Chapter 15

THE BULK SALES LAW

PURPOSE OF THE LAW
It is meant to protect supply creditors or businessmen against preferential or fraudulent transfers done
by merchants.
It is primarily intended to prevent a situation where merchants would defraud their creditors by
hurriedly selling their businesses and vanishing into thin air, with the creditors left holding the bag, while
the transferee comes under the protection of the doctrine of buyer in good faith and for value.
TRANSACTIONS COVERED BY THE LAW (DEFINITION OF BULK SALES)
Any sale, mortgage, transfer, or assignment of:
1. A stock of goods, wares, merchandise, provisions, or materials not in the ordinary course of trade
and the regular prosecution of the business of the seller, mortgagor, transferor, or assignor
(Extraordinary sale of goods)
2. All, or substantially all, of the fixtures and equipment used in and about the business of the seller,
mortgagor, transferor, or assignor (Extraordinary sale of fixtures and equipment)
3. All, or substantially all, of the business or trade theretofore conducted by the seller, mortgagor,
transferor, or assignor (Sale of business enterprise)
TRANSACTIONS NOT COVERED BY THE LAW
Even if the transaction falls within the definition of bulk sale, the Law would not be made to apply in
the following cases:
1. If the seller, transferor, mortgagor, or assignor produces and delivers a written waiver of the
provisions of the Law from his creditors as shown in the verified statements
2. Transactions effected by executors, administrators, receivers, assignees in insolvency or public
officers, acting under legal processes
BUSINESS COVERED BY LAW
Since the Law is penal in nature, it should be construed strictly against the State and liberally in favor
of the accused. (People v. Wong)
When it comes to the first type of bulk sales, the Law covers only those goods, wares, merchandise,
provisions, or materials, which are sold everyday, and are constantly going out of the store and being
replaced by other goods. (In other words, the Law covers extraordinary sales of goods, wares, merchandise,
provisions, or materials bought and sold only in mercantile business.)
When it comes to the other two types of bulk sales, the language of the Law does not limit in anyway
coverage to a particular type of business. (This means that the Law covers extraordinary sales of
fixtures/equipment used in mercantile or even in non-mercantile business. Likewise, the Law covers the
sale of business enterprises, which nature may or may not partake of merchandising.)
OBLIGATIONS OF SELLER/ENCUMBRANCER WHEN TRANSACTION IS A BULK SALE
When a transaction, whether for cash or on credit, is within the coverage of the Law, it shall be the
duty of the seller, mortgager, transferor, assignor, as the case may be, to perform the following acts:
1.

To deliver to the buyer/mortgagee/transferee/assignee a sworn statement of listing of

creditors
Before the seller/mortgagor/transferor/assignor receives any part of the purchase price
thereof or any promissory note or other evidence therefore, he shall deliver to the
buyer/mortgagee/transferee/assignee a written statement of: (a) the names & addresses of all his
creditors and (b) the amount of indebtedness due or owing to each creditor

2.

Pro-rata application of proceeds

The seller/mortgagor/transferor/assignor shall apply the purchase or mortgage proceeds
to the pro-rata payment of the bona fide claims of his creditors as shown in the verified statement.

3.

Written advance disclosure to creditors

At
least
10
days
before
the
sale/mortgage/transfer/assignment,
the
seller/mortgagor/transferor/assignor shall make an inventory of the goods, wares, merchandise,
provisions, or materials and preserve the same, showing the quantity and cost price for each
article.
At least 10 days before transferring possession of the goods, wares, merchandise,
provisions, materials, the seller/mortgagor/transferor/assignor shall notify each creditor of the
price, terms, and conditions of the sale/transfer/mortgage/assignment personally or through
registered mail.

4.

Bulk transfers for nominal value

It shall be unlawful for any person/firm/corporation as owner of any stock of
goods/wares/merchandise/provisions/materials, in bulk, to transfer title to the same without
consideration or for a nominal consideration only.

CONSEQUENCES OF VIOLATION OF THE LAW

Failure of the seller/mortgagor/transferor/assignor to comply with a specific obligation shall be
deemed a violation of the Law. What is its consequence on the transaction itself, on the
seller/mortgager/assignor/transferor, and on the buyer/mortgagee/transferee/assignee?
On the Transaction
Itself
1.

2.

3.

4.

If he failed to
deliver to the
buyer,
mortgagee,
transferee, or
assignee,
a
sworn
statement
of
listing
of
creditors
If he did not
pro-rata apply
the proceeds to
the
listed
creditors
If he did not
make a written
advance
disclosure of
the transactions
to his creditors
If he effected a
bulk
sales
without
a
consideration
or for nominal
value

On Seller, Mortgager,
Assignor, Transferor

The sale, mortgage,

transfer, or assignment
is
FRAUDULENT
AND VOID.

Subject
liability

to

criminal

The sale, mortgage,

transfer, or assignment
is
FRAUDULENT
AND VOID.

Subject
liability

to

criminal

The sale, mortgage,

transfer, or assignment
is still VALID.

Does not make him

criminally liable

VOID, not under the

Bulk Sales Law, but
according to the Civil
Law.

Subject
liability

to

criminal

On the Buyer,
Mortgagee, Transferee,
Assignee
If the transaction were
rendered fraudulent and
void,
no
legal
consequences
would
flow from it. Hence, he
would not be entitled to
the
goods,
wares,
merchandise,
provisions, or materials
for which he has paid
good money.
He may file a suit to
recover what he has
obtained from a bulk
sale. He may even be
liable for damages for
having conspired with
the seller, mortgager,
transferor, or assignor to
defraud creditors.