SECTION 5.-RIGHTS OF CREDITORS AGAINST GOODS SOLD IN SELLER'S POSSESSION

Sales Act, Section 26. Where a person having sold goods continues in possession of the goods, or of negotiable documents of title to the goods, and such retention of possession is fraudulent in fact or is deemed fraudulent under any rule of law, a creditor or creditors of the seller may treat the sale as void.

ances.

This section is an incorporation, by reference, of the re-enactments in this country of the English statute on fraudulent conveyUnder these statutes, as appears from the preceding case, there is a good deal of conflict on the question as to whether retention of possession is conclusive proof of fraud, or whether it is but prima facie evidence of fraud. The above section does not attempt, therefore, to adopt either view, but is so phrased as to permit a state which enacts the Sales Act to continue the local rule on this matter. It appears, therefore, that the Sales Act does not place rights of creditors on the same basis as those of subsequent purchasers of a vendor in possession of goods already sold.

SECTION 6.-RIGHTS OF CREDITORS AGAINST GOODS SOLD IN VIOLATION OF BULK SALES ACTS

GLANTZ v. GARDINER.

(Supreme Court of Rhode Island, 1917. 40 R. I. 297, 100 Atl. 913, L. R. A. 1917F, 226.)

Action by Max Glantz against Samuel E. Gardiner, Deputy Sheriff. Certified from the superior court on an agreed statement of facts. BAKER, J. This is an action of replevin, brought by the plaintiff * * * to recover possession of certain goods attached by the defendant as deputy sheriff of said county, * * * and held in custody by the said defendant under and by virtue of a writ of attachment issued out of the superior court" in said county "at the suit of Alphonso Brickett against said Frank S. Lockhart alias." *

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The agreed statement of facts shows that on the 19th day of December, 1916, the plaintiff, Max Glantz, paid to said Frank S. Lockhart the sum of $100 and received from Lockhart the following written instrument:

"Received of M. Glantz one hundred ($100.00) dollars, deposited on sale of all household furniture contained in stores Nos. 605-613 Westminster street; also in storehouse in rear; also Columbia truck. Balance due, thirty-nine hundred dollars ($3,900.00), to be paid in full December 22, 1916. [Signed] Frank S. Lockhart.

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"In presence of William A. Reiner." On the said 20th day of December, 1916, the plaintiff demanded from the said Lockhart a written list of the names and addresses of his creditors, and on the same day received from him a written list, giving names, addresses, and amounts, signed and sworn to by said

Lockhart as "a true, full, accurate, and complete list" of his creditors "and the amounts due each of them," "to the best of his knowledge and belief." The list included six names and addresses, and amounts of indebtedness aggregating $796.21. * * On said December 20th the plaintiff sent by registered mail a letter to each of said creditors named in said list, giving notice that said Frank S. Lockhart had entered into an agreement with said Max Glantz for the sale of all his stock of furniture and house furnishings, that the transfer of title would take place on December 27, 1916, at 9 o'clock a. m. Said Alphonso Brickett was a creditor of said Lockhart prior to and at the time of said transfer, but his claim was not included in the list delivered by Lockhart, and was not filed with said Glantz or his attorneys prior to said transfer, and neither of them had any knowledge of such claim until several days after December 27th.

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Chapter 387 of the Public Laws was passed April 14, 1909, and is entitled "An act to prohibit sales of merchandise in bulk in fraud of creditors." * * *

The precise question presented by the agreed statement and as argued by the counsel of both parties in their briefs is whether the transfer of said goods and chattels by said Lockhart to the plaintiff on December 27, 1916, was under the provisions of section 1 of said chapter 387 of the Public Laws fraudulent and void as to said Alphonso Brickett.

Within the last 20 years nearly all, if not all, of the states have enacted statutes regulating the sale of merchandise in bulk. This widespread legislation at least implies a general belief in the existence of a widespread evil requiring legislative control. While these statutes are similar in general purpose, they differ in phraseology, both in their requirements of the parties to such sales and particularly in the language which declares the effect of noncompliance with the provisions of these acts. "That evil is the tendency and practice of merchants who are heavily in debt to make secret sales of their merchandise in bulk for the purpose of defrauding creditors." Wright v. Hart, 182 N. Y. 330, 346, 75 N. E. 404, 410, 2 L. R. A. (N. S.) 338, 3 Ann. Cas. 263. A convenient classification of these laws into five groups, based upon the different requirements imposed upon the parties to such sales, may be found in Kidd-Dater Co. v. Musselman Grocer Co., 217 U. S. 461, 467-469, 30 Sup. Ct. 606, 54 L. Ed. 839. These requirements vary from the simple one by which a prospective vendor is compelled to have recorded from five to ten days previous to the actual sale in the town clerk's office of the town in which he conducts his business a notice of his intention to make such sale, describing the property to be sold, the condition of such sale, and the parties thereto, to the more onerous ones of the preparing by the vendor and vendee together of an inventory of the property and its cost, and of requiring the vendee to demand and receive sworn lists of the vendor's creditors, with their addresses and the respective amounts due them, and to notify these creditors of his intended purchase, and in a few instances to see that the purchase price is applied, so far as necessary, to the payment of the vendor's creditors.

