PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

SONY CORPORATION OF AMERICA, now
known as Sony Electronics, Inc.,
Plaintiff-Appellee,

v.

BANK ONE, WEST VIRGINIA,
HUNTINGTON NA, formerly known as
                                                             No. 94-2230
First Huntington National Bank,
N.A.,
Defendant-Appellant,

v.

THE STEREO FACTORY, INCORPORATED,
Defendant-Appellee.

SONY CORPORATION OF AMERICA, now
known as Sony Electronics, Inc.,
Plaintiff-Appellant,

v.

THE STEREO FACTORY, INCORPORATED;
                                                             No. 94-2334
BANK ONE, WEST VIRGINIA,
HUNTINGTON NA, formerly known as
First Huntington National Bank,
N.A.,
Defendants-Appellees.

Appeals from the United States District Court
for the Southern District of West Virginia, at Huntington.
Robert J. Staker, Senior District Judge.
(CA-92-1099-3)

Argued: July 10, 1995
Decided: May 30, 1996

Before RUSSELL, WIDENER, and HALL, Circuit Judges.

_________________________________________________________________

Affirmed as modified by published opinion. Judge Russell wrote the
majority opinion, in which Judge Hall joined. Judge Widener wrote
a dissenting opinion.

_________________________________________________________________

COUNSEL

ARGUED: Daniel Joseph Konrad, HUDDLESTON, BOLEN,
BEATTY, PORTER & COPEN, Huntington, West Virginia, for
Appellant. Bonnie Irvin O'Neil, THOMPSON, HINE & FLORY,
Columbus, Ohio, for Appellees. ON BRIEF: Thomas R. Allen,
THOMPSON, HINE & FLORY, Columbus, Ohio; Richard M. Fran-
cis, BOWLES, RICE, MCDAVID, GRAFF & LOVE, Charleston,
West Virginia, for Appellee Sony Corp.

_________________________________________________________________

OPINION

RUSSELL, Circuit Judge:

This case involves a dispute between two secured creditors with
competing claims to the proceeds from the sale of inventory. The
main issue before this court is whether Sony Corporation of America
("Sony"), the holder of a purchase money secured interest in the
inventory, had a first-priority claim in the proceeds even though the
seller received payment for the inventory on the day after the delivery
of the goods to the buyer. We must decide just how strictly we should
read § 9-312 of the Uniform Commercial Code, which gives the
holder of a purchase money secured interest in inventory "priority in
identifiable cash proceeds received on or before the delivery of the
inventory to a buyer . . . ." W. Va. Code § 46-9-312(3) (emphasis
added). The district court concluded that Sony had a first priority

                    2
claim in the proceeds, notwithstanding the fact that payment was
received on the day after the delivery of the goods. We agree.

This case also presents a second issue regarding the identifiability
of cash proceeds that are deposited in the seller's checking account
and comingled with other funds in that account. We must decide
whether the district court could presume that the seller had transferred
a portion of the proceeds to a savings account even though the seller
had clearly earmarked those funds as having originated from another
source. We conclude that the district court correctly determined that
the funds transferred to the savings account constituted identifiable
proceeds from the sale of the inventory. We therefore affirm the deci-
sion of the district court, although we make a slight modification to
the judgment regarding the calculation of damages.

I.

Stereo Factory, Inc., one of the defendants, is a West Virginia cor-
poration, primarily located in Huntington, West Virginia. On August
23, 1988, the First Huntington National Bank1 (the "Bank"), the other
defendant, loaned $200,000 to Stereo Factory. The loan was secured
by a blanket security agreement granting the Bank a security interest
in virtually all of Stereo Factory's personal property, including its
inventory. On July 13, 1989, the Bank made a second loan in the
amount of $550,000 and secured by a second security agreement. The
Bank perfected its security interests by filing the appropriate financ-
ing statements with the proper authorities.

On August 16, 1990, Sony entered into a purchase money security
agreement with Stereo Factory. Sony agreed to extend credit to Stereo
Factory for the purchase of Sony merchandise. In return, Stereo Fac-
tory granted Sony a purchase money security interest in all goods and
inventory sold to it by Sony, as well as the proceeds of those goods
and inventory. Sony perfected its security interest and notified the
holders of conflicting security interests, including the Bank, that Sony
held a purchase money security interest in the inventory.
_________________________________________________________________
1 The First Huntington National Bank is now known as Bank One,
West Virginia, Huntington NA.

                    3
On August 19, 1992, Stereo Factory submitted to Sony a purchase
order for 1,150,000 audio cassette tapes at the price of $.55 per tape.
Stereo Factory made a down payment of $160,000 on the following
day. On August 21, 1992, Sony sent a shipment of 227,860 tapes to
Stereo Factory for a total invoice price of $125,323. Upon receiving
the shipment, Stereo Factory sent the tapes to H.K. Tronics, one of
its customers. H.K. Tronics received the first shipment on August 27,
and on that day paid for the shipment by a cashier's check in the
amount of $120,765.80 payable to Stereo Factory. 2 On August 31,
Stereo Factory deposited the check into a checking account that it
maintained with the Bank.

