1. When on the undisputed parts of a case a verdict is clearly
right, so that if a new venire were awarded, the same verdict would
have to be given, a court will not reverse because on some disputed
points a charge may have been technically inaccurate.
2. A sale by a retail country merchant then insolvent of his
entire stock, suddenly, is a sale "not made in the usual and
ordinary course" of his business; and therefore
prima
facie evidence of fraud within the 35th section of the
bankrupt law.
Page 83 U. S. 578
3. The presumption of fraud arising from the unusual nature of
such a sale can be overcome only by proof on the part of the buyer
that he pursued in good faith all reasonable means to find out the
pecuniary condition of the vendor.
4. One purchasing in such a case from a vendee who he knows has
used no such means, but on the contrary has bought under other
suspicious circumstances, takes with full knowledge of the
infirmity of the title. And as against either or both purchasers,
the assignee in bankruptcy may set the sale aside if made within
six months before a decree in bankruptcy, even though a fair money
consideration have been paid by each.
Babbitt, assignee in bankruptcy of Marks Mendelson, brought
trover against Walbrun & Co. in the court below, to recover the
value of a stock of merchandise sold by the bankrupt to one
Summerfield, and by the latter to the said defendants. The ground
of the action was that the several transfers were frauds on the
bankrupt law under the 35th section thereof -- a section in these
words: [
Footnote 1]
"If any person, being insolvent or in contemplation of
insolvency or bankruptcy, within six months before the filing of
the petition by or against him, makes any payment,
sale,
assignment, transfer, conveyance, or other disposition of any part
of his property to any person who then has reasonable cause to
believe him to be insolvent, or to be acting in contemplation of
insolvency, and that such payment,
sale, assignment,
transfer, or other conveyance, is made with a view to prevent his
property from coming to his assignee in bankruptcy or to prevent
the same from being distributed under this act, or to defeat the
object of, or in any way impair, hinder, impede, or delay the
operation and effect of, or to evade any of the provisions of this
act, the sale, assignment, transfer, or conveyance shall be void,
and the assignee may recover the property or the value thereof as
assets of the bankrupt; and if such sale, assignment, transfer, or
conveyance
is not made in the usual and ordinary course of
business of the debtor, the fact shall be prima facie
evidence of fraud."
The facts of the case which were undisputed, were thus:
In November, 1868, Mendelson, doing business in Kingsville,
Page 83 U. S. 579
a small town in the interior of Missouri, as a retail country
merchant, wrote to one Summerfield, who was his brother-in-law,
living in St. Louis and engaged there in the furniture business, to
bring some money and come and buy him out. Summerfield at once went
to Kingsville, and took, in currency, money enough for the purpose.
On his arrival there Mendelson told him he was desirous of selling
his stock, because he could not succeed in the business in which he
was engaged, and wished to deal in furniture and hardware. An
account of stock was taken, and Summerfield paid Mendelson for it
after deducting 25 percent off the cost price. Soon after this
purchase Summerfield, leaving Mendelson in possession of the store,
went to Chillicothe, Missouri, and told Walbrun & Co., a firm
there with which he had some acquaintance, of his purchase of the
stock of goods at 25 percent below cost, because the owner wanted
to go into the furniture business, and that, as he only desired to
make 5 percent, he would resell to them at 20 percent below cost.
They agreed to take the goods at his offer, as they needed some of
the articles to replenish their stock, if they came up to the
account that was given of them. Accordingly, one Ritter, a member
of the firm, went back of Kingsville with Summerfield. They found
Mendelson still in charge of the store. Some of the goods were
boxed up and some on the shelves. In making his purchase, Ritter
made no inquiry of the pecuniary condition of either Mendelson or
Summerfield. Both parties lodged at Mendelson's house. The morning
after arriving they commenced examining the goods at the store, and
found some of them in bad condition, of which Ritter complained.
After measuring several pieces, to see if the stock conformed to
the inventory, Summerfield excused himself from further service on
the ground that he had to return to St. Louis, as he had just
learned of the sickness of his wife, and told Ritter to take the
goods home with him, and if the inventory was defective he would
make it right. Ritter replied that he thought that if they would
work hard they could soon get through, but finally yielded to
Summerfield's persuasions,
Page 83 U. S. 580
and, with the assistance of Mendelson, boxed the goods up and
shipped them to Chillicothe. Ritter paid the full inventory price
at the agreed rate, and both parties left Kingsville that night for
their respective homes. Mendelson's debts at the time of this sale
were about $9,000. This stock of goods was all the property worth
naming that he had. The price given by Summerfield for it was
$5,373.
On the 24th of December, 1868, on petition of his creditors,
Mendelson was adjudicated a bankrupt. The money received by him
from Summerfield for the goods did not reach his creditors, as,
according to his own statement, he lost it.
There were other facts and circumstances connected with the
transactions which invited inquiry, but, as they were represented
differently in the sworn testimony of the different witnesses, they
are not given as any part of the case. All the witnesses agreed in
the case as stated above, and as this Court considered, there was
no necessity, for the purposes of this suit, of going beyond
it.
The court below gave several instructions bearing, some of them,
on these disputed parts of the case. These instructions were
assigned for error, though in several points not unfavorable to the
defendant. But on the whole case, embracing the undisputed parts of
the suit (the case as above given), the court directed the jury to
find for the plaintiff. Verdict and judgment went accordingly. The
defendants now brought the case here.
MR. JUSTICE DAVIS delivered the opinion of the Court.
In the view we take of this case, it is not necessary to notice
the assignments of error upon the instructions to the jury by the
court below. In some respects they may be technically inaccurate,
and in others they were far too favorable to the defendants. But in
any event they did not materially affect the merits of the action,
and, as there were no
Page 83 U. S. 581
disputed facts bearing on the real matter in controversy, the
court could have properly told the jury to find, as they did, for
the plaintiffs. [
Footnote 2]
Indeed, the verdict was so obviously right that the court would not
set aside the judgment when the record shows that no other result
could be obtained on a new trial.
