ONE relatively obscure law is the Bulk Sales Law (Act no. 3952). Under the Bulk Sales law, a sale is a sale in bulk within the contemplation of the Bulk Sales Law when: (a) there is a sale, transfer, mortgage or disposition other than in the ordinary course of trade and regular prosecution of business, (b) the sale is of all or substantially all of the business or trade, or (c) when the sale is of all or substantially all of the fixtures and equipment used in business (Sec. 2, Act. No. 2952).
The purpose of this law is to prevent the defrauding of creditors by the secret sale or disposal in bulk of all or substantially all of a merchant's stock of goods. (Sundiang, Commercial Law, p. 169). There are several formalities required by the Bulk Sales Law: The sale in bulk to be accompanied by sworn statement of the vendor/mortgagor listing the names and addresses of, and amounts owing to, creditors; The sworn statement shall be furnished to the buyer, the seller is required to prepare an inventory of stocks to be sold, the seller is required to notify the creditors of the projected sale at least 10 days before such sale. (Secs. 3 and 4, Act. No. 3952).
One does not have to comply with the above formalities if: (a) the sale is made in the ordinary course of business, (b) there is a written waiver from all the creditors, (c) sale is by virtue of a judicial order, (d) those sold by assignee in insolvency or those beyond the right of creditors. (Act No. 3952).
In the event the Bulk Sales Law is violated (meaning the above requirements are not met) the sale in bulk is considered still valid as between the parties but void as to affected creditors. And as such, the purchase is considered to hold the property in trust for the seller, and the purchase is also considered liable to seller's creditors for the properties forming part of the bulk and already disposed by him. Thus, before buying all or substantially all of the assets of a business, one must comply with the Bulk Sales Law.
Atty. Kelvin Lee is a Partner of the Teves Cabiten Polinar Lee & Partners Law Firm. The opinions expressed herein are solely of Atty. Lee. This column does not constitute legal advice nor does it create a lawyer-client relationship with any party. You can reach Kelvin through his office at email@example.com.