Opinion ID: 3038692
Heading Depth: 2
Heading Rank: 3

Heading: Cash Equivalents

Text: Our conclusion that the checks were no longer accounts receivable at the time of the closing does not resolve fully the issue before us. Even if not accounts receivable, the checks, as a matter of contract, still might have been included in the transaction as among “all other assets of Sellers related to the Business[,] wherever located, tangible or intangible.” Agreement §1.1(l). We agree, however, with Old Summit that the checks were not part of the transaction by contract. This is because they were cash equivalents excluded within the 10 meaning of Agreement § 1.2(a). On the simplest level, it is not clear that the Agreement intended to recognize an asset class that was neither accounts receivable nor cash equivalents. Article 9 of the Uniform Commercial Code, which governs secured transactions, indicates that the checks here should be regarded as cash equivalents. That Article, while not directly applicable here, explains that the term “cash proceeds” means “proceeds that are money, checks, deposit accounts, or the like.” 9 U.C.C. § 102(a)(9); codified as 13 Pa. Cons. Stat. § 9102(a). “[O]r the like” means cash equivalents. This is in accord with Black’s Law Dictionary, which defines cash as, inter alia, “[m]oney or its equivalent” or “negotiable checks.” Black’s Law Dictionary 229 (8th ed. 2004).5 The terms of the Agreement also lead to this conclusion. It covers cash or cash equivalents “in transit.” This phrase accurately describes the checks (and underlying funds) at issue here. They had been received, and their deposit at Old 5 Purchasers argue that we should look to federal regulations defining cash and cash equivalents. This argument is unpersuasive, as we conclude that the UCC, which has been incorporated into Pennsylvania law (which, in turn, governs the Agreement), provides more useful guidance than federal law. Moreover, as discussed below, we conclude that the terms of the Agreement support the view that the checks in question should be treated as cash equivalents. 11 Summit’s bank began the transit process from the banks of the three customers to Old Summit’s bank account. Thus the Agreement would appear to consider the types of checks received by Old Summit on September 3 to be cash equivalents. In addition, the Agreement exacts a penalty of Old Summit in the case of failure to close by September 4, 2002. In that event, any payments made to Old Summit with respect to accounts receivable (which would include checks) received after September 4 would be included among the assets sold. “[I]f the Closing does not occur on or before September 4, 2002,” the sold assets include “any payments made to [Old Summit] with respect to any accounts receivable of [Old Summit] related to the business . . . on or after September 4, 2002 until the Closing.” Agreement § 1.1(k). The negative implication is that the accounts receivable of Old Summit paid by checks of its account debtors prior to September 4 were excluded assets. This suggests that the parties assume that payments clear and become cash equivalents instantaneously. They do not anticipate any delay in the clearance of payments, suggesting that receipt of a payment is sufficient to render it a cash equivalent within the meaning of the Agreement. Finally, the Agreement sets a range of locations of cash or cash equivalents that suggests a broad definition of “cash equivalents.” It lists cash or cash equivalents “whether on hand, in transit or in banks or other financial institutions, security entitlements, securities accounts, commodity contracts and 12 commodity accounts.” Agreement § 1.2(a). The Agreement does not make clear what it means by the last four items in this list, but these terms imply a definition of cash equivalents that incorporates assets that may not be immediately liquid. This supports an expansive reading of “cash equivalents” that would incorporate the checks received on September 3.