In re World Imports Ltd., ___F.3d ___ case number 16-1357 (3d Cir. July 10, 2017)
In re World Imports Ltd., ___F.3d ___ case number 16-1357 (3d Cir. July 10, 2017):
Third Circuit Court of Appeals holds that “receipt” under 11 USC 503(b)(9) Occurs when debtor obtains Physical Possession of goods, which may be later than “delivery” of goods. Increases the chance the creditor who supplied the goods to the debtor can have an administrative claim, per Section 503(b)(9).
Section 503(b)(9) gives a seller has an administrative expense claim under Section 503(b)(9), if the goods were “received” by the debtor within “20 days before the date of commencement” of debtor’s bankruptcy case.
Questions arise when the dates of “delivery” and “receipt” are not the same.
By holding that receipt occurs on the sometimes later date of physical possession, the Third Circuit’s decision is beneficial for sellers because delivery can occur before physical receipt, thus giving a supplier a better shot at having a valid reclamation or administrative claim for goods received before bankruptcy.
Two Chinese furniture manufacturers sold goods to a U.S. buyer. The goods were loaded on a cargo vessel and shipped free on board, or FOB. Although the goods were loaded more than 20 days before the buyer’s chapter 11 filing, the buyer received physical possession within the 20-day period.
Upheld in district court, the bankruptcy court ruled that because the goods were shipped FOB, they were received when the risk of loss or damage passed to the debtor at the port in China. The sellers appealed and won, in a July 10 opinion by Circuit Judge.
Although “received” is not defined in the Bankruptcy Code, Judge said that Black’s Law Dictionary and the Oxford English Dictionary both define the word as requiring physical possession. The legal and dictionary definitions agree with Section 2-103(1)(c) of the Uniform Commercial Code, which “defines ‘receipt’ of goods as ‘taking physical possession of them.'”
For purposes of Section 546(c) and the right of reclamation, the Third Circuit had previously defined “receipt” in In re Marin Oil Inc., 740 F.2d 220, 224-25 (3d Cir. 1984), to mean “taking physical possession.” Marin “explicitly stated that delivery and receipt of goods can occur at different times,” Judge Hardiman said.
“Receipt” means the same thing in Sections 546(c) and 503(b)(9), Judge Hardiman said. Therefore, “regardless of FOB status, under the UCC and chapter 11, receipt does not occur until after the seller’s ability to stop delivery ends – namely, upon the buyer’s physical possession.” Consequently, the sellers were entitled to administrative expense claims because the debtor received the goods within 20 days of filing.
Judge Hardiman qualified the holding by saying that receipt occurs on physical possession by the buyer “or his agent.” However, he said the shipper was not the buyer’s agent.