XIV.

BULK SALES LAW

A. Introduction

SEC. 174. HISTORY OF BULK SALES STATUTES IN THE UNITED STATES

Prior to 1890, there was no federal bankruptcy act and there

was little protection to creditors against preferential and fraudulent
transfers. Following the panic of 1893, merchants in failing
circumstances cheated their creditors by hurriedly making secret
sales of their entire assets. The fraudulent conveyance statutes then
in force were modelled after the Statute of 13 Elizabeth and did not
afford adequate relief to creditors because the latter had the burden
of proving fraudulent connivance with the purchaser. The first bulk
sales statute was adopted in Louisiana in 1896. Due to the intensive
campaign waged by the National Association of Credit Men, state
legislatures passed bulk sales laws.
From 1900 to 1919, bulk sales laws were enacted in all fifty
states, including the District of Columbia. The purpose of these
laws was to prevent commercial fraud by requiring a verified list of
creditors of the seller to be furnished to the buyer, and notice of the
intended sale to be sent in advance to such creditors. The statutes
differed in phraseology and varied in degree in stringency but they
were aimed at the same evil. They were broadly classified into two
forms: (1) the New York form which provided that the sale of a
stock of merchandise or fixtures, otherwise than in the ordinary
course of trade shall be void as against the creditors of the seller,
unless a detailed inventory and verified list of creditors were
prepared by the parties, and the creditors given notice in advance,
within a specified number of days, of the proposed sale, the price,
terms, and conditions; and (2) the Pennsylvania form, which
includes a provision for the purchaser to oversee the application of
the proceeds of the sale pro rata to the claims of the creditors of the
seller. The New York form was adopted in 38 states, including the
District of Columbia, Hawaii, and Puerto Rico. The Pennsylvania
form was adopted in 11 states.870

87
Weintraub, Bulk Sales Law and Adequate Protection of Creditors, 65
HARVARD LAW REVIEW, 418-20; Billig, The Problem of Transfers under Bulk Sales
Laws, 35 MICHIGAN LAW REVIEW, 732-3; 4 Henson, Uniform Commercial Code Forms
and Materials,UNIFoRM LAWS ANNOTATED, 497 (Master ed.)

188
 BULK SALES LAW 189
The Uniform Commercial Code was subsequently drafted to
achieve uniformity in the laws of 51 states, except Louisiana. It was
adopted by the American Law Institute and the National Conference
of Commissioners on Uniform Laws, and endorsed by the American
Bar Association in 1952. It was adopted by several state legislatures
with some modifications. It introduced the following changes in
existing bulk sales laws: (1) the elimination from its coverage of all
businesses in which unsecured credit is not commonly extended
on the faith of a stock of merchandise, like farming, contracting and
professional services such as cleaning shops, barbers, pool halls,
hotels, restaurants, and others where the principal business is not
of merchandise, but services; (2) the inclusion of auction sales,
whet-her public or private, within its coverage; (3) a pro- vision for
a short statute of limitations (six months); (4) more explicit notice
requirements; and (5) the elimination of confusion concerning the
classes of creditors to whom the law applied. The term "inventory"
includes goods "held by a person for sale or lease or to be furnished
under contracts of service, or if they are raw materials, work in
process, or materials used or consumed in a business." In other
words, the Code applied to persons whose principal business is
the sale of merchandise from stock, including those who
a
manufacture what they sell. 7

SEC. 175. CONSTIUTIONALITY OF THE LAW IN THE UNITED STATES

Some of the early statutes were held unconstitutional and
void by the Supreme Court of Illinois, Ohio, Utah, Indiana, and
New York. s72 The objections pointed out by the court in those cases

871
Henson, op. cit., note 878 at 499-500.
172The New York, Ohio, and Illinois statutes were declared
unconstitutional, on the ground of unwarranted classification, denial to certain
persons equal protection of law, and deprivation of property without due
process. The Ohio court considered the law void as it did not apply to sales by
manufacturers, farmers, hotel-keepers, printers, or other persons whose
business did not involve sale of stock merchandise. The Utah court declared
the law unconstitutional, depriving a person of his freedom to contract as the
law applied to solvent and insolvent debtors, and denying equal protection of
the law to creditors of farmers, miners, manufacturers, traders who could
likewise be defrauded by a sale of the debtor's entire assets. The Indiana Act
1903 was declared invalid as it applied only to creditors who furnished money
or merchandise to carry on the business of the debtor. (Wright v. Hart 75 N.E.
505 (1905); Miller v. Crawford, 71 N.E. 631 (1904); City of Easton Rapids v.
) SALES

were corrected by amendments, except in the State of Utah, and the

83
laws, as amended, were later declared valid. 1
The constitutionality of bulk sales laws was upheld as a valid
exercise of police power by the Federal Supreme Court in two cases
involving the statutes of Connecticut and Michigan,8 74 and by the
appellate court of Washington, Massachussetts, Mississippi,
Oklahoma, Maine, Tennessee, Arizona, Idaho, Montana, new
Jersey, Kentucky, Texas, Arkansa,. Wisconsin, South Dakota, West
Virginia,. Kansa, North Carolina, Florida, and Pennsylvannia. 875
The reasons for the law are as follows:
Retail merchandising business is conducted largely on credit.
It is impracticable for the retailer to secure the credit by executing a
chattel mortgage on the goods bought on credit.8 6 Credit is
extended, not alone on the character and reputation of the
prospective purchaser, but also on his financial ability to pay, as
evidenced by the property he owns, including, in the case of a
merchant, his stock of goods, wares or merchandise on hand.877The
purpose of the bulk sales law was to protect persons who extended

Horner, 85 N.E. 264 (1901); Williams & Thomas Co. v. Preslo, 95 N.E. 900
(1911); McKinster v. Sager, 72 N.E. 854 (1904); Block v. Schwartz, 76 P. 22
(1904).
573
Steele v. Miller, 110 N.E. 648 (1915); Hirth-Krause Co. v. Cohen, 97
N.E. 1 (1912); G.S. Johnson Co. v. Beloosky, 105 N.E. 287 (1914); Aapex
Leasing874Co., Inc. v. Litke, 158 N.Y.SS. 21 (1916).
Lemieux v. Young, 211 U.S. 489, 29 S. Ct. 174, 53 L. Ed. 295 (1909);
Kidd Dater & Price Co. v. Musselman Grocery Co., 217 U.S. 461,30 S. Ct...606.
64 L. Ed. 839 (1910).
87 McDaniels v. J.J. Connelly Shoe Co., 71 P. 37 (1902); Squire & Co. v.
Tellier, 69 N.E. 312 (1904); Wm.R. Moore Dry Goods Co. v. Rowe & Carithers,
53 So. 626 (1910), Noble v. Fort Smith Wholesale Grocery Co. 127 P. 14
(1911); Mc Gray v. Woodbury, 85 A. 491 (1912); Cantrell v. Ring, 146 S.W.
166 (1912); Nolte v. Winstanley 145 P. 246 (1914); Boise Assn. of Credit Men
v. Ellis, 144 P. 6 (1914); Wheeler & Motter Mercantile Co. v. Moon, 141 P. 665
(1914); Kott v. Masker, 90 A. 243 (1914), Dwiggins Wire Fence Co. v. Patterson,
179 S.W. 224 (1915); Owosso Carriage & Sleigh Co. v. McIntosh & Warren,
179 S.W. 257 (1915); Stuart v. Elk Horn Bank & Trust Co., 185 S.W. 263
(1916); Gasett v. Iola Coop. Mercantile Co., 160 N.W. 170 (1916); William
Tackaberry Co. v.. German State Bank, 163 N.W. 709 (1917); Marlow. v.
Ringer, 91 S.E. 386 (1917); Burnett v. 'I'rimmell, 173 P. 6 (1918); Raleigh Tire
& Rubber Co. v. Morris, 106 S.E. 562 (1921); Atlas Rock Co. v. Miami Beach
Builders Supply Co., 103 So. 615 (1925); McLean v. Miller Robinson, 55 P. 2d.
232 (1931).
6
8 William Tachaberry Co. v. German State Bank, supra, 883.
877Mott v. Reeves, .211 N.Y.S. 375 (1925).
 BULK SALES LAW 191

credit to merchants, relying on the fact that their stock of

merchandise was not to be sold in bulk, but kept up and replenished
from time to time. Credit was extended, presupposing continuance
in the business of merchandising. 878
The reasons given for its validity are as follows:
The law does not interfere with the transaction of ordinary
business but to unusual and extraordinary transfers. 79A retailer
who owes no debts may lawfully sell his entire stock, without giving
the required notice. One who is indebted may make a valid sale,
without notice, by paying his debts, even after the sale. It is the
insolvent and fraudulent vendor who is chiefly affected by the law,
and it is for the protection of creditors against sales by debtors of
their entire stock and at a single transaction, not in the regular
course of business, that the law is aimed at.880
It is not a class legislation because the classification has a
reasonable basis and it operates equally on every person within
that class, on all purchasers and all creditors of the merchant. 881 It
is, of course, possible that an honest and solvent retail dealer may,
in consequence of the required notice before the sale, lose an
opportunity of selling his business or suffer some loss from the
delay of a sale. But a "possible application to extreme cases" is not
882
the test of reasonableness of the law.

B. Variances in Bulk Sales Laws

SEC. 176. As TO THE KIND OF 'T'RANSAcrIONs COVERED

Although all bulk sales statutes applied to sales which were

out of the ordinary course of trade and the regular and usual
prosecution of the seller's business, there were several variances
in the phraseology of the different state laws. Many statutes like
that of Alabama, Idaho, Kentucky, Massachusetts, Mississippi,
Montana, New Jersey, North Carolina, Nevada, Oklahoma, Oregon,
Pennsylvania, Tennessee, Utah, Vermont, and West Virginia covered
only "sales" of any portion of the stock of merchandise. Thus,

878
Balter v. Crum, 203 S.W. 506, 50& (1918).
8
17Squire & Co. v. Tellier, supra, note 883.
m Lemieux v. Young, supra, note 882.
81Steele v. Miller, supra, note 881.
1 2Lemieux v. Young, supra, note 882.
192 SALES

questions arose under these statutes as to whether barter, or

assignment of stock of merchandise in exchange for subscription to
a corporation or a transfer of an interest in the business to form a
partnership were covered by such law. 3
The Rhode Island statute used the term "transfer" only-, the
Kansas statute used the terms "sale or disposal"; those of Texas,
Florida, Georgia, and Maryland used the terms "sale or transfer";
while the statutes of California, Illinois, Indiana, Michigan, North
Dakota, New York, Ohio, and Wisconsin used the terms "sale,
transfer or assignment". Under the Louisiana statute, the term
"transfer" included "transfers in payment of debt, in whole or in -
part, pledges, mortgages, sales, exchanges, and assignments
whether for cash or credit or in exchange for certificates of stock,
bonds, or other obligations of a corporation, otherwise than in the
ordinary course of trade and in the regular and usual prosecution
of business of the transferor.m Thus, the question arose under such
statutes as to whether a chattel mortgage on the stock of merchandise
in bulk was covered by the law. Most state courts ruled that chattel
mortgage created a mere lien and was not a "sale, exchange or
assignment".885 The Kansas and Missouri courts considered
mortgage where the mortgagee took possession, as a "disposition.'
Later, the Arkansas statute was amended to include "sale,
transfer, mortgage or assignment in bulk .87The California law was

