Markwell & Co. v. Lynch

114 F.2d 373, 1940 U.S. App. LEXIS 3129

Opinions

HEALY, Circuit Judge.

One Schneider, while insolvent, pledged a portion of his stock in trade as security for a loan. He was subsequently adjudged bankrupt, and the trustee sued to recover the goods or their value on the assumption that the transfer was void under the bulk sales law (§ 3440, California Civil Code), there having been no record of notice of intention to transfer the merchandise.

A special master to whom the case was referred made findings and a report recommending judgment for the trustee. The trial court approved the report and entered judgment accordingly.

At the date of the transaction, and for many prior years, the bankrupt was a merchant conducting a retail jewelry store. He dealt in diamonds, watches, jewelry, etc., for the retail trade, buying his merchandise from wholesalers located in Los Angeles and in the east. He borrowed $300, from appellant, and' as security for the repayment of the loan pledged with appellant certain of his stock in trade of the value of $600. At that time the stock of the bankrupt did not exceed the value of $9,500.

The bulk sales law provides that the transfer of, a stock in trade, in bulk, “or a substantial part thereof otherwise than in the ordinary course of trade, and in the regular and usual practice and method of business of the” transferor will be conclusively presumed to be fraudulent and, void as against existing creditors of the trans-feror, unless prior to the consummation of the transfer notice of the same is recorded. The questions presented on the. appeal are (1) whether the merchandise pledged constituted a substantial part of the bankrupt’s stock in trade, and (2) whether the transfer was in the ordinary course of trade and in the regular and usual practice and method of business of the bankrupt.

The findings below affirmed the first of these propositions and negatived the second. We are not disposed to disturb either finding. The pledge by a retail merchant of a substantial part of his stock of goods is a disposal of the goods out of the ordinary course of trade. In re, Convisser, 9 Cir., 6 F.2d 177. The good faith of the parties is immaterial. Calkins v. Howard, 2 Cal.App. 233, 236, 83 P. 280.

It should be borne in mind that the statute does not prohibit- transfers of this sort. A valid pledge may be made if proper notice has been given so that those extending credit to the transferor may be put on their guard and enabled to protect themselves. We see no good reason to reverse the judgment.

Affirmed.