This blog post briefly discusses the Bulk Sales Act in California. The relevant statutes that govern the Bulk Sales Act in California are found in sections 6101 through 6111 of the California Commercial Code.
The Bulk Sales Act applies to sales, not in the ordinary course of business, of 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. See California Commercial Code §§ 6102(a)(3); 6103.
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. See California Commercial Code §§ 6104, 6105.
With a few exceptions, a buyer who does not comply with sections 6104 and 6105 is liable to a creditor of the seller for damages in the amount of the creditors' claim, reduced by any amount the creditor would not have realized even if the buyer had complied with the Act. See California Commercial Code § 6107(a).
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 § 6110 states that,
" (a) Except as provided in subdivision (b), an action under this division against a buyer, auctioneer, or liquidator shall be commenced within one year after the date of the bulk sale.
(b) If the buyer, auctioneer, or liquidator conceals the fact that the sale has occurred, the limitation is tolled and an action under this division may be commenced within the earlier of the following:
(1) One year after the person bringing the action discovers that the sale has occurred.
(2) One year after the person bringing the action should have discovered that the sale has occurred, but no later than two years after the date of the bulk sale. Complete noncompliance with the requirements of this division does not of itself constitute concealment."
In enacting the Bulk Sales Act, the California Legislature is seen as targeting two forms of commercial fraud: (1) 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 (2) 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. See Monastra v. Konica Business Machines, U.S.A., Inc. (1996) 43 Cal.App.4th 1628, 1640.
In fact a Judge in 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. Reed v. Anglo-Scandinavian Corp. (E.D.Cal. 1969) 298 F.Supp. 310, 313.
And in Monastra v. Konica Business Machines, U.S.A., Inc. , supra 43 Cal.App.4th at 1643 the Court stated that, "As we have observed, the purpose of bulk sales laws is to afford the fullest possible protection to creditors of persons who fraudulently transfer their stock in trade in bulk."
In Monastra v. Konica Business Machines, U.S.A., Inc., the Court of Appeal reversed the decision of the trial court who had granted summary judgment to Konica, in that decision they rejected the argument made by Konica that compliance with the Bulk Sales Act prevented Monastra from filing a complaint under the Fraudulent Transfer Act detailed in California Civil Code §§ 3439-3439.12.
However the Court in Monastra v. Konica Business Machines, U.S.A., Inc., also stated in FN 10 that,
"The defendants are not, however, precluded from establishing, if they can, that Monastra's action may be barred by laches. Laches is expressly included among those principles listed in Civil Code section 3439.10 as supplementing the Fraudulent Transfer Act. Therefore, although compliance by a buyer in bulk with the Bulk Sales Act does not ipso facto insulate a bulk sale from attack as fraudulent, a remedy under the fraudulent transfer laws may be denied if it is proven that, after receiving notice of a bulk sale, a plaintiff creditor failed, for an unreasonable period of time, to take appropriate measures, and the defendant was prejudiced as a result."
The author worked on a case in which a judgment debtor who was a corporation sold all of their assets to another corporation even though the president of both corporations was the same person, and they did not comply with any of the provisions of the Bulk Sales Act. So a complaint with causes of action to set aside the fraudulent transfer, and for violating the Bulk Sales Act was prepared. A sample based on that situation can be purchased from the author.
Attorneys or parties in the State of California who wish to view a sample complaint that includes a cause of action for a violation of the Bulk Sales Act sold by the author can click below.
http://www.scribd.com/doc/117980857/Sample-Complaint-for-Fraudulent-Transfer-in-California
The author of this blog post, Stan Burman, is a freelance paralegal who has worked in California
litigation since 1995.
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Copyright 2012 Stan Burman. All rights reserved.
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Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is
unable to provide any specific legal advice. The author is NOT engaged in providing any legal,
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intended to constitute legal advice.
These materials and information contained in this blog post have been prepared by Stan Burman
for informational purposes only and are not legal advice. Transmission of the information
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