BULK SALES LAW

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 ones property.

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. So mortgage is included or assignment of stocks of goods, wares,
etc.

There are three transactions contemplated here.
(1) A sale of stock of goods other than in the ordinary course of trade. So people just buy commodities in the 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) A sale of all or substantially all of the business or trade. Again it would cover sales, transfer, mortgage or assignment of all or
substantially all of the business or trade.
(3) The sale, transfer , mortgage or assignment of all or substantially all of the fixtures and equipment used in the business of the seller. The
book says the term fixtures refers to things which merchants annex to their premises, which stores, handle and display their goods.

The commentators say that this law refers to first merchants, the middleman between the Manufacturer and the consumer. It does not
apply to manufacturers. When Ford Philippines closed its factory here in 1978, they sold their plant without complying with the bulk sales law.
They were manufacturers. The bulk 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 wants grills for his house, they will
fabricate the grills incorporating the design that he wants. So if the customer wants a steel gate, this fellow will fabricate in accordance with the
design. Or he wants a wrought iron set for his garden so this must be fabricated. Thats why you have more recently the Union Glass case where
Union Glass became insolvent and they liquidated their indebtedness to 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. 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.

The law also does not apply to sales by executors, administrators, receivers, assignees in insolvency or public officers acting under judicial
force like writ of execution, foreclosure of mortgage since the sale is made under the supervision of the court. 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 stating an inventory of all his debts. So that affidavit will indicate the names of his
creditors, their addresses, and the amount due them. When we talk of creditors, we do not refer only to a lender. It may be someone
who has a claim for damages because he was injured in an accident or somebody suing damages for libel. So creditor here is
comprehensive. So thats 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 of 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 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.