Wright v. . Hart

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] Before proceeding to a critical view of the challenged statute it may be profitable to make a few pertinent though trite observations on the nature, construction and effect of written constitutions. A written constitution is the fundamental expression of the sovereign will. Under our form of government that sovereign will resides in the people. A written constitution is not only the direct and basic expression of the sovereign, will, but is the absolute rule of action and decision for all departments and offices of government in respect to all matters covered by it and must control as it is written until it shall be changed by the authority that established it. It is true, as was said by Judge Cooley, that "the weaknesses of a written constitution are that it establishes iron rules which, when found inconvenient, are difficult of change; that it is often construed on technical principles of verbal criticism rather than in the light of great principles, and that it is likely to invade the domain of ordinary legislation instead of being restricted to fundamental rules." The logical corollary of the proposition that the Constitution is the supreme law of the land is that the power to legislate is a a purely delegated one, derived from the Constitution and controlled by it. In the case at bar we are concerned with no quibbles of verbiage or technicalities of construction, but with the broad question whether an act of our legislature is repugnant to the "iron rule" of our Federal and State Constitutions that no citizen shall be deprived of "life, liberty or property," or be denied the "equal protection of the laws."

In the course of judicial interpretation, the words "liberty" and "property" as used in the Constitutions, have naturally and properly been given their most comprehensive signification, so that they embrace every form and phase of individual right that is not necessarily taken away by some valid law for the general good. "The term ``liberty,' as protected by the Constitution, is not cramped into a mere freedom from physical restraint of the person of the citizen, as by incarceration, but it is deemed to embrace the right of man to be free in the enjoyment of the faculties with which he has been endowed by his Creator, subject only to such restraints as are necessary for the common welfare." (People v. Marx, 99 N.Y. 377.) "All laws, therefore, which impair or trammel these rights, which limit one in his choice of a trade or profession, or confine him to work or live in a specified locality, or exclude him from his own house, or restrain his otherwise lawful movements (except as such laws may be passed in the exercise by the legislature of the police power), are infringements upon his fundamental rights of liberty, which are under constitutional protection." (In re Jacobs,98 N.Y. 98.). "``Liberty' * * * includes the right to acquire property, and that means and includes the right to make and enforce contracts." (State v. Loomis, 115 Mo. 307; Allgeyer v. Louisiana, 165 U.S. 578.) The right to use, buy and sell property is protected by the Constitution, and "when the law annihilates the value of property, and strips it of its attributes by which alone it is distinguished as property, the owner is deprived of it according to the plainest interpretation, and certainly within the constitutional provision intended expressly to shield personal rights from the exercise of arbitrary power." (Wyne hamer v. People, 13 N.Y. 378, 398;People ex rel. Manh. S. Instn. v. Otis, 90 N.Y. 48.)

Let us now analyze the statute under scrutiny. Every sale (A) "of any portion of a stock of merchandise, other than in the ordinary course of trade in the regular and usual prosecution of the seller's business, or (B) the sale of an entire stock of merchandise in bulk, shall be fraudulent and void as against the creditors of the seller, unless (1) the seller and purchaser shall at least five days before the sale, (2) make a full and detailed inventory, (3) showing the quantity, and, so far as possible with the exercise of reasonable diligence, (4) the cost price to the seller of each article to be included in the sale, and unless (5) such purchaser shall at least five daysbefore the sale in good faith make full, explicit inquiry of the seller as to the (6) name and place of residence or place of business of each and every creditor of the seller, and (7) the amount owing each creditor, and unless (8) the purchaser shallat least five days before the sale in good faith (9) notify or cause to be notified personally or by registered mail each of the seller's creditors of whom the purchaser has knowledge, or can with the exercise of reasonable diligence acquire knowledge of such proposed sale, and (10) of the stated cost price of merchandise to be sold, and (11) of the price to be paid therefor by the purchaser. (12) The seller shall at least five daysbefore such sale file a truthful answer in writing of each and all of said inquiries."

