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could not make payments to Vineyards without the consent of its
lenders. Winery's first payment to Vineyards during March 1984
was made with the consent of Bank of America with funds provided
by a line of credit that the bank had extended to Winery. The
test used by the bank to decide whether payment was to be allowed
was whether the wine made from Vineyard's grapes was released for
sale. The March 1984 payment accordingly was made for 1982
grapes used in wine that had been released for sale approximately
6 months prior to the time of that payment.
Vineyards subsequently consented in addenda to subsequent
subordination agreements to receive payment for grapes that had
been made into wine that had been released for sale by Winery for
a minimum of 7 months. As a condition of renewing Winery's line
of credit during late 1986, Bank of America insisted that Winery
pay Vineyards for grapes quarterly, but only as the wine made
from the grapes was sold. The Grape Payment Calculation entered
into by Vineyards and Winery during 1986, provided similar
payment terms. That payment arrangement remained in place
through the remainder of Winery's relationship with Bank of
America and continued when Winery replaced its line of credit
from that bank with one obtained from Napa National Bank during
November 1988. The foregoing payment practices resulted in an
account receivable from Winery to Vineyards in the amount of
$1,615,915 as of December 31, 1990, over 80 percent of which was
attributable to Winery's 1989 and 1990 grape purchases.
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