Opinion delivered October 8, 1928.
FRAUDULENT CONVEYANCES — BULK SALES LAW — INNOCENT PURCHASERS. — Persons who in good faith purchased a stock of goods, but failed to receive a complete list of creditors, though demanding same, were not liable to a creditor whose name was not furnished.
Appeal from Hot Spring Chancery Court; W. R. Duffie, Chancellor; affirmed.
John L. McClellan, for appellant.
D. M. Halbert and H. B. Means, for appellee.
STATEMENT OF FACTS.
Appellant brought this suit in equity against appellees to have them declared trustees in his favor for the value of a stock of goods which, he alleges, was sold to them in violation of our Bulk Sales Law.
The facts are substantially as follows: Marvin Swafford was engaged in the automobile business at Malvern, Arkansas, under the style of Swafford Motor Company. In September, 1926, C.J. Goble and V. T. Shelton purchased from him a Ford truck, and executed in payment therefor their joint promissory note in the sum of $616.60. This was only a temporary arrangement, for it was understood that Goble and Shelton intended to trade the truck to Ross Lewis for a secondhand furniture store. Goble and Shelton operated the furniture business for thirty days, and then sold a one-third interest in it to Charlie Brown for $300. Swafford then made out a new note and presented it to these parties for their signature. Brown refused to sign it, and said that he would put $300 in the business, and if the business paid, Swafford could get his money out of it. He refused, however, to become personally responsible for Swafford's debt. Brown then went into the business, with the consent of Swafford. He did not buy out either Goble or Shelton, but just bought an interest in the business. Brown told Swafford at the time that, if he wanted the stock of goods, he would not have anything to do with it.
About the second of November, 1926, S. H. Ketchum purchased a one-half interest in the business from Shelton, and paid him $265 in cash. The stock was worth something near $200 and the accounts about $400 when he bought it. Shelton told Ketchum there was nothing against the business except $165 which the firm owed to a creditor, and Ketchum did not know that Swafford claimed to be a creditor of the firm. Swafford never demanded payment of his debt from him. Shelton and Ketchum continued the business a little over sixty days. Then Shelton sold the business to C. N. Sullivan. Shelton and Sullivan invoiced the stock of goods, and Ketchum gave Sullivan a list of the creditors. The firm was indebted to no one except to the Fones Brothers Hardware Company, in the neighborhood of $400. Sullivan assumed that indebtedness. The value of the stock of goods, after deducting the indebtedness to Fones Brothers, was about $225. The business was worth about $600 at the time Ketchum bought an interest in it. The accounts were worth a little more than one-half of the amount. When the stock of goods was sold to Sullivan, it was agreed between Shelton and Ketchum that the account should belong to Shelton and that the price of the stock of goods should belong to Ketchum.
Sullivan paid approximately $600 for the business. Three hundred and eighty-eight dollars of this was paid to Fones Brothers Hardware Company in payment of its indebtedness, and something over $200 to Ketchum. Sullivan did not know that Swafford claimed to be a creditor of the firm. Sullivan and Ketchum both testified to the fat that each of them purchased the stock of goods without any knowledge that Swafford claimed to be a creditor of the firm.
According to the testimony of Shelton, the Bulk Sales Law was not complied with in connection with any of these sales. Swafford was not notified that Ketchum was buying an interest in the business before the trade was closed, and had no notice of the sale to Sullivan until after it was made. After Ketchum became interested in the business, Shelton told him about the claim of Swafford. He also testified that he thought Sullivan knew about the indebtedness when he purchased the stock of goods. Swafford was in business in the same block with the furniture store in question.
The chancellor found the issues in favor of Swafford as against Shelton, Goble and Brown, and rendered judgment against them for the amount of Swafford's claim. The chancellor found the issues against Swafford as to Ketchum and Sullivan, and it was decreed that as to them his complaint should be dismissed for want of equity, and that Ketchum and Sullivan should recover from Swafford their costs. To reverse the decree in favor of Ketchum and Sullivan, Swafford has duly prosecuted an appeal to this court.
((after stating the facts). The only question argued before us is whether or not our Bulk Sales Law created a lien on the stock of furniture in the hands of Ketchum and Sullivan and made them liable to Swafford to the extent of the value of the goods purchased. Our Bulk Sales Law declares, in effect, that any sale of merchandise in bulk, otherwise than in the ordinary course of trade, shall be void as against the creditors of the seller, unless the purchaser demands and receives from the seller a written list of the names and addresses of the creditors of the seller, and unless the purchaser shall, at least ten days before taking possession of the stock of merchandise, notify personally or by registered mail every creditor whose name and address is stated in the list. Prins v. American Trust Company, 169 Ark. 455, 275 S.W. 914.
A preponderance of the evidence in the record shows that Ketchum and Sullivan each purchased the stock of furniture in good faith and without any knowledge that Swafford had any claim against it. When Ketchum purchased an interest in the business he was told there was nothing against it except $165 owing for new furniture, and he paid that claim. He did not know that Swafford claimed to be a creditor. When the business was sold to Sullivan, he was told that no one except Fones Brothers Hardware Company had a claim against the firm. Sullivan paid this claim, and paid the balance of the purchase price to Ketchum. Under these circumstances neither Ketchum nor Sullivan were liable to Swafford. Each of them demanded and received from the seller what purported to be the only creditor of the firm. In McKelvey v. John Schapp Sons Drug Co., 143 Ark. 477, 220 S.W. 827, it was held that, under our Bulk Sales Law, a purchaser of a retail business who in good faith demanded and received a list of creditors from the vendor, is not liable where the latter, either by fraud or inadvertence, omitted the name of a creditor. In that case it was further held that failure of the vendee of a stock of goods to take an inventory of the goods sold in bulk to such vendee in good faith will not render him liable to a creditor of the vendor whose name was not listed. The court said that a reasonable interpretation of the statute is that a purchaser in good faith should not be held liable on account of the omission of the name of a creditor.
In the present case of Ketchum and Sullivan, each had an inventory of the stock of goods made at the time of his purchase. There is nothing to show bad faith on the part of either one. Each demanded and was given what purported to be the name of the only creditor the firm had. Ketchum paid what was represented to him to be the only claim. Sullivan paid what was represented to him to be the only claim against the firm. The statute therefore affords no protection to Swafford, because Ketchum and Sullivan each acted in good faith in the purchase of the stock of goods, and each was in entire ignorance of the fact that Swafford had a claim against the firm.
In 27 C. J., 894, p. 887, it is said that the Bulk Sales Law did not render an innocent purchaser for value from an original purchaser liable to creditors of the original seller nor affect his title to the property. Among the cases cited to support the doctrine is Kelley-Buckley Co. v. Cohen, 195 Mass. 585, 81 N.E. 297. In that case the court said that, while a creditor could avoid a sale because the statute had not been complied with, he must proceed with reasonable diligence and before the rights of intervening parties acting in good faith shall have become fixed. To the same effect see Prokopovitz v. Chimka, 170 Wis. 190, 174 N.W. 448.
Therefore the decree will be affirmed.