No one will have the temerity to suggest that this drastic and cumbersome statute is not in restraint of the rights of "liberty" and "property," as those terms have been judicially declared to have been used in the Federal and State Constitutions. It is contended, however, that the restraint which it imposes upon these rights is justifiable under that shibboleth of legislatures and courts known as the police power. Far be it from us to deny the existence of that power or to attempt to define its extent. It will be our effort, rather, to show that the statute under consideration is, in some particulars, so thoroughly unrelated to the probable object of its enactment, and in others so cumbersome, burdensome, unreasonable and unworkable, as to violate every one of the constitutional provisions under which it is challenged. The rights of "liberty" and "property," as we have seen, are sacred and substantial rights guaranteed by the Federal and State Constitutions. Any law that interferes with the right to make and enforce contracts affects both the liberty and property of the citizen. The right to sell and purchase merchandise in bulk is no less under the protection of the Constitution than the right to sell and buy in the smallest possible quantities. Any legislative interference with either of these rights, that is clearly forbidden as to the other, can only be justified on the ground of public necessity, which is but another way of saying that it is for the general welfare. Such interference should not only be based upon public necessity, but it should be conservative, reasonable and well adapted to the end sought to be attained. Until the 11th day of April, 1902, it was just as lawful in this state to sell any portion of a stock of merchandise, or the whole of such a stock in bulk, as to sell the same goods piece by piece at retail. By the statute which went into operation on that day, the sale of any stock of merchandise in bulk, or of any considerable portion thereof, was made unlawful as against the creditors of the seller, unless both seller and purchaser should do many things that were clearly and substantially restrictive of the right of contract as it had theretofore been enjoyed in respect of such property. This criticism of the statute is sought to be answered by the plea that the law was designed to correct a great public evil; that it was aimed at a class of merchants who have engaged in the fraudulent practice of obtaining merchandise on credit for the purpose of making hasty and secret sales thereof in bulk and then decamping with, or otherwise disposing of, the proceeds at the expense of their creditors. It may be conceded that this was the ostensible purpose of the statute, and that the evil complained of was one of substantial reality and magnitude, for which an efficacious remedy was much to be desired. But that does not meet the argument against the constitutionality of the statute. The question still remains whether the legislature has not overstepped the limits of its power, by practically placing an embargo upon all sales of merchandise in bulk, under the guise of a statute ostensibly designed to prevent frauds in such sales.

Beginning with the title of the statute, we observe that its object is "to regulate the sale of merchandise in bulk." If we give to the term "merchandise" its ordinary business signification, there is no escape from the conclusion that the statute applies to merchants alone as distinguished from manufacturers, farmers, bankers, the members of the several professions, mechanics, etc. Under this construction of the law the merchant is prohibited from doing that which is permitted to all other men. Merchants comprise a comparatively small number of the community at large and, therefore, this would seem to be class legislation which denies to those affected by it the equal protection of the laws guaranteed by the 14th amendment to the Federal Constitution. If the term "merchandise" is given a somewhat more liberal interpretation, so as to include finished manufactured products, and the stocks of jobbers and wholesale merchants, the statute is still open to the criticism that it denies the equal protection of the laws to all citizens, because it imposes upon certain classes, such as manufacturers, jobbers and wholesale merchants, burdens that are destructive of their legitimate business. It is common knowledge that in this age of large enterprises many merchants purchase the whole products of mills and factories. In the case of the jobber or the wholesale merchant these products are again sold in bulk, or in large but varying quantities. If the manufacturer, jobber or wholesale merchant sell their entire stocks in bulk, the statute applies without regard to the question whether the sale is according to long-established custom, or in the regular course of trade. If there is a sale in bulk of less than the whole, then the validity of the sale is made dependent to some extent upon the question whether it is in the ordinary course of trade in the regular and usual prosecution of the seller's business. What is the ordinary course of trade in the regular and usual prosecution of such a seller's business? The manufacturer may dispose of his entire output to a single purchaser during a single year, or a series of years. Again, he may dispose of it in parcels to several purchasers. And yet again he may be compelled to rely upon a general market with purchasers from different quarters in varying quantities. On the first of January of a given year he may know to a certainty just how much he will produce and just where it will go. At the beginning of the next year he may not know what the morrow will bring forth. This is as true of the jobber and the wholesale merchant as of the manufacturer. And what is the net result? In the years when there is a single sale of the whole output, the statute applies without regard to the ordinary course of trade or the regular and usual prosecution of the seller's business. In other years when the sales, although in bulk are in smaller quantities, the application of the statute depends, not upon the honesty of the transaction, but upon the shadowy question whether it is in the ordinary course of trade in the regular and usual conduct of the seller's business. And all this is as applicable to the purchaser as to the seller, although the former may have not the remotest knowledge of the manner in which the business of the latter is carried on. There are other and more serious constitutional objections to this statute in so far as it may affect the manufacturer, the jobber and the wholesale merchant, but as these objections militate against the statute in its relation to all classes of men, we shall consider them in their general bearing upon the "liberty" and "property" clauses of the two Constitutions.

