Court Opinion

ID: 9339197
Source: CourtListenerOpinion
Date Created: 2022-12-16 17:45:41.063571+00
Date Added: 2024-06-11T17:15:18.735691
License: Public Domain

HENLEY, Circuit Judge,
concurring in the result.
I concur in the conclusion that Bassett Furniture Industries, Inc. (Bassett), as a reclaiming seller under U.C.C. § 2-702(2), *1004Mo.Rev.Stat. § 400.2-702(2) (1969), prevails over the bankruptcy trustee in this action.
I.
Under Mo.Rev.Stat. § 400.2-702(2) (1969), a seller may reclaim goods sold on credit to an insolvent buyer if he demands reclamation of the goods within ten days of the buyer’s receipt. The seller’s right to reclaim the goods, however, is subject, under Mo.Rev.Stat. § 400.2-702(3) (1969), “to the rights of a . . . lien creditor . . .”1
After learning of PFA Farmers Market Association’s (PFA) insolvency, Bassett made a timely demand to reclaim the goods. Two days earlier, however, PFA had filed a petition under Chapter XI of the Bankruptcy Act (the Act). Under section 70(c) of the Act, 11 U.S.C. § 110(c)(1976), the bankruptcy trustee assumes the status of a hypothetical lien creditor as of the date the petition is filed.2 The issue before us in this appeal is whether Bassett’s reclamation right under Mo.Rev.Stat. § 400.2-702(2) (1969) was cut off by the intervening bankruptcy petition.
In his scholarly opinion, Judge Larson wrestles with the different approaches that courts and commentators have utilized in resolving this issue. As the opinion points out, although section 70(c) of the Act confers upon the bankruptcy trustee the.status of a hypothetical lien creditor on the date of bankruptcy, the trustee’s rights as a lien creditor are defined by state law. See 3A R. Duesenberg & L. King, Sales and Bulk Transfers Under the Uniform Commercial Code, 113.03[4][ii] at 13-32 (1978); J. White & R. Summers, Handbook of the Law Under the Uniform Commercial Code 245 (1972). In short, when, under state law, a lien creditor has no priority over a reclaiming seller, neither does the trustee.
In deciding the relative priorities of a reclaiming seller and the bankruptcy trustee, as a lien creditor, we initially look to the U.C.C. (the Code) itself. As Judge Larson notes, Mo.Rev.Stat. § 400.2-702(3) (1969) merely states that a seller’s reclamation right is subject to the rights of a lien creditor. The Code, however, neither defines nor explains those rights.3
When the U.C.C. omits to deal with a particular aspect of a transaction covered by its provisions, courts are directed to resort to principles of law outside the Code. See R. Braueher & R. Riegert, Introduction to Commercial Transactions 19 (1977). U.C.C. § 1 — 103 provides in part:
Unless displaced by the particular provisions of this chapter, the principles of law and equity . . . shall supplement its provisions (emphasis added).
Mo.Rev.Stat. § 400.1-103 (1969).
Because resolution of the issue before us is not contained in the Code, we should, in my view, apply the pre-Code common law of Missouri, whose law governs this transaction.
*1005Judge Larson does not rely upon Missouri common law. Instead, he reaches his decision in favor of Bassett, the reclaiming seller, by relying generally upon the policies and goals of U.C.C. § 2-702, “to simplify and expand the seller’s right to reclaim.” This approach is said to comport with the Code’s policy of uniformity and avoid dependence upon obscure variations in state common law. Thus, even though the Code does not define the rights of a lien creditor to which a seller’s right to reclaim is subject, Judge Larson holds that Mo.Rev.Stat. § 400.2-702 (1969) “specifically displaces pre-Code law on the subject” (emphasis added).
Such holding may promote uniformity and be easier for courts to apply. In my view, however, the court should proceed under U.C.C. § 1-103 to apply “the principles of law and equity” of the state.
This course has been followed by several courts in resolving the precise issue presented in this appeal, see Matter of Federal’s Inc., 553 F.2d 509, 512 (6th Cir. 1977); In re Mel Golde Shoes, Inc., 403 F.2d 658, 660 (6th Cir. 1968); In re Kravitz, 278 F.2d 820, 822 (3d Cir. 1960); In re Royalty Homes, Inc., 8 UCC Rep.Serv. 61, 64-65 (E.D.Tenn.1970), and has been discussed by commentators with approval. See 3A R. Duesenberg & L. King, Sales & Bulk Transfers Under the Uniform Commercial Code 113.03[4][ii] at 13-32 (1978); R. Speidel, R. Summers & J. White, Commercial and Consumer Law 1233 (2d ed. 1974); Note, Bankruptcy and Article Two of the Uniform Commercial Code: The Right to Recover the Goods Upon Insolvency, 79 Harv.L.Rev. 598, 610 (1966).
II.
Under the principles enunciated by Missouri courts prior to the Code’s enactment, the reclaiming seller would prevail over the bankruptcy trustee in this action. See William Openhym & Sons v. Blake, 157 F. 536, 538—40 (8th Cir. 1907), appeal dismissed, 216 U.S. 322, 30 S.Ct. 309, 54 L.Ed. 498 (1910); Blake v. Meadows, 225 Mo. 1, 26, 123 S.W. 868, 874 (1909); Comment, Bankruptcy Reclamation and the Uniform Commercial Code, 33 Mo.L.Rev. 262, 269-70 (1968). While there do not appear to be any decisions specifically dealing with a defrauded seller’s right to reclaim property from a bankrupt’s estate, see id., the cases suggest quite strongly that the seller’s reclamation right would not be cut off by an intervening bankruptcy petition. See, e. g., Blake v. Meadows, supra, 225 Mo. at 26, 123 S.W. at 874 (bankruptcy trustee takes possession of the bankrupt’s property subject to the equities to which the property was subject in the hands of the bankrupt). Under Missouri law, a seller’s right to reclaim is well established when there has been actual fraud on the part of the buyer. See Gratton and Knight Manufacturing Co. v. Troll, 77 Mo.App. 339, 345 (1898); Moore & Bier v. Hinsdale, 77 Mo.App. 217, 223 (1895); Reid, Murdock & Co. v. Lloyd & Moorman, 52 Mo.App. 278, 279 (1893); Manheimer v. Harrington, 20 Mo.App. 297, 300 (1886). Since the Code conclusively presumes fraud when an insolvent buyer purchases goods on credit, see Mo.Rev.Stat. § 400.2 — 702(2), Official Comment 2, it follows that a reclaiming seller would prevail over a judicial lien creditor in Missouri. See Comment, Bankruptcy-Reclamation and the Uniform Commercial Code, supra, 33 Mo.L.Rev. at 269-70.
Because, under Missouri law, a reclaiming seller’s right to reclaim goods under Mo. Rev.Stat. § 400.2-702(2) (1969) would be unaffected by an intervening bankruptcy petition, I join in Judge Larson’s result reversing the district court’s judgment.4

