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Supreme Court, Appellate Division, First Department, New York.

PROMOTIONS UNLIMITED CORPORATION, Plaintiff-Appellant, v. DD PHARMACY CORP., Doing Business as Leroy Pharmacy, Defendant-Respondent, RXD Pharmacy of 1448 Metropolitan Ave., Inc., Defendant.

Decided: August 26, 1999

JOSEPH P. SULLIVAN, J.P., EUGENE NARDELLI, ANGELA M. MAZZARELLI, ISRAEL RUBIN and RICHARD T. ANDRIAS, JJ. Harold J. Levy, of counsel (Thaler & Gertler, L.L.P., attorneys) for plaintiff-appellant. Steve S. Efron, of counsel (Renee L. Cyr, on the brief, Lerman & Katz, P.C., attorneys) for defendant-respondent.

This appeal presents the issue of whether, in a bulk transfer context, a transferee that concededly failed to give “notice of the transfer” to plaintiff, a creditor of the transferor (Uniform Commercial Code §§ 6-105 and 6-107), may, by a showing that it relied upon a purported oral assurance from the transferor that plaintiff was not a creditor, avoid the pronouncement of Uniform Commercial Code § 6-105 that the transfer “is ineffective against [the] creditor” unless proper statutory notice is given.

This is an action for goods sold and delivered by plaintiff to defendant RXD Pharmacy of 1448 Metropolitan Ave., Inc., the predecessor to defendant DD Pharmacy Corp.   The following evidence was adduced at a non-jury trial.   In October and November 1994, at a time when RXD was attempting to sell its pharmacy business and, in fact, was negotiating a sale to DD Pharmacy, plaintiff sold and delivered merchandise, invoiced at $68,218.17, to RXD, which signed for and accepted each delivery.   The signed invoices, returned to plaintiff by the truckers, were admitted in evidence.   Since plaintiff required payment on delivery, RXD tendered checks totaling $68,218.17 in payment at the time of delivery.   After issuance, RXD stopped payment on each of the checks.   Other than answering the complaint with a general denial, RXD has never asserted that it has paid any part of the amount due plaintiff.

In June 1995, after RXD had received its merchandise and plaintiff became its creditor, plaintiff learned that RXD transferred all of its assets by bulk sale to DD Pharmacy in March 1995.   Although plaintiff's name appeared on the certified list of creditors that RXD provided to DD Pharmacy, DD Pharmacy, concededly, did not provide notice of the sale to plaintiff in accordance with Article 6 of the Uniform Commercial Code.   The list named plaintiff as a creditor in the sum of $39,203.73 1 and contained a phone number but not an address, as required by the statute (see, Uniform Commercial Code §§ 6-104 and 6-107).

Jerome Sager, the attorney who handled the bulk sale transaction for DD Pharmacy, testified that he received the list of creditors with plaintiff's name listed thereon but because a diagonal line was drawn through the name he attempted to contact Robert Milner, RXD's president, to ascertain the meaning of the line.   After numerous unsuccessful attempts to reach Milner, Sager asked Charles Romano, a non-lawyer and parttime clerk of Sager's, to call Milner.   Romano stated that he spoke to Milner, who told him that plaintiff's name should not have been on the list, and that he relayed this information to Sager.   Milner, on the other hand, testified that plaintiff was listed as a creditor on the list, the preparation of which he directed.   He never told anyone that plaintiff was not a creditor.   In fact, he testified that he sent Sager a second list naming plaintiff as a creditor.

When asked why he had not sent a creditor's notice to plaintiff, Sager explained, “I wanted to make sure I sent notice to only those who are actually legitimate creditors.”   If a party was “not a creditor and his predecessor wasn't a creditor, I didn't want to stamp my new client, DD Pharmacy, as a deadbeat who may have owed money”.   Sager added, “I couldn't determine [plaintiff was] a creditor.   There was no address for me to send it to and I didn't know if the amount on there was accurate, fictitious or what and since I didn't consider them a creditor and the obligation was on the transferor to tell me who the creditors were, I did not send the notice.”   The trial court credited the testimony on behalf of DD Pharmacy and found that, although the creditors' list was unclear and incomplete, DD Pharmacy acted reasonably in the circumstances in consummating the bulk sale transaction without the statutory notice to plaintiff.2  This was error.   We reverse and grant judgment to plaintiff.

 The bulk sales law was designed to protect creditors from the merchant, who, without notice, sells his business and stock in trade, takes the proceeds and disappears.  (See, Official Comment to Uniform Commercial Code § 6-101, Comment 2.)   In such circumstances, the creditor would be left without a remedy against the buyer of the business, who would now have, as part of his stock, the creditor's unpaid merchandise.   Lost, for instance, would be the creditor's opportunity to impound the sale proceeds.