8 3Massachusetts-Gallus v. Elmer, 78 N.E. 772 (1906); Oregon-Hartwig

v. Rushing, 182 P. 177 (1919); North Carolina-First National Bank of Durham
v. Raleigh Savings Bank &Trust Co., 37 F. 2d 301 (1930); West Virginia-
Marlow v. Ringer, supra, note 883.
8Act 270 (1926), sec. 5.
5
m Arkansas-Lusby v. Sachs, 44 S.W. 2d 348 (1932); Illinois-Talty v.
Schoenholz, 154 N.E. 139 (1926); Massachusetts-Wasserman v. Me Donnell,
76 N.E. 959 (1906); Michigan-Symons Bros. & Co. v. Brink, 153 N.W. 359
(1915); Georgia-B.F. Avery & Sons v. Carter, 89 S.E. 1051 (1916); Oklahoma-
Noble v. Ft. Smith Wholesale Grocery, supra, note 883; Bundy v. Securities
Bank & Trust Co., 42 P. 2d 134 (1935) appl. to foreclosure sale; Nebraska-
Appel Mercantile Co. v. Kirtland, 181 N.W. 151 (1920); New Jersey Schwartz
v. King Realty & Investment Co., 109 A. 567 (1920); Ohio-Winters National
Bank & Trust Co. v. Midland Acceptance Corp., 191 N.E. 889 (1934); Rhode
Island-Aristo Hosiery Co., Inc. v. Ramsbotton, 129 A. 503 (1925); Texas-In re
Grifeen Drug Co., 289 F. 140 (1923); Washington-Daniels v. Pacific Brewing &
Malting Co., 150 P. 609 (1915).
'Missouri-Varghan v. Tyler, 226 S.W. 1034 (1920); Kansas-C.N. Norton
Jewelry Co. v. Madlock, 222 P. 113 (1924); Joyce v. Armourdale State Bank,
274 P. 88200 (1929).
Arkansas, Stat. sec. 4870.
 BULK SALES LAW 193
also amended to include the "sale, transfer, assignment in or
mortgage of stock in trade or fixtures or store equipment",m while
Michiganm9 and New York 89° passed separate bulk mortgages acts
which imposed similar restrictions as the bulk sales laws.

SEC. 177. As TO THE NATURE OF OBJECTS COVERED

Most bulk sales statutes applied to a sale or transfer of "stock

of goods, wares, or merchandise" only, and did not include the sale
of "fixtures or equipment" used in the business.8 91 Only the
Mississippi court construed the term "merchandise" to cover fixtures
and other appliances used in the business in order to cover the evil
sought to be remedied.82
Some statutes expressly included the sale or transfer of
"fixtures and merchandise", like that of Arkansas, Indiana, Illinois,
Michigan, Missouri, New Jersey, North Dakota, Texas, and later
Iowa. Hence, in accordance with the rule of strict construction, on
the ground that the penal statute was in derogation of common law
which allowed a person to sell his property at any time without any
restriction,' the courts of these states, except those of Arkansas and
Michigan,893 ruled that the sale of "fixtures' 'must be made together
with the sale of merchandise in bulk, in order to be covered by the
894
law.
Some state laws were amended, using the disjunctive "or"
between the term "fixtures" and the term "merchandise" like those

8mCalifornia Civil Code, sec. 3440.

' 88 Comp. Laws 1929, sec. 9548.
8
g°Consol. l,aws, Chapter 33, sec. 230 A.
89 1
Florida-Atlas Rock Co. v. Miami Beach Builders Supply Co., supra,
note 883; Georgia-Martin v. Taylor 101 S.E. 690 (1919); Indiana-Hughes-
Curry Packing Co. v. Sprague, 165 N.E. 318 (1929); Massachusetts-Gallus v.
Elmer, supra, note 891; Minnesotta-Kolander v. Dunn, 104 N.W. 371 (1905);
Nevada- Marshon v. Toohey, 148 P. 357 (1915); North Dakota-Johnson v.
Kelly, 155 N.W. 683 (1915); Oklahoma-Hood Rubber Products Co. v. Dickey,
29 P. 2d 115 (1934); South Carolina-Smith v. Boyer, 112 S.E. 71 (1922);
Tennessee-Straus Cigar Co. v. Bon Marche, 218 S.E. 219 (1919).
" Mississippi-Walton v. Fisher Co., III So. 364 (1927); B.F. Goodrich
Rubber89 Co.
3
v. Breland, 154 So. 303 (1934).
Arkansas-Huckins v. Smith, 29 F. 2d 907 (1928). Michigan-Elliott
Grocer Co. v. Field's Pure Food Market Inc., 281 N.W. 557 (1938).
"9 4Iowa-Pratt Paper Co. v. Eiffier, 194 N.W. 370 (1923); New York-
Saqui v. Wiricks, 167 N.Y.S. 661 (1917); Mosson v. Kriser, 208 N.Y.S. 566
(1925); In re Gary, 281 F. 218 (1922).
194 SALES

of the states of California, Connecticut, Idaho, Kansas, Louisiana,

Maryland, Montana, New York, Ohio, Oregon, Pennsylvania,
Rhode Island, Virginia, West Virginia, Washington, and Wisconsin.
Hence, under such statute, the sale alone, of the entire fixtures used
in the merchandising business would be covered by the law.8 95
Most bulk sales statutes did not cover the sale of all the
"equipment" used in the business, except those of Missouri,
California, Louisiana, and Washington, Idaho, Nebraska, Nevada,
Oregon and Utah.

SEC. 178. AS TO THE KIND OF BUSINESS COVERED -

Some statutes like that of the state of Washington specifically

referred to the vendor engaged in the "business of buying and selling
and dealing in goods, wares, or merchandise"; that of Iowa
specifically referred to a person engaged in the "retail or wholesale
business of buying and selling merchandise for profit"; and that of
Kentucky specifically referred to sale by "merchants engaged in the
business". Titles of some statutes like that of Florida read as follows:
"An Act to Regulate the Sale of Stocks of Goods, Wares, and
Merchandise in Bulk"; that of Missouri read as, follows:
"Fraudulent Sales of Certain Stocks of Merchandise"; and that of
Virginia read as follows: "To Prevent Persons Engaged in Buying
and Selling, While Indebted, from Selling their Entire Stock of
Merchandise in Bulk". These titles gave an inkling as to the nature
of business covered by the statute. As to the laws of the rest of the
states like Arkansas, Georgia, Michigan, Pennsylvania, and
Wisconsin, there was nothing in the law from which to infer that it
applied only to merchants who were engaged in the buying and
selling of merchandise, and not to sales made by manufacturers,
restaurants, bakers, soda fountain, and the like, even if the latter
sold their own products. Yet almost all the courts of those states
ruled that the law applied only to the merchandising business, on
the theory that the term "merchandise" meant such things as were
usually bought and sold in trade by merchants, 96 and taking into

89
Kansas-Stockyards Petroleum Co. v. Bedell, 278 P. 739 (1929);
Wisconsin-Berger v. Berger, 73 N.W. 2d. 503 (1955); New York-Maley v.
Blakeney, 54 N.Y.S. 2d. 68 (1945); Carl Ahlers, Inc. v. Dingott, 18 N.Y.S. 2d.
434 (1940).
8
96Washington-Albrecht v. Cudihee, 79 P. 628 (1905); Georgia-Cooney,
Eckstein & Co. v. Sweat, 66 S.E. 257 (1909); Michigan-People's Savings Bank
 BULK SALES LAW 195
consideration the history of the law that it was through the efforts
of Credit Men's Associations that these laws were enacted.
Only the courts of Illinois, Massachusetts, and Connecticut
construed the statutes, after their amendment, to include also
manufacturers, farmers, and other businesses, on the' ground that
the terms 'other goods and chattels" after the enumeration of "stock
of merchandise and fixtures" were broad enough to cover the sale
8 97
of "other goods".
Statute of some states like that of Washington was later
amended to expressly include those in the business of operating a
"restaurant, cafe, beer parlor, tavern, hotel, club or gasoline service
station",89 8 that of Idaho was amended to expressly include the sale
of "property, furniture, fixtures, equipment, supplies of a hotel or
restaurant, barber shop or any place of business"; 899 that of
Louisiana and Oregon were amended to include "movable store
and office fixtures, horses, wagons, automobile trucks or other
vehicles and other goods or chattels of the business"; 9°0 and that of

v. Van Allsbury, 131 N.W. 101 (1911); North Dakota-Johnson v. Kelly, supra,
note 899; Utah-Swanson v. De Vina, 160 P. 872 (1916);.Montana-Ferrat v.
Adamson, 163 P. 112 (1917); Missouri-Independent Breweries Co. v. Lanton,
204 S.W. 730 (1918); North Carolina-Swift Co. v. Tempelos, 101 S.E. 8 (1919);
Kansas-Farmers & Drovers National Bank v. Hannarnan, 223 P. 478 (1924);
Indiana-Meiser Electric & Machine Co. v. Dixon, 143 N.E. 363 (1924);
Wisconsin-Nichols North Bus Co. v. Green County Canneries, 205 N.W. 804
(1925); Arkansas-F'isk Rubber Co. v. Hinson Auto Co., 270 S.W. 605 (1925);
Mississippi-Carnaggio Bros. v. Greenwood, 108 So. 141 (1926); Texas-Hobart
Manufacturing Co. v. Joyce & Mitchell, 4 S.W. 2d. 185 (1928); Pennsylvania-
Gitt v. Hoke, 151 A. 585 (1930); New Jersey-Van Genderen v. Arrow Bus Lines,
151 A. 605 (1930); Louisiana-Item,Co. v. National Dyers & Cleaners Ltd., 130
So. 879 (1930); Rhode Island-Gaspee Cab v. McGovern, 153 A. 870 (1931);
Now York, in re Henderson, 3 F. Supp. 92 (1933); Oklahoma-Hood Rubber
Products Co. v. Dickey, supra note 899; Virginia-O'Connor v. Smith, 49 S.E.
2d. 310 (1948).
s9 7Illinois-Weskalnies v. Hesterman, 123 N.E. 314 (1919); La Salle Opera
House Co. v. La Salle Amusement Co., 124 N.E. 454 (1919). Coon v. Doss, 198
N.E. 341 (1935); Massachusetts-Hart v. Brierly, 76 N.E. 286 (1905); Connecticut-
Kranke v. American Fabrics Co., 151 A. 312 (1930); construing New Jersey
statute; not followed by New Jersey court in subsequent case of Van Genderen
v. Arrow Bus Lines, supra, 904.
89
8Washington Rev. Code, Sec. 63.08.010 (1951).
8
99Idaho Code Ann. Sec. 64-701 (1948).
9
°Louisiana Act 270 (1926); Oregon Code, Sec. 64-104 (1930); Note:
Oregon Code did not include the last phrase "and other goods or chattels of
the business."
196 SALES

California was amended to include "fixtures and store equipment

of a baker, cafe or restaurant owner, garage owner, machinist, cleaner
and dyer, retail or wholesale".g90

C. Philippine Bulk Sales Law

1. Compared to Other Bulk Sales Law

SEC. 179. As TO OBJECTS AND TRANSACnONS COVERED -

Section 2 of Act 3952 defines what constitute a sale and

transfer in bulk, as follows:
"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, or of all, or substantially
all, of the fixtures and equipment used in and about the
business of the vendor, mortgagor, transferor, or assignor..."