Also on August 21, 1992, Sony sent a second shipment of 422,140
audio cassette tapes to Stereo Factory for a total invoice price of
$232,177. Upon receiving the shipment, Stereo Factory immediately
sent the tapes to Delinda Camera & Art Supply ("Delinda Camera"),
another one of its customers. Delinda Camera received the shipment
on August 24, and issued a check that same day for $221,655, payable
to Stereo Factory. Delinda Camera gave the check to the driver of the
truck that delivered the shipment. Stereo Factory deposited the check
into its checking account on August 25.

In this case, we are most concerned with the third and final ship-
ment of tapes. On August 31, 1992, Sony shipped the remaining
500,000 audio cassette tapes to Stereo Factory for the total invoice
price of $275,000. Upon receiving the shipment, Stereo Factory
immediately sent the tapes to Delinda Camera, which received the
shipment on September 3. Delinda Camera had agreed to pay
$262,500 for the shipment, subject to a $20,000 discount if it paid for
the tapes in cash within three days of receipt. On September 4,
Delinda Camera issued a check payable to Stereo Factory for
$242,468.50.3 Delinda Camera either gave the check directly to the
_________________________________________________________________
2 The record does not explain why Stereo Factory was selling ship-
ments of tapes at a loss. Cf. Joseph Heller, Catch-22 229 (New Laurel
ed., Dell Publishing 1990) (1955) (chapter 22) (Milo Minderbinder
explains how he can make a profit buying eggs at seven cents apiece and
selling them for five cents).
3 Delinda Camera deducted $31.50 from the price because the shipment
was short by 60 tapes.

                    4
truck driver or mailed it to Stereo Factory by overnight mail. The Ste-
reo Factory invoice documenting this transaction confirms a delivery
date of September 3 and a payment date of September 4. Stereo Fac-
tory deposited the check into its checking account on September 8.

Although Stereo Factory received full payment from its customers
for the three shipments of tapes, it did not make any payments to
Sony except for the $160,000 down payment. After deducting various
credits, Stereo Factory owes Sony a total of $468,720.51 for the three
shipments.

While Stereo Factory was not paying its debt to Sony, on Septem-
ber 9, 1992, Stereo Factory sold its Parkersburg operation to T.D.S.,
Inc. ("T.D.S.") for $250,000. T.D.S. obtained a loan from the Bank,
which issued a cashiers check to T.D.S. The cashiers check, No.
246208, contained the words "Loan proceeds." Upon receiving the
cashiers check from T.D.S., Stereo Factory deposited it into its check-
ing account. Also on September 9, Stereo Factory opened a savings
account, which was pledged to the Bank to secure Stereo Factory's
outstanding loans. In opening the savings account, Stereo Factory
deposited a check in the amount of $78,266.64 drawn from its check-
ing account. Stereo Factory indicated in two ways that it intended the
$78,266.64 amount to come from the $250,000 it had just deposited
into the Checking Account. First, the check issued by Stereo Factory
contained the words "Loan Proceeds Receipt." Second, the savings
account deposit slip contained the words "Proceed of Cashiers Check
246208."

Stereo Factory also maintained a sweep account with the Bank.
The funds in this account were used to purchase part of the Bank's
investment portfolio. This account was aptly named because Stereo
Factory would periodically "sweep" funds from the checking account
into the sweep account so that Stereo Factory could earn a return on
those funds. On September 15, 1992, Stereo Factory transferred the
entire balance of the checking account, $221,419.80, into the sweep
account. Over the next few days, some of those funds were trans-
ferred back to the checking account to pay off various creditors. On
September 17, when the Bank took action against Stereo Factory to
collect on its outstanding loans, $123,912.94 remained in the sweep
account.

                    5
Without giving Stereo Factory prior notice, the Bank set off
$123,912.94 from the sweep account and $78,266.64 from the savings
account, for a total of $202,179.58. The funds were applied toward
the principal that Stereo Factory owed to the Bank. The Bank also liq-
uidated additional collateral in order to further reduce Stereo Facto-
ry's indebtedness.

On December 2, 1992, Sony brought this action against Stereo Fac-
tory to recover on Stereo Factory's debt in the amount of
$468,720.51, which represents the unpaid portion of the cost of the
three shipments of tapes. On March 5, 1993, Sony added the Bank as
a defendant and sought from the Bank the recovery of the
$202,179.58 set off from Stereo Factory's bank accounts. Sony
claimed that the moneys in Stereo Factory's bank accounts, which the
Bank seized and converted, constituted identifiable proceeds of
Sony's purchase money collateral, to which Sony had a first priority
claim.

The parties jointly filed stipulations of fact, and no factual dispute
having remained, Sony and the Bank filed cross-motions for summary
judgment. On August 30, 1994, the district court granted summary
judgment in favor of Sony against the Bank in the amount of
$202,179.58. The district court also granted summary judgment in
favor of Sony against Stereo Factory in the amount of $266,540.93,
which constitutes the difference between the amount due to Sony
from Stereo Factory and Sony's judgment from the Bank.

