Seattle 1st Nat. v. Oregon Pacific Industries Case Brief

Summary of Seattle 1st Nat. v. Oregon Pacific Industries
S. Ct OR [1972]

Defenses of Obligor-Setoff and Recoupment

Relevant Facts: Df, OPI purchased plywood from Centralia which assigned the invoice the following day to Pl, Bank. Pl notified Df the same day of the assignment. Df placed two orders prior to the assignment but those orders were never delivered. Centralia was insolvent at the time of assignment and Pl knew of the insolvency.

Legal Issue(s): Whether the setoff accrued to the Df before it received notice of the assignment?

Court’s Holding:

Procedure: Trial Ct judgment for PL, denied setoff, DF appeals; S. Ct. Affirmed

Law or Rule(s): The rights of an assignee are subject to a) All the terms of the K btwn 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.

Court Rationale: The Code does not expressly provide that a claim can be set off if the assignor was insolvent at the time of the assignment and the assignee had knowledge of the insolvency. Under the Code ‘any other defense or claim’ is available against the assignee ONLY IF if ‘accrues before …notification.’ The OR Code is of no assistance in interpreting “accrue." It is advisable to use “accrue" in the Code in its usual sense; a claim or setoff accrues when a cause of action exists. The parties stipulated that the failure to deliver by Centralia occurred on or about 1-03-69. Therefor the claim accrued at that time. Since the claim accrued after DF had notification of the assignment, the setoff cannot be asserted successfully.

Plaintiff’s Argument: Pl notified the Df of the assignment which occurred prior to the Df’s breach of the original K.

Defendant’s Argument: Centralia was insolvent and never delivered the two orders prior to the assignment, and therefor Df is entitled to a set off of the damages.

Set off = If damages arose from a transaction UNRELATED to the assigned K, the process is called a setoff.

Recoupment = If damages arose from the same transaction, the subtraction process, the process is called recoupment.

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