Section 1. This Act shall be known as "The Bulk Sales Law."
Purpose and general scheme of the Bulk Sales Law. 1 — (a) Purpose. —
Bulk Sales Act is designed to prevent the defrauding of creditors by
the secret sale in bulk of substantially all of a merchant's stock of
goods. (b) General scheme — The general scheme of these statutes is to
declare such bulk sales fraudulent and void as to creditors of the
vendor, or presumptively so, unless specified formalities are observed,
such as the demanding and the giving of a list of creditors, the giving
of actual or constructive notice to such creditors, by record or
otherwise, and the making of an inventory. (27 C.J. Sec.
881.)
Constitutionality of the Law. — The Bulk Sales Law is constitutional.
(Liwanag v. Menghraj, 40 Off. Gaz. 1441.) Bulk sales statutes have been
sustained as a constitutional exercise of the police power, and as such
not in violation of the constitution prohibiting the enactment of laws
which shall deprive any person of life, liberty, or property without
due process of law, or which shall deny to such person the equal
protection of the laws. Nor do they infringe constitutional provisions
guaranteeing the right of acquiring, possessing, and protecting
property. (27 C.J. Sec. 882.)
Construction of the Law. — These statutes should be read as a whole for
purposes of construction. As they are of a penal character, and in
derogation of common law, and of the right to alienate property without
restriction, they are to be strictly construed, and are not to be
extended by construction to situations not clearly intended thereby.
However, these statutes should be construed and applied with a view to
cure the evil at which they are aimed, which is the defrauding of
creditors by secret bulk sales. (27 C.J. Sec. 884.)
Effect of the Bulk Sales Law as to other fraudulent conveyances. — The
effect of bulk sales laws is to create a new type or kind of fraudulent
conveyance (Kelley-Buckley Co. v. Cohen, 195 Mass 585, 81 N.E. 297;
Riley Pennsylvania Oil Co. v. Symmonds, 195 Mo. A. 111, 190 S.W. 1038;
Joplin Supply Co. v. Smith, 182 Mo. A. 212, 167 S.W. 649); hence, the
provisions of Arts. 1381–1389 of the new Civil Code will not have the
effect of modifying the Bulk Sales Law, and will be applicable only as
suppletory law insofar as they are not in conflict with said law.
Sec. 2. Any sale, transfer, mortgage or assignment
of a stock of goods, wares, merchandise, provisions, or materials
otherwise than in the ordinary course of trade and the regular
prosecution of the business of the vendor, mortgagor, transferor, or
assignor, or any sale, transfer, mortgage, or assignment of all, or
substantially all, of the business or trade theretofore conducted by
the vendor, mortgagor, transferor, or assignor, or of all, or
substantially all, of the fixtures and equipment used in and about the
business of the vendor, mortgagor, transferor; or assignor, shall be
deemed to be a sale and transfer in bulk, in contemplation of this Act:
Provided, however, That if such vendor, mortgagor, transferor, or
assignor, produces and delivers a written waiver of the provisions of
this Act from his creditors as shown by verified statements, then, and
in that case, the provisions of this section shall not apply.
What shall be deemed to be a sale and transfer in bulk. 2 — A sale and
transfer in bulk is any sale, transfer, mortgage or assignment (1) of a
stock of goods, wares, merchandise, provisions, or materials otherwise
than in the ordinary course of trade and the regular prosecution of the
business of the vendor, mortgagor, transferor, or assignor, or (2) of
all, or substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor, or assignor, or (3) of
all, or substantially all, of the fixtures and equipment used in and
about the business of the vendor, mortgagor, transferor, or assignor.
(Sec. 2, Bulk Sales Law.)
Same; Exceptions to the rule. 3 — It will not be deemed a sale and
transfer in bulk in contemplation of this Act, (1) if such vendor,
mortgagor, transferor, or assignor produces and delivers a written
waiver of the provisions of this Act from his creditors as shown by
verified statements (Sec. 2, Bulk Sales Law), or (2) if such vendor,
mortgagor, transferor, or assignor is an executor, administrator,
receiver assignee in insolvency, or public officer, acting under
judicial process. (Sec. 8, Bulk Sales Law.)
Term "sellers," explained. — The statutes generally do apply to retail
merchants, traders, or dealers, and generally only to persons of that
class. (27 C.J. Sec. 888.)