As to the effect of a failure to comply with the requirements of these statutes, they fall into two classes: First, those acts in which the sale is declared fraudulent and void; second, those acts in which the sale is declared presumptively fraudulent and void. It is reasona

ble to infer that these different acts vary much as effective instrumentalities in checking actual fraud. The courts differ in their construction of the acts in the second class, some holding that they simply prescribe a rule of evidence, throwing the burden of showing good faith on the purchaser with the right to introduce any evidence pertinent to this question as in Thorpe v. Pennock Mercantile Co., 99 Minn. 22, 108 N. W. 940, 9 Ann. Cas. 229, and Fisher v. Herrmann, 118 Wis. 428, 95 N. W. 392, while others restrict the evidence to the showing of a compliance with the requirements of the statute. Moore Dry Goods Co. v. Rowe & Carithers, 99 Miss. 30, 54 South. 659, Ann. Cas. 1913C, 1213; Cantrell v. Ring, 125 Tenn. 472, 145 S. W. 166. The statute of this state belongs to the first class. It provides in effect that the transfer of "the whole of a stock of merchandise and fixtures" in bulk in one transaction "shall be fraudulent and void as against all persons who are creditors of the transferor at the time of such transfer unless the transferee" does certain things; that is to say, without any regard to the solvency of the vendor, or the fairness. of the purchase price to be paid, or the good faith of the vendor and vendee, and although the transaction may not be fraudulent in fact, it will be fraudulent and void in law so far as the vendor's creditors are concerned unless the vendee or transferee does the things required of him by the provisions of the statute. In other words, in order to guard against the commission of actual fraud in the class of sales with which it deals, the law regulates them by requiring the performance of certain acts in the carrying out of such a sale and declares that the failure to perform these acts will render the transaction fraudulent in law. It is obvious that this is not the enactment merely of a rule of evidence but a declaration of substantive law that the nonobservance of certain statutory provisions constitutes fraud in law.

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Such laws have generally been upheld as a justifiable use of the police power. As such statutes declare sales in bulk fraudulent and void if the regulations governing such sales are not complied with, it is clearly implied and must inevitably follow that, if these regulations are complied with, the sale or transfer is not fraudulent and void under these statutes. As already appears, said chapter 387 makes a transfer or sale of a stock of merchandise in bulk fraudulent and void as to the transferor's creditors unless the transferee or purchaser "demands and receives from the transferor a written list of the names and addresses of the creditors of the transferor and certified by him, under oath, to be, to the best of his knowledge and belief, a full, accurate, and complete list of his creditors; and unless the transferee shall, at least five days before such transfer, notify personally, or by registered mail, every creditor whose name and address are stated in said list of the proposed transfer." Did the plaintiff in this case demand and receive from Lockhart a written list of the names and addresses of the latter's creditors, certified by Lockhart under oath, to be, to the best of his knowledge and belief, a full, accurate, and complete list of his creditors, and did the plaintiff at least five days before the transfer notify in the manner required by the statute every creditor whose name and address were stated in said list of the proposed transfer? The agreed statement of facts clearly shows that he did all of these things, and apparently satisfied the requirements of the statute. It is urged, however, that inasmuch as the list of Lockhart's creditors

received by the plaintiff was not in fact "a full, accurate, and complete list of his creditors," and as the plaintiff afterwards learned this, but before the transfer was made, the sale, in consequence, was void. So far as chapter 387 is concerned, we do not think this fact affects the situation. The statute declares the sale void only on the failure of the purchaser to do what is required of him. It does not declare the sale void if the list of creditors furnished by a vendor under oath is not in fact "full, accurate and complete." It does not in any way make the purchaser responsible for any incorrectness in the list. We think it would be unreasonable to so construe it. * * *

In Coach v. Gage, supra, 70 Or. on page 188, 138 Pac. on page 849, the court in interpreting these last provisions said: "The act in question, in our judgment, imposes upon the purchaser (1) the duty to demand a written statement, under oath, of the vendor of the names and addresses of his creditors, and (2) upon the receipt of such list to notify the persons named therein of the proposed purchase. For an intentional breach of either of these duties, it was entirely competent for the Legislature, by way of penalty for such breach, and to secure the faithful performance of such duty, to declare that their nonperformance should constitute conclusive evidence of fraud, and render the sale void as to creditors; but it is not in the power of the Legislature to make a breach of duty by the vendor evidence of fraud in the vendee. To hold the law means that an omission of the name of a creditor by the vendor without the knowledge of the vendee renders the transaction void as to him would be to hold that it was the intent of the Legislature to ordain that a fraud committed by the vendor upon the vendee by falsifying the list of creditors should be conclusively presumed to be the fraud of the person so defrauded and deceived. Such a construction would be so contrary to every principle of law and good morals that it is inconceivable that the Legislature intended it." * * *

