!"#$! &$'($)$& *+,-./+,-01 "2234 &"3 5"6#6 !

"72("86


762$! 93 &":;$##$ "77$ 8<2($&&$= *<5>"2$>? @"3 +-A +,-01
CnA1Lk 1S: 8ULk SALLS LAW
(AC1 NC. 39S2)

I. Scope (!"#$ &' (), *+ ,'-' * ./00' 12)

!"#$ &' ()

Doctr|ne: A sale made of all Lhe effecLs ln Lhe vendor's sLore wlLhouL Lhe
buyer belng furnlshed a sworn llsL of credlLors as requlred by Sec 3, ls
null and vold lrrespecLlve of Lhe good or bad falLh of Lhe buyer, and
[udgmenL credlLors may LreaL such sale as never havlng been made and
proceed Lo have execuLlon levled on Lhe properLles Lhus sold.
l. 1ransacLlons covered by Lhe law

lnLended as a specles of bankrupLcy law Lo proLecL supply
credlLors/buslnessmen agalnsL preferenLlal/fraudulenL Lransfers
done by merchanLs
lnLended Lo prevenL a slLuaLlon where merchanLs would sell
Lhelr buslnesses Lhen vanlsh, leavlng Lhelr credlLors wlLhouL
recourse agalnsL Lhe buyers ln good falLh and for value."
Law covers all LransacLlons, good falLh or noL, LhaL are wlLhln
Lhe descrlpLlon of a bulk sale"
rlmary Cb[ecLlve ls Lo compel seller ln bulk Lo:
o LxecuLe and dellver a verlfled llsL of credlLors Lo Lhe
buyer
o Clve noLlce of Lhe lnLended sale Lo Lhe credlLors
o use Lhe proceeds Lo pay ouLsLandlng llablllLles
1hls ls consldered as belng a valld exerclse of Lhe SLaLe's pollce
power. 3#45$56 &' 78$6"95:; <2 ="#>' *?+
1he 8ulk Sales Law musL be consLrued sLrlcLly. 1hus, Lhe dlsposal
by Lhe owner of a foundry shop of all hls lron bars and oLhers
does noL fall under Lhe law, because Lhe conLenLs of a foundry
shop are noL wares and merchandlse. 1he Law only covers sales
ln bulk of flxLures and equlpmenL used ln Lhe mercanLlle
buslness, whlch lnvolves Lhe buylng and selllng of merchandlse.
@=8A0>8 &' BA$6; C!DE 1+ ,'-' *FG< H?I1*J'
1he Law applles Lo merchanLs who are ln Lhe buslness of selllng
goods and wares and slmllar merchandlse, and cannoL cover Lhe
sale of asseLs by a manufacLurer slnce Lhe naLure of hls buslness
does noL parLake of merchandlse. KL= &' M"8 NA$A95O>8 P/Q68
AR S"8 TM! AR 75$#>5; FG ,'-' UA' G ??V< H+1 W8O9/59) ?II+J!

K8&8>A0X8$S L5$Y AR S"8 ="#>#00#$8Z &' TM! AR 75$#>5

Iacts: ln 1978, loneer Class ManufacLurlng Corp.purchased from ?u
(under Ancar LqulpmenL arLs and 1onlcar) equlpmenL parLs worLh
7,000. Powever, loneer falled or refused Lo pay upon demand.
WlLhouL lnformlng ?u, loneer Class Lransferred all lLs asseLs Lo u8 ln a
"deed of cesslon of properLy ln paymenL of obllgaLlon" or daclon en
pago. ln Lurn, u8 sold Lhese asseLs Lo unlon Class LhaL same year.
ln 1983, ?u lnsLlLuLed an acLlon agalnsL loneer Class, u8, and unlon
Class, asserLlng LhaL Lhe Lransfer of Lhe asseLs Lo u8 was vold by
reason of fraud.

Issue: WheLher or noL Lhe 8ulk Sales Law covers Lhe conveyance ln
quesLlon (lLs vlolaLlon would make u8, unlon Class, and loneer Class
!"#$! &$'($)$& *+,-./+,-01 "2234 &"3 5"6#6 !"72("86


762$! 93 &":;$##$ "77$ 8<2($&&$= *<5>"2$>? @"3 +-A +,-01
llable Lo ?u)

ne|d: nC. under Lhe 8ulk Sales Law, Lhe Lerms "goods" and
"merchandlse," havlng acqulred a flxed meanlng, refer Lo Lhlngs and
arLlcles, whlch are kepL for sale by a merchanL. Llkewlse, Lhe Lerm
"flxLures" has been lnLerpreLed Lo mean Lhe chaLLels, whlch Lhe
merchanLs usually possess and annex Lo Lhe premlses occupled by Lhem
ln order Lo sLore, handle and dlsplay Lhelr goods and wares. 1he
LechnlcallLy of Lhese Lerms conveys Lhe lnLenLlon of Lhe law Lo apply lL
Lo merchanLs who are ln Lhe buslness of selllng goods and wares and
slmllar merchandlse.