The Bank has appealed the decision of the district court. Sony has
also filed a cross-appeal in which it argues that the district court
should have entered a judgment against Stereo Factory in the amount
of $468,720.51, instead of $266,540.93. For the reasons stated herein,
we affirm the district court's granting of summary judgment in favor
of Sony, but we modify the judgment against Stereo Factory as
requested in Sony's cross-appeal.

II.

This Court reviews de novo the district court's granting or denying
of summary judgment. Lone Star Steakhouse & Saloon, Inc. v. Alpha
of Virginia, Inc., 43 F.3d 922, 928 (4th Cir. 1995). Summary judg-

                    6
ment is appropriate where the record shows that"there is no genuine
issue as to any material fact and that the moving party is entitled to
a judgment as a matter of law." Fed. R. Civ. P. 56(c).

This case turns on the interpretation of § 9-312(3) of the Uniform
Commercial Code ("U.C.C."), which West Virginia has adopted. That
section reads as follows:

          (3) A perfected purchase money security interest in
          inventory has priority over a conflicting security interest in
          the same inventory and also has priority in identifiable cash
          proceeds received on or before the delivery of the inventory
          to a buyer if:

          (a) The purchase money security interest is
          perfected at the time the debtor receives posses-
          sion of the inventory; and

          (b) The purchase money secured party gives
          notification in writing to the holder of the conflict-
          ing security interest if the holder had filed a
          financing statement covering the same types of
          inventory (i) before the date of the filing made by
          the purchase money secured party, or (ii) before
          the beginning of the twenty-one day period where
          the purchase money security interest is temporarily
          perfected without filing or possession (subsection
          (5) of section 9-304 [§ 46-9-304(5)]); and

          (c) The holder of the conflicting security inter-
          est receives the notification within five years
          before the debtor receives possession of the inven-
          tory; and

          (d) The notification states that the person giv-
          ing the notice has or expects to acquire a purchase
          money security interest in inventory of the debtor,
          describing such inventory by item or type.

W. Va. Code § 46-9-312(3) (emphasis added).

                    7
The issue in this case is whether the proceeds from the third ship-
ment of tapes were delivered "on or before the delivery" of the goods.
The parties have stipulated that the shipment was delivered on Sep-
tember 3, 1992, and that Delinda Camera's check in payment for the
shipment was dated September 4, 1992. The check was either given
directly to the truck driver who delivered the shipment or mailed to
Stereo Factory by overnight mail.4 The Bank argues that payment was
not made "on or before the delivery" because Stereo Factory did not
receive payment on the day of delivery.

This issue is critical because it determines which party has priority
to the proceeds of the third shipment of tapes. If Stereo Factory
received payment "on or before the delivery" of the third shipment of
tapes, as Sony contends, then Sony has a first priority purchase
money security interest in those proceeds under§ 46-9-312(3).5 If
Stereo Factory did not receive payment "on or before the delivery"
and Sony therefore does not have a priority interest under § 46-9-
312(3), then the Bank has a priority interest in the proceeds under
§ 46-9-312,(5)6 which provides that the first party to file and perfect
its secured interest takes priority.
_________________________________________________________________
4 The parties had difficulty establishing the exact events that transpired
because they could not locate the truck driver who delivered the ship-
ment.
5 The district court found that Sony met the four enumerated require-
ments of § 46-9-312(3). The Bank does not challenge this finding on
appeal.
6 Section 46-9-312(5) reads as follows:

         (5) In all cases not governed by other rules stated in this sec-
         tion (including cases of purchase money security interests which
         do not qualify for the special priorities set forth in subsections
         (3) and (4) of this section), priority between conflicting security
         interests in the same collateral shall be determined according to
         the following rules:

         (a) Conflicting security interests rank according to prior-
         ity in time of filing or perfection. Priority dates from the
         time a filing is first made covering the collateral or the time
         the security interest is first perfected, whichever is earlier,
         provided that there is no period thereafter when there is nei-
         ther filing nor perfection.

         (b) So long as conflicting security interests are unper-
         fected, the first to attach has priority.

                    8
The "on or before the delivery" language of§ 46-9-312(3) was
meant to distinguish between cash proceeds and accounts proceeds.
Comment 3 to § 46-9-312 reads as follows:

          When under these rules the purchase money secured party
          has priority over another secured party, the question arises
          whether this priority extends to the proceeds of the original
          collateral. . . . In the case of inventory collateral under sub-
          section (3), where it was expected that the goods would be
          sold and where financing frequently is based on the result-
          ing accounts, chattel paper, or other proceeds, the subsection
          gives an answer limited to the preservation of the purchase
          money priority only insofar as the proceeds are cash
          received on or before the delivery of the inventory to a
          buyer, that is, without the creation of an intervening account
          to which conflicting rights might attach.

W. Va. Code § 46-9-312 cmt. 3 (emphasis added). Where the sale of
inventory results in an account, the rights of the purchase money
secured creditor in the proceeds may conflict with the rights of other
creditors who have security interests in the accounts. The drafters of
the U.C.C. decided to protect accounts financers over inventory
financers, and they limited the priority of purchase money secured
creditors to the cash proceeds of inventory collateral. As comment 8
to § 46-9-312 explains:

          Many parties financing inventory are quite content to protect
          their first security interest in the inventory itself, realizing
          that when inventory is sold, someone else will be financing
          the accounts and the priority for inventory will not run for-
          ward to the accounts. Indeed, the cash supplied by the
          accounts financer will be used to pay the inventory financ-
          ing.

