Bulk Sales Law
Applies
specifically to merchants who obtain their stocks or merchandise on consignment
and may unscrupulously decide to sell the bulk of their stock and thereafter
disappearing, without remitting shares of the suppliers who are left with no
remedy at all
Purposes
1. To prevent the defrauding of creditors by
the secret sale or disposal or mortgage in bulk of all or substantially all the
merchant’s stock of goods
2. To prevent secret or fraudulent sale or
mortgage of goods in bulk until the creditor of the seller shall have been paid
in full
Constitutional as being a valid exercise of police power
Penal in nature. Thus, its provisions must strictly construed
against the government and liberally in favor of the accused
Business covered
The
terns “goods” and “merchandise” as used in the BSL have acquired a fixed
meaning.
Goods - refer to things and articles which are kept for
sale by a merchant
Merchandise - such things as are usually bought and sold by merchants
Fixtures -
refer to such articles of merchandise usually possessed and affixed by the merchants to the premises
which are occupied by them in order to enable the latter to better store, handle and
display their goods and wares. They are commonly known as trade fixtures, although they can be removed without material injury to the premises before or at the end of tenancy.
These
technical terms convey the intention that the BSL applied to merchants which
are in the business of selling goods and wares and similar merchandise, hence,
the said law was held not to apply to a sale of assets by a manufacturer since
the nature of his business does not partake of merchandising.
BSL
must be construed strictly. Thus, the disposal by the owner of a foundry shop
of all his iron bars and other items does not fall under the provisions of the
law, because the contents of a foundry shop are not wares and merchandise. A
foundry shop manufactures iron works or processes or casts metals. It does not
sell merchandise. BSL only covers sales in bulk of fixtures and equipment used
in the mercantile business, which involves the buying and selling of
merchandise. (
Bulk sales laws generally apply to retail merchants, traders and dealers and generally only to persons of that class. On the basis of Section 2, the Bulk Sales Law does not apply to a bulk sale by a manufacturer because of the nature of the latter’s business, i.e., it is not engaged in the business of selling stocks in trade. The sale of an entire automobile repair shop, together with its goodwill, credit, machineries, tools and because this would involve the sale of a business engaged in rendering services and not the sale of goods. In addition, the sale of a barber shop would not be covered by the Law, since no stocks in trade are really involved in the operation of a barber shop.
Bulk sales laws generally apply to retail merchants, traders and dealers and generally only to persons of that class. On the basis of Section 2, the Bulk Sales Law does not apply to a bulk sale by a manufacturer because of the nature of the latter’s business, i.e., it is not engaged in the business of selling stocks in trade. The sale of an entire automobile repair shop, together with its goodwill, credit, machineries, tools and because this would involve the sale of a business engaged in rendering services and not the sale of goods. In addition, the sale of a barber shop would not be covered by the Law, since no stocks in trade are really involved in the operation of a barber shop.
Transactions covered
Any
sale, transfer, mortgage, or assignment of: (STMA)
1. a stock of
goods, wares, merchandise, provisions, or materials other than in the ordinary course of
trade or business
2. all, or
substantially all, of the business or trade
3. all, or
substantially all, of fixtures and equipment used in
and about the business of the seller, transferor, mortgagor or assignor
Exempt transactions
1. STMA in the ordinary course of trade or business
2. When there
is a written waiver from
all the stma’s creditors
3. Sale by
virtue of a judicial order (JUDICIAL
SALE)
4. Sale by the
assignee or those beyond the right of creditors
5. Sale of properties exempt from
attachment or execution
BSL
has NO applicability to a sale by executor, administrator, receiver, assignee
in insolvency, or public officers, acting under process
Obligations of persons selling in bulk
1. Deliver to
buyer or mortgagee a sworn written statement of
the names and addresses of creditors as well as the respective amounts of debts
2. Apply
the proceeds to the pro-rata payment of the bona fide claims of
the creditors as shown in the verified statement
3. At least 10
days before the sale, transfer, mortgage or assignment, make a full detailed inventory of
stock of goods, wares, merchandise, provisions or materials in bulk and to
preserve the same
4. Notify
the creditors at least 10 days before transferring possession of
the stock of goods of the price, terms and conditions of the sale, transfer,
mortgage or assignment
5. Register the
sworn written statement/list of creditors with DTI
The
STMA shall be FRAUDULENT AND VOID –
if
1. Sworn
listing of creditors is not prepared and delivered, and/or
2. Proceeds of
transactions is not applied pro-rata to listed creditors
3. Incomplete,
false or untrue sworn written statement
This
injunction is not merely a presumption. Therefore, whatever may be the parties’
motivation in the transaction, and whether they have acted in good faith or bad
faith, the transaction is nevertheless treated as fraudulent and void.
No
legal consequences would therefore flow from the transaction, including
non-transfer of ownership over the subject matter thereof, and no right of
action would accrue from the transaction. Consequently, subject matter remains
to be owned by the seller or assignor, and subject to satisfaction of his
liabilities, and buyer or assignee has no legal basis to stake a claim on said
property, even if he has acted in good faith.