Term "creditors," explained. — The term "creditors" as descriptive of
the persons in whose favor the statute declares a bulk sale fraudulent
and void is usually not restricted to any particular class of
creditors, but includes all persons who were creditors of the seller at
the time of the sale, although their claims had not been reduced to
judgment, or were not due, and although they were not creditors for
merchandise, but were merely general creditors of the seller in other
transactions. But only those who were creditors at the time of the sale
complained of are entitled to the benefits of the statute; creditors
whose claims came into existence subsequent to the sale are not
protected thereby. (27 C.J. Sec. 888.)
Waiver and estoppel of creditors. — Creditors may waive the right to
the benefit of the bulk sales statutes, or estop themselves to claim
that the sale was invalid because the requirements of the bulk sales
statutes were not complied with. The benefit of the statutes is for
those who take the steps prescribed thereby in order to protect their
claims. There is no estoppel unless the conduct was relied on by the
other party to his prejudice, in accordance with the rule as to
estoppel generally. (27 C.J. Sec. 887.)
Term "stock, " explained. — The common use of the term "stock" when
applied to the goods in a mercantile house refers to those which are
kept for sale. (Albrecht v. Cudihee, 37 Wash. 206, 208, 79 P. 628.)
Term "merchandise," explained. — We think that "merchandise," as used
in this act, must be construed to mean such things as are usually
bought and sold in trade by merchants. (People's Sav. Bank v. Van
Allsburg, 165 Mich. 524, 526, 131 N.W. 101.) "Merchandise" means
something that is sold every day, and is constantly going out of the
store and being replaced by other goods. (Boise Credit Men's Ass'n. v.
Ellis, 26 Ida. 438, 449, 144 P. 6, L.R.A. 1915 E, 917.) Thus,
"merchandise" may include a stock of meat and other merchandise such as
is usually sold in a market (Virginia-Carolina Chemical Co. v.
Bouchelle, 12 Ga. A. 611, 78 S.E. 51), or liquors kept in a saloon for
sale (Marshon v. Toohey, 38 Nev. 248, 148 P. 357); but land and
buildings are not "goods, wares, and merchandise" within the statute.
(McMillen v. Nelson, [N. D.] 181 N.W 618; National Trust Co. v. Nadon,
8 Sask. L. 41, 24 Dom. L.R. 742, 30 West L.R. 588, 7 West Wkly. 1067;
Barthels v. Sloance, 7 Sask, L. 376.)
Term "fixtures," explained. — When used in statutes of this character,
it refers to such articles of merchandise usually possessed and annexed
to the premises occupied by them to enable them better to store,
handle, and display their wares and which are commonly known as trade
fixtures, although removable without material injury to the premises at
or before the end of tenancy. (Brown v. Quigley, 165 Mich. 337, 130
N.W. 690, 34 L.R.A.N.S. 218 [foll. People's Sav. Bank v. Van Allsburg,
165 Mich. 524, 131 N.W. 101.].) But a store building containing a stock
of merchandise and being used for transactions of mercantile business
is not a fixture. The statute has reference to trade fixtures connected
with the business and not to the building in which the business is
carried on. (Robbins v. Fuller, [Ark.] 229 S.W. 8; McMillen v. Nelson,
[N. D.] 181 N.W. 618.)
"Exempt properties," not within the law. — Bulk sales statutes are
intended to operate only on property to which creditors may look for
satisfaction of their claims and consequently have no application to
property which is exempt. (27 C.J. Sec. 889.) See "Property exempt from
execution," Sec. 12, Rule 39, Rules of Court. See also Sec. 35, Act No.
3428, as amended; Arts. 223 et seq., and 1708, new Civil Code; and Sec.
17, Rep. Act No. 1161 (refer to annotations placed above Sec. 48,
Insolvency Law, in Volume 2.)
Sec. 3. It shall be the duty of every person who
shall sell, mortgage, transfer, or assign any stock of goods, wares,
merchandise, provisions or materials in bulk, for cash or on credit,
before receiving from the vendee, mortgagee, or his, or its agent or
representative any part of the purchase price thereof, or any
promissory note, memorandum, or other evidence therefor, to deliver to
such vendee, mortgagee, or agent, or if the vendee, mortgagee, or agent
be a corporation, then to the president, vice-president, treasurer,
secretary or manager of said corporation, or, if such vendee or
mortgagee be a partnership firm, then to a member thereof, a written
statement sworn to substantially as hereinafter provided, of the names
and addresses of all creditors to whom said vendor or mortgagor may be
indebted, together with the amount of indebtedness due or owing, or to
become due or owing by said vendor or mortgagor to each of said
creditors, which statement shall be verified by an oath to the
following effect:
PHILIPPINE
ISLANDS ) S.S.
