BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 12|
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THIRD READING
Bill No: SB 12
Author: Corbett (D)
Amended: 1/4/12
Vote: 21
SENATE JUDICIARY COMMITTEE : 5-0, 1/10/12
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SUBJECT : Uniform Commercial Code: Bulk Sales
SOURCE : California Commission on Uniform State Laws
DIGEST : This bill repeals Californias bulk sales law in
its entirety, removes any references to bulk sales
throughout other code sections, and makes other conforming,
non-substantive changes.
ANALYSIS : Existing law, the Uniform Commercial Code
(UCC) - Bulk Sales (California bulk sales law) governs bulk
sales transactions in the state. (UCC Sections 6101-6111)
Existing law defines "bulk sale" as either:
in the case of a sale by auction or a sale or series of
sales conducted by a liquidator on the seller's behalf, a
sale or series of sales, not in the ordinary course of
the seller's business, of more than half of the seller's
inventory and equipment, as measured by a value on the
date of the bulk-sale agreement; or
CONTINUED
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in all other cases, as a sale not in the ordinary course
of the seller's business of more than half the seller's
inventory and equipment, as measured by value on the date
of the bulk-sale agreement. (UCC Section6102(a)(3))
Existing law defines "assets" as the inventory and
equipment that is the subject of a bulk sale and any
tangible and intangible personal property used or held for
the use primarily in, or arising from, the seller's
business and sold in connection with that inventory or
equipment, except as specified. (UCC Section 6102(a)(1))
Existing law applies, except as otherwise provided, if:
the seller's principal business is the sale of inventory
from stock, including those who manufacture what they
sell, or that of a restaurant owner; and
on the date of the bulk sale agreement the seller is
located in this state, as defined, or if the seller is
located in a jurisdiction outside the United States, the
seller's major executive U.S. office is in this state.
(UCC Section 6103(a))
Existing law exempts 16 categories of sales to which the
California bulk sales law would otherwise apply, including
any sale of assets that has a value of less than $10,000 or
over $5,000,000 as of the date of the bulk sale agreement.
(UCC Section 6103(c))
Existing law requires a buyer to a bulk sale transaction to
do the following upon determining that the California bulk
sales law applies to the transaction:
obtain from the seller a list of all business names and
addresses used by the seller within three years before
the date the list is sent or delivered to the buyer;
give notice of the bulk sale, as specified; and
comply with the specified section pertaining to sales for
consideration of $2 million or less and substantially all
in cash or an obligation of the buyer to pay the seller
cash in the future, or a combination thereof, if the bulk
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sale is within the scope of that section. (UCC Section
6104)
Existing law provides that the notice must:
state that a bulk sale is about to be made;
state the name and business address of the seller
together with any other business name and address listed
by the seller, as specified, and the name and business
address of the buyer;
state the location and general description of the assets;
state the place and the anticipated date of the bulk
sale; and
state whether or not the bulk sale is subject to
provisions relating to sales of $2 million or less, as
specified, and, if so subject, state the matters required
under a specified provision. (UCC Section 6105(a))
Existing law requires buyers at least 12 business days
before the bulk sale date to:
record the notice in the county recorder's office in the
county or counties where the assets are located and, if
different, in the county in which the seller is located;
publish the notice at least once in a newspaper of
general circulation published in the judicial district
where the assets are located and in the judicial
district, if different, in which the seller is located,
as specified, if in either case there is one, and if
none, then in a newspaper of general circulation in the
county in which the judicial district is located; and
provide the notice by registered or certified mail to the
county tax collector in the county or counties where the
assets are located. (UCC Section 6105(b))
Existing law provides detailed procedures for bulk sales of
$2 million or less that are substantially all cash or an
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obligation of the buyer to pay cash in the future to the
seller or a combination thereof. Within such transactions,
existing law provides specific procedures for disputed
claims, and claims involving escrow, including cases in
which the cash deposited or agreed to be deposited is not
sufficient to cover the claims filed with the escrow agent.
(UCC Sections 6106.2, 6106.4)
Existing law includes specific procedures for bulk sales
involving auctions, and clarifies that the "buyer" is the
auctioneer or liquidator. (UCC Section 6108)
Existing law provides that, subject to the good faith
exception and specified limitations, a buyer who fails to
comply with the above requirements is liable for damages in
the amount of the claim, reduced by any amount that the
claimant would not have realized if the buyer had complied.
(UCC Section 6107(a))
Existing law provides that a buyer who can prove a good
faith and commercially reasonable effort to comply with
specified bulk sales law requirements, above, or to exclude
the sale from the application of the bulk sales law under
one of the 16 exemptions, is not liable to creditors for
failure to comply with those requirements. (UCC Section
6107(c))
Existing law provides that failure to comply with specified
requirements does not:
impair the buyer's rights in or title to the assets;
render the sale ineffective, void, or voidable;
entitle a creditor to more than a single satisfaction of
its claim; or
create liability other than as provided in this division.
