The Bulk Sales Law does not apply to all bulk sales

Whenever one sells all or substantially all of his assets, both the lawyer of the buyer and of the seller often require the seller to comply with the requirements of the Bulk Sales Law (the Law) before the sale actually takes place. The Law requires certain inconvenient formalities to be complied with before a sale of transfer in bulk of items specified in the Law may take place, other than in the ordinary course of business. Under the Law, if the seller is unable to obtain a written waiver from all his creditors of the provisions of the Law, the sale will be void as against the seller’s creditors, unless the seller delivers to the purchaser a list of his creditors with the amount owing to each, conducts an inventory of the assets and gives prior notice of at least 10 days to his creditors of the proposed sale and the terms of the proposed sale. However, in most cases, the sale of all or substantially all of one’s assets is not covered by the Law, for the Law covers only the bulk sales contemplated in Section 2.

What is a Bulk Sales? Under Section 2, a sale or transfer is in bulk if it involves any sale, transfer, mortgage or assignment of "(a) 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 (b) all or substantially all of the business or trade theretofore conducted by the vendor, mortgagor, transferor, or assignor, or (c) all or substantially all of the fixtures and equipment used in or about the business of the vendor, mortgagor, transferor or assignor."

The common meaning of the term "stocks in trade" when applied to goods in a mercantile house refers to those which are kept for sale. The term "merchandise", when used in bulk sales laws, means such things as are usually bought and sold by merchants. Upon the other hand, when used in bulk sales laws, the term "fixtures" refer to such articles of merchandise usually possessed and affixed to the premises occupied by them to enable them to better store, handle and display their wares and which are commonly known as trade fixtures, although they can be removed without material injury to the premises before or at the end of tenancy (1 Martin, Philippine Commercial Laws [1988] 509-510; 2 Agbayani, Commentaries and Jurisprudence on the Philippine Commercial Laws ([1992] 775-776).

Law Applies to Merchants. Bulk sales laws generally apply to retail merchants, traders and dealers and generally only to persons of that class (1 Martin, op. cit. 509). On the basis of Section 2, the Bulk Sales Law does not apply to a bulk sale by a manufacturer because of the nature of the latter’s business, i.e., it is not engaged in the business of selling stocks in trade (2 Agbayani, op. cit. 776). The sale of an entire automobile repair shop, together with its goodwill, credit, machineries, tools and because this would involve the sale of a business engaged in rendering services and not the sale of goods (Gopengco, Compendium of Commercial Law [1983] 598). In addition, the sale of a barber shop would not be covered by the Law, since no stocks in trade are really involved in the operation of a barber shop (Vitug, Pandect of Commercial Law and Jurisprudence [1997] 803.

Applicable Jurisprudence. In People vs. Wong Szu Tung, CA-G.R. No. 9776-R, March 26, 1954, 50 0.G. 4867, the Court of Appeals held that the sale of a foundry shop was not covered by the Bulk Sales Law, where what was sold was the shop itself, together with the goodwill and credits, equipment, tools and machinery, including a Dodge truck, because this did not constitute a sale of a stock of merchandise, goods, wares, provisions or materials in bulk. I have been unable to find any jurisprudence to the contrary. In People vs. Wong Szu Tung, the Court of Appeals also reaffirmed the rule of statutory construction that should be applied in construing the Bulk Sales Law. Because the law is penal in nature, the Court declared that it must be strictly construed against the State and liberally in favor of the accused. The law should not be extended by construction to situations not clearly intended thereby (1 Martin, op. cit. 507).

In the words of retired Supreme Court Justice Jose Vitug: "The essential provisions of the law, i.e., Section 3 to 7, inclusive, specifically and repeatedly mention ‘stock of goods, wares, merchandise, provisions or materials in bulk’ in their application, a situation which conveys that the legislative intent is merely to govern the bulk sales of stocks in trade, and/or fixtures and equipment used in that business, by the vendor, transferor, mortgagor or assignor (Vitug, op. cit. 803)."

(The author is a Senior Partner of Angara Abello Concepcion Regala & Cruz Law Offices or ACCRALAW. He may be contacted at tel. 830-8000 or e-mailed at [email protected])