Schwartz v. A. J. Armstrong Co., Inc, 179 F.2d 766, 2d Cir. (1950)
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Scribd Government DocsSchwartz v. A. J. Armstrong Co., Inc, 179 F.2d 766, 2d Cir. (1950)
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Scribd Government Docs179 F.
2d 766
SCHWARTZ,
v.
A. J. ARMSTRONG CO., Inc.
No. 154, Docket 21546.
United States Court of Appeals Second Circuit
Argued Jan. 12, 1950.
Decided Jan. 30, 1950.
Finke, Jacobs & Hirsch, New York City, George Robert Cohen, New
York City, of counsel, for appellant.
William J. Henry, New York City, Allen Murray Myers, New York City
of counsel, for respondent-trustee.
Before AUGUSTUS N. HAND, CHASE and FRANK, Circuit Judges.
AUGUSTUS N. HAND, Circuit Judge.
On July 30, 1947, Floradora Shoe Corporation transferred all its assets to
Vanity Fair Shoe Corporation in consideration of the assumption by Vanity of
Floradora's liabilities. The transfer was made without notice to the creditors of
Floradora, and without complying with the so-called Bulk Sales Act of the
State of New York. See New York Personal Property Law, McKinney's Consol.
Laws, c. 41, Sec. 44.1
On November 18, 1947, at a time when Vanity was insolvent, and within four
months of the filing against it of an involuntary petition in bankruptcy,
Armstrong delivered an execution to the sheriff upon a judgment which it had
theretofore recovered against Floradora. As Judge Rifkind said in his opinion in
the court below (84 F.Supp. 533, 534): 'It is clear that by virtue of the execution
delivered to the Sheriff, petitioner obtained a lien on the goods and chattels of
Floradora. Section 679 of the New York Civil Practice Act provides, 'The
goods and chattels of a judgment debtor * * * are bound by the execution * * *
from the time of delivery thereof to the proper officer to be executed * * * '.
And goods of the judgment debtor fraudulently conveyed are bound by the
execution though they are in the possession of the fraudulent transferee. Section
278 of N.Y. Debtor and Creditor Law (McKinney's Consol. Laws, c. 12)
entitles a judgment creditor to 'disregard the conveyance and attach or levy
execution upon the property conveyed."
3
On May 17, 1948, the trustee in bankruptcy of Vanity filed a petition with
Referee Stephenson alleging that the assets, formerly of Floradora, had been
sold on January 20, 1948, and praying that the lien claimed by Armstrong
against the proceeds be held void as against the trustee in bankruptcy. The
referee granted the motion to invalidate the lien of Armstrong, and his decision
was affirmed by the District Judge. The question before us is whether the lien
claimed by Armstrong, or that claimed by the trustee in bankruptcy of Vanity,
should prevail.
Section 67 of the Bankruptcy Act provides that 'every lien against the property
of a person obtained by * * * judgment, levy, or other legal * * * proceedings
within four months before the filing of a petition in bankruptcy * * * by or
against such person shall be deemed null and void (a) if at the time when such
lien was obtained such person was insolvent * * * .' 11 U.S.C.A. 107, sub.
a(1).
The appellant Armstrong argues that its lien was not divested by the bankruptcy
of Vanity for the reason that the lien attached to the property of Floradora and
not to the property of the bankrupt. But under Sec. 44 of the New York
Personal Property Law the transfer from Floradora to Vanity was voidable and
not void until so adjudged by a court. City of New York v. Johnson, 2 Cir., 137
F.2d 163, 165. Therefore, the trustee obtained a lien upon the property, or its
proceeds, held by Vanity. In other words, legal title to the property of Floradora
passed to Vanity through the transfer and was not disturbed until the
bankruptcy of Vanity when the trustee by virtue of Sec. 67 and Sec. 70 of the
Bankruptcy Act, 11 U.S.C.A. 107, 110, established his rights. It seems clear
from what has been said that the lien sought to be established by Armstrong
was invalid because it was founded on a levy upon the property of an insolvent
debtor made within four months of the filing of the petition in bankruptcy and
was avoided by the express terms of Sec. 67 of the Bankruptcy Act and the
property was subject to seizure by the trustee under Sec. 70.
The order of the District Court is affirmed.
'Sec. 44. Transfer of goods and/or fixtures in bulk. 1. The sale, transfer or
assignment in bulk of any part or the whole of a stock of merchandise or of
fixtures, or merchandise and of fixtures pertaining to the conducting of the
business of the seller, transferrer or assignor, 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, transferrer or assignor unless the seller,
transferrer or assignor shall at least ten days before the sale make and deliver to
the purchaser, transferee or assignee a full and detailed inventory, showing the
quantity and, so far as possible with the exercise of reasonable diligence, the
cost price to the seller, transferrer or assignor of each article to be included in
the sale; and unless the purchaser, transferee or assignee retain said inventory in
his possession or at least ninety days thereafter, during which time the same
shall be open to inspection by any creditor of the seller, transferrer or assignor,
and unless the purchaser, transferee or assignee demand and receive 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 or
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 ten days before taking possession of such merchandise, fixtures, or
merchandise and fixtures, or paying therefor, notify personally or by registered
mail every creditor whose name and address are stated in said list, or of which
he has knowledge, of the proposed sale and of the price, terms and conditions
thereof
'3. Any purchaser, transferee or assignee who shall not conform to the
provisions of this section shall upon application of any of the creditors of the
seller, transferrer or assignor become a receiver 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 be held in any way accountable under this
section 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 such purchaser, transferee or assignee by
virtue of such sale, transfer or assignment.'
