(Dec. 30, 1963, 77 Stat. 714, Pub. L. 88-243, § 1; Feb. 7, 1980, D.C. Law 3-49, § 2, 26 DCR 2731; Apr. 9, 1997, D.C. Law 11-239, § 2, 44 DCR 936; Oct. 26, 2000, D.C. Law 13-201, § 201(g)(1), 47 DCR 7576; Oct. 23, 2014, D.C. Law 20-215, § 31, 61 DCR 13083.)
1981 Ed., § 28:6-102.
1973 Ed., § 28:6-102.
This section is referenced in § 28:6-104.
Effect of Amendments
D.C. Law 13-201, enacting a new Article 9 of the Uniform Commercial Code applicable July 1, 2001, made conforming amendments to this section applicable upon the same date.
Uniform Commercial Code Comment
1. (a) “Assets”. New. The term generally includes only “personal property.” Whether particular property is “personal property“ is to be determined by law outside this Article; however, for purposes of this Article, (i) the term includes ‘’readily removable factory and office machines“ (compare Section 9-313(4)(c)), even if they are covered by applicable real estate law and thus are “fixtures” as defined in Section 9-313(1)(a); (ii) the term does not include the lessee’s interest in a lease of real property, even if that interest is considered to be personal property under other applicable law; and (iii) the term does not include property to the extent that it is “generally exempt from creditor process under nonbankruptcy law.”
(b) “Auctioneer”. Compare Section 6-108(3) (1987 Official Text).
(c) “Bulk Sale”. Bulk sales are of two kinds. Subsection (1)(c)(i) describes bulk sales conducted by a professional intermediary (i.e., an auctioneer or liquidator), as to which sales Section 6-108 applies. If these indirect sales occur as a series of related sales, then the entire series is treated as a single “bulk sale” and the term applies to the sales in the aggregate. Sales made directly by the seller to the buyer, described in subsection (1)(c)(ii), include sales conducted by an auctioneer or liquidator for its own account.
The elements of both direct and indirect sales are the same. Some of these elements have been borrowed from the 1987 Official Text of Article 6 and restated. For example, the term includes only sales that are not “in the ordinary course of the seller’s business“ (subsection (1)(m)). The sale must be of ”more than half of the seller’s inventory, as measured by value [subsection (1)(o)] on the date of the bulk-sale agreement [subsection (1)(h)].“ All inventory owned by the seller should be included in the calculation, regardless of where it is located. Inventory that is encumbered by a security interest or lien should be counted at its gross value, although the fact that it is encumbered may affect the applicability of this Article to the sale.
The determination whether a sale is a “bulk sale” and thus subject to this Article is not affected by whether other types of property are sold in connection with inventory. However, other provisions of this Article take account of the fact that other property may be sold in connection with inventory. For example, the availability of the exclusion in Section 6-103(3)(l) turns on the value of all the “assets,” not just the inventory. Similarly, the notice required by Section 6-105 must describe the “assets,” not just the inventory. And Section 6-107(4) measures the buyer’s maximum cumulative liability for noncompliance by the value of the inventory and equipment sold in the bulk sale.
In an effort to limit its coverage to sales posing the greatest risks to creditors, this Article adds an additional element to the definition of “bulk sale.” A sale is not a “bulk sale” unless the buyer, auctioneer, or liquidator has notice, or after a reasonable inquiry would have had notice, that the seller will not continue to operate the same or a similar kind of business after the sale. Whether a person has “notice” depends upon what the person knows and what the person would have known had the person conducted a reasonable inquiry. The issue of whether a transaction was a bulk sale is likely to be litigated only when the seller has absconded with the sale proceeds. This Article requires that the matters as to which the buyer, auctioneer, or liquidator had notice be determined only by reference to facts that the person knew or would have known at the date of the bulk-sale agreement. Reference to what actually occurred is inappropriate.
Whether an inquiry is “reasonable” depends on the facts and circumstances of each case. These facts and circumstances may include the identities of the buyer and seller and the type of assets being sold. In some cases, a reasonable inquiry may consist of no inquiry at all concerning the seller’s future.
