prior to its sale having had virtually the same all-inclusive possession of the whole stock of goods as he did after its purchase), and the stock of goods after the sale of Hopper's undivided half interest being just as accessible to the creditors for the satisfaction of their claims for credits extended on account of the partnership, as prior thereto, this court adopts the view that the sale of Hopper's undivided half interest in the Ness City store to his partner, Pfannensteil, in 1922, was not the sort of sale or disposal of a part of a stock of merchandise otherwise than in the

Fraudulent conveyances-Bulk

Sales Law-sale to partner.

ordinary

course of trade the legislature by its enactment of the statute intended to regulate and govern for the protection of creditors.

This conclusion renders it needless to consider other errors assigned and argued by appellant.

Judgment is reversed, with instructions to enter judgment for defendant.

Burch, Mason, Marshall, Harvey, and Hopkins, JJ., concur.

Johnston, Ch. J., dissents.

Dawson, J., dissenting:

There is nothing in the text of our Bulk Sales Act to qualify or restrict its meaning. The sale or disposal of any part of a stock of merchandise otherwise than in the

ordinary course of retail trade is void as against the seller's creditors unless the statute governing such a sale is followed. Rev. Stat. § 58101; Vacuum Oil Co. v. Wichita Independent Consol. Cos. 110 Kan. 245, 203 Pac. 915. We have expressly held that the creditors of the seller who are protected by the statute are not those only who have extended credit to the seller in the matter of supplying him with merchandise which becomes part of his mercantile stock, but the statute also protects all creditors. Burnett v. Trimmell, 103 Kan. 130, L.R.A.1918E, 1058, 173 Pac. 6. It is not easy to see why general creditors of a person who owns an entire stock of goods should be protected by the Bulk Sales Act, but general creditors of a person who owns an undivided half interest in such a stock of goods are not so protected. either case such creditors may or do give a man credit because he is apparently a man of substance-one who has a stake in the community, and who by reason of the Bulk Sales Act could not dispose of his tangible property overnight and abscond, leaving his creditors in the lurch. Obviously the statute is just as necessary to protect the creditors of a part owner of a mercantile stock as the creditors of one who owns the entire stock. I think the judgment of the trial court on this point was eminently correct, and I am therefore constrained to dissent.

In

In the reported case (SCHOEPPEL V. PFANNENSTEIL, ante, 398) it appeared that the plaintiff was the trustee in bankruptcy of a former partner of the

bankrupt had been engaged as partners in a mercantile business, and the defendant purchased the entire interest of the bankrupt in the business. No attempt was made to comply with the Bulk Sales Act, no notice being given the creditors other than oral information to some of the commercial travelers who supplied the firm with goods. Some twenty months after the sale of

his interest to the defendant, the former partner was adjudged a bankrupt. Some of the creditors of the bankrupt were creditors at the time of the sale of his interest in the partnership to the defendant. The trustee of the bankrupt then brought suit against the defendant, based on the assumed continuing interest of the bankrupt in the mercantile stock, so far as concerned his creditors, because of the failure of the bankrupt and the defendant to comply with the Bulk Sales Act. The court holds that the sale of an undivided half interest in partnership merchandise by one partner to another is not governed by the Bulk Sales Act.

In Parker v. Tapscott (1926) 142 Miss. 768, 107 So. 561, the court said: "In our opinion the statute does not apply to a sale of a stock of merchandise from one partner to another."

In Fairfield Shoe Co. v. Olds (1911) 176 Ind. 526, 96 N. E. 592, it was held under a Bulk Sales Act providing that the sale, transfer, or assignment in bulk of any part or the whole of a stock of merchandise, otherwise than in the ordinary course of trade and in the regular prosecution of the business of the seller, should be void unless certain formalities were complied with, that a sale by a partner of his interest in a stock of merchandise was not a sale in bulk of any part of the whole stock, and was not, therefore, within the letter of the law, and the courts would not by construction extend it so as to include such a sale.

By the Sales in Bulk Act of Georgia (Civ. Code 1910, § 3226) the following transactions are declared fraudulent and void as against creditors of the vendor unless the provisions of the act are complied with: "(1) Every sale or transfer of a stock of goods, wares, or merchandise in bulk; (2) or of substantially the entire business theretofore conducted by the vendor of such a stock; (3) or every sale or transfer of such a stock out of the usual or ordinary course of business or trade of the vendor."

Under that statute it was held in Taylor v. Folds (1907) 2 Ga. App. 453, 58 S. E. 683, that since the Bulk Sales Act is in derogation of the common law

and tends to restrain liberty of contract, it is to be strictly construed, and that a sale by one partner of his interest in a mercantile business to his other partners is not within the letter of the act, and the court will not by construction extend the act to include such a sale."

