Pennell v. Robinson, 164 N.C. 257 (1913)

Dec. 13, 1913 · Supreme Court of North Carolina
164 N.C. 257

W. C. PENNELL, Trustee in Bankruptcy, v. L. W. ROBINSON and M. M. WORLEY, Individually, and as Partners, Doing Business as ROBINSON & WORLEY.

(Filed 13 December, 1913.)

1. Vendor and Vendee — Sales—Merchandise in Bulk — Void Transactions — Interpretation of Statutes.

Where the provisions of chapter 623, Laws 1907, regulating the sale of the whole or a large part of a stock of merchandise other than in the usual course of the seller’s business, have not been complied with, in making a. sale of -this character, as to . giving notice to creditors, making inventory or giving bond, etc., the sale is absolutely void, the question of tona fldes in the transaction arising only when the conditions of the statute are met.

2. Bankruptcy — 'Partnership Exemptions — Consent of Partner — Jurisdiction.

Where one has been adjudicated a bankrupt under the laws of the United States, his right to homestead and personal property exemption -under State laws is to be adjudicated in the bankruptcy court.

Appeal by plaintiff from JBragaw, Jat August Term, 1913, of BUNCOMBE.

Civil action tried upon these issues:

1. Did the defendants' purchase the stock of merchandise of M. J. McElreath & Son otherwise than in the ordinary course of trade and the usual prosecution of their said business, while they were indebted to various creditors, without giving any notice of said purchase and sale to said creditors? Answer: Yes.

2. Did the defendants purchase said goods in good faith and for a fair price, paying for the same, without knowledge of the .insolvency of said M. J. McElreath & Son, or that they owed debts? Answer: Yes. ■

3. What was the value of said goods at the time of said sale on 7 March, 1912? Answer: $268.

4. Are the defendants indebted to the plaintiff, and if so, in what amount? Answer: No.

Fourth issue answered “No” as a matter of law by the court.

*258It is agreed that upon, application of 'C. II. McElreatb, one, of tbe bankrupts, for a personal property exemption, in tbe bankruptcy court, be was denied bis personal property exemption. Tbe other bankrupt did not ask for bis personal property exemption or consent in apt time for C. H. McElreatb to bave any exemption. Upon tbe issues as found by tbe jury, tbe court rendered judgment against tbe plaintiff, wbo excepted and appealed.

Marie W. Brown for plaintiff.

Lee & Ford for defendants.

Brown, J.

Tbis is an action brought by tbe plaintiff as trustee in bankruptcy of M. J. McElreatb & Son, bankrupts, to recover possession of, or tbe value of, tbe stock of merchandise sold by M. J. McElreatb & Son to tbe defendants.

It is admitted that tbe defendants purchased tbe stock of goods at tbe time plaintiffs were indebted to various creditors, without a compliance with tbe provisions of tbe statute regulating “sales in bulk,” and that they paid a fair price for tbe same; that tbe same was purchased in good faith, and without legal knowledge or notice of tbe insolvency of tbe bankrupts, or that tbe bankrupts owed debts, at or before tbe time of tbe sale or tbe delivery of tbe goods. Tbe only question presented is tbe construction of tbe “sale in bulk” statute.

Tbe statute is chapter 623, Laws 1907, and is brought forward in Pell’s Revisal, sec. 964a.

Tbe plaintiff contends that under tbe “sale in bulk” law, tbe sale of tbe whole or a large part of a stock of merchandise otherwise than in tbe regular course of tbe seller’s business is void, absolutely, as to tbe seller’s creditors, unless be shall observe tbe provisions of tbe statute as to giving notice to creditors, making inventory or giving bond as provided in said act.

.The defendants maintain that a failure to observe tbe provisions of tbe statute as to tbe notice to creditors or bond does not render tbe transaction void, but merely raises a presumption of fraud which may be rebutted by proof that (a) they pur-*259cbased in good faith., (b) paid a fair price, (c) and were without knowledge of the fraud or of the insolvency of the bankrupt.

We think the construction of the statute contended for by the defendants would practically destroy its beneficial effect. Its purpose is to prevent the purchase of a stock of merchandise from various persons on a credit, and then selling it out in bulk for the purpose of defeating the rights of the creditors who extended the credit.

The statute effectually protects such creditors not only by making it easier to establish fraud, but by declaring the “sale in bulk” absolutely void unless the provisions of the law are complied with.

As we construe the act, the sale in bulk of a large part, or the whole, of a stock of merchandise, otherwise than in the ordinary course .of trade, and in the regular and usual prosecution of the seller’s business, renders the transaction prima facie fraudulent, and open to attack on such ground by creditors, even though the provisions of the act are fully complied with. *

But in case they are' not complied with, then the “sale in bulk” is absolutely void as to creditors, without any further evidence of a fraudulent purpose.

