Professional Documents
Culture Documents
3952
Purpose and general scheme of the Bulk Sales Law. 1 (a) Purpose. Bulk
Sales Act is designed to prevent the defrauding of creditors by the secret sale in
bulk of substantially all of a merchant's stock of goods. (b) General scheme The
general scheme of these statutes is to declare such bulk sales fraudulent and void as
to creditors of the vendor, or presumptively so, unless specified formalities are
observed, such as the demanding and the giving of a list of creditors, the giving of
actual or constructive notice to such creditors, by record or otherwise, and the
making of an inventory. (27 C.J. Sec. 881.)
Construction of the Law. These statutes should be read as a whole for purposes
of construction. As they are of a penal character, and in derogation of common
law, and of the right to alienate property without restriction, they are to be strictly
construed, and are not to be extended by construction to situations not clearly
intended thereby. However, these statutes should be construed and applied with a
view to cure the evil at which they are aimed, which is the defrauding of creditors
by secret bulk sales. (27 C.J. Sec. 884.)
Effect of the Bulk Sales Law as to other fraudulent conveyances. The effect of
bulk sales laws is to create a new type or kind of fraudulent conveyance (Kelley-
Buckley Co. v. Cohen, 195 Mass 585, 81 N.E. 297; Riley Pennsylvania Oil Co. v.
Symmonds, 195 Mo. A. 111, 190 S.W. 1038; Joplin Supply Co. v. Smith, 182 Mo.
A. 212, 167 S.W. 649); hence, the provisions of Arts. 13811389 of the new Civil
Code will not have the effect of modifying the Bulk Sales Law, and will be
applicable only as suppletory law insofar as they are not in conflict with said law.
What shall be deemed to be a sale and transfer in bulk. 2 A sale and transfer in
bulk is any sale, transfer, mortgage or assignment (1) of a stock of goods, wares,
merchandise, provisions, or materials otherwise than in the ordinary course of trade
and the regular prosecution of the business of the vendor, mortgagor, transferor, or
assignor, or (2) of all, or substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor, or assignor, or (3) of all, or
substantially all, of the fixtures and equipment used in and about the business of
the vendor, mortgagor, transferor, or assignor. (Sec. 2, Bulk Sales Law.)
Same; Exceptions to the rule. 3 It will not be deemed a sale and transfer in bulk
in contemplation of this Act, (1) if such vendor, mortgagor, transferor, or assignor
produces and delivers a written waiver of the provisions of this Act from his
creditors as shown by verified statements (Sec. 2, Bulk Sales Law), or (2) if such
vendor, mortgagor, transferor, or assignor is an executor, administrator, receiver
assignee in insolvency, or public officer, acting under judicial process. (Sec. 8,
Bulk Sales Law.)
Waiver and estoppel of creditors. Creditors may waive the right to the benefit of
the bulk sales statutes, or estop themselves to claim that the sale was invalid
because the requirements of the bulk sales statutes were not complied with. The
benefit of the statutes is for those who take the steps prescribed thereby in order to
protect their claims. There is no estoppel unless the conduct was relied on by the
other party to his prejudice, in accordance with the rule as to estoppel generally.
(27 C.J. Sec. 887.)
Term "stock, " explained. The common use of the term "stock" when applied to
the goods in a mercantile house refers to those which are kept for sale. (Albrecht v.
Cudihee, 37 Wash. 206, 208, 79 P. 628.)
"Exempt properties," not within the law. Bulk sales statutes are intended to
operate only on property to which creditors may look for satisfaction of their
claims and consequently have no application to property which is exempt. (27 C.J.
Sec. 889.) See "Property exempt from execution," Sec. 12, Rule 39, Rules of
Court. See also Sec. 35, Act No. 3428, as amended; Arts. 223 et seq., and 1708,
new Civil Code; and Sec. 17, Rep. Act No. 1161 (refer to annotations placed above
Sec. 48, Insolvency Law, in Volume 2.)
