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In re Hardin

April 6, 1972

IN THE MATTER OF WILLIAM JOSEPH WHISTLER HARDIN, BANKRUPT. JAMES E. SHAPIRO, TRUSTEE, RESPONDENT-APPELLEE,
v.
UNION BANK AND SAVINGS COMPANY, PETITIONER-APPELLANT



Swygert, Chief Judge, Sprecher, Circuit Judge, and Campbell, Senior District Judge.*fn*

Author: Sprecher

SPRECHER, Circuit Judge.

This appeal poses the question of whether the seller's remedy of reclamation of goods as a result of the buyer's misrepresentation, as provided by Section 2-702(2) of the Uniform Commercial Code, may be exercised by a party other than the seller to whom the misrepresentation was made.

The following facts were found by the referee in bankruptcy, adopted by the district court and concurred in by both parties in this court:

On March 17, 1969, the bankrupt submitted a financial statement in writing to the Columbus Show Case Company of Columbus, Ohio, in connection with the proposed purchase of certain fixtures and equipment to be used in a drug store which the bankrupt proposed to open in Wisconsin. The parties conceded that the statement, a balance sheet as of the close of business on March 14, was a misrepresentation of solvency made within three months before delivery of goods.

On or about April 1, 1969, the goods were sold pursuant to a contract of sale between Columbus and the bankrupt. On May 16, the goods were shipped to the bankrupt, who received them on May 17.

On June 20, 1969, the bankrupt executed an installment note for $31,401 to Columbus, payable in 60 consecutive monthly installments of $523.35 commencing on August 15, 1969. The note was a "judgment note" which authorized confession of judgment by an attorney in any court. On the same day the note was endorsed "without recourse" to the petitioner, Union Bank and Savings Company of Bellevue, Ohio.

Also on the same day, June 20, 1969, a "General Installment Sale and Security Agreement" was executed by Union Bank as the "seller-secured party" and the bankrupt and his wife as "buyers-debtors," covering the fixtures and equipment. The contract appears to be the standard form of security agreement now used under the Uniform Commercial Code to replace a conditional-sale contract.

On August 4, 1969, the bankrupt filed a voluntary petition in bankruptcy. On August 11 a financing statement was filed with the Register of Deeds for Ozaukee County and the Secretary of State of Wisconsin. The financing statement listed Union Bank as the "secured party" and the bankrupt and his wife as "debtors."

The trustee in bankruptcy filed a petition for a private sale of the fixtures and equipment, alleging that the Union Bank's security interest had not been perfected since it was filed seven days after the filing for bankruptcy.

Union Bank filed a response and counterclaim alleging that it was entitled to reclaim the fixtures and equipment, not as a secured creditor but as the "transferee" of the seller, Columbus Show Case Company.

The parties agreed to the sale of the goods but reserved the right to have the claim transferred to the proceeds of sale, which amounted to approximately $19,000.

After considering the stipulated facts, the referee in bankruptcy entered an order denying reclamation. Union Bank filed a petition for review with the district court, which affirmed the referee's order. Union Bank then proceeded with this appeal.

The referee in his decision observed: "The argument advanced on behalf of the Union Bank is somewhat novel and ingenious. It is an attempt to salvage a secured status from a situation caused by the failure of the Bank to timely file a financing statement in the office of the Secretary of State and the local Register of Deeds." The argument was based upon a provision of the stipulation of facts entered into by the trustee in bankruptcy and Union Bank incorporating an allegation from the bank's counterclaim that the "Union Bank and Savings Company is transferee of the Columbus Show Case Co." It was also based upon the right of a ...


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