BULK SALES LAW violating any provision of the Bulk Sales Law
punishable by imprisonment for not less than
Q: Venezia is a famous international fashion
chain outlets in Makati, Ortigas, and Manila.
It has complied with the minimum
capitalization required under the Retail Trade
Nationalization Act and carries on retail
business worth more than $3M for each
outlets. As its Manila outlet is not doing very
well, it decides to sell all of its business there
consisting of remaining inventory, furniture
and fixtures and other assets to its
competitor.
1. Venezia’s Manila outlet constitutes 1/3 of
its total business. Should it comply with the
requirements of the Bulk Sales Law? Why or
why not?
A: Venezia need not comply with the
requirements of the Bulk Sales Law as its
Manila outlet constitutes only 1/3 of its total
business and, therefore, it would not be a
sale of all or substantially all of the business
conducted by Venezia. Moreover, the
requirements of the Bulk Sales Law reflected
in Sections 3, 4, 5, and 9, by the express
language of said provisions, apply only to the
first type of bulk sales, i.e., to
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 business of the vendor,
mortgagor, transferor, or assignor, and not to
the second type (as in the sale described in
the problem) or the third type (i.e., sale,
etc. of all or substantially all of the fixtures
and equipment used in and about the
business). As the Bulk Sales Law is penal in
nature, it should be interpreted strictly
against the State.
2. If instead of selling its Manila outlet,
Venezia merely mortgages its assets there,
would it need to comply with the
requirements of the Bulk Sales Law?
A: For the same reasons stated in the answer
to (1) above, Venezia need not comply with
the requirements of the Bulk Sales Law. The
second type of bulk sales also includes the
mortgage of all or substantially all of the
business of the mortgagor.
3. What are the legal consequences of a
failure to comply with the requirements of a
Bulk Sales Law? (2010 Bar)
A: Failure to comply with the requirements of
a Bulk Sales Law renders the sale, transfer,
mortgage, or assignment fraudulent and void,
and makes any person found guilty of
6 months nor more than 5 years, or a fine in
an amount not exceeding P5, 000, or both
such imprisonment and fine in the discretion
of the court.
Q: Q: In the annual meeting of the “XYZ”
Corporation, the stockholders unanimously
adopted a resolution proposed by the Board
of Directors to sell substantially all the
fixtures and equipment used in and about its
business. The President of the Corporation
approached you and asked for legal
assistance to effect the sale.
1. What steps should you take so that the
sale may be valid?
2. What are the two instances when the sale,
transfer, mortgage or assignment of stock of
goods, wares, merchandise, provision, or
materials otherwise than in the ordinary
course of trade and the regular prosecution of
the business of the vendor are not deemed to
be a sale or transfer in bulk? (1993 Bar)
A:
1. The requirements of the Bulk Sales Law
must be complied with. The seller delivers to
the purchaser a list of his creditors and the
purchaser in turn notifies such creditors of
the proposed sale at a stipulated time in
advance.
2. If the sale and transfer is made (1) by
vendor, mortgagor, transferor or assignor who
produces and delivers a written waiver of the
provisions of the Bulk Sales Law from his
creditors as shown by verified statement; and
(2) by a vendor, mortgagor, receiver, assignee
in insolvency, or public officer acting under
judicial process, the sale or transfer is not
covered by the Bulk Sales Law.
Q: Company X, engaged in the business of
manufacturing car parts and accessories,
operates a factory with equipment, machinery
and tools for this purpose. The manufactured
goods are sold wholesale to distributors and
dealers throughout the Philippines. Company
X was among the business entities adversely
hit by the 1997 Asian business crisis. Its
sales dropped with the decline in car sales
and its operating costs escalated, while its
creditor banks and other financial
institutions tightened their loan portfolios.
Company X was faced with the dismal choice
of either suspending its operations or selling
its business. It chose the latter. Having
struck a deal with Company Z, a more viable
entity engaged in the same business,
Company X sold its entire business to the
former without much fanfare or any form of
publicity. In fact, evidence exists that the
transaction was furtively entered into to avoid
the prying eyes of Company X’s creditors. The
creditor banks and other financial
institutions sued Company X for violation of
the Bulk Sales Law. Decide. (2000 Bar)
A: Company X violated the Bulk Sales Law
when it sold its entire business to Company Z
furtively to avoid the prying eyes of its
creditors. Its manufactures goods are sold
wholesale to distributors and dealers. The
sale of all or substantially all of its stocks, not
in the ordinary course of business,
constitutes bulk sale. The transaction being a
bulk sale, entering into such transaction
without complying with the requirements of
the Bulk Sales law, Company X violated said
law.
Q: Seeking to streamline its operations and to
bail out its losing ventures, the stockholders
of X Corporation unanimously adopted a
proposal to sell substantially all of the
machineries and equipment used in and
about its manufacturing business and to sink
the proceeds of the sale for the expansion of
its cargo transport services.
a) Would the transaction be covered by the
provisions of the Bulk Sales Law?
b) How would X Corporation effect a valid
sale? (2007 Bar)
A:
a) No, the transaction is not covered by the
provisions of the Bulk Sales Law. Bulk Sales
Law applies only to retail merchants, traders
and dealers. It does not apply to
manufacturers. X Corporation is engaged in
the manufacturing business.
b) To effect a valid sale, X Corporation must
prepare an affidavit stating the names of all
its creditors, their addresses, the amount of
their credits and their maturities. X
Corporation should give the affidavit to the
buyer who, in turn, should furnish a copy to
each creditor and notify the creditors of the
proposed bulk sale to enable them to protect
their interest.
Q: Pursuant to a writ of execution issued by
the RTC in “Express Bank v. Don Rubio,” the
sheriff levied and sold at public auction 8
photocopying machines of Don Rubio. Is the
sheriff’s sale covered by the Bulk Sales Law?
(2006 Bar)
A: No. The sheriff’s sale is not covered by the
Bulk Sales Law. If the sale and transfer in
bulk is made by a public officer, acting under
judicial process, as is true in this case, said
sale or transfer is not covered by the Bulk
Sales Law.
Q: The sole proprietor of a medium-size
grocery shop, engaged in both wholesale and
retail transactions, sells the entire business
“lock, stock barrel” because of his plan to
emigrate abroad with his family. Is he covered
by the provisions of the Bulk Sales Law? In
the affirmative, what must be done by the
parties so as to comply with the law? (1997
Bar)
A: Yes. This is a sale of all the stock of goods,
fixtures and entire business, not in the
ordinary course of business or trade of the
vendor. Before receiving from the vendee any
part of the purchase price, the vendor must
deliver to such vendee a written statement,
duly sworn, of the names and addresses of all
creditors to whom said vendor may be
indebted, together with the amount of
indebtedness due or owing, on the account of
the goods, fixtures or business subject matter
of the bulk sale.
Q: XXX Corporation (XXX) and its sister
company, YYY Corporation (YYY), are both
under judicial receivership. The receiver has
the option to sell all or substantially all of the
properties of YYY to XXX, or simply merge the
two corporations. Under either option, the
requirements under the Corporation Code
have to be complied with. The receiver seeks
your advice on whether the Bulk Sales Law
will apply to either, or both, options. What
will your advice be? (2009 Bar)
A: I will advice the receiver that the Bulk
Sales Law does not apply to both options.
Section 8 of the Bulk Sales Law expressly
provides that it will not apply to executors,
administrators, receivers, and assignees in
insolvency, or public officers, acting under
judicial process. In this case, the receiver is
acting under judicial process.