Bulk Sale - History

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. Under traditional fraudulent conveyance law, such a sale was not void against creditors unless it was made in bad faith for insufficient consideration. 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, was for appropriate consideration, and may have been made in good faith, it was generally binding on creditors until bulk sales statutes were passed. Bulk sales legislation, such as Article Six of the Uniform Commercial Code was designed to eliminate this type of fraud.

For example, in the ordinary course of business, a car dealer 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 often have agreed well in advance of harvesting 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.