Opinion
No. 33420.
December 12, 1938.
1. FRAUDULENT CONVEYANCES.
The Bulk Sales Law including the word "creditors" as used therein must be strictly construed (Code 1930, sec. 3353).
2. FRAUDULENT CONVEYANCES.
Where automobile dealer assigned to credit company without recourse conditional sales contracts evidencing balance due on purchase prices of automobile, and company's rights were such that on date when dealer sold its entire stock and equipment, dealer could not have said that any specific sum was then due company or that any sum to be fixed definitely would become due, company was not a "creditor" of dealer within Bulk Sales Law requiring a seller to furnish purchaser with a list of his creditors and sum due each, and hence company could not recover from purchaser of stock and equipment money due under contracts. (Code 1930, sec. 3353 (b)).
APPEAL from the circuit court of Hinds county; HON. J.P. ALEXANDER, Judge.
L. Barrett Jones, of Jackson, for appellants.
This court has held in Whittington v. Yazoo Delta Mortgage Co., 148 Miss. 861, 114 So. 752, that no one is protected by the bulk sales law unless he was actually a creditor of the seller on the date of sale, and further held in that case that the bulk sales statute was in derogation of the common law and was to be strictly construed.
We earnestly insist that the statute does not protect a contingent liability of a merchant or trader. The statute requires the merchant, when selling his merchandise in bulk to list his creditors and the sum due each, and the statute clearly means that its creditors only shall be listed whose accounts are fixed and known and due, and the sum due the creditors must be a certain sum, for otherwise the statute could not be complied with, for paragraph "C" of Section 3353 requires the purchaser to give notice to each creditor of the proposed sale, the cost price of the merchandise to be sold, and the price to be paid; and likewise paragraph "A" of that section requires the seller to make a complete inventory of the stock to be sold with the cost price of each article. The statute was not designed to protect those holding the indorsements of the seller on negotiable paper, or to protect persons who might have claims against the seller by virtue of executory contract with the seller.
The purchaser of a note given by a merchant is not a creditor within the meaning of the statute.
Warren v. Parlin-Orendorff Implement Co., 207 S.W. 586; Lawndale Sash Co. v. Westside Trust Bank, 207 Ill. App. 3; Apex Leasing Co., Inc. v. Litke, 159 N.Y.S. 707, 121 N.E. 853.
We also cite Siegal v. The Netherlands Co., Inc., 59 Pa. Super. 132, holding that a holder of a series of promissory notes is not a creditor of the accommodation indorser, as to the notes maturing after a sale of his property in bulk.
Adams Flanigan Co. v. Di Donato, 167 N.Y.S. 948.
For definition of the term "creditor" see Savings Assn. v. Tartt, 81 Miss. 276, 32 So. 115; and Drainage District v. Evans, 99 So. 819. In both of those cases, the court held that the debts referred to had reference to claims of creditors with fixed liabilities in liquidated amounts, and not to contingent claims or unliquidated claims, and there is no reason for any different construction of the bulk sales statute.
The very procedure which must be followed under the bulk sales law demonstrates that the indebtedness protected by it must be fixed liability as of the date of sale. The cases cited above sustain that proposition.
We next insist that the bulk sales law does not protect persons purchasing from a trader, and that it only protects persons selling to them, and in this case appellee was a buyer and not a seller. The very terms of the statute show that our contention is correct. It requires the seller to inventory his merchandise and list the cost price of each article; it requires the purchaser to demand of the seller a true and accurate list of his creditors, and the amount due each, together with their addresses and then requires the purchaser to give notice to the creditors of the inventory of the merchandise, its cost and the price he intends to pay for it. In other words, the terminology of the statute and the procedure it outlines clearly demonstrate that it is persons who sell to the merchant or trader who are protected and not persons who buy from the merchant or trader.
Harold Cox, of Jackson, for appellee.