The statute, as we have seen, discriminates between sales of entire stocks in bulk, and sales of portions of such stocks. But it does not differentiate between sales that are honestly made and sales that are made with intent to defraud. The sale of an entire stock is declared to be fraudulent and void as against the seller's creditors, no matter how solvent he may be, unless all the petty and harassing details of the statute are observed. The sale of a lesser quantity, however, is interdicted by no such sweeping fiat so long as it is made in the ordinary course of trade in the regular and usual conduct of the seller's business, although made with a fraudulent intent. But this is not all. Both seller and purchaser shall, at least five days before the sale, make a full and detailed inventory. One inventory is not enough. There must be two, or at least one joined in by both. And they must be made, not when the sale has been consummated, but five days before. Could anything be devised that would more effectually paralyze sales of merchandise in bulk? Some simple illustrations will clearly outline the pernicious possibilities of this unique provision. A is the owner of a stock of goods which he is willing to sell, and which B is ready to purchase at a price agreed upon. Each may think he is making a good bargain. A is anxious to sell at once so that he may use the proceeds in making another purchase of advantage. B wants to close the sale at once because he has an immediate and profitable market for the goods. If either has to wait five days or longer, and particularly for the purpose of making an inventory involving great labor and expense, he may prefer to drop the whole matter. Suppose, however, that the work of taking an inventory is commenced, and during its progress the market price rises or falls, or that either the seller or the purchaser discovers that he has made a poor bargain because the inventory discloses a greater or less value than was in the minds of the parties when the price was fixed. In such a case either the party may refuse to go on with the inventory or to file it if it is finished, and the result is that the person who may feel aggrieved has no remedy, because the statute imposes no penalty for failure to complete or file an inventory, and there can be no valid sale until both of these things are done.

And what must such an inventory contain? First, the quantity. That is usually and of itself entirely sufficient in the case of a sale in bulk. Second, the cost price to the seller of eacharticle to be included in the sale, although the purchaser, one of the parties who must file an inventory, may have no means of knowing anything about the cost price to the seller. It is true that the latter feature of the inventory is only made necessary in so far as it is possible with the exercise of reasonable diligence. But the seller may have full knowledge on the subject, which he may decide not to disclose. The purchaser may know nothing about it, but his bargain can be annihilated by the seller's refusal to exercise the "due diligence" by which the information could be disclosed. Then again, a purchaser may have a market for goods which he is willing to purchase at a specified price. This market he would lose if compelled to file a long and detailed inventory containing the cost price to the seller. And the inventory must be filed. While the statute does not designate the place of filing, it would be of no value unless in some place where the inventory would become public property. Such an inventory, moreover, is not only unnecessarily burdensome, but practically prohibitory of such sales. Not only the quantity of the goods sold, but the cost price of each article must be given in detail. This requires a disclosure of the very secrets that make sales in bulk a business possibility, and entails upon the prospective contractors many details that in a given case may require weeks or months, and that neither may care to go into. In the case of a sale of the whole or any part of the stock of a great department store, for instance, the cost price to the seller of every paper of pins or fine tooth comb would have to be inventoried, although the producing cause of the sale might be based upon considerations that would utterly fail if such infinitesimal matters had to be taken into account.

