A bulk sale, sometimes called a bulk transfer, is when a

business Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...

sells all or nearly all of its

inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying the shap ...

to a single buyer and such a sale is not part of the

ordinary course of business In United States law, the ordinary course of business (OCB) covers the usual transactions, customs and practices of a certain business and of a certain firm. This term is used particularly to judge the validity of certain transactions. It is used ...

. This type of action is often used in an attempt to dodge

creditors A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...

who intend to seize such business's inventory; in order to protect the purchaser from claims made by

of the seller, the seller must usually complete an

affidavit An ( ; Medieval Latin for "he has declared under oath") is a written statement voluntarily made by an ''affiant'' or '' deponent'' under an oath or affirmation which is administered by a person who is authorized to do so by law. Such a statemen ...

outlining its secured and unsecured creditors, which 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 Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...

. Under traditional

fraudulent conveyance A fraudulent conveyance, or fraudulent transfer, is an attempt to avoid debt by transferring money to another person or company. It is generally a civil, not a criminal matter, meaning that one cannot go to jail for it, but in some jurisdictions th ...

law, such a sale was not void against creditors unless it was made in

bad faith Bad faith (Latin: ''mala fides'') is a sustained form of deception which consists of entertaining or pretending to entertain one set of feelings while acting as if influenced by another."of two hearts ... a sustained form of deception whic ...

for insufficient

consideration Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. The court in ''Currie v Misa'' declared ...

. 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 The arm's length principle (ALP) is the condition or the fact that the parties of a transaction are independent and on an equal footing. Such a transaction is known as an "arm's-length transaction". It is used specifically in contract law to ar ...

, was for appropriate consideration, and may have been made in

good faith In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...

, it was generally binding on creditors until bulk sales statutes were passed. Bulk sales legislation, such as Article Six of the

Uniform Commercial Code The Uniform Commercial Code (UCC), first published in 1952, is one of a number of Uniform Acts that have been established as law with the goal of harmonizing the laws of sales and other commercial transactions across the United States through UC ...

was designed to eliminate this type of fraud. For example, in the

, a

car dealer A car dealership, or car dealer, is a business that sells new or used cars, at the retail level, based on a dealership contract with an automaker or its sales subsidiary. Car dealerships also often sell spare parts and automotive mainten ...

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 A farmer is a person engaged in agriculture, raising living organisms for food or raw materials. The term usually applies to people who do some combination of raising field crops, orchards, vineyards, poultry, or other livestock. A farmer mi ...

often have agreed well in advance of

harvesting Harvesting is the process of gathering a ripe crop from the fields. Reaping is the cutting of grain or pulse for harvest, typically using a scythe, sickle, or reaper. On smaller farms with minimal mechanization, harvesting is the most labor-i ...

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. Bulk transfers in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...

(U.S.) were generally governed by Article 6 of the

(UCC). However, Article 6 has now been repealed by most states,See

Uniform Commercial Code adoption The Uniform Commercial Code (UCC) currently consists of the following articles: *Art. 1, General Provisions *Art. 2, Sales *Art. 2A, Leases *Art. 3, Negotiable Instruments *Art. 4, Bank Deposits and Collections *Art. 4A, Funds Transfer *Art. 5, Le ...

for list of U.S. jurisdictions retaining UCC Article 6. in favor of revisions to other provisions of the UCC that apply to sales and secured transactions. 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 An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition ex ...

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 and 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 A convenience store, convenience shop, corner store or corner shop is a small retail business that stocks a range of everyday items such as coffee, groceries, snack foods, confectionery, soft drinks, ice creams, tobacco products, lottery ticket ...

, 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

{{Reflist Business law