This Article shall be known and may be cited as Uniform Commercial Code--Bulk Transfers.
NOTES: UNIFORM LAWS COMMENT: Prior Uniform Statutory Provision: None. Purposes:
1. This Article attempts to simplify and make uniform the bulk sales laws of the states that adopt this Act.
2. Many states have bulk sales laws, of varying type and coverage. Their central purpose is to deal with two common forms of commercial fraud, namely:
(a) The merchant, owing debts, who sells out his stock in trade to a friend for less than it is worth, pays his creditors less than he owes them, and hopes to come back into the business through the back door some time in the future.
(b) The merchant, owing debts, who sells out his stock in trade to any one for any price, pockets the proceeds, and disappears leaving his creditors unpaid.
3. The first is one form of fraudulent conveyance. The substantive law concerning it has been codified by the Commissioners in the Uniform Fraudulent Conveyance Act. No change in that Act is proposed. The contribution of the bulk sales laws to the problem is in the requirement that creditors receive advance notice of bulk sales. Having such notice, they can investigate the price and other circumstances of the sale before it occurs, and determine then instead of later whether they should try to stop it. This is a valuable policing measure, and is continued. To be effective, it requires a longer notice than five days. This Article therefore follows in this respect those laws which require a longer notice (Sections 6-105, 6-108).
4. The second form of fraud suggested above represents the major bulk sales risk, and its prevention is the central purpose of the existing bulk sales laws and of this Article. Advance notice to the seller's creditors of the impending sale is an important protection against it, since with notice the creditors can take steps to impound the proceeds if they think it necessary. In many states, typified for instance by New York, such notice is substantially the only protection which bulk sales statutes give. Other states, typified for instance by Pennsylvania, give additional protection by imposing on the buyer an obligation to ensure that the money that he pays to his indebted seller is in fact applied to pay the seller's debts. This Article requires notice to creditors (Section 6-105) and if bracketed Section 6-106 is enacted it imposes the other obligation also.
5. These are the affirmative reasons for a law such as this Article. The objections are chiefly delay and red tape on legitimate transactions, and the possibility of a trap for the unwary buyer. It is hard to avoid the latter danger. But to minimize both it and the former the transactions subject to the Article are identified as clearly as possible and are limited to those which carry the dangers to be guarded against (Sections 6-102 and 6-103), and the sanctions are such as to permit honest and solvent buyers and sellers to put through transactions promptly without undue risk. Sections 6-104 through 6-108. Cross References: Point 3: Sections 6-105 and 6-108. Point 4: Sections 6-105 and 6-106. Point 5: Sections 6-102, 6-103, 6-104 through 6-108.
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