Bulk Sales Law(Act 3952, as amended)

1. Purpose
•
To regulate the sale, transfer,
mortgageor assignment of goods, wares,merchandise, provisions or mate
rials inbulk, and prescribing penalties for theviolation of the provisions
thereof.
•
To prevent the defrauding of creditors bythe secret sale or disposal or
mortgage inbulk of all or substantially all of amerchant’s stock of goods
bulk until thecreditor of the seller shall have been paidin full.
•
The law is penal in nature. Thus, itsprovisions must be strictly construedagain
st the government and liberally infavor of the accused.
•
The general scheme of the law is todeclare such bulk sales fraudulent andvoid 
as to creditors of the vendor, orpresumptively so, unless specifiedformali
ties are observed, such as thedemanding and the giving of a list of
 
creditors, the giving of actual orconstructive notice to such creditors, bythe
record or otherwise, and the makingof an inventory.
(Comments and Caseson Sales – De Leon, 2005 ed.)
•
Justification: police power of the state(Liwanag vs Mengraj)
2. Types of Sales in Bulk
•
Not in the ordinary course of trade orbusiness
  Any 
sale, transfer, mortgage or
assignmentof a stock of goods, wares, merchandise,provisions, or
materials (Sec 2)
•
In the course of trade or businessSale, transfer, mortgage or assignment of 
all, or substantially all 
, of the business ortrade conducted or of 
all, or substantially  all 
, of the fixtures and equipment used inand about the business (Sec 2)
•
Exempt Transactions:
»
Sale or mortgageis made in the ordinary course of business
»
Whenaccompanied with a written waiver by allthe seller/mortgagor’s
creditors (Sec. 2)
»
Sale by virtue of a judicial order (Sec. 8)
»
Sale by assigneein insolvency or those beyond the reachof creditors
»
Sale of propertiesexempt from attachment or execution(Rule 39, Sec. 13,
Rules of Court)
•
Creditors contemplated:
»
Creditor at thetime of the sale/mortgage
»
Need not be judgment creditors
»
Claim need notbe due
•
Fraudulent conveyance under the Bulk Sales Law asagainst transfer in fraud of
creditors underthe CC:
»
The former is nulland void while the latter (under Arts.1381-
1389) is rescissible and is validuntil set aside by a competent court
»
When the law isduly complied with, the creditors m
 
aynot object to the transaction, but it maybe rescinded if it is shown that it
was, infact, made in fraud of creditors
(Pandect  of  Commercial  Law  and  Jurisprudence  -  Justice Vitug, 1997 ed.)
•
The law covers all transactions,whether done in good faith or not, or
whetherthe seller is in a state of insolvency or not,
aslong as the transaction falls within thedescription of what is a “bulk
sale”. Neitherthe motive nor the intention of the seller,
northe resulting consequence thereof to hisestate, constitutes an elemen
t of what is abulk sale; nor is the proof thereof relevant indetermining
whether the said transaction fallswithin the coverage of the law.
Albercht vs Cudikee (79 Pac. 628)
The common use of the term
stock 
when appliedto goods in a mercantile house refers to that whichare kept for
sale.
Boise Credit Men’s Assoc. vs Ellis (133 Pac. 6)
Merchandise
must be construed to mean suchthings as are usually bought and sold in trade
bymerchants. (People’s Savings Bank vs BenAllsburg, 131 N.W. 101) It
means something thatis sold everyday, and is constantly going out of
thestore and being replaced by other goods.
Brown vs Quigley (130 N.W. 690)
The term
(fixtures)
refers to such articles of merchandise usually possessed
and annexed tothe premises occupied by merchants to enablethem bette
 r to store, handle, and display theirwares although removable without
material injuryto the premises at or before the end of tenancy.
Comments ad Cases on Sales – De Leon, 2000 ed.
Lands and buildings are not “goods, merchandiseand fixtures” therefore not
covered by the BSL.
Philippine Law on Sales – Villanueva, 1998 ed.
•
The qualification “in the normal course of business” applies only to the first
type of bulk sale defined by law.
•
Fraud and insolvency is not an element of what constitutes “Bulk Sales”.
•
The law covers all transactions, whetherdone in good faith or bad faith.
3. Duties of Persons Selling inBulk
3.1. Statement of Creditors
Vendor must, before receiving from thevendee, mortgagee, or agent any part
of thepurchase price, or any promissory note,memorandum, or other
evidence thereforedeliver a written statement of creditors withthe
following information:i.names and addresses of allcreditors to whom said
vendoror mortgagor may be indebtedii.amount of indebtedness due
orowing, or to become due orowing to each of said creditors(Sec 3)The
sworn statement shall be registered
inthe Bureau of Commerce. For theregistration of each such sworn
statement afee of five pesos shall be charged. (Sec 9)If the
vendor/mortgagor receives any part of the purchase price, or any
promissory note,or other evidence of indebtedness withouthaving first
delivered the sworn
statementand without applying the purchase ormortgage money of the
said property to thepro rata payment of the bona fide claims of the
creditors of the vendor or mortgagor, heshall be deemed to have violated
this Act,and any such sale, transfer or mortgageshall be fraudulent and
void. (Sec 4)If the vendor / mortgagor shall knowingly orwillfully make,
deliver or cause to be madeor delivered,
a statement which shall notinclude the names of all such creditors, w/the
correct amount due and to become dueto each of them, or shall contain
any false oruntrue statement, shall be deemed to haveviolated the
provisions of this Act.
(Sec 6)The vendor, mortgagor, transferor orassignor must apply the
purchase money tothe pro-rata payment of bona fide claims
of the creditors as shown in the verifiedstatement.
3.2. Inventory and Notification
Vendor / mortgagor must, at least ten daysbefore the sale, transfer or
execution of amortgagei.make a full detailed inventoryii.preserve the
same showing
thequantity and, so far as ispossible with the exercise of reasonable dilige
nce, the c
 
ostprice to the vendor, transferor,mortgagor or assignor of eacharticle to be
included in the sale,transfer or mortgage
iii.
notify every creditor whose
nameand address is set forth in theverified statement personally orby
registered mail, of the
price,terms conditions of the sale,transfer, mortgage, orassignment.
3.3. Transfer for Consideration
It shall be unlawful for vendor to transfer
titlewithout consideration or for a nominalconsideration only. (Sec 7)
4. Consequences of Non-compliance
Any person violating any provision of this Act
shall,be punished by imprisonment not less than sixmonths, nor more
than five years, or fined in sumnot exceeding five thousand pesos, or
both. (Sec11)
4.1. Incomplete or false or untruesworn written statement is a violation4.2.
Effects of false statements in theschedule of creditors
»
Without knowledge of the buyer: if the statement is fairupon its face he will
be protected
»
With knowledge orimputed knowledge of buyer: thevendee accepts it at his
peril. The saleis valid between the vendor and thevendee but void as
the against thecreditors
»
With names of certain creditors without notice: thesale is void as to such cred
itors,whether that omission was fraudulentor not
»
With respect to aninnocent purchaser for value from theoriginal purchaser:
purchaser shall beprotected
4.3. Effects of violation of law ontransfer
»
As between theparties: valid contract
»
As betweenpersons other than the creditors: valid
»
As to affectedcreditors of the seller/mortgagor: void
Criminal liability,if expressly provided