Supreme Court of Canada
Garson v. Canadian Credit Men's Trust Assoc., [1929] S.C.R. 282
Date: 1929-02-05
David Garson and Another (Defendants) Appellants:
and
Canadian Credit Men’s Trust Association (Plaintiff) Respondent.
1928: November 5; 1929: February 5.
Present: Duff, Newcombe, Rinfret, Lamont and Smith JJ.
ON APPEAL FROM THE SUPREME COURT OF NOVA SCOTIA EN BANC
Sale of goods—Stock in trade—Sale in bulk—Non-compliance with Bulk Sales Act—Assignment of the vendor—Resale by the transferee to a bona fide purchaser—Right of the trustee in bankruptcy to compel the transferee to account—Bulk Sales Act, R.S.N.S. (1928), c. 202—Assignments Act, R.S.N.S. (1928), c. 200.
In January, 1928, one C. sold all the stock in trade and assets of his business to the appellants for $1,600. On March 17, 1928, C. made an authorized assignment in bankruptcy, and his statement showed liabilities amounting to $4,395.55 with cash assets of $706. The sale of the stock in trade to the appellants was a sale in bulk under the Bulk Sales Act, but there was no compliance whatever with the provisions of that Act. At the time of the sale the appellants paid the purchase money to C. in cash and they resold the goods for $2,000 (before the respondent, as trustee in bankruptcy, moved to set aside the sale to them from C. The $2,000 were not ear-marked and have been disposed of by them in the ordinary course of their business.
Held that the respondent, on behalf of the creditors, was entitled to have the appellants account for the $2,000 received by them on the resale of the goods. The creation in the Bulk Sales Act of a presumption of fraud on the part of both purchaser and vendor as against the vendor’s
[Page 283]
creditors, indicates a legislative intention to put a sale in bulk made without compliance with that Act in the same category as sales made with an intention to defraud the vendor’s creditors. This presumption of fraud has the effect of bringing into play all other statutes passed for the protection of creditors against a fraudulent sale of his goods by a debtor to the prejudice of his creditors, and the right to recover from a fraudulent transferee the proceeds of goods coming into his possession by an invalid transfer, and resold by him, is given by s. 21 (1) of the Assignments Act (R.S.N.S. (1928), c. 200).
APPEAL, by special leave of this court, from the decision of the Supreme Court of Nova Scotia en banc, affirming the judgment of Carroll J. and maintaining the respondent’s action.
The material facts of the case are fully stated in the above head-note.
V. J. Pottier and A. C. Hill K.C. for the appellants.
W. C. MacDonald K.C. for the respondent.
The judgment of the court was delivered by
Lamont J.—The material facts in this appeal are few, and are not in dispute. In October, 1927, one Wellsley G. Crouse commenced business as a retail merchant in Middleton, N.S. In January, 1928, he sold all the stock in trade and assets of his business to the appellants for $1,600. On March 17, 1928, he made an authorized assignment in bankruptcy, and his statement shewed liabilities amounting to $4,395.55, with cash assets of $706. The sale of the stock in trade to the appellants was a sale in bulk under the Bulk Spies Act, but there was no compliance whatever with the provisions of that Act. At the time of the sale the appellants paid the purchase money to Crouse in cash, and they resold the goods for $2,000 before the respondent, as trustee in bankruptcy, moved to set aside the sale to them from Crouse. The $2,000 received by the appellants when they resold the goods were not ear-marked, and have been disposed of by them in the ordinary course of their business. The matter was brought before the court by way of stated case, in which it was agreed that no objection was to be taken to the status of the trustee, and the following questions were submitted to the court:—
1. Whether said sale was and is fraudulent and absolutely void under the Bulk Sales Act as against the creditors of said Wellsley G. Crouse in existence at the time of such assignment.
[Page 284]
2. Whether said creditors are entitled to be paid by Garson & Lipwich the sum of $2,000, being an amount equal to the amount realized on the resale of said stock-in-trade.
