305 N.Y. 235 | NY | 1953
Lead Opinion
Plaintiff trustee in bankruptcy, acting on behalf of creditors, sues to hold defendant Jack Rubenstein accountable, under the Bulk Sales Act (Personal Property Law, § 44), for the value of a batch of “ off-season ” shoes sold to Rubenstein by the bankrupt, Harold B. Fink. The question presented is whether, under the statute, the sale of such “ off-season ” merchandise constitutes a sale “ in bulk * # * otherwise than in the ordinary course of trade and in the regular prosecution of said business ”.
Three weeks before Christmas, 1948, Fink opened a family shoe store in Buffalo, New York. At a cost of some $25,000, he stocked the store with men’s, women’s, and children’s shoes. By the following May, Fink’s inventory had declined to around $19,000 and still consisted, in part, of fall and winter styles. To clear his shelves of those “ off-season ” shoes, as well as to obtain cash to pay debts and thus obtain credit for the purchase of new summer stock, Fink sold some thirteen hundred pairs of shoes — described as “ obsolete ” in the record — for $3,549.50 to Rubenstein, a dealer in leftover footwear. Although Fink concededly did not comply with the requirements of the Bulk Sales Act, nowhere is there the slightest intimation that he did not secure the best price available for his goods, and, as was found by the Official Referee before whom the case was tried, “ There is nothing to indicate ” that there was any intention “ to defraud any of the [seller’s] creditors ”. There was no discontinuance of any branch of Fink’s business or of any line or brand of merchandise carried by him, and actually the sale to Rubenstein did not include Fink’s entire stock of “ off-season ” shoes. Fink continued in business for six months after the sale, until the filing of the petition in bankruptcy in November of 1949.
The Official Referee concluded that the sale to Rubenstein 11 was in the ordinary course of the bankrupt’s business ”, and directed dismissal of the complaint. The Appellate Division reversed, its view being that the 1 ‘ regular and usual practice and method of business ” of retail shoe merchants “ was selling
Decision turns upon the following language: “ The sale * * * in bulk of any part or the whole of a stock of merchandise * * * pertaining to the conducting of the business of the seller * * * otherwise than in the ordinary course of trade and in the regular prosecution of said business, shall be void as against the creditors of the seller,” unless there is compliance with certain specified requirements (Personal Property Law, § 44).
Section 44 derives from legislation first enacted in 1902. (L. 1902, ch. 528, held unconstitutional in Wright v. Hart, 182 N. Y. 330; amd. by L. 1904, ch. 569; L. 1907, ch. 722; L. 1914, ch. 507, held constitutional in Klein v. Maravelas, 219 N. Y. 383, 387, overruling Wright v. Hart, supra, 182 N. Y. 330; see, also, Note, 2 Corn. L. Q. 28.) By 1916, similar provisions had been
Recognizing the onerous nature of the restrictions imposed upon transactions within its scope, this court early construed the Bulk Sales Act as being meant, to apply only in “ rare and irregular cases ”, only to the “ extraordinary sale * * * such as can occur but few times in the life of a merchant ”. (Wright v. Hart, supra, 182 N. Y. 330, 356, 357, per Vann, J., dissenting — whose dissent was later adopted unanimously in Klein v. Maravelas, supra, 219 N. Y. 383, 387.) Following this guide, our courts have limited the reach of this statutory provision to cases involving the sale of substantially an entire inventory or business. (See, e.g., Mott v. Reeves, supra, 125 Misc. 511, affd. 217 App. Div. 718, affd. 246 N. Y. 567; Bimberg & Co. v. Unity Coat & Apron Co., 150 Misc. 836, affd. 244 App. Div. 777; Texas Co. v. Drexelius, 176 Misc. 371; see, also, New York Credit Men’s Assn. v. Domestic Broadtail Producers, 61 F. Supp. 102, 105.) Similarly, in other jurisdictions, bulk
It thus becomes evident that the statute was never designed to cover the sort of sale effected by Fink to Rubenstein. Its application depends “ essentially * * * upon the nature of the seller’s business * * * [and the] ordinary method of making sales ”. (Hart v. Brierley, 189 Mass. 598, 601; see, also, Markwell & Co. v. Lynch, 114 F. 2d 373, 374-376.) The record here shows that in the business of shoe retailing the sale of ‘ ‘ off-season ” wares is no rare and irregular occurrence, but rather an established operating pattern, no attempt to defraud creditors, but rather an inevitable incident to the conduct of business. Shoe styles may vary sharply from season to season and year to year, with the result that last year’s “ rage ” may clog this season’s shelves. As seasons change, a merchant seeks to clear his store, and as rapidly as possible, of shoes still unsold. Larger stores may resort to much publicized ‘ ‘ clearance sales ’ ’ or operate their own “ special outlet ” stores. But the smaller, independent retailer, lacking the means for extensive advertising or a separate store, must, of necessity, rely on dealers specializing in unseasonable obsolete shoes. Thus, as the record reveals, Rubenstein alone regularly dealt with as many as “ several hundred ” retailers in “ smaller towns * * * throughout northern and western New York ”.
