Evening journal., 1921-10-31
ELECTRIC CO.
SALE IS Void
Chancellors Holds Transfer
of Assets to Appliance
Co, Was Fraudulent
SUIT BROUGHT BY
KEEDY, RECEIVER

Sale and transfer Of the assets OF
the Sterling Electric Company to
the Sterling Electric Appliance
Company after the former had be-
come insolvent, is held fraudulent
and void in an opinion handed
down today by Chancellor Wolcott
In the case Of Charles c. K'eedy, re-
ceiver for the electric company,
against the electric appliance COM
pany.
The Sterling Electric Company
was organized to do business and
deal in electrical washing machines.
electric fixtures and appliances. It
became insolvent in November,
1920. Its assets were about S21,-
300 and its liabilities more than
$4,000. on the advice Of one OF
the principal creditors. the officers
organized the new company called
the Sterling Electric Appliance
Company. they becoming the officers
OF the new company. The electric
company transferred certain Of its
assets. valued at s3.S25, to the ap-
pliance company. and also certain
lease contracts showing sales OF
electric washing machines, the face
value OF which was about $1,000. In
return they received 153 shares OF
the capital stock Of the appliance
company. the latter company agree
ing 10 assume the electric company's
liabilities in connection with the
leases.
A short time after organizing, the
officers Of the new company issued
to themselves 24O shares Of stock
at a par value OF $4,000. giving 70
the company their individual notes
therefor. No money was paid or ac-
count Of the notes. but the officers
credited weekly allotments from
their salaries 10 the amount OF 1860
This was the first time that the
so-called bulk-sales act has come be-
fore the court for construction. The
original act was passed in 1908, re-
curing that where the sale Of any
portion OF stock is made other thar
in the ordinary course Of business
or the entire stock is sold in bulk, j
would be presumed TO be fraudulen
and void as against the seller, unles
A written inventory OF the cost pric'
is given and a notice mailed to eacl
of the sellers creditors OF the pro
posed sale the cost price and price
10 be paid.
By an amendment passed IN 1917
the Legislature provided a penalt
for breaches Of the law.
Many States have acts OF thi
character. some Of them declarini
that such a sale is fraudulent an
void and not presumed to be
fraudulent and voids other State
have acts similar to the Delawar
act and in these States. the court
have held that presumed TO be- a
used IN the statute makes the pre-
sumption rebuttable. But all O
these laws contain another claus
providing that nothing In the ac
shall change the rules OF evidence.
The purpose OF the Delaware ac
as the Chancery Court viewed II, wa
10 make il impossible for those en-
gagged in merchandising to circum
vent their creditors by turning thei
goods into cash by sales made j
bulk out OF the ordinary course
business, that such frauds had bee
perpetrated is best evidenced oy IN
q. fact that nearly every State has sim
lar laws.
The Chancellor held that the Pun
nose OF the act was not 20 interfer
e. with existing rules Of evidence an
burden Of proof in cases OF frau
hut TO lay down regulations whic
must be complied with in all sue
sales as are contemplated by the az
al the peril OF having the same ovei
turned by objecting creditors. An
other construction. ruled the char
cellor, would render the act value
less. Referring TO the paragrap
which subjects a purchaser 10 hr
the Chancellor asked ''What II n
signifcance OF this proposition?" an
went on, rs It not an Indicate
that the Legislature was intendir
TO lay down positive rules and rel
ulations which must In all cases
observed2"
Chancellor Wolcott called atte'
ton to the fact that the l53 shar
OF stock turned over to the electr
company by the new company
exchange for its assets were at q
time all the stock OF the applian
company. but when the officers
sued 24O shares to themselves wit
out increasing the assets OF the cor
pany. the electric company's sha
in the new company available for
creditors was reduced by more thi
one half.
The transaction. the opinion 81
forth. could not stand in a COT
OF equity. It matters not how
nocent the officers may have bee
the effect OF their conduct was
hinder and delay and as a matter
law defraud the creditors of [
electric company. The sale a
transfer were fraudulent End vc
and the property and assets so SC
and transferred are the property
the electric company and as su
belong to the receiver OF that col
pany for the benefit Of its stoc
holders. and the defendant must Z
liver same to the complainant [
Chancellor held.
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