ln Lhls case, loneer Class manufacLured glass only on speclflc orders
and lL dld noL sell dlrecLly Lo consumers buL manufacLured lLs producLs
only for parLlcular cllenLs. 1hus, loneer Class was nC1 a merchandlser.
Moreover, Lhe daclon en pago beLween loneer and u8 Lransferred
and conveyed Lhe bulk of lLs corporaLe asseLs Lo exLlngulsh lLs
ouLsLandlng debLs Lo u8. 1hus, Lhe sub[ecL maLLer of Lhe deed of
cesslon was Lhe asseLs, noL sLock-ln-Lrade. Such conveyance was clearly
ouLslde Lhe amblL of Lhe 8ulk Sales Law. SC ordered loneer Class, noL
u8 and unlon Class, Lo pay ?u Lhe prlce of Lhe equlpmenL purchased
plus lnLeresL.

Doctr|ne:

II. Coverage of "8u|k Sa|e" - Sa|e, transfer, mortgage or ass|gnment of:

AC1 NC. 39S2
Sect|on 2. Sa|e and transfer |n bu|k.
Any sa|e, transfer, mortgage or ass|gnment of a stock of goods, wares,
merchand|se, prov|s|ons, or mater|a|s otherw|se than |n the ord|nary
course of trade and the regu|ar prosecut|on of the bus|ness of the
vendor, mortgagor, transferor, or ass|gnor, or sa|e, transfer, mortgage
or ass|gnment of a||, or substant|a||y a||, of the bus|ness or trade
theretofore conducted by the vendor, mortgagor, transferor, or
ass|gnor, or of a||, or substant|a||y a||, of the f|xtures and equ|pment
used |n and about the bus|ness of the vendor, mortgagor, transferor,
or ass|gnor, sha|| be deemed to be a sa|e and transfer |n bu|k, |n
contemp|at|on of th|s Act: rov|ded, however, 1hat |f such vendor,
mortgagor, transferor or ass|gnor, produces and de||vers a wr|tten
wa|ver of the prov|s|ons of th|s Act from h|s cred|tors as shown by
ver|f|ed statements, then, and |n that case, the prov|s|ons of th|s
sect|on sha|| not app|y.

1hree 1ypes of 1ransacLlon
1. Lxtraord|nary Sa|e Cf Goods (e||ow) ! Coods, wares,
merchandlse, provlslons or maLerlal oLher Lhan ln Lhe ordlnary
course of buslness.
2. Lxtraord|nary Sa|e Cf I|xtures And Lqu|pment (|nk) ! All, or
subsLanLlally all of all or subsLanLlally all of Lhe flxLures and
equlpmenL used ln and abouL Lhe buslness.
3. Sa|e Cf 8us|ness Lnterpr|se (Green) ! All, or subsLanLlally all of
Lhe buslness or Lrade LhereLofore conducLed by Lhe vendor,
morLgagor, Lransferor, or asslgnor.
MoLlve/lnLenLlon/consequence of sale ls noL an elemenL
o As long as Lhe LransacLlon ls wlLhln Lhe descrlpLlon, no
maLLer whaL lL's belng done for, lL ls covered by Lhe 8ulk
Sales Law.
!"#$! &$'($)$& *+,-./+,-01 "2234 &"3 5"6#6 !"72("86


762$! 93 &":;$##$ "77$ 8<2($&&$= *<5>"2$>? @"3 +-A +,-01
CuallflcaLlon of ln Lhe normal course of buslness" applles only
Lo Lhe flrsL Lype
o Second Lwo Lypes are by naLure noL ln Lhe normal
course of buslness.
8ulk sales are of a naLure LhaL Lhey do noL fall wlLhln Lhe normal
course, whlch Lhus should warn parLles Lo such LransacLlons

A. "8u|k Sa|es" Not Covered 8y Law
Some excepLlons: even lf LransacLlon comes wlLhln SecLlon 2,
8ulk Sales Law does noL apply Lo Lhese cases:
1. Seller produces and dellvers a wrlLLen walver of Lhe
provlslons of Lhe Law from hls credlLors as shown by
verlfled sLaLemenLs, and
2. 1ransacLlons effecLed by execuLors, admlnlsLraLors,
recelvers, asslgnees ln lnsolvency, or publlc offlcers,
acLlng under legal process.