The Supreme Court must assume that chancellor, in rendering decree, acted on inference deducible from evidence. Where entire case is submitted on agreed statement of facts, court may draw reasonable inferences therefrom to the same extent that those inferences could have been drawn had facts as agreed on been adduced from testimony in open court.
Love v. Hytken, 150 So. 777.
We agree with counsel that the bulk sales law is to be strictly construed, but counsel does not go far enough in stating the proper theory. The term "creditor" in the majority of the decisions is given a very liberal construction so as to give the fullest measure of protection afforded by the statute. Any strict construction of the statute such as is contended for by the appellants here would nullify and destroy the greater part of the protection afforded by the statute. It makes no difference whether a debt be payable or not when the sale is conducted. A person can well be a creditor of another, although the debt may not be payable, or the date of maturity may not have arrived. That is the situation on some of the items in this case. The relation of debtor and creditor existed, but the day of performance had not arrived in some of the cases; that is to say, Grant was not in default on its obligation to Federal Credit Company, but such fact of itself is not destructive of the contention that the relation of debtor and creditor existed between the parties from the very date on which each contract was sold.
Thompson v. Hester, 55 Miss. 656.
As against creditors of the seller, one purchasing in violation of the bulk sales act acquires no rights.
Dean v. Bowles, 70 So. 693.
The court will bear in mind throughout its consideration of this case that Grant Motors, Inc., has admitted in the facts that it is indebted unto appellee in the amount sued for, irrespective of the liability of Gober, the purchaser in said bulk sale. This sale was absolutely void as to the creditors of Grant, and the purchaser acquired no title to this property, but holds it as a trustee for the creditors, and is in no position to dispute with the creditors about their rights therein.
Under the bulk sales law, which appears as Section 3353, Code of 1903, "A sale of an entire stock of merchandise in gross, shall be presumed to be fraudulent and void as against the creditors of the seller," unless certain requirements are made.
William R. Moore Dry Goods Co. v. Rowe Carithers, 53 So. 659.
In the case at bar, Grant sold everything to Gober and left nothing with which to pay subsequently maturing obligations. It is inconceivable that the Legislature had in mind a statute which the debtor could juggle at his pleasure and to his liking as the appellants argue. The Legislature intended to prevent just what happened in this case. The statute would afford no protection if it could be defeated by a sale by the dealer of his stock or merchandise at a time when he owed a large amount of money, but where he had his creditors satisfied by making small payments, and when he was not delinquent on any such payment.
Whittington v. Yazoo Delta Mortgage Co., 148 Miss. 861, 114 So. 752.
Counsel argues that appellee was not a creditor of Grant Motors, Inc., because it had sold Grant Motors nothing. It is submitted with deference that it was never the intention of the statute simply to protect creditors who had sold something to the business.
Kline v. Sims, 149 Miss. 154, 114 So. 871; 4 Current Legal Thought, No. 4, pages 325-26; McKnight-Keaton Grocery Co. v. McFadden, 107 S.W.2d 176.
While the act itself is strictly construed as being in derogation of the common law, the term "creditor" is broadly construed to include all who might bring themselves within this extensive and general classification.
The term "creditor" within the meaning of the act concerning fraudulent conveyances is a person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed, or contingent.
Richard v. Jones, 142 A. 832; Hanna v. Hurley, 162 Mich. 601; American Surety Co. v. Marotta, 53 S.Ct. 260, 287 U.S. 513; 12 R.C.L. 492; 27 C.J. 472, 473 and 879; Pennington v. Seal, 49 Miss. 518; Loughridge Bogan v. Bowland, 52 Miss. 546; Ames v. Dorrah, 23 So. 768, 76 Miss. 187.
This court has so liberally construed the word "creditor" as to hold that a person suing in tort at the time of a fraudulent conveyance, may, when the claim is reduced to judgment, attack such conveyance as a creditor.
McInnis v. Wiscassett Mills, 28 So. 725, 77 Miss. 944.
