Legal Memorandum: Seller's Right to Reclaim Goods

Issue: Under Article 2 of the UCC, how are the rights of a seller of goods on credit affected by its customer’s filing of bankruptcy?

Area of Law: Bankruptcy & Creditors Rights, UCC & Secured Transactions
Keywords: Rights of a seller of goods on credit; Buyer in bankruptcy
Jurisdiction: Federal
Cited Cases: None
Cited Statutes: Article 2 of the UCC; Bankruptcy Code § 546(c), 11 U.S.C. § 546(c) (2008), 503(b)(9); UCC § 2-702
Date: 06/01/2009

The timing of the right to reclamation changes, however, once the buyer is in bankruptcy, which is obviously not an uncommon place for an insolvent buyer to end up.  That is, since the right to reclaim goods under § 2-702 does not exist in the first place unless the buyer is insolvent, the seller’s reclamation rights are often in conflict with the bankruptcy trustee, as well as with other creditors who are seeking to satisfy their debts out of the debtor’s assets.  See 4 James J. White & Robert S. Summers, Uniform Commercial Code § 32-10, ch. 32, The Bankruptcy Trustee vs. The Article 9 Claimant (5th ed. 2008).  The Bankruptcy Code recognizes the seller’s reclamation rights in cases like this, making the rights of the trustee subject to “any statutory or common-law right of a seller of goods that has sold goods to the debtor, in the ordinary course of such seller’s business, to reclaim such goods if the debtor has received such goods while insolvent.”  Bankruptcy Code § 546(c), 11 U.S.C. § 546(c) (2008).  Although the language of the Bankruptcy Code parallels that of the Uniform Commercial Code to a certain extent, there are significant and important distinctions as well.

Section 546(c) of the Bankruptcy Code provides that

the rights and powers of the trustee . . . are subject to the right of a seller of goods that has sold […]

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