8. "8us|ness" Covered by the Law
=8A0>8 &' BA$6; 1+ ,'-' *F<G
o 8ulk sales law should be consLrued sLrlcLly agalnsL Lhe
SLaLe and ln favor of Lhe accused.
o ln Lhls case, accused was held llable for selllng hls
foundry shop, along wlLh all oLher asseLs. 1he Supreme
CourL held LhaL Lhe 8ulk Sales Law conLemplaLes sale of
merchandlse, sLock, and goods - noL Lhe sale of Lhe
whole shop wlLh Lhe equlpmenL, credlLs, eLc. As such, a
foundry shop whlch does noL sell merchandlse ls noL
lncluded.
Meanlng of merchandlse and SLock
o Merchandlse ! someLhlng sold everyday, golng ln and
ouL of Lhe sLore, replaced by oLher goods - Lhlngs
usually boughL and sold ln Lrade by merchanLs
o SLock ! Lhose goods kepL for sale.
K8&8>A0X8$S L5$Y AR S"8 ="#>#00#$8Z &' TM! AR 75$#>5; FG ,'-';
UA' G; ??V< H+1 W8O9/59) ?II+J relLeraLed Lhe Wong rullng
regardlng appllcablllLy Lo bulk sales noL lnvolvlng merchandlse
and sLock.
1hus - enumeraLlon ln Lhe flrsL Lype of bulk sales: only covers
Lhose sold ln Lhe normal course of buslness.
o Wong: sale of flxLures and equlpmenL" excludes
maLerlals used ln Lhe process of producLlon.
Powever, Wong and u8 rullngs seem only Lo lnLerpreL Lhe flrsL
Lype
o When lL comes Lo Lhe oLher Lwo Lypes, law does noL
llmlL Lhe coverage Lo a parLlcular Lype of buslness.
o We do noL conslder Lhe Wong and u8 rullngs when lL
comes Lo Lhe oLher Lwo Lypes of 8ulk sales


III. Cb||gat|ons of Se||er]Lncumbrancer When 1ransact|on |s a 8u|k Sa|e

1. 1o De||ver a Sworn Statement of L|st|ng of Cred|tors (Sect|on 3)
- 8efore recelvlng from Lhe vendee, morLgagee, or hls, or lLs
agenL or represenLaLlve any parL of Lhe purchase prlce Lhereof,
or any promlssory noLe, memorandum, or oLher evldence
Lherefor, Lo dellver Lo such vendee, morLgagee, or agenL, or lf
Lhe vendee, morLgagee, or agenL be a corporaLlon, Lhen Lo Lhe
presldenL, vlce-presldenL, Lreasurer, secreLary or manager of
!"#$! &$'($)$& *+,-./+,-01 "2234 &"3 5"6#6 !"72("86


762$! 93 &":;$##$ "77$ 8<2($&&$= *<5>"2$>? @"3 +-A +,-01
sald corporaLlon, or, lf such vendee or morLgagee be a
parLnershlp flrm, Lhen Lo a member Lhereof, a wrlLLen
sLaLemenL, sworn Lo subsLanLlally as herelnafLer provlded, of:
a. 1he names and addresses of all credlLors Lo whom sald
vendor or morLgagor may be lndebLed, LogeLher wlLh
b. 1he amounL of lndebLedness due or owlng, or Lo
become due or owlng by sald vendor or morLgagor Lo
each of sald credlLors
2. ro-kata App||cat|on of roceeds (Sect|on 4) - Applylng Lhe
purchase or morLgage money of Lhe sald properLy Lo Lhe pro
raLa paymenL of Lhe bona flde clalm or clalms of Lhe credlLors of
Lhe vendor or morLgagor, as shown upon such sworn sLaLemenL.
3. Wr|tten Advance D|sc|osure to Cred|tors (Sect|on S) - lL shall
be Lhe duLy of every vendor, Lransferor, morLgagor, or asslgnor:
a. AL leasL Len days before Lhe sale, Lransfer or execuLlon
of a morLgage upon any sLock of goods, wares,
merchandlse, provlslons or maLerlals, ln bulk, Lo make a
full deLalled lnvenLory Lhereof and Lo preserve Lhe same
showlng Lhe quanLlLy and, so far as ls posslble wlLh Lhe
exerclse of reasonable dlllgence, Lhe cosL prlce Lo Lhe
vendor, Lransferor, morLgagor or asslgnor of each arLlcle
Lo be lncluded ln Lhe sale, Lransfer or morLgage, and
b. noLlfy every credlLor whose name and address ls seL
forLh ln Lhe verlfled sLaLemenL of Lhe vendor, Lransferor,
morLgagor, or asslgnor, aL leasL Len days before
Lransferrlng possesslon Lhereof, personally or by
reglsLered mall, of Lhe prlce, Lerms condlLlons of Lhe
sale, Lransfer, morLgage, or asslgnmenL.
4. 8u|k 1ransfers for Nom|na| Va|ue (Sect|on 7) - lL shall be
unlawful for any person, flrm or corporaLlon, as owner of any
sLock of goods, wares, merchandlse, provlslons or maLerlals, ln
bulk, Lo Lransfer LlLle Lo Lhe same wlLhouL conslderaLlon or for a
nomlnal conslderaLlon only.