Such recurring sales, vital as these may be to the operation of the smaller independent retailer, must be regarded, in the words of the statute, as sales made “ in the ordinary course of trade and in the regular prosecution of said business ”, Indeed, to
In point of fact, to hold that these frequently repeated transactions are controlled by section 44 might, contrary to the aim of the statute, render the creditor’s lot more hazardous. Even if a dealer could be found to purchase “ off-season ” stock on the terms prescribed by the statute, the prices realized would almost certainly be lower. Small retailers might, therefore, be forced to rely upon markdown sales or below-cost clearances — which, as one expert testified at the trial, “ would ” make it “ difficult * * * to sell the same customers other shoes at the list price ”. The result, it is easy to see, might well be to curtail the retailer’s business and thus endanger prompt payment to his creditors. Of the three cases relied upon by the trustee to support his position (Jubas v. Sampsell, 185 F. 2d 333; Irving Trust Co. v. Rosenwasser, supra, 5 F. Supp. 1016; Conquest v. Atkins, supra, 123 Me. 327; see, also, Markwell & Co. v. Lynch, supra, 114 F. 2d 373), two are distinguishable on their facts,
The judgment should be reversed and the judgment entered upon the decision of the Official Eeferee dismissing the complaint, affirmed, with costs in this court and in the Appellate Division.
. Among the conditions enumerated are these: (1) the seller must give the purchaser, at least ten days before the sale, “ a full and detailed inventory,” showing the quantity and the cost price of each article to be sold; (2) the purchaser must retain “ said inventory ” for at least ninety days for inspection by any creditor of the seller; (3) the purchaser must obtain a list of the names and addresses of such creditors, with the amount of the indebtedness owing to each; and (4) the purchaser must notify personally or by registered mail every creditor of the proposed sale, of its terms and conditions, at least ten days before he takes possession of or pays for the merchandise involved.
. Conquest v. Atkins (supra, 123 Me. 327), and Irving Trust Co. v. Rosenwasser (supra, 5 F. Supp. 1016), involved, not the routine and recurring disposal of scattered leftovers as in the case before us, but “the closing out of [the] business” (123 Me., p. 329) or the “close out” of a line of merchandise (5 F. Supp., p. 1017.)
Dissenting Opinion
(dissenting). I think the Appellate Division was right in holding that, on the facts and the law, this bulk sale was not “ in the ordinary course of trade ”, and so was subject to the Bulk Sales Act. This vendor was not a wholesaler but the proprietor of a small retail shoe shop. His “ ordinary course of trade ” was the selling of shoes at retail, one or two pairs at a time, for personal use by his customers. His sale and delivery, in a quick cash transaction to one buyer, of about thirteen hundred pairs out of his comparatively small stock was just the sort of thing this statute deals with. When a retail merchant makes a bulk sale of the whole, or a substantial part, of his stock, the impact of the Bulk Sales Act is automatic (see Mott v. Reeves, 125 Misc. 511, affd. 217 App. Div. 718, affd. 246 N. Y. 567). It cannot make any difference that this particular sale was nonfraudulent (see Mott v. Reeves, supra), or that it was of a kind that has become common among retail shoe merchants. The statute was enacted because of similar practices that had become all too common, and — to prevent or penalize the fraudulently motivated ones — advance notice to creditors, of all such sales, was prescribed. An affirmance here would not abolish any commercially necessary method of closing out old stocks -— it would merely call attention to the necessity of complying with the statute, as to such bulk sales.
Applying an almost identical statute to a similar sale, by a retailer, of out-of-style shoes, a Federal court wrote this :
“ The ‘ regular and usual practice and method of business of the vendor ’ cannot be measured by a prevalent custom of merchants which the vendor followed. The vendors herein were*243 retail shoe merchants whose regular and usual practice and method of business was selling shoes to those who came into the store to buy from the stock in trade for wear.
‘ ‘ The plain meaning of the statute is that when a storekeeper disposes of a substantial part of his stock in trade in bulk, and selling in bulk sales is not the usual and ordinary way in which he conducts his business from day to day, the sale falls within the statute.” (Jubas v. Sampsell, 185 F. 2d 333, 334.)
The judgment should be affirmed, with costs.
Loughran, Oh. J., Lewis, Conway and Froessel, JJ., concur with Fuld, J.; Desmond, J., dissents in opinion in which Dye, J., concurs.
Ordered accordingly.