Bowles Rice Bankruptcy e-Alert
Ninth Circuit Addresses Ambiguity
in Article 9 Consignment Cases

By: Alexandra Shulz, Esq.

On March 11, 2019, the United States Court of Appeals for the Ninth Circuit issued a momentous decision for anyone dealing in consignment transactions—ruling that the definition of “goods” under U.C.C. § 9-319(a) includes the proceeds of those goods.

Section 9-319(a) provides that, for the purposes of determining a consignor’s rights, “the consignee is deemed to have rights and title to the goods” while the goods are in the consignee’s possession. U.C.C. § 9-319(a). Therefore, if a consignee files for bankruptcy, any consigned “goods” in the consignee’s possession are property of the bankruptcy estate unless the consignor has filed a financing statement and perfected its interest in the goods.

In the case of In re Pettit Oil Co., No. 17-60081, 2019 WL 1104662 (9th Cir. Mar. 11, 2019), Pettit Oil Company (“Pettit”) entered into a consignment agreement with IPC (USA), Inc. (“IPC”), whereby Pettit sold IPC’s fuel to commercial customers at its facilities. Pettit filed for bankruptcy while still in possession of IPC fuel, as well as nearly $5.5 million in cash and accounts receivable owed to IPC from fuel sales.

Although IPC was willing to concede that the fuel in Pettit’s possession was a “good” within the scope of U.C.C. 9-319(a), it argued that the cash and accounts receivable Pettit owed to IPC were not “goods” within the meaning of the statute, and therefore should not be part of the bankruptcy estate.

The Ninth Circuit ruled in favor of the debtor, holding that U.C.C. § 9-319(a) extends both to the goods themselves, as well as to the proceeds of the goods held by the consignee on the date it filed for bankruptcy.

For more information:
For more information about this e-alert, please contact a member of the Bowles Rice Creditor's Rights and Bankruptcy Team:

Julie Chincheck

Alexandra Shulz

Julie Shank

Zachary Rosencrance

Michael Proctor

Nicola Smith

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