‘U.P. LAW LIBRARY COMMENTARIES AND JURISPRUDENCE ON THE PHILIPPINE COMMERCIAL LAWS By - TEODORICO C. MARTIN, LLB, LLM. ‘Member, Philippine Band Integrated Bar ofthe Philippines; Former Dean, San Sebastian College of Lau; Reviewer and Professor of Commercial Laws, U.M, U.S.T., UP, San Beda, ete; Author, Commercial Law Reviewer, Definitions, Distinctions and Essentials in Commercial Laws: Labor and Industrial Laws; Introduction to Philip- ine Laws, ete 1988 REVISED EDITION orciran COLLEGE OF LAW Vii Mom Yee ® Published and Distributed . By CENTRAL BOOK SUPPLY, INC. (Lawbook Division of Alemar's} 169 Rizal Avenue, Manila506 RETAIL BUSINESS: tion and retail trade permit of the deceased retailer together with his licenses, shall be presented to the city/municipal Treasurer who shall stamp on the face of the permit and licenses the following: “Valid for liquidation purposes only un- til date) under R.A. 1180, as amended.” ‘Sec, 3. Within five (5) days after the completion of li- ‘quidation, the liquidator shall notify the Secretary of Trade of the termination of such liquidation and shall surrender to the city/municipal treasurer the retail permit and the licenses of the deceased retailer for cancellation, The treasurer shall in- form the Secretary of Trade of such cancellation. Rule XII, Implementation ‘The ‘Trade Nationalization Division of the Bureau of Domestic Trade shall implement these rules and regulations ‘and submit periodic report and recommendations to the Secretary of Trade. Rule XIII. Revocation of Inconsistent Rules ‘Allrules and regulations, circulars or memoranda that are not consistent with these rules and regulations are hereby revoked or amended accordingly. Rule XIV. Effectivity ‘These Rules and Regulations shall take effect after fifteen (15) days following the completion of publication in the thiree ewspapers of general circulation, (72 OG No. 13, p. 9432 March 29, 1976) THE BULK SALES LAW (Act No.$952,as amended) Section 1. This Act shall be known as "The Bulk Sales Law. ‘Purpose and general scheme of the Bulk Sales Low.'—(e) Purpose-Bulk ‘Sales Act is designed to prevent, the defrauding of creditors by the secret sale in bulk of ubstantialy all of a merchant's stock of goods. (b) General soheme—The general scheme of these statutes is to declare Such bulk sales fraudulent and void as to creditors of the ver Gor, or presumptively so, unless specified formalities are Sbserved, 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 inven- tory. (27 C.J. See. 881.) ~ Gonistitutionality of the Late — The Bulls Galea Lav is con stitutional, (Liwandy v. Menghraj, 40 Off, Gaz, 1441.) Bulk alos statutes have been sustained as a constitutional exercise of the police power, and as such not in violation of the con. stitution prokibiting the enactment of laws which shall deprive any person of life, liberty, or property without due process of Taw, or which shall deny to such person the equal protection of the’ laws. Nor do they infringe’ constitutional provisions muarantesing the right of acquiring, possessing, and protec: ting property. (27 C.J. Sec. 882.) ‘Construction of the Law.—These statutes should be read ‘asa whole for purposes of construction. As they are of a penal ‘character, and in derogation of common law, and of the right to flienate property without restriction, they are to be strictly ‘Construed, and are not to be extended by construction to situa: tions 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. See. 884.) 1 Asked, Bar Exams, 1949, 1954, 1958, 1959, 507508 ‘THEBULK SALES LAW See.2 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. 1088; Joplin Supply Co. v. Smith, 182 Mo. A. 212, 167 S.W. 649); hence, the provi- sions of Arts, 1881-1389 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. See. 2. Any sale, transfer, mortgage or assignment 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 any sale, transfer, mortgage, or assignment of all, or substantially all, of the business or trade theretofore conducted by the vendor, mortgagor, transferor, or assignor, of of all, or substantially all, of the fixtures and ‘equipment used in and about the business of the vendor, mort gagor, transferor, or assignor, shall be deemed to be a sale and transfer in bulk, in contemplation of this Act: Provided, however, That if such vendor, mortgagor, transferor, or assignor, produces and delivers a written waiver of the provi- sions of this Act from his creditors as shown by veri statements, then, and in that case, the provisions of this sec- tion shall not apply. What shall be deemed to be a sale and transfer in bulk*—A sale and transfer in bulk is any sale, transfer, mort- gage or assignment (1) of a stock of goods, wares, metchan- dise, 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, ot (2\ofiallvor ducted by the vendor, snoremagon transfer orassignor or transferor, or assignor, or (3) of f all, or substantially all, of the fixtures and equipment used ‘daraniaboutathe usinesssol theavendos, mortgagor, trans- feror, or assigmor. (See. 2, Bulk Sales Law.) Asked, Bar Exams,, 1947, 1954, 1958, 1972, 1974. See.2 THEBULKSALESLAW 509 Same Exceptions to the rule*—It will not be deemed a sale and transfer in bulk in contemplation of this Act, (.) 