The Bulk Sales Law

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 pro rata 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 to 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.