As business lawyers in Orange County California, we believe it is important to keep our small business clients up to date with the latest California Codes that apply to their small business corporations.

Uniform Commercial Code Section 6102 provides a brief overview of some of the terms that a business owner may come across while reading the laws to making a Bulk Sales. While it may seem elementary to include a definition of the terms used by the State of California, it is extremely important to understand what the particular meaning of the word refers to in a legal context.

Uniform Commercial Code Section 6102

Here are the pertinent parts of the 2013 California Uniform Commercial Code § 6102:

§ 6102. Definitions

(a) In this division, unless the context otherwise requires:

(1) “Assets” means the inventory and equipment that is the subject of a bulk sale and any tangible and intangible personal property used or held for use primarily in, or arising from, the seller’s business and sold in connection with that inventory and equipment, but the term does not include any of the following:

(i) Fixtures (paragraph (41) of subdivision (a) of Section 9102) other than readily removable factory and office machines.

(ii) The lessee’s interest in a lease of real property.

(iii) Property to the extent it is generally exempt from creditor process under nonbankruptcy law.

(2) “Auctioneer” means a person whom the seller engages to direct, conduct, control, or be responsible for a sale by auction.

(3) “Bulk sale” means either of the following:

(i) 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.

(ii) In all other cases, 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.

(4) “Claim” means a right to payment from the seller, whether or not the right is reduced to judgment, liquidated, fixed, matured, disputed, secured, legal, or equitable. The term includes costs of collection and attorney’s fees only to the extent that the laws of this state permit the holder of the claim to recover them in an action against the obligor.

(5) “Claimant” means a person holding a claim incurred in the seller’s business other than any of the following:

(i) An unsecured and unmatured claim for employment compensation and benefits, including commissions and vacation, severance, and sick-leave pay.

(ii) A claim for injury to an individual or to property, or for breach of warranty, unless all of the following are satisfied:

(A) A right of action for the claim has accrued.

(B) The claim has been asserted against the seller.

(C) The seller knows the identity of the person asserting the claim and the basis upon which the person has asserted it.

(iii) A claim for taxes owing to a governmental unit, if both of the following are satisfied:

(A) A statute governing the enforcement of the claim permits or requires notice of the bulk sale to be given to the governmental unit in a manner other than by compliance with the requirements of this division.

(B) Notice is given in accordance with the statute.

(6) “Creditor” means a claimant or other person holding a claim.

(7)

(i) “Date of the bulk sale” means either of the following:

(A) If the sale is by auction or is conducted by a liquidator on the seller’s behalf, the date on which more than 10 percent of the net proceeds is paid to or for the benefit of the seller.

(B) In all other cases, the later of the date on which either of the following occurs:

(I) More than 10 percent of the net contract price is paid to or for the benefit of the seller.

(II) More than 10 percent of the assets, as measured by value, are transferred to the buyer.

(ii) For purposes of this subdivision the following shall apply:

(A) Delivery of a negotiable instrument (subdivision (1) of Section 3104) to or for the benefit of the seller in exchange for assets constitutes payment of the contract price pro tanto.

(B) To the extent that the contract price is deposited in an escrow, the contract price is paid to or for the benefit of the seller when the seller acquires the unconditional right to receive the deposit or when the deposit is delivered to the seller or for the benefit of the seller, whichever is earlier.

(C) An asset is transferred when a person holding an unsecured claim can no longer obtain through judicial proceedings rights to the asset that are superior to those of the buyer arising as a result of the bulk sale. A person holding an unsecured claim can obtain those superior rights to a tangible asset at least until the buyer has an unconditional right, under the bulk-sale agreement, to possess the asset, and a person holding an unsecured claim can obtain those superior rights to an intangible asset at least until the buyer has an unconditional right, under the bulk-sale agreement, to use the asset.

(8) “Date of the bulk-sale agreement” means either of the following:

(i) In the case of a sale by auction or conducted by a liquidator (subparagraph (i) of paragraph (3)), the date on which the seller engages the auctioneer or liquidator.

(ii) In all other cases, the date on which a bulk-sale agreement becomes enforceable between the buyer and the seller.

(9) “Debt” means liability on a claim.

(10) “Liquidator” means a person who is regularly engaged in the business of disposing of assets for businesses contemplating liquidation or dissolution.

(11) “Net contract price” means the new consideration the buyer is obligated to pay for the assets less each of the following:

(i) The amount of any proceeds of the sale of an asset, to the extent the proceeds are applied in partial or total satisfaction of a debt secured by the asset.

(ii) The amount of any debt to the extent it is secured by a security interest or lien that is enforceable against the asset before and after it has been sold to a buyer. If a debt is secured by an asset and other property of the seller, the amount of the debt secured by a security interest or lien that is enforceable against the asset is determined by multiplying the debt by a fraction, the numerator of which is the value of the new consideration for the asset on the date of the bulk sale and the denominator of which is the value of all property securing the debt on the date of the bulk sale.

(12) “Net proceeds” means the new consideration received for assets sold at a sale by auction or a sale conducted by a liquidator on the seller’s behalf less each of the following:

(i) Commissions and reasonable expenses of the sale.

(ii) The amount of any proceeds of the sale of an asset, to the extent the proceeds are applied in partial or total satisfaction of a debt secured by the asset.

(iii) The amount of any debt to the extent it is secured by a security interest or lien that is enforceable against the asset before and after it has been sold to a buyer. If a debt is secured by an asset and other property of the seller, the amount of the debt secured by a security interest or lien that is enforceable against the asset is determined by multiplying the debt by a fraction, the numerator of which is the value of the new consideration for the asset on the date of the bulk sale and the denominator of which is the value of all property securing the debt on the date of the bulk sale.

(13) A sale is “in the ordinary course of the seller’s business” if the sale comports with usual or customary practices in the kind of business in which the seller is engaged or with the seller’s own usual or customary practices.

(14) “United States” includes its territories and possessions and the Commonwealth of Puerto Rico.

(15) “Value” means fair market value.

(16) “Verified” means signed and sworn to or affirmed.

(b) The following definitions in other divisions apply to this division:

(1) “Buyer.” Paragraph (a) of subdivision (1) of Section 2103.

(2) “Equipment.” Paragraph (33) of subdivision (a) of Section 9102.

(3) “Inventory.” Paragraph (48) of subdivision (a) of Section 9102.

(4) “Sale.” Subdivision (1) of Section 2106.

(5) “Seller.” Paragraph (d) of subdivision (1) of Section 2103.

(c) In addition, Division 1 (commencing with Section 1101) contains general definitions and principles of construction and interpretation applicable throughout this division.

Though this stuff can be very tough reading for the average small business owner, if you have the resources and the knowledge then you can protect yourself.

If you would prefer  to speak with a business attorney working for specializing in small business matters who works for a business law firm in Orange County, California, and understands the California law regarding Bulk Sales, please feel free to call us at 714-364-4838.