It may be urged that under the statute as thus interpreted opportunity is afforded a vendor to successfully practice fraud. That is entirely possible. We think the remedy for this situation lies with the lawmaking body and not with the courts. It is noteworthy that, while common observation shows that it is the dealer in merchandise who for one reason or another attempts to defraud his creditors by the sale of his stock, our statute, like some others, declares such a sale fraudulent and void only on a failure of the purchaser to do certain things. Chapter 387 is in effect an addition to section 1 of chapter 253 of the General Laws relating to conveyances in fraud of creditors. Of course this transaction, like others, is open to inquiry as to the existence of fraud in fact. There is opportunity for collusion in making up the list of creditors, and apart from any active participation in actual fraud the purchaser might have knowledge of a fraudulent intent of the vendor, so that the question of the purchaser's good faith. might be material. We think the words "good faith," as used in some opinions in cases under acts regulating the sale of merchandise in bulk, have reference to this aspect of the case, namely, the existence of fraud in fact. * * *

In these circumstances, it is our judgment that the sale by Lockhart to the plaintiff should not be held to be in fact fraudulent and void as to said Alphonso Brickett as a creditor of Lockhart. Our decision

B.& B.BUS.Law-67

accordingly is that the plaintiff acquired a good title to the goods and chattels transferred to him by Frank S. Lockhart on December 27, 1916, and that he is entitled to the entry of judgment for their possession.

LINN COUNTY BANK v. DAVIS et al.

(Supreme Court of Kansas, 1918. 103 Kan. 672, 175 Pac. 972,

9 A. L. R. 468.)

Action by the Linn County Bank against O. L. Davis, with garnishment against R. L. Glascock. Judgment for the garnishee, and plaintiff appeals.

MASON, J. On March 20, 1917, O. L. Davis, a merchant, executed a bill of sale on his stock to R. L. Glascock, who took possession thereof. On March 24, 1917, the Linn County Bank, a creditor of Davis, brought an action against him upon its claims, and caused a garnishee summons to be served upon Glascock, who filed an answer denying any liability to Davis. The plaintiff took issue on this answer on the ground that the transaction between Davis and Glascock involved a violation of the Bulk Sales Law, inasmuch as it had been given no notice thereof. A trial resulted in a judgment in favor of the garnishee, and the plaintiff appeals.

At the time of the execution of the bill of sale, the seller gave to the buyer a list of his creditors, complete except for the omission of the plaintiff. The buyer (the garnishee), having no knowledge of the existence of the plaintiff's claim, paid off all the other creditors. He contends that these facts protect him from liability, assuming that the Bulk Sales Law is applicable to the transaction.

There is some conflict of judicial opinion as to the effect of the omission of one or more creditors from a list otherwise properly furnished in accordance with the Bulk Sales Law, at the time of a sale of a stock of goods. In some jurisdictions it is held that in such a case the omitted creditors have no remedy against the buyer (Coach v. Gage, 70 Or. 182, 138 Pac. 847; International Silver Co. v. Hull, 140 Ga. 10, 78 S. E. 609, 45 L. R. A. [N. S.] 492), even if he learns of their claims before making payment (Glantz v. Gardiner, 40 R. I. 297, 100 Atl. 913, L. R. A. 1917F, 226). A view more in keeping with the spirit and purpose of the statute is that the buyer is bound to hold any part of the price still under his control when he is advised of the existence of a creditor not mentioned in the list. In re Thompson (D. C.) 242 Fed. 602. See, also, Rabalsky v. Levenson, 221 Mass. 289, 108 N. E. 1050.

Here the transfer of stock was made in consideration of a preexisting debt, and it seems that (inasmuch as a release procured by the debtor's furnishing an incomplete list of creditors, in violation of the law, would be ineffective) the buyer would have parted with nothing in the transaction, and would therefore be answerable to the omitted creditor. That, however, need not be determined, for the same result follows from another circumstance. The statute requires the list of creditors given to the buyer to be certified by the seller under oath to be complete. * No such verification was made in this case. If the buyer had insisted upon the law being followed in this regard, it is conceivable that the seller would have used more diligence in assuring himself of the completeness of the list. At all events, the buyer, having closed the deal without requiring a compliance with the statute,

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