Opinion
No. 4271.
June 5, 1930.
Appeal from the District Court of the United States for the Eastern District of Illinois.
Suit by T.W. Hall, as trustee in bankruptcy of Daniel E. Rose, against Robert J. Main. Decree for plaintiff [ 34 F.2d 528], and defendant appeals.
Affirmed.
Rose, an Illinois stock farmer, was quite heavily indebted to two banks and to others. He had considerable personal property on his farm, which, in the fall of 1928, he began to sell off, having rented his farm to another. Having sold in various lots what in quantity and manner of disposition was well within the ordinary business transactions of a farmer, early in December, having considerable personal property remaining, he advertised a public sale for December 11, of his personal property, "including nine (9) head of good work mules, one (1) brood mare, one hundred thirty-four (134) head of hogs, and a number of brood sows, shoats and pigs, two (2) tractors, one (1) hayloader, one (1) mower, and various other farm implements, hay, corn, fence wire, posts, harness, also all household furniture," but specifying no cattle, of which he then had 65 head. Two cattle cars had been set out on a side track on his farm, in which, he had stated, he would ship the cattle to the St. Louis market. About that time appellant, Main, came along and offered to buy the entire herd. They agreed on a price of $4,900. Main gave Rose his check on one of the banks above referred to, and took possession of the cattle.
In the meantime the banks had become alarmed at Rose's selling off his property without depositing any of the proceeds with them, and they succeeded in getting control of the advertised sale of what was practically all of the rest of Rose's goods and chattels on the farm, which realized something over $2,000, which proceeds were retained by the banks, leaving him still largely indebted to them and others.
When Main's check was presented, the bank on which it was drawn refused to pay it, and representatives of both banks conferred with Main, explaining to him that Rose was disposing, or had disposed, of all his property with a view of defrauding his creditors. They proposed to Main that he withhold payment of the check, and that they (the bankers) would protect him in every way by taking judgment against Rose on the balances due them, and garnishing Main, by giving Main written indemnity against any loss on his part. It was testified that Main gave assent to this, and written indemnity by the banks was prepared and delivered to and retained by him. Main himself admitted practically all this, except that he denied expressing assent to the proposition.
The bankers secured judgments against Rose on their notes, and the sheriff took possession of these cattle on execution.
In the meantime, Rose got Main to give him a new check upon another bank for $4,900, making it payable, at Rose's direction, to a woman whose money Rose said it was, and with whom Rose thereupon left the state, going to Florida, where he married her.
Main filed with the sheriff his claim of property in the cattle, and under the statutory practice of Illinois the issue of right of property in the cattle, as between Main and the sheriff under his execution, was presented to the county court of the proper county, and was there set for hearing.
While in Florida, Rose prepared a petition for his voluntary bankruptcy, which petition was filed in the United States District Court for the Eastern District of Illinois, and he was duly adjudged a bankrupt on January 10, 1929. The county court and the parties interested in the trial of right of property there pending were duly notified of the bankruptcy proceedings, but nothing was done to bring in the trustee in bankruptcy, and the county court adjudged the right of property in the cattle to be in Main. Thereupon a proceeding in the bankruptcy court was instituted to require the cattle to be turned over to the trustee in bankruptcy, and a stipulation was there entered into whereby Main would receive the cattle, upon his securing to the trustee their return, or the payment of the proceeds of their sale, in case the trustee was found to be entitled to them. Upon the hearing, the issue was decided in favor of the trustee, and Main appeals.
William M. Acton, of Danville, Ill., for appellant.
Ivan A. Elliott, of Carmi, Ill., for appellee.
Before ALSCHULER, PAGE, and SPARKS, Circuit Judges.
The first question is whether the adjudication by the county court of right of property in Main is binding on the trustee. The proceeding there, under the appropriate statute therefor (Cahill's Rev. Stat. of Ill., 1923, c. 77, par. 68), was to test the right of property as between Main, the purchaser from Rose, and the judgment creditor holding under the levy of the execution. When bankruptcy intervened, the judgment, which had been rendered within four months, and under circumstances which avoided it as against the bankruptcy, was no longer effective to support the execution thereon. Title 11, c. 7, § 107, U.S.C. ( 11 USCA § 107). No attempt was made to bring the trustee in bankruptcy into the county court proceeding, and he was not bound by the adjudication there. He properly proceeded in the bankruptcy court, making Main a party, and, since the bankruptcy court had jurisdiction to pass on the question as between Main and the trustee, its order therein is unaffected by the determination of the county court.
Upon the merits, the trustee's contention is that the sale of these cattle to Main was in contravention of the Bulk Sales Act of Illinois and therefore voided, and that no right or title passed to Main. If the act is applicable, concededly none of the things were done which it specifies as necessary in order to vest the purchaser with good title.
