In re Maloney Enterprises, Inc.
| Citation | 37 BR 290 |
| Decision Date | 20 November 1983 |
| Docket Number | Adv. No. 82-0572.,Bankruptcy No. 82-01007 |
| Parties | In re MALONEY ENTERPRISES, INC., Debtor. AVENTURA SPORTSWEAR, LTD., Plaintiff, v. MALONEY ENTERPRISES, INC., et al., Defendants. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Kentucky |
Grover A. Carrington, Mount Sterling, Ky., for Aventura Sportswear, Limited.
John R. Dilenschneider, Jack R. Pigman, Columbus, Ohio, Jerry D. Truitt, Lexington, Ky., for Maloney Enterprises, Inc.
Joseph M. Scott, Jr., Lexington, Ky., for Unsecured Creditors' Committee.
This matter is before the court for the limited purpose of determining whether the plaintiff made a timely demand for reclamation of goods pursuant to section 546(c) of the Bankruptcy Code, 11 U.S.C. § 546(c), and section 2-702 of the Uniform Commercial Code, as it appears in KRS 355.2-702.
FINDINGS OF FACT:
The facts, which are not in controversy and which are stipulated by the parties, are as follows:
On November 24, 1982, the plaintiff, Aventura Sportswear, Limited ("Aventura"), shipped certain sportswear clothing products, invoiced at a total of $32,940.00, to the defendant/debtor, Maloney Enterprises, Inc. ("Maloney"). The goods were shipped F.O.B. Seattle, Washington and arrived at Maloney's Mt. Sterling, Kentucky warehouse on December 7, 1982. Maloney admits, for purposes of this adversary proceeding only, that it was insolvent throughout this period of time.
On December 8, 1982, Maloney filed its petition under chapter 11 of the Bankruptcy Code. Upon learning of the bankruptcy filing, Aventura sent a telegram demanding reclamation of the sportswear which was received by Maloney on December 10, 1982. Maloney refused to return the goods. Aventura commenced this adversary proceeding on January 3, 1983.
CONCLUSIONS OF LAW:
The only issue before the court at this time is whether the demand of the plaintiff for reclamation of goods was timely for purposes of 11 U.S.C. § 546(c) and KRS 355.2-702. The goods were shipped F.O.B. Seattle on November 24, 1982. They arrived at Maloney's warehouse at Mt. Sterling, Kentucky on December 7, 1982. Demand for reclamation was made by the plaintiff on December 10, 1982.
The determination of this issue depends on the meaning of the term "receipt" for the purposes of 11 U.S.C. § 546(c) and KRS 355.2-702.
Section 546(c) of the Bankruptcy Code, 11 U.S.C. § 546(c), which deals with an unpaid seller's right of reclamation, provides as follows:
As indicated by legislative history, 11 U.S.C. § 546(c) is intended to recognize, in part, the validity of section 2-702 of the Uniform Commercial Code. The Kentucky version of that section, KRS 355.2-702, provides in pertinent part as follows:
Whether Aventura's demand for reclamation was timely depends upon the meaning of the word "receipt" for the purposes of the above quoted subsections of the Bankruptcy Code and the Kentucky version of the Uniform Commercial Code.
Aventura asserts that its demand for reclamation was timely because the debtor received the goods in question on December 7, 1982, the day the goods arrived at Maloney's warehouse, which was less than ten days before Aventura made a written demand for reclamation on December 10, 1982.
Maloney asserts that Aventura failed to make a timely demand for reclamation because Maloney received the goods in question on November 24, 1982, the day the goods were shipped F.O.B. Seattle, which was more than ten days before Aventura made a written demand for reclamation.
In support of its assertion Maloney states that the contract for sale of sportswear garments by Aventura to Maloney was a shipment contract and, therefore, Aventura's delivery of the goods to the carrier was a delivery to Maloney, title passed to Maloney at the moment of tender to the carrier and loss of the shipment was thereafter at Maloney's risk. For these reasons, Maloney argues that in every practical sense Maloney received the goods on November 24, 1982.
The Unsecured Creditors' Committee, a party defendant herein, also asserts that Aventura failed to make a timely demand for reclamation. It also states that, pursuant to the shipment contract and F.O.B. term, delivery of the goods to the carrier by the seller constitutes delivery to the buyer, the F.O.B. designation indicates the place where passage of title and risk of loss rest in the buyer, and that for the above purposes the carrier is generally regarded as the buyer's agent for the purposes of accepting delivery. The Unsecured Creditors' Committee asserts that delivery to Maloney occurred when Aventura delivered the goods in question to the common carrier on November 24, 1982 and further asserts that the delivery date is the operative date on which the buyer received the goods.
The court does not believe that the date of delivery of the goods to a carrier pursuant to an F.O.B. contract, passage of title or risk of loss controls in determining the date of "receipt" for purposes of 11 U.S.C. § 546(c) and KRS 355.2-702.
For the reasons stated below the court finds that, for the purposes of 11 U.S.C. § 546(c) and KRS 355.2-702, the receipt of the goods by the debtor occurred December 7, 1982, the day the goods arrived at the debtor's warehouse and the debtor took actual, physical possession of the goods, as asserted by Aventura.
As mentioned above, Congress, in enacting the Bankruptcy Reform Act of 1978 and, specifically, section 546(c) thereof, intended to incorporate the Uniform Commercial Code reclamation provision into the Bankruptcy Code. Senate Report No. 95-989, 95th Cong., 2d Sess. 86-87 (1978), U.S. Code Cong. & Admin.News 1978, p. 5787, expresses this intention as follows:
The trustee\'s rights and powers under the strong arm clause, the successor to creditors provision, the preference section, and the postpetition transaction section are all subject to any statutory or common-law right of a seller, in the ordinary course of business, of goods to the debtor to reclaim the goods if the debtor received the goods on credit while insolvent. The seller must demand reclamation within ten days after receipt of the goods by the debtor. . . . The purpose of this provision is to recognize, in part, the validity of section 2-702 of the Uniform Commercial Code, which has generated much litigation, confusion, and divergent decisions in different circuits. (emphasis added)
Congress apparently intended that a seller's rights under 11 U.S.C. § 546(c) be construed and interpreted within the context of the language of the reclamation provision of the Uniform Commercial Code and other Uniform Commercial Code provisions clarifying the reclamation provision.
It is the concept of "receipt," and not the concept of "delivery" which is relied upon by the defendants herein, that is embodied in the Uniform Commercial Code reclamation provision and which Congress incorporated in section 546(c) of the Bankruptcy Code.
KRS 355.2-103(1)(c) provides that "receipt of goods means taking physical possession of them." (emphasis added) Kentucky Commentary (1983) to that section provides, in part, as follows:
"Receipt must be distinguished from delivery particularly in regard to the problems arising out of shipment of goods . . . since the seller may frequently fulfill his obligations to "deliver" even though the buyer may never "receive" the goods. (emphasis added)
Further evidence that "receipt" of goods by the purchaser is not effectuated until such purchaser actually takes physical possession of such goods is provided by KRS 355.2-705. Said section provides, in part, as follows:
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