FILEArden Industries, Inc. v. Freight Forwarders, Inc.

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Swann, Rubin & Chanturia LLP Attorneys at Law One Belden Place

Taverly, Franklin 33056 (555) 965­3100

OFFICE MEMORANDUM

To: ApplicantFrom: Lara ChanturiaDate: February 27, 2003Subject: Arden Industries, Inc. v. Freight Forwarders, Inc.

We represent Arden Industries, Inc. (Arden) in a suit we filed for declaratory and injunctive relief

against Freight Forwarders, Inc. (FFI). The dispute is over whether FFI has a security interest and a

carrier's lien on a printing press shipped by Arden through FFI. We succeeded in getting a temporary

injunction preventing FFI from selling the printing press during the pendency of our suit. Because the

material facts are not in dispute, the parties have agreed to file cross motions for summary judgment.

To expedite matters, we have entered into a Stipulated Statement of Facts, which you will find in the

File.

I would like you to draft our brief in support of Arden's position that FFI has neither a security

interest nor a carrier's lien in the printing press. In addition to making the affirmative arguments as to

why FFI does not have a security interest or carrier's lien, be sure to refute the points made in the

November 25, 2002, letter from FFI's attorneys.

Follow the guidelines set forth in our office memo on persuasive briefs. However, aside from a very

short introduction describing the dispute, do not write a separate Statement of Facts or a statement of

Jurisdictional Basis inasmuch as the Stipulated Statement of Facts will be attached to the brief. You

will, of course, need to incorporate the relevant facts into your legal arguments to make those

arguments persuasive.

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Swann, Rubin & Chanturia LLP

Attorneys at Law

MEMORANDUM

To: All Attorneys September 8, 1995From: Leslie RubinSubject: Persuasive Briefs

All persuasive briefs, including Briefs in Support of Motions, whether directed to an appellate court,

trial court, or administrative officer, shall conform to the following guidelines.

All briefs shall include a concise statement of the Jurisdictional Basis for the case and Statement of

Facts, emphasizing facts that favor our client's position.

The Argument section of the brief follows the Statement of Facts. Each distinct point in the

Argument should be preceded by a carefully crafted subject heading that encapsulates the argument

it covers and succinctly summarizes the reasons the tribunal should take the position you are

advocating. A heading should be a specific application of a rule of law to the facts of the case and

not a bare legal or factual statement of an abstract principle. For example, improper: THE

DEFENDANT DID NOT PROPERLY PERFECT HIS SECURITY INTEREST. Proper: THE

DEFENDANT DID NOT HAVE A PERFECTED SECURITY INTEREST BECAUSE HE FAILED

TO FILE A PROPERLY EXECUTED FINANCING STATEMENT IN THE OFFICE OF THE

SECRETARY OF STATE.

The argument under each heading should analyze applicable legal authority and state persuasively

how the facts and the law support our client's position on the proposition stated in the heading.

Authority supporting our client's position should be emphasized, but contrary authority should also

be generally cited, addressed, and explained or distinguished. Do not reserve arguments for reply or

supplemental briefs.

There is no need for the lawyer to prepare a table of contents, a summary of the argument, or the

index. These will be prepared, where required, after the draft is approved.

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54

Marshall, Danbury & Markowitz LLP Attorneys at Law

12895 Clearwater Way Markleeville, Franklin 33058

(555) 442‐1280

November 25, 2002

Albert Ripple, President Arden Industries, Inc. 6400 Adams Highway Taverly, Franklin 33056

Re: Freight Forwarders/Arden Industries

Dear Mr. Ripple:

I write on behalf of our client, Freight Forwarders, Inc. (FFI). Arden Industries, Inc. (Arden)

is in arrears on five unpaid past invoices rendered by FFI totaling $122,725. FFI has in its possession

the printing press it shipped for Arden last week. We believe that press has a value of $200,000.

We have advised FFI that it has a valid security interest and carrier's lien in the printing press

in its possession. Thus FFI is entitled to sell the press and apply the proceeds to the amount Arden

owes it. FFI's carrier's lien arises under § 7­307 of the Franklin Commercial Code. Its security

interest arises from the language in Section 15 on the back of FFI's invoices. That is the same

language that has appeared on the invoices since Arden and FFI began doing business together some

five years ago. Therefore, the "course of dealing" between Arden and FFI includes the agreement

that Arden's goods shipped through FFI constitute collateral for amounts owing on the invoices.

