REMEDIES OF THE CREDITOR
UNDER ART! CLE 6
OF THE UNIFORM COMMERCIAL CODE
RICK
J. W.
GRAHAM
A "bulk t rFlYlIi1':e 1'" 1~ FIn" tr"nsfer in bulk And not in the
' ordin"ry course of the · transferors business of A mAjor part of
. the mAterials, supplies, "merchandise or other inventory. Thus,
a bulk transferrequil'esthe ·co-e,..istence of two elements. l
First, thetrrmsfermulit constitute a mejor pert of the materiels,
sUP"Pliee, merchl!lndise or ' other inventory of the business.
Second, the transfer .ls : one not . in the ordinary course of business.
If either of these two elements is missing ' the transfer is not
"bulk tr"nsfer. 2
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Just whAt nu",ntit y is me"nt by A "me.10r" pert of the inventory
, is not entirely cle"r. One commentRtor , has suggested that the
word "m" .1 0r" WIlS .l.n tended to me"n the seme AS ni".10rity.3 If
this is true, therewoul~ ' be .. hUlk trensfer enytime more thAn
1J'1% of the' inventory is trensferred. The courts heve held thAt
A bulk tr"nsfer c"n be much less then 5'1% of the inventory.
"It should be something more th.m that (ten per ,cent) or nearer
!l h"if of the ' stock to come under condemnation of the statute.,,4
The cases present no s.e ttlement as to the , amount necessary to be
sold so that the sale is a bulk sale, a se1e of more than helf
.wou1d probably be held within the statute, less than one-fourth
probably not. To give effect to the legislative' intent and
purpose, a sele large enough to pre .1 udice the rights of a cradi tcr
should be held to be I', bulk sale. To avoid the risk of subsequent
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, litfgation Article 6 ' should be complied with whenever anything
more thAn 13 smll.1 1 pArt of inventory is being trllnsferred other
thlln in the ordinAry course of business. 5
Once it hes been · decided th"t ' the trAnsfer ie a tra,nsfer in
bulk th e Uniform Gomme.r ci"l God" reelUires thAt the trensferee
tAke certAin steps in order. to insure that he receives good title.
Good title is imnort"nt 'to insure . thetthe trAnsferee is not
forced to. "pAY twice for the goods. If· the' requirements of the
Gode FIre not met he PAYS the tr"nsfero~ end also .lseccounteble
to the creditors of the trFlnsferor.S~et1or: 6.1"4 states thAt a
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bulk transfer is ineff,ective' unless :';
(1) The trllnsfere.erequfres th~~r:!i~,BfeI'~r to pl'epare. a
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Ust of his exi st!Ag:, ~f~~firo'r'~ ;,~. ",~d ::
The p~rties prepare ~ schedule of the propert y
trensferred sufficient to identif" it: end
: (3)
The trl'nsferee preserves the list 'Jnd schedule for
siy months neyt following the transfer'end permits inspection of
(2)
either or both e.nd cop" ing therefrom e.t all reasonab1.e hours
by eny creditors of the transferor, or files the list end schedule
in the office of the county clerk of the county in which the
transferor had itsprincipa.1 p1ece of business in that state.
The list of creditors must be signed and sworn to b y the
transferor and their names and business addresses must be sent out
. a.1 0ng with the e.m ounts of the debts if known. Persons who
' assert claims which ere disputed must be listed. The transferoln
.i ,sresponsib1e for the completeness and accurec y of the list.
The transfer is not rendered ine1'1'ective by errors or omissions
in the list unless the trensferp,e is shown to have had knowledge
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of the error or omission.
ThE! bulk se1e is ine1'f e ctive unless notice of the tra.nsfer
is given to the creditors et 1e_st ten days be1'ore he takes
possession 01' the goods or .pey s 1'or them, whichever happens 1'irst. 7
This notice must then be delivered personally or sent by registered
mail to ell persons on the list prepared b y the transferor and
to !i.1 1 other persons known by the trans1'eree to e.ssert a c1aim. 8
The notice. must contain:
. (1)
A statement thllt a bulk trans1'er is about to be made;
and
(2)
The names an~ ' business addresses 01' the trans1'eror .
and trans1'eree, and el1 ' ?'l,lSineas nemes .and addresses used b y the
trans1'eror
within three ., ye'ars
lsst..pllstso
far ss known to the
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trsns1'eree; and
(3) Wheth~r . or not , I'll . the ,debts '''of the trsns1'eror
a.re to be pAid in '1'u11 ' ss the'y ·1'A11 due ·/lS ' a result of the transaction, And i1' so, th~addr.
ess·· to. which ' creditors should send
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their bil1s. .
