Smith v. Boyer

April 28, 1922. The opinion of the Court was delivered by The two cases are identical in the facts, with the exception of the amounts of the claims of the creditors Smith and Dent; that of the former being $241.19, and of the latter $123.22. They were tried together in the County Court, and the appeals were argued together in this Court.

The defendant Boyer operated a meat market in the city of Columbia, and, at the time in question, had on hand a small amount of butcher's meat and certain adjuncts of the business, consisting of refrigerator, counter, cooler, sausage mill, scales, desks, registers, meat blocks, and similar articles, not for sale of course, but for use.

Desiring to retire from the business, Boyer advertised it for sale. The defendants Johnson and Whitton were attracted and opened negotiations which culminated in a contract for the purchase of the "adjuncts" hereinbefore referred to, at the price of $1,025, on February 3, 1921. A bill of sale was prepared and executed by Boyer, covering only the "adjuncts." Boyer declared that "he owed no man anything." The purchasers insisted upon an affidavit to that effect, which Boyer executed, stating in most emphatic terms that there were no claims of any kind against the said property or against his business. It appears that later he verbally stated that there was a mortgage upon said "adjuncts" for $1,000 in favor of his son. Johnson Whitton thereupon closed the trade by paying off the mortgage of $1,000 and the balance, $25 in cash, to Boyer. No such inventory as is required by the Bulk Sales Act, § 2434, Vol. 1. Code of Laws A.D. 1912, was prepared, nor notice to creditors. The next day, February 4, 1921, upon taking possession, Johnson Whitton purchased from Boyer the butcher's meat on hand for $56 and ice tickets for $30. No. part of the "adjuncts" has been removed by the purchasers. Thereafter the plaintiffs instituted these several actions at law against Boyer and the purchasers, Johnson Whitton, upon open account due them, respectively, by Boyer while conducting the business prior to the sale, alleging that the sale was a "bulk sale" in violation of said section, null and void, and made with intent to hinder, delay, and defraud the creditors of Boyer; that for these reasons they were severally entitled to judgment against the purchasers on said accounts. Boyer made default. The purchasers, Johnson Whitton, answered, explaining the transaction as above stated, and claiming, in the event that the sale should be set aside, to be subrogated to the rights of the mortgagee, whose mortgage of $1,000 they had paid off.

The case was tried by County Judge Whaley upon testimony taken before him in open Court. He filed a decree (which will be reported) holding that the aforesaid "adjuncts," which he termed "trade fixtures," were merchandise, within the meaning and purpose of the Act; that the sale, under the circumstances detailed, was in violation of the terms of the Act, and conclusively presumed to have been fraudulent; and that whatever interest the purchasers acquired by paying off the mortgage, was tainted with that fraud. He therefore refused the application of the purchasers to be subrogated to the rights of the mortgagee, under the mortgage which they had paid off, and rendered judgment against them upon the claims of the plaintiffs.

The questions which are presented by the exceptions for determination are: (1) Was the presiding Judge in error in holding that the "trade fixtures" (so called) were merchandise within the terms of the Act? (2) If they were, was the presiding Judge in error in refusing the application of the purchasers to be subrogated to the rights of the mortgagee in the mortgage which they had paid off? (3) Was the presiding Judge in error in rendering judgments absolute against the purchasers for the amounts of the plaintiff's claims?

As to the first question. The term "merchandise" has a clearly defined meaning: "All kinds of personal property usually bought and sold in trade or market by merchants." 27 Cyc. 477. In the absence of a contrary intention appearing, it will be presumed that the Legislature intended to use the term in its common acceptation. So far from the appearance of a contrary intention, the Act itself discloses the intention to so use it; "It shall be unlawful for any merchant * * * engaged in the buying and selling of merchandise * * * to sell his * * * entire stock of merchandise in bulk, * * * otherwise than in the ordinary course of trade;" plainly referring to such articles only as he was accustomed to sell, in the ordinary course of trade. Such property as he may have acquired for the purpose of his business and which he did not expect to sell, cannot be considered "merchandise," under the clear definition of the term and the words of the Act.

In the first place, the Act is in derogation of the Common law, which gives the owner the right to dispose of his property as he pleases, provided the transaction is free from a fraudulent purpose, and is subject to the rule which requires a strict construction of its terms.Fairfield Co. v. Olds, 176 Ind. 526, 96 N.E. 593; Cooneyv. Sweat, 133 Ga. 511, 66 S.E. 257, 25 L.R.A. (N.S.) 758 (see, also, note to the case); Taylor v. Folds, 2 Ga. App. 453,58 S.E. 683; Swift v. Tempelos, 178 N.C. 487,101 S.E. 8, 7 A.L.R. 1581; 12 R.C.L. 523.