W. Va. Code § 46-9-312 cmt. 8. In using the"on or before the deliv-
ery" language of § 46-9-312(3), the framers intended to differentiate
between transactions in which the buyer paid in cash and transactions
in which the buyer set up a credit arrangement and ended up owing
the seller for the cost of the goods.

                    9
Delinda Camera did not purchase the third shipment of tapes from
Stereo Factory on credit. Delinda Camera and Stereo Factory clearly
contemplated a cash transaction, and Delinda Camera's payment for
the shipment included a $20,000 discount for payment in cash. Fur-
thermore, the fact that Delinda Camera issued its check on the day
following the receipt of the third shipment of tapes does not imply
that credit was extended to Delinda Camera. Given the realities of
modern business, it is reasonable to expect a slight delay between the
unloading of goods and the issuance of a check in payment for those
goods. In a large company, it may take several hours--or even
overnight--for the paperwork to travel from the receiving depart-
ment, where the goods are unloaded, to the bookkeeping department,
where the payment check is issued. Such a delay merely reflects the
time it takes an organization to process its work; it does not indicate
the extension of credit for that short period of time. Moreover, if a
buyer receives a shipment of goods after its business office has closed
for the day, it may pay for that shipment on the following morning
simply because there was no chance to issue a check earlier.

We agree with the district court that, although the check was dated
the day after delivery, Delinda Camera's payment for the third ship-
ment of tapes was reasonably contemporaneous with the delivery of
the goods and constituted payment "on delivery." We therefore reject
the Bank's argument that Delinda Camera could have made payment
"on delivery" only if it tendered its check to the truck driver or mailed
its check to Stereo Factory on the same day that the shipment was
delivered. We find that the Bank's position would lead to arbitrary
results. Assume, for instance, that the truck driver arrived at Delinda
Camera's premises at 9:00 a.m. on September 3, unloaded the third
shipment of tapes, and drove off to his next destination. In this situa-
tion, it should make little difference whether Delinda Camera wrote
and mailed its check at 5:00 p.m. on September 3 or at 9:00 a.m. on
September 4; either check would have been written after the truck
driver left the premises, but within a reasonable period of time to be
considered contemporaneous with delivery under normal business
practices. Under the Bank's rule, however, mailing the check at the
close of business on September 3 would be considered payment on
delivery, but mailing the check at the opening of business the follow-
ing morning would be considered payment after delivery. We see no
reason why we should adopt such an arbitrary distinction.

                     10
We note that Sony's and the Bank's dispute over the proceeds in
question turns on the payment arrangements of Stereo Factory and
Delinda Camera, neither of whom had a particular interest in whether
payment was made "on or before the delivery" of the third shipment
of tapes. In this situation, Sony could have done more to protect its
purchase money secured interest in the inventory. In its contractual
arrangement to supply Stereo Factory with tapes, it could have
required Stereo Factory, when its sells its inventory, to receive pay-
ment in cash on or before delivery of the inventory. Sony did not
include such a provision in its contract with Stereo Factory and, thus,
conditioned its purchase money security interest in the proceeds on
the actions of Stereo Factory and its customer. Although we hold that
Delinda Camera's check dated the day following delivery constituted
payment on delivery in this case, we would not have tolerated a lon-
ger delay. As the district court warned, "[e]very moment of delay
between the delivery and the payment should be accounted for and
the greater the delay, the more likely the purchase money secured
party will be unable to avail itself of the protections of [W. Va. Code
§ 46-9-312(3)]." Sony Corp. of America v. The Stereo Factory, Inc.,
Civil Action No. 3:92-1099, am. mem. op. at 12 (S.D. W. Va. Sept.
2, 1994). Purchase money secured creditors would behoove them-
selves to require by contract that all payments for the sale of the pur-
chase money inventory be received in cash on or before the delivery.

III.

We now turn to the question of whether the funds set off by the
Bank from Stereo Factory's savings account are "identifiable" pro-
ceeds of the sale of the third shipment of tapes. See W. Va. Code
§ 46-9-312(3) ("A perfected purchase money security interest in
inventory has priority over a conflicting security interest in the same
inventory and also has priority in identifiable cash proceeds received
on or before the delivery of the inventory to a buyer . . . ." (emphasis
added)). The proceeds from the sale of the third shipment of tapes
were placed in Stereo Factory's checking account on September 8,
1992, when Stereo Factory deposited Delinda Camera's check in the
amount of $242,468.50. On September 17, 1992, the Bank set off
$123,912.94 from Stereo Factory's checking account and $78,266.64
from its savings account. The Bank argues on appeal that the moneys

                    11
in the savings account are not identifiable cash proceeds from the sale
of the third shipment of tapes.