Compare, however, Virginia-Carolina Chemical Co. v. Bouchelle (1913) 12 Ga. App. 661, 78 S. E. 51, wherein it appeared that the owner of a stock of goods sold a half interest in his business to another, and shortly thereafter such person bought the other half interest. The court held that such a sale was void as to creditors as the "Sales in Bulk Act" had not been complied with. Distinguishing Taylor v. Folds (Ga.) supra, the court said: "We are unwilling, however, to extend the principle of that decision so far as to include a case like the present; for to do so would practically nullify the Sales in Bulk Act and defeat the very purpose which the general assembly had in mind, namely, to protect persons who had extended credit to a merchant on the faith of apparent prosperity indicated by a stock of goods which would be sold out gradually and replenished from time to time. If the debtor and the claimant had been partners in the business at the time the credit was extended to Cook, a subsequent sale by Cook to the claimant of his interest in the business would have been valid, under the decision in Taylor v. Folds (Ga.) supra. But Cook and the claimant were not partners when the credit was extended to Cook. After the extension of credit, Cook sold out a half interest in the business to the claimant, and then, within less than three months, sold out the other half interest to his partner. If a transaction of this kind could be sustained, it would be quite an easy matter in any case to defeat the Act of 1903 by selling out on one day a half interest in the business and then selling the other half on the day following. No such construction of the Act of 1903 is permissible, and the decision in Taylor v. Folds does not so hold."

So, in Howell v. Howell (1919) 142

Tenn. 31, 215 S. W. 278, the court held that a sale by one partner to another of his half interest in a stock of merchandise was a sale otherwise than in the ordinary course of trade, and was fraudulent and void unless the Bulk Sales Act was complied with.

The proposition that a sale of a part interest in a business for the purpose of forming a partnership with the purchaser is within a Bulk Sales Law was considered in Yancey v. LamarRankin Drug Co. (1913) 140 Ga. 359, 78 S. E. 1078. The court held that the act, being in derogation of the common law and of the right to alienate property without restriction, was to be construed strictly, and that its provisions did not apply to a transaction whereby a partnership composed of two persons sold a two-thirds interest in their stock of goods to two other persons, whereupon one of the original partners withdrew from the firm, and the same business was thereafter conducted in the name of the new firm, composed of the remaining original partner and the two purchasers; that such a transaction did not fall within either of the classes provided in the act, and that, while it might have been out of the usual and ordinary course of business or trade, it was not a sale or transfer of a stock of goods, wares, or merchandise.

Compare Marlow v. Ringer (1917) 79 W. Va. 568, L.R.A.1917D, 619, 91 S. E. 386, wherein the court held "that the transfer by a retail grocery merchant of a half interest in his business and stock of goods to another, in consideration of such other person placing in the store a quantity of goods equal in value to the stock then owned by the merchant, with a view to the formation of a copartnership to continue the business at the same location, constituted a sale of merchandise in bulk, otherwise than in the ordinary course of the seller's trade or business, and was void in toto as against the creditors of the merchant because of noncompliance with the Bulk Sales Law."

And in Daly v. Sumpter Drug Co. (1913) 127 Tenn. 412, 155 S. W. 167, Ann. Cas. 1914B, 1101, under a Bulk Sales Statute making presumptively fraudulent a sale of any portion of a

stock of merchandise otherwise than in the ordinary course of trade in the regular and usual prosecution of the seller's business, or a sale of an entire stock of merchandise in bulk without the notice required, it was held that a sale of a half interest in a business by which an equal partnership was formed between the vendor and purchaser came within the terms of the act, the court saying: "A half interest is a portion of the stock. We do not think the act means that it must be a distinct portion or part severed from the whole stock. The sale of a half interest by a merchant for the purpose of taking the vendee into partnership is within the purpose and reason of the act, since it very materially changes the relation of the vendor's creditors to the stock, if such sale be valid. Before the sale a creditor could levy upon the whole stock. After the sale, if valid, the creditor of such vendor could not levy upon any of the stock, but only upon the vendor's interest in the whole, and in order to obtain this he would have to file a bill in equity and have an accounting with the new partner. So, the former owner of the stock might admit three new persons into the business, and so reduce his own holding to a one-fourth interest, and so on to smaller fractions,-at the same time putting the proceeds into his own pocket and holding them beyond the reach of his creditors."

To the same effect is Spokane Merchants Asso. v. Koska (1922) 118 Wash. 445, 203 Pac. 969, wherein it was held that the sale of a one-half interest in a business was within the Bulk Sales Law; but the court further said: "One purchasing a half interest in a business and stock of goods, without seeing to the application of the purchase money to the payment of vendor's creditors share and share alike, as required by Bulk Sales Law, is not liable individually for any of vendor's debts except those listed in the bulk sales affidavit, and then only for the pro rata part to each of the amount received from the sale."