The next requirement of the statute has to do with the purchaser alone. At least five days before the sale he must make full, explicit inquiry of the seller as to the name and place of residence or business of each of the seller's creditors, and of the amount owing to him, and, having done this, he must then notify or cause to be notified each of such creditors, personally or by registered letter, of the proposed sale and the stated cost price of the merchandise, as well as the price to be paid by the purchaser. In other words, the purchaser, who is under no legal or moral obligation to the seller's creditors, is not only required to obtain from the seller all these details concerning his creditors, but he must send to each one, no matter how great their number or how remote their places of residence or business, all the detailed information that is to be included in the inventory. Thus the inventory may have to be duplicated by the hundreds or thousands and sent to creditors scattered over all portions of the globe. It is true that this obligation rests upon the purchaser only to the extent that it can be fulfilled in the exercise of reasonable diligence, but this qualification emphasizes rather than mitigates the arbitrary command of the statute. And, finally, the seller shall, at least five days before such sale, file a truthful answer in writing to each and all of said inquiries. There is no intimation as to the place of filing, or as to what will happen if there is no filing. Neither are we informed as to the effect upon the purchaser, of the seller's failure to tell the truth or to file his written answers. In the midst of such a mass of detail it is refreshing to feel that this trifle is left to the imagination.

Let us again emphasize the assertion that we do not question the power of the legislature to enact reasonable laws for the prevention of fraud and the protection of creditors. That this right falls within the general scope of the police power no one will deny. But the police power only begins where the Constitution ends. Broad and comprehensive as the police power concededly is, and incapable of precise definition or exact demarkation as we know it to be, it is never difficult to determine that its limits have been transcended when it is clear that the sacred domain of the Constitution has been trespassed upon. And when the exercise of the police power clearly infringes upon vested constitutional rights, courts should not concern themselves with the probable purposes for which it is exercised, or the evils which it was designed to correct. First the Constitution and then the police power. The statute under consideration sweeps away the constitutional rights of liberty and property of a limited class of our citizens who are entitled to the equal protection of the laws with all other citizens. It invades the right of liberty because it arbitrarily and unnecessarily denies the right of a specified class of citizens to contract for, bargain and sell a particular kind of property. It violates the Constitution in prohibiting all sales of merchandise in bulk, whether honest or dishonest, except upon conditions that are harsh, drastic, unreasonable and unnecessary in so far as they do not tend to effectuate the objects for which such a statute may properly be enacted. It ignores the constitutional guaranty relating to property rights because it so restricts the right of contract as to deprive property of its characteristics as such.