In tracing and identifying proceeds under Article 9 of the U.C.C.,
courts have utilized the "lowest intermediate balance rule." E.g.,
C & H Farm Serv. Co. of Iowa v. Farmers Savings Bank, 449
N.W.2d 866 (Iowa 1989); General Motors Acceptance Corp. v. Nor-
star Bank, N.A., 532 N.Y.S.2d 685 (N.Y. Sup. Ct. 1988); Ex parte
Alabama Mobile Homes, Inc., 468 So.2d 156 (Ala. 1987). This rule
has been defined as follows:

          The rule, which operates on a common-sense view that
          dollars are fungible and cannot practically be earmarked in
          an account, provides a presumption that proceeds remain in
          the account as long as the account balance is equal to or
          greater than the amount of the proceeds deposited. The pro-
          ceeds are "identified" by presuming that they remain in the
          account even if other funds are paid out of the account. . . .
          Under the rule, however, if the balance of the account dips
          below the amount of deposited proceeds, [the prior] security
          interest in the identifiable proceeds abates accordingly. This
          lower balance is not increased if, later, other funds of the
          debtor are deposited in the account . . . .

C.O. Funk & Sons, Inc. v. Sullivan Equipment, Inc., 431 N.E.2d 370,
372 (Ill. 1982). The lowest intermediate balance rule assumes that
"the debtor spends his own money out of the account before he
spends the funds encumbered by the security interest." Ex parte Ala-
bama Mobile Homes, Inc., 468 So.2d 156, 160 (Ala. 1985). Further-
more, funds that are not spent but transferred to other accounts or
used to purchase investments are identifiable as proceeds of the col-
lateral. Central Production Credit Ass'n v. Hans , 545 N.E.2d 1063,
1072-74 (Ill. App. Ct. 1989) (funds in checking account were identifi-
able proceeds even though the funds had been used to purchase
investments, which were then sold and redeposited into the checking
account). Thus, the rule preserves the proceeds to the greatest extent
possible as the account is depleted. C. O. Funk & Sons, 431 N.E.2d
at 372.

                    12
On September 9, 1992, the day after Stereo Factory deposited the
proceeds into the checking account, Stereo Factory transferred
$78,266.64 from its checking account to its savings account. Before
making this transfer, however, Stereo Factory deposited a check in the
amount of $250,000 it had received from the sale of its Parkersburg
operation. Stereo Factory indicated in several ways that it intended
the $78,266.64 transferred to the savings account to come from the
$250,000 it had just deposited into the checking account. First, the
check issued by Stereo Factory and deposited into the savings account
contained the words "Loan Proceeds Receipt," which referred to the
$250,000 cashiers check.7 Second, the savings account deposit slip
contained the words "Proceed of Cashiers Check 246208." The Bank
argues that, because Stereo Factory earmarked the $78,266.64 in the
savings account to come from the $250,000 cashiers check, the funds
in the savings account cannot be identified as proceeds from the sale
of the third shipment.

We disagree. We state again that "dollars are fungible and cannot
practically be earmarked in an account . . . ." C.O. Funk & Sons, 431
N.E.2d at 372. Once Stereo Factory deposited the $250,000 in its
checking account, those funds were commingled with the other funds
in the account and lost their identity as proceeds from the sale of the
Parkersburg operation. Stereo Factory no longer had the ability to iso-
late a portion of that $250,000 and transfer those specific funds to its
savings account. The words on the check and deposit slip merely pro-
vided useful notes for Stereo Factory's internal recordkeeping. Those
notes, however, did not earmark the transferred funds and do not
override the operation of the lowest intermediate balance rule.

Stereo Factory transferred $78,266.64 from its checking account to
its savings account. The lowest intermediate balance rule allows a
court to presume that those funds were identifiable cash proceeds
from the sale of the third shipment of tapes.
_________________________________________________________________

7 The cashiers check in the amount of $250,000 constituted the pro-
ceeds of a loan from the Bank to T.D.S., which T.D.S. then used to pur-
chase Stereo Factory's Parkersburg operation. The cashiers check itself
contained the words "Loan Proceeds."

                    13
IV.

Finally, we turn to Sony's cross-appeal. Sony contends that the dis-
trict court erred in granting a judgment against Stereo Factory in the
amount of only $266,540.93. In determining this amount, the district
court reduced the full amount that Stereo Factory owed to Sony
($468,720.51) by the amount of Sony's judgment against the Bank
($202,179.58). The Bank reasoned that a judgment of $468,720.51
against Stereo Factory and $202,179.58 against the Bank would
create a windfall for Sony. Sony argues in its cross-appeal that the
district court should have awarded Sony a judgment against Stereo
Factory in the full amount owed, $468,720.51. We agree.

Sony has a judgment against the Bank in the amount of
$202,179.58 because the Bank set off from Stereo Factory's accounts
funds to which Sony had first priority. Despite the Bank's set-off and
Sony's judgment against the Bank, the fact remains that Stereo Fac-
tory owes Sony $468,720.51. Sony is entitled to a judgment against
Stereo Factory in that amount. Of course, the judgment against Stereo
Factory should be reduced by the amount of any funds collected from
the Bank. But, in the case that the Bank cannot pay its judgment in
full, Sony has the right to seek from Stereo Factory the balance of its
debt.