. The lien creditor to which the U.C.C. (the Code) refers is a judicial lien creditor. See 4A Collier on Bankruptcy í| 70-62A at 721 (14th ed. 1976).

. The trustee assumes the status of a judicial lien creditor as of that date. See 4A Collier on Bankruptcy 70-62A at 721 (14th ed. 1976).

. Mo.Rev.Stat. § 400.2-702(3) (1969) refers the reader to § 400.2-403. That provision, which neither defines lien creditor nor his rights, states that the rights of lien creditors are governed by article 9 (secured transactions). While Mo.Rev.Stat. § 400.9-301(3) (1969) includes a bankruptcy trustee within its definition of lien creditor, article 9 generally does not appear to be applicable because the parties to this transaction did not intend to create a security interest (“an interest in personal property . which secures payment . of an obligation,” § 400.1-201(37)). See Mo. Rev.Stat. § 400.9-102(l)(a) (1969).
Thus, despite these cross-references, the Code is curiously silent in explaining the rights of lien creditors to which a seller’s right to reclaim, under U.C.C. § 2-702(3), is subject. This omission in the Code has been identified and criticized. See In re Kravitz, 278 F.2d 820, 821-22 (3d Cir. 1960); R. Speidel, R. Summers & J. White, Commercial and Consumer Law 1231-32 (2d ed. 1974); 3A R. Duesenberg & L. King, Sales & Bulk Transfers Under the Uniform Commercial Code, j] 13.03[4][ii] at 13-27 —13-32 (1978); Note, Bankruptcy and Article Two of the Uniform Commercial Code: The Right to Recover the Goods Upon Insolvency, 79 Harv.L.Rev. 598, 610 (1966).

. Judge Ross, in his dissent, is persuaded that a seller’s right to reclaim under U.C.C. § 2-702(2) is a “statutory lien” for purposes of section 67(c)(1)(A) of the Act and is invalid as against the bankruptcy trustee. I am not convinced. As Judge Larson notes, the two circuits specifically confronting this issue, have both decided that a seller’s reclamation right under U.C.C. § 2-702 is not a statutory lien, which is invalid as against a bankruptcy trustee under § 67(c) of the Act. See In re Federal’s, Inc., 553 F.2d 509, 513-14 (6th Cir. 1977); In the Matter of Telemart Enterprises, Inc., 524 F.2d 761, 763-64 (9th Cir. 1975), cert. denied, 424 U.S. 969, 96 *1006S.Ct. 1466, 47 L.Ed.2d 736 (1976). I agree with the reasoning set forth in those cases.