We submit with deference that the foregoing authorities conclusively and unmistakably demonstrate that appellee was a creditor, holding an existing debt at the time of this bulk sale, and that it was entitled to a judgment in the trial court.
The sale and purchase of a stock of merchandise without compliance with the requirements of the statute is void, notwithstanding such sale and purchase was made in good faith and for value. The purchaser takes the goods at the peril of the statute not having been complied with. He must see that it is complied with.
Walton v. Walter Fisher Co., 146 Miss. 291, 111 So. 364; B.F. Goodrich Rubber Co. v. Breland, 154 So. 303, 170 Miss. 117.
Appellee, Federal Credit Company, brought an action at law to recover from Grant Motors, Inc., and Leon Gober $765.72, with interest. The case was tried upon an agreed statement of facts before the court, without the intervention of a jury, and judgment was entered for the appellee for said sum against the appellants, who prosecuted an appeal to this court.
The case was tried upon the following agreed statement of facts: "That Grant Motors, Inc., in the regular operation of its business as an automobile sales establishment became and is indebted unto the plaintiff on the matters in suit in the full amount of $765.72, with six per cent. interest thereon from the respective maturity dates thereof, after the allowance of all credits due it; and that said Grant Motors, Inc., became so indebted to the plaintiff at the time and in the manner hereinafter detailed.
"That said indebtedness arose under and by virtue of the sale by assignment with recourse from and on Grant Motors, Inc., to Federal Credit Company of various conditional sales contracts, evidencing the balance due on the purchase price of automobiles sold by Grant Motors, Inc., to various purchasers who signed said contracts; that in each case, the purchaser who desired to buy such automobile on the deferred payment plan executed such contract with Grant Motors, Inc., as the local dealer in Jackson Mississippi, and said local dealer promptly on the date of each contract, assigned and discounted such instrument to the Federal Credit Company by executing the dealer's assignment and warranty and the dealer's guarantee, all of which appears on the reverse side of the conditional sales contract form used in each instance involved in this case, a copy of which said contract and said endorsements thereon being made a part hereof as Exhibit `A' hereto;
"That in addition thereto, the said Grant Motors Inc., executed to and with the Federal Credit Company a contract for the sale and purchase of all of such conditional sales contracts so discounted to said finance company, and on the reverse side thereof appears what it denominated as the `Dealer's Protection Agreement,' a copy of which said instrument is made a part hereof as Exhibit `B' hereto;
"That Grant Motors, Inc., was engaged in the business of selling new and used automobiles and in servicing and repairing new and used automobiles in an establishment on Pearl Street in Jackson, Mississippi, at the time of the execution of each note, and at the time of the assignment of said note to the Federal Credit Company; that said company likewise operated a general repair shop and parts and accessory establishment in connection with said business, and that said business was so conducted by said dealer until on or about December 24, 1936.
"That in the Course and conduct of said business that Grant Motors, Inc., sold certain automobiles to certain purchasers on the time payment plan, and that such deferred balance were in each case secured by a retention of title to the automobile sold to secure amount, and said contracts were on the dates and in the amounts shown sold, assigned, guaranteed and delivered to the Federal Credit Company by Grant Motors, Inc., the particulars whereof are more specifically made to appear by Exhibit `C' hereto;
"That on December 24, 1936, Grant Motors, Inc., sold all of its tools, shop equipment, machinery, appliances and merchandise in bulk to the defendant, Leon Gober, for the sum of $1750.00, which is the agreed fair and reasonable value thereof; and it is further agreed that said merchandise sold was of the character that comes within the purview of the Bulk Sales Law, and that the same was sold in bulk without in any manner, or to any extent, complying with section 3353, Mississippi Code 1930, commonly known as the `Bulk Sales Law.'"
