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Sony Corporation of America, Now Known as Sony Electronics, Inc. v. Bank One, West Virginia, Huntington Na, Formerly Known as First Huntington National Bank, N.A. v. The Stereo Factory, Incorporated, Sony Corporation of America, Now Known as Sony Electronics, Inc. v. The Stereo Factory, Incorporated Bank One, West Virginia, Huntington Na, Formerly Known as First Huntington National Bank, N.A.

Citation: 85 F.3d 131Docket: 94-2230

Court: Court of Appeals for the First Circuit; July 16, 1996; Federal Appellate Court

Narrative Opinion Summary

This case involves a legal dispute between two secured creditors, Sony Corporation of America and Bank One, over the priority of claims to the proceeds from the sale of inventory by Stereo Factory, Inc. At the core of the case is the interpretation of W.Va. Code § 46-9-312 under the U.C.C., which determines the priority of purchase money security interests in inventory and identifiable cash proceeds. Sony, holding a purchase money security interest, claimed priority to the proceeds from the sale of audio cassette tapes to Stereo Factory, asserting that these proceeds were received 'on or before delivery.' The district court ruled in favor of Sony, finding the payments were made in a manner consistent with the statute. The court also affirmed that the proceeds deposited in Stereo Factory's commingled accounts remained identifiable under the lowest intermediate balance rule. The Bank's appeal challenged these findings, particularly the timing of payments and the identifiability of proceeds, but the court's decision was upheld with minor modifications regarding damages. The case underscores the intricate application of secured transactions law and the importance of precise contractual arrangements to protect secured interests.

Legal Issues Addressed

Application of the Lowest Intermediate Balance Rule

Application: The rule was used to trace and identify proceeds in Stereo Factory's accounts, maintaining Sony's security interest provided the account balance remained above the deposited proceeds.

Reasoning: Under Article 9 of the U.C.C., the 'lowest intermediate balance rule' is applied to trace and identify proceeds.

Identifiability of Cash Proceeds in Commingled Accounts

Application: The funds transferred to a savings account from Stereo Factory's checking account were deemed identifiable proceeds despite being mixed with other funds.

Reasoning: The district court's determination that funds transferred to a savings account were identifiable proceeds, despite being mixed with other funds, was affirmed.

Interpretation of 'On or Before Delivery' under W.Va. Code § 46-9-312

Application: The court found that payment received the day after delivery was reasonably contemporaneous under business customs, thus constituting payment 'on delivery.'

Reasoning: The district court found that Delinda Camera's payment for a shipment of tapes, although dated the day after delivery, was reasonably contemporaneous with the delivery and thus constituted payment 'on delivery.'

Priority of Purchase Money Security Interest under U.C.C.

Application: Sony maintained a first-priority claim under W.Va. Code § 46-9-312 for identifiable cash proceeds received on or before delivery, despite the payment timing issues.

Reasoning: The court upheld the district court's conclusion that Sony maintained a first-priority claim under W.Va. Code § 46-9-312, which allows priority for identifiable cash proceeds received on or before delivery.

Set-off of Bank Accounts by Secured Creditors

Application: The Bank's set-off of funds from Stereo Factory's accounts did not negate Sony's claim to identifiable proceeds under its purchase money security interest.

Reasoning: On September 17, the Bank, without prior notice to Stereo Factory, set off $123,912.94 from the sweep account and $78,266.64 from the savings account, totaling $202,179.58, to apply against Stereo Factory's debt.