In re Coupon Carriers Co.

• Citation: 77 BR 650
• Decision Date: 18 August 1987
• Docket Number: No. 87 C 4060.,87 C 4060.
• Parties: In re COUPON CARRIERS CO., an Illinois partnership, Debtor. COUPON CARRIERS CO., Appellant, v. J.L. MARSH MANUFACTURING CO., Appellee.
• Court: U.S. District Court — Northern District of Illinois

77 B.R. 650 (1987)

In re COUPON CARRIERS CO., an Illinois partnership, Debtor.

COUPON CARRIERS CO., Appellant, v. J.L. MARSH MANUFACTURING CO., Appellee.

No. 87 C 4060.

United States District Court, N.D. Illinois, E.D.

August 18, 1987.

Ellen Beverly, Arnold S. Graber, Katten, Muchin, Zavis, Pearl, Greenberger & Galler, Chicago, Ill., for Coupon Carriers.

Mitchell E. Jones, Epton, Mullin & Druth, Chicago, Ill., for J.L. Marsh Mfg. Co.

MEMORANDUM OPINION AND ORDER

WILLIAM T. HART, District Judge.

This case poses the question of whether the value of a reclamation right in goods for purposes of determining an administrative priority claim under Section 546(c) of Title 11 of the United States Code (the "Bankruptcy Code") is the market value of such goods when sold by the debtor with consent of the seller or the higher cost of such goods as fixed by the sales contract with the debtor.

The dispute arises from an adversary complaint for reclamation filed by J.L. Marsh Manufacturing Co. ("Marsh"). Coupon Carriers Co., the debtor, was in the business of retailing merchandise by means of advertising inserts placed in the billing envelopes of other companies. Coupon Carriers ordered 500 custom-made security lights for inventory from Marsh for the invoiced price of $23,497. The goods were delivered to Coupon Carriers on credit. Within ten days of the delivery of the security lights, Marsh learned that Coupon Carriers was experiencing financial difficulties. Marsh made a timely demand for return of the security lights pursuant to Section 2-702(2) of the Uniform Commercial Code, Ill.Rev.Stat. (1985), ch. 26, § 2-702(2) and Section 546(c) of the Bankruptcy Code.

Coupon Carriers and Marsh negotiated the terms of an agreed order executed by the parties and entered by the Bankruptcy Court which provides that Marsh was granted a lien in and to the security lights pursuant to and in accordance with Section 546(c)(2) of the Bankruptcy Code and authorized Coupon Carriers to sell the security lights in accordance with the Bankruptcy Court's order authorizing debtor to sell its inventory. That order required Coupon Carriers to segregate the proceeds of the sale of the security lights from the proceeds and sales of other inventory, and to file an accounting. The accounting listed the proceeds of sale of the security lights as $3,834.00. The Bankruptcy Court entered an order authorizing Coupon Carriers to compensate Marsh for its claim in the amount of $3,834.00.

Thereafter, Marsh presented an application for an administrative claim for the balance of the invoice price pursuant to the terms of Paragraph 4 of the agreed order. Paragraph 4 states in pertinent part:

In the event that the Accounting indicates that Marsh\'s claim will not be paid in full . . ., this Agreed Order shall be without prejudice to the right of Marsh to seek an Order from this Court granting Marsh a lien upon any property of the Debtor other than the security lights, and/or granting Marsh a priority claim of the kind specified in § 503(b) of the Bankruptcy Code, and this Order shall similarly be without prejudice to the right of Debtor or any other party in interest to contest Marsh\'s right to such relief. (emphasis added)

Over objection of the debtor the Bankruptcy Court awarded Marsh an administrative claim in the amount of $19,663 which represents the unrecovered balance due for the security lights.

The debtor argues that Marsh agreed to the sale; that there is no contention that the sale was not commercially reasonable; that the reclamation right attached only to the proceeds of the sale which represents the market value of the goods; and that the balance of the unpaid invoice is an unsecured contract claim against the estate which should not be given priority over other claims.

Bankruptcy courts are not usually required to determine the value of reclaimed goods. If a seller takes possession of the goods subject to its demand, neither the court nor any other party requires a calculation of value. If a seller recovers something less than all of the goods delivered, a court may be required to determine the value of the goods.

In Matter of Flagstaff Foodservice Corp., 14 B.R. 462 (Bankr.S.D.N.Y.1981), it was held that a seller of foods was only entitled to an administrative priority claim for goods in the possession of the debtor on the date of the demand for return, and the seller was not entitled to an administrative priority claim for the balance of its invoice for shipment. The court stated:

At first blush, these quoted words from legislative history suggest that a seller could be given his priority for the invoiced amount rather than for the value of the goods which he could actually recover. But this reading of these few words would require the court to ignore their context and to put at nought strong policy considerations which underline bankruptcy principles.

The context of which the above statement is a part recognizes the continuing vitality of U.C.C. Section 2-702 or common law rights given reclaiming sellers. All Section 546(c)(1) does is assess a somewhat different procedural mode by requiring a written demand for reclamation within 10 days of the receipt

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