In all likelihood, the Bank will pay its judgment in full, and the
judgment against Stereo Factory will be reduced to $266,540.93, the
amount awarded by the district court. The Bank, after all, is the only
defendant with the funds to pay its judgment, and Sony asserted its
priority to the $202,179.58 set off by the Bank precisely because it
knew that Stereo Factory does not have the funds to pay its judgment.

Nonetheless, correcting the judgment serves a purpose. It makes
clear that Stereo Factory is ultimately liable for the full amount of its
unpaid debt to Sony, and that any amounts paid by the Bank to Sony
reduces the debt that Stereo Factory owes to Sony. Thus, the Bank has
a right to indemnification from Stereo Factory for any amount it must
pay to Sony because that money reduces Stereo Factory's debt to
Sony. The district court, by reducing the judgment against Stereo Fac-
tory to $266,540.93, perhaps indicated that Stereo Factory was no
longer obligated to pay the remaining $202,179.58 and that the Bank

                    14
would not be entitled to indemnification for that amount. We want
there to be no confusion that the Bank can look to Stereo Factory for
indemnification for any money that it must pay to Sony.

We conclude that the district court erred in awarding a judgment
against Stereo Factory in the amount of $266,540.93. It should have
awarded Sony a judgment against Stereo Factory in the amount of
$468,720.51, subject to be reduced by any amounts collected from the
Bank.

V.

For the foregoing reasons, we affirm the district court's granting of
summary judgment in favor of Sony, and we modify the order to
reflect a judgment against Stereo Factory in the amount of
$468,720.51, subject to be reduced by any amounts collected from the
Bank.

AFFIRMED AS MODIFIED

WIDENER, Circuit Judge, dissenting:

I respectfully dissent for two reasons, neither of which is more
important than the other.

First, this case involves a question of state law that has not been
answered by the West Virginia courts or in any other reported deci-
sion. As a matter of procedure and prudent deferment to the state
courts, I believe this court should let West Virginia courts decide this
novel question of state law. Second, having reached the merits of this
case, I suggest that the majority misconstrues the facts of the case as
well as the language of the applicable statute to achieve what can only
be termed an incorrect result.

I.

This is a case of first impression, not only in the federal courts, but
also in the courts of the fifty states. It is purely a question of state law.
Especially for those reasons, I think the refusal of the majority to refer

                      15
the question decided to the Supreme Court of West Virginia is an
abuse of discretion if it is possible to impose that standard in the situ-
ation presented here. Declining to accept the open invitation of the
courts of a State to decide such a question of law, uniquely state, may
even be said without undue exaggeration to border on a return to Swift
v. Tyson, 16 Pet. (41 U.S.) 1 (1842); forgetting, along the way, the
teaching of Erie that "whether the law of the State shall be declared
by its Legislature in a statute or by its highest court in a decision is
not a matter of federal concern. There is no federal general common
law." Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).

II.

This case is on appeal from an order on summary judgment. We
review summary judgment orders de novo. Donmar Enters., Inc. v.
Southern Nat'l Bank of North Carolina, 64 F.3d 944, 948 (4th Cir.
1995).

III.

Both the district court and the majority erred, I submit, in the prin-
cipal premise of each of those decisions when each found that
Delinda Camera did not purchase the third shipment of tapes on
credit. The district court found:

          It [,Delinda Camera,] did not purchase the tapes in the Third
          Shipment on credit.

Mem. Op. & Order, at 10, Sept. 2, 1994. JA 144. The majority found:

          Delinda Camera did not purchase the third shipment of tapes
          from Stereo Factory on credit.

Slip. op. at 10. This mistaken statement of fact goes to the heart of
the majority's opinion and I think it is plainly wrong. To understand
the true nature of the transaction between Stereo Factory and Delinda
Camera, we must look to the shipment invoice.1
_________________________________________________________________
1 The record does not contain a copy of the Purchase Order, if one even
exists. The invoice is the sole written documentation we have of the
transaction.

                     16
[A COPY OF THE SHIPMENT INVOICE IS INCLUDED
IN THIS SPACE IN THE PRINTED OPINION AND WILL
BE INCLUDED WHEN THE OPINION APPEARS IN THE
FEDERAL REPORTER]


17
Stereo Factory's invoice for the last shipment of tapes to Delinda
Camera clearly shows that this was a charge transaction. See Stipula-
tions of Fact, Ex. P, Sept. 22, 1993. JA 97. The transaction could have
been C.O.D., cash, or charge, and it was charge. Under the section of
the invoice titled "TERMS", the box next to"CHARGE" contained
an X while the boxes next to "C.O.D." and"CASH" were not marked.

The invoice shows on its face that the tapes were delivered to
Delinda Electronics on September 3, 1992.

"9-3-92, Delivered RC [apparently initials]
60 short 499,940 total"

The invoice also shows on its face payment on September 4, 1992.

"Paid
CK 38752
9-4-92"

The invoice also provides "Mr Ritz to send check within 3 days of
receipt of goods for $20,000 cash discount."

