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Puritan Finance Corporation v. Bechstein Construction Corporation

June 4, 2012


Appeal from the Circuit Court of Cook County. No. 09 M1 113989 The Honorable Pamela E. Veal Hill, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Hoffman

PRESIDING JUSTICE HOFFMAN delivered the judgment of the court, with opinion. Justices Hall and Karnezis concurred in the judgment and opinion.


¶ 1 The defendant, Bechstein Construction Corporation, appeals the circuit court's decision granting judgment in favor of the plaintiff, Puritan Finance Corporation, on the plaintiff's action to collect on indebtedness assigned to it during bankruptcy proceedings of Granite Cartage Company (Granite). On appeal, the defendant argues that its liability on the indebtedness should have been set off by an unrelated debt Granite owed it. For the reasons that follow, we affirm the judgment of the circuit court.

¶ 2 The basic facts of this case are undisputed. In 2008, Granite filed for bankruptcy. At that time, the plaintiff held a secured lien on Granite's accounts receivable, and, the parties agree, those accounts were assigned to the plaintiff. Among Granite's accounts receivable were invoices indicating that the defendant owed Granite approximately $22,000, for several different cartage jobs. The defendant has never disputed the accuracy of that figure, but it asserted that the $22,000 debt is "subject to a setoff pursuant to a course of dealing pursuant to which [it] and Granite performed services for one another on mutual open account." Under that arrangement, Granite and the defendant would perform cartage work for one another and, in the words of an employee of the defendant, "swap checks" periodically to settle outstanding invoices. At the time Granite's accounts receivable were assigned to the plaintiff, the amount Granite owed the defendant exceeded the amount the defendant owed Granite.

¶ 3 The parties filed cross motions for summary judgment, but the circuit court denied both motions and set the matter for trial. The parties' stipulated report of the trial proceedings indicates that an employee of the defendant testified at trial regarding the arrangement between Granite and the defendant. It also indicates that the defendant produced unpaid invoices from it to Granite. After the trial, the circuit court entered judgment in favor of the plaintiff. No explanation for the judgment appears in the record. Following the circuit court's judgment, the defendant filed this timely appeal.

¶ 4 On appeal, the defendant argues, as it did to the circuit court, that, by virtue of its unpaid invoices to Granite, it is entitled to a setoff against the debt that was assigned to the plaintiff. The parties focus their arguments primarily on the law governing setoffs against assigned indebtedness. The interpretation of the relevant statutes and the common law presents us with a question of law to be reviewed de novo. See Cunningham v. Schaeflein, 2012 IL App. (1st) 120529, ¶20.

¶ 5 There exist two Illinois statutes that pertain to setoffs asserted against assignees. The first appears in section 2-403(a) of the Code of Civil Procedure (Code) (735 ILCS 5/2-403(a) (West 2008)), which provides as follows:

"The assignee and owner of a non-negotiable chose in action may sue thereon in his or her own name. *** The action is subject to any defense or set-off existing before notice of the assignment." 735 ILCS 5/2-403(a) (West 2008).

¶ 6 Although this provision might be construed to allow the type of setoff the defendant now requests, Illinois case law has held that a setoff under section 2-403(a) cannot be based on a contract separate from the assigned contract. See R.A.N. Consultants, Inc. v. Peacock, 201 Ill. App. 3d 67, 559 N.E.2d 283 (1990). The defendant does not dispute that its requested setoff is based on a contract or other indebtedness separate from the debts assigned to the plaintiff, and it does not ask us to overturn Illinois case law interpreting section 2-403(a). Accordingly, we conclude that section 2-403(a) of the Code confers no right of setoff to the defendant.

¶ 7 The parties focus their arguments more strongly on the setoff rights described in another Illinois statute, section 9-404(a) of the Uniform Commercial Code (UCC) (810 ILCS 5/9-404(a) (West 2008)). Section 9-404(a) provides as follows:

"Unless an account debtor has made an enforceable agreement not to assert defenses or claims, *** the rights of an assignee are subject to:

(1) all terms of the agreement between the account debtor and assignor and any defense or claim in recoupment arising from the transaction that gave rise to the contract; and

(2) any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives a notification of the ...

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