the conducting of said business, otherwise than in the ordinary course of trade and in the regular and usual prosecution of the business of the seller, transferrer or assignor, shall be void as against the creditors of the seller, transferrer, assignor, unless the purchaser, transferee or assignee demands and receives from the seller, transferrer or assignor a written list of names and addresses of the creditors of the seller, transferrer or assignor, with the amount of the indebtedness due or owing to each and certified by the seller, transferrer and assignor, under oath, to be a full, accurate and complete list of his creditors, and of his indebtedness; and unless the purchaser, transferee or assignee, shall at least (5) five days before taking possession of such merchandise or merchandise and fixtures, or paying therefor, notify personally, or by registered mail, every creditor whose name and address appears in said list, or of which he has knowledge, of the proposed sale, of the price, terms and conditions thereof.

Sellers, transferrers, and assignors, purchasers, transferees and assignees, under this act shall include corporations, associations, co-partnerships and individuals, but nothing contained in this act shall apply to sales by executors, administrators, guardians, receivers, trustees in bankruptcy or by any public officer under judicial process.

Any purchaser, transferee or assignee, who shall not conform to the provisions of this act, shall at any time within ninety days after such sale upon application of any of the creditors of the seller, transferrer or assignor, become a trustee and be held accountable to such creditors, for all the goods, wares, merchandise and fixtures that have come into his possession by virtue of such sale, transfer or assignment, provided, however, that any purchaser, transferee or assignee, who shall conform to the provisions of this act shall not in any way be held accountable to any creditor of the seller, transferrer or assignor, or to the seller, transferrer or assignor, for any of the goods, wares, merchandise or fixtures that have come into the possession of said purchaser, transferee or assignee by virtue of such sale, transfer or assignment.

Thus it follows that in states where sales in bulk are declared absolutely void for non-conformity with the statutes, that if proper notice has been given by the purchaser under the Bulk Sales Statute and possession of the stock has not been taken within the number of days specified in the statute, the creditors may attach the goods or by any other legal process obtain the assets for the satisfaction of their claims, even though the purchase price has already been paid by the vendee. If possession of the goods has been taken by the vendee prior to the expiration of the specified number of days required for notice, assuming due notice to have been given, the creditors may subject the

money in the hands of the purchaser for the payment of their claims.

If the act has not been complied with by the purchaser or seller, however, creditors may within a specified number of days subsequent to sale apply to the court asking for the appointment of a receiver to take charge of the assets involved, or else request that the vendee be declared a trustee for the benefit of the creditors. Debts are thereupon ascertained and the assets appraised and sold. The proceeds are then distributed among the creditors. In this manner the main obstacle in the prosecution of fraud is completely removed. Under the Bulk Sales Law it is not necessary to substantiate the allegation of fraudulent intent as required under other circumstances, for the burden of proof is placed upon the defendant. All that creditors have to show is that the sale took place without complying with the requirements of the statute.

Validity of Bulk Sales Statutes. In the state of Ohio, as well as in some of the other states, the Bulk Sales Law was at first declared unconstitutional by the state courts on the grounds that it constituted legislation in restraint of trade, and particularly because it violated the fourteenth amendment to the Federal Constitution, which provides that "no state shall deprive any person of life, liberty or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws." Later decisions, however, upheld the constitutionality of the law. Thus, in Bloomfield vs. State it was clearly stated that "the state is necessarily invested with that which is called the police power, which will be, and should be, put forth as an expression of the popular conception of the necessities of social and economic conditions. Under it may be done, and should be done, that which will best secure the peace, morals, health and safety of the community." Again, in Bachtel vs. Wilson and in St. John vs. New York it was held that "the fourteenth amendment was not designed to prevent all exercise of judgment by a state legislature, of what the interests of the State require, nor to compel it to run all of its laws in the channels of general legislation." Similarly, in

2 86 Ohio State 264.

3204 U. S. 36.

4 201 U. S. 633.

From circular of the National Association of Credit Men.

