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In re Marin Motor Oil

July 24, 1984

IN THE MATTER OF: MARIN MOTOR OIL INC. MONTELLO OIL CORPORATION CITIES SERVICE COMPANY, APPELLANT
v.
MARIN MOTOR OIL, INC., DAVID P. MICHAELS, TRUSTEE, AND CITIES SERVICE COMPANY, APPELLEES



On Appeal from the United States District Court for the District of New Jersey

Author: Becker

Before: HUNTER and BECKER, Circuit Judges, and KATZ, District Judge*fn*

Opinion OF THE COURT

BECKER, Circuit Judge.

This case presents several difficult questions involving the interpretation of section 546(c) of the Bankruptcy Code, 11 U.S.C. ยง 546(c). Section 546(c) adopts the "seller's right of reclamation" created by section 2-702 of the Uniform Commercial Code, which enables a seller to reclaim its goods "upon demand made within ten days after receipt" of the goods by the buyer. Section 546(c) allows the seller to exercise this right after the buyer has filed a bankruptcy petition, but requires that the demand be made in writing.

Montello Oil Corporation ("Montello"), the seller in this case, seeks to reclaim goods that it sold to Marin Motor Oil, Inc. ("Marin") on credit. Marin received the goods while insolvent and subsequently filed for bankruptcy. Montello claims that a written demand that it sent by telex to Marin at 11:04 P.M. on April 21, 1981, the date which Montello claims was the tenth day after Marin received the goods, is sufficient to satisfy the demand requirement of section 546(c). Montello also claims that its filing of a law suit in state court on April 16, 1981, the service of the complaint on Marin, and the issuance of a temporary injunction restraining Marin from alienating any of its assets and requiring Marin to segregate the proceeds of any prior sales of the goods received from Montello, was sufficient to notify Marin that Montello was asserting its right of reclamation. Marin, by contrast, contends that the demand sent on April 21 was not timely, and thus not effective under section 546(c). With respect to the law suit, Marin concedes that the complaint and temporary injunction were served within the ten-day period, but argues that they do not constitute a written demand for reclamation within the meaning of section 546(c), because they do not explicitly assert a right of "reclamation." The bankruptcy court agreed with Marin and held that the law suit did not constitute an effective demand for reclamation, and that, since the telex was not received within the ten-day period, it was not a timely demand for reclamation. The district court affirmed.

We conclude that section 546(c) requires that a written demand for reclamation explicitly state that it is asserting that right, and we therefore hold that the state court law suit does not satisfy the demand requirement of section 546(c). In determining whether the telex satisfied the demand in requirement, we must address two questions: at what point did Marin receive the goods in question and thus start the ten-day period running, and whether the demand is made when sent by the seller or only when it is received by the buyer. In this case, seller Montello shipped the goods on April 10, via a common carrier barge hired by buyer Marin. The goods were received by Marin's bailee on April 11. The question raised by these facts is whether "receipt" by Marin took place on the 10th or the 11th. If we conclude that receipt took place on the 10th, we need not reach the other question since the telex sent on the 21st would clearly be untimely under either a "dispatch" or "receipt" rule. We conclude, however, that receipt within the meaning of section 546(c) did not occur until Marin's bailee took actual physical possession of the goods from the carrier, on April 11. Having made this determination, we must also decide whether the "demand" for reclamation took place on April 21, when the telex was dispatched, or on April 22, when it was received. Adopting the equivalent of the "mailbox" rule, we conclude that a demand made pursuant toi section 546(c) is effective on dispatch, as long as it is made in a commercially reasonable manner. We therefore hold that Montello's telex was a timely demand, and we reverse the judgment of the district court and remand for further proceedings.

I. FACTUAL AND PROCEDURAL HISTORY

On March 24, 1982, Montello Oil Corp., which is located in Dedham, Massachusetts, contracted to sell to Marin Motor Oil, Inc., which is located in Elmwood Park, New Jersey, 1,054,000 gallons of regular leaded gasoline at $0.9725 per gallon, FOB, New York Harbor, any day in April, 1981. Marin agreed to pay for the gasoline within one day after delivery and receipt by Marin of a certificate of inspection by an independent inspector as to the quality and quantity of gasoline.

In accordance with the contract, Marin called Montello on April 10, 1981, and arranged for a commercial barge operated by a common carrier to pick up the gasoline from Montello's terminal in New York Harbor. The barge arrived at the Montello terminal that same day at 3:05 p.m., and loading of the gasoline was completed at 8:35 p.m. that evening. At 9:15 p.m. the barge departed Montello's terminal and proceeded to Cities Service Company's (Cities") terminal in New Jersey, where Marvin had storage rights pursuant to a terminalling agreement between Cities and Marin. The barge arrived at Cities' New Jersey terminal at 10:30 p.m. on April 10, 1981, and at 12:01 a.m. on April 11, 1981, began unloading the gasoline into Cities' storage facility. The unloading took approximately 13 hours and was completed by 1:05 p.m. on April 11.*fn1 On April 13, 1981, Marin received Montello's invoice in the amount of $1,032,570.35 and the independent inspector's certificate of compliance.

On April 16, 1981, Thomas McManmon, Montello's Vice-President, went to Marin's office in Elmwood Park, New Jersey and orally demanded payment of Montello's invoice, or, in the alternative, return of the gasoline. On the same day, Montello filed suit against Marin in New Jersey Superior Court seeking a writ of attachment against all of Marin's assets and an injunction prohibiting Marin from re-selling the gasoline Montello had sold it. The Superior Court entered a temporary injunction enjoining Marin from making any further sales and ordering Marin to place all proceeds from the sale of Montello gasoline into a segregated account. Montello's state court complaint and the court's order were served on Marin on April 20, 1981.*fn2

On April 21, 1981, Marin filed a petition for reorganization pursuant to Chapter II of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Jersey. On the same day at 11:04 p.m., Montello, through its Massachusetts attorney, transmitted the following demand for reclamation to Marin by telex through Western Union:

Pursuant to Section 546(c) of the Bankruptcy Code and pursuant to section 2-702 of the U.C.C., demand is hereby made upon you for the return and reclamation of all gasoline delivered to you 11 April, 1981.

The telex was electronically processed by Western Union and was received in Western Union's Paterson, New Jersey office at 11:07 p.m. on April 21st. Montello's telex was physically received by Marin at approximately 9:04 a.m. on April 22, 1981, ...


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