Kline v. Sims

^* Corpus Juris-Cyc. References: Fraudulent Conveyances, 27CJ, p. 874, n. 16; p. 879, n. 88; p. 882, n. 23; p. 884, n. 53, 54; p. 885, n. 67, 68; p. 890, n. 56 New; p. 893, n. 23; On statutory requirement of notice to creditors under Bulk Sales Law, see annotation in L.R.A. 1917F, 230; 12 R.C.L. 525; 2 R.C.L. Supp. 1443; 5 R.C.L. Supp. 649; 6 R.C.L. Supp. 713. This is the second appeal in this case, the first being reported in Sims et al. v. Kline et al., 139 Miss. 246,104 So. 85, and the material facts, as they then existed, and the law bearing thereon, are shown in the report of that case.

After the case was remanded to the circuit court, from which it came on the former appeal, a bill was filed in the chancery court seeking sequestration against the goods and effects of M. Kline, in which bill it was alleged that in the year 1924, M. Kline was unable to meet the demands of his creditors and was insolvent; that he was engaged in the mercantile business at Alligator and at Merigold; that his stock of goods at Alligator exceeded thirty thousand dollars in value, and at Merigold fifteen thousand dollars in value; that Kline conceived the idea of forming a corporation to take over his mercantile business in such a way as that his debts would be defeated, and therefore M. Kline was incorporated, its sole spirit being said M. Kline, and the goods were transferred to M. Kline, Inc.; that the consideration therefor was inadequate, in gross disproportion to the value of the property so transferred; that the corporation took charge and has since been conducting the business; that no attempt was made to comply with the Bulk Sales Law governing such sales; and that the corporation has converted to its own use the greater proportion of the stocks of merchandise; that the said M. Kline, Inc., has so replaced and replenished the stock, placing in new goods to take the place of that sold, as to confuse the goods purchased from M. Kline with goods from other parties, so that the same are indistinguishable. The bill further alleges that both M. Kline, M. Kline, Inc., and Fisher, are insolvent, and that it is the purpose of said corporation to protect said stock of merchandise from the creditors of M. Kline, especially the complainants; that much personal property has been sold by M. Kline, Inc., and that the complainants aver that substantially all the accounts and securities will, on notice of this suit, be transferred to third parties with the intent to hinder, delay, and defraud complainants; that unless said stock of merchandise be seized under a writ of sequestration, said stock of merchandise will be disposed of and placed beyond the reach of these complainants, and the amounts owing by the debtors of M. Kline, Inc., will be either collected and concealed or transferred to other parties so as to defeat and defraud complainants of their just debts, and that all acts were done to hinder and defraud creditors; that the complainants are entitled to a personal judgment against M. Kline and Fisher, and to a decree against M. Kline, Inc., for the full value of said stocks of merchandise sold to M. Kline, Inc., aforesaid. The bill also asks for discovery as to cost price, etc. The affidavit to the bill was made by H.H. Elmore, one of the attorneys for complainants, who alleges that he has good cause to believe, and does believe, there is danger of concealment in the state of the stocks of merchandise and books of account of M. Kline, Inc., at Merigold, and at Alligator, so as to be beyond the process of the court and of the transfer of said property so as to defeat the rights of the complainants, and that such concealment and transfer are about to occur.

The defendants to the bill appeared and answered same, and, in answering admitted that M. Kline, in 1924, sold the stock of goods, or transferred them, to M. Kline, Inc., and that they did not give the complainants notice of such sale five days before the consummation thereof under the terms of the Bulk Sales Law, Hemingway's 1927 Code, sections 3335-3338 (Laws of 1908, chapter 100), contending they were not required so to do; that the suit in the circuit court had been tried, and judgment had been rendered in favor of M. Kline therein, which was in force and unreversed at the time of the sale, and that it had been adjudicated in said suit; that the complainants were not creditors of M. Kline; and that the purchasers of the stock of goods of M. Kline, Inc., had the right to rely upon such judgment as being true and governing in such matter.

There was much testimony offered on the issues involved and conflict on most of the issues presented.