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 (See. 2, Bulk Sales Lau), or (2) if such vendor, mortgagor, transferor. or assignor is an executor, administrator. receiver assignee in insolvency cof public officer, acting under judicial process. (See. & Bult Sales Law) ‘Term “sellers,” explained. —The statutes generally do ap- ply to retail merchants, traders, or dealers, and generally only topersons of that class, (27 CJ. Sec. 888.) Term “creditors,” explained —he term “creditors” as descriptive of the persons in whose favor the statute declares a bulk sale fraudulent and void is usually not restricted to any particular class of creditors, but includes all persons who were ereditors of the seller at the time of the sale, although their claims had not been reduced to judgment, or were not due, and although they were not creditors for merchandise, but were merely general creditors of the seller in other transactions. But only those who were creditors at the time of the sale complain: ed of are entitled to the benefits of the statute; creditors whose claims came into existence subsequent to the sale are not pro- tected thereby. (27 C.J. Sec. 888,) 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 re- quirements 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 ver “stock” when applied to the goods in a mercantile house refers: to those which are kept for sale. “Albrecht v. Cudihee, 87 Wash 206, 208, 79 P. 628) Term “merchandise,” explained —We think that “mer chandise,” as used in this act, must be construed to mann such Asked, Bar Bxams., 1954, 1964510 ‘THEBULK SALESLAW See,2 things as are usually bought and’sold in trade by merchants. (People’s Sav. Bank v. Van Allsburg, 165 Mick. 524, 526, 131 N.W. 101.) "Merchandise" means something that is sold every day, and is constantly going out of the store arid being replac- ed by other goods. (Boise Credit Men's Ass'n. v: Ells, 26 Ida. 438, 449, 144 P. 6, LRA, 1915 E, 917,) Thus, “merchandise” may inelude a stock of meat and other merchandise such as is usually sold in a market (Virginia-Carolina Chemical Co. v. Bouchelle, 12 Ga. A. 611, 78S. E. 51), or liquors kept if a saloon for sale (Marshon v. Toohey, 38 Nev. 248, 148 P. 357}; but land and buildings are not “goods, wares, and merchandise’ within the statute. (McMillen u. Nelson, [N. D.] 181 N. W. 618; Na- tional Trust Co, v. Nadon, 8 Sask. L, 41, 24 Dom, LR. 742, 30 West L. R, 588, 7 West Whly. 1067; Barthels v. Sloance, 7 Sask, 1.376) Term “fixtures,” explained —When used in statutes of thio character, it rofers to ouch articles of merehandioc uavally possessed and annexed to the premises occupied by them to enable them better to store, handle, and display their wares and which are commonly known as trade fixtures, although removable without material injury to the premises at or before the end of tenancy. (Brown u. Quigley, 165 Mich. 397, 180 N. W. 690, 34 LRAN.S. 218 {foll People’s Sav. Bank v. Van Allsburg, 165 Mick. 524, 131 N.W. 101.]) But a store building containing a stock of merchandise and being used for transac- tions of mercantile business is not a fixture. The statute has reference to trade fixtures connected with the business and not to the building in which the business is carried on. (Robbins v. Puller, [Ark] 229 S.W. 8 McMillen v. Nelson, {N. D.}181 N. W. 618) “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 con- sequently haveno application to property whieh is exempt. (27 C.J. Sec. 889, See "Property exempt from execution,” Sec. 12, Rule 89, Rules of Court, See also Sec. 35, Act No. 3428, as amended; Arts, 223 et seq., and 1708, new Civil Code: and See. 17, Rep. Act No. 116] (refer to annotations placed above Sec. 48, Insolvency Law, in Volume.2,) See.3 ‘THEBULKSALESLAW ell 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 ot 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, vicepresident, treasurer, secretary or manager of ssid 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 ereditors to whom said vendor ‘or mortgagor may be indebted, together with