PROVINCE OR CITY OF )
Before me, the undersigned authority, personally appeared _________
(vendor, mortgagor, agent or representative, as the case may be),
bearing Res. Cert. No. _____________ issued at _________ on the
__________ day of ___________, who, by me being first duly sworn, upon
his oath, deposes and states that the foregoing statement contains the
names of all the creditors of ______________ (vendor, mortgagor)
together with their addresses, and that the amount set opposite each of
said respective names, is the amount now due and owing, and which shall
become due and owing by _____________ (vendor or mortgagor) to such
creditors, and that there are no creditors holding claims due or which
shall become due, for, or on account of goods, wares, merchandise,
provisions or materials purchased upon credit or on account of money
borrowed, to carry on the business of which said goods, wares,
merchandise, provisions of materials are a part, other than as set
forth in said statement.
_______________________
(Signature of vendor, etc.)
Subscribed and sworn to before me this ___________ day of __________,
19____, at ____________
Sufficiency of statement. — Substantial compliance with the statute is
essential to validity of the sale or transfer. (In re Calvi, 185 Fed.
642; Peck v. Hibben, 185 Ind. 623, 114 N.E. 216; Interstate Shirt, etc.
Co. v. Windham, 165 Mich. 648, 131 N.W. 102.) A verbal statement that
the seller had no creditors is not sufficient compliance with a statute
requiring the statement to be in writing and under oath. (Peck v.
Hibben, supra.) If the seller has no creditors, an unequivocal
statement of this fact is necessary in the statement. (Interstate
Shirt, etc. Co. v. Windham, supra; Fitzhugh v. Munnell, 92 Or. 47, 179
P. 679.) An affidavit stating that a stock sold is "entirely free from
debt and that there is no encumbrance thereon, except a certain chattel
mortgage given to" a specified person is insufficient as against
existing creditors of the seller. (Interstate Shirt, etc. Co. v.
Windham, supra.) The statute contemplates not only creditors whose
claims are due but those whose claims are not due and the statement
must state the facts as to both class of creditors if both exist and if
there are none such, the latter fact must be stated. The statement is
ineffectual if it fails to give the addresses of the creditors. If the
statement is defective on its face, the buyer accepts it at his peril.
(Fitzhugh v. Munnell, supra.)
Effect of false statement. — If the statement is fair upon its face and
the buyer has no knowledge of its incorrectness, and nothing to put him
on inquiry about it, he will be protected in his purchase.
(International Silver Co. v. Hull, 140 Ga. 10, 78 S.E. 609, 45
L.R.A.N.S. 492; Fitzhugh v. Munnell, 92 Or. 47, 179, P. 679; Coach v.
Gage, 70 Or. 182, 138 P. 847.) If the seller misrepresents the amount
of his indebtedness, the creditor has no remedy against the goods sold,
but he can prosecute the seller criminally. (Seltzer v. Peddi, 24 Pa.
Dist. 456, 41 Pa. Co. 677.) The statute declares the sale void only on
the failure of the purchaser to do what is required of him. It does not
declare the sale void if the list of creditors furnished by a vendor
under oath is not in fact "full, accurate and complete." It does not in
any way make the purchaser responsible for any incorrectness in the
list. We think it would be unreasonable to so construe it. (Glantz v.
Gardiner, 40 R.I. 397, 100 A. 913, 916, L.R.A. 1917 L. 226.)
Sec. 4. Whenever any person shall sell, mortgage,
transfer, or assign any stock of goods, wares, merchandise, provisions
or materials, in bulk, for cash or on credit, and shall receive any
part of the purchase price, or any promissory note, or other evidence
of indebtedness for said purchase price or advance upon mortgage,
without having first delivered to the vendee or mortgagee or to his or
its agent or representative, the sworn statement provided for in
section three hereof, and without applying the purchase or mortgage
money of the said property to the pro rata payment of the bona fide
claim or claims of the creditors of the vendor or mortgagor, as shown
upon such sworn statement, he shall be deemed to have violated this
Act, and any such sale, transfer or mortgage shall be fraudulent and
void.
What are prohibited are secret conveyances. — What are prohibited are
secret conveyances, those made unaccompanied by a sworn list of
creditors and without previous payment of their credits, and those made
gratuitously or for a nominal consideration. Thus, the Bulk Sales Law
does not include within its prohibition sales or mortgages made by a
debtor to one of his creditors in preference to another. (Go v. Phil.
