This was enacted during the Philippine Commission. It was patterned after the laws of the different states in the United States but I think this was patterned after the bulk sales law of New York because the bulk sales law of the different states varies specially in the Midwest where the bulk sales law would even cover agricultural products. The bulk sales law must be interpreted strictly for two reasons: (1) It is penal; (2) It is in derogation of the natural right to dispose of one’s pr operty. The purpose of the law is to prevent the fraudulent sale of the goods in bulk. Section 2 defines what is a sale in bulk. It says sale, transfer, mortgage. mortgage. So mortgage is included or assignment assignment of stocks of goods, wares, etc. There are three transactions contemplated here. (1) Asaleofstockofgoodsotherthanint heordinarycourseoftrade. So people just buy commodities commodities in the department department store and there is no violation. If somebody goes there and buys everything, lock, stock and barrel, so that will be a sales in bulk. (2) Asaleofallorsubstantiallyallofthebusine mortgage or assignment assignment of all or Asaleofallorsubstantiallyallofthebusinessortrade. ssortrade. Again it would cover sales, transfer, mortgage substantially all of the business or trade. (3) Thesale,transfer,mortgage Thesale,transfer,mortgageorassignmentofallorsubstantiallyallofthefixturesandequip orassignmentofallorsubstantiallyallofthefixturesandequipmentusedinthebusinessofthe mentusedinthebusinessofthe merchants annex to their premises, which stores, handle and seller. The book says the term fixtures refers to things which merchants display their goods. The commentators say that this law referstofirstmerchant referstofirstmerchants,themiddlemanbe s,themiddlemanbetweentheMan tweentheManufacturerandth ufacturerandtheconsumer econsumer . It doesnotapplytomanufacturers. When Ford Philippines closed its factory here in 1978, they sold their plant without complying with the bulk sales sales law. They were manufacturers. The bulk sales sales law did not apply to them. You must be a merchant. The only decisions we have applying this law is from the Court of Appeals. An old case, somebody who owned a foundry shop sold the shop and the C.A. said it was not covered by the law because it was not engaged in selling goods. It was involved in lease of services because it would only fabricate some wrought iron products if the customer goes there and makes an order and they would make it in accordance with his specification. Like if the customer customer wants grills for for his house, they will fabricate the grills incorporating the design that he wants. So if the customer wants a steel steel gate, this fellow will fabricate in accordance with the design. design. Or he wants a wrought iron set for his garden so this must be fabricated. That’s why you have more recently the Union Glass case where Union Glass became insolvent and they liquidated their indebtedness to Development Development Bank. They made a dacion en pago of their factory and that was being questioned. The Court said that Union Glass was engaged in the lease of services. They would only make a glass product if a customer goes in and places the order in accordance with the specifications of the latter. Example, here is somebody opening a restaurant and he would like mirrors in the foyer to give a spacious look. look. So they will design it and lets say put peacocks or flowers depending on the design which the customer wants. In those two cases, it was held that the conveyance was not covered by the bulk sales law. Thelawalsodoesnotapplytosalesbyexecu Thelawalsodoesnotapplytosalesbyexecutors, tors,administr administrator ators,receive s,receivers,assig rs,assignees neesin in insolvenc insolvencyorpublicofficer yorpublicofficersacting sacting underjudicialforcelikewritofexecution,foreclosureofmortgagesincethesaleismadeunderthesupervisionofthecourt . The law presumes that it is not fraudulent so it is exempted.
If a sale is covered by the bulk sales law, there are three obligations which the seller has to comply with. (1)
Under Section 3, he will prepare an affidavit affidavit stating an inventory of all his debts. So that affidavit will indicate the names of of his creditors, their addresses, and the amount due them. When we talk of creditors, we we do not refer only to a lender. It may be someone who has a claim for damages damages because he was injured in an accident or somebody suing damages for libel. So creditor here is comprehensive. So that’s the first obligation. They must prepare that sworn inventory and must register it with the Department of Trade and Industry. So you must give an inventory to the buyer and register that with the Dept. of Trade and Industry. Before it was the Bureau Bureau of Commerce Commerce who was in charge of that and that was transferred to the Bureau of Domestic Trade, although the last time I heard it was transferred to the Bureau of Consumer Protection of the Dept. of Trade and Industry. So that is what you do. Prepare a sworn inventory, give a copy to the buyer, register it with the Dept. of Trade.
