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ACT NO.

3952

ACT NO. 3952 (As Amended) - THE BULK SALES LAW

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. 13811389 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.