Nat. Bank, 40 Off. Gaz. 2065; see also Sec. 7, Bulk Sales Law.)
Same; Effect of lack of sworn list of creditors. 4 — A sale made of all
the effects in the vendor's store without the buyer being furnished a
sworn list of creditors as required by Sec. 3, is null and void
irrespective of the good or bad faith of the buyer, and judgment
creditors may treat such sale as never having been made and proceed to
have execution levied on the properties thus sold. (Chin Asing v. Uy
Gongco & Co., [CA] 40 Off. Gaz. 11th Supp. 142.)
Rights and liabilities; As between purchaser and creditors. 5 — A
purchaser in violation of the Bulk Sales Act acquires no rights in the
property purchased as against the creditors of the seller. His status
is that of trustee, or receiver for the benefit of all the creditors of
the seller. As such he is responsible for the disposition of the
property. The fact that he has mingled the goods with his own so as to
destroy their identity, or that he has resold the property, does not
divest him of his liability to creditors, but on the contrary operates
to impose a personal liability. Application by the seller of the
proceeds of a bulk sale to the payment of some of his creditors does
not affect the buyer's liability to other creditors who received none
of the proceeds. Where a purchaser does not comply with the law, the
mere fact that on his request the creditor sought to collect from the
seller does not raise an estoppel against him to sue them on his
primary liability to them. (27 C.J. Sec. 892.)
Same; As between purchaser and seller. — The bulk sales statutes do not
in any way affect the validity of the transfer as between the immediate
parties thereto. A sale not in compliance with the bulk sales statute
is valid as against all persons other than creditors. Notwithstanding a
noncompliance with the statutes, title to goods transferred passes to
the transferee as between the parties to the transfer, where it remains
until divested by proceedings instituted by a creditor for that
purpose. If the seller has been guilty of fraud to the injury of the
buyer, or if there has been an entire failure of the consideration, the
seller cannot hide behind the statute and thus avoid liability to the
purchaser. So the statute does not preclude the seller from recovering
the purchase price of a sale made in violation of its terms; but, where
a sale is void for noncompliance with the bulk sales statutes, it
cannot as between the parties be made to operate to give the vendee a
lien for the money he has paid. The vendee, having acted in violation
of the law, does not come into equity with clean hands, and is not in a
position to ask for any remedy in a court of equity. It is not a ground
to rescind an entire contract by which property is exchanged for
merchandise, without complying with the statutes, that there is a
partial failure of consideration by reason of the fact that creditors
assert rights to a part of the merchandise, but damages to the extent
to which the buyer was injured will be awarded. (27 C.J. Sec. 893.)
Same; Between creditors and subsequent purchasers. 6 —The statute does
not confer on the creditors of the vendor who fail to comply with its
requirements the right to pursue the property in whosoever hands it may
fall. To authorize the giving of relief to creditors it must be shown
that the holder of the property transferred is the fraudulent vendee
himself or some person who took the property from him with knowledge
that the transfer was fraudulent. The statutes do not render an
innocent purchaser for value from the original purchaser liable to
creditors of the original seller nor affect his title to the property.
But if the circumstances are such as to bind the subsequent purchaser
with constructive notice that the sale to his vendor was fraudulent,
the property will be liable in his hands to creditors of the original
vendor. (27 C.J., Sec. 894.)
Remedies available to creditors. — Under the general prevailing rule
that mere non-compliance with the statute does not render the purchaser
personally liable to creditors, an ordinary action against the
purchaser by creditors to obtain a money judgment will not lie, unless
the purchaser has sold or otherwise disposed of, or dealt with, the
property, so as to become personally liable to creditors for the value
of it. The proper remedy is one against the goods to subject them to
the payment of the debt, such as execution, attachment, garnishment, or
by a proceeding in equity. (27 C.J. Sec. 895.)
Same; Replevin. — A creditor of the seller cannot maintain replevin
against the purchaser to recover property sold in contravention of the
Bulk Sales Act. But the purchaser may maintain replevin to recover
property seized on attachment or execution against the seller, and in
such action the validity of the sale may be determined. (27 C.J. Sec.
900.)