The construction contended for by the defendants, if allowed to prevail, not only renders the act nugatory, but gives to the creditor no greater protection than he had prior to its enactment.

A sale in bulk of a stock of merchandise was prima facie evidence of fraud under some circumstances before the passage of this act.

The Supreme Court of the United States, in referring to such a sale, says: “But it is wholly a different thing when he sells his entire stock to one or more persons. This is an unusual occurrence, out of the ordinary mode of transacting such a business, is prima facie evidence of fraud, and throws the burden of proof on the purchaser to sustain the validity of his purchase.” Scammon v. Cole, 5 Bank Reg., 257; Graham v. Stark, *2603 Bank Reg., 95; Kingsbury v. Hale, 3 Bank Reg., 84; Driggs v. Moore, 3 Bank Reg., 149; Tuttle v. Traux, 1 Bank Reg., 169.

If tbe defendants bad known of tbe insolvency of McElreath, and that tbe sale of tbe stock of merchandise to them was for tbe purpose of defeating tbe rights of creditors, then tbe sale could have been avoided irrespective of bankruptcy or of tbe “salé-in-bulk” law, even though appellees paid full value for tbe merchandise. Revisal of 1905, secs. 960-964; Cox v. Wall, 132 N. C., 730.

Any other construction than tbe one we place on tbe act of 1907 would leave tbe law practically as it stood under tbe Re-visal of 1905, secs. 960, 964, for under that law, as demonstrated by Mr. Justice Walker, tbe burden of proof is on tbe purchaser of property conveyed to defraud creditors to show that be bought for a valuable consideration and without notice. Cox v. Wall, 132 N. C., 731.

Tbe act of 1907 declares in explicit and unmistakable terms that such sales are (a) "prima facie evidence of fraud, and (b) void as against tbe creditors of tbe seller.”

Thére must have been somé purpose in inserting tbe comma after tbe declaration "•prima facie evidence of fraud,” and adding “and void as against the creditors of tbe seller.”

But if- tbe construction contended for by tbe defendant is adopted, tbe words-“and void as against tbe creditors of tbe seller” must be stricken from tbe statute. Tbe General Assembly will then have done a vain thing, and tbe purpose of tbe enactment destroyed.

In construing a similar statute, tbe Supreme Court of Mississippi in Dry Goods Co. v. Rowe, 99 Miss., 30, held that “a sale in violation of tbe bulk sales law, declaring that sale of a stock of merchandise in bulk shall be presumed to be fraudulent as against tbe seller’s creditors, unless specified conditions are complied with, is prima facie fraudulent, and unless tbe purchaser shows a compliance with tbe conditions as to inventory and notice to creditors, tbe sale is absolutely void, tbe word presumed baying no fixed meaning, and in one instance the pre*261sumption declared may be only prima facie, while in' another conclusive.” See, also, Contrell v. Ring, 125 Tenn., 480; Jacques v. Warehouse Co., 131 Ga., 15.

It is well known that the business of retailing.goods, wares, and merchandise is conducted largely upon credit, and furnishes abundant opportunity for the commission of fraud upon creditors, not usual in other classes of business. Therefore, many other States have adopted similar statutes, the purpose being to provide in general protection against a class of salés to which fraud most frequently attaches. Such statutes have received different constructions by the courts of the several States, depending largely upon the language employed in the act. We will not -undertake to review the various decisions. They are referred to, and the different views taken by the courts commented on, in that valuable publication, vol. 28, Am. and Eng¡ Annotated Oases, pages 1214-1216.

We prefer to adopt the view taken by several of the 'courts construing such statutes, to the effect that, while tlmse statutes have the object to prevent persons in debt who own stocks of merchandise from selling the same in bulk for the purpose of defrauding their creditors, its subject-matter is not fraud in such sales, but the regulation of them.

The statute prescribes certain 'duties which must be performed by the buyer and certain correlative duties which must be'performed by the seller. This is regulation, pure and simple.

Unless these duties are complied with, and the requirements of the statute observed, such sale or transfer, as to any and all creditors of the vendor, is -conclusively presumed to be fraudulent in law, whatever it may have been in fact.

Whether MeElreath is entitled to a personal property exemption now is a question for the bankruptcy court. It is well settled in this State that a copartner is not entitled to a personal exemption in the partnership property without the consent of the other copartner.

We are of opinion that the plaintiff is entitled to judgment for the value of the merchandise as assessed by the jury. Let such judgment be entered in the Superior Court.