Opinion ID: 2309474
Heading Depth: 1
Heading Rank: 1

Heading: The Bulk Sales Transfer

Text: The garageman's lien claimed by Elliott arises under what at the time of this transaction was Code (1957) Art. 63, § 41 providing in pertinent part: Whenever a motor vehicle ... is left by the owner or by any other person with his authority, express or implied, in the custody of any corporation, ... for repair, ... the corporation... in whose custody said motor vehicle ... is left for all or any of the purposes aforesaid, shall have a lien on said motor vehicle ... for all charges so incurred, and may lawfully retain the same until said charges have been paid, or until said lien is extinguished or discharged as hereinafter provided. Said lien shall be superior to the rights of the holders of conditional sale contracts, bills of sale, chattel mortgages or other liens or claims of any kind which are not therefore executed and recorded or filed for record as required by law, but shall be subordinate thereto where the same have been theretofore executed and recorded as required by law. Surrender or delivery of any motor vehicle subject to the lien aforesaid shall operate as a waiver or extinguishment of the same as against third persons without notice thereof, but shall not operate as such waiver or extinguishment as against the owner or as against third persons with notice. The applicable provisions relative to bulk transfers are found in Code (1957, 1964 Repl. Vol.) Art. 95B, subtitle 6. By § 6-102 (1) a bulk transfer is defined as any transfer in bulk and not in the ordinary course of the transferor's business of a major part of the materials, supplies, merchandise or other inventory (§ 9-109) of an enterprise subject to th[at] subtitle. Johanna concedes that the transfer here was subject to the subtitle. Under § 6-104 (1) a bulk transfer subject to that subtitle is ineffective against any creditor of the transferor unless: (a) The transferee requires the transferor to furnish a list of his existing creditors prepared as stated in this section; and (b) The parties prepare a schedule of the property transferred sufficient to identify it; and (c) The transferee preserves the list and schedule for six months next following the transfer and permits inspection of either or both and copying therefrom at all reasonable hours by any creditor of the transferor, or files the list and schedule in the office of the clerk of the circuit court in the county, ... in which the property was located at the time of transfer. By § 6-104 (2) the list of creditors is required to be signed and sworn to or affirmed by the transferor or his agent and to contain the names and business addresses of all creditors of the transferor, with the amounts when known, and also the names of all persons who are known to the transferor to assert claims against him even though such claims are disputed. Responsibility for accuracy is placed on the transferor. Under § 6-104 (3) the transfer is not rendered ineffective by errors or omissions therein unless the transferee is shown to have had knowledge. By § 6-105 a transfer other than one made by auction sale is said to be ineffective against any creditor of the transferor unless at least ten days before he takes possession of the goods or pays for them, whichever happens first, the transferee gives notice of the transfer in the manner and to the persons ... provided in § 6-107, that requirement being [i]n addition to the requirements of § 6-104. Relative to the application of the proceeds § 6-106 provides that [i]n addition to the requirements of the two preceding sections if there is a bulk transfer subject to the subtitle for which new consideration is paid (other than a sale made at auction) it is the duty of the transferee to assure that such consideration is applied so far as necessary to pay those debts of the transferor which are either shown on the list furnished by the transferor (§ 6-104) or filed in writing in the place stated in the notice (§ 6-107) within thirty days after the mailing of such notice. It further provides that [t]his duty of the transferee runs to all the holders of such debts, and may be enforced by any of them for the benefit of all. In the case of a disputed debt the necessary sum may be withheld from distribution until the dispute is settled or adjudicated. If the consideration paid is not enough to pay all of the said debts in full distribution shall be made pro rata. The transferee is protected by the further provision that he may within ten days after he takes possession of the goods file a petition in the circuit court for the county in which the place of business of the transferor is situated ... and pay the consideration into such court asking that a receiver ... be appointed by said court to take charge of the distribution of the agreed purchase price and the transferee may discharge his duty under th[at] section by giving notice by registered or certified mail to all the persons to whom the duty runs that the consideration has been paid into that court and that they should file their claims there. Further provision is made for a receiver, upon