(2)
At least 10 days before the delivery, you must make an inventory of the properties that you will deliver and give the terms and conditions of the sale and give that to his creditors.
(3)
He must apply the proceeds of the sale in payment of the claims of his creditors pro rata.
If a sale is covered by this law and the seller does not comply with this, the sale will be void. But there is an alternative way of complying with this law. The other one is to get a written waiver from all your creditors. This was asked in the bar exam many years ago, what are the alternative ways by which a seller can comply with the bulk sales law? First one is he does these things-makes his inventory, give a copy to the buyer, register with DTI, and at least 10 days before the delivery he makes an inventory of the properties he will deliver and state the terms and conditions of the sale and notify his creditors. The third, he applies the proceeds to pay his creditors. The alternative method is getting a written waiver from all his creditors.
A sale is considered in bulk in any of the following instances: 1.) There is a sale, transfer, mortgage or assignment of stock other than in the ordinary course of business 2.) All or substantially all of the trade or business is sold, transferred or mortgaged 3.) All or substantially all of the fixtures and equipment of th e business are sold The purpose of the bulk sales law (Act 3952) is to prevent the defrauding of creditors by secret sale or disposal in bulk of all or substantially all of the merchant's stock or goods. "Substantially" means 80%. It doesn't only apply to creditors w hose claims are already due at the time of the sale, but also to those whose claims aren't due but are already existing at the time of the sale. The bulk sales law will not apply to the following: 1.) Sales/transfers in the ordinary course of trade or business 2.) There is a written waiver from the creditors 3.) If the sale is made by an executor, administrator, receiver or assignee in insolvency proceedings or a public officer acting under judicial process When a bulk sale is made, the seller must do the following: 1.) Deliver a sworn statement containing a list of all his creditors with the corresponding amounts of indebtedness to the buyer 2.) Apply the payment received from the sale prorata to the claims of the creditors as shown in the sworn statement 3.) Make a full and detailed inventory of the stock to be sold/mortgaged in bulk 4.) Inform the creditors of the sale at least 10 days before it actually takes place Penalties Violations of the bulk sales law makes the sale valid between the parties but void for the affected creditors. The buyer will hold the property in trust for the seller and is liable t o the seller's creditors for properties forming part of the bulk and already disposed by him. Also, the seller can be punished with a prison term of 6 months to 5 years and/or a fine of up to Php5,000.00. A sale is considered in bulk in any of the following instances: 1.) There is a sale, transfer, mortgage or assignment of stock other than in the ordinary course of business 2.) All or substantially all of the trade or business is sold, transferred or mortgaged 3.) All or substantially all of the fixtures and equipment of the business are sold The purpose of the bulk sales law (Act 3952) is to prevent the defrauding of creditors by secret sale or disposal in bulk of all or substantially all of the merchant's stock or goods. "Substantially" means 80%. It doesn't only apply to creditors whose claims are already due at the time of the sale, but also to those whose claims aren't due but are already existing at the time of the sale. The bulk sales law will not apply to the following: 1.) Sales/transfers in the ordinary course of trade or business 2.) There is a written waiver from the creditors 3.) If the sale is made by an executor, administrator, receiver or assignee in insolvency proceedings or a public officer acting under judicial process
When a bulk sale is made, the seller must do the following: 1.) Deliver a sworn statement containing a list of all his creditors with the corresponding amounts of indebtedness to the buyer 2.) Apply the payment received from the sale prorata to the claims of the creditors as shown in the sworn statement 3.) Make a full and detailed inventory of the stock to be sold/mortgaged in bulk 4.) Inform the creditors of the sale at least 10 days before it actually takes place Penalties Violations of the bulk sales law makes the sale valid between the parties but void for the affected creditors. The buyer will hold the property in trust for the seller and is liable t o the seller's creditors for properties forming part of the bulk and already disposed by him. Also, the seller can be punished with a prison term of 6 months to 5 years and/or a fine of up to Php5,000.00.
