The Bulk Sales Law is a creditor-protection statute that regulates the sale, transfer, or mortgage of a merchant's stock in bulk, outside the ordinary course of business. Its purpose is to prevent a merchant from secretly selling off all or substantially all of their goods, fixtures, or equipment and disappearing with the proceeds, leaving creditors unpaid. A sale is a bulk sale when it involves the sale, transfer, or mortgage of all or substantially all of the business's stock of goods, wares, merchandise, or of fixtures and equipment, otherwise than in the ordinary course of trade and the regular prosecution of the business. When a transaction is a bulk sale, the law imposes duties on the seller (vendor) to protect creditors: the vendor must deliver to the buyer, before receiving payment, a sworn written statement listing the names and addresses of all the vendor's creditors and the amounts owed to each; and the vendor must prepare a sworn inventory of the goods being sold, stating their cost. The buyer must, in turn, notify the listed creditors of the proposed sale before taking possession or paying. If the parties fail to comply with these requirements, the sale is fraudulent and void as against the creditors of the vendor, meaning the goods can be reached by those creditors as if the sale had not taken place, and the seller may incur criminal liability for making a false statement. Sales in the ordinary course of business (normal retail sales) are not covered. So a merchant who sells their business stock in bulk must first account to their creditors, or the sale can be voided against them.
What a Bulk Sale Is
The Bulk Sales Law covers the sale, transfer, or mortgage of all or substantially all of a business's stock, fixtures, or equipment, outside the ordinary course of business — to protect creditors.
The Seller's Duties
- Deliver a sworn list of all creditors and amounts owed, before payment; and
- Prepare a sworn inventory of the goods, with their cost.
Notice and Non-Compliance
The buyer must notify the listed creditors before taking possession or paying. Non-compliance makes the sale fraudulent and void against the vendor's creditors, who may reach the goods; the seller may face criminal liability for a false statement.
Practical Takeaways
- A bulk sale of business stock requires accounting to creditors first;
- Seller gives a sworn creditor list and inventory;
- Non-compliance voids the sale against creditors. Ordinary retail sales are exempt.
Frequently Asked Questions
What is a bulk sale? The sale, transfer, or mortgage of all or substantially all of a business's stock of goods, fixtures, or equipment, otherwise than in the ordinary course of trade and the regular prosecution of the business.
What must a seller do in a bulk sale? Deliver to the buyer, before receiving payment, a sworn written statement listing all creditors and the amounts owed, and prepare a sworn inventory of the goods being sold with their cost.
What happens if the Bulk Sales Law is not followed? The sale is fraudulent and void as against the creditors of the vendor, so the goods can be reached by those creditors, and the seller may incur criminal liability for a false statement.
Are normal store sales covered by the Bulk Sales Law? No. Sales made in the ordinary course of business, such as normal retail sales, are not covered. The law targets bulk transfers outside the regular course of business.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
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