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LJN NewslettersNewsSectionsThe Bankruptcy Strategist

'Would You Like Fries with That?'

BY Steve Krause
July 27, 2010

In 2005, ' 503(b)(9) was added to the Bankruptcy Code to provide an administrative priority claim for the “value of any goods received by the debtor within 20 days before the date of commencement of a case ' in which the goods have been sold to the debtor in the ordinary course of such debtor's business.” Recent court decisions addressing the classification of “goods” versus “services” have shed some light on the proper definition of “goods” in the context of whether a particular claim is for “goods” under ' 503(b)(9). However, these decisions have left open some key questions. For instance, while court decisions have considered whether certain types of claims constitute “goods,” many fact patterns remain to be addressed. Further, courts disagree on whether mixed contracts for goods and services should be bifurcated into “goods” and “services,” or whether the entire contract should be treated as a contract for goods or for services. Finally, there is a lack of clarity on whether a single “federal” definition of “goods” should be used, or whether courts will look to applicable state law for this definition.

Relevance of the Definition of 'Goods'

Because ' 503(b)(9) refers specifically to “goods,” courts have consistently held that claims for administrative expenses under ' 503(b)(9) can only be for goods sold rather than services provided. Thus, courts have been called on to distinguish “goods” from “services” and, unfortunately, the distinction is not always clear. The term “goods” is not defined in the Bankruptcy Code, see 4 COLLIER ON BANKRUPTCY, p. 503.16[1] (Alan N. Resnick & Henry J. Sommer eds, 16th ed.). However, the definition of “goods” used in the Uniform Commercial Code (“UCC”) has been adopted by most courts that have considered ' 503(b)(9).

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