Issue link: https://www.e-digitaleditions.com/i/80263
received by the customerwithin the 10- day period. Secondly, the seller must have proof that the written notice was received by the customerwithin the 10- day period. Finally, if the customer has made a specific written misrepresenta- tion of solvency to the seller within threemonths before delivery, the 10-day limitation does not apply. The following language is an example for written notice of reclamation (spe- cific language should be prepared for each seller's particular needs based on the circumstances of each case): "The undersigned seller hereby gives notice of its demand for the immediate return of goods listed in invoices numbers ______ pursuant to section 2-702 of the Uniform Commercial Code due to your insolvency. Any sale, use or transfer of said goods is expressly prohibited. It is important for the seller to imme- " diately take steps to recover the goods from the customer. If the customer sells the goods to a good faith purchaser, the seller's rights to reclaim the goods may be lost. If the customer has filed for bank- ruptcy, under the bankruptcy law, the seller may recover the goods from the bankruptcy trustee if the goods were receivedwithin 45 days before the bank- ruptcy filing date. The seller also must make itswritten reclamation demand no later than 45 days after receipt of the goods by the customer, or no later than 20 days after the filing date if the 45-day period expires after the filing date.The seller's reclamation rights are subject to prior security interests in the goods or proceeds. What if the seller is still in possession of the goods when the customer's insol- vency is discovered?The seller's remedy under the Uniform Commercial Code is to refuse delivery of the goods unless cash payment (such as a certified check or wire transfer) is made, even though the transaction was originally on credit. What if the goods are in transit to the customer? Again, the Uniform Commer- cial Code permits a seller to stop deliv- ery of the goods to the customer. The seller must notify the customer and the third party in possession of the goods 1 8 FEDA News & Views Businesses are often surprised to learn that under the Bankruptcy Code, payments received froma customer within 90 days preceding the date that the customer files for bankruptcy may have to be paid back to the bankruptcy trustee. (common carrier,warehouse,etc.) of the stoppage and the notification must be received by the third party so that, through reasonable diligence, delivery to the customer can be prevented.Lastly, the right of stoppage expires when the customer receives the goods. Seller's Insecurity as to Payment Where a seller has reasonable grounds for insecurity with respect to the per- formance of the customer, the Uniform Commercial Code allows the seller to make a written demand for assurance of due performance (including the pay- ment obligation).Until such assurance is received from the customer, the seller may, if commercially reasonable, sus- pend any performance for which he has not already received the agreed return. This insecurity with respect to perform- ance relates to all performance due from the buyer, including payment for the goods.Bymonitoring the aging of receiv- ables and other signs of credit problems, the seller is in a position to request ade- quate assurance of payment by the cus- tomer and suspend sale of the goods pending receipt of such assurance. Security Interest in Goods Sold The Uniform Commercial Code pro- vides for a "special" security interest for the sale of goods on credit.A purchase money security interest is a security interest the seller obtains in the goods sold to the customer. Oftentimes there are prior security interests covering all or some of the assets of the customer (such as a bank loan).However, if a sell- er receives a written purchase money security agreement signed by the cus- tomer, and files the appropriate financ- ing statements, the purchase money security interest in favor of the seller will prevail and be superior to most prior recorded liens. It's also important to note that the cus- tomer must consent to a purchase money security interest.However,many customers refuse to consent, since doing so could violate the terms of their bank loans or credits lines. If the cus- tomer does consent, then the seller must give written notification to all of the customer's prior lienholders of the creation of the purchase money securi- ty interest and a general description of the goods that are to be sold by the sell- er to which the security interest will attach. Even if the prior lienholders object, a properly perfected purchase money security interest will stand and come ahead of any prior general or floating liens. PreferentialTransfers Businesses are often surprised to learn that under the Bankruptcy Code, pay- ments received from a customer within 90 days preceding the date that the cus- tomer files for bankruptcy may have to be paid back to the bankruptcy trustee. These payments are called "preferential transfers" because certain sellers (who are unsecured creditors of the cus- tomer) are favored with payment over other unsecured creditors of the cus- tomer. However, not all payments received within the 90-day period have to be paid back.There are several excep- tions or defenses. The most common defense asserted by trade creditors is the ordinary course of business defense. The bankruptcy law (effective Octo- ber 17, 2005) made several important continued on page 32