The objects covered by the statute are similar to the Georgia

statute of 1903 or the Florida statute of 1907, which read as follows:

"Any sale or transfer of a stock of goods, wares or

merchandise out of the usual or ordinary course of business
or trade of the vendor or whenever thereby substantially
the entire business or trade theretofore conducted by the
vendor shall be sold or conveyed...",

and the Washington statute of 1913, which read as follows:

"Any sale or transfer of a stock of goods, wares, or
merchandise, or all or substantially all, of the fixtures and
equipment used in and about the business of the ven- dor,
out of the usual or ordinary course of business or trade of
the vendor, or whenever substantially the entire business
or. trade theretofore conducted by the vendor. .."

901California Civil Code, Sec. 3440.1 (1953).

 BULK SALES LAW 197
The objects "provisions or materials" are not found in any
state bulk sales law, although the Illinois statute of 1913 and the
Louisiana statute of 1926 added the words "other goods or chattels
of the business", and the Pennsylvania statute of 1919 mentioned
"stock of goods, wares or merchandise of any kind".
As to the transactions covered, Philippine law is similar to
the Arkansas statute of 1929, which read as follows:

"The sale, transfer mortgage or assignment in bulk of

any part of, or the whole of a stock of merchandise or
merchandise and fixtures pertaining to the conduct of such
business, otherwise than in the ordinary course of business.

2. Scope of the Law

a. Nature of Business Covered

SEC. 180. TYPEs OF TRANSACTONS COVERED -

As defined in Section 2 of the Philippine Bulk Sales Law,

there are actually three types of transactions covered, to wit: (1) 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; (2) any
sale, transfer, mortgage or assignment of all, or substantially all, of
the business or trade theretofore conducted by the vendor, etc., and
(3) sale, transfer, mortgage or assignment of all, or substantially all,
of the fixtures and equipment used in and about the business of the
vendor, etc.
The question is: do all these three types of transfer refer to the
same kind of business mentioned in the first? There is no doubt that
all these three types are not the ordinary way of doing business. If
the first two types refer to the same kind of business, there is no
need to mention the second type because if the sale, etc. of a stock of
goods, etc. not in the ordinary course of trade is deemed fraudulent,
with more reason would the sale of the entire business be considered
fraudulent. The third type of transaction must necessarily refer to a
business where the fixtures and equipment constitute the bulk or
the greater part of the business assets, for its sale to prejudice
creditors of the vendor.
Aside from the bulk sales laws of Georgia of 1903, of Florida
of 1907, and of Washington of 1901, the Oregon Code of 1930 also
included the sale of the entire business, as follows:
198 SALES

"Any sale or transfer of goods, wares or merchandise

or all or substantially all of the fixtures or equipment used
or to be used in the sale, display, manufacture, care or
delivery of said goods, wares or merchandise, including
movable store or office fixtures, wagons, auto trucks or other
vehicles, out of the usual or ordinary course of business or
trade of the vendor, or whenever therebysubstantially the entire
business or trade theretofore con- ducted by the vendor shall
be sold..."

The Oregon court construed the phrase "substantially the

entire business or trade" to refer to the same kind of business
mentioned in the first portion of the provision, i.e. the business
concerning the sale, display, manufacture, care or delivery of goods,
wares, and merchandise, and not to the sale of an apartment
house.902
In this connection, it is interesting to note the changes made
in the bulk sales law of Washington of 1901, which read as follows:

"Any sale or transfer of a stock of goods, wares, or

merchandise out of the usual or ordinary course of business
or trade of the vendor or whenever substantially the entire
business or trade theretofore conducted by the vendor... or
whenever an interest in or to the business or trade of the
vendor is sold or conveyed, shall be deemed a sale and
transfer in bulk."

This was interpreted by the court in the case of Plass v.

Morgan °3 to apply to the sale of the business and appliances of a
boarding house and restaurant, on the ground that there was no
limit on the meaning of the word "stock", as the evident intent of
the legislature was to prevent perpetration of fraud upon creditors
of people who are engaged in business. This was not followed in
two subsequent cases 9 4 wherein it was held that the law did not
apply to the sale of the cash register used in the saloon business or
to the sale of horses, wagon and harness used in a livery stable, on
the ground that such things were, not held for sale.
The Washington Bulk Sales Law was amended in 1913 to
include trade fixtures used in the business to enable the mer- chant

9Mattechek v. Pugh, 55 P. 2d 730 (1936).

9°78 P. 784 (1904).
'Albrecht v. Cudihee, supra, note 904, Everett Produce Co. v. Smith
Bros. 82 P. 905 (1905).
 BULK SALES LAW 199
to store, trade and display his wares, although removable, in this
wise:

"Any sale or transfer of a stock of goods, wares or

merchandise or all or substantially all of the fixtures and
equipment used in and about the business of the vendor, out of
the usual or ordinary course of business or trade of the
vendor, or whenever substantially the entire business or
trade theretofore conducted by the vendor, shall be sold or
assigned or whenever any -interest in or to the business or
trade of the vendor is sold or conveyed..."

It was again amended in 1925 to have certainty in the law, in

view of the conflicting court decisions, to make it clear that the law
applied to the business of buying and selling only, in this manner:

"Any sale, exchange or transfer or attempted sale,

exchange or transfer of all or substantially all of any stock
of goods, wares or merchandise and/or all or substantially
all of the fixtures and equipment used in or about the
business of a vendor engaged in the business of buying and
selling and dealing in goods, wares or merchandise of any kind
or description,made out of the usual and ordinary course of
business of the vendor..."

It was further amended in 1943, to include the business of

operating a restaurant, cafe, beer parlor, tavern, hotel, club or
gasoline service station. With the adoption of the Uniform
Commercial Code in 1953, the Washington Commercial Code
removed all references to the kind of business of the vendor.
While all state courts are in accord that the bulk sales law
applies to the retail merchandising business in order to protect
wholesalers from retailers who filled their shelves with stock
purchased from wholesalers and then disposed of their entire stock
overnight a few state courts extended the application of the law
to the wholesale business, on the ground that the phrase "sale in
bulk of any part or whole of a stock of merchandise" is broad enough

90
Georgia-Cooney, Echstein & Co. v. Sweat, supra, note 904; Idaho-
Boise Assn. of Credit Man v. Ellis, supra, note 883; Missouri-Independent
Breweries Co. v. Lawton, supra, note 904; Nevada-Escalle v. Mark, 183 P. 387
(1919); W. Virginia-Lewis. Hubbard & Co. v. Longhran, 101 S.E. 465 (1919);
Louisiana-Item Co. v. National Dyus & Cleaners Ltd. supra, note 904.
200 SALES

to cover wholesalers. 90 Some state legislatures amended their law

to expressly include both retail and wholesale businesses. 9°7
The majority of state courts ruled that the bulk sales law
applied to merchants or tradesmen, and not to those who are not
primarily engaged in the sale of goods, wares or merchandise like
the manufacturer; 908 the restaurateur and similar occupations 9°9
farmers 910 or owners or operators of service establishments such as
911 rooming houses, 9 12 repair shops, 913
the hotel business,

906Texas-Owosso Carriage & Sleight Co. v. McIntosh & Warren, supra,

note 883; Tennessee-Keller v. Fowler Bros. & Cox, 256 S.W. 879 (1923); Florida-
Atlas Rock Co. v. Miami Beach Builders Supply Co., supra, note 883, Arkansas-
North American Provision Co. v. Fisher Lime & Cement Co., 269 S.W. 993
(1925); Root Refineries v. Gay Oil Co., 284 S.W. 26 (1926).
9°TCalifornia Civil Code, see. 3440.1 (1953); Iowa Code, see. 555.1 (1954);
Florida Statute, see. 726.02 (1944).
9 08
Georgia-Cooney Echstein & Co. v. Sweat, supra, note 904;
Pennsylvania-Gitt v. Hoko, supra, note 904; Broad St. Nat. Bank v. Lit Bros.,
158 A. 866 (1932); Texas-American Surety Co. of New York v. M-B Ise Kream
Co., 65 S.W. 2d 287 (1933); Tennesssssee-Schultz, Baujan & Co. v. Bell, 130
S.W. 2d 149 (1939) Wisconsin-Nichols North Bus Co. v. Green County Canneries,
supra, note 904; Illinois-G.S. Johnson Co. v. Belooshy, supra, note 881; Arkansas-
Ramey-Millburn Co. v. Sevick, 252 S.W. 20 (1923); Michigan-Frederick v.
Dettany Engineering Co., 28 N.. 2 d. 94 (1947); Contra: Arkansas-Root
Refineries v. Gay Oil Co. supra, note 914; Connecticut-Kranke v. American
Fabrics Co. supra, note 905; New York-Mosson v. Kriser, supra, note 902.
9'9Johnson v. Kelly, supra, note 899; Swift & Co. v. Tempolos, supra, note
904; Lewis-Hubbard & Co. v. Longhan, supra, note 913; Missouri-Galup v.
Rhodes, 230 S.W. 664 (1921); Bolanovich v. Peter Hauptmann Tobacco Co.,
261 S.W. 723 (1924); Farmers & Drovers National Bank v. Hannaman, supra,
note 904; Wisconsin-Missos v. Marks, 197 N.W. 196 (1924); Carnaggio Bros.
v. Greenwood, supra, note 904; Texas-Hobart Manufacturing Co. v. Joyce &
Mitchell, supra, note 904; Daggett v. Wolff, 44 S.W. 2d 1063 (1932);
Washington-Garner v. Thompson, 296 P. 1043 (1931); O'Connor v. Smith,
supra, note 904.
91
°New Jersey-Samuelson v. Goldberg, 177 A. 260 (1935); Wisconsin-
State Bank of Viroqua v. Jackson 58 N.W. 2d. 433 (1952).
1
" New York-Stewart v. Sulger, 161 N.Y.S. 489 (1916): Mier Electric &
Machine Co. v. Dixon, supra, note 904; Ohio-Oberdin v. Harokopas, 184 N.E.
257 (1932); California-Pacific States Savings & Loan Co. v. Wagner, 57 P. 2d.
997 (1936).
9"New York Wettlaufer v. Rogers, 15 N.Y.S. 2d 644 (1939).
"Swanson v. De Vine, supra, note 904; Missouri-Rothenheber v. Pulitzer
Pub. Co. 262 S.W. 48 (1924); Oklahoma-Cross v. Inge, 231 P. 1066 (1924);
Fisk Rubber Co. v. Hinson Auto Co., supra, note 904; Georgia-Harris v. Kilgore,
193 S.E. 179 (1937).
 BULK SALES LAW 201
construction business, 914 transportation business,91 s pool and
billiard halls, 9 6 dryer and cleaner establishments, 917 and livery
stable. 91
A few state courts applied the bulk sales law to the sale in
bulk of livestock, machinery and other farming utensils by a
farmer,919 the sale of theatrical business, 9 sale of business supplying
laundered coats for rent,921 sale of restaurant equipment, 9 sale of a
trucking business, 923 and to the sale of a baker's supplies,924 and
saloons.925 Some statutes like those of California, Idaho, Oregon,
Utah, Washington, and Louisiana expressly covered restaurants.926
So far, only three cases have been decided by our appellate
courts under the Bulk Sales Law. One 927 involved the
constitutionality of the law which was justified as a valid exercise
of police power to protect the rights of others. The otherm involved