Not every change in business operations poses a substantial enough risk to creditors to justify the costs of compliance with this Article. Thus, in determining whether post-sale business is of a kind that is “the same” or “similar” to the business conducted before the sale, a court should consider whether, viewed from the perspective of the creditors of the seller, the change poses extraordinary risks or whether the change is a normal risk that creditors can be assumed to take. In particular, when the post-bulk sale business differs from the pre-bulk sale business only in the size of the business conducted, the seller should be considered to be continuing in the same or a similar kind of business and the sale should not be considered a bulk sale.
The seller must “continue to operate” the same or a similar kind of business as owner. If the owner sells the business assets to a buyer and continues to manage the business as an employee of the buyer, the seller is not continuing to operate the business within the meaning of this Article.
(d) “Claim”. New. The first sentence derives from Bankruptcy Code s 101(4), 11 U.S.C. § 101(4). Changes, including the deletion of Section 101(4)(B), were made for stylistic purposes only.
(e) “Claimant”. New. This term defines the category of claim holders who are the primary beneficiaries of the duties that this Article imposes. Compare “Creditor” (subsection (1)(f)).
States that choose not to afford taxing authorities the benefits of this Article should adopt Alternative A. Adoption of Alternative B would afford the benefits of this Article to taxing authorities except with respect to those taxes as to which there has been compliance with another statute requiring that notice of the bulk sale be given to the taxing authority.
(f) “Creditor”. New. The term includes all holders of claims against the seller, even holders of claims arising from consumer transactions. Compare “Claimant” (subsection (1)(e)).
(g) “Date of the bulk sale”. New. The parties are able to control the date of the bulk sale in several ways. They can keep the proceeds of the sale in escrow, thereby delaying the date of payment, or they can specifically agree that the assets remain subject to the reach of the seller’s creditors, thereby delaying the date that the assets are transferred. By adjusting the time that the buyer acquires an unconditional right to possess tangible assets and the time the buyer acquires an unconditional right to use intangible assets, the parties may affect the substantive rights of creditors and thereby control the date the assets are transferred.
The connection between the time of transfer and the buyer’s rights under the bulk-sale agreement appears only for purposes of sales to which this Article applies. Subsection (1)(g) does not purport to affect the rights of creditors of a seller of property for other purposes or under other circumstances.
(h) “Date of the bulk-sale agreement”. New. Law outside this Article, including the provisions of Article 2, determines when an agreement for a bulk sale becomes enforceable between the buyer and the seller and when an auctioneer or liquidator is engaged.
(i) “Debt”. New. This subsection is borrowed from Bankruptcy Code Section 101(11).
(j) “Liquidator”. New. Although the definition of “liquidator” is quite broad, the term is used with respect to sales that are “conducted” by a liquidator on behalf of the seller. See subsection (1)(c)(i). Thus only those liquidators that “conduct” sales will be affected by this Article.
(k) “Net contract price”. New. Consideration is not “new consideration” to the extent that it consists of the partial or total satisfaction of an antecedent debt owed to the buyer by the seller. When the buyer buys assets along with property other than assets, the “net contract price” is that portion of the new consideration allocable to the assets.
(l) “Net proceeds”. New. The term appears, without definition, in Section 6-108 (1987 Official Text).
(m) “In the ordinary course of the seller’s business”. New.
(n) “United States”. New. This subsection derives from Section 9-103(3)(c).
(o) “Value”. New. The definition in Section 1-201(44) is not appropriate in the context of this Article.
(p) “Verified”. New.
Cross-References: 2. “Good faith”. This Article adopts the definition of “good faith” in Article 1 in all cases, even when the buyer is a merchant.
Cross-References: Point 1(a): Section 9-313.
Point 1(c): Sections 1-201 and 6-103.
Point 1(g): Article 2 generally.
Point 1(h): Section 2-201 and Article 2 generally.