Section 503(b)(9) "Received" Constructive Possession Physical Possession
In Re World Imports, Ltd., PICS Case No.17-1199 (3 Cir. July 10, 2017) Hardiman, J. (15 pages).
Bankruptcy court misapplied the concept of constructive receipt to find buyer "received" goods shipped FOB at the port of origin because a buyer did not constructively receive goods when they were delivered to a common carrier, even if the risk of loss passed at that time, and receipt occurred when the goods were in the buyer's physical possession. Reversed.
Appellants, Chinese companies, sold furniture and other goods to debtor. The good were shipped via common carrier FOB at the port of origin and the risk of loss passed to debtor upon transfer at the port. The goods were accepted in the United States within 20 days of the day debtor filed its Chapter 11 petition. Appellants filed motions for allowance and payment of administrative claims under 11 U.SC. 503(b)(9). The question before the bankruptcy court was when the debtor received the goods. The parties agreed that the goods were shipped more than 20 days before the day of filing and that debtor took physical possession of the goods in the United States less than 20 days before the filing. The bankruptcy court acknowledged that "received" was not defined in 503(b)(9), rejected appellants' argument the UCC should rule and looked to the convention on contracts for the international sale of goods. However, that treaty did not define "received" and the bankruptcy court concluded that since the risk of loss transferred at the port, the goods were "constructively received" when they shipped from China. The district court affirmed the bankruptcy court and appellants appealed.
The court looked to legal and English language dictionaries and determined that the common definitions of "received" required physical possession. Those definitions comported with the definition in UCC 2-103(10(c) that defined "receipt" of goods as "taking physical possession of them." Since Article 2 of the UCC governed sales in 49 states when 503(b)(9) was adopted, the court inferred that congress intended to adopt that well-known meaning. The court also noted that since 503(b)(9) provided an alternative remedy to reclamation, it had to be read to be consistent with 546(c) and the courts had held that the word "receipt" in 546(c) meant the same thing as in the UCC.
Debtor argued that the goods were constructively received upon delivery because they were delivered FOB to a common carrier. The court noted however, that common carriers were not agents and receipt of goods by a common carrier was possession by the common carrier. Constructive receipt did not include FOB delivery to a common carrier. Additionally, delivery, or transfer of title or risk of loss, was distinct from the actual receipt of goods by the buyer as the official comment to the UCC's definition of "receipt" made clear. Under the UCC and Chapter 11, receipt did not occur until after the seller's ability to stop delivery ended, namely, upon the buyer's physical possession.