9 14
Pennsylvania-Northrop v. P.W. Finn Construction Co., 103 A. 544
(1918); Texas-Axtell Co. v. Word, 29 S.W. 2d 421 (1930); Contra: Illinois-
Corrigan v. Miller, 86 N.E. 2d 853 (1949); Mott v. Reeves, supra, note 885.
91
Van Genderen v. Arrow Bus Lines, supra, note 904; South Carolina-
Begnell v. Safety Coach Line, Inc.; 153 S.E. 264 (1930); Gaspee Cab v. McGonen,
supra, note 904; Kentucky-St. Matthews Motors Co. v. Sschnepp, 209 S.W. 2d
481 (1948).
916
' Ferrat v. Adamson, supra, note 904; Michigan-McPartin v. Clarkson,
215 N.W. 338 (1927); Independent Breweries Co. v. Lawton, supra, note 904.
9 t7
California-Gray v. Little, 275 P. 870 (1929); Item Co. v. Natuional
Dryers & Cleaners, supra, note 904.
9
"Everett Produce Co. v. Smith Bros., supra, note 912; Balter v. Crum,
supra, note 886.
99
1 Illinois-Weskalnies v. Hesterman, supra, note 905; Main v. Hall, 41 F.
2d 715 (1930); Coon v. Doss, supra, note 905.
92
La Salle Opera House Co. v. La Salle Amusement Co., supra, note
905.
'21New York-Ben Bimberg & Co. v. La Salle Amusement Co., supra, note
905.
922Michigan Packing Co. v. Messaris, 241 N.W. 236 (1932).
23 St. Paul-Mercury Indem. Co. v. Hoey, 60 N.E. 2d 641 (1945).
924Arkansas-Gretzinger v. Wyne Wholesale Grocery Co., 35 S.W. 2d 604
(1931).
921Kolander v. Dunn, supra, note 899; Albrecht v. Cudihee, supra, note
904; Georgia-W.B. Parham & Co. v. Potts-Thompson Liquour Co., 56 S.E. 460
(1907); Porter v. Goudzwaard, 127 N.W. 295 (1910); Marshon v. Toohey,
supra, note 889; Missouri-Semmes v. Ruediger, 187 S.W. 604 (1916).
926 California Civil Code, sec. 3440.1 (1953); Idaho Code, sec. 64-701
(1948); Washington Revised Code, sec. 63.08.010 (1951); Oregon Laws Code
C. 435 (1949); Utah Code, sec. 25-2-1 (1953).
927Liwanag v. Maghiray, 72 Phil. 410 (1941).
92
People V. Mapoy, 73 Phil. 678 (1942).
202 SALES

a mortgage of all the stock of goods, and the court held that no
subsidiary liability can attach to the non-payment of the
indebtedness. The third 929 was decided by the Court of Appeals
which ruled that, aside from the fact that the defendant did not
voluntarily sell his foundry shop, the transaction was not covered
by the Bulk Sales Law, citing American cases 93° quoted by Dr.
Arturo Tolentino in his commentary on the Bulk Sales Law, adopting
Webster's definition of "goods, wares and merchandise".
Although the definition of sales in bulk in Section 2 of the
Philippine Bulk Sales Law is broad enough to cover any kind of
business or trade, the rule of statutory construction of a law adopted
from a foreign country is that the legislature is presumed to have
adopted also the construction which has been placed upon it in the
country from which it was adopted, except when the adopted statute
differs substantially in its form or language from the foreign statute,
or where the legislature clearly indicated expressly or implicitly
931
that it does not intend to adopt the foreign construction.

b. Form or Mode of Transfer

SEC. 181. SALE, TRANSFER ... OR ASSIGNMENT

These terms seem broad enough to cover any kind of

disposition inter vivos for a valuable consideration, as section 7 of

929
People V. Wong, CA-G.R. No. L-9776-R, March 26,1954, 50 O.G.
4867 (Oct., 1954).
93°The court, cited the following cases: the Idaho case of Boise Association
of Credit Men v. Ellis, supra, note 883, wherein it was held that the law, being
in derogation of common law, should be construed strictly, adopting Webster's
definition of "merchandise", and that "fixtures" were not part of "goods"; the
Michigan case of People Savings Bank v. Van Allsbury, supra, note 904, in which
"merchandise" was defined as things which are usually sold in trade by
merchants, and includes caskets, steel vaults and casket hardware in the
undertaker's business; and the Washington cases of Albrecht v. Cudihee, supra,
note 904, wherein it was held that the sale of the cash register used in the
saloon business was not covered by the law, as "stock referred to goods kept
for sale. The Idaho law then in force covered," sales in bulk of a part or whole
of a stock of merchandise", the Michigan law then in force referred to the "sale,
transfer or assignment in bulk of any part of whole of a stock of merchandise
or merchandise and fixtures pertaining to the conducting of such business;
while the Washington law then in force covered" any sale or transfer of a stock
of goods, wares or merchandise or all or substantially all, of the fixtures and
equipment used in and about the business of the vendor or when
931
Crawford, Construction of Statutes, 439-442 (1940).
 BULK SALES LAW 203

the law prohibits the transfer of title without consideration or for a

nominal one. Yet sections 3 and. 4 of the law which impose the
duties on the vendor or mortgagor to furnish the other party, a list
of all his creditors before receiving "any part of the purchase price
or any promissory note, memoranda, or other evidence therefor"
and to apply the purchase or mort- gage money to the pro-rata
payment of said creditors, mention the consideration to be "for cash
or on credit". Thus, questions arose before American courts as to
whether the bulk sales law cover barter, transfers in payment of a
pre-existing debt, transfer of merchandise to a newly-formed
corporation in return for stocks of that corporation, assignment
made for the benefit of creditors, transfers of an interest in the
business to a new partner by the sole proprietor, return of unpaid
goods to the seller, or to private auction sales. The Philippine law
expressly exempts from its coverage executors, administrators,
receivers, assignees in insolvency, or public officers acting under
judicial process.
American courts considered "sale" to include barter. 932 An
assignment in payment of a debt was considered by a few courts as
not covered by the bulk sales law which did not repeal the common
law, permitting a debtor, even though insolvent, to distribute his
property among his creditors as he pleases, even to the extent of
preferring one over all others.933 The majority of American courts,
however, held that the bulk sales law was applicable to a preferential
transfer, on the theory that the purpose of the law was to give all
creditors ample opportunity to protect their interests before the
contemplated transfer. 9 4
American courts were divided on the issue as to whether the
transfer by a merchant to a corporation of merchandise to carry on
the business, in exchange for the stock of the new cor- poration was

93
G-allus v. Elmer, supra, note 891.
93Alabama-Ward & McGowen Grocery v. Franklin, Stiles & Franklin, 93
So. 205 (1922); Iowa-German v. Hellberg, 180 N.W. 732 (1921); Washington-
Petersen v. Doak, 86 P. 663 (1906).
934
New York-Thorndike & Hix Lobster Co. v. Hall, 229 N.Y.S. 225 (1928);
Illinois-American Trust & Savings Bank of Kankakee v. Durham, 298 F. 304
(1924); Georgia-Sampson v. Brandon Grocery Co., 56 S.E. 488 (1907); Gallus
V. Elmer, supra, note 891-, Michigan Central Ry Co. v. Morgan, 198 N.W. 967
(1924); Nebraska-Bailen v. E.P. Badger Import Co., 154 N.W. 850 (1915).
204 SALES

covered by the Bulk Sales Law. 935 In one case, 936 it was held that it
was not covered by the act, on the ground that the transfer was not
for "cash or credit", but for stock, which could be availed of by
creditors after the transfer. The Louisiana Act of 1926 937 expressly
include "transfers in payment of a debt, in whole or in part,
mortgages, pledges, sales, exchanges and assignment whether for
cash or credit or in exchange for certificates of stock, bonds, or other
obligations of a corporation".
An assignment for the benefit of creditors is governed by special
law and is not covered by the bulk sales law as the assignment has
the same object as the bulk sales law, which is the protection and
benefit of all creditors. 93 It would be treated as fraudulent and void
as to creditors who did not consent or who were not present. 939 If all
creditors agreed on the assignment, dissatisfied creditors are
estopped from attacking the transfer under the bulk sales law. 9
On the question as to whether the transfer of an interest in the
business by a single proprietor to another to form a partnership
was covered by the Bulk Sales Law, the Georgia court, following a
strict interpretation of the law, held that it was not,9" while other
courts considered it as within the coverage, as it changed the
relationship of the vendor's creditors to the business.942In one case,

9Cases holding the transfer to be within the bulk sales law: First National
Bank of Durham v. Raleigh Savings Bank and Trust Co. supra, note 891; West
Shore Furniture Co. v. Murphy, 141 N.Y.S. 835 (1913); Brinson v. Monroe
Auto v. Supply Co., 158 So. 558 (1935). Contra: McLean v. Miller Robinson Co.
supra, note 883; Maskell v. Spokane Cycle & Auto Supply Co., 170 P. 350
(1918).
96Maskell v. Spokane Cycle & Auto Supply Co., supra, 943.
937Sec. 9041.
9Cardiff Gypsum Plaster Co. v. Hales C. & M. Co. 239 111. App. 16
(1925).