Neither the opinion of the district court nor the opinion of the
majority refers to the stated terms of the sale as shown by the invoice,
much less explain them. The obvious, and only, explanation from the
invoice is that the transaction was a credit transaction. That the
invoice is that of the transaction at hand is agreed to by Stipulation
of Fact, Exhibit P. "There would be no reason in having a stipulation
of facts if parties were at liberty to ignore it . .. ." Judge Parker in
Westinghouse Elec. Corp. v. Bulldog Electric Prod. Co., 179 F.2d
139, 141 (4th Cir. 1956). So the facts relied upon by the district court
and the majority, by ignoring the invoice, are shown to be in error.

IV.

The district court and the majority rely on comment 3 to § 46-9-
312, which recognizes the distinction between payment on delivery of
inventory and payment after delivery, and distinguishes cash proceeds
from accounts proceeds. And that comment, indeed, provides that
§ 312(3)

                    18
          gives an answer limited to the preservation of the purchase
          money priority only insofar as the proceeds are cash
          received on or before the delivery of the inventory to a
          buyer, that is, without the creation of an intervening account
          to which conflicting rights might attach. W. Va. Code § 46-
          9-312 cmt. 3.

Even the majority opinion itself provides that "[w]here the sale of
inventory results in an account, the rights of the purchase money
secured creditor in the proceeds may conflict with the rights of other
creditors who have security interests in the accounts." Slip op. at 9.
The majority specifically recognizes that the Code treats cash transac-
tions and credit transactions differently:

          In using the "on or before the delivery" language of § 46-9-
          312(3), the framers intended to differentiate between trans-
          actions in which the buyer paid in cash and transactions in
          which the buyer set up a credit arrangement and ended up
          owing the seller for the cost of the goods.

Slip op. at 9. Thus, while the majority acknowledges that a different
result obtains if an account is created, it fails to acknowledge that an
account is created when payment is received after delivery. The Code
defines an account as "any right to payment for goods sold . . . which
is not evidenced by an instrument or chattel paper." W. Va. Code
§ 46-9-106. If the seller receives payment on or before delivery, then
the parties have not created an account, I submit. But, if the seller
does not receive payment on or before delivery, then the parties have
created an intervening account to which conflicting rights might
attach.

In this case, the invoice and stipulations of fact show the creation
of an intervening account. The failure to recognize this fact is the
principal error in the majority opinion, which goes out of its way to
attempt to justify its conclusion that this was a cash transaction.

But the factual underpinning of the justification fails.

The majority opinion provides that "Delinda Camera and Stereo
Factory clearly contemplated a cash transaction." Slip op. at 10. The

                     19
invoice, however, provides that the transaction was"CHARGE."
Indeed the boxes on the invoice for "C.O.D." and "CASH" are left
blank. J.A. 97.

The majority opinion provides that ". . . payment for the shipment
included a $20,000 discount for payment in cash." Slip op. at 10. The
invoice, however, provides "Mr Ritz to send check within 3 days of
receipt of goods for $20,000 cash discount." So the discount was not
for cash only, as the majority opinion implies, but also for payment
"within 3 days of receipt of goods," hardly the same. J.A. 97. The
majority opinion provides that ". . . the fact that Delinda Camera
issued its check on the day following the receipt of the third shipment
of tapes does not imply that credit was extended to Delinda Camera."
Slip op. at 10. The stipulations of fact, however, provide that "[o]n
Sept. 3, 1992, Delinda received the Third Shipment. The next day, on
September 4, 1992, Delinda issued a check payable to Stereo Factory
. . . ." Stipulation 18, J.A. 49-50.

Thus, the check of Delinda Camera was not even issued until the
day after delivery. During the period of time between the delivery of
the goods and at least the issuance of the check, there is no other
explanation but that credit was extended to Delinda Camera, and this
is even verified by the invoice that it was a "CHARGE" transaction.

The majority opinion relies on what it calls "the realities of modern
business," to wit:

          Given the realities of modern business it is reasonable to
          expect a slight delay between the unloading of goods and
          the issuance of a check in payment for those goods. In a
          large company, it may take several hours--or even
          overnight--for the paperwork to travel from the receiving
          department, where the goods are unloaded, to the bookkeep-
          ing department, where the payment check is issued.

Slip op. at 10.

This statement is subject to the same difficulty as are the critical
parts of the factual foundation of the majority opinion I have men-
tioned above.

                    20
There is nothing in the record about the "realities of modern busi-
ness."

There is nothing in the record about a "slight delay between the
unloading of goods and the issuance of the check in payment of those
goods."

There is nothing in the record about whether or not Delinda Cam-
era is "a large company."

There is nothing in the record about whether, at Delinda Camera,
it may take "several hours or even overnight for the paperwork to
travel from the receiving department to the bookkeeping department."

There is nothing in the record about whether or not Delinda Cam-
era has a receiving department.

There is nothing in the record about where the goods were
unloaded, much less whether at a receiving department.

There is nothing in the record about whether or not Delinda Cam-
era has a bookkeeping department.

There is nothing in the record about where the payment check was
issued, at any bookkeeping department or elsewhere.

Shortcutting, such as that which the majority engages in here, is
quite contrary to proof of custom of the trade, for I must assume that
is what the majority seeks to rely upon in the above recitation of facts.

