Frank, Herman & Co. v. Robinson , 65 Miss. 162 ( 1887 )

Cooper, C. J.,

delivered the opinion of the Court.

On the 21st of September, 1881, Baum & Co. made an assignment for the benefit of their creditors to Robinson and Wright, assignees. On the 25th of September, Jaffrey & Co., exhibited their bill in the chancery court of Lauderdale County, attacking the assignment as fraudulent and void, and seeking to subject the property assigned to the payment of their demand. Their bill is of a double aspect and the prayer is that the assignment be declared void and the goods appropriated to the payment of their debt; but if upon hearing it should be made to appear that the assignment was made in good faith, then they ask that the trust he administered under the direction of the chancery court and by a receiver to be appointed by it. By consent of parties the assignees were appointed receivers of the court, and now hold the property assigned in that character.

On the 28th of September, Frank, Herman & Co. exhibited in the court having control of the property their petition, by which they charge that Baum & Co. by false and fraudulent representations of their solvency induced petitioners to sell to them a large quantity of boots and shoes for which nothing has been paid ; that a lal’ge part of the goods were on hand at the time of the assignment, and passed to the assignees and are now in the hands of the receivers. They claim the right to rescind the sale for fraud and to have delivery of the goods from the receivers. Their petition is also in the alternative and they ask that failing to establish the fraud of Baum & Co., a lien may be established upon so much of the goods sold by them as remain on hand for the purchase money due thereon. To this petition a demurrer was interposed by the receivers.

The substantial grounds of demurrer are:

1. That the goods, though acquired by Baum & Co. by fraudulent representations of their solvency, were nevertheless “ used or acquired in the business transacted by them,” and are, by virtue of Section 1300 of the Code of 1880, to be treated as the property of said firm in favor of their creditors as against the secret right of the petitioners to dis-affirm the sale.

2. That Jaffrey & Co., proceeding under Sections 1843,. 1844 and 1845 of the Code, acquired a lien upon the goods by exhibiting their bill to declare the assignment fraudulent, which lien must prevail, unless upon final hearing the assignment shall be declared valid.

3. That the vender’s lien sought to be enforced by the-petitioners exists by law upon personal property only when such property is of the class covered by the exemption laws of the State.

The objections thus taken are determinable by construction of the several statutory provisions relating thereto, and for convenience they are here set out in full.

Section 1300 of the Code is as follows:

“ If any person shall transact business as a trader or otherwise, with the addition of the words 1 agent,’ ‘ factor,’ and ‘company,’ or ‘and Co.’ or like words, and fail to disclose the name of his principal or partner, by a sign in letters easy to be read, placed conspicuously at the house where such business is transacted; or if any person shall transact business in his own name, without any such addition, all the property, stock, money and choses in action used or acquired in such business shall, as to the creditors of any such person, be liable for his debts, and be, in all respects, treated in favor of his creditors as his property.”

Sections 1843, 1844 and 1845 provide, That “ the said courts (chancery) shall have jurisdiction of bills exhibited by creditors who have not obtained judgments at law, or, having judgments, have not had executions returned unsatisfied, to set aside fraudulent conveyances of property, or other devices resorted to for the purpose of hindering, delaying or defrauding creditors ; and may subject the property to the satisfaction of the demands of such creditors, as if complainant had a judgment and execution thereon returned ‘no property found.’

“ Upon such a bill a writ of sequestration or injunction, or both, may be issued upon like terms and conditions as such writs may be issued in other cases, and subject to such proceedings and provisions thereafter as are applicable in other cases of such writs.”

“ The creditor in such case shall have a lien upon the property described therein from the filing of his bill, except as against bona fide purchasers before the service of process upon the defendant in such bill.”

Section 1255 of the Code of 1880 declared, That “no property shall be exempt from execution when the purchase money thereof forms, in whole or in part, the debt on which the judgment is founded; nor shall any property be exempt from sale for non-payment of taxes or assessments, or for any labor done thereon, or materials furnished therefor, or when the judgment is for labor performed, or upon a forfeited recognizance or bail bond.” By act of March 11, 1884, this section was amended by adding to the conclusion thereof the following words’: “ And if the plaintiff shall desire to establish a lien on such personal property while in the hands of the first vendee, he shall, on filing his declaration or evidence of debt, make affidavit stating that such property was sold by him for the debt, in whole or in part, sued on or for labor done thereon, or for material furnished as the case may be, describing in his affidavit the property, and the clerk or justice of the peace shall issue his writ of seizure or summons, and it shall be the duty of the sheriff or constable to take possession of the property, and shall safely keep the same and dispose of the same in all respects, as now required by law in cases of replevin, and if the defendant shall replevy the same the writ shall be returnable to the court issuing the process in the first instance. If upon the trial the plaintiff shall establish his debt, and show that the purchase money was for that identical property, he shall, in addition to. the judgment for the debt, have also a special execution for the sale of such property.

The first question to be decided is, whether Section 1300, ap. plies where the goods “ used or acquired in the business ” by a trader, are secured by his fraud against the seller.