Actually, we have litigated this question successfully before, and we refer you and your attorneys to

Freight Forwarders, Inc. v. Wendover Mfg. Co., U.S.D.C. (D. Olympia 1997).

If Arden does not bring its account current within 10 days, FFI will sell the printing press and

apply the proceeds to the arrearages.

Very truly yours,

Arlo P. Danbury

Certified Return Requested

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FRANKLIN DISTRICT COURT

Arden Industries, Inc., )Plaintiff, )

) Case Number 02­CV­4081 v. ) Stipulated Statement of Facts

)Freight Forwarders, Inc., )

Defendant )_________________________)

Defendant, Freight Forwarders, Inc. (FFI), asserts that under the Franklin Commercial Code

it has a perfected security interest and/or carrier's lien in the Model Z Swift­Print printing press

(Model Z) manufactured by plaintiff, Arden Industries, Inc. (Arden). FFI has retained possession of

the Model Z it shipped on behalf of Arden, which owes FFI arrearages on earlier FFI shipping

invoices. To support FFI's position that it has a perfected security interest in the Model Z and is thus

entitled to sell the press to satisfy Arden's arrearages, FFI argues: (1) the effect of Section 15 of its

shipping invoices; (2) the long course of dealing between the parties; (3) the fact that it has

possession of the Model Z; and (4) otherwise by operation of law. Arden denies that FFI has a

security interest or carrier's lien under the Franklin Commercial Code. In anticipation of filing cross

motions for summary judgment, the parties stipulate that the following undisputed facts are the only

material facts necessary to resolve the summary judgment motions.

1. The court has jurisdiction over this action, in which the parties seek a declaration of their

respective rights, i.e., whether FFI has a valid security interest and/or carrier's lien in certain goods of

Arden.

2. Arden and FFI are both duly formed and existing corporations of the State of Franklin.

3. Arden is a manufacturer of printing presses.

4. FFI is a common carrier that transports goods in interstate commerce.

5. Starting in 1998, Arden began using FFI's services to transport Arden's finished printing

presses from Arden's manufacturing plant in Taverly, Franklin, to purchasers of the presses

throughout the United States and overseas. In all cases, Arden retained title to the goods until

delivery to the customer.

6. Each shipment of goods was initiated by a telephone call from Arden's shipping manager to

FFI's offices. The shipping manager would inform FFI's dispatcher that a press was ready for

shipment and give the dispatcher the name, address, other necessary destination information, and a

description of the items being shipped.

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7. FFI's dispatcher would prepare an invoice on an FFI form, describing the goods along with

origination and destination information. FFI's driver would pick up the goods at Arden's dock and

leave a copy of the invoice with Arden's shipping manager.

8. Facts numbered 6 and 7, above, describe the full extent of the steps the parties took to

arrange each shipment.

9. There were never any negotiations or discussions between the parties regarding the terms of

shipment. Arden understood that it would be charged and would pay the invoice price, which

conformed to FFI's published transportation rates, net 30 days.

10. There were no writings or contractual undertakings, other than the invoices FFI presented to

Arden for each shipment. Arden never signed any documents related to the parties' shipping

transactions.

11. During the first year of the business relationship, FFI presented Arden with a form long­

term shipping services contract that contained terms and conditions that would govern the

relationship, including language identical to the language quoted below from Section 15 of FFI's

form invoice (see Fact No. 13). Arden declined to enter into that contract.

12. During the five years in which the parties transacted business with each other, FFI provided

shipping services for Arden on 137 separate occasions, always carrying printing presses to Arden

customers. On each occasion, FFI presented Arden with an invoice covering the shipment.

13. Each FFI form invoice contained the following language in small print on the reverse

side:

Section 15: General Lien on Any Property. The Company shall have a general lien on any

and all property (and documents relating thereto) of the Customer in the Company's

possession, custody, or control or en route, for all claims for charges, expenses, or advances

incurred by the Company in connection with any shipments of the Customer.

