Seattle-First National Bank v. Oregon Pacific Industries
500 P.2d 1033 (1972)
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Rule of Law:
Under UCC § 9-318(1)(b), a claim or defense unrelated to an assigned contract "accrues" when a cause of action exists, and it can only be asserted as a setoff against an assignee if it accrued before the account debtor received notification of the assignment.
Facts:
- Prior to December 12, 1968, the defendant placed two plywood orders with Centraba Plywood.
- On December 12, 1968, the defendant purchased additional plywood from Centraba under a separate transaction, which was documented in a specific invoice.
- On December 13, 1968, Centraba Plywood assigned the invoice from the December 12th purchase to the plaintiff bank.
- On the same day, December 13, 1968, the bank notified the defendant of the assignment.
- At the time of the assignment, Centraba Plywood was insolvent, and the bank was aware of this insolvency.
- On or about January 3, 1969, Centraba Plywood breached its contracts with the defendant by failing to deliver the plywood from the two prior, separate orders.
- The defendant refused to pay the bank for the assigned invoice, seeking to offset the damages from Centraba's failure to deliver on the other orders.
Procedural Posture:
- The plaintiff bank sued the defendant in a state trial court to collect on an assigned invoice.
- The defendant asserted a right to a setoff as a defense against the bank's claim.
- The trial court entered a judgment for the bank, denying the defendant's right to a setoff.
- The defendant (appellant) appealed the trial court's judgment to the Supreme Court of Oregon.
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Issue:
Under UCC § 9-318(1)(b), may an account debtor assert a setoff against an assignee for a claim arising from a separate contract with the assignor, when the breach giving rise to that claim occurs after the debtor has received notice of the assignment?
Opinions:
Majority - Denecke, J.
No, an account debtor may not assert a setoff against an assignee for an unrelated claim that accrued after the debtor received notification of the assignment. The Uniform Commercial Code (UCC) governs this transaction and supplants pre-Code principles, such as those concerning an assignor's insolvency. The Code, specifically ORS 79.3180(1), distinguishes between claims arising from the assigned contract and 'any other' claims. The defendant's setoff claim arises from a breach of a separate contract and is therefore an 'unrelated' claim under subsection (1)(b). Such a claim is only available against the assignee if it 'accrues before the account debtor receives notification of the assignment.' The court interprets 'accrue' in its common legal sense, meaning the moment a cause of action comes into being. Here, the defendant's cause of action against Centraba for non-delivery arose on January 3, 1969, the date of the breach. Because this date is after December 13, 1968, when the defendant was notified of the assignment to the bank, the setoff cannot be asserted.
Analysis:
This decision clarifies the meaning of 'accrues' under UCC § 9-318(1)(b), establishing a bright-line rule that a claim accrues when the cause of action comes into existence, typically at the moment of breach. By rejecting the importation of pre-Code equitable principles not explicitly included in the UCC, the court reinforced the Code as a comprehensive and preemptive statutory scheme. This ruling strengthens the position of assignees, like banks, by limiting the defenses an account debtor can raise, thereby making accounts receivable a more predictable and secure form of collateral for commercial financing.
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