Not all assets are covered though. Only the “sale, transfer, mortgage or assignment” by the debtor of:
a) a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade and the regular prosecution of the business, or b) all, or substantially all, of the business or trade, or c) all, or substantially all, of the fixtures and equipment used in and about the business the law are subject of the law. (Section 2) Thus, the law contemplates only those doing business, be they individuals or firms.
As to creditors, only those whose claims (whether due or not) existed before the sale, transfer, mortgage or assignment of the assets are protected by the law.
The law specifically exempts from its application the following instances: a) any sale, transfer, mortgage or assignment by “executors, administrators, receivers, assignees in insolvency, or public officers, acting under judicial process” (Section 8), and b) when the creditors execute sworn written waivers of the application to them (and their claims) of the provisions of the Bulk Sales Law. (Section 2)
When the debtor is planning the sale, transfer, mortgage or assignment of the assets listed above, he/it (if a firm) must, at least 10 days before the sale, transfer or execution of the mortgage: 1) make a full detailed inventory of goods, wares, merchandise, provisions or materials involved showing the (1) quantity and, so far as is possible with the exercise of reasonable diligence, (2) the cost price of each article, and 2) notify every creditor of the price, terms and conditions of said sale, transfer, mortgage, or assignment. (Section 5) Afterwards, the debtor (and would-be seller, transferor, mortgagor or assignor) must deliver to the buyer, transferee, mortgagee or assignee either:
a) a sworn written statement listing the (1) names and (2) addresses of all creditors together with the (3) amount of indebtedness due or owing, or to b ecome due or owing to each creditor, followed by an (4) affirmation that “there are no creditors holding claims due or which shall become due, for or on account of goods, wares, merchandise, provisions or materials purchased upon credit or on account of money borrowed, to carry on the business of which said goods, wares, merchandise, provisions or materials are a part, other than as set forth in said statement” (Section 3), or b) a sworn written waiver of the provisions of Bulk Sales Law executed by all creditors. (Section 2)
These are the 2 specific instances prohibited under the law: a) any sale, transfer, mortgage or assignment of the assets, for cash or on credit, without having first delivered to the buyer, transferee, mortgagee or assignee , the sworn written statement required, and “without applying the purchase or mortgage money of the said property to the pro rata payment of the bona fide claim or claims of the creditors”. (Section 4) b) any transfer of title by the owner of any stock of goods, wares, merchandise, provisions or materials, in bulk, without consideration or for a nominal consideration only. (Section 7) Just remember the golden rule: don’t forget the creditors because you owe them.
A violation of the law renders the sale, transfer, mortgage or assignment void. Th us, the purchaser has no rights to the assets as against the creditors. He is a mere trustee, or receiver for the benefit of all the creditors. An innocent purchaser for value is not liable to the creditor. The creditor can only go after those who knew that the law was violated. But remember another golden rule: ‘ignorance of the law excuses no one’ so the debtor -seller and immediate purchaser are expected to know the law’s requirements. If the law was viol ated, they can’t claim they weren’t aware of them. If not all creditors were defrauded, then the sale, transfer, mortgage or assignment is void only as to those defrauded.
Since a violation of this law is a criminal act, the p enalty may be imprisonment of not less than 6 months nor more than 5 years; however, the court has discretion to instead impose a fin e of not more than P5,000.00, or impose both such imprisonment and fine. If a firm, the actual perpetrators are liable. It is just unfortunate th at the penalties need (much higher) adjustment.