The same divergence of opinion obtains in the few cases passing on the applicability of the Bulk Sales Act to a

transfer to a corporation organized to take over the business. In Maskell v. Spokane Cycle & Auto Supply Co. (Maskell v. Alexander) (1918) 100 Wash. 16, L.R.A.1918C, 929, 170 Pac. 350, it was held that a transfer of an entire business without any fraudulent intent, to a corporation organized to take over the same in consideration for capital stock, is not a transfer within the Washington Bulk Sales Law (Rem. & Bal. Code 1915, § 5297), which provides that a purchaser of any stock of goods, wares, or merchandise in bulk, for cash or on credit, without giving certain notices, is fraudulent and void. That decision was based on the ground that the sale was not for cash, but for corporate stock, which was as available for the satisfaction of the claims of creditors after the transfer of the merchandise as before, wherefore the transaction did not violate the object of the law, which, it was said, was to prevent a vendor from selling his stock of goods, pocketing the proceeds, and leaving his creditors remediless.

To the same effect is Norris v. Anderson (1925) 134 Wash. 403, 235 Pac. 966.

.

And, even in jurisdictions where the Bulk Sales Acts are regarded not as prohibiting sales in bulk, but as merely prescribing a rule of evidence, at least in so far as they declare that sales of merchandise without compliance with their terms will be presumed to be fraudulent and void, and under which such sales are held to be presumptively fraudulent, it seems that a transfer to a corporation organized to take over a business, even though it is regarded as primarily within the act, cannot be avoided as in violation thereof, where the parties thereto establish that they have acted in good faith, and not for the purpose of defrauding creditors. This was the position taken in Thorpe v. Pennock Mercantile Co. (1906) 99 Minn. 22, 108 N. W. 940, 9 Ann. Cas. 229, where a corporation was formed to take over the business of an insolvent partnership, and in which the contest was between the creditors of the partnership and the creditors of the successor corporation. The court applied the rules that, in the absence of

fraud, the partnership may sell and transfer the property of the firm, and that the purchaser takes it free from any equity on the part of the simple creditors of the partnership; and that the fact that the transfer was made to a corporation which was organized by the partners for the purpose of carrying on the business was not in itself evidence of fraud; and said that, while such a transaction might be fraudulent, each case must be judged by its own facts, and that the evidence under consideration failed to show intent to defraud, either in the formation of the corporation or in the transfer to it of the partnership assets.

But compare Smith-Calhoun Rubber Co. v. McGhee Rubber Co. (1921) Tex. Civ. App. —, 235 S. W. 321, wherein a transfer by partners of their stock and fixtures to a corporation organized with the same name as that under which the partners had been operating, to do a similar business at the same place without compliance with the requirements of the Bulk Sales Law, was held to be void as to the partners' creditors.

The same view was taken in Sakelos v. Hutchinson Bros. (1916) 129 Md. 300, 99 Atl. 357, wherein it was held that the transfer of partnership assets to a corporation formed by its members was void as a voluntary assignment in prejudice of the rights of a creditor, and was invalid, also, as against the same interests, because made in disregard of a statute providing that a sale or transfer in bulk of any stock of goods, wares, or merchandise shall be void, as against subsisting creditors, unless previous notice shall have been given them, and an inventory of the stock shall have been prepared.

The same conclusion has been reached where there was fraud in fact. Thus, in West Shore Furniture Co. v. Murphy (1913) 141 N. Y. Supp. 835, in construing and applying the New York Bulk Sales Law (Personal Prop. Law, § 44, 40 McKinney's Consol. Laws), it was held that, where the insolvent continuing partner of a mercantile firm transferred his whole stock in trade to a newly created corporation in con

Headnote by LITZ, J.

Litz, J., delivered the opinion of the court:

The defendant was tried and convicted in the circuit court for possession of moonshine liquor. He was arrested at his home on a warrant charging him with such possession, and purporting to authorize the search of his premises for evidence of the offense. As a result of a general search, the officers found concealed in a portion of the house wherein it was unnecessary to go to effect the arrest a small quantity of moonshine liquor. On motion of defendant the trial court held the warrant to be invalid, in so far as it purported in terms to authorize the search, but submitted to the jury the question of whether or not the evidence was discovered as incident to the arrest in the following language: "Gentlemen of the jury, during the introduction of evidence in this case, a warrant appearing to be for the arrest of the defendant on

a charge of having unlawfully in his possession moonshine liquor, and also authorizing a search and seizure of the defendant's residence, was offered by the state, and to that evidence the defendant objected. The warrant, as you may recall, was admitted as a valid warrant for arrest, but it was rejected as a search and seizure warrant; that is, the paper did not of itself warrant nor justify any search or seizure of the defendant's home for any moonshine liquor, and liquor seized solely by

virtue of such void warrant could not be introduced in evidence, and must be disregarded as evidence. If the liquor or substance said to have been found in the defendant's home, and introduced in evidence, was found there as an incident to the arrest of the defendant, it could be considered in evidence, and the issue in this case must rest upon whether it was so found. If you believe beyond reasonable doubt it was found as an incident of the arrest, and not by virtue of the search and