(1) Where the seller discovers the buyer to be insolvent, he may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery under this article (Section 2-705 [55-2-705 NMSA 1978]).

(2) Where the seller discovers that the buyer has received goods on credit while insolvent, he may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the ten-day limitation does not apply. Except as provided in this subsection, the seller may not base a right to reclaim goods on the buyer's fraudulent or innocent misrepresentation of solvency or of intent to pay.

(3) The seller's right to reclaim under Subsection (2) is subject to the rights of a buyer in ordinary course or other good faith purchaser under this article (Section 2-403 [55-2-403 NMSA 1978]). Successful reclamation of goods excludes all other remedies with respect to them.

History: 1953 Comp., § 50A-2-702, enacted by Laws 1961, ch. 96, § 2-702.

OFFICIAL COMMENTS

UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.

Prior uniform statutory provision. — Subsection (1) - Sections 53(1) (b), 54(1) (c) and 57, Uniform Sales Act; Subsection (2) - none; Subsection (3) - Section 76(3), Uniform Sales Act.

Changes. — Rewritten, the protection given to a seller who has sold on credit and has delivered goods to the buyer immediately preceding his insolvency being extended.

Purposes of changes and new matter. — To make it clear that:

1. The seller's right to withhold the goods or to stop delivery except for cash when he discovers the buyer's insolvency is made explicit in Subsection (1) regardless of the passage of title, and the concept of stoppage has been extended to include goods in the possession of any bailee who has not yet attorned to the buyer.

2. Subsection (2) takes as its base line the proposition that any receipt of goods on credit by an insolvent buyer amounts to a tacit business misrepresentation of solvency and therefore is fraudulent as against the particular seller. This article makes discovery of the buyer's insolvency and demand within a ten day period a condition of the right to reclaim goods on this ground. The ten day limitation period operates from the time of receipt of the goods.

An exception to this time limitation is made when a written misrepresentation of solvency has been made to the particular seller within three months prior to the delivery. To fall within the exception the statement of solvency must be in writing, addressed to the particular seller and dated within three months of the delivery.

3. Because the right of the seller to reclaim goods under this section constitutes preferential treatment as against the buyer's other creditors, Subsection (3) provides that such reclamation bars all his other remedies as to the goods involved. As amended 1966.

Point 1: Sections 2-401 and 2-705.

Compare Section 2-502.

"Buyer". Section 2-103.

"Buyer in ordinary course of business". Section 1-201.

"Contract". Section 1-201.

"Good faith". Section 1-201.

"Goods". Section 2-105.

"Insolvent". Section 1-201.

"Person". Section 1-201.

"Purchaser". Section 1-201.

"Receipt" of goods. Section 2-103.

"Remedy". Section 1-201.

"Rights". Section 1-201.

"Seller". Section 2-103.

"Writing". Section 1-201.

Tender of insufficient funds checks constitutes written misrepresentation of solvency for the purposes of this section. Amoco Pipeline Co. v. Admiral Crude Oil Corp., 490 F.2d 114 (10th Cir. 1974).

Sellers' right to stop delivery. — Upon the notice given by the oil producing sellers to other seller, prior to February 10, 1972 to stop delivery of the crude oil to bankrupt based upon the previous dishonoring by the drawee bank of bankrupt's "insufficient funds" checks to the sellers, the sellers thereby timely exercised their rights of stoppage in transitu under this section. Amoco Pipeline Co. v. Admiral Crude Oil Corp., 490 F.2d 114 (10th Cir. 1974).

Law reviews. — For article, "Buyers and Sellers of Goods in Bankruptcy," see 1 N.M. L. Rev. 435 (1971).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 37 Am. Jur. 2d Fraud and Deceit § 9; 68A Am. Jur. 2d Secured Transactions §§ 13, 106.

Effect on remedies of seller of contract requiring seller to look to property alone for payment, 17 A.L.R. 714.

Seller's rights in respect of the property, or its proceeds, upon dishonor of draft or check for purchase price, on a cash sale, 31 A.L.R. 578, 54 A.L.R. 526.

Buyer's insolvency, 58 A.L.R. 1301, 117 A.L.R. 1105.

Right to enforce vendor's lien against property purchased by municipality, 76 A.L.R. 695.

Revival of seller's lien on return of chattel to seller after delivery to buyer, and effect of such return on conditions of enforcement of lien, 118 A.L.R. 564.

77A C.J.S. Sales § 325 et seq.