In re Paulis

• Decision Date: 13 February 1906
• Docket Number: 1,546.
• Court: U.S. District Court — District of Connecticut
• Parties: In re PAULIS.

144 F. 472

In re PAULIS.

No. 1,546.

United States District Court, D. Connecticut.

February 13, 1906

The following is the opinion of Referee Banks, referred to in the opinion of the court:

This is a petition by Hanft & Co., of the city of New York, alleging in substance, that on September 13, 1905, petitioners purchased in good faith certain, merchandise of the bankrupt herein, paying him therefor $1,300 and taking possession of the same; that thereafter said merchandise was taken from their possession by an officer under a writ of attachment in a suit against said Paulis, and later came into possession of the trustee herein by virtue of these bankruptcy proceedings and praying that the trustee be ordered to surrender possession to the petitioners. I find the facts to be as alleged in the petition. The only question remaining is that raised by the demurrer to the trustee's answer. The answer alleges that the alleged sale was made without the formalities required by chapter 211, p. 408, of the Public Acts of this state of 1905, and the demurrer raises the question of the constitutionality of that act.

This statute provides in substance that, when any retail merchant shall at a single transaction sell the whole or a large part of his stock in trade, such sale shall be void as against creditors, unless he shall at least 7, and not more than 30 days before such sale file in the town clerk's office a notice of his intention to make such sale describing in general terms the property to be sold, the conditions of the sale, and the parties thereto. It is conceded that no such notice was filed in this case, and that, if the statute is constitutional, the demurrer should be overruled and the petition dismissed. It is not claimed that the statute is in violation of the state Constitution, but that it is repugnant to the rule of the federal Constitution that no citizen shall be deprived of 'life, liberty or property,' or be denied the 'equal protection of the laws.'

Two considerations present themselves to the referee upon the threshold of this discussion. The first is the strong presumption which exists in favor of the constitutionality of all legislative acts. While in a proper case the authority of the court to declare a law unconstitutional is unquestioned it should be exercised with great care and only when the case is practically free from doubt. This consideration should perhaps, have special weight when addressed to a court of inferior jurisdiction, and in this case the referee approaches with diffidence the task which is thrust upon him. The second is the well-established rule that in the interpretation and construction of state statutes the federal courts will adopt the construction, if any, already placed upon the statute by the highest court of the state. A statute restricting sales in bulk was first passed in this state in 1901 (chapter 161, p. 1356, Pub. Acts 1901), as amended became section 4868 of the Revision of 1902, was again amended by chapter 72, p. 49, Pub. Acts 1903, and as now in force appears in Pub. Acts 1905, P. 408, c. 211. The original act and that of the Revision of 1902 provided that the sale should be void, unless it was in writing and recorded in the town clerk's office within one day after the sale was made. The present act requires a notice of intention to sell to be recorded at least seven days prior to the sale. In Walp v. Mooar, 76 Conn. 515, 57 A. 277, the Supreme Court of this state held that the act of 1902 was not unconstitutional either as applying only to a particular class or as to depriving such persons of their property without due process of law. The court said: 'The purpose of the act is to prevent fraud, and it is of the same general character as our law requiring assignments of future earnings and conditional sales to be recorded. It in no way interferes with the conduct of any retail business in the usual manner. It applies only to sales not made in the ordinary course of business, and imposes no unreasonable burden upon the parties to sales of that character. The Legislature has the undoubted power to adopt reasonable measures for regulating the sale of merchandise in this state so as to prevent fraud, and we think the act under consideration is clearly within that power.'

It must be conceded, therefore, that acting under its police power, the Legislature is authorized to adopt reasonable measures for regulating the sale of merchandise so as to prevent fraud, and that the act of 1902 was such a measure. The only question remaining is whether the present act is an unreasonable restriction upon a person's right to dispose of his property, and in discussing that question it must be borne in mind that if 'the act has a fair, just and reasonable relation to the general welfare,' it may so regulate 'the conduct of an individual and the use of property' as to 'interfere to some extent with the freedom of the one and the enjoyment of the other. ' Wright v. Hart (N.Y.) 14 Am.Bankr.R. 584, 75 N.E. 404. Statutes regulating the sale of goods in bulk have been enacted in 23 states and by Congress for the District of Columbia. It has been said that this indicates the extent of the evil, and the necessity of legislation to suppress it, while, on the other hand, Judge Werner, in Wright v. Hart (N.Y.) 14 Am.Bankr.R. 565, 75 N.E. 409, calls attention to the fact that 'statutes that are passed pro bono publico rarely sweep the country with such irresistible momentum, while much fantastic legislation has resulted from organized crusades upon Legislatures by the advocates and supporters of special classes. ' Though the extent of the legislation upon this subject may not, therefore, furnish any sound argument either for or against its constitutionality, it does supply a large number of statutes for comparison with the act under investigation and a number of decisions in which their constitutionality has been considered.

Statutes regulating sales in bulk have been declared unconstitutional by the courts of New York, Ohio, and Utah. In each of these states the statute requires (1) that seller and purchaser should make, at least five (in Ohio six) days before the sale, a full and detailed inventory showing quantity and cost price of each article, (2) full explicit inquiry of the seller by the purchaser as to name and place of residence of every creditor and the amount owing him, (3) at least give days' notice by the purchaser personally or by registered mail to each creditor of the proposed sale, and of cost price and sales price of the property to be sold. The New York and Ohio statutes require, in addition, that the inventory should be retained by the purchaser for at least six months. The Ohio and Utah statutes make a failure to comply with the terms of the statute a misdemeanor punishable by fine or imprisonment. In each case the sale, if not made in accordance with the requirements of the act, is declared fraudulent and void. The drastic nature of these statutes is clearly pointed out in the opinions in Wright v Hart, supra, Miller v. Crawford, 70 Ohio st. 207, 71 N.E. 631, and Block v. Schwartz, 27 Utah, 387, 76 P....