939Sterling National Bank.and Trust Co. of New York v. Complex Dresses,

269 N.Y.S. 110 (1934); Missouri-Turner v. Drees Hardware and Furniture Co.,
227 S.W. 1085 (1921); California-Kaye v. Jacobs. 10 P. 2d 186 (1932).
"Georgia- W.W. Stowall Co. v. W.E. Shepard Co., 73 S.E. 76 (1912);
Oregon-Brown v. Frank, 256 P. 190 (1927).
"'Taylor v. Folds, 58 S.E. 683 (1907); Yancey v. Lamar-Rankin Drug Co.
78 S.E. 1078 (1913).
soTennessee-Daly v. Sumpter Drug Co., 156 S.W. 167 (1913); Texas-
Smith-Calhorn Rubber Co. v. McGhee Rubber Co., 235 S.W. 321 (1921); C.T.
Cook v. Burt Chevrolet, Inc. 475 P. 2d 644 (1970); Oregon-Brownson v. Lewis,
377 P. 2d 327 (1962).
 BULK SALES LAW 205
the statute was held not applicable to the transfer of assets by a
partner to another partner, pursuant to a dissolution agreement. 943
The return of goods to the unpaid seller was considered by
American courts as within the bulk sales law, as a preferential
transfer to a creditor in a satisfaction of a pre-existing debt, 94 unless
it was in pursuance to a right to rescind the contract or a reservation
of an unpaid seller's lien.1 5 In our jurisdiction, such return can not
be considered as within the bulk sales law, in view of the fact that
an unpaid seller is a preferred creditor over the thing sold,94 aside
from the facts that the right to rescind is implied in reciprocal
obligations and the right to cancel the sale may be validly
stipulated.947
Where the bulk sales law is silent as to whether auction sales
are covered, one court considered it absurd to require compliance
with the statute, in view of the public nature of the sale,94 another
considered it as within the statute, despite such fact. 9 9 The Uniform
Commercial Code expressly include it within bulk transfers.

SEC. 182. MORTGAGE

Mortgage is expressly covered under our law. As stated by

American courts, a mortgage of all or substantially all the furniture
and fixtures put these goods beyond the reach of all creditors until
the mortgagee's claim has been satisfied, and so far as creditors
were concerned, a mortgage of all or part of stock of merchandise
was as effective a disposition of the goods pledged. 9 ° As held by a

"3District of Columbia-Barlow v. Cornwell, 125 A. 2d 63 (1956).

'Tennessee-McCallum v. Jones, 265 S.W. 984 (1924); Gallus v. Elmer,
supra, note 891; Colorado-Englewood State Bank v. Tegham, 275 P. 935 (1929).
"4Illinois-Southern Surety Co. v. People's State Bank of Astoria, 163
N.E. 659 (1928); Texas-John T. Barbee & Co. v. American Brewing Assn. 207
S.W. 334 (1918).
'6CIV1L CODE, Art. 2241:(3).
7
'4 CIWVL CODE, Art. 1191.
'SNew Jersey-Schwartz v. King Realty & Investment Co., 107 A. 154
(1919); New York-Lowe v. Fairberg, 280 N.Y.S. 615 (1935).
49
' Farmer's State Bank of Tamaroa v. Blanchard, 206 Iil. Appl. 323
(191).
°Louisiana-C.N. Norton Jewelry Co. v. Maddock, supra, note 894; cited
First Nat. Bank v. Sharp, 54 F. 2d 886 (1932).
206 SALES

Texas court,951 the purpose of the law is to prevent an insolvent

from giving secret preference to one or more of his creditors. He
cannot confer that right to a creditor by foreclosure. However, a
California court ruled that the bulk sales law does not extend to
purchase money mortgage, for to hold that the seller, who instead
of receiving cash, acquires a mortgage on the property sold, must
subordinate his rights to the buyer's other creditors, is to "penalize
him for supplying the very means of carrying on a trade". He would
be subsidizing existing creditors who extended credit on the basis
of other assets of the buyer. 9 2

C. Quantity & Quality of the Object

SEC. 183. OUT OF THE ORDINARY COURSE OF TRADE

From the definition of what constitute a sale and transfer in

bulk under Philippine law, if the transaction covers stock of goods,
wares, merchandise, provisions or materials, the transaction must
not be in the "ordinary course of trade and the regular prosecution
of the business of the vendor, etc."; if the object is the business or
trade itself, the transaction must involve "all or substantially all"
of said business or trade; and if the object is fixtures and equipment
used in the business, the transaction must cover "substantially all"
of them. Thus, when the object is the stock of goods, etc., the
quantity of the object need not be "all or substantially all" of the
stock, in order to fall within the bulk sales law, so long as it is not
the ordinary and regular way of the seller's method of doing
business. The most plausible reason for this requirement is to charge
the transferee with notice that creditors of the transferor may be
defrauded by such transaction, as it is not is usual way of
conducting the business. In other words, the statute does away
with the necessity of proof of knowledge of the seller's fraudulent
intent by the transferee.
The statutory test, according to a Massachusetts court,95 3 is
whether the sale was made in the usual way in which a mer- chant
owing debts conducts his business, or whether he takes an unusual

9
Beene v. National Liquor Co., 198 S.W. 596 (1917).
952
In re Mercury Engineering Inc., 68 F. Supp. 376 (1946); To the same
effect: 9New
3
York, In re Rosom Utilities, Inc. 105 F. 2d 132 (1939).
Hart v. Brierly, supra, note 905.
 BULK SALES LAW 207
way of disposing of his property, in order to get the money for his
own use and leave his creditors unpaid. In this case, a biscuit
manufacturing company entered into a contract to sell to one person
all of its manufactured products and the entire output for the
following three months. The court ruled that it was not out of the
ordinary course of trade to prevent its products from becoming stale,
stating that the sale of an entire stock by one trader might not be
uncommon, but if made by another, would be extraordinary; that it
involves an issue of fact which depends on the nature of the business,
his ordinary method of making sales and his indebtedness. Thus,
in a Kansas case,9 where the seller who was engaged in the business
of selling lubricating oil by gallons for several years, sold almost
his entire year's supply of oil (85 barrels out of 90) to the defendant
without having paid his supplier, the transaction was considered
to be not in the ordinary course of his business.
According to a Pennsylvania court,9s it depends on the nature
of the seller's business as generally conducted by him. Thus, where
during the period of two years, the vendor sold not only in retail but
also in wholesale lots within two or three days after each purchase,
the sale in wholesale lots in 40 days was his ordinary way of doing
business.
As construed by an Alabama court, 9 6 ordinary course of trade
means ordinary in the past experience and dealings of that particular
seller, excluding considerations of custom and usage in the general
type of business of the seller. The reason given by a Mississippi
court, 9 7 for excluding consideration of the prevalent custom of
merchants, is that a statute cannot he destroyed by custom and
usages. Thus, where it is not the usual way of the seller's doing
business, even though the object may be 12,240 pairs of obsolete
95 9
style of shoes, 95 8 5,000 pairs of odds and ends of women's shoes,

9Vaccum Oil Co. v. Witchita Indep Consolidated Co., 203 P. 915 (1922).
95 5
Osterwell v. crean, 26 A. 2d 307 (1942); to the same effect by an
Oregon court in the case of Sabin v. Horestein, 260 F. 754 (1919).
9Robert v. Norrell, 212 F. Supp. 897 (1963), citing the cases of Jubas v.
Sampsell, 185 F. 2d 222 (1950); Irving Trust Co. v. Rosenwasser, 5 F. Supp.
1016 (1934); Cohen v. Calhorn, 150 So. 198 (1933).
95TCohen v. Calhorn, supra, note 964.
9
18Jubas v. Sampsell, supra, note 964.
959
Irving Trust Co. v. Rosenwasser, supra, note 964.
208 SALES

150 shopworn dresses, 9 6 salvaged goods from fire, 961 the

transactions were held to be covered by the bulk sales law. Under
a New York statute which covered a "sale of any part or whole of
stock of merchandise of the business of the seller otherwise than in
the ordinary course of business and in the regular prosecution of
said business", the court, in one case, 962 held that a sale of a large
part of a retailer's stock of "off-season" shoes was in the ordinary
course of trade where it is a regular custom in the retail shoe business
and is a recognized method, especially among smaller stores, of
closing their obsolete stock, stating that "we cannot ignore the usages
and necessities of modem retailing, by holding that only those sales
made to customers off the street are in the ordinary course of trade."

SEC. 184. "ALL OR SUBSTANTIALLY ALL"

The Philippine Bulk Sales Law requires that if the sale,

transfer, assignment or mortgage covers the business or trade itself,
or the fixtures and equipment used in such business or trade, it
must cover "all or substantially all" of them. Most of the early state
bulk sales laws used the terms "in bulk" or major part" or a "large
part", when the transaction was out of the ordinary course of
business. The only early state bulk sales laws which used the term
"substantial or substantially" when referring to the business or the
fixtures and equipment, were those of Georgia, Oregon, Washington,
Florida, and Louisiana.
A transfer of a half-interest in the business was hold to he
within the Oregon and Washington statutes, 963 and as a "sale in
bulk" by a West Virginia court.964 The sale of a half-interest in the
business to the claimant who bought the other half-interest two
months later, was considered as a "sale in bulk" by a Georgia
%5
court,

96Cohen v. Calhom, supra, note 964.

"'Texas-Butler Bros. V. Sinken, 104 S.W. 2d 14 (1937); Michigan-Hoja
v. Motoc, 209 N.W. 66 (1926).
9 2New York-Sternberg v. Rubenstein, 112 N.E. 2d 210 (1953).
9Brownson v. Lewis, 377 P. 2d 327 (1962); Spokane Merchants Assn. v.
Koska, 203 P. 969 (1922).
9Marlow v. Ringer, supm note 883.
9 Virginia-Carolina Chemical Co. v. Bouchelle, 78 S.E. 51 (1913).
 BULK SALES LAW 209
There is no doubt that the sale of the entire business would be
covered by any bulk sales law, as long as the business or trade
comes under it, as being out of the ordinary course of business or
trade,9 including the sale of a unit of the business,97 or of one of
the chain stores. 96a So also was a transfer of the business of a
partnership to a corporation to engage in the same business. 969
However, a sale of an interest in the partnership to another partner
was held not to be covered by the bulk sales law by a Georgia, Iowa,
and Indiana court.'
A sale or mortgage of all or substantially all the fixtures and
equipment used in the business is covered by the statute because
they constitute a very large part of a merchant's assets. 9n A problem
which arose in American jurisdiction when the vendor sold his
assets from time to time but each sale did not involve a major part of
his assets, was: whether each sale should be viewed as independent
of the others, or whether the object of all the sales should be added
together to deter- mine if a major part of the business had been sold,
In an Illinois case,m only the last sale was held to come within the
statute, on the ground that the vendor may not evade the law by
properly selling some of his property, and then deal with all or a
major part of what was left, without complying with the bulk sales
law. In another Illinois case, 9 3 where the seller who was engaged
in a marble-contracting business and a tile-tex business, sold first
the stock and equipment in one branch and sold to another all the
merchandise and equipment in the other branch, the court
considered both sales as a single transaction, resulting in a disposal