This section has been frequently construed by us, in cases in which, by conventional arrangement between the parties, property has been placed in the hands of a trader by the owner, of in which some other than the trader conducting the business has interposed some claim to the property arising from contract, and in all such cases the statute has been applied.

Gumbel v. Koon, 59 Miss. 264; Quin v. Myles, Id. 375; Shannon v. Blum, 60 Miss. 828 ; Wolf & Marks v. Kahn, 62 Miss. 814 ; Payne v. Safe & Lock Co., 64 Miss. 175.

It has also been decided that the statute does not derange the order of priority of creditors of the trader, and that a valid mortgage executed by him would be enforced as against his judgment creditors. Dodds v. Pratt, 64 Miss. 123.

The question now presented has not heretofore arisen, and it is not settled by any of our previous decisions.

The letter of the statute is broad enough to include not only goods as acquired by the trader lawfully and by contract, but also such as might be obtained by trespass or by theft. But it is manifest that, by a construction leading to such conclusion, the purpose anfl intent of the law would be enlarged and expanded by judicial decision. The scheme and policy of the statue is to preclude the assertion by others of secret claims to the property of which the trader is the ostensible owner. It incites to honesty by declaring that the fact of ownership shall be conclusively fixed, as appearances indicate it to be. The oppor. tunity for the frauds it intended to prevent, sprung from the danger of collusion between the trader and others, and to exclude all possible schemes to thwart and evade its operation, the most comprehensive language was employed. Within the sphere of its intended operation, we shall, as we have repeatedly declared, engraft no exception upon its language; but we can not extend it beyond its manifest purpose by lioldingthat property acquired by fraud or stratagem, by trespass or by larceny, is as against the victim of such fraud or the true owner, to be treated as the property of the trader in controversies with his creditors. We are therefore of opinion, that the statute interposes no obstacle to the assertion of title by the defrauded seller who seasonably and in good faith exercises his right to rescind the sale. If the fraud charged by petitioners shall be established,neither the assignees, who are volunteers, nor the receivers appointed at the suit of creditors can withhold the goods from them. Paine v. Hotel Co., 60 Miss. 360; Bliss v. Cottle, 32 Barb. 322; Burrill on Assignments, Sect. 401.

We reject the proposition advanced by counsel for appellees, that the act of 1884, amending section 1255 of the Code, has reference alone to property which is by law exempt from execution and sale. Section 1255 of the Code, though found in the chapter dealing with the subject of exemptions, has for its purpose the exclusion of any and all property from the operation of the exemption laws in the states of case therein referred to. Under the circumstances named therein the law under the Code was just as if there had been no exemption of property from seizure and sale under execution. The legislature by. the act of 1884, amendatory of this section of the Code, dealt with the property therein referred to, not as property of a particular character, which under other than the circumstances therein named would be exempt; but as personal property the purchase price of which had not been paid, and its object was to afford ^a remedy to the seller by which it might be seized and subjected to a judgment in his favor for the unpaid price. It operates in favor of the seller, regardless of the character of the property as exempt or not exempt under general laws, so long as it remains in the hands of the first vendee.

But the act does not create a lien in favor of the creditor existing from the date of sale of the property. It confers only .the right to acquire a lien by seizure of the property while in the hands of the first vendee. It gives no right or equity in or to the property to the creditor, but only the right to go against it for the unpaid price in conformity to the provisions of law. The goods sold by the petitioners to Baum & Co. while in their hands were by the terms of the law subject to be seized for the unpaid price, but this was the extent of the remedy conferred by the statute which is the measure of the sellers’ right.

Before the petitioners had taken anjr steps to fix a lien upon the goods, two other claims had intervened, one of which, on the facts of record, must prevail, and either of which is superior to the right of petitioners, because prior in time. The assignee in the deed of assignment, though a volunteer, and as such chargeable with any fraudulent act of the assignor going to defeat his title, holds such title as the assignor had in the goods charged with a trust for the creditors named in the deed. It is not true that one who might have taken the goods in the hands of the assignor may also take them in the hands of the assignee. To do this the plaintiff must show some equitable or legal claim or lien which overrides and is superior to the title of the assignee.

If, therefore, Jaffrey & Co. shall fail to establish the fraudulent character of the assignment, the right of the assignees in the assignment will be superior to the right of the petitioners to subject the property to sale for the unpaid purchase money due them.

So, also, if it shall appear that the assignment was fraudulent, Jaffrey & Co., who, by exhibiting their bill under Sections 1843, 1844 and 1845 of the Code, acquired a lien on the property, will have a right superior to that of petitioners. The lien of Jaffre}'' & Co. and of petitioners are alike statutory, and are of equal dignity. Equality of equity and priority in time gives priority in right.

The result then must he that if petitioners shall establish the fraud of Baum & Co. in the purchase of the goods, they may rescind the sale and retake the goods from the assignees or from the receiver; but that, failing in this, their right to charge the goods with the unpaid price is subordinate to the right of either Jaffrey & Co. or of the assignees.

Decree reversed and cause remanded.