IV. Consequences of V|o|at|on of the Law
A sale ln bulk done wlLhouL complylng wlLh Lhe Lerms of Lhe
Law, makes Lhe LransacLlon fraudulenL and vold, buL does noL
change Lhe baslc relaLlonshlp beLween Lhe seller,
asslgnor/encumbrancer and hls credlLor. 1he porLlon of a
[udgmenL provldlng for subsldlary llablllLy ls lnvalld, slnce Lhe
proper remedy of Lhe credlLor ls Lo collecL on Lhe credlL agalnsL
Lhe defendanL, and lf Lhey cannoL pay Lo aLLach on Lhe properLy
fraudulenLly morLgage slnce Lhe same sLlll perLaln Lo Lhe
debLors-defendanLs. @=8A0>8 &' 750A); <V ="#>' G<F H?I*2J'
Sect|on 11: lmprlsonmenL of noL less LhaL 6 monLhs, noL more
Lhan 3 years, w/ flne noL exceedlng 3,000.
We evaluaLe Lhe effecLs of breaklng Lhe law from 3 dlfferenL
sLandpolnLs:
o Cn Lhe LransacLlon lLself
o Cn Lhe seller
o Cn Lhe buyer

A. Cn the 1ransact|on |tse|f
1. If sworn ||st|ng of cred|tors |s not prepared, or |f the proceeds
are not app||ed to them, the sa|e sha|| be fraudu|ent and vo|d.
o 1hls ls noL merely a presumpLlon: lL ls ln facL LreaLed as
vold.
!"#$! &$'($)$& *+,-./+,-01 "2234 &"3 5"6#6 !"72("86


762$! 93 &":;$##$ "77$ 8<2($&&$= *<5>"2$>? @"3 +-A +,-01
" no legal effecLs arlse from Lhe LransacLlon
" no rlghL of acLlon accrues
1hus, Lhe sub[ecL maLLer ls sLlll owned by Lhe asslgnor, and sLlll
sub[ecL Lo Lhe saLlsfacLlon of hls llablllLles
=8A0>8 &' 750A); <V ="#>' G<F H?I*2J
o Sale ls vold, buL Lhe relaLlonshlp beLween seller and
credlLor ls unchanged.
o roper remedy of credlLor ls Lo collecL on Lhe credlL
agalnsL Lhe defendanL, and lf he cannoL pay, Lo aLLach
on Lhe properLy fraudulenLly sold/morLgaged.

2. Ia||ure to make an advanced wr|tten d|sc|osure to cred|tors
does not render the sa|e fraudu|ent and vo|d.
Legal consequences of a sale ln 8ulk for nomlnal value
o Law declares lL unlawful, buL noL fraudulenL and vold
o Powever, lf Lhere was no oLher valuable conslderaLlon,
we have Lo declare lL vold for lack of cause or
conslderaLlon.

8. Cn Se||er]Mortgagor]Ass|gnor
1. Cr|m|na| L|ab|||ty
vlolaLlon of hls obllgaLlons Lo prepare a llsL of credlLors and
apply Lhe proceeds of Lhe sale Lo Lhese credlLors sub[ecLs hlm Lo
crlmlnal llablllLy.
lf Lhe llsL does noL lnclude all names of credlLors, or wlLh wrong
amounLs, lL sub[ecLs hlm Lo crlmlnal llablllLy.
1o sell Lhe sLocks/goods/merchandlse for no conslderaLlon, or
for nomlnal conslderaLlon only, sub[ecL seller Lo crlmlnal
llablllLy.

2. No Cr|m|na| L|ab|||ty
Sworn sLaLemenL should be reglsLered wlLh ueparLmenL of
1rade and lndusLry.
o noncompllance wlLh Lhls does noL affecL valldlLy nor
does lL sub[ecL hlm Lo crlmlnal penalLy.
lallure Lo dellver advance noLlce does noL sub[ecL hlm Lo
crlmlnal llablllLy.

C. Cn 8uyer]Mortgagee]1ransferee
no dlrecL obllgaLlon.
lL can be sald LhaL no crlmlnal llablllLy aLLaches Lo Lhe buyers
o Some argue LhaL Lhey are prlnclpals by lndlspensable
cooperaLlon, lf Lhey were aware of Lhe lnLenL/consplred
wlLh Lhe seller.
1here are sLlll effecLs Lhough slnce sale may be rendered
fraudulenL and vold. 1hus, he would flnd hlmself noL enLlLled Lo
Lhe Lhlngs he pald for.
o Pe may also be sued for recovery of whaL he has
obLalned.
o Pe may also be llable for damages for havlng helped
defraud credlLors.