Court Opinion

ID: 9339198
Source: CourtListenerOpinion
Date Created: 2022-12-16 17:45:41.06667+00
Date Added: 2024-06-11T17:15:18.737292
License: Public Domain

ROSS, Circuit Judge,
dissenting.
I am persuaded that a credit seller’s right to reclaim goods under section 2-702 of the Uniform Commercial Code is a “statutory lien” as that term is used in section 67(c)(1)(A) of the Bankruptcy Act, 11 U.S.C. § 107(c)(1)(A), and is thus invalid as against the buyer’s trustee. Therefore, I respectfully dissent.1
Section 67(c)(1)(A) of the Bankruptcy Act invalidates as against the trustee, inter alia, “every statutory lien which first becomes effective upon the insolvency of the debt- or.” By its express terms, section 2-702 of the Uniform Commercial Code is of no effect unless the' buyer is insolvent. The question, therefore, is whether that section creates a “statutory lien.”
“Statutory lien” is defined in the Bankruptcy Act as “a lien arising solely by force of statute upon specified circumstances or conditions, but shall not include any lien provided by or dependent upon an agreement to give security * * 11 U.S.C. § l(29a). The majority opinion stresses what it terms “the ancestry” of section 2-702 in reaching its conclusion that the seller’s right to reclaim does not arise “solely by force of statute.” A similar conclusion was reached by the court in In re Federal’s, Inc., 553 F.2d 509 (6th Cir. 1977), where it was stated:
Nevertheless, we are persuaded that the right asserted by the seller under § 2-702(2) is a valid state-created right of ownership. Because that right conceptually has its antecedents in the historical and equitable right of a defrauded seller to reclaim the goods he has sold to an insolvent buyer, we hold it cannot be said to arise “solely by force of statute” under § K29).
Id., 553 F.2d at 516 (emphasis in original).
In my opinion, the reliance on the common law heritage of section 2-702 is misplaced. As the above-quoted language of section l(29a) makes plain, the distinction drawn by the Bankruptcy Act is that between statutory .and consensual liens, not that between statutory and common law liens. This distinction was made explicit in the legislative history of section l(29a):
Since the effect of section 67c is limited to statutory and does not include consensual liens, it is essential that the term “statutory lien” be clearly defined. * *
******
The purpose of section 1 is to specifically embody the meaning which Congress originally intended in the act and thus to assure that consensual securities are not subjected to any of the tests of validity prescribed by the new section 67c.
S.Rep.No.1159, 89th Cong., 2d Sess., [1966] 2 U.S.Code Cong. & Admin.News pp. 2456, 2460.
There is certainly nothing consensual about a seller’s right to reclaim goods under section 2-702. Therefore, notwithstanding its historical origins, the seller’s rights are not, on that basis, protected from invalidity under the Bankruptcy Act’s definition of a statutory lien. The only question remaining is whether section 2-702 represents the type of device sought to be invalidated under section 67(c)(1)(A) of the Bankruptcy Act. I would hold that it does.
The historical development of section 67 of the Bankruptcy Act represents an attempt on the part of Congress to invalidate those devices of state creation which have the practical effect of distorting the federally ordered scheme of priority of distribution embodied in the Bankruptcy Act. See In re Federal’s, Inc., supra, 553 F.2d at 516; In re Telemart Enterprises, Inc., 524 F.2d 761, 764 (9th Cir. 1975). Thus, the targets of section 67 are those devices which operate more as priorities in bankruptcy than as legitimate property rights of the creditor. Labels, of course, are not important. *1007Whether denominated by the state legislature as a priority, a lien, or a right to reclaim, the effect of the device in the context of bankruptcy administration must be the overriding consideration.
Viewed in this context, recognition of section 2-702 clearly places sellers of goods in a position preferable, not only to the other general creditors of the bankrupt, but to priority claimants as well.2 And this is so, not because of any equities shown to exist between the parties, but simply because the value extended by the seller took the form of goods and because the seller discovered the buyer’s insolvency within ten days after delivery. This, in my opinion, is the type of disguised priority Congress was aiming at when it enacted section 67(c)(1)(A).
I would affirm the judgment of the district court.

. Because I would hold the seller’s right to reclaim is an invalid statutory lien, I would likewise find it unnecessary to consider whether the trustee could displace the seller by virtue of his status as a hypothetical lien creditor under section 70(c) of the Bankruptcy Act.

. I note in this connection that I am not persuaded that section 2-702 does not operate as a disguised priority because it gives the seller a claim in specific, rather than in the general assets of the debtor. The seller’s right to reclaim operates as a statutory lien within the meaning of the Bankruptcy Act because it prevents priority claimants from taking as intended under § 64 of the Act, 11 U.S.C. § 104.