
    Kline et al. v. Sims et al.
      
    
    (Division B.
    
    Nov. 14, 1927.
    Suggestion of Error Overruled Jan. 9, 1928.),
    [114 So. 871.
    No. 26522.]
    1. FSaotuhsnt Con]veyances. Bulk, 'Sales Law held to apply to sale by individual to corporation; creditor not given notice required by Bulk Sales Law may -recover against purchaser, though creditor’s demand> is based on transactions other than sale of goods in question; Bulk Sales Law applies in favor of all creditors (.Hemingway’s 1927 Code, sections 3335-3338).
    The Bulk Sales Law, sections 3335-3338, Hemingway’s 1927 Code (Laws 1908, chapter 100), applies to a sale from an individual to a corporation; and where notice was not given to all the creditors in such case, the creditor to whom notice was not given may maintain a suit against the purchaser, although the creditor’s demand is based on other transactions than the sale of goods embraced in the mercantile business. Such statute applies in favor of all creditors.
    2^ Featjotxlbnt Conveyances. Buyer purchases at peril regardless of good faith, if list of seller’s creditors required- by Bulk Sales Law does not include all creditors (Hemingway’s Code 1927, sections 3’3'35-333'8).
    The buyer purchases at his peril in such case if the list of creditors furnished by the seller does not embrace all creditors; and his good faith in such transaction does not exonerate him from liability.
    3. FKAuntrugNT Conveyances. Creditor not given notice of sale required by Bulk Sales Law may by statutory proceeding acquire lien against purchaser with which other creditors do not share (.Hemingway’s Code 1927, sections 328, 3335-3338).
    The creditor in such case may proceed under section 3'28, Hemingway’s 1927 Code (section 553, Code of 1906), and by proceeding acquire» a lien in which the other creditors do not share, the creditor proceeding being entitled to the benefit of his diligence.
    
      4. Fraudulent Conveyances. Purchaser of goods held not entitled, to have amount paid certain of seller's creditors apportioned pro ratOi uaiffh, creditor not given notice, and instituting proceedings under Bulk Sales Law (Hemingway’s Code 1927, sections 3335-3338 and section 328).
    Where a creditor under the Bulk Sales l(aw, supra, proceeds under section 553, Code of 1906 (section 3'28, Hemingway’s 1927 Code), the purchaser of the stock of goods, who has paid other creditors, is not entitled to have the amount paid to such creditors apportioned pro rata with the creditor who institutes the said proceedings, where such creditor was not given notice hy the Bulk Sales Law.
    Appeal from chancery court of Bolivar county.
    Hon. Harvey McG-ehee, Chancellor.
    Suit by B>. N. Sims and others, as trustees, against M. Kline and others, to sequester goods and for the discovery of the cost price of certain goods. F'rom the judgment, defendants appeal.
    Affirmed.
    See, also, 113 So. 190.
    
      Green, Green & Potter, for appellants:
    Decree was erroneous in allowing one creditor to hog entire stock contrary to Bulk Sales Act. A transaction without fraud is valid, even under the statute. Dry Goods Go. v. Rowe, 97 Miss. 785', 53 So. 626; Fechheimer-Keiffer Go. v. Burton, 51 L, B. A. (N. S.) 343, 164 S. W. 1179; Johnston v. Washburn, 77 So. 461.
    
      Pro rata participation was appellee’s sole right—equality is equity. Dean v. Bowles, 70 So. 693, 110 Miss. 757; Peters Branch International Shoe Co. v. Gunn, 121 Miss. 679, 83 So. 742; McLendon v. Peoples Bank of Lumber-ton, 111 So. 843; Allison v. Williams, 142 Miss. 825, 108 So. 142; Fechheimer-K eiffler Co. v. Burton (Temí., 1914), 164 S. W. 1179, 51 L. R. A. (N. S.) 343; 12 R. C, L. 530, sec. 59; 27 C. J. 886; Keller v. Fowler Bros. & Cox, 256 S. W. 879; Pratt Paper Co. v. Eiffler, 194 N. W. (Iowa, 1923), 370, 373; Bank v. Shop, 124 Atl. 308; Hicks v. Beale et al., 163 Pac. 83,1917D L. R. A. 1967; Linn County v. Davis and Glascock, Garnishee, 175 Pac. 972, 9 A. L. R. 468, 51 L. R. A. (N. S.) 343; Scheve v. Vanderkolk et al., 191 Nebr. 149, — N. W. 401; Prins v. American Trust Company (1925, Ark.), 275 S. W. 914; MicMillen v. Nelson (1921, S, Dak.), 181 N. W. 618; 2 Williston’s on Sales (2 Ed.), see. 643; Hartwig v. Rushing et al., 182 Pac. 177.
    
