Reclamation for Credit Managers

Part 6: RECEIPT, STOPPAGE IN TRANSIT & CONCLUSION

Contributed by:
Robert S. Bernstein, Esquire
Bernstein-Burkley, P.C.

VII. THE DEFINITION OF RECEIPT

The date of “receipt” is crucial in determining when the 10 day (or 45 day) reclamation demand period expires. Section 2-103 of the U.C.C. defines “receipt” of goods as “taking physical control of them.” U.C.C. Section 2-103(1)(c). Case law has set forth a general test to determine if goods were received pursuant to the Bankruptcy Code. Generally, goods are “received” when the seller can no longer stop delivery of goods and is left with only the remedy of reclamation.

VIII. STOPPAGE IN TRANSIT

In some cases, a seller may discover that the buyer is insolvent when the goods are “in transit”, i.e. after the buyer places an order but before the buyer receives actual physical possession of the goods. The U.C.C. provides a mechanism by which a seller may stop goods in that circumstance. Although there is no specific language in the Bankruptcy Code which permits a seller to stop shipment of the goods in transit, the reclamation section of the Code includes, by implication, the seller’s prior right to stop goods in transit.

CONCLUSION

It is essential that creditors who have a right to reclaim act expeditiously and in conformity with the Uniform Commercial Code and the Bankruptcy Code. Without such a practice, the rights of a seller to reclaim his goods will be extinguished, and the seller loses a valuable remedy and must take its place with the rest of the unsecured creditors.

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