(UCC Section 6107(h))
Existing law provides that payment of the buyer's
liability, as specified, discharges to that extent the
seller's debt to the creditor. (UCC Section 6017(i).)
Existing law further grants the buyer, unless otherwise
agreed, with an immediate right of reimbursement from the
seller for any amount paid to a creditor in partial or
total satisfaction of the buyer's liability. (UCC Section
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6107(j))
Existing law provides for a one year statute of
limitations, as of the date of the bulk sale, except as
provided. (UCC Section 6110)
This bill repeals the above-described provisions.
Existing law, the Commercial Code, lists the divisions
governing the rights of other purchasers of goods and lien
creditors, including bulk transfers (Division 6). (UCC
Section 2403)
This bill removes the reference to bulk transfers from the
above section.
Existing law, the Business and Professions Code's (BPC)
Fair Practices of Equipment Manufacturers, Distributors,
Wholesalers, and Dealers Act (Dealers Act), contains
reference to and defines "bulk sales law." (BPC Section
22901(b))
Existing law, the Dealers Act, specifies procedures by
which a supplier shall repurchase inventory whenever a
dealer contract is terminated by cancellation or nonrenewal
and, in doing so, clarifies that any repurchase shall not
be subject to the provisions of the bulk sales law or to
the claims of any secured or unsecured creditors of the
supplier or any assignee of the supplier until such time as
the dealer has received full payment or credit. (BPC
Section 22905(m))
Existing law, the Dealers Act, specifies procedures for
repurchase in the event of the death or incapacity of the
dealer, and specifically provides that any repurchase under
that section shall not be subject to the provisions of the
bulk sales law. (BPC Section 22924(b))
Existing law, the BPC's Alcoholic Beverage Control Act (ABC
Act), provides that it shall not be a violation or grounds
for disciplinary action for a licensee selling alcoholic
beverages to extend credit to or receive payment from a
holder of an interim operating permit unless the seller has
knowledge that the purchaser was operating under an interim
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operating license, as shown by specified evidence such as
the holder having recorded or published notice pursuant to
the existing bulk sales law. (BPC Section 24044.5(f))
Existing law, the ABC Act, provides that it shall not be a
violation or grounds for disciplinary action for a licensee
selling alcoholic beverages to extend credit to or receive
payment from a holder of a temporary permit unless the
seller has knowledge that the purchaser was operating under
a temporary permit, as shown by specified evidence such as
the holder having recorded or published notice pursuant to
the existing bulk sales law. (BPC 24045.5(d))
This bill strikes all references to bulk sales and bulk
sales law in the above sections, and makes other
non-substantive, conforming changes.
Existing law provides that no right to attach order or writ
of attachment may be issued unless it appears from the
facts shown by affidavit that great or irreparable injury
would result to the plaintiff if issuance of the order were
delayed until the matter could be heard on notice.
Existing law also provides that this requirement may be
satisfied by showing that a bulk sales notice has been
recorded and published pursuant to the bulk sales law with
respect to a bulk transfer by the defendant. (Code of
Civil Procedure Sections 485.010(a), 485.010(b)(3))
This bill removes the above provision relating to a bulk
sales notice as a satisfactory showing that great or
irreparable injury would result under that section.
Existing law, in relevant part, permits the tax collector
to seize any property which is assessed on the unsecured
roll and is advertised for sale pursuant to the bulk sales
law. (Revenue and Taxation Code Section 2953.1)
This bill removes the above reference to the bulk sales
law.
Background
In the late-19th century, territories across the U.S.
experienced a need for laws that would protect creditors
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from merchants who, all too frequently, would acquire
inventory on credit and later sell all or a substantial
part of that merchandise in bulk, thereafter absconding
with the proceeds without ever paying their debts.
Creditors were often left with no recourse, having neither
any protections nor remedies available at common law in
these situations, nor any feasible mechanism to locate
fleeing sellers. For example, Owner A sells his
convenience store to Buyer B and then leaves town without
ever having settled his debts with Creditor C. Under the
bulk sales law, Creditor C could then sue Buyer B for not
applying the bulk sales law and providing notice to
Creditor C that the transaction was occurring.
Compounding the problem was the limited framework of the
era's fraudulent conveyance law, which would only afford
its protections if there was collusion between the seller
and buyer. (See Revised UCC Article 6 (1989 Official
Text), Prefatory Note, page 4
�as of Dec.