Effect of the submission of false sworn statement/list of creditors
Would
constitute a violation of Section 4 of the BSL which requires seller to deliver
to buyer a sworn written statement of the names and addresses of all creditors
to whom he may be indebted together with the amount of indebtedness due or
owing, or to become due or owing. In such a case, the sale shall be deemed fraudulent
and void. The good faith of the buyer is immaterial. The creditors of the
seller may recover the stocks of goods and merchandise acquired by the buyer
from the seller.
Effect of sale in violation of Bulk Sales Law
VALID
if there are no creditors involved
VALID
between the parties, VOID as to affected creditors
1. Sale in
bulk is void
2. Purchaser
holds the property in trust for seller (whether in good faith or bad faith)
3. Purchaser
is liable to seller’s creditors for properties forming part of bulk and already
possessed by him
Obligation of the buyer
BSL
imposes no direct obligation on buyer, transferee, mortgage, or assignee in
bulk sales. Strictly speaking, therefore, since criminal provisions are to be
construed strictly in favor of the accused, a buyer in a bulk sale cannot be deemed to be subject to criminal
liability under the BSL. However, a buyer may be held liable
as a principal by indispensable cooperation, if he was aware
of intent of the seller or conspired
with the seller.
Offenses punishable under the Bulk Sales Law
Those
which involve violations of Sections:
3
– Delivery of sworn written statement/list of creditors
4
– Pro-rata application of proceeds
5
– Written advance disclosure to creditors
6
– Incomplete, false or untrue sworn written statement
7
– Bulk transfers for nominal value
9
– Registration with DTI
All
of which makes reference only to the first type of sales in bulk (STMA a stock
of goods, wares, merchandise, provisions, or materials other than in the ordinary course of
trade or business). The absence of any reference in these sections to the two
other types of sales in bulk could only mean that they are not intended to be
covered by these provisions. Considering their penal character, these
provisions must be interpreted strictly against the state such that
non-compliance with them, in a situation where the sales in bulk involved is
not of the first type, would not be punishable.
Penalty for violation of BSL
Any
person violating any BSL provision, shall, upon conviction thereof, be punished
by imprisonment for not less than 6 months, nor more than 5 years, or fine in
any sum not exceeding P5,000.00, or both such imprisonment and fine, in court’s
discretion.
Fraudulent
conveyance under the BSL vs. transfer in fraud of creditors under the Civil
Code
A
conveyance or transfer fraudulently made in violation of BSL is null and void;
while a conveyance or transfer in fraud of creditors under the Civil Code is rescissible and
is valid until set aside by a competent court.
When
the law is duly complied with, the creditors
may not object to the transaction, but it may be rescinded if
it is shown that it was, in fact, made in fraud of creditors
Creditors contemplated
Creditors
at the time of the STMA. BLS protects only creditors at the time of transfer,
not future ones. They need
not be judgment creditors
Sale of 100% stock – not a sale in bulk
Transaction
is sale of stocks not of the business which would result to detriment of
creditors.
Business
still continues and the creditors may proceed against the same corporation
which owed them.
There
is merely change of ownership in business.
Merger – not a sale or transfer in bulk
Even
if the merger were considered a sale or transfer of all or substantially all
the business or trade of the corporation (type 2), the requirement of notice to
creditors under Section 5 of the BSL applies only to a sale or transfer or a
stock of goods, wares, merchandise, provisions, or materials (type 1). Being
penal in character, the BSL would have to be interpreted strictly against the
State.
Sell of all the goods in the gift shop
While
it is true that Maya is in the business of selling goods and that her sale in
one transaction of all her stock of goods could, conceivably, be considered in
pursuit of her business, the fact, however, is that she sold all her stock of
goods to get out of, not to continue with, her business. Such sale cannot be
considered in the ordinary course of trade or the regular prosecution of her
business and must, therefore, be subject to the requirements of BSL.
Seller
Right: Recovery
of the property sold or mortgaged
Obligation: Return
to the buyer/mortgagee the price delivered
Criminal
liability
Buyer/Mortgagee
Rights:
1. Recovery of
the price delivered plus damages
2. No right in
the property as against the seller/mortgagor’s creditors
Obligation:
1. Hold in property in trust for the seller/mortgagor’s creditors (good faith or
bad faith is immaterial)
Liabilities:
1. Liability
to the seller/mortgagor’s creditors for the properties received in trust but
which he may have disposed
2. Possible
criminal liability. May be held liable as a principal
by indispensable cooperation,
if he was aware of intent of
the seller or conspired with the seller
Creditor
Rights
1. File a
complaint against the seller/mortgagor for violation of BSL
2. Collect
credit against the debtor-defendant and to attach the property fraudulently
sold/mortgaged since the same still pertains to the debtor-defendant
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