Frisbie vs. United States it was held that "while it may be conceded that, generally speaking, among the inalienable rights of the citizens is that of the liberty of contract, yet such liberty is not absolute and universal. It is within the undoubted power of the government to restrain some individuals from all contracts, as well as all individuals from some contracts."

In conclusion, some of the comments on the constitutionality of the New York statute, made by Justice Johnson of the Supreme Court, may be given. He said in part that:

We think it clear that there are substantial reasons for the classification made by this statute. It applies equally to all merchants having a stock of merchandise for sale in the usual course of trade who have creditors. It operates upon such cases when there is contemplated a bulk sale of the stock otherwise than in the ordinary course of trade. It relates to all purchasers. If affects all within the class of creditors of such merchants. The necessary results of its operation would be in the interest of honest merchants and of the public welfare, for these are concerned in the prevention of frauds and in the protection of public morals.'

The statutes apply to sales "in bulk" or "the whole or a major part" or "more than half" of a stock of goods, and must be made otherwise than in the ordinary course of trade, as determined by the usual method of disposing of the stock of goods employed by the merchant under consideration. Fixtures are not construed to be a part of the stock of goods within the meaning of the law, but are in most states specifically included.

Classification of States. In general, the states may be divided into three groups in regard to their laws regulating the sale of goods in bulk, depending upon the effect which nonconformity with the statutory requirements has upon the validity of the sale. In the first group are included the following 16 states:

1 BREWSTER, S. F., "Legal Aspects of Credit," pp. 362-3; also from circular

of the National Association of Credit Men.

In these states the statutes provide that the effect of noncompliance with the statutory requirements renders the sale absolutely void, and the goods are subject to attachment in the hands of the vendee. In the second group are 20 states, including the District of Columbia, in which the effect of noncompliance renders such sale or transfer both void and fraudulent. These states are as follows:

In the third group are 12 states whose statutes provide that the effect of non-compliance with requirements is to create a presumption that the sale or transfer was fraudulent and void. However, if fraud is not proved, the sale will not be set aside even though made in disregard of the statute. These states are:

The statute of South Dakota provides that failure to comply with the provisions of its statute regulating the sale of goods in bulk shall render the purchaser liable to any creditor of the original owner of the stock or fixtures for his pro rata share of the proceeds of such sale.8

SELECTED REFERENCES

BREWSTER, S.F.: "Legal Aspects of Credit," Pt.V, chaps. 25, 26, 27, 28, and 29. ETTINGER, R. P., and GOLIEB, D. E.: "Credits and Collections," chap. 15. Uniform Sales Act.

8 The Credit Man's Diary and Manual of Commercial Laws.

CHAPTER XXIV

FRIENDLY ADJUSTMENTS

Reasons for Amicable Adjustments.-It happens quite frequently that a concern is not insolvent in the sense in which the term is construed under the Bankruptcy Act, where the liabilities exceed the assets at a fair valuation; yet it may be insolvent in the commercial sense, inasmuch as it is no longer able to meet its obligations as they mature in the ordinary course of business. Such a concern may have a substantial equity in the business, i.e., an actual surplus of assets over liabilities, but it probably is "land poor," inasmuch as its equity consists in fixed properties which cannot be readily converted into cash with which to pay current debts as they fall due. Thus, it may be insolvent in the ordinary sense, continue in business indefinitely while in such condition, and yet remain immune from bankruptcy proceedings. This condition may be due to a number of causes, some of which are merely superficial and others more real and fundamental.

Among the causes of insolvency most frequently cited are incompetence, lack of working capital, and fraud. In general, all failures may be classified according to the causes which produced them into two major divisions, the first division comprising failures the causes of which lay within the business itself, and the second division containing insolvencies which are considered not to be due to the faults of those failing. Insolvency of the latter type may be caused by certain specific conditions beyond the control of the failing concerns, such as wars, floods, and disasters, or by failures of others; whereas insolvencies falling in the first classification consist primarily of incompetence, such as overbuying or careless selection of a stock of goods, unwise credit granting, carelessness in following up collections of outstanding accounts, inaccurate accounting system, poor business location, or any one of numerous other causes generally lumped under "bad management"; or lack of adequate working capital ordinarily caused by more funda