Sec. 5. It shall be the duty of every vendor,
transferor, mortgagor, or assignor, at least ten days before the sale,
transfer or execution of a mortgage upon any stock of goods, wares,
merchandise, provisions or materials, in bulk, to make a full detailed
inventory thereof and to preserve the same showing the quantity and, so
far as is possible with the exercise of reasonable diligence, the cost
price to the vendor, transferor, mortgagor or assignor of each article
to be included in the sale, transfer, mortgage, or assignment, and
notify every creditor whose name and address is set forth in the
verified statement of the vendor, transferor, mortgagor, or assignor,
at least ten days before transferring possession thereof, personally or
by registered mail, of the price, terms and conditions of the sale,
transfer, mortgage, or assignment. 7
Sufficiency of notice. — No notice other than the one prescribed by the
statute will be sufficient (In re Thompson, 242 Fed. 602; Maultrie
Grocery Co. v. Holmes-Hartsfield Co., 22 Ga. A. 512, 96 S.E. 346) and a
substantial compliance with the requirements as to notice is essential
(Stuart v. Elk Horn Bank, etc. Co., 123 Ark. 265, 185 S.W. 263, Ann.
Cas. 1918A 268.) Thus, if the list furnished is not verified as
required by statute, and omits to name certain creditors who are not
notified, the sale is void as to such creditors, whether their omission
was fraudulent or otherwise. (Williams v. J.W. Crowdus Drug Co. [Tex.
Civ. A.] 167 S.W. 187.)
Same; Time of notice. — Where the statute requires the vendor,
transferor, mortgagor or assignor to notify personally or by registered
mail every creditor "at least ten days before transferring possession"
of any stock of goods, wares, merchandise, provisions or materials, in
bulk, it is sufficiently complied with by sending notice by registered
mail at least ten days before transferring possession thereof. It is
not necessary that the notice shall have been received ten days before
such transfer of possession. (See Wyone Shoe Co. v. Daniels, 136 Ga.
192, 71 S.E. 1.)
Sec. 6. Any vendor, transferor, mortgagor or
assignor of any stock of goods, wares, merchandise, provisions or
materials, in bulk, or any person acting for, or on behalf of any such
vendor, transferor, mortgagor, or assignor, who shall knowingly or
willfully make, or deliver or cause to be made or delivered, a
statement, as provided for in section three hereof, which shall not
include the names of all such creditors, with the correct amount due
and to become due to each of them, or shall contain any false or untrue
statement, shall be deemed to have violated the provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm
or corporation, as owner of any stock of goods, wares, merchandise,
provisions or materials, in bulk, to transfer title to the same without
consideration or for a nominal consideration only.
Sec. 8. Nothing in this Act contained shall apply
to executors, administrators, receivers, assignees in insolvency, or
public officers, acting under judicial process.
Sec. 9. The sworn statement containing the names
and addresses of all creditors of the vendor or mortgagor provided for
in section three of this Act, shall be registered in the Bureau of
Commerce. For the registration of each such sworn statement a fee of
five pesos shall be charged to the vendor or mortgagor of the stock of
goods, wares, merchandise, provisions or materials, in bulk. (As
amended by Rep. Act No. 111.)
Sec. 10. The provisions of this Act shall be
administered by the Director of the Bureau of Commerce, 5 who is hereby
empowered, with the approval of the Department Head, to prescribe and
adopt from time to time such rules and regulations as may be deemed
necessary for the proper and efficient enforcement of the provisions of
this Act.
Sec. 11. Any person violating any provision of
this Act shall, upon conviction thereof, be punished by imprisonment
for not less than six months, nor more than five years, or fined in a
sum not exceeding five thousand pesos, or by both such imprisonment and
fine, in the discretion of the court.
Rules as to subsidiary imprisonment. — No subsidiary imprisonment
should be imposed on an accused found guilty of violating the Bulk
Sales Law, if he fails to pay his obligation to a creditor who may have
been prejudiced by reason of the fraudulent and void mortgage executed
by the accused, there being no proof that the goods mortgaged have
disappeared. (People v. Mapoy, Off. Gaz. for August, 1943, 755.)
Sec. 12. This Act shall take effect on its
approval.
Approved:
December 12, 1932.
Footnotes
1. Asked, Bar Exams., 1949, 1954, 1958, 1959.
2. Asked, Bar Exams., 1947, 1954, 1958, 1972,
1974.
3. Asked, Bar Exams., 1954, 1964.
4. Asked, Bar Exams., 1980.
5. Asked, Bar Exams., 1969, 1982.
6. Asked, Bar Exams., 1952.
7. Asked, Bar Exams., 1980.
5. Now, Bureau of Domestic Trade.
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