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BARCLAYSAMERICAN/BUS. CREDIT v. PAUL SAFRAN METAL

June 20, 1983

BARCLAYSAMERICAN/BUSINESS CREDIT, INC., A CORPORATION, PLAINTIFF,
v.
PAUL SAFRAN METAL COMPANY, A CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Aspen, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiff BarclaysAmerican/Business Credit, Inc. ("Barclays") seeks payment allegedly due from defendant Paul Safran Metal Company ("Safran") under an account receivable assigned to Barclays by Interstate Smelting & Refining Company ("Interstate").*fn1 Both parties have moved for summary judgment. Summary judgment is appropriate where there are no genuine issues of material fact and judgment may be rendered as a matter of law. Cedillo v. International Association of Bridge & Structural Iron Workers, Local Union No. 1, 603 F.2d 7, 10 (7th Cir. 1979).

I. Facts

The following facts are not disputed. Pursuant to a loan agreement between Interstate and Barclays dated December 10, 1980, Interstate borrowed money from time to time from Barclays.*fn2 Barclays in turn was granted a security interest in, inter alia, all of Interstate's existing and future accounts receivable. Between December 21, 1981, and March 26, 1982, Safran purchased metal products from Interstate, creating an account receivable in favor of Interstate in the amount of $44,125.52.

Interstate subsequently defaulted on its obligation under the loan agreement. Barclays notified Interstate by letter dated June 25, 1982, that it was taking possession of Interstate's accounts receivable. By letter dated June 21, 1982, Barclays notified Safran of Barclays' right to receive payments on Interstate's accounts receivable. Safran has refused to make payment to Barclays, giving rise to this action for recovery of the $44,152.52 allegedly owing on the account receivable.

II. Defense

Illinois Revised Statutes ch. 26 § 9-318 defines the rights of an account debtor as against an assignee seeking to recover on the account. Section 9-318(1) provides that:

    (1) Unless an account debtor has made an
  enforceable agreement not to assert defenses or
  claims arising out of a sale as provided in
  Section 9-206 the rights of an assignee are
  subject to
    (a) all the terms of the contract between the
    account debtor and assignor and any defense or
    claim arising therefrom; and
    (b) any other defense or claim of the account
    debtor against the assignor which accrues before
    the account debtor receives notification of the
    assignment.

(Emphasis added). Accordingly, Safran asserts in its defense that between November 11, 1981, and July 1, 1982, Safran sold metal scrap to Interstate in the amount of $61,891.53. Safran alleges that Interstate paid $11,165.70 toward this amount, leaving an amount owing of $50,725.83 to be set-off in part by the $44,152.52 owed to Interstate by Safran. Safran contends that under § 9-318, Barclays' right to collect on the account receivable is subject to Safran's claim against Interstate. Because Interstate's debt to Safran exceeds Barclays' claim, Safran seeks summary judgment in its favor.

III. Discussion

Barclays argues that Safran cannot use the set-off as a defense in this action because it could not have successfully asserted the set-off against Interstate in an action by Interstate to collect the account receivable. In support of its argument, Barclays cites Ill.Rev.Stat. ch. 26 § 2-717 and a series of cases purportedly holding that a defendant's claim against a plaintiff may be used as a set-off only where the claim arose from the same contract as the plaintiff's claim. Section 2-717 concerns contracts for the sale of goods and provides:

    The buyer on notifying the seller of his
  intention to do so may deduct all or any part of
  the damages resulting from any breach of the
  contract from any part of the ...

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