Opinion ID: 32797
Heading Depth: 2
Heading Rank: 2

Heading: Wal-Mart’s Sales to BSA

Text: During the course of business, both before and after ITT obtained a security interest in BSA’s accounts, Wal-Mart customers would return to Wal-Mart merchandise which had been originally sold by BSA to Wal-Mart. Wal-Mart would accept the merchandise and deduct the price of the returned product from BSA’s invoice. This transaction was referred to as an “original vendor return.” Original vendor returns for BSA merchandise were routinely set off against the BSA/ITT account. Similarly, Wal-Mart occasionally decided to liquidate certain merchandise from its inventory. In such a case, the inventory might be liquidated by sale to the original vendor or to a different vendor. When Wal-Mart’s inventory was liquidated by sale to a vendor other than the original vendor, the transaction was referred to as a “third party return.” In the Spring and Summer of 1991, BSA and Wal-mart entered into a series of transactions involving the sale of merchandise to BSA pursuant to a third-party return. With respect to each transaction, Wal-Mart’s invoice for the merchandise sold to BSA was set off against the BSA/ITT 3 The parties designate Wal-Mart’s balance with BSA after the assignment as the “BSA/ITT” account. 5 account. In addition to original vendor returns and third party returns, Wal-Mart occasionally adjusted the BSA/ITT account by various sums for shipping, handling, shipping discrepancies or for a contractual amount referred to as “price protection.” When ITT became aware of the various Wal-Mart set-offs posted to the BSA/ITT account, it voiced objection and wanted to prevent further compromise of its security interest in BSA accounts. To satisfy ITT’s concerns, BSA and ITT executed a Supplemental Financing Agreement in September 1991. The Supplemental Financing Agreement acknowledged and was intended to accommodate Wal-Mart’s contractual right to set off its payments to the BSA/ITT account. In October 1991, Wal-Mart again desired to liquidate merchandise by selling a substantial number of computers and computer-related equipment manufactured by several different companies, including Premier, KLH and Goldstar. BSA agreed to purchase the merchandise, and the resulting transaction became known as the “Goldstar agreement.” BSA and Wal-Mart memorialized the Goldstar transaction with a separate vendor agreement dated October 25, 1991.4 The parties did 4 The October 1991 vendor agreement form lists “BSA Computer Corporation” (BSACC) as the vendor, rather than just “BSA” or “BSA, Inc.” At trial, BSA attempted to defeat Wal-Mart’s right to set off the BSA/ITT account for the Goldstar transaction by arguing that BSACC was an entity distinct from BSA, against which Wal-Mart had no pre-existing contractual set off right. The district court rejected that argument, finding that the Goldstar transaction occurred between Wal-Mart and BSA. BSA expressly declines to challenge that fact finding on appeal. 6 not, however, reduce the operative terms of the Goldstar agreement to writing by executing a companion purchase order. The operative terms of the Goldstar transaction were thus established by the preexisting contract rights of the parties pursuant to the master and subsequent vendor agreements and the parties’ oral agreement concerning price and other terms applicable to the Goldstar agreement. BSA claims in this suit that Wal-Mart made an oral agreement not to set off the BSA/ITT account for the Goldstar transaction, notwithstanding the terms of the pre-existing vendor agreements and the parties’ prior course of dealings. Wal-Mart shipped the Goldstar merchandise directly from its various retail outlets to BSA. Beginning in November 1991, WalMart set off the BSA/ITT account for all of the units shipped, and for various other expenses. Wal-Mart’s set-offs eventually totaled $882,752.12.5 Wal-Mart’s posting of the Goldstar transaction resulted in a credit balance owed to Wal-Mart, and Wal-Mart made no further payments to the BSA/ITT account. Financial pressures caused in part by the fact that BSA was severely undercapitalized forced BSA to liquidate the Goldstar merchandise at a “fire sale” for far less than BSA anticipated when 5 Some of these set-offs were later determined to be unjustified. The district court determined that Wal-Mart was entitled to set off the BSA/ITT account $527,680 for the Goldstar transaction, but disallowed $355,072.12 as improperly set off against the BSA/ITT account. A substantial portion of the amount disallowed was not directly related to the Goldstar transaction. Wal-Mart has not challenged these findings on appeal. 7 it purchased the goods from Wal-Mart. Within thirty days of receiving the Goldstar merchandise, BSA resold most of the Goldstar merchandise for $519,739.82, less than BSA would have owed Wal-Mart for all of the Goldstar merchandise. BSA’s next business decision proved to be even more imprudent. Notwithstanding the fact that ITT financed the transaction by way of Wal-Mart’s set off, BSA did not pay down on the BSA/ITT account. Rather, BSA deposited the proceeds from its resale of the Goldstar merchandise directly into the BSA bank account, and then diverted the money to run the company and to finance a new Wal-Mart transaction. In December 1991, ITT informed BSA that it would not provide further financing to BSA until the BSA/ITT account was reimbursed for the Goldstar transaction. Nonetheless, ITT subsequently provided BSA with an additional $1.4 million for a Wal-Mart transaction in January 1992. BSA was unable to resolve its financial difficulties with ITT and did not obtain alternative financing for pending purchase orders. BSA ceased operations and litigation ensued.