No. 2854 Philadelphia 1981, Appeal from the Order of the Court of Common Pleas of Northampton County, Civil Action - Law, at No. 140 October Term, 1976.
David C. Keiter, Harrisburg, for appellant.
Thomas R. Elliott, Easton, for appellees.
Cavanaugh, Cirillo and Hoffman, JJ. Cirillo, J., files a dissenting opinion.
[ 314 Pa. Super. Page 587]
Appellant, a creditor, contends that the lower court erred in denying its claim against Jerome Brose, the former president of a debtor corporation, and against Rinek Rope Co. [Rope], which received the debtor's remaining assets in a bulk transfer. We find the claim against Brose was properly denied. However, because the bulk transfer to Rope was "concealed" within the meaning of 13 Pa.C.S.A. § 6111, the six-month statute of limitations did not begin running until appellant discovered the bulk transfer. Accordingly,
[ 314 Pa. Super. Page 588]
we reverse the lower court's order dismissing appellant's claim against Rope, and remand for findings of fact as to whether appellant commenced its action within six months of discovering the bulk transfer.
During 1971, appellant sold yarn to its original debtor, appellee Rinek Cordage Co. [Cordage], a rope manufacturer. Cordage paid $22,683.48 less than the agreed price, and in December, 1972, executed a promissory note for that amount. Shortly thereafter, Cordage, in financial difficulty, offered its creditors fifty cents on the dollar, but appellant refused the offer. On April 1, 1974, Cordage sold its entire inventory to appellee Rope in exchange for Rope's president forgiving a $17,588.55 debt Cordage owed him. It is undisputed on this appeal that this sale constituted a bulk transfer. Rope, however, neither notified appellant or Cordage's other creditor, nor made any provision to apply the proceeds of the sale for the creditors' benefit. On November 12, 1976, appellant filed a complaint in assumpsit against Cordage, Rope, and Brose, seeking to recover the outstanding debt from any or each of them. Rope, in amended new matter, alleged that appellant's claim was barred by the statute of limitations of the Uniform Commercial Code-Article 6, 13 Pa.C.S.A. § 6111, because the action was commenced more than six months after the bulk transfer. Appellant asserted, however, that its action was timely because commenced within six months of its discovering the "concealed" bulk transfer. After trial, the lower court held that the bulk transfer had not been concealed, and thus that appellant's action against Rope was barred. The lower court en banc denied appellant's post-trial motions, prompting this appeal.
Appellant contends that Rope's complete failure to give notice of the bulk transfer constituted a concealment of the bulk transfer, and thus the statute of limitations did not begin to run against it until its discovery of the transfer. We agree. The Uniform Commercial Code, Article 6,
[ 314 Pa. Super. Page 589]
concerning bulk transfers, as enacted in Pennsylvania, 13 Pa.C.S.A. §§ 6101-6111, is designed to remedy the "major bulk sales risk" of the merchant, owing debts, who sells away virtually all his stock in trade and disappears leaving his creditors unpaid. Uniform Commercial Code, § 6-101, Comments 2, 4. See generally Hawkland, Sales & Bulk Sales, (3d ed. 1976); J. White & R. Summers, Uniform Commercial Code, § 19-1 at 757 (2d ed. 1980) (noting that in the absence of a bulk sales law creditors cannot ordinarily follow goods into a transferee's hands and have very limited remedies in this circumstance). The statute's basic mechanism is to require the prospective transferee to give advance notice to the transferor's creditors of the impending bulk sale. 13 Pa.C.S.A. §§ 6104, 6105, 6107. The transferee must also take steps to insure that the proceeds are applied to the benefit of the transferor's creditors. Id. § 6101. The prior notice affords the creditors an opportunity to participate in structuring the transfer or commence legal action against their debtor, the transferor, before the assets are sold away. To promote compliance, the statute establishes three alternative time limitations for creditor actions against the transferee. First, if the transferee gives the statutory notice and otherwise complies with the statute, the bulk transfer will be "effective" against any creditor of the transferor. Id. § 6105. The complying transferee will be shielded immediately upon the transfer from the creditors' actions. Creditors will therefore be required to act expeditiously against their debtor, the transferor, within the ten or more days between the statutory notice and the transfer or they will effectively lose their opportunity to collect their debt.*fn1 Second, if the transferee does not give the required notice, the transfer will be "ineffective" against the transferor's creditors, id. § 6105, who may then commence actions for the transferor's debts against the transferee within the six months following the
[ 314 Pa. Super. Page 590]
transfer. Id. § 6111.*fn2 Third, if the transferee's failure to give notice is not simply non-compliance with the statute but amounts to "concealment" of the bulk transfer, the transferee is subject to actions by the transferor's creditors commenced within six months of when the creditor discovers the concealed bulk transfer. Id. § 6111. The question we face here is whether a completely undisclosed bulk transfer should be treated as "concealed" for purposes of the U.C.C.'s statute of limitations.
Case law is divided upon what constitutes concealment of a bulk transfer. No prior Pennsylvania appellate decision has interpreted this statutory term.*fn3 Some courts have required "active" or "affirmative" concealment. Aluminum Shapes, Inc. v. K-A Liquidating Co., 290 F.Supp. 356, 358 (W.D.Pa.1968). Accord Aerolineas Argentinas v. Hansen & Yorke Co., 12 U.C.C.Rep.Sery. 329 (N.Y.Civ.Ct. 1973) (dicta). Others have held that " complete failure to comply with the notice provisions of [U.C.C.] Article 6 . . . was tantamount to a concealment of a transfer of assets within the meaning of Sections 6-111." E.J. Trum, Inc. v. Blanchard Parfums, Inc., 33 App.Div.2d 689, 306 N.Y.2d 316, 6 U.C.C.Rep.Serv. 1261 (1969) (emphasis added) (reversing summary judgment and ...