## Facts

- A shoe retailer received a shipment of shoes on credit from a seller while the retailer was insolvent.
- The day after delivery, several creditors levied attachments against the retailer’s inventory, asserting lien-creditor status under state law.
- Within ten days of the buyer’s receipt of the goods, the seller made a written demand to reclaim the delivered shoes under the state’s enactment of UCC § 2-702(2).
- The buyer filed a Chapter XI petition shortly after the demand; the petition disclosed inability to pay debts as they matured, supporting a finding of insolvency.
- A bankruptcy referee found the buyer insolvent and ruled the seller’s reclamation right superior to the attaching creditors’ liens.
- Because returning the shoes was found inconsistent with a workable Chapter XI arrangement, the referee awarded the seller secured-creditor status in lieu of physical return, without altering priority.
- The district court reversed, treating the seller as holding only an unperfected security interest subordinate to the attaching creditors.
- The seller appealed.

## Issues

1. Whether a seller’s timely reclamation right under UCC § 2-702(2), after delivery on credit to an insolvent buyer, has priority over creditors who became lien creditors by attachment.
2. Whether adoption of the UCC displaced preexisting state priority rules that favored reclaiming sellers over levying or lien creditors.
3. Whether a court may implement a successful reclamation right by granting secured-creditor status instead of ordering return of the goods, without changing priority.

## Decision

- The court of appeals reversed the district court and reinstated the referee’s priority determination.
- The seller satisfied the statutory prerequisites for reclamation: delivery on credit to an insolvent buyer and timely demand within the ten-day period.
- The seller’s right was a statutory reclamation right, not an Article 9 security interest subject to perfection rules used to subordinate it to lien creditors.
- The UCC reclamation provision did not eliminate state-law priority rules favoring reclaiming sellers over attaching creditors absent a clear directive to do so.
- The referee’s substitution of secured-creditor status for physical return was left intact because its propriety was not contested on appeal so long as the seller retained priority.

## Legal Principles

- A seller may reclaim goods delivered on credit to an insolvent buyer by making timely demand within the period specified by UCC § 2-702(2) as enacted in the relevant state.
- A reclamation claim under UCC § 2-702(2) is a statutory remedy distinct from a consensual Article 9 security interest and is not automatically subordinated by Article 9 perfection concepts.
- Adoption of the UCC does not abrogate preexisting state priority rules between reclaiming sellers and levying or lien creditors unless the statute clearly requires displacement.
- In bankruptcy administration, a court may recognize a valid reclamation right through an equivalent priority remedy (such as secured status) when return of the goods would impair reorganization, provided underlying priority is preserved.

## Conclusion

The court held that a seller who timely demanded reclamation after delivering goods on credit to an insolvent buyer had priority over creditors who later obtained attachment liens, and that the UCC did not displace state rules supporting that priority; the bankruptcy referee’s grant of secured status in place of return was permitted because it maintained the seller’s superior position.


In re Mel Golde Shoes, Inc., 403 F.2d 658 (6th Cir. 1968)