James sells and delivers to Gerald on June 1 certain goods and receives from Gerald at the time of delivery Gerald’s check in the amount of $9,000 for the goods. The following day, Gerald is petitioned into bankruptcy, and the check is dishonored by Gerald’s bank. On June 5, James serves notice upon Gerald and the trustee in bankruptcy that he reclaims the goods. The trustee is in possession of the goods and refuses to deliver them to James. What are the rights of the parties?
The remedy to seller, under Sale of Goods Contract, gives the seller the right to reclaim the goods that he sold on credit to the buyer on demand within ten days of receival of goods by the buyer. The reclaim of seller would depend on the right of the buyer that depends on the fact that the buyer has purchased the goods in ordinary course of business or in good-faith. If buyer has received the goods in good faith, then the goods cannot be reclaimed by the seller. In this case, Buyer G has purchased the goods in ordinary course of business, which gives the seller the right to reclaim it.
The trustee,who remains in the possession of insolvent buyer's goods, has the right to auction the goods and pay-off the debt. However, if the buyer has purchased the goods on credit, the seller can reclaim the goods as the ownership has not been completely transferred to the buyer. Consequently, the trustee would need to send the goods back to the seller unless seller has not acted within the ten days' time limit. In this case,Seller J has acted within five days from the time the buyer received the goods. So, the trustee cannot retain the goods for auction.
Here, Seller Jcan have the right to reclaim goods that he had sold on credit from trustee in case of buyer's insolvency as the Buyer G has purchased the goods in the ordinary course of business.
Trustee would need to give back the goods to the seller as the seller has acted within ten days from the time the buyer received the goods.
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