3. Whether the costs of this case should be paid by the trustee or by Garson and Lipwich.
Mr. Justice Carroll, before whom the matter came in the first instance, answered questions 1 and 2 in the affirmative, and directed the costs to be paid out of the bankrupt estate by the trustee. On appeal, the judgment of Carroll J. was affirmed by the Nova Scotia Supreme Court en banc, that court being of opinion that the trustee was entitled to recover the value of the property from the appellants under ss. 29 and 33 (now ss. 60 and 66) of the Bankruptcy Act.
Garson and Lipwich now appeal to this court.
The Bulk Sales Act defines the duty of both vendor and purchaser where a purchase is made for cash or on credit of any stock of goods, wares and merchandise, in bulk. S. 2 requires the vendor to furnish a statement, verified by statutory declaration, setting out the names and addresses of his creditors, and the amount due to each. It also requires the purchaser to obtain such statement before closing the purchase and paying to the vendor any part of the purchase price. S. 3 requires that the agreement to purchase shall be in writing, and shall be filed in the Registry Office within ten days after execution thereof, and that no part of the purchase price or any security therefor shall be delivered within thirty days next after the execution of the agreement. S. 4 provides that if a purchase be made, and any part of the purchase price or any security therefor be paid or delivered to the vendor by the purchaser before receiving the vendor’s statement, as required by s. 2, or without filing the agreement, as required by s. 3, the sale shall be Deemed to be fraudulent, and shall be absolutely void as against the creditors of the vendor, unless the proceeds of such sale are sufficient to pay the vendor’s creditors in full, and are, in fact, actually applied in or towards payment of their claims. S. 5 provides that the purchaser, upon obtaining such statutory declaration from the vendor, must either obtain the written consent to his purchase, of creditors representing at least fifty per cent. in number and value of the claims, as shewn by the statutory declaration, or notified to the purchaser, or,
[Page 285]
if the purchase price is sufficient to pay the creditors in full, must pay the whole of the purchase price or deliver the securities therefor into the hands of a trustee for distribution pro rata among the creditors; and, in default of so doing, the sale shall be deemed fraudulent, and be void.
It is now common ground between the parties that in the Bulk Sales Act the word “void” means “voidable” only and that a sale made without compliance with the Act is valid unless and until the creditors of the vendor elect to have it set aside. The fact that the Act avoids the sale only as against the vendor’s creditors indicates an intention on the part of the legislature that on the sale the property in the goods shall pass, subject to the right of the creditors to have the sale set aside as fraudulent against them.
It is also common ground that if the goods are resold by the fraudulent transferee to a bona fide purchaser for value without notice, before the creditors challenge the validity of the sale, such purchaser has a valid title to the goods and the creditors cannot recover them. The question before us therefore is, are the creditors entitled to have the appellants account for the $2,000 received by them on the resale of the goods?
For the appellants it is contended that the question should be answered in the negative because the appellants were not debtors of the creditors or any of them, and (2) as they had resold the goods at a time when the sale was still a valid one, the goods themselves in their hands were not clothed with any trust in favour of the creditors and consequently no trust could be impressed upon the proceeds thereof; that in the absence of an indebtedness on the part of the appellants, or of a trust in favour of the creditors, the appellants cannot be called upon to account for any proceeds received by them.
It is, no doubt, true that the appellants were not, in the ordinary sense of the term, debtors of the creditors, nor, unless made so by the Act, were the proceeds of the sale imposed with any trust in the creditors’ favour. That, however, in our opinion, is not conclusive in favour of the appellants.
The object of the Bulk Sales Act is to prevent a trader from making a sale in bulk of his stock-in-trade, goods and merchandise without the consent of his creditors
[Page 286]
thereto or the payment of their claims. To effect this object the Act imposes a duty upon any intending purchaser not to complete the purchase or pay any part of the purchase price with out complying with the provisions of the Act. If he fails to perform that duty the Act declares that the sale
shall be deemed to be fraudulent and shall be absolutely void as against the creditors.
“Deemed to be fraudulent” here means that although the purchaser may not in fact have been guilty of fraud, yet the sale is to be considered as one based upon the existence of actual fraud and carrying with it all the consequences of a fraudulent sale. The Queen v. County Council of Norfolk.