11' the debts . e.r enot .·: to be . pa1d <~.ri. 1'u1i · as they mstureor
11' the trans1'eree ' i$ ' ii( aPl,lbt on: th.llt . point . then the notice shall
state 1'urther:
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(1) The locRtion end general description of the property
to be transferred And the estimated total of the transferor's
debts; and
(2) The "ddress where the schedule of property And li.st
of creditors mAY ,be inspected: "nd
. ( 3) Whether the tr~nef'er ie to plIY e.,.,ieting debte lind if'
so the' ",mount of such debts "nd to whom' owing; Bnd
(h) Whethel' the trensfer is for new consideration and,
if .so, the "mount, time, and pl"ce of ,p"yment; and
(5) If for new considerAtion the time and plece where
creditors of the tr"nsferor ere to file ' their cleim.ll)
An important consideration concerns the rights of the creditors
,when these requirements a.re not met. The Gode sta.tes that
as to such creditors the transfer is "ineffective".ll This
means that the creditor can ignore the transfer and treat the
assets as if theT ,were still owned bv the transferor. The creditor
or .creditors may levy on the goods AS still belonging to the
'.tr"nsferor, or a. receiver representing them CRn take the goods
. b y whAtever procedure the loc"l lAW provides. 12
Another burden upon the trllnsferee is found in Section
6.106. This section, edopted in Te7as, imposes a duty on the
tr"nsferee "'ho p"Ys '" ne"Y consider",tion to Bssure that the
considera.tion peid is "pplied to P"y the debts either shown on
the list provided b" the tra.nsferoI' ''or filed in writing RS stAted
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in the notice. ' The duty m"y be enforced by eny creditor for
the benefit of all creditors. When ree.d by itself, Section
6.106 is unclear BS to precisely what remedies, if eny,are intended
to be conferred upon 'the creditor, wherithe duty prescribed in
that section has n?t been performed. ,An , e~amination of a few
remedies adds clarity.
'UP:RNISHMENr
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Garnishment is
pr~,cess , wheI,:eby the property, money, or
credits of one ~e~.s~,l); 'in tH~ : P'Osa~~aionOf ,'or o~ing b" , .another,
. designRted 8:. garnishee'," '; re .<(!pp~ie,d to the payment of the debt
of th~ , debto~ by means of proper proce~s issued pgeinet the
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gernishee.
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The
proceeding
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'. is" .t o, 'RS:lerts:!.n fA cta on ',rhieh t .o
b lls e li~bilit y , ,i f "n"; , , of . ~he gRrnishee, or to ascertein whether
he hes effects in his 'hAnd"s, ';or knows ~f anyone who hes effects
belonging to debtor , thAt m.w be rFlBohed "nd sub ,1eoted to payment
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of debt 01~ed to g .. rnishbr.
The ma.1ority rule reoognized
th"t g Rrnishment is ~ proper remedy agRinst the transferee by
oreditors of the tr"nsferor who sells propert v in violation of
bulk transfer legislRtion.
Use of the garnishment prooess was e7plained in the TeyaS
case of Owosso Ca.rriaf)e & Sleigh Co; v. MoIntosh & WRrren. 16
In this case S.reet was engaged in the implement, vehicle and
hardware business in the town of Brownwood. He was indebted to
the Owosso Carriage & Sleigh Company for vehicles sold to him.
On the tenth day of August, 1909, he sold his stock of goods
in bulk, to McIntosh &·Warren. In milking the purchase of the
merchandise, McIntosh & Warren did not ' at least ten deys prior,
or Ilt Rnytime prior, make innuiry of Sweet as to the nemes and
plAces of residence, or pV,ce of business of eech end 13.11 creditors
of Sweet, end the amount owing to eech creditor by him, or
obtain from him" written "nswer in eny form to these in ~ uiries:
nor did the y ten dp y s prior to the purchase, or "t Ilny other time
bef'ore the sele, notify epch of the creditors of' SVleet of the
propos~d s"le and trensfer:
'The writ of' gllrnishment we.s served upon the proceeds of the
sele to McIntosh & WRrren. The complaint e.lleged thet there was
no oompli ance with the bulk seles statute of 1909 due to the
, le.ok of notice to the creditors (Owosso Carriage & Sleigh company).l?
