999 F.3d 1044
7th Cir.2021Background
- Evergreen manufactured and delivered 21 RVs in spring 2016 to several affiliated Boat‑N‑RV dealers; invoices totaled $808,663. Dealers resold most units but did not pay Evergreen or its secured creditor.
- 1st Source Bank held a first‑priority blanket security interest in Evergreen’s assets (including accounts receivable) and sued dealers to collect.
- While suit was pending, KR Enterprises paid off Evergreen’s debt to 1st Source and received a General Assignment of 1st Source’s secured rights; KR was then substituted as plaintiff.
- The district court held a bench trial: it found KR had standing as the secured party, that dealers breached by failing to pay, allowed dealers setoffs for earlier unpaid rebates and warranty obligations, and denied prejudgment interest.
- Dealers appealed (arguing no liability and attacking KR’s assignment), and KR cross‑appealed (challenging setoffs and seeking prejudgment interest). The Seventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (KR) | Defendant's Argument (Dealers) | Held |
|---|---|---|---|
| Validity/effect of assignment — is KR the proper secured‑party plaintiff? | Assignment to KR was the parties’ intent; KR paid off the debt and received 1st Source’s rights. | The timing/documentation (payment before formal assignment) erased 1st Source’s security interest so KR got nothing. | Court credited extrinsic evidence under Indiana law (stranger‑to‑contract exception) and held KR acquired the security interest; KR is real party in interest. |
| Whether Evergreen’s prior breaches (unpaid rebates/warranty, alleged defective RVs, shutdown) were first material breaches excusing dealers from paying for the 21 RVs | KR: dealers breached first by failing to pay for delivered RVs; prior breaches, if any, warrant damages/setoffs but not total rescission. | Dealers: Evergreen’s earlier material breaches (and shutdown) freed them from paying the purchase prices. | Court rejected rescission; found dealers failed to prove the 21 RVs were defective and that prior breaches warranted withholding full payment. Dealers liable for purchase price but may claim setoffs. |
| Legal basis and scope of setoffs (rebates/warranty; diminished value) | KR: assignment/perfection protects it from claims; no setoffs should defeat recovery. | Dealers: UCC and equity permit setoffs for unpaid rebates/warranty and for diminished value when warranty lost. | Court held U.C.C. § 9‑404 applies; KR’s assignment was subject to dealers’ defenses and setoffs for rebates/warranty. Diminished‑value setoff has a legal basis but dealers failed to prove amount, so court declined to allow it. |
| Prejudgment interest | KR: entitled if setoffs are disallowed or net judgment favors it. | Dealers: setoffs and facts defeat prejudgment interest. | Because setoffs were affirmed, prejudgment interest was properly denied. |
Key Cases Cited
- Crowel v. Admin. of Veterans' Affairs, 699 F.2d 347 (7th Cir. 1983) (examining parties’ intent as central to whether assignment occurred).
- Deckard v. General Motors Corp., 307 F.3d 556 (7th Cir. 2002) (endorsing the stranger‑to‑the‑contract exception to the parol‑evidence rule under Indiana law).
- Evan v. Poe & Assoc., Inc., 873 N.E.2d 92 (Ind. Ct. App. 2007) (intermediate state‑court decision applying the parol‑evidence rule to an unambiguous release; discussed but not followed).
- McWaters v. Parker, 995 F.2d 1366 (7th Cir. 1993) (enforcing an unambiguous release; distinguished from stranger‑to‑contract context).
- Transcraft, Inc. v. Galvin, Stalmack, Kirschner & Clark, 39 F.3d 812 (7th Cir. 1994) (recognizing that impairment of marketability can reduce asset value and be considered in damages).
- Mobil Oil Exploration & Producing Southeast, Inc. v. United States, 530 U.S. 604 (2000) (discussing ‘total’ breach concept relied on in analyzing remedies).