The overwhelming weight of authority is in support of the proposition that the term "merchandise" does not include articles kept wholly or partially for use in and about the building, but only articles for sale. Burgessv. Company, 92 Mass. (10 Allen) 221; 5 Words Phrases, 479; Tisdale v. Harris, 20 Pick. (Mass.) 9; the Marine City (D.C.) 6 Fed. 413; Albrecht v. Cudihee,37 Wn. 206, 79 P. 628; Everett Co. v. Smith, 40 Wn. 566, 82 P. 905, 2 L.R.A. (N.S.) 331, 111 Am. St. Rep. 979, 5 Ann. Cas. 798; Off v. Morehead, 235 Ill. 40,85 N.E. 264, 20 L.R.A. (N.S.) 167, 126 Am. St. Rep. 184, 14 Ann. Cas. 434; Swift v. Tempelos, 178 N.C. 487,101 S.E. 8, 7 A.L.R. 1581; Van Patten v. Leonard,55 Iowa, 520, 8 N.W. 334; Gallus v. Elmer, 193 Mass. 106,78 N.E. 772, 8 Ann. Cas. 1067; Independent Co. v. Lawton,200 Mo. App. 238, 204 S.W. 730; Ferrat v. Adamson, 53 Mont. 172, 163 P. 112; Gallup v. Rhodes, 207 Mo. App. 692,230 S.W. 664. The question is suggested but not decided in Bank v. Huey, 113 S.C. 333, 102 S.E. 516, and is practically decided in conformity with the foregoing decisions in Summerton Co. v. Cleveland, 114 S.C. 189,103 S.E. 516.

So far as the second sale is concerned, that of the meat on hand at $56 and the ice tickets $30: The purchasers are liable to account to creditors for the $56, but not for the ice tickets, as they were not intended to be sold, but used; and for neither, in this action, as will be shown.

As to the second question. Assuming that the trial Judge was right in his application of the Act to the facts of this case, the purchasers were clearly entitled to be subrogated to the rights of the mortgagee in the mortgage of $1,000, which they had paid off. See Pom. Eq. §§ 1211, 1213; Sutton v. Sutton, 26 S.C. 33,1 S.E. 19, and the authorities cited by the writer in his opinion on petition for rehearing, in the case of Prudential InvestmentCompany v. Smoak, recently filed. 111 S.E. ___. There is no question as to the validity of that mortgage or of the fact of payment. To allow the purchasers to be subrogated will not in any wise prejudice the rights of creditors whose claims necessarily were subordinate to the mortgage. The reason given by the trial Judge for denying the right of subrogation, that the sale was presumed conclusively to be fraudulent, is unsound. The Act provided for only a prima facie presumption of fraud, and this Court had held, in the case of Bank v. Huey, 113 S.C. 333, 102 S.E. 516, that, where an effort has been made to comply with the Act, the question of fraud is open. And even if it be held that the sale was fraudulent simply because it was in violation of a technical statute, there is no ground in justice that one, who without moral obliquity has been caught upon the horns of the law, should lose everything, particularly where his act has not in the slightest degree affected the interests of creditors.

As to the third question. The trial Judge had no authority to render an absolute judgment against the purchasers. The Act provides that, if the merchandise or any part of it be found in possession of the purchaser, it (the property, not the purchaser) shall be liable to the creditors. The record shows that all of the so-called fixtures are now in the possession of the purchasers. The only way in which they could be reached is by an equitable action in behalf of creditors to subject them to the payment of the claims of creditors, not by an action at law against the purchasers. It does not appear whether there are other creditors of Boyer or not. Certainly a single creditor cannot maintain an action at law against the purchaser, even if he be the only creditor, where the purchaser has not disposed of the property.

In truth, the complaint was subject to demurrer in not declaring, in the action at law, that the purchasers had disposed of merchandise; for, by the express terms of the statute, no personal judgment can be obtained against the purchaser, except to the extent of the value of merchandise received by him and withdrawn, that is, disposed of. Furthermore when the evidence showed that the purchasers were still in possession of the property acquired under the alleged void sale, the remedy of the creditors was in equity against the property, and the action at law should have been dismissed on non-suit.

For these reasons the judgment is reversed, and the complaint dismissed.

MR. JUSTICE FRASER AND MR. JUSTICE MARION concur.