Opinion
No. 22845
Decided October 28, 1931.
Bulk Sales Law — Creditor purchasing stock from debtor, without complying with statute — Purchaser declared trustee in suit by other creditors — Purchasing creditor cannot share in proceeds of sale, when — Sections 11102, 11103 and 11103-1, General Code.
Where a creditor, having purchased the stock of merchandise and fixtures from a debtor, has failed to comply with the terms of the Bulk Sales Law (Sections 11102, 11103 and 11103-1, General Code), and, at the suit of other creditors of said debtor, the purchaser has been declared to be a trustee under the terms of the bulk sales law, such purchasing creditor is deprived of his right to share in the fund arising from the sale of the property so transferred in violation of the Bulk Sales Law, unless he has intervened by making proper application before the expiration of ninety days from the date of the transfer of such stock of merchandise and fixtures, pursuant to Section 11103-1.
ERROR to the Court of Appeals of Knox county.
This is a proceeding in error seeking to reverse a judgment of the Court of Appeals of Knox county. The original action was brought in the court of common pleas by the creditors of one G.A. Henley, seeking to set aside a bulk sale of Henley's retail store, stock and fixtures to the Commercial Savings Bank, in which action it was sought by virtue of the provisions of the Bulk Sales Law (Sections 11102, 11103 and 11103-1, General Code), to declare the bank a trustee for the benefit of the creditors; the terms and conditions of the Bulk Sales Act as set forth in the above sections of the General Code not having been complied with.
The journal entry of the Court of Appeals contains the facts relative to the matter and is as follows:
"On consideration of the pleadings, evidence and the admissions of the defendant, The Commercial and Savings Bank of Danville, Ohio, the court finds that the plaintiffs, the United States Rubber Company, a New Jersey corporation, and the B.F. Goodrich Rubber Company, an Ohio corporation, International Shoe Company, a Delaware corporation, and Central Shoe Company, a Missouri corporation, were at the time of filing their petition and cross-petitions herein creditors of the defendant, G.A. Henley; that said defendant, G.A. Henley, was prior to the twenty-first day of April, 1928, engaged in the retail mercantile business in Danville, Ohio; that prior to said date the Commercial and Savings Bank of Danville, Ohio, secured judgments in the amount of $1062.32 against the defendant, G.A. Henley, in the Court of Common Pleas of Knox county, Ohio, and caused an execution to be issued upon said judgment; that levy of execution was made upon the stock and fixtures of said defendant, G.A. Henley, the stock of merchandise being appraised by three disinterested appraisers at $911.05, and the fixtures at $91.00, a total of $1002.05; that thereupon said defendant, G.A. Henley, sold and transferred to the Commercial and Savings Bank of Danville, Ohio, the entire stock and fixtures aforesaid; that following said sale, said bank sold at retail a part of said merchandise in the aggregate sum of $214.92, and the balance of the stock and fixtures to R.C. Hoagland for the sum of $350.00, a total of $564.92; that the sale and transfer by the said G.A. Henley to the said bank was not in the ordinary course of trade nor in the usual prosecution of said business; that said bank did not demand or receive a list of the creditors of the defendant, G.A. Henley; that said bank did not, at least five days prior to taking possession of such stock and fixtures, give notice of said sale to plaintiffs and cross-petitioners herein, nor to the other creditors of the said G.A. Henley; that the plaintiffs, The B. F. Goodrich Rubber Company and United States Rubber Company, and the cross-petitioners, International Shoe Company and Central Shoe Company, within ninety days after such sale, filed their petitions and cross-petitions herein containing as averments the findings aforesaid and praying that the defendant, The Commercial and Savings Bank of Danville, Ohio, be declared a trustee and held accountable to the plaintiffs and all other creditors who might intervene, for the stock and fixtures so transferred to said bank."
In the common pleas court the sale was set aside and the bank was declared a trustee and accountable to the plaintiffs, the B. F. Goodrich Rubber Company and the United States Rubber Company, and the cross-petitioners, International Shoe Company and Central Shoe Company, for the stock and fixtures so transferred to it, in the sum of $564.92.
The matter was carried upon appeal to the Court of Appeals, which court, upon hearing, reached the same conclusion, and the matter is now brought to this court for the purpose of reversing such judgment and decree.
Mr. Burch B. Ferenbaugh, for plaintiffs in error.
Messrs. Scott Kreider and Mr. William. L. Robinson, for defendants in error.
Under the pleadings and the finding of facts by the Court of Appeals, it appears that there was a sale and transfer in bulk of the stock of merchandise and fixtures by Henley to the bank in violation of Sections 11102, 11103 and 11103-1, General Code (known as the Bulk Sales Act), and we are of opinion that the statute applies to a sale in bulk and transfer by the debtor to the creditor in extinguishment, total or partial, of his debt; and the bank having voluntarily abandoned its lien under the judgment and execution which it had issued, by receiving the entire stock of merchandise and fixtures in partial extinguishment of its debt, it cannot be restored to its position prior to the transfer of such merchandise and fixtures.
The remaining question is whether or not the bank should be excluded, as one of the known creditors of Henley, from sharing in the trust fund created.
The solution of this problem depends upon the construction to be given the words "such creditors" in Section 11103-1, General Code, wherein it is provided that any purchaser, transferee, shall at any time within ninety days after such sale, upon application of any of the creditors of the seller or transferor, become a trustee and be held accountable to such creditors for all the goods, wares, merchandise, fixtures, etc. This language has received construction in this court in United Sales Promotion Co. v. Anderson, 100 Ohio St. 58, 125 N.E. 106, wherein it is held:
"Where one or more creditors commence a proceeding under favor of Section 11103-1, General Code, challenging the validity of a sale in gross, such action does not stop the running of the statute as to other creditors not parties thereto.
"Where such an action has been commenced in due time by one or more creditors of the seller, other creditors may intervene by cross-petition at any time before the expiration of ninety days from the date of purchase."
The record discloses that on or about the 21st day of April, 1928, the sale by Henley to the bank took place. The only pleading of the bank filed in this case is the answer, filed November 18, 1929; so that more than ninety days elapsed between the date of the sale and the bank's filing anything in the premises as to its claim. Under United Sales Promotion Co. v. Anderson, supra, the bank was too late; and under the construction given Section 11103-1 we are required to hold that only creditors who join in the application set forth in Section 11103-1, within the limitation prescribed therein, to wit, ninety days, are entitled to share in any fund arising from the enforcement of the Bulk Sales Law.
The Legislature not having seen fit to make provision in Section 11103-1, General Code, such as appears in Section 11104, General Code, for distribution of a fund arising under fraudulent transfers therein referred to, to be administered "for the equal benefit of the creditors of the debtor or debtors in proportion to the amount of their respective demands," and twelve years having elapsed since the interpretation placed on Section 11103-1, as given in United Sales Promotion Co. v. Anderson, supra, it would seem that the legislative intent was to produce the result of the strict and narrow effect of the words "such creditors," as appearing in Section 11103-1.
Apparently this was the interpretation of the judges of the Court of Appeals, and we are required to affirm their judgment in the premises.
Judgment affirmed.
JONES, ALLEN, KINKADE, and ROBINSON, JJ., concur.