          Custom or Usage in Trade and Commerce. In evidencing
          a custom or usage . . . by a specific instance, the same gen-
          eral principle as before is applicable; that is, the instances
          offered (a) should be sufficiently numerous to indicate a
          fairly regular course of business and (b) should occur under
          conditions substantially similar to that in question. 2
          Wigmore on Evidence § 379 (Chadbourne Revision 1979).

There is nothing in the record to show any regular course of busi-
ness, or similar condition, or specific instance of any of the facts just

                     21
relied upon. Even if the majority has relied upon judicial notice for
the facts just recited, which it has also not stated, that should not, and
indeed cannot, be legitimately accomplished under Fed. R. Evid. 201,
which provides, among other things, that for a court to take judicial
notice of a fact it "must be one not subject to reasonable dispute" and
either "generally known within the territorial jurisdiction of the trial
court" or "capable of accurate and ready determination by resort to
sources whose accuracy cannot reasonably be questioned." Fed. R.
Evid. 201(b).

In the case before us, the facts recited by the majority fail on all
three grounds. The facts may be disputed, they are not shown to be
generally known within the territorial jurisdiction of the trial court,
and they are not shown to be capable of accurate and ready determi-
nation by resort to sources whose accuracy cannot be reasonably
questioned.

Thus, the critical factual underpinnings of the majority opinion, I
submit, have been shown to be without sufficient foundation.

V.

The cardinal principle of certainty has been the same in commer-
cial law for more than 200 years. By any account, and common con-
sent, Lord Mansfield, was principally, even if not wholly, responsible
for the transposition of the law merchant into the common law from
whence grew our commercial statutes and the Uniform Commercial
Code, with which we are concerned here. He expressed the principle
this way:

          In all mercantile transactions the greater objective should be
          certainty: and, therefore, it is of more consequence that a
          rule should be certain than whether the rule be established
          one way or the other. Vallejo v. Wheeler, 98 Eng. Rep.
          1012, 1017 (K.B. 1774).

Mansfield repeated that statement in almost the same words in
Buller v. Harrison, 98 Eng. Rep. 1243, 1244 (K.B. 1777). That the
principle has not changed is shown by the very Code with which we

                     22
deal. The purpose of Article 9 of the UCC entitled SECURED
TRANSACTIONS: SALES OF ACCOUNTS AND CHATTEL
PAPERS is found in the official comment thereto, which provides
that "[t]he aim of this Article is to provide a simple and unified struc-
ture within which the immense variety of present-day secured financ-
ing transactions can go forward with less cost and greater certainty."
Official Comment to West Virginia Code, Ch. 46, Article 9, Vol. 13,
p. 507 (1993).

In the face of such authority, early and late, the majority decides
that payment which must have been made "on or before the delivery
of the inventory to a buyer" under § 46-9-312(3) is made "on deliv-
ery" if it was made "reasonably contemporaneous with the delivery
of the goods," slip op. at 10. And the opinion then holds that "Delinda
Camera's check dated the day following delivery constituted payment
on delivery in this case . . . ." Slip op. at 11.

Thus, I submit that the majority has not only failed to follow the
statute involved in this case, as well as the facts, but, by defining "on
or before the delivery" to mean "reasonably contemporaneous" it has
substituted the uncertain words "reasonably contemporaneous" for the
certain words "on or before," which have not been given other than
a literal meaning so far as I have been able to ascertain.2
_________________________________________________________________
2 E.g. Sheerer v. Manhattan Life Ins. Co., 20 F. 886, 888 (C.C.D. Ky.
1884) (on or before means at the instant of expiration or at any time in
advance of that instant); Edward Knapp & Co. v. Tidewater Coal Co.,
81 A. 1063, 1066 (Conn. 1912) (on or before excludes after); Council 81,
Am. Fed'n of State, County, and Mun. Employees v. Delaware, 293 A.2d
567, 570 (Del. 1972) (on or before means not later than); Rhoads v.
Myers, 245 N.W. 707, 710-11 (Iowa 1932) (on or before means at any
time in advance of, to the exclusion of any time after); O.A. Talbott &
Co. v. Byler, 217 S.W. 852, 853 (Mo. Ct. App. 1950) (on or before a cer-
tain date in a contract limits time of performance to that date); McCrory
Stores Corp. v. Goldberg, 122 A. 113, 113 (N.J. 1923) (letter postmarked
7:30 p.m. October 31 does not satisfy requirement of notice on or before
October 31 because not received on that date); Kauscher v. National
Builders & Realtors, Inc., 92 N.E.2d 702, 703 (Ohio Ct. App. 1949) (on
or before gives option of earlier delivery without obligation to do so);
Edlund v. Bounds, 842 S.W.2d 719, 726 (Tex. Ct. App. 1992) (on or

                     23
In sum, I would reverse.
_________________________________________________________________
before means immediately at or at any time in advance of the named
period); Novosad v. Svrcek, 102 S.W.2d 393, 395 (Tex. 1937) (on or
before in a contract or note means the maker has the option to pay before
a fixed time and the paper does not mature until the expiration of that
time); Lovenberg v. Henry, 140 S.W. 1079, 1080 (Tex. 1911) (on or
before means immediately at or at any time in advance of).

                 24
