A “Bulk Sale” is defined as any sale of goods by a business that comprises all or nearly all of its inventory to a single purchaser. Bulk sales are common in situations where
- A business is being liquidated
- A business is being transferred to a new owner
The main characteristic of a bulk sale is that the goods are coming out of inventory as opposed to manufacturing or service lines.
Bulk sales must be conducted according to very strict rules of commercial and contract laws. In circumstances where a bulk sale is being made, it is common for the seller or business to be in debt with one or more creditors. In fact, they may be conducting the bulk sale for the purpose of satisfying their debts with creditors.
Therefore, when a bulk sale occurs, the seller is usually required to provide the buyer with an affidavit that outlines the seller’s secured and unsecured creditors. This is to protect the buyer against creditors who may have claims against the seller. The buyer must be sure to obtain such an affidavit, because without one, the creditors may be able to declare the sale invalid and take possession of the goods sold.
Bulk sales are governed by Article 6 of the Uniform Commercial Code (UCC). Article 6 has been adopted by every state, at least in part. Article 6 contains several statutory requirements that the seller must comply with in order for a bulk sale to be valid.
One of the most important requirements of Article 6 is that the seller must provide notice to all its creditors of any bulk sales that are about to be finalized. If the seller fails to provide notice to its creditors, it may result in several unwanted consequences. For example, the seller’s creditors may be able to enforce their credit claims on the property which is already in the hands of a buyer.
As mentioned, the seller may be held liable for violations of Article 6 of the UCC. Violations or failure to comply with the requirements of Article 6 can render a bulk sale void under contract laws.
Also, the buyer or purchaser in a bulk sale may sometimes be held liable for violations. For example, the buyer may be held liable if they had knowledge that seller did not lawfully comply with Article 6. In this situation any creditors may be able to take possession of transferred goods in order to satisfy the seller’s debt, even if they are already in the hands of the buyer. Creditors may also reach the buyer’s goods if the buyer did not pay a reasonable value for the goods.
Bulk sales are a common and often necessary part of running any business. However, bulk sales must be conducted in a manner that conforms to the laws prescribed in the UCC or the governing laws of the state. Failure to observe contract principles can have drastic effects on both the seller and the buyer. Keeping this in mind, it may be necessary to consult with a lawyer if you will be involved in a bulk sale. A business attorney will be able to draft and review a contract that fully meets the requirements of the laws concerning bulk sales.