District Of Columbia § 28:6-101 - Short title.

§ 28:6-101. Short title.

28:6-101

Repealed.

Annotations

In addition to making these and other major substantive changes, revised Article 6 resolves the ambiguities that three decades of law practice, judicial construction, and scholarly inquiry have disclosed.

—a buyer’s noncompliance does not render the sale ineffective or otherwise affect the buyer’s title to the goods; rather, the liability of a noncomplying buyer is for damages caused by the noncompliance ( Sections 6-107(1) and 6-107(8)).

—a buyer who makes a good faith effort to comply with the requirements of this Article or to exclude the sale from the application of this Article, or who acts on the good faith belief that this Article does not apply to the sale, is not liable for noncompliance ( Section 6-107(3)).

—the notice must include a copy of a “schedule of distribution,” which sets forth how the net contract price is to be distributed ( Sections 6-105(3) and 6-106(1)).

—the notice period is increased from 10 days to 45 days ( Section 6-105(5)), and the statute of limitations is extended from six months to one year ( Section 6-110).

—when the seller if indebted to a large number of persons, the buyer need neither obtain a list of those persons nor send individual notices to each person but instead may give notice by filing ( Sections 6-105(2) and 6-104(2)).

—the choice-of-law provision ( Sections 6-103(1)(b) and 6-103(2)) limits the applicable law to that of one jurisdiction.

—this Article does not apply to sales in which the value of the property otherwise available to creditors is less than $10,000 or those in which the value of the property is greater than $25,000,000 ( Section 6-103(3)(l)).

—this Article applies only when the buyer has notice, or after 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 ( Section 6-102(1)(c)).

As a response to these inadequacies and others, the National Conference of Commissioners on Uniform State Laws has completely revised Article 6. This revision is designed to reduce the burdens and risks imposed upon good-faith buyers of business assets while increasing the protection afforded to creditors. Among the major changes it makes are the following:

In some cases Article 6 may have the unintended effect of injuring, rather than aiding, creditors of the transferor. Those transferees who recognize the burdens and risks that Article 6 imposes upon them sometimes agree to purchase only at a reduced price. Others refuse to purchase at all, leaving the creditors to realize only the liquidation value, rather than the going concern value, of the business goods.

The benefits that compliance affords to creditors do not justify the substantial burdens and risks that the Article imposes upon good faith purchasers of business assets. The Article requires that notice be sent only ten days before the transferee takes possession of the goods or pays for them, whichever happens first. Given the delay between sending the notice and its receipt, creditors have scant opportunity to avail themselves of a judicial or nonjudicial remedy before the transfer has been consummated.

Article 6 imposes strict liability for noncompliance. Failure to comply with the provisions of the Article renders the transfer ineffective, even when the transferor has attempted compliance in good faith, and even when no creditor has been injured by the noncompliance. The potential liability for minor noncompliance may be high. If the transferor should enter bankruptcy before the expiration of the limitation period, Bankruptcy Code §§ 544(b), 550(a), 11 U.S.C. §§ 544(b), 550(a), may enable the transferor’s bankruptcy trustee to set aside the entire transaction and recover from the noncomplying transferee all the goods transferred or their value. The trustee has this power even though the noncompliance was with respect to only a single creditor holding a small claim.

Compliance with the provisions of Article 6 can be burdensome, particularly when the transferor has a large number of creditors. When the transferor is actively engaged in business at a number of locations, assembling a current list of creditors may not be possible. Mailing a notice to each creditor may prove costly. When the goods that are the subject of the transfer are located in several jurisdictions, the transferor may be obligated to comply with Article 6 as enacted in each jurisdiction. The widespread enactment of nonuniform amendments makes compliance with Article 6 in multiple-state transactions problematic. Moreover, the Article requires compliance even when there is no reason to believe that the transferor is conducting a fraudulent transfer, e.g., when the transferor is scaling down the business but remaining available to creditors.

Article 6 (1987 Official Text) imposes upon transferees in bulk several duties toward creditors of the transferor. These duties include the duty to notify the creditors of the impending bulk transfer and, in those jurisdictions that have adopted optional Section 6-106, the duty to assure that the new consideration for the transfer is applied to pay debts of the transferor.

Rationale for Revision of the Article:

Purpose of Change: Transfers other than sales, e.g., grants of security interests, do not present risks to creditors necessitating advance notice in accordance with the provisions of this Article. The Uniform Fraudulent Transfer Act affords a remedy to creditors who are injured by donative transfers.

Change: This Article applies only to sales, as defined in Section 2-103(1), and not to other transfers.

Prior Uniform Statutory Provision:Section 6-101 (1987 Official Text).