BULK SALES AND THE UNIFORM COMMERCIAL CODE

BULK SALES AND THE UNIFORM COMMERCIAL CODE

Division 6 of the Uniform Commercial Code (UCC) pertains to bulk sales. A bulk sale is a sale, not in the
ordinary course of the seller’s business, of more than half of the seller’s inventory and equipment (as measured
by value on the date of the bulk sale agreement).

Public Notice

When the owner of an enterprise whose principal business is the sale of merchandise desires to effect a bulk
sale, the buyer must give public notice to the seller’s creditors by:

1. recordation of a notice in the Office of the County Recorder (of the county or counties in which the
property to be sold is located) at least 12 business days before the bulk sale is to be consummated, or the
sale, if by auction, is to commence;

2. publication of the notice at least once in a newspaper of general circulation published in the judicial district
in which the property is located and in the judicial district in which the chief executive office of the seller,
or, if the chief executive office is not in California, the principal business office in California, is located, if
in either case there is one, and if there is none, then in a newspaper of general circulation in the county
embracing such judicial district. Notice must be published at least 12 business days before the bulk sale is
to be consummated or the sale by auction is to be commenced.

3. sending a copy of the notice by registered or certified mail at least 12 business days before the bulk sale is
to be consummated or the sale by auction is to be commenced to the county tax collector in the county or
counties in which the property to be transferred is located.

The notice to creditors shall state:

• that a bulk sale will be made;

• the names and business addresses of the seller and, except in the case of a sale at auction, the buyer, and all
other business names and addresses used by the seller within the last three years so far as known to the
buyer;

• the location and general description of the property to be sold;

• the place, and the date on or after which the bulk sale is to be consummated; and,

• whether or not the bulk sale is subject to UCC Section 6106.2 (consideration is $2,000,000 or less,
substantially all cash or cash plus an obligation to pay the balance in the future), and, if so, the information
required by subdivision (f) of Section 6106.2 (the name and address of the person with whom claims may
be filed and the last date claims may be filed, which is the last business day before the date of the bulk
sale).

Sale at Public Auction

If the sale will be at a public auction, the notice must also state that fact, the name of the auctioneer, and the
time and place of the auction.

Escrows

In any case where a bulk sales notice subject to the requirements of Division 6 of the Uniform Commercial
Code provides for an escrow, the transferee (buyer) must deposit the full purchase price or consideration (not
necessarily cash) with the escrow holder. If there is no escrow, then the transferee must apply the consideration
as required by law.

If the seller disputes any filed creditor’s claim, the escrow holder will withhold the amount of the claim and
notify the creditor. The creditor has 25 days from the mailing of the notice to attach the funds. If not attached,
escrow holder pays the funds to the seller, or to other creditors.

If, at the time for closing the escrow, the amount of money deposited is insufficient to pay in full all creditors’
claims, the escrow holder must delay the closing, give notice to the creditors of the deficiency within the
specified time limit, and distribute the cash consideration and any installment payments in strict compliance
with the priorities established by law.

Escrow may not make any payments for fees and commissions prior to closing.

Effect of Noncompliance

The principal purpose of the bulk transfer law is to afford the creditors of a business an opportunity to satisfy
their claims before the owner can sell the assets and vanish with the proceeds.

When the statutory filing and publication requirements are not met, the buyer is liable to creditors who hold
valid claims based on transactions or events occurring before the bulk transfer. Creditors must take action
within one year of the date of transfer of possession to satisfy their claims, unless the transfer was concealed, in
which case action may be brought within one year after its discovery by the creditor.

In an auction sale, the auctioneer is responsible for giving the statutory notice. If an auction sale does not
comply with the statutory requirements, the auctioneer becomes personally liable to the transferor’s creditors
for the sums owed to them by the debtor.

The provisions of Division 6 of the Uniform Commercial Code do not apply to certain transactions, including:
transfers made to create or modify a security interest; assignments for the benefit of all the transferor’s
creditors; sale by executors, administrators, receivers, trustees in bankruptcy or any public officer under judicial
process; or transfer of property exempt from execution.

Compliance with Division 6 does not exclude compliance with other applicable statutes, such as the transfer of
liquor licenses under the Alcoholic Beverage Control Act (Business and Professions Code, Sections 23000, et
seq.) and the Uniform Fraudulent Transfer Act (Civil Code Sections 3439, et seq.).

Uniform Commercial Code (Division 9)

Division 9 of the UCC (entitled “Secured Transactions, Sales of Accounts, Contract Rights and Chattel Paper”)
establishes a unified and comprehensive scheme for regulation of security transactions in personal property and

fixtures, superseding statutes on chattel mortgages, conditional sales, trust receipts, assignment of accounts
receivable and others in this field.

Division 9 applies to a transaction in any form which is intended to create a security interest in personal
property.

There are a number of transactions excepted from this coverage. It is not applicable to real property security
transactions, although a security interest in an obligation secured by real property (a note secured by real
property pledged to secure another note) is covered.

A transaction subject to Division 9 might also be subject to one or more of the following:

1. The Unruh Act (retail installment sales - Civil Code Sections 1801, et seq.);

2. Automobile Sales Finance Act ( Civil Code, 2981, et seq.);

3. Industrial Loan Law (Financial Code, 18000, et seq.);

4. Pawnbroker Law (Financial Code, 21000, et seq.);

5. Personal Property Brokers Law (Financial Code, 22000, et seq.); and

6. Consumer Finance Lenders Law (Financial Code, 24000, et seq.).

The UCC provides for a simplified filing system by means of a “financing statement” to perfect security
interests provided for under the code. Local filing in the county recorder’s office is permitted only for specific
types of transactions. In all other cases, financing statements (Form UCC-1) are to be filed with the Secretary of
State. See also Chapter 14.