. The oourt' s deoision, wa.sthe.t McIntosh & VI arren he.d not the power
nor the right to aoquire title to the property as against the
creditors. The statute in cases of this kind impounds and holds
the merchandise
for the
benefit of' creditors
of the seller.
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. Since the attempted purche.se was void thet! tIe remBined in
Sweet. When McIntosh & Werren later resold , the . merohandise the
proceedswere · sub.1eot ' to gernishment.
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RECEIVERSHIP
A receiver is R disinterested person
~ppointed
by the court
to receive And preserve property or funds in litigAtion pendente
lite. lS A receiv,ership is defined AS a proceeding or remedy under
which '" court t"kes custody And control of property through a
receiver.
In a bulk
feree AS receiver.
sal~s
cpse the court will appoint the trans-
The trAnsferee/receiver is then required to
divulge the nature And value of the property received, the
disposition mAde of the property And the amount of proceeds
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derived from the disposition.
With this informAtion the creditors mAY file their clAims And will shAre in the proceeds on e
pro rRt" bAsis.
If the property is still in the transferee's
possession it CAn be sold by order of the court. All property
so disposed of must be Rccounted for bv the transferee. The
trAnsferee mAV be held personplly liAble for "nY property sold,
consumed, or comingled. The recourse of creditors to this
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personAl liAbility is on A pro rAtp bAsis.
In the TeYRS cpse of HAV v. Behrens Drug Co. the Austin
Court of Civil AppeAls ello1>'ed the remedy of receivership. 21
HAY, engAged in business AS a reteil druggist, became indebted
to the Behrens Drug CompAny, for certAin merchandise.
25, 1918, the stock of merchAndise was sold to Reddell.
On JAnuary
On the
tenth day of Pebruary, 1918, Reddell sold the merchandise to
Bletch.
Neither Reddell nor Bletch demanded or received from
their respective trAnsferor A written list of nAmes and Addresses
of th e creditors of the transferor, with the Amount of indebtedness due And owing to each. Also neither, at leAst ten days
before tAkin~ possession of such merchAndise, notified personally
or bv re~istered mAi~ Anv of the ' creditors of the respective
trAnsferor.
The court decided
th~t
the trllnsfers ,,'ere null
And void under the bulk SAles lAW beCAuse of nonconformity with
the 11''"'.
The court held thpt the effect of the bulk sales sta-
tute .'AS to constitute Il trAnsferee, not conforming to the
reouirements of the stAtute, a receiver or tpustee for the creditors, and accountBble to, them for merchandise coming into thetr
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possession. . Any~ other "rule would , deprive
the
creditors of the
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benefit of Astjjtutethet w!!splAinly pel!sed for their e,rpress
benefit.
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PEHSONAL ~IABr'LIT':l
Section 6.lt'l6of the Code burdens the transferee with the
Addition"l duty to !lppljthe proceeds of the bulk ule to the
debts of the tr"nsferor. 22 When read by itself the section is
uncleAr as to precisely wh9t remedies, if any, Rre intended to
be conferred upon the . creditor if this duty; is not performed.
Since a duty in the tra.nsferee without a correlative right in
: the creditor to enforce that duty would be worthless, it is ree. sonable . to assume th9t the creditor could obtAin a personal
.1udgment against the trAnsferee. Cases allowing personal liability
hAve done so to insure that the unfortunate creditor is not
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. robbed of his remedv .
On the othe; .hAnd, sOlite writers ~ontend th!lt the trAnsferee
should not be held personplly liAble. The rAtionAle behind this
'. stems from the hArshness of the penalty. It is argued that
the remed y imposes an unjust h;'rdship on the noncomplying transfereesince most litig!ltion in this areB is not the result of
en intent to defraud, but of ighor!lnceof the law. 24 The thing
th"t 1.Ti ters of this contention do not consider is that one of
two parties, either the innocent creditor or the ignorant transferee,
must be held lie.ble. The policy considerations behind the
enactment of Article 6 of the Code w~s not to protect those
ignor,ant of' the law, but instead to protect the innocent creditor;
thus ,personAl liebili ty .s hould be allowed.