When the Grant Motors, Inc., sold motor cars, it took the Federal Credit Company's conditional sales contract for balance on unpaid purchase money in which there was the retention of title for the unpaid balance. On the back thereof was printed a dealer's assignment and warranty without recourse save as to untrue representations or breach of warranty, which all referred to the sale between the purchaser of the car from Grant Motors, Inc. There was also printed on the back of the conditional sales contract a dealer's guaranty, in which the dealer, Grant Motors, Inc., guaranteed the purchaser of the conditional sales contract, the Federal Credit Company, the payment of all deferred installments specified therein promptly if and when due, and further guaranteed that if the purchaser from Grant Motors, Inc., of the motor car, failed to pay any installment or perform any requirement, the Grant Motors, Inc., would pay the full amount of balance due on that contract to the Federal Credit Company, conceding to the Federal Credit Company a waiver of any indulgence, compromise, settlement, or other like action on its part in dealing with the purchaser. The notes of the several purchasers in favor of appellant were by it transferred to appellee without recourse.
There was also a contract by which the Federal Credit Company agreed to purchase the conditional sales contracts taken by Grant Motors, Inc., in the course of its business in which the dealer, Grant Motors, Inc., made these agreements: (a) If such car is returned to dealer within 90 days after a default in payment which has continued for such period, it is understood that the Dealer will pay Federal Credit Company upon demand, and in any event, within 30 days of its return to dealer, the amount of the remaining unpaid balance due Federal Credit Company on the obligation.
"(b) If returned more than 90 days after a default in payment which has continued for such period, it is understood that the Dealer will pay Federal Credit Company upon demand and in any event, within 30 days of its return to Dealer, the value of the car, as is, at the time it is returned. Value will be determined as provided in Appraisal Clause of Standard Fire-Theft Policies.
"(c) If Federal Credit Company is by law obliged to hold a car for redemption for a period exceeding 10 days or if litigation involving a seizure or repossession occurs, it is understood that upon return of the car after the termination of either such period the Dealer shall pay Federal Credit Company upon demand the amount of the remainder unpaid balance due Federal Credit Company on the obligation and that the preceding paragraph `b' shall not apply."
It is contended by appellant that the judgment of the court below should have been for it for the following reasons:
(1) The proof does not show that Federal Credit Company ever repossessed any cars and complied with the conditions alleged to have been necessary in order to establish appellant's liability to it on the contracts.
(2) The Bulk Sales Law does not protect one in dealing with appellant as a trader. Appellant sold notes and contracts to the Federal Credit Company and did not buy from anything.
(3) The Federal Credit Company was not a creditor of appellant when the bulk sale was made herein under Section 3353, Code of 1930.
We decide the case upon the ground of the third assignment, that on the date of the bulk sale here, appellee was not a creditor within the meaning of Section 3353, Code of 1930.
An analysis of the facts, as agreed to, and Exhibit "C" show that prior to the date of the bulk sale in this case, December 24, 1936, that the face value of the ten contracts here sued on was approximately $2037.56, and that of these ten contracts, six of them were not in default until long after the sale here in controversy. Exhibit "C" undertakes to show the amount of the several contracts on the date of their execution, the number and the amount of monthly installments, when they were payable, when the first defaulted, and the balance due on each of them. This balance totaled the sum sued for.
The agreed statement of facts does not show whether the cars involved in the several contracts were repossessed or how or in what manner the Federal Credit Company exercised its contractual rights in order to create a liability against the Grant Motors, Inc., whether default demand was made for the payment of the entire balance due on the contract, or whether the cars were repossessed and sold or delivered to Grant Motors, Inc., or anything to indicate how the amount of the liability was arrived at.
