In the Matter of Daylin, Inc., Debtor in Possession. Ray-O-Vac, Division of Esb, Inc., and Cross-Appellant v. Daylin, Inc., and Cross-Appellee

The central issue on these appeals is whether U.C.C. § 2-702, allowing a seller to reclaim goods delivered on credit to a buyer who is insolvent, conflicts with §§ 1, 60, 64, 67, and 70 of the Bankruptcy Act and is therefore ineffective in bankruptcy. Following In re Telemart Enterprises, Inc. (9th Cir. 1975) 524 F.2d 761 , we hold that the state-created right of reclamation is not barred by the Bankruptcy Act.

Daylin filed a proceeding under Chapter XI of the Bankruptcy Act, 11 U.S.C. §§ 701 et seq., on February 26, 1975. On February 27, 1975, Ray-O-Vac, which had supplied Daylin with goods on credit, made a written demand pursuant to U.C.C. § 2.702(2) for the return of merchandise received by Day-lin within the preceding ten days. Daylin refused to return the merchandise. Trial was held on stipulated facts, and the parties further stipulated that the law of the states to which the goods were shipped would govern the rights and duties of the parties in this litigation. Those states are Texas, Alabama, Georgia, Indiana, New Jersey, and New York.

Section 2-702, as enacted by Texas, Alabama, Georgia, and Indiana, provides in relevant part:

The version adopted by New York and New…