RIGHT TO FOLLOW THE GOO.DS TO · A SUBPURCHASER
Section 6.11" gives the. oredi tor the . right to follow the
goods past the trAnsferee to II SUbPurch~ser~2S However, i f
the . subpurchllser g1.ves ,v,,1'1.e/6, ,iIi gOodfdth'.}7 Srld is without
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notice
. then .the . remedY"is i not Bllowed Bnd the subpurchBser
takes the goodsfre'e. ~r" th~credit'
or's claims. 29 Unless the second
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trAnsfer is al'so B. bulk tr!l:nsfer sub.1ect to Article 6, the only
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remedy left to the --cred.1 t.o r is the personsllisbility .of the
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INJUNCTION
The purpose of in,1u!,\cti ve relief is to hRlt wrongful 'lcts
thre Atened or th"t .,re .in ., course of Accomplishment rAther than
to g rl'ltlt relief Ag " inst' ·P.,st Actionable wrongs. 31 To get an
. in.1unction Rp,,,,inst the impendinp, tr"nsfer, the creditor is generally
renuired to mAke out " pr1mA fecie csse thAt he will suffer
i rrepRreble harm if thein .1 un:ction .is not gr!lnted. 32 One
eYample of irrep"rable hArm is .where the transferee is peying
far les's for ' the goods · th"n the y a.re worth. If the transferee
is insolvent then the creditor will lose any 'l egel remedy eycept
, personal liebility on an insolvent individueL . When it is
ev1dent in advance tha.t the remedy evsile.ble will be useless
. then the creditor . must
hsve additional mes.ns to protect himself •
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In
a situation df this .type sn injunction would not only prevent
a wrongful act, but eliminate the need for. any remedy at alL
SPECIFIC PERFORMANCE
Specific performence is the pctusl performAnce of R contrAct
b y the partv bound to perform it. It is a remedy by which e
pert y viol"ting his primery obligAtion ' is compelled to do the
very "cts "hich his duty I!Ind the other party's primary right
renu1re of h1m • . A decree of spec1fic performance is e means of
compelling .. perty to do thllt which he . ought to hAve done without
the coe rc1v e po ~er of the court. 33
Article 6 follows the pre-code bulk se.les statutes in requir1ng
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. advance not1ce to. the. seller's cred1 tors of the impend1ng sale.
Therefore, where option'll 8 6.1'16 1s en~cted (e.g., Teyas), the
transferee haathe ob11gat1~n to 1naure that the money pa.1 d for
the gooda 1s ' 1n . fact · applied .topaY the seller' a debts. 34
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,\-l1th this obligation ' i? the Code the ,court could grant the speC1f16
PE!rformanceremedy
' to ' the 'c reditors. I f the transferee
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alreadY hilS remitted ~he ' proceeds to the transferor this would
hAve , the same effei:~t" :~s 'persodAl. Ihbility.35
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REMEDIES ,AVAILABLE FOR THE
SECURED PARTY
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Another rem e dy m,,'T be AV!lilllble ,if the creditor has a purch !) se mone y securi't y intere,st.3~ , Section 9.3'n (b) states
thAt l:fl" a, secured party ' files -' his '..financing stet~ment within
ten day s ' after the colliiter ",l "; comes into the possession of the '
debtor he takes priori t y over' the rights .ofthetransferee in
bulk Which , arises between the time the security interestatt aches
and the time of filing. J7 ,If the ~ecurity interest is not per ..
fected b y filing within the ten de y grace period the priority
is lost. Ane7ample
. Assume the following:
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On Janu"rv lst,A enters into a security Ilgreement
with B. A is the de,btor, B the secured party. B hAS a purchase
mone y security ihter e st~
(2) ' On JllnuAry 5th,Areceives possession of the merchandis'e;
(3) On JAnu"ry11th, A sells in bulk to C;
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On JAnuilry 12th, B files, thereby perfecting his
s e curity i n terest. '
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In our bulk ' sal e A would be th e tr"nsfe ror, B th e creditor,
and C the trRnsferee. In the eYample, B would be protected by
s e ction 9.301(b) , because he filed within ten d ays of A's taking
possession of the me,rchandise. If B waited until the 16th of
January , to perfect his interest, thisrem~<iy, would be lost.
