Reclamation Rights: Difficult Outcomes in Insiders, Subrogated to Secured Claims or Priority Claims, Wipe Out the Estate

• Author: David J. Cook
• Pages: 37-42

Reclamation Rights:

Difficult Outcomes in

Different Forums (and the

Law of the Unexpected)

UCC Code Section 2609 lets the seller lock down the account in order to

mitigate any further loss. A reclamation right enables the seller to retrieve

goods in the hands of the seller. These two code sections are both sides of

the insolvency coin that enables a seller to shrink the footprint of the poten-

tial loss. Despite what we see in the movies, under the umbrella of Section

2609 (suspend performance) and Section 2702 (reclaim products), smaller

is better.

Let’s review for a second. Repetition and review is another form of

muscle memory, and memory is everyone’s best friend in the event of a com-

mercial emergency. UCC Code 2609 enables a seller to suspend performance,

which usually means that the seller can withhold the sale of products on a

credit basis. UCC Section 2702 enables a seller to recover the products that

were actually delivered to the buyer at a time when the buyer was insolvent.

Presumptively (or always) an insolvent buyer is not buyer at all, but a down

and out debtor who is about to stumble into a bankruptcy and leave behind

a huge trail of obligations.

Commercial Code Section 2702 lets the seller reclaim (repossess) prod-

ucts if they still are in the hands of the buyer as follows:

(1) Where the seller discovers the buyer to be insolvent, he may refuse

delivery except for cash including payment for all goods thereto-

fore delivered under the contract, and stop delivery under this

division (Section 2705).

(2) Where the seller discovers that the buyer has received goods on

credit while insolvent, he may reclaim the goods upon demand

made within 10 days after the receipt, but if misrepresentation of

solvency has been made to the particular seller in writing within

three months before delivery, the 10-day limitation does not apply.

Except as provided in this subdivision, the seller may not base a

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