138 N. W., 1133; Guaranty, etc., Co. v. Pearlman (D. C.), 144 Fed., 550. But see; seemingly contra, National Grocer Co. v. Plotler, 167 Mich., 626, 133 N. W., 493. In Gallus v. Elmer, supra, the Massachusetts court said, in reference to such a statute, that it was its purpose to prevent alienation by a merchánt of his stock of goods “away from his creditors in general.” A prime purpose of the statute was to prevent preferences of creditors by and through hulk sales. Any other view and ruling 'would render the act the easy instrument of inequality and injustice, if not of frauds differing only in kind from those it was meant to prevent. — 688 — The rule of distribution pari passu to creditors of the grantor has been applied, and justly, in cases involving subrogation, where the conveyance was fraudulent under test of common law principles, and where no lien had been fixed by one or more of them. Robinson v. Stewart, 10 N. Y., 189, 196; Chatterton v. Mason, 86 Md., 236, 37 Atl., 960. Since subrogation is a remedy invented by courts of equity, they will move to administer it where the result will be an equitable one, but not-to work injustice to another in the defeat of an equal equity. American Bonding Co. v. National, etc., Bank, 99 Am. St. Rep., 480, notes; Knaffle v. Banking & Trust Co., 128 Tenn. —, 159 S. W., 838. The right of the defendant purchasers, in this case in equity, therefore, was to be subrogated to the rights of the creditors, paid by the proceeds of sale, to a pro rata share of the value of the stock of goods. Complainants’ rights are, by parity of reasoning,, not to a recovery in full, as contended by them, but to a recovery from appellee firm of the pro rata distributable to them. Writ of certiorari granted complainants; reversed, with remand for further proceedings not inconsistent with what is herein ruled.