The law in California known as the Bulk Sales Act is the topic of this article. The relevant statutes that govern the Bulk Sale Act in California are found in sections 6101 through 6111 of the California Commercial Code. The California Commercial Code is the version passed by the California Legislature of Article 6 of the Uniform Commercial Code.
The Bulk Sales Act applies to sales that are not in the ordinary course of business that total more than half of the seller’s inventory and equipment, by sellers whose principal business is the sale of inventory from stock, including those who manufacture what they sell, and by the owners of restaurants.
The Bulk Sales Act requires the buyer in bulk, at least 12 days before the sale, to record notice of such a sale in the county recorder’s office in the county where the seller or subject assets are located and to publish notice of the sale at least once in a newspaper of general circulation in the judicial district where the seller or assets are located.
With a few exceptions, a buyer who does not comply with sections 6104 and 6105 of the California Commercial Code is liable to a creditor of the seller for damages in the amount of the creditors’ claim, which is reduced by any amount the creditor would not have realized even if the buyer had complied with the Bulk Sales Act.
There is a very short statute of limitations in the Bulk Sales Act such that no matter what the situation may be, NO cause of action can be stated once two years have passed since the date of the bulk sale. Any party who even gets a hint that someone who owes them money might even be thinking of selling their business needs to act, and act quickly.
California Commercial Code Section 6110 states the details regarding the statute of limitations in the Bulk Sales Act.
To view the entire text of the California Commercial Code, or any other of the California Codes visit this website: http://www.leginfo.ca.gov/calaw.html
A California Court of Appeal has stated that in enacting the Bulk Sales Act, the California Legislature is seen as targeting two forms of commercial fraud: first, the fraud of a merchant debtor who sells his stock to a friend for less than its value, pays his creditors less than he owes, and hopes to come back into business “through the back door” later on; and second, the fraud of a merchant debtor who sells his stock to anyone, including a good faith purchaser, for any price, pockets the proceeds and disappears, leaving his creditors unpaid.
And the United States District Court for the Eastern District of California stated in one case that, the central purpose of the bulk sales statutes is to afford a merchant’s creditors an opportunity to satisfy their claims before the merchant can transfer his or her assets and vanish with the sale proceeds.
The author sincerely hopes you have enjoyed this article and found it informative.