      Roberts & Hallam, Green, Green <B Potter and Cutrer <& Smith, for appellants.
    With respect to the Bulk Sales Law, the Bulk Sales Law never intended to operate in favor' of subsequent creditors. It is und'enied that Kline had been adjudged not to owe the trustees at the time of the Bulk Sales transaction. In Montanyne v. Wallaha, 84 111. 355, it is held: “That if a decision is reversed op appeal in reliance upon which a sale of property effected, the subsequent claiming of a rehearing followed by the decision adverse to that first rendered will not affect the title of the purchaser of the property.”' To the same effect is:. Doe v. Natchez Co., 13 S. & M. 182 ; Natchez Co.*¡r. Helm, 46 Miss. 669; McKinney v. Green, 52 Miss. 70; Memphis Gro. Co. v. Adams, 76 Miss. 322; Foster v. Hordon, 54 Mish 509.
    A deed or bill of sale is not void', as to subsequent creditors, unless made expressly to defraud them. Hemingway’s Code 1917, secs. 1320-1322 ; Wright v. Henderson, 7 How. 539; Donahue v. Shell, 85 Miss! 404; Simmons v. Ingrahm, 60 Miss. 886. There were two suits pending in the circuit court of Bolivar county. Judgment was rendered in one case on two of the notes. The notes were identical in every particular, saving the dates of maturity. The judgment in one case on two notes was res adjudicate/, as to the other there would he no debt existing as to that. Gross v. Todd, 49 Miss. 168; Railway Co. v. Sivley, 111 Miss. 21.
    
      Shands, Elmore Eb Cau-sey, for appellees.
    The failure to include in the list one creditor and the failure to give notice to that one creditor, notwithstanding the sale and purchase had been made in good faith, which we deny, renders the sale void. Walton v. Walter Eisher Compaoiy, 146 Miss. 291, 111 So. 364.
    Appellants do not show what creditors were in the same class as complainants, on an equal basis with complainants, so that the maxim invoked by them, equality is equity, may be applied intelligently and not haphazardly.
    Furthermore, the court will observe that the cases of Fecheiner-Keiffer Compaoiy v. Barton and Keller v. Folder Brothers S Compaoiy and Pratt Paper Compaoiy v. Eiffter and Bank v. Shoppe and Kicks v. Beale and Linn Couoity v. Davis, the first six cases cited on this proposition, quoted liberally by appellants, go on the ground without exception that the purchaser is entitle]! by subrogation to the rights of the creditors who have been paid with the purchasers’ money. Our court seems to hold that a party cannot obtain relief by subrogation in the absence of a cross-bill. Prestooi v. Banks, 71 Miss. 601; Edwards v. Killer, 70 Miss. 80'3I; Doty v. Timber Coonpaoo,y, 114 Miss. 872.
    It is more important to note, however, that the exact point has been decided, and has been decided contrary to the position asserted by appellants, in Ioiteroiational Shoe Company v. Gunn, 121 Miss. 679.
    Such paper transactions of the character here disclosed in the incorporation and the transfer to the corporation have been resorted to before and some of them have come under judicial investigation in courts of equity. We call the court’s attention to a few. Hoffman Steam Coal Company v. Cumberland & Iron Company, 77 Am. Deo. 311, 321 (Md.); First National Bank v. Trebein Company, 52 N. E.. 834, 837, (0.); Roberts v. Hughes Company, 83 Atl. 807, 812 (Yt.); Bourgeois v. Ristlin Real Estate Company, 88 Atl. 199, 200- (N. J.); Sáchelos Company v. Hutchison Bros., 99 Atl. 357; Johnson v. Cook, 146 N. W. 343,
    If the aheve authorities and the facts about the organization of M. Kline, Inc.,'1 and the facts about how all of M. Kline’s property came to be cached in his corporation or in his wife do not show fraud and bad faith on the part of Kline and the corporation as against these comlilainants, how can proof thereof be made? Must complainant show a sign from Heaven-?
    But if anyone can be found to say that these twistifications are honest and good there still remains this important circumstance; M. Kline and M. Kline, Inc., are in equity one and the same. A court of equity will tear away the web of disguise and will look in the face of the real substance. The name of the corporation is happy and apt. The corporation is indeed and in truth M. Kline himself incorporated. In line with the above authorities and in line with the real facts which are of more importance than the authorities, we feel authorized to say and do say that M. Kline, Inc., is no more or less than M. Kline in a new dress; he has simply changed his habiliments; all its movements are his; without him it has no life or being.
    Therefore, any claim that M. Kline, Inc., is subrogated to the rights of creditors against M. Kline is in substance a claim that M. Kline himself is subrogated to the rights of creditors against M. Kline himself. Such indeed is the claim of appellants if regarded in the light of fact and not in the darkness of fiction. M. Kline wants to take our claim against him and reimburse himself for-what he has paid his other creditors. Yet, he says on this point that complainants are trying to act hoggish.
    The argument that complainants are entitled to only a pro rata participation is, therefore, a total loss. Because the matter is not properly plead'ed or proven; because the exact point has been heretofore ruled against the contention by this court; and because at last M. Kline himself, the debtor himself, would be the sole beneficiary of the subrogation of M. Kline, Inc., to the rights of the creditors of M. Kline.
    Argued orally by Garner W. Green and J. W. Gutrer, for appellant, and A. W. Shands and H. H. Elmore, for appellee.
    
      
      ‘"'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. 8851, 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. O. L. Supp. 1443; 5 R. C. L. Supp. 649; 6 R. C. L. Supp. 713.
    
   Et-hridg-e, J.,

delivered the opinion of the court.

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 gdbds 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 g'oods 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 dioes 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 028, 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. ’ ’

¥e 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.  