9Arkansas-North American Provision Co. v. Fisher Line & Cement Co.,

supra, note 914; McKelvey v. John Schaap & Sons Drug Co. 220 S.W. 827
(1920); Maine-Conquest v. Atkins, 122 A. 858 (1923); Oregon-Castlemen v.
Stryker, 219 P. 1084 (1923).
9671n re Lipman, 201 F. 169 (1912); Goodman v. Clarkson., 147 S.F. 183
(1928).
9Keller V. Powler, 256 S.W. 879 (1923).
969Smith-Calhorn Rubber Co. v. McGher Rubber Co. supra, note 950.
""Taylor v. Folds, supra, note 949; Yancey v. Lamar-Rankin Drug Co.,
supra, note 949; Peterson Co. v. Freeburn, 215 N.W. 746 (1927); Hronik v.
Warty, 217 N.W. 449 (1928); Fairfield Shoe Co. v. Olds, 96 N.E. 592 (1911).
9'People V. Mapoy, G.R. No. 48336, September 21, 1942, 73 Phil. 678 (1
942); Mississippi-Walton v. Fischer, 111 So. 364 (1927); First National Bank of
Sheveport v. Sharp, supra, note B.F. Goodrich Rubber Co. v. Breland, supra.
note 900; In re United Travelling Goods Co., Inc. 297 P. 823 (1924).
'Main v. Hall, 41 F. 2d 715 (1939).
'Corrigan v. Miller, 86 N.E. 2d 853 (1949).
210 SALES

of the whole of the stock and equipment used in the business. In a

Massachusetts case, 974 the five transactions in favor of the same
purchaser within a period of 7 days were considered as a single
transaction for the purpose of determining that a major portion of
the seller's goods were sold. In a New York case,7 however, the
chattel mortgages which were executed on various cars of a car
dealer by virtue of their purchase on different occasions on loans
from different sources, pursuant to a general financing scheme,
were considered as separate mortgages.

d. Types of Property

SEC. 185. "STOCK OF GOODS, WARES, MERCHANDISE"

These terms appearing in almost all state bulk sales laws

controlled the determination of the nature of business or trade
covered by the law. A majority of state courts adopted the common
and ordinary acceptation of these terms, as referring to goods or
chattels which a merchant has for sale. They are specific goods kept
in stock for sale, and are being sold and replaced by other goods. A
North Carolina court construed these terms as referring to stock of
merchandise bought for resale in substantially the same form as
originally bought, and not to provisions for meals for patrons of a
restaurant, 976 although a Maryland court held to the contrary.97
These terms were held by a 'I'exas court not to include the sale
of materials and ingredients used by a baker in the manufacture of
979
his products, 978 while an Arkansas court held the contrary view.
In several cases, these terms were construed as not to apply to a sale
by a manufacturer of his stock of raw materials used by him, and
not kept or offered for sale in the ordinary course of trade,980although

94Carpenter v. Karnow, 193 F. 762 (1911).

"Sorrin v. Pacific Financing Corp., 37 P. Supp. 527 (1941).
976Swift & Co. v. Temperlos, supra, note 904; New York- In re Henningsen,
297 F. 821 (1924); N.D.-Johnson v. Kelly, supra, note 899.
977Calvert Building & Construction Co. v. Winakus, 141 A. 355 (1928).
978Hobart Manufacturing Co. v. Joyce & Mitchell, supra, 904.
7Gretzinger v. Wynne Wholesale Grocery Co., supra, note 932.
9'*U.S.-In re United Travelling Goods Co., 297 F. 823 (1924); Ill..-G.S.
Johnson Co. v. Beloosky, 105 N.E. 287 (1914); Neb.-I,ee v. Gillen &
Boney, 134 N.W. 278 (1912), Tenn.-Schultz, B. & Co. v. Bell, 130 S.W. 2d 149
(1939); Tex.-Ind. Acceptance Corp. v. Corey, 19 S.W. 2d 365 (1929).
 BULK SALES LAW 211
a Connecticut and a New York court ruled to the contrary. 981These
terms were also held, by a Texas and Michigan court, to include the
sale of caskets, steel vaults, ropes, and casket wares bought to resell
in the undertaking business. 9s2

SEC. 186. "SToCK OF . ., PROVISIONS OR MATERIALS"

These terms were not found in any of the state bulk sales law.
The ordinary meaning of "provisions" is "stock of food," and
"materials" are articles which may be used in the making or
production of something. Therefore, under the Philippine Bulk Sales
Law, a sale of stock of provisions by a restaurant, bakery, hotel,
send similar establishments out of the ordinary course of business
would fall under the law.
The sale of materials such as wire, conduits, switch boxes,
and sockets used in wiring buildings by the contracting branch of a
hardware business was considered by a New York court as coming
under the law. 3 In a later New York case, the statute was held not
to apply to a mortgage executed on raw materials acquired by a
manufacturer for the purpose of manufacturing his final product,
on the ground that such materials were not held for sale and could
not he described as "stock or merchandise".94

SEC. 187. FIXTURES AND EQUIPMENT

The term "fixtures" refer to chattels which merchants usually

annex to the premises occupied by them to better store, handle, and
display their goods and wares, and constitute a large part of
their assets.9 It refers to chattels whether permanently attached to
realty or removable, if installed, for the conduct of the business, and
not for the improvement of the realty.98 7 It includes trade fixtures
like cigarette-vending machines in the retail cigarette business.9 It

8'Kranke v. American Fabrics Co., supra, note 905; Mosson v. Krizer,

supra, note 902.
"'Yeager v. Dallas Coffin Co., 46 S.W. 2d. 1016 (1932); People's Savings
Bank v. Van Allsbury, supra, note 904.
93Mott v. Reeves, supra, note 885.
"In re Saraw, 91 F. 2d. 957 (1937).
snBowen v. Quigley, 130 N.W. 690- (191 1).
"6Walton v. Fisher Co. supra, note 900.
"7 Stockyards Petroleum Co. v. Bedell, supra, note 903.
"8Sproval v. Gambone, 43 F. Supp. (1942).
 SALES
212
was applied t the sale, by a Michigan. court, of chairs, tables, dishes,
stoves, and cooking utensils of a restaurant;989 to the sale of a cash
register, refrigerator, computing scale, meat block, sausage machine,
kettle, stove, large press, sale and account file of a grocery and meat
market,m to the sale, by a Georgia court, of bar fixtures, safes, desks,
cash register, cigar cases, pool tables, and refrigerator used in a
retail liquor business;9 and to the sale, by a Kansas court, of the
gasoline pumps, tanks, and air compressors in a filling-station
business. 992
The term "fixtures" does not include a store building, 993 or
horses, mules, and wagons,9 although a New York court extended
the term to cover the sale of trucks and trailer of a coal dealer. 99 The
Louisiana Bulk Sales Law of 1926 and the Oregon Code of 1930
expressly included "movable store or office fixtures, wagons, auto
trucks and other vehicles".996
The term "equipment" refers to tools, instruments, articles,
etc. used for doing something. It includes all fixed assets other than
land and buildings of a business enterprise. It refers to the physical
997
facilities available for production, including machines and tools.
To come within the bulk sales laws, the fixtures and equipment
must be those used in the mercantile business; i.e. buying and selling
of merchandise.m A Kansas court ruled that the sale of equipment
used in publishing newspapers was not covered by the bulk sales
law, as the newspaper sells news and information which do not

99Michigan Packing Co. v. Messaris, supra, note 930.

9°Hoja v. Motoc, supra, note 969.
99Parham v. Potts-Thompson Co., 56 S.E. 460 (1907).
99Stockyards Petroleum Co. v. Bedell, supra, note 903.
931n re Elliott, 48 P. Supp. 146 (1942); Robbins v. Fuller, 229 S.W. 8
(1921).
9Smith v. Boyer, 112 S.E. 71 (1922); Prins v. American Trust Co., 275
S.W. 914 (1925).
995 Maley v. Blakeney, supra, note 903.
9960regon Code, see. 64-101; Louisiana Act 270, sec. 1-3.
97Daly Bros. Shoe Co. v. H. Jacobs & Sons, Inc., 49 F. Supp. 118, 121
(1943).
mPeople v. Wong, G.R.-C.A. No. 9776-R, March 26, 1954, 50 O.G. 4867
(Oct., 1954); Missouri-Baiter v. Crum, supra, note 886; Gallup v. Rhodes,
supra, note 917; Bolanovich v. Peter Hauptmann Tobacco Co., supra, note
917; Mejer Electric & Machine Co. v. Dixon, supra, note 919; Contra: Welkanies
v. Hesteman, supra, note 906 (applied to farming); La Salle Opera House Co.
v. La Salle Amusement Co., supra, note 905, (applied to theatrical business
equipment).
 BULK SALES LAW 21 3
constitute merchandise, 999 1 while a New York court applied the
bulk sales law to the sale of a magazine publishing business.'"

e. Exempt Transactions

SEC. 188. WRITrEN WAIVER BY CREDITORS

The Philippine Bulk Sales Law requires the production and

delivery of a. written waiver under oath of the benefits of the statute,
by the creditors of the vendor/ mortgagor, for the transaction to be
exempted from its coverage. 10m In American jurisdiction, waiver
may be express or implied, but it will not be presumed unless by
conduct, the purchaser has been misled, to this prejudice, into the
honest belief that such waiver was intended or consented to.}0 2 In
an Oregon case, the creditor was notified of the sale, and he
consented to the sale, by saying that he would wholly look to the
vendor for payment, and waited for two years before repudiating
such approval. 10 3 In another Oregon case, it was held that the
creditor's action against the vendor and his ineffectual action in
garnishment against the purchaser, cannot defeat his right to look
eventual- ly to the goods transferred in violation of the law.'O In a
Washington case, the creditor accepted the guaranty of the buyer,
with knowledge of the facts, and thereafter, received payments from
the buyer.00 In an Iowa case, the creditor consented to, and
participated in the sale, with the understanding that his claim was
to be paid out of the proceeds of the sale. 0 6 In another Iowa case,
where the creditor, three months after notice of the sale, accepted a
promissory note from the vendor, increasing the interests on the
indebtedness and providing for attorney's fees, the court considered
such acts as constituting acquiescence to the sale.'

"Sanders v. U.S., 389 P. 2d 799 (1964).