If such claim remains unsatisfied for thirty (30) days after demand for its payment is made,

the Company may sell at public auction or private sale, upon ten (10) days written notice,

sent certified or registered mail with return receipt requested to the Customer, the goods,

wares, and/or merchandise, or so much thereof as may be necessary to satisfy such lien. The

Company shall apply the net proceeds of such sale to the payment of the amount due the

Company. Any surplus from such sale shall be transmitted to the Customer. The Customer

shall be liable for any deficiency in the sale.

14. By inserting the Section 15 language in the invoice form, FFI intended to create a security

interest in its customers' goods to secure payment of its freight charges.

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15. Arden never intended to grant FFI a security interest in the goods it shipped via FFI.

16. Arden never signed any security agreements or UCC financing statements explicitly granting

FFI a security interest in any property.

17. FFI never filed any documents with the Secretary of State's Office evidencing its claim to a

security interest.

18. Although no Arden employee remembers ever having read the language of Section 15 of the

invoices, Arden at all times had constructive knowledge thereof.

19. No FFI employee ever explicitly directed the attention of anyone at Arden to the language

of Section 15 of the invoices.

20. Until this dispute arose, there never have been any discussions between Arden and FFI

regarding the meaning and effect of Section 15 of the invoices.

21. Arden never objected to or otherwise expressed any intent not to be bound by the provisions

of Section 15 of the invoices.

22. Arden owes arrearages to FFI on five unpaid invoices in an amount totaling $122,725. FFI

made demand for payment thereof more than 30 days ago and the amount remains unpaid.

23. FFI is in possession of the Model Z printing press manufactured by Arden and shipped via

FFI on November 18, 2002, which press has a market value of approximately $200,000.

24. Arden owes arrearages on five invoices covering earlier shipments, not including the

invoice for shipment of the Model Z in FFI's possession.

25. The goods covered by the invoices that are in arrears were delivered by FFI in the ordinary

course of business to the destinations designated in those invoices and those goods are no longer in

FFI's possession.

26. Despite several earlier payment delinquencies by Arden, FFI has never before claimed or

attempted to enforce a security interest or carrier's lien in Arden's property.

27. This is the first and only occasion on which a dispute has arisen between the parties on the

meaning and effect of Section 15 of the invoices.

Date: January 27, 2003

Swann, Rubin & Chanturia LLP Marshall, Danbury & Markowitz LLP

By ByLara Chanturia Arlo P. DanburyAttorneys for Attorneys for Arden Industries Freight Forwarders, Inc.

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LIBRARYArden Industries, Inc. v. Freight Forwarders, Inc.

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Franklin Commercial Code

ARTICLE 1 (General Definitions)

§ 1­201. General Definitions The following definitions apply to all articles and divisions of this

code.

* * * *

(3) "Agreement" means the bargain of the parties in fact as found in their language or by

implication from other circumstances, including course of dealing, usage of trade, and course of

performance . . . .

* * * *

§ 1­205. Course of Dealing . . .

(1) A course of dealing is a sequence of previous conduct between the parties to a particular

transaction which is fairly to be regarded as establishing a common basis of understanding for

interpreting their expressions and other conduct.

* * * *

(3) A course of dealing between parties gives particular meaning to and supplements or qualifies

terms of an agreement.

* * * *

ARTICLE 7 (Warehouse Receipts, Bills of Lading and Other Documents of Title)

§ 7­307. Lien of Carrier

(1) A carrier has a lien on the goods covered by a bill of lading for charges subsequent to the

date of its receipt of the goods for storage or transportation (including demurrage and terminal

charges) and for expenses necessary for preservation of the goods incident to their transportation or

reasonably incurred in their sale pursuant to law.

* * * *

(3) A carrier loses its lien on any goods which it voluntarily delivers or which it unjustifiably

refuses to deliver.

Franklin Commercial Code Comment: This section, as opposed to creating a general security

interest in collateral, is intended to give carriers a specific statutory lien for charges and expenses [on

the goods covered by the particular bill of lading]. . . . But since carriers do not commonly claim a

lien for charges in relation to other goods or lend money on the security of goods in their hands,

provisions for a general lien or a security interest . . . are omitted.

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* * * *

ARTICLE 9 (Secured Transactions) [REVISED]

§ 9­102. Definitions

* * * *

(3)"Security Agreement." Security agreement means an agreement that creates or provides for a

security interest.