It is urged, however, that the impositions of this statute are more nominal than real, since a seller has only to pay his debts in order to make his sale valid. The argument, so far from supporting the statute, really serves to disclose one of its most sweeping and unreasonable features. If the statute affected none but insolvent sellers, or related merely to debts due, or gave to purchase-price creditors an equitable lien for their respective shares of the proceeds of a proposed sale, or if, instead of interdicting in advance a sale in bulk, it had made some reasonable provision for impounding the proceeds of sale until the seller's legal obligations could be judicially ascertained, there might be some force in the suggestion. But what is the fact? The act embraces all sales of entire stocks of merchandise in bulk. It covers every sale of any part of a stock not made in the ordinary course of trade in the regular and usual prosecution of the seller's business. It requires notice to be given to all the seller's creditors, whether their debts are due or not, that a sale is contemplated. It requires this notice to be given five days in advance of a sale. It requires observance of every one of its details or payment of every creditor. What is the practical effect? A seller who is abundantly able to pay his debts is compelled by law to do so before he can dispose of a part of his possessions. He must pay his debts whether they are due or not. He must pay them whether they are in dispute or not. He must pay creditors who have no legal, equitable or moral claim upon the particular property or its proceeds. And if he depends upon the proceeds of the particular sale to pay his debts, he must pay them at least five days before he gets the money. Thus an intending seller is under the necessity of practically obtaining the consent of his creditors before he can make a sale. He must pay a claim that may be in dispute, right or wrong, and he must take what equitably belongs to the creditor for purchase price and pay it to general creditors, or he can be "held up." This may not be a literal taking of property without due process of law, but it is an annihilation of its value and a destruction of its attributes, so that while the owner is permitted to retain his property in name he is deprived of its essence and substance. (Wynehamer v. People, supra.)

It is said also that similar statutes, some of them much more drastic, have been adopted in twenty different states or jurisdictions. Twenty wrongs can never make one right. There is, moreover, a singular, not to say suspicious, coincidence in the time and substance of all this legislation. We are indebted to our brother BARTLETT for the suggestion that more than half of these statutes were enacted in 1903 and 1904, and nearly all of them since 1900. 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. This statute "is evidently of that kind which has been so frequent of late, a kind which is meant to protect some class in the community against the fair, free and full competition of some other class, the members of the former class thinking it impossible to hold their own against such competition and, therefore, flying to the legislature to secure some enactment which shall operate favorably to them or unfavorably to their competitors." (PECKHAM, J., in People v. Gillson, 109 N.Y. 389. )

If we have succeeded in making our position plain, it will be unnecessary to answer in detail that portion of Judge VANN'S very learned and able opinion in which he illustrates the manifold purposes for which the police power has been exercised by legislatures and upheld by courts. The existence of the power is not denied. Its limits cannot be accurately demarked. The well-beaten paths which it has pursued time out of mind contain no guide board to the new and untrodden field sought to be explored by this particular phase of paternal legislation. Therefore, old cases and old laws are of little help except as they expound general principles applicable to special conditions. In its final analysis the question is one of power in this particular case. We think that power has been transcended. "To justify the state in interposing its authority in behalf of the public it must appear, first, that the interests of the public generally, as distinguished from those of a particular class, require such interference; and, second, that the means are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. The legislature may not, under the guise of protecting public interests, arbitrarily interfere with private business, or impose unusual and unnecessary restrictions upon lawful occupations." (Colon v. Lisk, 153 N.Y. 188; Lawton v. Steele,152 U.S. 133, 137.) It cannot be reiterated too often that the police power must be exercised within its proper sphere, and by appropriate methods. Whenever a statute arbitrarily strikes down private rights, invades personal freedom or confiscates or destroys private property, it is repugnant to the Constitution and should not be permitted to stand, no matter how laudable its purpose or beneficial its effect.

Owing to the length of this opinion we refrain from discussing the cases decided in other states upon similar statutes, except to say that those which have been upheld in Massachusetts, Connecticut, Tennessee and Washington are far less drastic than our own, in that they either except from their operation all sales by executors, administrators, receivers, etc., or provide that sales of merchandise in bulk shall only be presumptively void if the statutory requirements are not observed; or, as in Connecticut, that one day after the sale there shall be filed a descriptive writing duly signed and acknowledged. In Ohio and Utah, where such legislation was condemned by the courts, it was in some respects even more far reaching and burdensome than here.

The judgment of the Special Term and Appellate Division should be reversed and judgment ordered sustaining defendant's demurrer, with costs in all the courts.

Question certified answered in the negative.