1°°°Sapphire Corp. v. American-Marcy Magazine, 138 N.Y.S. 2d 286
(1955).
1001 Act 3952, (1932) Sec. 2 as amended by Rep. Act No. 111 (1932).
1
002Castleman v. Shyker, 219 P. 1084 (1923).
1003Rice v. West, 157 P. 1105 (1916).
1
0°4Oregon Mill and Grain Co. v. Hyde, 169 P. 791 (1918).
100
Whitehouse v. Nelson, 86 P. 174 (1906).
100w6Palo Savings Bank v. Cameron, 168 N.W. 350 (1918).
1'w7 Schramms & Schmieg Co. v. Shope, 205 N.W. 350 (1925).
214 SALES

In a Kansas case, the court ruled that there is no waiver, unless

the creditor voluntarily and intentionally renounce his claim against
the stock of goods in the buyer's possession, and does some act
inconsistent with this right.'" A creditor might accept a few
hundred dollars on account, might receive a new note for the
balance, and notwithstanding his delayed action for two years,
there is no waiver or estoppel which would bar or defeat his right to
look to the stock of merchandise for the balance.'w° In another
Kansas case, where the creditor's agent assured the buyer that his
claim had been settled and that they could go ahead with the sale,
the court held that there was a voluntary and intentional
disclaimer.1010 In a Georgia case, a note taken of the existing
indebtedness from the vendor after the sale, was not considered a
waiver. 01'

SEC. 189. SALE BY OFFicERs AcrNG UNDER JUDICIAL PROCESS

Executors, administrators, receivers, assignee in insolvency

or public officers acting under a court order need not comply with
012
the bulk sales law in making any sale, transfer or mortgage.
Creditors are protected in such proceedings. Where ,the property
was assigned for the benefit of creditors extrajudicially to be sold
and divided pro rata among the creditors, the assignee must comply
m3
with the requirements of the bulk sales law.

3. Consideration for the Transfer or Mortgage

SEC. 190. "FOR CASH OR CREDIT"

The Philippine Bulk Sales Law imposed the duties on the

person who shall sell, mortgage, transfer or assign any stock of
goods, wares, merchandise, provisions or materials in bulk, "for
cash or credit" before receiving any part of the purchase price or
any promissory note, memorandum or other evidence therefor, to
deliver to the vendee, mortgagee or agent a sworn written list of the

'0mColeman v. Costello, 223 P. 289 (1924).

109 Marquette County Savings Bank v. Koivisto, 127 N.W. 680 (1910)
1010 Harpham Bros. Co. v. Perry, 235 P. 1039 (1925).
'tm Haralson v. Mendel, 136 S.E. 88 (1926).
10 12Bulk Sales Law, sec. 8 (Art. 3952, as amended).
'0 13Humphrey v. Coquillard Wagon Workers, 132 P. 899 (1913).
 BULK SALES LAW 21 5
names and addresses of all his creditors, showing the amount of
his indebtedness, and to apply the purchase or mortgage money to
1 4
the pro rata payment of the claims of his creditors. 01
Most state bulk sales laws imposed the duties on the buyer to
demand such list from the seller, and in the Pennsylvania type, to
apply the consideration to the pro ratapayment of creditors whose
names appear in the list. The Washington, Oregon, Pennsylvania,
Georgia, and Nevada laws, in imposing such obligation on the
buyer, mentions the consideration to be for "cash or credit, leading
a Washington court to rule, where the business was transferred to a
corporation organized to take over the business, that the transaction
was not for "cash or credit", but for stock which was as available
for the satisfaction of the creditors after the transfer of the
1015
merchandise as before.
However, in an Oregon case, 1016 the bulk sales law was held
applicable to barter for property measured in money, as where stock
of goods were conveyed in exchange for 79 acres of land. In a Georgia
case, the court ruled that if the consideration is an acquittance of a
debt, in legal effect, it is as a cash sale, as distinguished from a
credit sale. 10 17 The Wisconsin law specifically included an
assignment in consideration of an "existing indebtedness," while
the Louisiana Bulk Sales Law specifically included exchange for
"certificates of stock, bonds or other obligations of a corporation."10 8

4. Requirements of the Statute

a. List of Creditors

SEC. 191. WHo ARE THE CREDITORS?

The Philippine Bulk Sales Law requires the vendor/mortgagor

to furnish the vendee/ mortgagee a sworn list of "all his creditors"
together with the amount of indebtedness "owing, or to become due
or owing". The form prescribed by the statute contains the statement
that "there are no creditors holding claims due or which shall
become due, for, or on account of goods, wares, merchandise,provisions

10 4
Bulk Sales Law, Sec. 3 (Act 3952, [19321 as amended).
1015Maskell v. Spokane Cycle Co., supra, note 943.
1016Hartwig v. Rushing, supra, note 891.
1 17
' Sampson v. Brandon, Gray, 56 S.E. 488 (1907).
"' 0Act 270, sec. 5 (1926); For other doctrinese, sec, 181, supra.
216 SALES

or materialspurchased upon credit or on account of money borrowed, to

carry on the business of which said goods, wares, merchandise,
provisions or materials are a part other than as set forth in said
statement." 0' 9
The contents of the affidavit, as prescribed by the law, seems
to limit the meaning of the term "all creditors" appearing in the
body of the provision, to business creditors only. In decisions of
Washington courts prior to the revision of their law in 1925, it was
held that all the creditors, not merely those who sold goods on
credit or on account of money borrowed to carry on the business,
were covered, on the ground that the form of affidavit in the law
was not a part of substantive law. 1°2° The Washington Bulk Sales
Law was amended in 1925, applying the law only to business
creditors: those to whom the vendor may be indebted for or on
account of any goods, wares or merchandise and/or fixtures and
equipment used in or about the business of the vendor purchased
on credit, or for on account of money borrowed to carry on the
business of such vendor.
Almost state courts ruled that all creditors of the vendor, whose
claims arose prior to the time of conveyance, whether mercantile or
general creditors, 1°21 are covered by the statute, but not those whose

1'9Bulk Sales Law; sec. 3 (Act 3952 [1932]. as amended).

102Eklund v. Hopkins, 68 P. 787 (1904); Philips v. Verbeke, 200 P. 1091
(1921).
102 1
Alabama-Johnston Bros. V. Colorado-Washburn, 77 So. 461 (1917);
Arkansas-Prins v. American Trust Co., supra, note 1002, Colorado-Ratliff v.
Davis, 294 P. 2d 1109 (1956); Georgia-Anderson v. merchant & Mines State
Bank, 129 S.E. 650 (1925); Iowa State Savings Bank of Malvern v. Young, 244
N.W. 271 (1932); Noetze Motor Co. v. Burrows-Moore Pontiac, 157 F. Supp.
593 (1958); Corrigan v. Miller, supra, note 922; Burnett v. Trimmel, supra, note
883; Louisiana-Brinson v. Monroe Auto and Supply Co., 158 So. 558 (1935);
Goldberg v. Martin, 13 So. 2d 465 (1943); Maryland-Fidelity and Deposit Co.
of Maryland v. Thomas, 105 A. 174 (1918); Massachusetts-Rabalsky v.
Levenson, 108 N.E. 1050 (1915); People's Savings bank v. Van Allsburgn,
supra,note 905; Miss.-Kline v. Sims, 114 So. 871 (1928); Roberts v. Kaemmere
287 S.W. 2d 176 (1937); N.Y.-Texas Co. v. Dherzeluis, 27 N.Y.S. 2d 503
(1941); In re P. Pastene & Co., 156 N.Y.S. 524 (1914); Oklahoma-Galbraith v.
Oklahoma State Bank, 130 P. 541 (1912); Pennsylvania-George West Shoe Co.
v. lemish, 124 A. 87 (1924); Texas-Nash Hardware Co. v. Morris, 145 S.W. 874
(1912); Gardner v. Goodner Wholesale Grocery Co., 247 S.W. 291 (1922);
Eklund v. Hopkins, supra, note 1028.
 BULK SALES LAW 217
claim arose after the conveyance. 1121a Creditors of prior transferors
need not be notified. 1 m Where partnership property is sold, there is
no need to notify the separate creditors of the partners.1m However,
where a partner sold his interest in the partnership to the remaining
partners, a Tennessee court ruled that the creditors of the
partnership should also be notified where the liability of the partners
is joint and several. 24

SEC. 192. NATURE OF THE CREDIT

The term "owing" in the law was construed to cover only

liquidated claims, and not a contingent one which depends on the
0
occurrence of another contingency before liability is established1 '5
The law does not apply to uncertain, unliquidated or contingent
claims arising either on tort or contract; otherwise, claimants
possessing uncertain and speculative demands would have the
power to harass and interfere with the business.01 26 Thus, a claim
for breach of warranty brought before the bulk transfer, but judgment
was rendered two years after the bulk transfer, was considered a
claim subsequent to the bulk transfer and hence, not covered by the
law. °07 However, a creditor seeking to enforce a surety's liability
on a bond which had a fixed amount, although contingent on the
happening of a condition set forth in the bond, was considered a

' 021aDodd v. Raines, I F. 2d 658 (1924); Illinois-Parker v. Hand, 132 N.E.

467 (1921); Mississippi-Whittington v. Yazoo Delta Mortgage Co., 114 So.
752 (1927): New York-Newman v. Deveson, 217 N.Y.S. 683 (1926); Texas-
Fisher v. Rio Tire Co., 65 S.W. 2d 75 (1933); Washington-McRae v. Levy, 31 P.
2d 1028 (1934).
1
mNew York-Seeman v. Levine, 125 N.Y.S. 184 (1910); N. Hampshire-
Markarian v. Whitmarsh, 95 A. 788 (1915); Oklahoma-Huston v. Alexander
Drug Co., 158 P. 892 (1916); (Note: Oklahoma law was amended in 1917 to
include sales made within 90 days prior by antecedent transferors- Wyandotte
Hardware Co. v. Loveland, 233 P. 205 (1925).
10 3
Mississippi-Ellis Jones Drug Co. v. Coker, 117 So. 545 (1928);
Washington-Whitehouse v. Nelson, supra, note 1013; Gainer v. Thompson,
296 P. 1043. (193 1).
'0 24Mahoney-Jones Co. v. Sams Bros. 159 S.W. 1095 (1913).
1i25 U.S. v. Golblatt, 128 F. 2d 576 (1942): cert. denied, 317 U.S. 662; 63

S. Ct. 494, 87 L Ed. 656 (1943); Wolfe v. Bellfair Hat Co., 47 N.Y.S. 2d 908
(1944).
1026Griffin v. Allis Chalmes Mfg. Co., 259 N.W. 89 (1935).
1027Ibid., New York-Adams-Flanigan Co. v. Baselice, 167 N.Y.S. 948

(1917); (Aff.) Adams-Flanigan Co. v. Di Donato, 126 N.E. 898 (1920); N.D.
Ewaniuk v. Rosenberg, 157 N.W. 691 (1916).
218 SALES

creditor under the bulk sales law, even prior to the condition in the
bond becoming absolute, on the theory that he was accepted as
surety on account of his business assets, and the bond would become
worthless if the surety can dispose of his stock immediately
thereafter.0'

SEC. 193. SUFFICIENCY OF THE AFFIDAVIT

The Philippine Bulk Sales Law prescribes the wording of the

affidavit. In an Iowa case, the affidavit which recited that "there are
no creditors existing at the time of the sale who would by any process
of law obtain any interest in said goods," was held insufficient,0 29
as the statement was a mere legal conclusion. In a South Dakota
case, the statement in the affidavit that the debtor was "not indebted
to anyone on account of the stock or fixtures" was held
insufficient. °3 In a Missouri and a Michigan case, the statement
that the "stock was entirely free from debt" or that it was "free and
clear of all encumbrances" was held insufficient. 1031 The test is
whether the affidavit is clear and certain that an indictment for
perjury may he sustained if false. A statement of a mere opinion or
0 32
legal conclusion is not sufficient compliance.
Thus, a statement in the affidavit that the list contain the names
of all my creditors "to the best of my knowledge and belief" was
held by an Oregon and Kansas court to be incomplete and inaccurate
so as to place the purchaser on inquiry1 ° 33 The affidavit must
positively state that the list was a complete and accurate list.

b. Application of Consideration to Pro-rata Payment of

Creditorsin the List

SEC. 194. DUTY OF SELLER/MORTGAGOR

The Philippine Bulk Sales Law imposes the duty on the seller-
mortgagor to apply the purchase or mortgage money of the property

'02Hanna v. Hurley, 127 N.W. 710 (1910).