CONCLUSION "
The officie.l commentilto U.C,C.B j 6;101 · stete that the central
purpose ' 'o f Ar:ticle 6 is . to ' prevent the form of commercial fr"ud
11herein e merchAnt, o11ing debts, sells out his stock in trade
to anyone for "nv price, ' pockets the ,proceeds, and disappears
leAving his ~red:1t'orsunpeid. The sam~ comments acknowledge
the contr:l,bution of· Article .6 towal'd", the prevention of the type
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of fraud wl:J,ere the merchant, owing "debts, sells out his stock in
_trade to a friend for less th,an, it is 11orth, pays his creditors
less thBn he owes them,/3.TId hopes to come back into the business
· through the back door sometime in the future.
' In order to promote the purpose of Article 6, the creditor
must h!lve remedies sufficient to mske him whole.- The remedies '
such AS, garnishment, receivership, personal liAbiH,ty, right
to holdsubpurchAser l~able,in:lunction, specific, performance,
and eecuI'edpartv seemto ' adeouAtel v arm the creditor with the
me !lns to protect himself·. "' Thus,ther~'
:,,'Bre . sufficient _remedies
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to promote the aims of
Article" .6. .
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H 6.11)2.
Bus..... &Comm. Code Ann.
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W. He,w kland, ·SHes · end<Bulk Sales 166(1958).
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4.
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Armfield Co. v.Se,leeb", 178 N.C. 298, 11")I) '·S.E. 611 (1919).
S . Since seiitlon 6. ,11) 3 e,.cepts certain types of trensfers
this would depend ' on the nilture' of the business. Trensfers not
subject to the article .1nc:1tl,de,.. transfers made to give security
for the performBnce 'of ' IHi" obligation, assignment for the benefit
of creditors, tre,n sfers in" realization 'of liens; and sales b'T
.
personal represent'li'tive,s, , recei vers" trustees in bankrupt'cy, "
end public officers imder:'j'judiciel
p'r ocess.44Te,. .. L. Rev.
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661 (1966) •
6.
Tey. ' Bus. ,& Comm. ,Code Ann. ~ · 6.lI")4(c).
7.
Tey.
8.
Tey.
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Comm. ' Code Ann. s 6.11")5.
Bus. & ,--- - -Bus. &,-Comm. Code Ann. K 6.11)7(c). ,
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Tex. Bus. & Comm. Code ~.
~
-- - & Comm. Code ~.
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II).
Tex,. Bus.
11.
Tey. Bus. & Comm Code Ann.
12.
Tel'. Bus.
-- & ~. CodA Ann.
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6.11)7(e).
K 6.11)7(b).
K 6.11")5.
B6.11")4.
13. The effecti'Vedete for the oper!!'tion of the Code in
Tel'RS' is midnight , June 3"', 1966. Onevllrilltionfrom the 1962 '
' official teyt in TeYas is the de1etlonof , optlonl'l1 subsection
(t,l, from Article 6.106. All ,other chonges ,B,r e ' lnai.gnificent '
end be vond the scope of this pllper,'
, ,
14. ' Beggs v. Fire, 13"'TeY .46, 1~6 .S .W. aa; lo'33)~ ((11937)\<
McKesson & Robbins, Inc., v; Southwestern Drug Corp.,
~iv,. Apn • ..;, D"llas), ', revI d 'on otl;er grounds,
141 Tey. 284, l72S,W";2a t1 48~'(19lJ.2H'h,
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165 S.W. 2d 758, ,eTe,..
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16. ' 1'17 Tey. 3"17, 179 S.W. 257 (191"): accord, SAckin v.
Korsting, 11"15 Art z. t~64, 466 P. 2d 758 (197'"'); Greenfield v.
VAlle y Forge Center Co., 229 So.2d 875 (FlA. 1969); AmericAn
'ETPress Company v. BomF.lrShoe Company , 125 Ga. App. 408, 187
S .E. 2d 922 (1972); Harrison v. Ha.rri son, 417 s. W. 2d 39 (mo.
1 967); Cantwell v. \~ilson, 241 S.W.2d 366 (Te7. Civ. App. Austin 1951, no wrtt); Gerlach MerCAntile Co. v. Hughes BozarthAnderson Co., 189 s. W.784 .(Tey. C1 v. App. - Amarillo 1916,
writ ref' d).
