The term Bulk Sales confuses some of us, and thus the purpose of the Bulk Sales legislation is often unclear.
A bulk sale happens when a business sells all or substantially all of its goods, inventory, chattels and fixtures to a single buyer, unless such a transaction is common in the ordinary course of the business. It is often the case that there are creditors attached to certain items that fall into the bulk of such a sale (the business, for example, might have leased a tractor and is still paying regular lease payments to the leasing company). The purchaser in such a transaction would become the lawful owner of the goods sold to him in bulk, and thus would legally be required to pay any debts to the creditors. In order to protect the purchaser from claims made by creditors of the seller, the seller is required to prepare a Bulk Sales Affidavit, where he should outline all of its secured and unsecured creditors. The Bulk Sales Affidavit is then filed with a court. This document legitimizes the bulk sale in the eyes of the government and of the creditors. In cases where no Bulk Sales Affidavit was filed with the court, the seller’s creditors may declare that the sale was not valid, and the creditors may take possession of the goods from the purchaser, or obtain a judgment for any proceeds that the purchaser may receive from subsequent sale of the goods that he bought in this bulk purchase.
Before Bulk Sales Act was enacted, farmers and store owners who were under creditors’ attacks would often sell the entire inventory of a farm or of a store in order to avoid any creditors’ claims and their attempts to seize the goods to satisfy the seller’s debt to them. Even though such a sale was not void against creditors unless it was made in bad faith for an obviously insufficient consideration, the seller would generally be allowed to keep the sale proceeds and leave the creditors unpaid. To prevent situations like this and to protect the bulk purchaser from the seller’s creditors and the creditors from the seller’s possibly unlawful practices, the government enacted Bulk Sales Act in 1917, after which the Act was immediately recognized for the benefits it provided to both creditors and the purchaser.
Contact ESC Corporate Services to have your Bulk Sales Affidavit filed with the appropriate court.
Toll free number: 1.800.668.8208
Office telephone number: 416.595.7177