Sec. 3. It shall be the duty of every person who shall sell, mortgage, transfer, or
assign any stock of goods, wares, merchandise, provisions or materials in bulk, for
cash or on credit, before receiving from the vendee, mortgagee, or his, or its agent
or representative any part of the purchase price thereof, or any promissory note,
memorandum, or other evidence therefor, to deliver to such vendee, mortgagee, or
agent, or if the vendee, mortgagee, or agent be a corporation, then to the president,
vice-president, treasurer, secretary or manager of said corporation, or, if such
vendee or mortgagee be a partnership firm, then to a member thereof, a written
statement sworn to substantially as hereinafter provided, of the names and
addresses of all creditors to whom said vendor or mortgagor may be indebted,
together with the amount of indebtedness due or owing, or to become due or owing
by said vendor or mortgagor to each of said creditors, which statement shall be
verified by an oath to the following effect:
PROVINCE OR CITY OF )
_______________________
Effect of false statement. If the statement is fair upon its face and the buyer has
no knowledge of its incorrectness, and nothing to put him on inquiry about it, he
will be protected in his purchase. (International Silver Co. v. Hull, 140 Ga. 10, 78
S.E. 609, 45 L.R.A.N.S. 492; Fitzhugh v. Munnell, 92 Or. 47, 179, P. 679; Coach
v. Gage, 70 Or. 182, 138 P. 847.) If the seller misrepresents the amount of his
indebtedness, the creditor has no remedy against the goods sold, but he can
prosecute the seller criminally. (Seltzer v. Peddi, 24 Pa. Dist. 456, 41 Pa. Co. 677.)
The statute declares the sale void only on the failure of the purchaser to do what is
required of him. It does not declare the sale void if the list of creditors furnished by
a vendor under oath is not in fact "full, accurate and complete." It does not in any
way make the purchaser responsible for any incorrectness in the list. We think it
would be unreasonable to so construe it. (Glantz v. Gardiner, 40 R.I. 397, 100 A.
913, 916, L.R.A. 1917 L. 226.)
Sec. 4. Whenever any person shall sell, mortgage, transfer, or assign any stock of
goods, wares, merchandise, provisions or materials, in bulk, for cash or on credit,
and shall receive any part of the purchase price, or any promissory note, or other
evidence of indebtedness for said purchase price or advance upon mortgage,
without having first delivered to the vendee or mortgagee or to his or its agent or
representative, the sworn statement provided for in section three hereof, and
without applying the purchase or mortgage money of the said property to the pro
rata payment of the bona fide claim or claims of the creditors of the vendor or
mortgagor, as shown upon such sworn statement, he shall be deemed to have
violated this Act, and any such sale, transfer or mortgage shall be fraudulent and
void.
What are prohibited are secret conveyances. What are prohibited are secret
conveyances, those made unaccompanied by a sworn list of creditors and without
previous payment of their credits, and those made gratuitously or for a nominal
consideration. Thus, the Bulk Sales Law does not include within its prohibition
sales or mortgages made by a debtor to one of his creditors in preference to
another. (Go v. Phil. Nat. Bank, 40 Off. Gaz. 2065; see also Sec. 7, Bulk Sales
Law.)
Same; Effect of lack of sworn list of creditors. 4 A sale made of all the effects
in the vendor's store without the buyer being furnished a sworn list of creditors as
required by Sec. 3, is null and void irrespective of the good or bad faith of the
buyer, and judgment creditors may treat such sale as never having been made and
proceed to have execution levied on the properties thus sold. (Chin Asing v. Uy
Gongco & Co., [CA] 40 Off. Gaz. 11th Supp. 142.)
Same; As between purchaser and seller. The bulk sales statutes do not in any
way affect the validity of the transfer as between the immediate parties thereto. A
sale not in compliance with the bulk sales statute is valid as against all persons
other than creditors. Notwithstanding a noncompliance with the statutes, title to
goods transferred passes to the transferee as between the parties to the transfer,
where it remains until divested by proceedings instituted by a creditor for that
purpose. If the seller has been guilty of fraud to the injury of the buyer, or if there
has been an entire failure of the consideration, the seller cannot hide behind the
statute and thus avoid liability to the purchaser. So the statute does not preclude the
seller from recovering the purchase price of a sale made in violation of its terms;
but, where a sale is void for noncompliance with the bulk sales statutes, it cannot
as between the parties be made to operate to give the vendee a lien for the money
he has paid. The vendee, having acted in violation of the law, does not come into
equity with clean hands, and is not in a position to ask for any remedy in a court of
equity. It is not a ground to rescind an entire contract by which property is
exchanged for merchandise, without complying with the statutes, that there is a
partial failure of consideration by reason of the fact that creditors assert rights to a
part of the merchandise, but damages to the extent to which the buyer was injured
will be awarded. (27 C.J. Sec. 893.)
