SALES_bulk sales law.docx

ACT NO. 3952(as amended by R.A. 111): THE BULK SALES LAW Q: What are the acts prohibited under the balk sales law? 1. Extraordinary sale of goods: the sale, transfer, mortgage of assignment of 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; 2. Extraordinary sale of fixtures and equipment: sale, transfer, etc. of all, or substantially all, of the fixtures and equipment used in and about the business of the seller, transferor, mortgagor, or assignor. 3. Sale of business enterprise: sale, transfer, mortgage or assignment of all, or substantially all, of the business or trade theretofore conducted by the seller, mortgagor, transferor, or assignor 4. Bulk Transfers for nominal value: the transfer of title to any stock of goods, wares, merchandise, provisions or materials in bulk without consideration or for a nominal consideration only Q: What is the rationale behind the law? To prevent defrauding creditors Q: Why is the mortgage in bulk also prohibited? Is it not that in a mortgage, the mortgagor still remains the owner? Was there a sale? How can the mortgage be considered fraudulent? The mortgage in bulk is prohibited because the law contemplates the event that the mortgagor defaults and the mortgagee forecloses on the mortgage. It is prohibited because in the long run, there might still be a sale in bulk, and the mortgage can still be used as a mechanism to commit fraud against creditors. Q: Under the law, what are the obligations of the seller or encumbrancer? 1. To deliver a sworn statement listing (a) the names of his creditors; and (b) the description of the amount of indebtedness due and owing to each 2. To apply the proceeds of the transaction to the pro-rated payment of the bona fide claims of the creditors as shown in the statement 3. To give a written advanced notice to the creditors at least 10 days before the sale , which notice would contain (a) a full, detailed inventory of the items to be sold; and (b) the terms of the sale Q: What are the legal effects of non-compliance with these obligations? 1. The sale or transaction itself shall be considered void 2. Ownership remains in the seller/mortgagor/assignor (ownership is not vested in the purchaser, even if delivery was previously effected) 3. The buyer or assignee or mortgagee, owing to the void contract would have no legal basis for a claim on the property, even though he may have acted in good faith 4. The creditors may seek rescission of the sale 5. The seller may be held criminally liable for the violation 6. Buyer may be held liable for damages for having conspired with the seller; or may be held criminally liable as a principal by indispensable cooperation, if he was aware of the fraudulent intent of the seller