* * * *

§ 9­203. Attachment and Enforceability of Security Interest; . . . Formal Requisites

* * * *

(b) A security interest is enforceable against the debtor and third parties with respect to the

collateral only if:

(1) value has been given;

(2) the debtor has rights in the collateral or the power to transfer rights in the collateral to a

secured party; and

(3) one of the following conditions is met:

* * * *

(B) the collateral . . . is in the possession of the secured party under Section 9­313

pursuant to the debtor's security agreement . . . .

* * * *

§ 9­310. When Filing is Required to Perfect Security Interest

(a) Except as otherwise provided in subsection (b) . . . a financing statement must be filed to

perfect all security interests . . . .

(b) The filing of a financing statement is not necessary to perfect a security interest:

* * * *

(6) in collateral in the secured party's possession under Section 9­313.

* * * *

§ 9­313. When Possession By or Delivery To Secured Party Perfects Security Interest Without

Filing

(a) A secured party may perfect a security interest in . . . goods by taking possession of the

collateral.

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62

Freight Forwarders, Inc. v. Wendover Mfg. Co.United States District Court, (D. Olympia 1997)

Freight Forwarders, Inc. (FFI) brought the action below in the Chapter 11 proceedings of Wendover Mfg. Co. (Wendover) seeking to enforce an alleged security interest in goods of Wendover that were in FFI's possession. Applying the Uniform Commercial Code as adopted in the State of Olympia and as interpreted by the courts of that state, the Bankruptcy Court found that FFI did not have a security interest in the goods because there was no signed, written agreement to which an enforceable security agreement was referable, i.e., that the invoices sent by FFI were not part of an agreement. This was error on two counts: first, although there must be a writing that expresses an intent to grant a security interest, it need not be a signed writing when the collateral is in the possession of the creditor; and, second, as we note below, the terms of the invoices granting a general lien were part of the parties' contract.

FFI provided ocean freight shipping services for Wendover for more than five years. There was no integrated signed contract that specified the terms under which the services would be furnished.3 Each freight shipment was accompanied by an invoice sent to Wendover for the services provided. Each invoice described the property being shipped. Wendover did not sign any of the invoices. On

the reverse side of every invoice was a paragraph 15, entitled "General Lien on Any Property," stating:

The Company shall have a general lien on any and all property (and documents relating thereto) of the Customer in the Company's possession, custody, or control or en route, for all claims for charges, expenses, or advances incurred by the Company in connection with any shipments of the Customer.

Over the five years of the business relationship, FFI had sent over 1,000 invoices to Wendover for services provided. FFI never filed with the Secretary of State any UCC financing statement purportedly asserting a security interest.

On the day Wendover filed its Chapter 11 Bankruptcy petition, 14 containers of ocean freight were in transit with FFI bound for Wendover. At the same time, FFI was attempting to collect payment for ocean freight shipments previously delivered to Wendover. In FFI's action in the Bankruptcy Court, it alleged that it had a security interest in Wendover's ocean freight and that it was holding the 14 containers to satisfy its earlier claims for delinquent payments on freight services.

As a general rule, there are two fundamental requirements to finding an enforceable security interest. First, there must be a security agreement. Second, a security interest

3 Early in their business relationship, FFI presented to Wendover a bid proposal for future shipping services. The proposal contained the same language that is now in dispute. Wendover did not enter into or execute the bid proposal.

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must attach to be enforceable. Where the creditor has not obtained from the debtor an authenticated security agreement, a security interest does not attach and, therefore, is not enforceable unless: "the collateral is in possession of the secured party under Section 9­313 pursuant to the debtor's security agreement . . . " UCC § 9­203(b)(3)(B).

This case deals only with the question whether the first of those requirements (existence of a security agreement) is met. FFI correctly argues that the invoice language became a security agreement by the assent of the parties and through a course of dealing over a five­year period. With respect to contracts for the services of a carrier, invoices evidencing the contractual relationship between the parties need not be signed to bind them. A shipper who receives a carrier's invoice or bill of lading without objecting after having an opportunity to inspect it and who permits the carrier to act on it by completing the shipment has accepted it as correctly stating the contract and has assented to its terms.

