United California Bank v. Eastern Mountain Sports, Inc.

546 F. Supp. 945, 34 U.C.C. Rep. Serv. (West) 849, 1982 U.S. Dist. LEXIS 14273
CourtDistrict Court, D. Massachusetts
DecidedJuly 15, 1982
DocketCiv. A. 78-1099-K
StatusPublished
Cited by30 cases

This text of 546 F. Supp. 945 (United California Bank v. Eastern Mountain Sports, Inc.) is published on Counsel Stack Legal Research, covering District Court, D. Massachusetts primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United California Bank v. Eastern Mountain Sports, Inc., 546 F. Supp. 945, 34 U.C.C. Rep. Serv. (West) 849, 1982 U.S. Dist. LEXIS 14273 (D. Mass. 1982).

Opinion

Opinion

KEETON, District Judge.

This action was tried before the court without a jury. Findings of fact are stated in parts II-V of this opinion. Conclusions of law and evaluative findings of mixed fact and law are stated in parts VI — XI. Undisputed background facts and the contentions of the parties are summarized in part I.

I.

Nature of the Case

Plaintiff, United California Bank (“UCB”), is a California banking corporation organized under the laws of California, having its principal place of business in Los Angeles. Defendant Eastern Mountain Sports, Inc. (“EMS”) is a corporation organized and existing under the laws of Massachusetts, with its corporate headquarters in Peterborough, New Hampshire. This court has jurisdiction of this action because of diversity of citizenship.

At all times material to this lawsuit, UCB has been engaged in the business of general banking. EMS is, and at all times relevant to this action has been, in the business of retail sales of garments, equipment, and other accessories used in camping, hiking, skiing, mountaineering, and other sports. UCB sues as assignee of accounts receivable of Snow Lion Corporation (“Snow Lion”), a winter-clothing manufacturer located in California, to recover from EMS amounts allegedly owing to Snow Lion for goods sold by Snow Lion to EMS. Near the close of trial the parties agreed that the amount EMS owes UCB on the unpaid invoices from the EMS-Snow Lion account is $265,-979.77. UCB claims 18% interest on this amount.

EMS asserts three offsets to UCB’s claim. First, EMS contends that certain goods labeled as “down” sold to EMS by Snow Lion were defective, causing EMS lost profits and consequential damages allowable under Mass.Gen. Laws Ann. ch. 106 [UCC], *949 §§ 2-714 and 2-715. Second, EMS argues that two different sets of advertising credits were agreed upon by Snow Lion but never issued to EMS. Third, EMS states that certain goods filled with synthetic fibers purchased from Snow Lion were defective and were delivered late, causing EMS additional losses. EMS asserts that each of its claims for offsets accrued before UCB notified EMS of the assignment and that therefore, under Mass.Gen. Laws Ann. ch. 106 [UCC], § 9 — 318(l)(b), these offsets to claims of Snow Lion are valid against UCB as assignee of Snow Lion. EMS argues in the alternative that, because its claims arise from the terms of the contract between EMS and Snow Lion, they may be asserted under Mass.Gen. Laws Ann. ch. 106 [UCC], § 9-318(l)(a) as offsets against UCB’s claim. In support of this argument, EMS contends that the course of dealing between the parties was to treat the EMS-Snow Lion account as a single contract, or “running account,” allowing EMS tó offset credits issued by Snow Lion against any outstanding invoices, whether or not those credits and invoices related to similar transactions. The amount of offsetting damages and credits claimed by EMS is $275,327.41.

UCB responds to the claimed offsets in three ways. First, UCB contends that in November of 1977 Snow Lion, and EMS reached an accord and satisfaction of any claims or defenses arising out of the sale of the defective down goods, and therefore EMS is barred from asserting its claims regarding these goods. Second, UCB argues that the claims of EMS for offsets did not accrue before notice of assignment and therefore cannot be asserted under Mass. Gen. Laws Ann. ch. 106 [UCC], § 9-318(l)(b). Finally, UCB contends that each of the 189 invoices to which the unpaid amounts correspond constitutes a separate contract and that EMS raised objections to the stated amounts of only two of these invoices. Thus, UCB asserts, EMS has no valid defense as to amounts due on 187 of the invoices and cannot offset its claims on the two to which it did raise objection against amounts owed to UCB on the remaining 187 invoices or contracts.

The parties have agreed that the law of the Commonwealth of Massachusetts applies to every aspect of this controversy.

II.

Nature of the Relationships Among UCB, EMS and Snow Lion

During the period from May 19, 1975 through January of 1978, EMS and Snow Lion had a continuing business relationship. Pursuant to a series of purchase orders placed by EMS, Snow Lion sold and delivered to EMS various goods including garments and other items filled with “down” (i.e., goose down and/or duck down), as well as garments and other items insulated with synthetic fibers. Snow Lion’s sales to EMS accounted for a substantial portion of Snow Lion’s business.

Snow Lion maintained an audit system for billing its customers by means of invoices, credit memos, and regular monthly statements. When Snow Lion accepted an order and shipped merchandise to a customer, it simultaneously provided the customer with an invoice setting forth the charges for the merchandise. If a customer objected to a particular invoice and Snow Lion verified the objection, the account was modified by means of an adjustment. In most cases the adjustment was reflected by means of a credit memo issued by Snow Lion and by adjustment entries on the monthly statement issued by Snow Lion. These monthly statements recapitulated all transactions — including invoices, credits, and payments — between Snow Lion and the customer and stated the total amount due Snow Lion on the account.

The evidence shows that Snow Lion did not automatically apply payments or credits to a customer’s current or oldest invoices. An information sheet on billing issued by Snow Lion to its customers directed each customer to specify, when making a pay *950 ment, the particular invoice to which the customer wanted the payment to apply. In addition, if the customer had received a credit memo, the customer was directed to state the invoice to which the customer wanted the credit applied. See Exhibit 31.

Snow Lion’s relationship with EMS was no different from its relationship with other customers, and Snow Lion followed these billing practices on its account with EMS. From time to time EMS would seek adjustments of particular invoices and if the adjustments were granted, a credit memo would usually be issued by Snow Lion. The course of dealing between Snow Lion and EMS was such that, if Snow Lion issued credits on a particular transaction after EMS had already paid the invoice reflecting that transaction, Snow Lion would allow EMS to apply the credits against unpaid invoices relating to other transactions. E.g., Deposition of William Simon, at 43-44, 53; Tr. II-4-5.

UCB’s relationship with Snow Lion began on or about March 18, 1977, when Snow Lion and the bank entered into an accounts receivable financing agreement, the terms of which are set forth in a Security and Loan Agreement. Exhibit 1. Under this agreement, UCB undertook to lend Snow Lion an amount not greater than 85% of the net amount owing on Snow Lion’s accounts receivable. As security for the loan, Snow Lion gave, UCB a security interest in, among other things, all of Snow Lion’s accounts receivable and other contract rights existing at the time a given loan was made or arising thereafter. On June 9, 1977, UCB perfected its security interest in the accounts receivable of Snow Lion by filing a financing statement with the Secretary of State of the State of California.

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Bluebook (online)
546 F. Supp. 945, 34 U.C.C. Rep. Serv. (West) 849, 1982 U.S. Dist. LEXIS 14273, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-california-bank-v-eastern-mountain-sports-inc-mad-1982.