At the conclusion of the evidence, the chancellor decreed for complainants, and rendered judgment on the forthcoming bond of defendants under the writ of sequestration, from which judgment they appealed.

Most of the questions presented on the former appeal and decided there are reargued in this appeal. We, however, think the former appeal was correctly decided, and that the law announced therein is the correct pronouncement of the law applicable to the issues involved on the liability of M. Kline under the instruments and testimony of complainants in the former record.

It is argued here that the Bulk Sales Law is inapplicable to this transaction, and that as M. Kline, Inc., had paid off most of the creditors, if not all of them, other than complainants, that the complainants had no right to recover against the purchasers, M. Kline, Inc., for the value of such goods so purchased; that the complainants were not creditors of the partnership, nor of the stock of goods involved in the transaction.

We are of the opinion that the statute is applicable. It is conceded that no notice was given to the complainants, and the complainants were creditors of M. Kline, and when the stock of goods was sold without compliance with the terms of the Bulk Sales Law, said complainants had the right to resort to the goods to the extent of the value thereof against the purchaser of the same for the value of their claim. The statute uses the language, "shall be presumed to be fraudulent and void," etc. The term "creditors" used therein embraces all creditors of a merchant selling a stock of goods, and whatever may be the right, so far as the purchaser is concerned, and so far as the seller is concerned, the creditor has a right to resort to the stock of goods for the satisfaction of his debt, or to the purchaser of a stock of goods who has failed to give the notice required by the statute.

It has been decided that a buyer purchases at his peril if the true list of creditors is not disclosed, and that his good faith does not avail him if he fails to procure a list of the creditors as required by the statute.

It is contended that if the Bulk Sales Law does apply, as we hold it does, that the complainant is only entitled to recover his pro rata of the defendant purchaser, and that the other creditors are entitled to participate pro rata, and that the purchaser, having paid the other creditors, is entitled to be put in their place in subrogation, and only to pay such part of the complainants' demand as the total demand bears to the total of the creditors of the defendant, measured by the value of the stock of goods on hand at the time of the sale. We are not able to reach a conclusion in accordance with this contention. We think the Bulk Sales Law is a part of a scheme of attacking fraudulent sales and concealment, and that the complainants have the right to attack such sale under section 328, Hemingway's 1927 Code (section 553, Code of 1906), which reads as follows:

"The said court shall have jurisdiction of bills exhibited by creditors who have not obtained judgments at law, or, having judgments, have not had executions returned unsatisfied, whether their debts be due or not, 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 complainants had judgments 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; and the chancellor of the proper district shall have power and authority to grant orders for receivers, in same manner as if the creditor had recovered judgment and had execution returned ``no property found.' 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."

We think the creditor who proceeds under this statute is entitled to the benefit of his diligence, and that, under the language of the statute, he has a lien upon the property sold on this sequestration. He is not required to bring suit on behalf of all the creditors, but may sue for his own demand and get the benefit of his diligence. Creditors who will not act, or who are not diligent in asserting their demands, are not entitled to participate equally with the man who is diligent, and who has incurred the risk and expense of proceeding to attack a fraudulent conveyance. If other creditors intervene in the suit, they may, by so doing, take their places in line with creditors according to the date of their proceedings, but they are not entitled to share in the proceeds of the first creditor's diligence and activities, and such creditor is entitled to have his claim first paid. If other creditors desire, they may attack, or sue out writs of sequestration, or take any other appropriate action; but they must do so at their own risk, and they are not entitled to participate in the activities and diligence of the creditor who first takes action.

It is contended that the complainants have no right to maintain the suit, and a number of other contentions are set up. We have considered them, but think they are without merit, and that the trustees did have the right to bring suit, and that the defendants may, if they so desire, pay the money into court and will be exonerated when they have done so. The defendants are not entitled to set up the rights of other parties. The trustees, of course, were not acting for themselves in their personal capacity.

The court below will, no doubt, see that the money is applied as it ought to be, and parties interested can assert their rights.

We are of the opinion that the court below reached the correct conclusion, and the judgment will be affirmed.

Affirmed.