qualification, to be entitled to the custody and distribution of the agreed purchase price under orders of the court as in other receiverships. Notice requirements are contained in § 6-107 which provides: (1) The notice to creditors (§ 6-105) shall state: (a) That a bulk transfer is about to be made; and (b) The names and business addresses of the transferor and transferee, and all other business names and addresses used by the transferor within three years last past so far as known to the transferee; and (c) Whether or not all the debts of the transferor are to be paid in full as they fall due as a result of the transaction, and if so, the address to which creditors should send their bills. (2) If the debts of the transferor are not to be paid in full as they fall due or if the transferee is in doubt on that point then the notice shall state further: (a) The location and general description of the property to be transferred and the estimated total of the transferor's debts; (b) The address where the schedule of property and list of creditors (§ 6-104) may be inspected; (c) Whether the transfer is to pay existing debts and if so the amount of such debts and to whom owing; (d) Whether the transfer is for new consideration and if so the amount of such consideration and the time and place of payment; and (e) If for new consideration the time and place where creditors of the transferor are to file their claims. (3) The notice in any case shall be delivered personally or sent by registered or certified mail to all the persons shown on the list of creditors furnished by the transferor (§ 6-104) and to all other persons who are known to the transferee to hold or assert claims against the transferor. Creditors entitled to protection are said by § 6-109 to be those holding claims based on transactions or events occurring before the bulk transfer, but creditors who become such after notice to creditors is given ... are not entitled to notice. Johanna talks in terms of there having been substantial compliance with the statute, possibly because funds here were said to have been paid to an attorney in escrow. However, if Johanna required King Juices to furnish a list of creditors and otherwise comply with § 6-104, that fact does not appear in the record. The letter of April 25 to the effect that Johanna was taking over King Juices on April 26 does not obey the mandate of § 6-105 that notice be given 10 days before the taking of possession. There appears to have been no notice complying with the provisions of § 6-107. The command of § 6-104 is that the transfer shall be ineffective against a creditor of the transferor (which Elliott was) unless the schedules there specified are supplied, while § 6-105 provides that such a transfer shall be ineffective against any creditor unless the notice required by § 6-107 is given by the transferee, Johanna in this instance. There was noncompliance with both sections. Our prior statute, Code (1957) Art. 83, §§ 97-101 (repealed effective at 12:01 a.m. on February 1, 1964, by Chapter 538 of the Acts of 1963 when Art. 95B became effective) provided in § 98 that failure to comply with its provisions would render the sale fraudulent and void as to subsisting creditors.... Although the word fraudulent carries an unpleasant connotation this language is little different from saying that the transfer shall be ineffective. Our predecessors in Calvert Bldg. & Const. Co. v. Winakur, 154 Md. 519, 539, 141 A. 355 (1928), and Sakelos v. Hutchinson Bros., 129 Md. 300, 304, 99 A. 357 (1916), flatly held sales void where made in disregard of that statute. Similar holdings under the Uniform Commercial Code are found in Danning v. Daylin, Inc., 488 F.2d 185, 189 (9th Cir.1973); McKissick v. Foremost-McKesson, Inc., 441 F.2d 811, 815 (5th Cir.1971); Pastimes Publishing Co. v. Advertising Displays, 6 Ill. App.3d 414, 417, 286 N.E.2d 19 (1st D. 1972); and Starman v. Wolfe, 490 S.W.2d 377, 385 (Mo. Ct. App., St. Louis D., Div. 2, 1973). A similar view is taken in W. Hawkland, A Transactional Guide to the Uniform Commercial Code § 3.0501 (1964); R. Anderson, Uniform Commercial Code § 6.104:10 (2d Ed. 1970), and Annot. UCC: Bulk Transfers, 47 A.L.R.3d 1114, 1140 (1973). In this case there is no showing that the schedules required under § 6-104 were prepared nor is there any showing that all creditors were actually notified as required by §§ 6-105 and 6-107  in fact, there is no showing that any creditors were notified. There is nothing to indicate that the pro rata share said to have been paid to Elliott was properly computed. We know nothing of the consideration. Accordingly, we have no hesitancy in holding that the transfer was ineffective insofar as Elliott was concerned. Being ineffective in this instance means that when the vehicle was returned to Elliott that corporation was entitled to hold the vehicle under its lien since the earlier [s]urrender or delivery of the motor vehicle subject to the lien ... [does] not operate as [a] waiver or extinguishment against the owner or as against third persons with notice. Hence, Johanna was not entitled to recover in replevin against Elliott.