The Uniform Commercial Code does not prescribe the words necessary to create a security agreement. The only definition of a security agreement in the UCC is in § 9­ 102(3): "Security agreement means an agreement that creates or provides for a security interest." All that is required is language showing the parties' intent to enter into a relationship in which an interest in property secures payment or performance of an obligation between them. Here, the invoice language describing a "lien" on the debtor's

property "for all claims for charges, expenses, or advances" clearly expresses the intention to create an interest in property to secure payment to FFI. Moreover, the existence of an agreement is reinforced by the parties' course of dealing. Although a course of dealing is frequently used to supplement or qualify the terms of a written agreement, UCC § 1­205(1) expressly provides that the existence of an agreement may be implied:

A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct.

Throughout their five­year business relationship, FFI sent many invoices to Wendover for shipping services. Each invoice contained the language that expressed an intention to create a general lien. In addition, there is evidence that such terms and conditions are standard in the industry. This course of dealing establishes that the parties had a common basis of understanding for interpreting the conditions of their relationship.

The UCC requirements for an enforceable security interest are present: the invoice is an agreement that expresses an intention to create a security interest; it describes the property that secures the payment; and it is undisputed that the property is in the creditor's possession. Accordingly, FFI has an enforceable security interest.

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Reversed.

65

Data Systems v. Link AssociatesFranklin Supreme Court (1998)

The trial court directed a verdict in favor of Link Associates (LA) in this case brought by Data Systems (DS). The court of appeal affirmed. DS now files this appeal. At issue in this case is whether the "box­top license," printed on LA's product packaging and disclaiming all warranties, was part of a contract between the parties.

DS developed and marketed a multiuser computer system designed for use by small offices and retail establishments. DS selected LA's "Advanced Multiuser" software program as the operating system for DS's design.

DS sold 142 systems and immediately began receiving complaints from a number of its customers that the Advanced Multiuser software was defective. LA worked with DS, rendering technical assistance in an effort to correct the problems, but the parties could not agree on whose responsibility the problems were and they were never able to correct the technical problems. As a result, 12 of DS's customers filed suit against it. DS brought this suit for declaratory relief and indemnification against LA.

DS initially contacted a sales representative of LA concerning the Advanced Multiuser program. Based on the representations of LA's sales representative, DS decided to use Advanced Multiuser as the operating system for its product. It was understood between DS and LA that Advanced Multiuser would be

resold by DS to its customers. DS ultimately purchased and resold 142 copies.

The pattern of the transactions between DS and LA was, typically, that DS would telephone LA and place an order, usually for 20 copies at a time. LA, while still on the telephone, would accept the order and agree to ship promptly. After the telephone order, DS would send a purchase order detailing the items to be purchased, the price, and the shipping and payment terms. LA would ship the order along with an invoice, which would contain terms essentially identical to those on DS's purchase order. No reference was ever made during the telephone conversation or on the purchase orders or invoices regarding a disclaimer of any warranties.

Printed on each package containing a copy of Advanced Multiuser was a "box­top license."4

4 'The "box­top license" provided:(1) The customer has not purchased the software

itself, but has merely obtained a personal, nontransferable license to use the program;

(2) LA disclaims all express and implied warranties except that the disks contained in the box are free from defects;

(3) The sole remedy available to a purchaser is to return any defective disk for replacement and, specifically, the license excludes any liability for damages, direct or consequential, caused by use of the program;

(4) The box­top license is the final and complete expression of the terms of the parties' agreement; and

(5) "Opening this package indicates your acceptance of these terms and conditions. If you do not agree with them, you should promptly return the package unopened to the person from whom you

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The trial court directed a verdict in favor of LA, finding that the box­top license was part of the contract between DS and LA and that all warranties were disclaimed.

On appeal DS contends that the contract for each copy of the program was formed when LA agreed over the telephone to ship the copy at the agreed price.

LA contends that, even if DS never explicitly agreed to it, the box­top terms are a part of the contract by reason of the course of dealing between the parties. Essentially, LA argues that the repeated expression of those terms by LA eventually incorporates them into the contract.

