Goods shipped FOB are deemed received when loaded on a vessel, unless the parties agree that international law will not apply. Consequently, actual receipt of merchandise within 20 days of bankruptcy does not give rise to an administrative claim under Section 503(b)(9) in international trade.
District Judge Petrese B. Tucker of Philadelphia confronted what she said was a case of first impression.
The facts were not in dispute. Good were loaded on a vessel free on board, or FOB, more than 20 days before the buyer filed bankruptcy. The goods arrived, and the debtor took actual possession less than 20 days before filing. The bankruptcy judge ruled that the seller did not have an administrative claim under Section 503(b)(9) for goods “received” within 20 days before bankruptcy.
Since the Bankruptcy Code does not define “received,” the seller contended that the court should look to the Uniform Commercial Code, which equates receipt with taking physical possession. Judge Tucker declined to follow state law because the Supreme Court taught in Banco Nacional de Cuba that federal law displaces state law in international trade.
Judge Tucker thus looked at the Convention on Contracts for the Internal Sale of Goods, a treaty adopted by Congress and China, where the seller was located. The treaty applies unless the parties agree not to invoke international law.
Although the treaty does not define “received,” it does explain the consequences of shipping FOB. That term means that the risk of loss passes to the buyer when the goods are loaded on board. Therefore, Judge Tucker held that receipt occurred before bankruptcy.