As a consequence of such a sale the Act provides that the creditors may have it declared void and set aside.
The appellants contend that this is the creditors’ only remedy and that the effect of setting aside the sale as invalid is merely to remove the impediment standing in the way of the enforcement of the creditors’ executions against the goods sold, and they cited a number of authorities to the effect that where a fraudulent sale was set aside the creditors could follow the proceeds if the fund could be found in specie, or if it was so ear-marked that it could be traced; but that if it could not be found in specie, or was not so ear-marked, the creditors could not compel an accounting thereof. In re Mouat; Ross v. Dunn; Davis v. Wickson. In our opinion the removal of the impediment which intercepted the action of the creditors’ writs of execution was not the only effect which it was intended the legislation should have. Had that been the only effect intended there was no necessity whatever for enacting that the sale should be deemed fraudulent. The setting aside of the sale as invalid would, without branding it as fraudulent, have been sufficient to remove the impediment to the operation of the writs of execution. The creation of a statutory presumption of fraud on the part of both purchaser and vendor as against the vendor’s creditors, indicates, in our opinion, a legislative intention to put a sale in bulk made without compliance with the
[Page 287]
Bulk Sales Act in the same category as sales made with an intention to defraud the vendor’s creditors. Such intent the Act presumes to exist, and this presumption of fraud has the effect of bringing into play all other statutes passed for the protection of creditors against a fraudulent sale of his goods by a debtor to the prejudice of his creditors. So that if, in any such statute, the legislature has given to the creditors any remedy in addition to their right to have the sale set aside as invalid, the creditors of a fraudulent debtor under the Bulk Sales Act are entitled to claim the benefit of such remedy, provided, of course, that all the conditions precedent to the right to claim the remedy have been fulfilled. One such remedy, namely, a right to recover from a fraudulent transferee the proceeds of goods coming into his possession by an invalid transfer, and resold by him, is given by the Assignments Act (R.S.N.S. 1923, c. 200), which in part reads:—
4. (1) Every transfer of property made by an insolvent person
(a) with intent to defeat, hinder, delay or prejudice his creditors, or any one or more of them:
Shall as against the creditor or creditors injured, delayed, prejudiced or postponed, be utterly void.
21. (1) In the case of a transfer of any property which in law is invalid against creditors, if the person to whom the transfer was made shall have sold or disposed of, realized or collected, the property or any part thereof, the money or other proceeds may be seized or recovered in any action by a person who would be entitled to seize and recover the property if it has remained in the possession or control of the debtor or of the persons to whom the transfer was made and such right to seize and recover shall belong, not only to an assignee for the general benefit of the creditors of the said debtor, but in case there is no such assignment shall exist in favour of all creditors of such debtor.
That Crouse was insolvent is not disputed. The sale and delivery of his goods to the appellants was a transfer of property which in law was invalid as against his creditors. If the goods had remained in the hands of the appellants the creditors, on setting aside the sale, would have been entitled to recover them as goods belonging to the debtor. The appellants having resold the goods the creditors are, by s. 21, expressly given the right to recover the proceeds thereof from them. This right the creditors now seek to enforce, and, in our opinion, they are entitled to enforce it. As the Assignments Act has made provision for the very remedy which the creditors through the plaintiff seek to enforce, it is unnecessary to consider whether or
[Page 288]
not the Bulk Sales Act alone, or with the aid of the Bankruptcy Act, would entitle the creditors to the same remedy, and upon that question we express no opinion.
When Crouse assigned the only asset which he turned over to the respondent was $706 in cash. It is not shewn in the stated case whether or not this was part of the $1,600 paid to Crouse by the appellants. If it was, the respondent, having received that part of the purchase price of the goods, would not be entitled to have it paid over again. If, therefore, the appellants so desire they may have an inquiry to ascertain if the $706 received by the respondent constituted à part of the purchase money received by Crouse. Such inquiry, however, will be at their own expense.
The appeal should therefore be dismissed with costs.
Appeal dismissed with costs.
Solicitor for the appellants: V. J. Pottier.
Solicitor for the respondent: W. C. McDonald.
Email this Content