Summary
In Allsbrook, the court noted that the transferor radiator repair business kept minor parts such as hoses and clamps on hand, and purchased major parts such as radiator cores on an "as needed" basis.
Summary of this case from ADI Fabricators, Inc. v. Harsco Corp.Opinion
44671 Record No. 811973.
June 15, 1984.
Present: All the Justices.
Bulk transfer provisions of Commercial Code (Code Sec. 8.6-101 to 8.6-111) inapplicable where entity's principal business is service; attachment issues discussed; other issues.
(1) Pleading and Practice — Statutory Construction — When Judgment of Trial Court Not To Be Set Aside (Code Sec. 8.01-680) — Judgment of Trial Court Not Disturbed Unless Plainly Wrong or Without Evidence To Support It.
(2) Evidence — Indicates Entity Provided Radiator Service and All Items Sold Incident to the Repair of Radiators.
(3) Commercial Code — Bulk Transfers — Statutory Construction — Bulk Transfers Subject to Title (Code Sec. 8.6-102) — Provisions Inapplicable Where Entity's Principal Business Is Service.
(4) Creditor's Rights — Attachment — Not Permitted Where Property Transferred Through Valid Sale.
(5) Creditor's Rights — Attachment — Statutory Construction — Grounds of Attachment [Code Sec. 8.01-534(5)] — Allegation of Intent to Defraud Creditor Through Property Transfer Groundless Where Property Never Owned By Debtor.
Azalea Radiator Service repaired and serviced radiators, purchasing major parts, such as radiators, on an "as needed" basis from Allsbrook. Azalea became delinquent on its account with Allsbrook in late 1979 and early 1980, and in October 1980, while it was still indebted to Allsbrook, Azalea was purchased by Knapp. Allsbrook contends that the sale to Knapp constituted an illegal bulk transfer under the Virginia Commercial Code and that it was a fraud on Allsbrook as one of Azalea's creditors. Allsbrook also filed a petition for attachment of certain property in Knapp's possession, including a truck which Azalea did not hold legal title to, but maintained and operated.
After an ore tenus hearing, the Trial Court denied the entire attachment petition, holding that the truck was never an asset of Azalea and that the transfer from Azalea to Knapp was not governed by the bulk transfer provisions of the commercial code. Allsbrook appeals.
1. Under Code Sec. 8.01-680 the judgment of the Trial Court will not be disturbed unless it is plainly wrong or without evidence to support it.
2. Here the evidence supports the conclusion of the Trial Court that Azalea provided a service and that all items sold by it were incident to the repair of radiators.
3. If an entity's principal business is service, the business cannot be "the sale of merchandise from stock" under the bulk transfers provisions of the Commercial Code, and, therefore, is not an "enterprise subject to" the statute under Code Sec. 8.6-102(3).
4. A petition to attach property transferred by a debtor is properly dismissed where the transfer constitutes a valid sale.
5. A creditor's allegation that his debtor transferred property with intent to defraud under Code Sec. 8.01-534(5) is groundless where evidence indicates the debtor does not own the property or the transfer occurs before any indebtedness to creditor.
Appeal from a judgment of the Circuit Court of the City of Norfolk. Hon. W. Moultrie Guerry, judge presiding.
Affirmed.
Winston G. Snider for appellant.
H. Joel Weintraub (Decker, Christie Hitchings, on brief), for appellees.
This appeal arises out of the sale of a radiator service company. It raises questions concerning the "Bulk Transfers" provisions of Virginia's Commercial Code, Code Sections 8.6-101 through 8.6-111, and questions concerning the law of attachment.
Azalea Radiator Service, Inc. (Azalea), went into business sometime prior to 1972. As its name suggests, Azalea repaired and serviced radiators. It kept on hand minor parts, such as hoses and clamps, used in its business. However, it purchased major parts, such as radiators and radiator cores, on an "as needed" basis from Allsbrook's Radiator Service (Allsbrook). In late 1979 and early 1980, Azalea became delinquent on its account with Allsbrook. In October, 1980, while still indebted to Allsbrook, Azalea was sold to Alphus N. Knapp, Sr. (Knapp), who changed the name of the business to Al's Radiator Service. Allsbrook contends that the sale to Knapp was an illegal bulk transfer and that it was a fraud upon Allsbrook as one of Azalea's creditors.