the amount of in- debtedness 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: PHILIPPINE ISLANDS ) $8. PROVINCE OR CITY OF ) Before me, the undersigned authority, personally ay peared ___ (vendor, mortgagor, agent or represen- tative, as the case may be), bearing Res. Cert, No. issued at __ on the __ who, by me being firs his oath, deposes and states that the foregoing statement con- tains the names of all the creditors of ___ (ven dor, mortgagor) together with their addresses, and that the amount set opposite each of said respective names, is the amount now due and owing, and which shall become due and ___" (vendor or mortgagor) to such creditors, and that there are no creditors holding claims due or which shall become due, for, or on account of goods, wares, merchandise, provisions or materials purchased upon credit or ‘on account of money borrowed, to carry on the business of ‘said goods, wares, merchandise, provisions of materials are d part, other than as set forth in said statement, "(Signature of vendor, ete.)512 ‘THEBULK SALES LAW See.3 Subscribed and sworn to before me this__ day 19__at of. Sufficiency of statement. —Substantial compliance with the statute is essential to validity of the sale or transfer. (In re Calvi, 185 Fed. 642; Peck v. Hibben, 185 Ind. 623, 114 N. B. 216; Interstate Shirt, ete. Co. v. Windham, 165 Mich. 648, 131 N. W. 102.) A verbal statement that the seller had no creditors is not sufficient compliance with a statute requiring the statement to be in writing and under oath. (Peck v. Hibben, supra) If the seller has no creditors, an unequivocal statement of this fact is necessary in the statement. Interstate Skint, ete. Co. u. Wind- ham, supra; Fitzhugh v. Munnell, 92 Or. 47, 179 P. 679.) An affidavit stating that a stock sold is “entirely free from debt ‘and that there is no incumbrance thereon, except a certain chattel mortgage given to” a specified person is insufficient.as against existing creditors of the seller. (Interstate Shirt, ete. Co, v. Windham, supra) The statute contemplates not only creditors whose claims are due but those whose claims are not ‘due and the statement must state the facts as to both class of creditors if both exist and if there are none such, the latter fact ‘must be stated. The statement is ineffectual if it fails to give the addresses of the creditors. If the statement is defective on its face, the buyer accepts it at his peril. (Fitzhugh v. Munnell, supra} 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 SLB. 609, 45 LRA.NS. 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 ifthe list of creditors furnished by a vendor under 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. Sec.4 513 (Glantz v, Gardiner, 40 R.1. $97, 100 A. 913, 916, L.RA. 1917 L. 226) Sec. 4. Whenever any person shall sell, mortgage, transfer, oF assign any stock of goods, wares, merchandise, provisions of materials, in bulk for cash or on credit and shall Frecive any part of the purchase price, or any promissory note, Srother evidence of indebtedness for said purchase price or suvasiee upon mortgage, without having first delivered to the Yendee or mortgagee or to his oF 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 elnim or Tlaims of the ereditors of the vendor or mortgagor, as shown upon such sworn statement, he shall be deemed to have lolnted 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 swom list of ereditors and without previous payment of their credits, and those made gratuitously or for a nominal con- sideration. Thus, the Bulk Sales Law does not include within its prohibition sales or mortgages made by e 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 Laue.) Same; Effect of lack of sworn list of creditors.‘—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 See. 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) Rights and liabilities; As between purchaser and cre- ditors’—A purchaser in violation of the Bulk Sales Act ac quires no rights in the property purchased as against the creditors of the seller. His status is that of trustee, or receiver {for the benefit of all the creditors of the seller. As such he is responsible for the disposition of the property. The fact that he "© Asked, Bar Exams, 1980. 5 Asked, Bar Exams., 1969, 1982.514 ‘THEBULK SALESLAW Seed has mingled une goods with his own so as to destroy their iden- tity, or that he has resold the property, does not divest him of his liability to creditors, but on the contrary operates to im- pose'a personal liability. Application By the séller of the pro- ceeds of a bulk sale to the payment of some of his creditors does not affect the buyer's liability to other eféditors who received none of the proceeds. Where a purchaser ‘does not comply with the law, the meré fact that on his requést the creditor sought to collect from the seller doesnot raise an estoppel against him to sue them on his primary liability to them. (27 C.J. Sec. 892.) 