Be it enacted, etc.: That the sale, transfer, or assignment in bulk of the major part or the whole of a stock of merchandise, or merchandise and fixtures or other goods and chattels of the vendor's business, otherwise than in the ordinary course of trade and in the regular and usual prosecution of the vendor's business shall be fraudulent and void as against the creditors of the said vendor, unless the said vendee shall, in good faith, at least five (5) days before the consummation of such sale, transfer or assignment demand and receive from the vendor a written statement under oath of the vendor or a duly authorized agent of the vendor having knowledge of the facts, containing a full, accurate and complete list of the creditors of the vendor, their addresses and the amounts owing to each as near as may be ascertained, and if there be no creditors, a written statement under oath to that effect; and unless the said vendee shall at least five days before taking possession of said goods and chattels and at least five days before the payment or delivery of the purchase price, or consideration of any evidence of indebtedness therefor, in good faith, deliver or cause to be delivered or send or cause to be sent personally or by registered letter properly stamped, directed and addressed, a notice in writing to each of the creditors of the vendor named in the said statement or of whom the said vendee shall have knowledge, of the proposed purchase by him of the said goods and chattels and of the price, terms and conditions of such sale: Provided, however, that it shall be lawful for the vendee to pay to the vendor so much of the purchase price as shall be in excess of the total amount of the indebtedness of the vendor, before the expiration of the five days hereinabove referred to. Cahill's Rev. Stat. of Ill. (1923) c. 121a, § 1.
That the act is applicable to farmers has been adjudicated by Illinois courts. Weskalnies v. Hesterman, 288 Ill. 199, 123 N.E. 314, 4 A.L.R. 128; Athon v. McAllister, 205 Ill. App. 41. Was this sale of the cattle in the ordinary course of business of such a farmer, and particularly this one? It seems to us it was not. These were all the cattle which remained on this large farm. Many of them were not yet ready to be marketed, and there were included cattle which ordinarily would have been retained on the farm in order to carry on the stock-raising business in which Rose was mainly engaged. Also there were cows, some of which would have to be kept for milk. From this it is evident that in disposing in one lump sale of all these cattle it was not "in the ordinary course of trade" of a farmer, especially a stock farmer, and surely not "in the regular and usual prosecution of the vendor's business."
Appellant assigns two reasons wherefore the Bulk Sales Act was not transgressed: (a) That, at the time of the sale of the cattle, Rose had discontinued his business; (b) that the cattle sold to Main represented less than "the major part or whole of a stock of merchandise, or merchandise and fixtures, or other goods and chattels of the vendor's business," as specified in the act.
It seems that Rose had arranged to discontinue farming and had leased his farm, evidently retaining possession until he had disposed of his property. But this intention on his part was not itself a cessation of business. The selling of his chattel property was manifestly an important part of the process of ceasing his business. If it were the law that upon determining to quit business he might then dispose of the property in bulk without compliance with the statute, it would practically nullify the statute. The evil at which the statute was directed is the disposition of property in bulk in fraud of creditors. The very act of disposing of the property in bulk would in most cases be the final act of ending the business, and, if this may be done free of the act, it might as well not have been enacted. It is evident that, notwithstanding Rose's determination to quit the business, it continued, if only for the purpose of disposing of the property which was employed therein. If in effecting this purpose he desires to dispose in bulk of the major portion of the property then remaining, the statute must be complied with in order to confer on the purchaser good title as against creditors.
Respecting proposition (b), it seems sufficiently clear that, at the time of the disposition of the cattle to Main, they constituted the major part of his stock in trade. It is perhaps doubtful whether this was so before he had sold off any of his property; but it does not appear that the sales from time to time previously made were in contravention of the Bulk Sales Act. They were not sales in bulk, and were not of the major part of the then goods and chattels of his business. But he may not evade the act by properly selling some of his property, and then dealing with all or a major part of what is left contrary to the provisions of the act, and thereby defraud his creditors. If the laudable purposes of the act could be thus evaded, its practical usefulness would be slight indeed. We believe that, under the record facts, the Main sale was in violation of the act.
Surely, before Main ultimately paid for the cattle by giving his second check to the woman, he had become aware that this was indeed an extraordinary transaction, and, if carried through, would in all probability defraud Rose's creditors. The object of the Bulk Sales Act is to protect against transactions such as these.
Whether Main or the others knew of the Bulk Sales Act, or then had it in mind, is quite beside the question. It is a public statute, and its application does not depend upon knowledge of it. Main was abundantly warned to be careful in making the purchase before he finally parted with his money, and, while nothing appears to impugn his integrity and good faith, he took his chances, with resultant misfortune.
It is our view that the order of the District Court must be, and it is, affirmed.