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 merchants 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 "#$ have ac%uired 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 in'ury to the premises before or at
the end of tenancy.
These technical terms convey the intention that the "#$ 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.
"#$ 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. (t does not sell merchandise. "#$ only covers sales in bulk of
fixtures and e%uipment used in the mercantile business, which involves the buying and
selling of merchandise. )People vs. Wong Szu Tung, CA-G.R. No. 9776-R, March 6, !9"#,
"$ $.G. #%67&
"ulk sales laws generally apply to retail merchants, traders and dealers and generally only
to persons of that class. *n the basis of #ection 2, the "ulk #ales $aw does not apply to a
bulk sale by a manufacturer because of the nature of the latters 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. (n addition,
the sale of a barber shop would not be covered by the $aw, since no stocks in trade are
really involved in the operation of a barber shop.
Transactions covered
Any sale, transfer, mortgage, or assignment of+ (STM!
1. a stock of goods, wares, merchandise, provisions, or materials other than in the ordinary
course of trade or business
2. all, or substantially all, of the business or trade
,. all, or substantially all, of fixtures and e%uipment used in and about the business of the
seller, transferor, mortgagor or assignor
"xe#pt transactions
1. #T-A in the ordinary course of trade or business
2. .hen there is a written waiver from all the stmas creditors
,. #ale by virtue of a 'udicial order )/01(2(A$ #A$34
5. #ale by the assignee or those beyond the right of creditors
6. #ale of properties exempt from attachment or execution
"#$ has 7* applicability to a sale by executor, administrator, receiver, assignee in
insolvency, or public officers, acting under process
$%li&ations o' persons sellin& in %ulk
1. 1eliver to buyer or mortgagee a sworn written statement of the names and addresses of
creditors as well as the respective amounts of debts
2. Apply the proceeds to the pro&rata payment of the bona fide claims of the creditors as shown
in the verified statement
,. At least 18 days before the sale, transfer, mortgage or assignment, make a full
detailed inventory of stock of goods, wares, merchandise, provisions or materials in bulk
and to preserve the same
5. 7otify the creditors at least 18 days before transferring possession of the stock of goods of
the price, terms and conditions of the sale, transfer, mortgage or assignment
6. 9egister the sworn written statement:list of creditors with 1T(
The #T-A shall be F()*)L"+T +* ,$-* ; if
1. #worn listing of creditors is not prepared and delivered, and:or
2. <roceeds of transactions is not applied pro&rata to listed creditors
,. (ncomplete, false or untrue sworn written statement
This in'unction 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.
7o legal conse%uences would therefore flow from the transaction, including non&transfer of
ownership over the sub'ect matter thereof, and no right of action would accrue from the
transaction. 2onse%uently, sub'ect matter remains to be owned by the seller or assignor,
and sub'ect 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.
"''ect o' the su%#ission o' 'alse sworn state#ent.list o' creditors
.ould constitute a violation of #ection 5 of the "#$ which re%uires 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. (n 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 ac%uired by the buyer from the seller.
"''ect o' sale in violation o' Bulk Sales Law
=A$(1 if there are no creditors involved
=A$(1 between the parties, =*(1 as to affected creditors
1. #ale in bulk is void
2. <urchaser holds the property in trust for seller )whether in good faith or bad faith4
,. <urchaser is liable to sellers creditors for properties forming part of bulk and already
possessed by him
$%li&ation o' the %u/er
"#$ imposes no direct obligation on buyer, transferee, mortgage, or assignee in bulk sales.
#trictly 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 sub'ect to criminal
liability under the "#$. >owever, 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.
$''enses punisha%le under the Bulk Sales Law
Those which involve violations of #ections+
, ; 1elivery of sworn written statement:list of creditors
5 ; <ro&rata application of proceeds
6 ; .ritten advance disclosure to creditors
? ; (ncomplete, false or untrue sworn written statement
@ ; "ulk transfers for nominal value
A ; 9egistration with 1T(
All of which makes reference only to the first type of sales in bulk )#T-A a stock of goods,
wares, merchandise, provisions, or materials other than in the ordinary course of trade or
business4. The absence of any reference in these sections to the two other types of sales in
bulk could only mean that they are not intended to be covered by these provisions.
2onsidering their penal character, these provisions must be interpreted strictly against the
state such that non&compliance with them, in a situation where the sales in bulk involved is
not of the first type, would not be punishable.
Penalt/ 'or violation o' BSL
Any person violating any "#$ provision, shall, upon conviction thereof, be punished by
imprisonment for not less than ? months, nor more than 6 years, or fine in any sum not
exceeding <6,888.88, or both such imprisonment and fine, in courts discretion.
Fraudulent conve/ance under the BSL vs. trans'er in 'raud o' creditors under the
Civil Code
A conveyance or transfer fraudulently made in violation of "#$ is null and voidB while a
conveyance or transfer in fraud of creditors under the 2ivil 2ode is rescissible and is valid
until set aside by a competent court.
.hen the law is duly complied with, the creditors may not ob'ect to the transaction, but it
may be rescinded if it is shown that it was, in fact, made in fraud of creditors
Creditors conte#plated
2reditors at the time of the #T-A. "$# protects only creditors at the time of transfer, not
future ones. They need not be 'udgment creditors
Sale o' 0112 stock 3 not a sale in %ulk
Transaction is sale of stocks not of the business which would result to detriment of
creditors.
"usiness still continues and the creditors may proceed against the same corporation which
owed them.
There is merely change of ownership in business.
Mer&er 3 not a sale or trans'er in %ulk
3ven if the merger were considered a sale or transfer of all or substantially all the business
or trade of the corporation )type 24, the re%uirement of notice to creditors under #ection 6
of the "#$ applies only to a sale or transfer or a stock of goods, wares, merchandise,
provisions, or materials )type 14. "eing penal in character, the "#$ would have to be
interpreted strictly against the #tate.

Sell o' all the &oods in the &i't shop
.hile it is true that -aya 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. #uch sale cannot be considered in the ordinary course of trade
or the regular prosecution of her business and must, therefore, be sub'ect to the
re%uirements of "#$.
Seller
R'gh() 9ecovery of the property sold or mortgaged
*+l'ga('on+ 9eturn to the buyer:mortgagee the price delivered
Cr','nal l'a+'l'(-
Bu/er.Mort&a&ee
Rights:
1. 9ecovery of the price delivered plus damages
2. 7o right in the property as against the seller:mortgagors creditors
Obligation:
1. >old in property in trust for the seller:mortgagors creditors )good faith or bad faith is
immaterial4
Liabilities:
1. $iability to the seller:mortgagors creditors for the properties received in trust but which he
may have disposed
2. <ossible criminal liability. -ay be held liable as a principal by indispensable cooperation, if he
was aware of intent of the seller or conspired with the seller
Creditor
(i&hts
1. Cile a complaint against the seller:mortgagor for violation of "#$
2. 2ollect credit against the debtor&defendant and to attach the property fraudulently
sold:mortgaged since the same still pertains to the debtor&defendant