Bulk sale

Bulk sale

:"For food sold by weight in stores, see bulk bins."

A bulk sale, sometimes called a bulk transfer, is a sale of goods by a business that represents all or substantially all of its inventory to a single buyer unless such a sale would be common in the ordinary course of its business. In order to protect the purchaser from claims made by creditors of the seller, the seller must usually complete an affidavit outlining its secured and unsecured creditors. The affidavit must usually be filed with a government department, such as a court office. Such procedures are outlined in the bulk sales act of most jurisdictions. If the buyer does not complete the registration process for a bulk sale, creditors of the seller may obtain a declaration that the sale was invalid against the creditors and the creditors may take possession of the goods or obtain judgment for any proceeds the buyer received from a subsequent sale.

History

Bulk sales legislation came into place to prevent the fraudulent practice of selling the entire inventory of a farm or a store in order to defeat the claims of creditors who would otherwise be able to seize the goods to satisfy a debt. Under traditional fraudulent conveyance law, such a sale was not void against creditors unless it was made in bad faith for insufficient consideration. However, a bulk sale would generally allow a storekeeper to abscond with money while leaving creditors unpaid. However, because such a transaction was generally at arm's length, was for appropriate consideration, and may have been made in good faith, it was generally binding on creditors until bulk sales statutes were passed. Bulk sales legislation, such as Article Six of the Uniform Commercial Code was designed to eliminate this type of fraud. [http://www.law.cornell.edu/ucc/6/ Article 6 of the Uniform Commercial Code]

For example, in the ordinary course of business, a car dealer would sell a number of cars in one day. In extraordinary circumstances, it might sell its entire inventory to different buyers within a short period of time. However, if it attempted to sell all its cars to a single buyer, this would be considered a bulk sale, as it is not something an auto dealer would generally do in the normal course of business.

However, not all sales in bulk are outside of the ordinary course of business. For example, farmers often have agreed well in advance of harvesting their crop to sell it to a single buyer. This is a normal part of farming practice. However, a dairy farmer, although he might sell his milk in bulk, would never sell his dairy cows in bulk in the normal course of business.

Application

Although statutes vary, the legal requirements for a bulk sale generally apply to a sale of all or most of the materials, supplies or inventory of a business in a way not normally done in the ordinary course of the seller's business.

The sale of an entire inventory is not a bulk sale if it is sold to buyers in a manner that ensures adequate consideration. For example, if a merchant holds an auction sale for the entire contents of the business and the sale is in good faith, the buyer in not required to comply with bulk sales legislation. However, the buyer of a business with inventory would be expected to complete the bulk sales registration as part of the normal course of closing the sale. Similarly, if a merchant has a deep discount sale, that is not a bulk sale as deep discounts can be made in the ordinary course of business.

In the modern era, many retail businesses operate on consignment or short credit terms, so compliance with bulk sales registration in the purchase of such a business, or its assets, is generally mandatory. For example, in a typical convenience store, generally the terms of sale are on consignment (return for full credit, pay for what you keep) or 30 days net (pay 30 days after delivery), with very little cash up front. As such, little of the inventory in a convenience store has actually been paid for by the merchant, and suppliers expect to be paid out of the ongoing cash flow of the business.

References


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Look at other dictionaries:

  • bulk sale — see sale Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. bulk sale n. A transfer or sal …   Law dictionary

  • bulk sale — sale of a large quantity of goods to a single buyer; sale of all the property owned by a business …   English contemporary dictionary

  • bulk sale — Literally, any sale of articles, goods, or merchandise in a job lot, without count or measure, but, in legal significance, the sale of all or any portion of a stock of merchandise other than in the ordinary course of trade. 37 Am J2d Fed Conv §… …   Ballentine's law dictionary

  • bulk sale acts — n. Statutes that require a business planning a bulk sale to first notify creditors, designed to protect creditors from secret bulk sales. The Essential Law Dictionary. Sphinx Publishing, An imprint of Sourcebooks, Inc. Amy Hackney Blackwell. 2008 …   Law dictionary

  • bulk sale laws —    State laws (modeled on those in the Uniform Commercial Code) that require the seller of a business or a large amount of business assets or inventory to publish notice of the sale, give written notice to all creditors, and set up an account to… …   Business law dictionary

  • bulk transfer — n: bulk sale at sale Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. bulk transfer …   Law dictionary

  • sale — n 1 a: the transfer of title to property from one party to another for a price; also: the contract of such a transaction see also short 1 2 compare barter, donation …   Law dictionary

  • bulk sales law — A law that regulates the transfer of business assets so that business owners cannot dispose of assets in order to avoid creditors. If a business owner wants to conduct a bulk sale of business assets that is, get rid of all or most of its… …   Law dictionary

  • bulk — 1 / bəlk/ n: a large mass in bulk 1: not divided into parts or packaged in separate units 2: in large quantities bulk 2 adj 1: being in bulk bulk shipment of wheat …   Law dictionary

  • bulk — Unbroken packages. Merchandise which is neither counted, weighed, nor measured. The aggregate that forms a body or unit. When used in relation to sale of goods by sample, bulk means the whole quantity of goods sold, which is supposed to be fairly …   Black's law dictionary

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