Uniform Commercial Code § 6-104(1), in pertinent part, provides that a “bulk transfer subject to this Article is ineffective against any creditor of the transferor unless:  (a) [t]he transferee requires the transferor to furnish a list of his existing creditors prepared as stated in this section.”   The list “must be signed and sworn to or affirmed by the transferor or his agent.”  (Uniform Commercial Code § 104[2].)  Similarly, section 6-105 provides that a bulk sale transfer “is 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 hereafter provided” in section 6-107.

 While DD Pharmacy complied with its obligations under Uniform Commercial Code § 6-104 by obtaining a certified list of creditors, it is nonetheless liable to plaintiff since the list includes, as admitted, plaintiff's name as a creditor and DD Pharmacy did not serve it with written notice, as required by section 6-107(3).  “The language of the statute is positive and its purpose is restrictive.   The sale is declared to be void as against creditors of the seller unless an inventory is taken and notice is given to the creditors.”  (Thorndike & Hix Lobster Co. v. Hall, 223 App.Div. 576, 578, 229 N.Y.S. 225;  see, Hyland Meat Co. v. Tsagarakis, 202 A.D.2d 552, 553, 609 N.Y.S.2d 625.)

 Against this clear mandate, DD Pharmacy argues that it relied, not upon the certified list of creditors, but on the alleged representation of RXD's president, Milner, to Romano that plaintiff was not a creditor.   Acceptance of this argument is necessarily predicated on the notion that a certified list of creditors may be modified or clarified by parol evidence.   The trial court's determination was based on Sager's acceptance of the certified list, as modified by the purported, but disputed, telephone conversation between Romano and Milner.

DD Pharmacy's argument that it had a right to rely upon the alleged statement that plaintiff was not a creditor is unsupported by the statutory provisions or any case law.   While DD Pharmacy had a right to rely upon a written certified creditors' list, it could not rely upon unsworn oral statements.   Had it received a certified statement that no creditors existed (see, e.g., Adrian Tabin Corp. v. Climax Boutique, 34 N.Y.2d 210, 356 N.Y.S.2d 606, 313 N.E.2d 66, affg. 40 A.D.2d 146, 338 N.Y.S.2d 59) or a list that did not include plaintiff as a creditor, it could have acted in reliance thereon.

The statutory requirement of a certified list is intended to avoid just the type of conflict that occurred here, resolved only by resort to parol evidence, which carries with it the potential for fraud and deception.   Had DD Pharmacy complied with the statute, this litigation would have been avoided.   It could have requested a clarified certified list that omitted plaintiff or, alternatively, after ascertaining its address, mailed plaintiff a notice, thereby entitling it to the protection of the statute.   Instead, fully aware of the problem with the list, DD Pharmacy chose not to remedy it.   In that regard, Sager's testimony that he did not send a notice to plaintiff because he “didn't want to stamp my new client, DD Pharmacy, as a deadbeat who may have owed money” makes no sense whatever and, if anything, detracts from DD Pharmacy's reasonableness argument.

Thus, aside from the fact that a reasonableness standard is nowhere to be found in the statute, Sager's actions were unreasonable.   As he testified, it would not have been a “problem” to send plaintiff a bulk sale notice.   Had he done so, plaintiff could have availed itself of any remedies it had against RXD before the scheduled sale.   To be distinguished is Adrian Tabin Corp. v. Climax Boutique (supra ), upon which DD Pharmacy relies, because there, “[t]he parties stipulated that the purchasers had no knowledge of the plaintiff prior to the sale.”  (40 A.D.2d at 147, 338 N.Y.S.2d 59).   The Court of Appeals held that, given such a state of affairs, the transferee “may rely on the affidavit of no creditors furnished by the transferor.”  (34 N.Y.2d at 213, 356 N.Y.S.2d 606, 313 N.E.2d 66).   In such circumstances, the court held, the Uniform Commercial Code imposed no duty on the transferee of “careful inquiry” as to the existence of other creditors.  (Supra, at 213, 356 N.Y.S.2d 606, 313 N.E.2d 66.)   As is manifestly clear, that is not the case here.

Accordingly, the order of the Supreme Court, Bronx County (Barry Salman, J.), entered September 28, 1998, which, after a non-jury trial, determined that plaintiff Promotions Unlimited Corp., is not entitled to recover from DD Pharmacy Corp., should be reversed, to the extent appealed from, as limited by appellant's brief, on the law and the facts, with costs and disbursements, and judgment rendered for plaintiff against DD Pharmacy for $68,218.17, the amount sought, together with interest from March 15, 1995.   The Clerk is directed to enter judgment accordingly.

Order, Supreme Court, Bronx County (Barry Salman, J.), entered September 28, 1998, reversed, to the extent appealed from as limited by appellant's brief, on the law and the facts, with costs and disbursements, and judgment rendered for plaintiff against defendant-respondent, with interest from March 15, 1995.


1.   The price amount of the debt owed is immaterial.

2.   In the same action, plaintiff was awarded judgment against RXD in the sum of $68,218.17.


All concur.