That Mendelson intended to defraud his creditors in the course
which he pursued is too plain for controversy; but the inquiry is
has he succeeded in diverting his property from the payment of his
debts to the injury of his creditors?
The 35th section of the bankrupt law condemns fraudulent sales
equally with fraudulent preferences, and declares that if such
sales are not made in the usual and ordinary course of the business
of the debtor, that fact shall be
prima facie evidence of
fraud. The usual and ordinary course of Mendelson's business was to
sell at retail a miscellaneous stock of goods common to country
stores in a small town in the interior of the State of Missouri. It
was to conduct a business of this character that the goods were
sold to him, and, as long as he pursued the course of a retailer,
his creditors could not reach the property disposed of by him, even
if his purpose at the time were to defraud them.
But it is wholly a different thing when he sells his entire
stock to one or more persons. This is an unusual occurrence, out of
the ordinary mode of transacting such a business, is
prima
facie evidence of fraud, and throws the burden of proof on the
purchaser to sustain the validity of his purchase. [
Footnote 3]
Summerfield seeks to overthrow the legal presumption that
Mendelson intended to commit a fraud on his creditors by showing
that he paid full value for the goods in ignorance of the condition
of Mendelson's affairs. But the law will not let him escape in this
way. The question raised by the
Page 83 U. S. 582
statute is not his actual belief, but what he had reasonable
cause to believe. In purchasing in the way and under the
circumstances he did, the law told him that a fraud of some kind
was intended on the part of the seller, and he was put on inquiry
to ascertain the true condition of Mendelson's business. This he
did not do, nor did he make any attempt in that direction. Indeed,
he contented himself with limiting his inquiries to the object
Mendelson had in selling out, and to his future purposes. Something
more was required than this information to repel the presumption of
fraud which the law raised in the mere fact of a retail merchant
selling out his entire stock of goods. If this sort of information
could sustain the sale, the provision of the bankrupt law we are
considering would be no protection to creditors, for anyone in
Mendelson's situation, and with the purpose he had in view, would
be likely to give the party with whom he was dealing a plausible
reason for his conduct.
The presumption of fraud arising from the unusual nature of the
sale in this case can only be overcome by proof on the part of the
buyer that he took the proper steps to find out the pecuniary
condition of the seller. All reasonable means, pursued in good
faith, must be used for this purpose. If Summerfield had employed
any means at all directed to this end he would have discovered the
actual insolvency of Mendelson.
In choosing to remain ignorant of what the necessities of his
case required him to know, he took the risk of the impeachment of
the transaction by the assignee in bankruptcy, in case Mendelson
should, within the time limited in the statute, be declared a
bankrupt.
The defendants are in no better condition than Summerfield would
be if he had not transferred the stock to them, because they took
his title with full knowledge of its infirmity, and must blame
their own folly for the result. Ritter, the active agent of the
firm in the transaction, was fully informed by Summerfield of the
circumstances attending his purchase, and this information was
confirmed on his arrival at Kingsville. He there found Mendelson in
charge of the
Page 83 U. S. 583
store, with some of the goods boxed up and some on the shelves,
sure indications that the sale was recent and that there had been
no actual change of possession. These things, in connection with
the residence of Summerfield in St. Louis, and his occupation
there, ought to have excited the fears of a reasonable man that the
sale by Mendelson was not for an honest purpose, and prompted him
to make inquiry upon the subject. Ritter, instead of doing this,
treated the transaction as one of ordinary occurrence, and as not
imposing on him the duty of ascertaining the pecuniary status of
either the vendor or vendee. Without learning anything or seeking
to learn anything beyond the facts that the goods suited him and
Mendelson wanted to change his business, he completed the purchase
and immediately transferred the stock to the store of the
defendants in Chillicothe. If this sale can be upheld, the law
which declared the title of Summerfield
prima facie
fraudulent could be easily rendered of no benefit, for all that
would be necessary for a person buying property out of the ordinary
course of business of the seller, to place it out of the reach of
creditors, would be, as soon as he had consummated his purchase, to
sell to another, who would acquire a good title, no matter how
presumptively invalid the title of his vendor might be. It needs no
argument to prove that if the law against fraudulent sales could be
evaded in this way, it would furnish no sort of protection to
creditors. Ritter, when he purchased, knew the nature of
Summerfield's title because he knew or ought to have known that a
retail dealer like Mendelson, in selling out his entire stock, was
presumptively guilty of intending to defraud his creditors, if it
should turn out that he had any. Of this the bankrupt law gave him
distinct notice, and as he chose, like Summerfield, to remain
ignorant of Mendelson's affairs, he took the hazard of
Summerfield's inability to prove the fairness of his title. It
follows that if the sale to Summerfield cannot be supported,
neither can the sale by him to the defendants.
It is unnecessary to notice the exceptions taken to the
admission or rejection of testimony, because our decision is
Page 83 U. S. 584
based on the evidence which was received without objection, and
about which there is no controversy.
Judgment affirmed.
[
See the next following case, and also
Smith v.
Buchanan, supra, p.
83 U. S. 277.]
[
Footnote 1]
14 Stat. at Large 534.
[
Footnote 2]
Bevans v. United
States, 13 Wall. 56.
[
Footnote 3]
Scammon v. Cole, 5 N.B.R. 257;
Graham v.
Stark, 3
id. 95;
Kingsbury v. Hale, ib., 84;
Driggs v. Moore, ib., 149;
Tuttle v. Truax, 1
id. 169.
