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assistance, such as an extension of time to pay. [U.C.C. § 1-201(b)(23) (2001); 11 U.S.C. § 101(32); Rmb Fasteners, Ltd. v. Heads & Threads International, LLC , No. 11 CV 02071, 2012 WL 401490 (N.D. Ill. 2012).] b. Seller’s Right to Refuse to Deliver Except for Cash Payment As mentioned, upon discovering the buyer’s insolvency, the seller may insist that the buyer pay cash for any goods to be delivered. In addition, the seller may insist that the buyer pay for any goods previously delivered under the same contract (usually, delivered on credit) and withhold delivery under § 2-705. The seller must, however, discover the insolvency sometime after contracting. After all, a seller who knowingly sells goods on credit to an insolvent buyer assumes the various risks attending that insolvency. The seller discovers the buyer’s insolvency when the seller actually knows of it. Mere reason to know is not enough. [U.C.C. § 2-702(1) (1951); 2 Hawkland UCC Series § 2-702:1, Westlaw (database updated June 2021).] Example : A manufacturer contracted to produce and package nutritional supplements for a distributor. The contract provided for payment within 30 days after each shipment. However, the distributor did not pay at all for most shipments, and what payment it did make was nearly invariably late. Additionally, the manufacturer later learned that the distributor was long overdue on payments owed to the manufacturer’s sister company. On similar facts, a state trial court held that the manufacturer discovered the distributor’s insolvency. Thus, the manufacturer could insist on cash payment, including payment for prior deliveries under the same contract, before delivering any future shipments. [ See Starchem Laboratories, LLC v. Kabco Pharmaceuticals, Inc. , 43 Misc.3d 1213(A) (N.Y. Sup. Ct. 2014).]
c. Seller’s Right to Reclaim the Goods if the Buyer Has Received Goods on Credit While Insolvent
If the buyer receives goods on credit while insolvent, and the seller discovers this fact, then the seller may generally reclaim the goods. Typically, the seller must demand reclamation within 10 days after the buyer receives the goods. A demand for reclamation is a demand for return of the goods, not just a demand for payment. However, this 10-day limitation does not apply if a written misrepresentation of solvency has been made to the seller within three months prior to delivery. Apart from these rules, the seller cannot base a right of reclamation on the buyer’s misrepresentation, whether fraudulent or innocent, of solvency or intent to pay. Here again, discovery means obtaining actual knowledge of insolvency, not mere reason to know. Also, the seller must generally discover the insolvency after contracting, lest the seller be found to have assumed the risk of the
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