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17. The TeYas Bulk Sales Sta.tute of 191"19 does not differ
substAntiF.llly in its notice provision from Article 6 of the C.ode.
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18 • . Lloy ds of TeYas v. Bobbitt, 55 S.W.2d 803 (Te7. Comm'n
App. 1932, opinion Adopted).
19.
6~.!!.
i!.. ill7
(1952).
20. The officilll comments to ~ 6.1'14 support this stF.ltement
providing th~t wherf> there hAS been non-compli~nce with the articil
. an:r creditor or creditors mAY therefore disregard the transfer
andlFlvy on the g oods AS still belonging to the transferork
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; or a receiver representing them CAn tilke the goods by whatever
. procedure the local la.w provides • . The law governing receivers
in Teyas is found in Tey. Rev. Civ. ~. Ann. art. 2293 (1971).
21. 214 S.W. 94'1 (Te7. Civ. App. - Austin 1919, no. writ); '
accord, Leachman v. Cobb Development Co., 226 Ga. 103, 172 S.E.
2d688 (197n); Nichols v.Acers Co., 415 S.W.2d 683 (Tex. Ch.
App. - Austin 1967, sritref'd n.r.e.).
22 • . Annot .• , 47 A.L.R;3d
· lll4(1973).
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23. Darbv V. Ewing's HOl'lle Furnishings, ' 278 F. Supp.917
(D. Okla. 1967); B & H Auto Supplv , Inc., v. Andrews, 417 S.W.
2d 341 (Tey. Clv. Appi ' -DFlllas196T, no writ): McW",de Tube Co.
v, Newnam, 258 S.W. 56'1·(Tey. Civ.·. App. :.. San Antonio 1924,
w:r'i t dism' d J •
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2),. Miller, Th~Effectof · the Bulk 'Sales Article on E7isting
Commerchl Practices,: 16 L!lw ,& ConteFP' Prob. 267 (1951).
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2 6 . Section ,;:1_201'1: (44)(c)', defines "value" as the acquisition of ri ghts in 'return forailY 'conSideration sufficient to
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support a simple contract. '.
27. Section 1--201(19) ' defines" good faith'" a.S honesty in
fact in the conductor .transaction · concerned • .
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28. Section 1-2'H(26) st"tes th~t a person receives a notice
or notificatIon when (a) it comes to his attention; ' or (b) it is
duly delivered at the pIece of business , through which the contract
WBS made or Bt any other pIece held out by him as ' the place for
receipt, of , such communications.
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' 29.
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Cod ~ Artn~ "' B
-Te y . ' -Bus. , &Comni;
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3'1. The le.ckof, 11 tig~tion' in this !'Ire!l is prob"bly due to
the cIeri t y of ',theremed v . ; "
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31. Donna Independent, School Dist.v. Sanders, 57 "S.W.2d
857 (Tex. 0 iv. App. - S!'In Antonio 1933~ no writ); Wright v.
Wri ght, 278 S.W. 925 (Te y . · 0iv. App. - El Paso 1925, no writ),
32. ' crewfo~~v;N~~ah" ,' II' Mis~.2d 322, 174 N. Y~S.2d 667 '
(Sup. dt.1958 l. ' ", .
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33;
Municipai'G ~ ~ ' 0'o'>~ . : ;LdrieStar Gas 00;249 S.W. 684
.
Tex. Bus. &' Gomm ; "Code Ann. H 6.1(')6.
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(Tex.Civ. App. , - Da llas
1924, no writ).
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34. '
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35. The proceeds r emitted to the transferor are usuall y
gone. ThUS, the specific performance granted by the court would
have , to be s e ttl e d ,b y t he tr ", nsf e ree out of his own funds.
3(, .
is
H 9.1'1 7:
Tey. Bu's. & Comm. Cod ", Ann.
--'- -securftv interest"
e security interest
"purchl'se-mone"
to the eytent that it is
(1) t",ken or ret~in e d b y the 'seller of the coll",terRl to
secure ,,11 or p"rt of its price: or ' ,
'
( 2) taken b y !'I person who b v 'm"king advances or incurring
"
An obligAtion g ives value to en!!ble ,the debtor to !lcquire rights
in or the use of, collateral if such vll.1ue is in' fact so used.
!l
37.;
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Tey. Bus., & , Comm. ~~., J9'3C)1(b) "
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