§ 28:6-106. Schedule of distribution.

UNIFORM COMMERCIAL CODE COMMENT

Prior Uniform Statutory Provision

Purposes

1. A principal purpose of bulk sales legislation has been to impair the ability of a seller to liquidate inventory and abscond with the proceeds, leaving creditors unpaid. Toward this end, a significant minority of jurisdictions adopted optional Section 6-106 (1987 Official Text), which imposes upon a transferee in bulk the duty to apply the new consideration for the transfer to the debts of the transferor pro rata. When one or more of these debts is unliquidated, disputed, or allegedly secured, making a pro rata distribution may prove quite difficult and distribution of the consideration may be delayed considerably. In addition, since preferences generally are permitted under state law, the appropriateness of mandating a pro rata distribution is questionable. Accordingly, this Article does not require the buyer to apply the consideration to payment of the seller's debts.

This Article recognizes, however, that the seller's claimants have an interest in learning what will happen to the net contract price. If the contemplated distribution is objectionable, claimants should be able to avail themselves of whatever remedies state law or federal law allows to prevent the sale or tie up the price. On the other hand, if the price is to be distributed in a manner that is favorable to creditors, then advance knowledge of that fact will facilitate the sale by obviating any need for claimants to interfere with it.

To afford advance notice of the intended distribution of the contract price, Section 6-105(3) requires the buyer to include with the notice of the sale a copy of the "schedule of distribution"--i.e., of the agreement between the buyer and the seller on how the net contract price is to be distributed.

2. This Article does not require the net contract price to be applied in any particular fashion. Rather, the buyer and the seller may agree to whatever they wish. They must, however, disclose their agreement in ample time before the date of the bulk sale. See Section 6-105(5). The terms of the schedule of distribution in any given sale will be a function of the negotiations between buyer and seller as affected by any applicable non-Code law (e.g., corporate dissolution statutes) imposing distribution requirements in sales of the kind conducted.

In formulating the schedule, the parties may be well advised to consider the likely reaction of claimants to the schedule. For example, a schedule that contemplates the distribution of the entire net contract price to the seller or to a single creditor may prompt the filing of an involuntary bankruptcy petition. A schedule that contemplates paying the net contract price into an escrow established for the benefit of the seller's claimants may be more favorably received.

The seller may incur additional debt between the time the schedule is published and the time the net contract price is paid. The schedule may provide for payment of those debts from the net contract price.

3. Unless otherwise agreed, the buyer's only liability to creditors for failure to comply with his undertakings in the schedule of distribution is set forth in Section 6-107(1). A creditor named in the schedule may not rely on the creation or publication of the schedule as the basis for imposing liability against the buyer on any other theory, including that of estoppel or third-party beneficiary.

The seller may wish to undertake to pay some of the price to creditors. The seller may, but need not, include this undertaking in the schedule of distribution. The buyer is not responsible for performance of the seller's undertakings. Thus, if the seller makes an undertaking with respect to payment of the net contract price and fails to perform in accordance with it, the buyer faces no liability. However, certain persons in control of the seller may be liable under those circumstances. See Section 6-107(11).

4. In some cases, the precise amount of the net contract price may be unknown at the time that the schedule of distribution is formulated and notice of the bulk sale is given. In other cases, the net contract price may prove to be less than originally anticipated. Parties who fail to provide for these contingencies in the schedule of distribution and are unable to abide by the original schedule may be required to give a new notice with a new schedule.

The inability to abide by the schedule may be due to an external legal event, e.g., the suffering of a garnishment lien on the net contract price, the filing of a bankruptcy petition, or compliance with a corporate dissolution statute. If so, subsection (4), which applies to the extent that the net contract price is within the control of the buyer, may afford relief to the buyer, and subsection (6), which applies to the extent the net contract prices is within the control of the seller, may afford relief to a person in control of the seller. Although this Article imposes no obligation on sellers with respect to distribution of the net contract price (or otherwise), a seller may incur an obligation of this kind by agreement with the buyer. Accordingly, subsection (6) provides the means by which the seller as well as a person in control of the seller may be excused from any such obligation.

Subsections (4)(a) and (6)(a) permit the buyer or seller respectively to distribute the net contract price remaining available in accordance with any priorities for payment. A schedule need not afford priority to particular debts. If the schedule contains no priorities, then the debts are treated as if they are all of the same priority, and the buyer or seller, as the case may be, may distribute the price pro rata in partial satisfaction of the debts set forth in the schedule. Law other then this Article determines whether a court order or a proceeding for interpleader is available for purposes of subsections (4)(b), (4)(c), (6)(b), and (6)(c).

Cross-References

Point 1: Sections 6-104 and 6-105.

Point 2: Section 6-105.

Point 3: Sections 1-102 and 6-107.

Definitional Cross-References

"Buyer". Section 2-103.

"Contract". Section 1-201.

"Creditor". Section 1-201.

"Debt". Section 6-102.

"Net contract price". Section 6-102.

"Person". Section 1-201.

"Seller". Section 2-103.

"Written". Section 1-201.

Prior Codifications

1981 Ed., § 28:6-106.

Legislative History of Laws

For legislative history of D.C. Law 11-239, see Historical and Statutory Notes following § 28:6-101.