Puritan Finance v. Bechstein Construction Corp.
980 N.E.2d 135
Ill. App. Ct.2012Background
- Bechstein challenged a circuit-court judgment in Puritan’s favor on a debt assigned during Granite Cartage’s bankruptcy.
- Granite filed for bankruptcy in 2008; Puritan held a secured lien on Granite’s accounts receivable, which were assigned to Puritan.
- The assigned receivables included invoices showing Bechstein owed Granite about $22,000 for cartage work.
- Bechstein argued a setoff was due based on mutual open-account dealings with Granite, i.e., unpaid invoices Bechstein had for Granite’s services.
- At the time of assignment, Granite’s debt to Bechstein exceeded Bechstein’s debt to Granite; Bechstein sought a setoff against Puritan’s claim under section 9-404(a)(2) of the UCC.
- Circuit court ruled for Puritan; Bechstein appealed raising statutory setoff theories under 2-403(a) and 9-404(a)(2).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 9-404(a)(2) allows a setoff from an unrelated debt prior to notice of assignment | Puritan: accrual required; no accrued action against Granite existed | Bechstein: the unused debt constitutes a claim that accrues before notice | No; accrual required; setoff not allowed. |
| Whether 2-403(a) provides a valid setoff against an assigned claim | Puritan: 2-403(a) does not permit setoff based on separate contract | Bechstein: 2-403(a) should permit such setoff | 2-403(a) confers no right of setoff here. |
Key Cases Cited
- R.A.N. Consultants, Inc. v. Peacock, 201 Ill. App. 3d 67 (1990) (setoff not based on separate contract under 2-403(a))
- Berdex International, Inc. v. Milfico Prepared Foods, Inc., 258 Ill. App. 3d 738 (1994) (discussing 2-717 UCC deductions from sale price)
- Rebaque v. Forsythe Racing, Inc., 134 Ill. App. 3d 778 (1995) (discussing UCC provisions relevant to setoffs)
- Seattle-First National Bank v. Oregon Pacific Industries, Inc., 500 P.2d 1033 (Or. 1972) (accrual concept under 9-404(a)(2) in UCC contexts)
- Bank of Kansas v. Hutchinson Health Services, Inc., 773 P.2d 660 (Kan. Ct. App. 1989) (accrual interpretation of ‘accrues’ under UCC 9-404(a)(2))