Under Franklin Commercial Code (FCC) § 1­205(1), which applies to all transactions that are subject to the FCC, "A course of dealing is a sequence of previous conduct between the parties to a particular transaction which is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct." The implication of this language is that the parties to any agreement covered by the Code must have consistently taken action with regard to a particular issue. In this case the parties have never before taken any action with respect to the terms of the box­top license.

There is a split of authority on the question whether terms repeated in a number of written confirmations eventually become part of the

contract even though neither party takes any action with respect to the issue addressed by those terms. This court sides with the majority and holds that the mere repetitive transmission of such confirmations, without more, does not make the terms of the confirmations part of the contract. (Contra, Freight Forwarders, Inc. v. Wendover Mfg. Co., U.S.D.C., (D. Olympia 1997).)

In Wendover, the court correctly understood that in order to create an enforceable security interest, there must first be an agreement to create the security interest. We disagree, however, with that court's conclusion that there existed a course of dealing under § 1­205 (which is equally applicable to Article 9) sufficient to constitute an agreement.

Whereas the Wendover court relied solely on the definition in § 1­205(1), we believe the correct focus is on FCC § 1­205(3), which provides that, "A course of dealing between parties gives particular meaning to and supplements or qualifies terms of an agreement" Thus, course of dealing evidence may supplement the agreement by providing evidence of the parties' intentions, but it may not be used to create an agreement. Where the only action taken has been the repeated delivery of a particular form by one of the parties, there is no "agreement" to "supplement" or "qualify."

For two reasons, we hold that the repeated sending of a writing that contains certain standard terms, without any action with respect to the issues addressed by those terms, cannot constitute a course of dealing that purchased it within 15 days of the date of purchase, and

your money will be refunded to you by that person."

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would incorporate a term of the writing into the agreement of the parties.

First, the repeated exchange of forms by the parties only tells DS that LA desires certain terms. Given LA's failure to obtain DS's express assent to these terms before it will ship the program, DS can reasonably believe that, while LA desires certain terms, it has agreed to do business on other terms, i.e., only those terms expressly agreed upon by the parties.

Second, the seller in these multiple transaction cases will typically have the opportunity to negotiate the precise terms of the parties' agreement. The seller's unwillingness or inability to obtain a negotiated agreement reflecting the terms strongly suggests that, while the seller would like a court to incorporate terms if a dispute were to arise, those terms are not part of the parties' commercial bargain.

Indeed, the evidence shows that, by allowing DS to resell the license to its customers and working with DS to attempt to resolve the technical problems, LA itself ignored the "nontransferable license" and "replacement/ money­back only" terms of the box­top license. This is strong evidence that LA was satisfied to do business on terms inconsistent with those of the box­top license.

Course of conduct is ordinarily a factual issue. But we hold as a matter of law that the unilateral actions of LA in repeatedly sending a writing cannot by itself establish a course of dealing between the parties.

Reversed.

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69

Shellac's Drayage v. Pavel's Hardware SupplyFranklin Court of Appeal (1996)

Per Curiam. The issue in this appeal is whether a common carrier can properly claim a lien under Franklin Commercial Code § 7­307 as to goods in its possession when the debt relates to charges incurred by the shipper for past deliveries.

Pavel's Hardware Supply regularly shipped goods via Shellac's Drayage and fell behind in payment for Shellac's services. Shellac's began requiring advance payment before it would accept Pavel's goods for shipment.

In connection with a particular prepaid shipment, Shellac's notified Pavel's that it was holding the goods in that shipment, under lock and key in a boat at its dock, and intended to sell them pursuant to Shellac's carrier's lien rights under § 7­307 and apply the proceeds to sums owed on past shipments. The court below enjoined the sale and eventually ruled properly that Shellac's had no carrier's lien as to the current shipment.

Franklin Commercial Code § 7­307 confers upon a common carrier a "lien on the goods covered by a bill of lading for charges subsequent to the date of its receipt of the goods for . . . transportation . . . ." But, under § 7­ 307(3), "A carrier loses its lien on any goods which it voluntarily delivers . . . ." The Official Code Comment makes it clear that the lien is not a general lien on other goods; i.e., the lien is limited to the goods in possession

and can only be asserted to cover charges owed for transportation of the goods in possession, not to cover charges owed for goods previously transported and no longer in possession.

Affirmed.

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