Allsbrook filed a petition for attachment against Azalea; Azalea's former owner, Dorothy Whitlock; Knapp; and Al's. Allsbrook alleged that it had obtained a judgment against Azalea in the amount of $4,767.35; that the sale to Knapp was with the intent to hinder, delay, and defraud Azalea's creditors; that the sale was in violation of Article 6 of the Virginia Commercial Code; that the sale was invalid as to Allsbrook; and that Allsbrook was entitled to attach certain property in Knapp's possession.
Allsbrook alleged further that in 1978, Azalea purchased a Ford pickup truck; that the truck was titled in Whitlock's name for the purpose of hindering, delaying, or defrauding Azalea's creditors; that Azalea was the "rightful owner" of the truck; and that, therefore, Allsbrook was entitled to attach the truck.
At the conclusion of an ore tenus hearing, the trial court denied the petition. The court ruled that the transfer from Azalea to Knapp was not governed by the bulk transfer provisions of the commercial code and that the truck was never an asset of Azalea. Allsbrook assigns error to both these rulings. However, finding no error, we will affirm the judgment of the trial court.
The trial court found as a matter of fact that service "was the principal business of the enterprise" under review. Unless this finding was plainly wrong or without evidence to support it, it must be accepted as correct on this appeal. Code Sec. 8.01-680; Dwyer v. Yurgaitis, 224 Va. 176, 294 S.E.2d 792 (1982).
Here, the evidence fully supports the trial court's conclusion. Only two witnesses testified. Both stated that Azalea "basically provided a service." The evidence also established that virtually all items sold by Azalea were sold incident to the repair of radiators. Moreover, as is touched upon briefly above, the evidence showed that Azalea did not maintain an inventory of radiators and radiator cores, but would purchase them on an "as needed" basis from a local distributor, such as Allsbrook. Azalea's personnel would install the radiator or core in the customer's automobile. The customer would be charged for the labor and the part. The price charged for the part would be marked up from the price paid by Azalea. In our opinion, on the facts of this case, the trial court's determination that Azalea principally provided a service cannot be disturbed.
The factual finding concerning the nature of Azalea's business led the court to the legal conclusion that the sale to Knapp was not governed by the bulk transfers provisions. The trial court relied upon Code Sec. 8.6-102(3) which reads as follows: "The enterprises subject to this title are those whose principal business is the sale of merchandise from stock, including those who manufacture what they sell." The trial court reasoned that if Azalea's principal business was service, then Azalea was not an "enterprise subject to" the statute. The court's reasoning in this regard is obviously correct. If an entity's principal business is service, then it follows that its principal business cannot be "the sale of merchandise from stock." The two are mutually exclusive. Since the latter attribute is necessary in order for the bulk transfer provisions to apply, those provisions have no application here.
Allsbrook's attempt to attach the items transferred from Azalea to Knapp rested upon its contention that the sale was invalid. As we have seen, it was not invalid. As a result, the trial court properly dismissed the first portion of the attachment. Our treatment of this issue makes it unnecessary to analyze the various policy arguments raised by Allsbrook in its effort to place the sale to Knapp under Article 6 of the commercial code.
Allsbrook also contended that it had the right to attach a certain truck used first by Azalea and, after the sale, by Knapp. The trial court ruled that the truck did not belong to Azalea, that there was no fraud concerning the handling of the truck, and, therefore, that the truck could not be attached. We think the trial court was correct.
The evidence established that Dorothy Whitlock purchased the truck in March 1978, long before Azalea became indebted to Allsbrook. Whitlock traded in a vehicle owned by her and valued at approximately $1,200 and signed financing papers in order to purchase the truck. Thereafter, she allowed Azalea to use the truck. Azalea made the monthly payments and maintained and operated the truck. However, despite its use of the truck, Azalea never paid the full rental value of the vehicle. We conclude that though Azalea had complete use of the truck, it never owned it.
In its petition for attachment, Allsbrook alleged that Azalea transferred the truck to Whitlock "with intent to hinder, delay or defraud its creditors." Code Sec. 8.01-534(5). This allegation is groundless. Azalea could not transfer that which it never owned. Moreover, even if there had been a transfer from Azalea to Whitlock concerning the truck, it occurred before any indebtedness to Allsbrook; therefore, as regards Allsbrook, there could not exist any intent to defraud. Thus, there was no error in the trial court's dismissal of the petition to attach the truck.
For all the foregoing reasons, the judgment of the trial court will be
Affirmed.