In re Charter Co.
| Decision Date | 15 October 1985 |
| Docket Number | Adv. No. 84-226.,Bankruptcy No. 84-289-BK-J-GP to 84-332-BK-J-GP |
| Citation | 54 BR 91 |
| Parties | In re The CHARTER COMPANY, et al., Debtors. EIGHTY-EIGHT OIL COMPANY, Plaintiff, v. CHARTER CRUDE OIL COMPANY, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Robert J. Reid, Casper, Wyo., for plaintiff.
Lester M. Kirshenbaum, New York City, James H. Post, Karen S. Jennemann, Jacksonville, Fla., for defendant.
This adversary proceeding was commenced by Eighty-Eight Oil (Eighty-Eight) to recover possession of 3,986.6 barrels of crude oil pursuant to a reclamation demand or alternatively to be granted a priority under 11 U.S.C. § 546(c)(2)(A) in the amount of $111,624.80. A trial was held on August 9, 1985, and the parties have submitted post-trial briefs. The Court's factual findings are derived from a joint stipulation of fact entered into by the parties as well as from evidence adduced at trial.
Charter Crude Oil Company (CCOC) and Eighty-Eight entered into an agreement on September 7, 1983, with amendments thereto dated January 6, January 16, and February 22, 1984, which allowed CCOC to purchase West Texas Sour crude oil from Eighty-Eight on credit terms. Between the 11th and 17th of April, 1984, Eighty-Eight delivered 3,986.25 barrels of crude oil from their leases in Hockley and Cochran counties, Texas, directly into trucks operated by CCOC. These trucks transported 3,421.86 barrels of the crude oil to CCOC's Dawson storage tank and 546.39 barrels of the crude oil to CCOC's Sundown storage tank. The storage tanks are directly connected to the Texas-New Mexico Pipe Line. Automated pumps which operate twenty-four hours a day pumped all of the subject crude oil into the Pipeline by April 18, 1984.
It is customary for over 200,000 barrels of crude oil of like kind and grade to be pumped into the Pipeline every day by over 80 shippers. More than one million barrels of crude oil are housed in the Pipeline facility at one time. The Pipeline maintains a physical inventory which schedules each shipper's current level of crude oil in the Pipeline facility. Each shipper maintains its own operational inventory.
On April 20, 1984, Eighty-Eight sent a notice of reclamation to CCOC. It is undisputed that this demand notice was timely. As of the day of demand, the evidence clearly shows that the subject crude oil was physically located in either the storage tanks or the Pipeline but had been commingled with other crude oil of like kind and grade. Eighty-Eight knew that the crude oil would be commingled with other similar crude oil as this was the customary practice in the oil industry.
Charter Company and various of its subsidiaries including CCOC filed for protection under Chapter 11 of the Bankruptcy Code on April 16, 1984. To the extent that state law governs, Wyoming and Texas law is applicable.
Section 546 of the Bankruptcy Code and § 2-702 of the Uniform Commercial Code defines the rights of reclaiming creditors. Title 11 U.S.C. § 546 conditions the right to reclamation upon two findings: (1) that the debtor was insolvent, and (2) that a written demand for reclamation was made within ten days after the debtor took receipt of the subject goods. Implicit within § 546 is the additional requirement that the goods be identifiable and in the possession of the debtor on the day of demand. See In re Landy Beef Co., Inc., 30 B.R. 19 (Bkrtcy, D.Mass.1983); In re Flagstaff Foodservice Corp., 14 B.R. 462, 32 U.C.C.Rep. 1479 (Bkrtcy, S.D.N.Y.1981). Section 2-702(b) of the Uniform Commercial Code as adopted in Wyoming and Texas parallels the requirements of § 546 of the Bankruptcy Code except that under UCC § 2-702(b) demand can be either oral or written. W.S. XX-XX-XXX; Texas Uniform Commercial Code § 2.702(b).
By agreement of the parties, the issue of the alleged insolvency of CCOC is reserved for separate trial. The sole issue before the Court at this time is whether Eighty-Eight's demand of reclamation was made while the subject crude oil was identifiable and in the possession of CCOC.
Since the "goods" involved in this proceeding are fungible, the Court must first address whether fungible goods can be reclaimed under 11 U.S.C. § 546 and UCC § 2-702. Although both 11 U.S.C. § 546 and UCC § 2-702 concern "goods" neither section defines the meaning or the scope of the word. Only in the Uniform Commercial Code is the word "goods" defined; therefore, both 11 U.S.C. § 546 and UCC § 2-702 will be interpreted in light of this one definition.
"Goods" means "all things which are movable at the time of identification to the contract" and includes "an undivided share in an identifiable bulk of fungible goods." W.S. XX-XX-XXX(a) and (d); Texas Uniform Commercial Code § 2.105(a) and (d). The crude oil involved in the instant proceeding clearly is an undivided share of an identifiable bulk of fungible goods which were within the control of Eighty-Eight. These barrels of crude oil or "goods" were the object of a contract and were delivered to CCOC in accordance with that contract. As Congress did not limit the definition of "goods" in either 11 U.S.C. § 546 or UCC § 2-702, it is apparent and we hold that fungible crude oil can be the subject of reclamation. See In re Wathen's Elevator's Inc., 32 B.R. 912 (Bkrtcy, W.D.Ky. 1983); In re Western Farmers Ass'n, 6 B.R....
To continue reading
Request your trial