Section 3353 invoked in order to establish liability against Gober, it being agreed that it was not complied with in any respect is as follows: "A sale of any portion of a stock of merchandise, otherwise than in the ordinary course of trade, or in the regular and usual prosecution of the seller's business, and a sale of an entire stock of merchandise in gross, shall be presumed to be fraudulent and void as against the creditors of the seller, unless, at least five days before the sale:
"(a) The seller shall have made a full and detailed inventory, showing the quantity, and, so far as can be done by the exercise of reasonable diligence, the cost price to him of each article sold; and
"(b) The purchaser shall have in good faith made full and explicit demand of the seller for the name, place of residence and business and post-office address of each of his creditors, and the sum due each, and to which demand the seller shall have made full and truthful written answers; and
"(c) The purchaser shall have in good faith notified personally or by mail each of the seller's creditors, of whom he has knowledge, or with the exercise of reasonable diligence could have acquired knowledge, of the proposed sale and of the cost price of the merchandise proposed to be sold and of the price to be paid therefor by the proposed purchaser."
It is not alleged in the declaration that on the 24th day of December 1936, Grant Motors, Inc., was indebted to Federal Credit Company in any fixed sum whatever, nor was it capable of being ascertained at that date by anyone, and more especially by appellants. Each of the conditional contracts alleged to establish the liability here in suit was with a different purchaser due at a different date, each of the monthly payments differed from the other.
Whether or not there was a default at any time by said purchaser rested entirely upon the determination of the appellee, and the purchaser was at liberty to get extension of his contract or default therein at the will of the appellee. Demand upon Grant Motors, Inc., on the part of appellee was necessary and by implication likewise upon the vendee of the conditional sales contract with Grant Motors, Inc., to render appellant a debtor.
Again the appellee had the option to tender the car sold and demand payment of appellant by the repurchase of the car — it to pay therefor within a definite time the balance due on that specific contract as the purchase price, or another contingency that the appellee had in certain cases the right to demand the amount of fire insurance written on the car as its value, or if litigation arose between the appellee and the purchaser the appellant Grant Motors, Inc., was not indebted until the happening of other uncertain contingencies.
Under the rights of appellee, the appellant's liability might not ensue for many years.
On December 24, 1936, Grant Motors, Inc., could not have stated that any specific sum was then due by it to appellee, or that any sum to be fixed definitely then and there would become due. In other words, because of the many contingencies the seller could not have complied with Section 3353, sub-section b, by rendering a statement to his purchaser that he at that time owed anything to the appellee.
In such a case, within the meaning of the statute, appellee was not a creditor of appellant.
Or, if we go further and hold the contingency alone would not relieve a debtor or purchaser under this statute, this contract shows on its face that the contingencies were so many and varied that the seller could not state that he owed any sum. The conditional contracts were subject to substantial changes every day, if not every hour, as to what amount was due on them or any of them, and this is true whatever definition might be given to the word creditor as used in this statute.
Our own authorities render no assistance, and we find none elsewhere sustaining appellee's view. The statute is strictly construed in all its application, including the word "creditors" as used therein. Whittington v. Yazoo Delta Mortgage Co., 148 Miss. 861, 114 So. 752. Whoever may be a creditor in a given case, we are content to say that the facts of this case demonstrate that appellee was not such a creditor as could have been listed by Grant Motors, Inc., because under the terms of the contracts it could not have been listed as a creditor to whom any certain sum was due or might have ever become due at the date of the bulk sale. The relation of debtor and creditor did not arise on the notes executed by the several vendees of Grant Motors, Inc., because they were endorsed by appellant without recourse.
There is involved in this case contingency upon contingency resting in the options of the Federal Credit Company as to whether or not and when the Grant Motors, Inc., became a debtor of appellee. It was not a fixed contingent liability. The authorities in other jurisdictions are in hopeless conflict as to whether one holding a fixed contingent liability against another can invoke the bulk sale statute as a creditor or not. We do not align ourselves on that question as it is not necessary to a decision of the case.
The admission in the statement of facts cannot be construed into an agreement that on the date of the bulk sale Grant Motors, Inc., owed anything — as affecting Gober in the application of the statute to him. The court below erred as to Gober and no judgment should have been rendered against him.
Under the agreed statement of facts the judgment against Grant Motors, Inc., was correct.
Reversed and judgment here for Gober; affirmed as to Grant Motors, Inc.