30, 2011]; Lisa M. Bruno, "Is Bulk Sales Legislation Still
Necessary," 1997 Det. C.L. Rev. 1091, 1091-1092.) To
address this "bulk sale risk," one by one, each state began
adopting bulk sales laws, eventually giving rise to Article
6 of the UCC. The central purpose of these laws was to
give the merchant's creditors notice that a bulk sale is
taking place in order to afford them an opportunity to
satisfy their claims before the merchant can sell its
assets to a buyer and disappear with the proceeds of the
sale without ever paying back its creditors. (See
generally 4 Witkin, Sum. Cal. Law (10th Ed. 2010) Sales,
Sec. 219; see also Reed v. Anglo Scandinavian Corporation
(1969) 298 F. Supp. 310, 313 (citations omitted).)
Except as otherwise provided, California's bulk sales law
applies to a bulk sale (a sale not in the ordinary course
of business and for half or more of the seller's inventory
and equipment, as measured by value on the date of the bulk
sale agreement) if the seller's principal business is the
sale of inventory from stock, including those who
manufacture what they sell, or that of a restaurant owner
and, on the date of the bulk sale agreement, the seller is
located in California, or if located in a jurisdiction
outside the U.S., the seller's major executive U.S. office
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is in California. (See UCC Sections 6101-6111)
Since the original enactment of bulk sales legislation, the
legal landscape has evolved such that there are numerous
laws affording rights and remedies to creditors, including
the Uniform Fraudulent Transfer Act, as well as a national
Bankruptcy Code, and a UCC article providing for secured
transactions (Article 9; Division 9 in California).
Moreover, modern technologies in conjunction with long-arm
statutes make it increasingly feasible for creditors to
find and bring absconding merchants back under the state's
jurisdiction.
Thus, starting in 1988, recognizing the substantial
obligations, costs, and risks placed on buyers in bulk
sales by the original UCC Article 6 and the difficulty of
complying with Article 6 in multi-state transactions due to
so many states' non-uniform amendments, the National
Conference of Commissioners on Uniform State Laws (NCCUSL)
and the American Law Institute (ALI) studied Article 6 and
its relationship to other creditors' rights statutes. By
1989, they jointly recommended a repeal of the bulk sales
law ("Alternative A"). (See Revised UCC Article 6 (1989
Official Text), Prefatory Note, pages 4, 6
�as of Dec.
30, 2011])
In recognition that some states would be disinclined to
repeal the law altogether, and in order to create a uniform
version of the law for those states, NCCUSL and ALI also
approved a revised UCC Article 6 ("Alternative B") that was
designed to afford better protection to creditors while
minimizing the impediments to good-faith transactions, as
well as reintroduce uniformity into the area. (See id. at
6)
Since then, 47 states have repealed their bulk sales laws.
California is one of only four remaining jurisdictions in
the U.S. to retain a bulk sales law, having selected to
adopt a non-uniform version of Alternative B in 1990. (AB
3653 (Harris, Ch. 1191, Stats. 1990).) Although California
enacted the "Alternative B" approach, it ultimately adopted
it in a non-uniform way and extensively modified it in
order to retain many features of the original version.
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(Witkin, Sum. Cal. Law (10th Ed. 2010) Sales, Section 219.)
As a result, the California Commercial Code Division 6
differs from the 1989 revised UCC Article 6 in significant
aspects. California's law covers a broader range of sales,
contains a narrower exception for buyers' good faith and
commercially reasonable attempts to comply, has more
stringent requirements for certain transactions involving
$2 million or less, and lacks the "policing" section of the
UCC law which provides a required schedule of distribution.
(CEB California UCC Sales and Leases, Sections
14.42-14.47)
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 1/10/12)
California Commission on Uniform State Laws (source)
ARGUMENTS IN SUPPORT : According to the author:
"This bill repeals provisions in the UCC Article 6 �Bulk
Sales], and eliminates references to Article 6 in
statute. �In doing so, it] also conforms this practice
to 47 other states in the union, and its repeal would be
in line with recommendations made by the Uniform Law
Commission.
"Article 6 imposes a series of harsh punishments for a
failure to comply. A buyer that fails to comply with the
notification provisions is liable to creditors of the
seller for damages equal to the amount that the creditors
would have been entitled to receive had there been
compliance, unless the buyer can prove that it actually
made good faith and commercially reasonable efforts to
comply. To comply with Article 6, a buyer in bulk from a
California merchant must make as many as 40
determinations in order to accurately assess whether
Article 6 applies.
"Today, Article 9 of the UCC allows a creditor to secure
creditor's claims with the merchandise and its proceeds,
or identifiable cash process in the case of junior
inventory secured parties, via an Article 9 security
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interest. Bulk sales account only 1% of all
transactions. Further, it has become standard business
practice for many buyers and sellers in California
knowingly not to comply with the California Bulk Sales
Law. This practice has developed because parties view
compliance with the California Bulk Sales Law as
burdensome. To address the risks, parties often
negotiate specially designed representations and
warranties, indemnification provisions, holdbacks, and
set-offs."
JJA:kc 1/12/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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