Farrar v. Lonsby Lumber & Coal Co.

1. Fraudulent Conveyances — Sales in Bulk — Statute—Violation — Effect Between Parties — Lien for Price. A sale by a merchant of practically his entire stock in trade in bulk in violation of Act No. 223, Pub. Acts 1905, is void, not only as to creditors, but between the parties, and the bill of sale cannot be given effect as a chattel mortgage on the goods for the purchase money.1 2. Equity — Relief—Clean Hands. One who has purchased practically the entire stock in trade of a merchant in bulk, in violation of Act No. 223, Pub. Acts 1905, does not come with clean hands into a court of equity as an intervener to establish his title to the property as against the receiver of the seller.

Appeal from Macomb; Law, J., presiding. Bill by Judson S. Farrar and others against the Lonsby Lumber & Coal Company, Limited, Fred Breitmeyer, and others, to restrain the managers of defendant association from disposing of its property, for an accounting, and the appointment of a receiver. Spencer J. Dalby and A. Frank Sarns, copartners as the Lakeside Ice & Coal Company, filed a petition to intervene to establish their title to certain goods. From a decree for complainants, interveners appeal. The issue in this case is clearly stated by the learned circuit judge as follows: - “On January 13, 1906, the Lonsby Lumber & Coal Company, Limited, a partnership association, was insolvent. “On that day some negotiations were had relating to the sale of about 900 tons of soft coal and about 400 cords of wood to Dalby & Sarns, copartners under the name of the Lakeside Ice & Coal Company. On January 15, 1906, the sale was consummated, and a bill of sale of this property delivered by the officers of the Lonsby Lumber & Coal Company to Dalby & Sarns. No cash was paid, but the vendees gave three notes for the purchase price— two for $1,000 each and one for $1,130 — which notes are now in the hands of two banks in the city of Mt. Clemens. The property included in this sale was substantially the whole stock in trade of defendant association, except 386 tons of Jackson Hill coal and 3,000 bushels of charcoal which had been seized on January 13th under a writ of attachment in a suit brought by creditors. “On January 18th three of the stockholders of the Lonsby, Lumber & Coal Company filed the bill of complaint in this cause against this association, in which, among other things, mismanagement of the affairs of the association is alleged against four of the managing stockholders who are the officers, who are also made defendants. The bill of complaint asks for an order restraining the managing officers from disposing of the property of the association; for an accounting; for the appointment of a receiver; and for other relief. A temporary restraining order was made on the day the bill was filed in accordance with the prayer of the bill. On January 24th a receiver was appointed. On the date of his appointment the receiver took possession of the property which the Lonsby Lumber & Coal Company had attempted to transfer by bill of sale to Dalby & Sarns, except about 37 tons of coal which the vendees had removed between January 15th and January 24th. “ Since the filing of the bill of complaint some of the creditors of the Lonsby Lumber & Coal Company have been permitted to intervene, and answér has been filed by the defendants, an inventory has been filed .by the receiver, a steamboat belonging to the defendant association has been sold by the receiver as ordered by the court, and a report made by him of such sale. Dalby & Sarns have now filed a petition asking leave to intervene, and that the receiver be ordered to deliver to them the property which they claim to have purchased on January 15, 1906, from the defendant association, or, in the event this is refused, that the court order a lien in their favor upon the property less the value of the 37 tons of coal now in their possession. “ On the filing of this petition the court made an order permitting Dalby & Sarns to intervene, and providing that the receiver show cause why the prayers of petitioners should not be granted. The defendant partnership association has filed an answer to the petition of Dalby & Sarns, admitting that they are entitled to the relief for which they pray, and the receiver and the complainants have filed answer denying their right to such relief.” A hearing was had and a decree entered for the complainants, decreeing that the sale was void under Act No. 223, Pub. Acts 1905, that the notes be declared null and void, and the petitioners required to account for the sale of the 37 tons of coal of which they had taken possession.