'2Hronick v. Warty, supra, note 978.
103Butler Bros. v. Mason, 198 N.W. 560 (1924).
103 1Interstate Shirt and Collar Co. v. Windham, 131 N.W. 102 (1911);
Jopkin Supply Co. v. Smith, 167 S.W. 649 (1914).
1032Hronick v. Warty, supra, note 978.
1033Fitzhugh v. Munnell, 179 P. 679 (1919), Garrison v. Carter, 278 P. 51
(1929).
 BULK SALES LAW 219
to the pro-rata payment of the bona fide claims of his creditors as
shown in the affidavit; otherwise, he shall be penalized by
imprisonment for not less than six months nor more than five years
or fined in any sum not exceeding P5,000, or both, 1°3 and the sale,
transfer or mortgage shall be fraudulent and void. The Pennsylvania
type imposes such duty on the purchaser.
In a South Dakota case, where the purchaser paid the price
before the expiration of the seven-day notice required to be given to
the creditors, the court held that he was not a purchaser in good
faith.10 In a Washington case, where the buyer, who had the duty
under the law to apply the price to the pro rata payment of the
claims of the creditor, paid most of the price before receiving the
affidavit, the court held the sale to be fraudulent and void as to the
creditors of the vendor. 1°31
Where the affidavit states that he has "no creditor", and the
buyer had no knowledge of any creditor after a careful and honest
inquiry, supported by an examination of the books, the sale is not
invalidated by the appearance of a creditor, and there is no need to
1°37
prepare an inventory.

SEC. 195. OMISSION OF A CREDITOR FROM THE LIST

According to a Texas court, the buyer had a right to rely on the

correctness of the list of creditors furnished by the seller unless he
knows to the contrary. 1' According to a Georgia court, the omission
of the name of creditor in the list does not render the sale void, as
there is a penal remedy. 1°39 In a Kansas case, where the list was not

l0 34Bulk Sales Law, sec. 4, 11 (Act No. 3952 [1932], as amended)..

1035New First National Bank in Dell Rapids v. Light, 244 N.W. 369
(1932).
1036Gregg v. Reisinger, 188 P. 765 (1920).
1037
New York-Marcus v. Knitzer, 4 N.Y.S. 2d 308 (1938); Carl Ahlers Inc.
v. Dingott, supra, note 906; Willnir Butter & Egg Corp. v. Roth, 83 N.Y.S. 2d 16
(1948); Klein v. Schwatsby, 128 N.Y.S. 2d 177 (1953); Kentucky-Field Grocery
v. Conley, 104 S.W. 372 (1907).
' Brecht v. Rabinowitz, 275 S.W. 213 (1926); Weidlick Pen Mfg. Go. v.
Palace Drug Co. 283 S.W. 574 (1926); To the same effect: Kentucky-Field
Grocery Co. v. Conley, 104 S.W. 372 (1907); Dwiggins Wire Fence Go. v.
Patterson, 179 S.W. 224 (1915); New York-Reegin v. Malvehill, 47 N.Y.S. 404
(1914); Rhode Island-Glantz v. Gardiner 100 A. 913 (1917); Texas-Brecht Co.
v. Robinowitz, 275 S.W. 213 (1925): Contra: Walton v. Fisher, supra, note
Miller-Alliance Co. v. Hutcherson, 112 So. 589 (1927); Kline v. Sims, supra,
note 1029.
1 39
" International Silver Co. v. F.G. Hull and Co. 78 S.E. 609 (1913).
220 SALES

under oath, and a creditor was omitted in the list, the court held
that the creditor can recover from the buyer, who became trustee for
the creditor to the extent of the property transferred, the portion of
the value of the stock of goods that the amount of his claim bears to
the entire indebtedness. 1° The fact the list was not verified was
sufficient to excite further inquiry on the part of the purchaser. 1041

c. Inventory and Notice to Creditors

SEC. 196. PURPOSE OF INVENTORY AND NOTICE

The law imposes a duty on the vendor/ mortgagor, at least

ten days before the sale, transfer or execution of a mortgage upon
any stock of goods, wares, merchandise, provisions or materials in
bulk, to make a full detailed inventory thereof, stating the cost price
to the vendor/mortgagor, and notify all his creditors of the price,
terms and conditions of the sale, transfer, mortgage or assignment 1
at least ten days before delivery, personally or by registered mail. 0
The purpose of the inventory and the advance notice of the
bulk transfer to the creditors is for the latter to ascertain before the
consummation of the transfer, the quantity and value of the things
sold or mortgaged, and determine whether they should try to stop it
and take the necessary steps to impound the proceeds. Failure to
take an inventory is not material where there is a verified list of
creditors and all debts so listed were paid out of the purchase or
mortgage money.1 m

d. Effect of Non-Compliance With the Statute

SEC. 197. "FRAUDULENT AND VOID"

The Philippine Bulk Sales Law provides that the sale, transfer
or mortgage shall be fraudulent and void, if the purchase or mortgage
money is not applied pro rata to the payment of the bona fide claims

1
04°Linn County Bank v. Davis, 175 P. 972 (1918).
1 1
04Williams v. J.W. Crowdus Drug Co.. 167 S.W. 187 (1914); C.J. Gerlach
and Bros. v. Texas Building Materials Co., 245 S.W. 716 (1922).
1
°42Bulk Sales Law, sec. 5.
1043McKelvey v. John Schaap and Drug Co., supra, note 974; Blumberg
Co, v. Farber, 11 N.Y.S. 2d 427 (1939).
 BULK SALES LAW 221
of the creditors of the vendor/mortgagor, as shown in the verified
list of creditors. 10"
The term "void" was construed by American courts as
meaning "voidable" at the instance of the creditors inasmuch the
requirements of the statute may be waived and are for the protection
of the creditors."" The contract is binding as between the parties,
and title passed to the buyer, until the sale or transfer is vacated by
the creditor or until the vendee disposes of the property." The
transaction is declared void by law, to enable the creditors to levy
on attachment or execution on the property or to garnish the
47
proceeds.0
Most state bulk sales laws made the buyer a "trustee" for the
creditor to the extent of the property transferred, a few state laws
made the buyer a "receiver" of the goods transferred, while a very
few state laws, like that of Wisconsin, Idaho, Kentucky and New
York made the buyer personally liable, if the requirements of the
law were not complied with.
Some state bulk sales laws prescribe a short statute of
limitations for the creditors to proceed against the stock of goods in
the hands of the buyer. The Philippine Bulk Sales Law is silent on
this matter. If the bulk transfer would be placed in the same category
as rescissible contracts made in fraud of creditors, the ordinary
prescriptive period under the Civil Code of four years should be
applied. The Philippine Bulk Sales Law requires registration of the
list of creditors in the Bureau of Commerce, presumably for omitted
creditors to know of the bulk transfer.
It will be noted that although a sale and transfer in bulk, as
defined in the Philippine law, includes the sale or transfer of all or
substantially all the fixtures and equipment, the succeeding sections
of the law, in prescribing the requirements for a valid transfer,
mention only "stock of goods, wares, merchandise, provisions or

1
°44Bulk Sales Law, sec. 4.
'4 5 Iowa-Schramn and Schmieg Go. v. Shope, supra, note 1015; Evans v.
Herbranson 41 N.W. 2d 115 (1950),, Michigan-Krolik v. Kaczmark, 175 N.W.
239 (1919); Albright v. Stockhill, 175 N.W. 252 (1919); Missouri-Kirby v. Dalke,
266 S.W. 704 (1924); Oregon Mill and Grain Co. v. Hyde, supra, note 1012;
Syverson v. Serry, 200 P. 921(1921); Tennessee-York v. Ambrose, 300 S.W. 586
(1927); Texas-Collins-Decker Co. v. Crumpler, 272 S.W. 772 (1925); Vermont
Newman v. Garfield, 104 A. 881 (1918); New York-Eklund v. Hopkins, supra,
note 1028; Wisconsin-Hanson v. Knutson Hardware Co., 196 N.W. 831 (1924).
l 7Ibid.
1°4 Utley v. U.S. 304 F. 2d 746 (1962).
222 SALES

materials in bulk", and failed to mention "fixtures and equipment".

This could be explained by the fact that the Philippine law was
patterned after most state bulk sales laws which did not include
fixtures and equipment. The omission in the Philippine law may
only be through inadvertence, otherwise their inclusion in the
definition of bulk transfers would be of no use, if their sale or transfer
would not be subject to the requirements of the law for their validity.

SEC. 198. PENAL SANCrIONS

The Philippine Bulk Sales Law penalizes any intentional

omission of the names of the creditors in the required list, with the
correct amount due or to become due, or any false or untrue
statement therein. 1 m It also penalizes any transfer of title in bulk,
without consideration or for a nominal consideration only.149 Non-
compliance with the requirements of the law, such as the delivery
of the list of creditors to the vendee/ mortgagee before receiving the
consideration, the application of the consideration to the pro-rata
payment of the claims of creditors appearing in the list, the
preparation of a full, detailed inventory of the goods sold or
mortgaged, and the notification to creditors at least ten days before
delivery is also punishable. The penalty is the same: imprisonment
for not less than six months nor more than five years or a fine of not
more than P5,000, or both, and the penalty is imposable on the
person required to perform such acts: the vendor, transferor,
mortgagor or assignor, or any person acting on his behalf.'°m

'mBulk Sales Law, sec. 6 (Act No. 3952 [1932], as amended).

°49Bulk Sales Law, sec. 7 (Act No. 3952 [1932], as amended).
ImBulk Sales law, sec. 11 (Act No. 3952 [1932], as amended).