Same; Between creditors and subsequent purchasers. 6 The statute does not
confer on the creditors of the vendor who fail to comply with its requirements the
right to pursue the property in whosoever hands it may fall. To authorize the giving
of relief to creditors it must be shown that the holder of the property transferred is
the fraudulent vendee himself or some person who took the property from him with
knowledge that the transfer was fraudulent. The statutes do not render an innocent
purchaser for value from the original purchaser liable to creditors of the original
seller nor affect his title to the property. But if the circumstances are such as to
bind the subsequent purchaser with constructive notice that the sale to his vendor
was fraudulent, the property will be liable in his hands to creditors of the original
vendor. (27 C.J., Sec. 894.)
Remedies available to creditors. Under the general prevailing rule that mere
non-compliance with the statute does not render the purchaser personally liable to
creditors, an ordinary action against the purchaser by creditors to obtain a money
judgment will not lie, unless the purchaser has sold or otherwise disposed of, or
dealt with, the property, so as to become personally liable to creditors for the value
of it. The proper remedy is one against the goods to subject them to the payment of
the debt, such as execution, attachment, garnishment, or by a proceeding in equity.
(27 C.J. Sec. 895.)
Same; Replevin. A creditor of the seller cannot maintain replevin against the
purchaser to recover property sold in contravention of the Bulk Sales Act. But the
purchaser may maintain replevin to recover property seized on attachment or
execution against the seller, and in such action the validity of the sale may be
determined. (27 C.J. Sec. 900.)
Sufficiency of notice. No notice other than the one prescribed by the statute will
be sufficient (In re Thompson, 242 Fed. 602; Maultrie Grocery Co. v. Holmes-
Hartsfield Co., 22 Ga. A. 512, 96 S.E. 346) and a substantial compliance with the
requirements as to notice is essential (Stuart v. Elk Horn Bank, etc. Co., 123 Ark.
265, 185 S.W. 263, Ann. Cas. 1918A 268.) Thus, if the list furnished is not verified
as required by statute, and omits to name certain creditors who are not notified, the
sale is void as to such creditors, whether their omission was fraudulent or
otherwise. (Williams v. J.W. Crowdus Drug Co. [Tex. Civ. A.] 167 S.W. 187.)
Same; Time of notice. Where the statute requires the vendor, transferor,
mortgagor or assignor to notify personally or by registered mail every creditor "at
least ten days before transferring possession" of any stock of goods, wares,
merchandise, provisions or materials, in bulk, it is sufficiently complied with by
sending notice by registered mail at least ten days before transferring possession
thereof. It is not necessary that the notice shall have been received ten days before
such transfer of possession. (See Wyone Shoe Co. v. Daniels, 136 Ga. 192, 71 S.E.
1.)
Sec. 6. Any vendor, transferor, mortgagor or assignor of any stock of goods, wares,
merchandise, provisions or materials, in bulk, or any person acting for, or on behalf
of any such vendor, transferor, mortgagor, or assignor, who shall knowingly or
willfully make, or deliver or cause to be made or delivered, a statement, as
provided for in section three hereof, which shall not include the names of all such
creditors, with the correct amount due and to become due to each of them, or shall
contain any false or untrue statement, shall be deemed to have violated the
provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm or corporation, as owner of any
stock of goods, wares, merchandise, provisions or materials, in bulk, to transfer
title to the same without consideration or for a nominal consideration only.
Sec. 9. The sworn statement containing the names and addresses of all creditors of
the vendor or mortgagor provided for in section three of this Act, shall be
registered in the Bureau of Commerce. For the registration of each such sworn
statement a fee of five pesos shall be charged to the vendor or mortgagor of the
stock of goods, wares, merchandise, provisions or materials, in bulk. (As amended
by Rep. Act No. 111.)
Sec. 10. The provisions of this Act shall be administered by the Director of the
Bureau of Commerce, 5 who is hereby empowered, with the approval of the
Department Head, to prescribe and adopt from time to time such rules and
regulations as may be deemed necessary for the proper and efficient enforcement
of the provisions of this Act.
Sec. 11. Any person violating any provision of this Act shall, upon conviction
thereof, be punished by imprisonment for not less than six months, nor more than
five years, or fined in a sum not exceeding five thousand pesos, or by both such
imprisonment and fine, in the discretion of the court.