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 com- pliance with the bulk sales statute is valid as against all per- sons other than creditors. Notwithstanding a noncompliance with the statutes, title to goods transferred passes to the transferee as hetween the parties to the transfer. where it re- ‘mains until divested by proceedings instituted by a creditor for that purpose. If the seller has been guilty of fraud to the in- jury 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 non- ‘compliance 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 ex- changed 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 €: J. Sec. 893:) Same; Between creditors .and subsequent purchaser. —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 © Asked, Bar Exams., 1982. See.5 THE BULK SALES LAW 515 giving of relief to creditors it must be shown that the holder of the property transferred is the fraudulent vende himself or some person who took the property from him with knowledge that the transfer was fraudulent, The statutes donot render an innocent purchaser for value from the original purchaser liable to creditors of the original seller nor affect his title to the pro- perty. 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 hot render the purchaser personally liable to creditors, an or- dinary 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 debl, such as-execution, attachment, garnish- ‘ment, 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 con travention of the Bulk Sales Act, But the purchaser may main- tain replevin to recover property seized on attachment or ex- ‘ecution against the seller, and in such action the validity of the sale may be determined. (27 CJ. Sec. 900.) Sec. 5. It ghall be the duty of every vendor, transferor, mortgagor, oF assignor, at least ten days before the sale, transfer oF execution of a mortgage upon any stock of goods, wares, merchandise, provisions or materials, in bulk, to make a full detailed inventory thereof and to preserve the same show- 1 the quantity and, 6o far as is possible with the exercise of, reasonable diligence, the cost price to the vendor, transferor, ‘morigagor.or assignor of each article to be included in the sale, Uransfer, mortgage, or assignment, and notify every creditor whose name and address is set forth in the verified statement of the vendor, transferor, mortgagor, or assignor, at least ten days before transferring possession thereof, personally or by registered mail, of the price, terms and conditions of the sale, transfer, mortgage, or assignment.” T Asked, Bar Exams., 1980.516 THE BULK SALES LAW Secs.68 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. 285, 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, mer- chandise, 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 Coa. v. Daniels, 136 Ga. 192, 71S. 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 bebalf of any such vendor, transferor, mortgagor, or assignor, who shall knowingly or wilfully 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 cor poration, 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. 8. Nothing in this Act contained shalf apply to ex- ccutors, administrators, receivers, assignees in insolvency, ot public officers, acting under judicial process. Secs. 912 ‘THE BULK SALESLAW 517 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, ‘provi- sions or materials, in bulk. (As amended by Rep. Act No. 111.) 10, ‘Thaprovnons cf hi Act shallb sailed by th Biniar ofthe Berson of Commerce? whe teberey e- powered, with the approval of the Department Head, to prescribe and adopt from time to time such rules and regula reer re eclaaty fr the rope en efit aa rc povidone Acts 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 Lbuusand pesos, o by both auch imprisonment and fine, in the discretion of the court. Rules as to subsidiary imprisonment—No subsidiary im- prisonment should be imposed on an accused found guilty of violating the Bulk Sales Law, if he fails to pay his obligation to a creditor who may have been prejudiced by reason of the fraudulent and void mortgage executed by the accused, there being no proof that the goods mortgaged have disappeared. (People v. Mapoy, Off. Gaz. for August, 1948, 755,) Sec. 12, This Act shall take effect on its approval. Approved, December 12, 1932. © Now, Bureau of Domestic Trade.