Daiwa Special Asset v. State of Illinois ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-3254
IN RE: DOCTORS HOSPITAL OF HYDE PARK, INC.,
Debtor.
APPEAL OF: DAIWA SPECIAL ASSET CORPORATION.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 02 C 1822—Marvin E. Aspen, Judge.
____________
ARGUED FEBRUARY 28, 2003—DECIDED JULY 28, 2003
____________
Before BAUER, POSNER, and MANION, Circuit Judges.
POSNER, Circuit Judge. This appeal requires us to consider
the relation between two statutes of Illinois. One, the
Uniform Commercial Code, adopted in Illinois as in all
states, provides that the rights of an assignee of an account
debtor “are subject to (a) all the terms of the contract
between the account debtor and the assignor . . . and (b) any
other defense or claim of the account debtor against the
assignor which accrues before the account debtor re-
ceives notification of the assignment.” UCC § 9-318(1), 810
ILCS 5/9-318(1). (Effective 2001—too late to affect this
case—section 318 was amended and renumbered, becoming
UCC § 9-404, 810 ILCS 5/9-404. The language we have
quoted was not materially changed, however.) An “account
debtor” is basically someone who owes money as a result of
a contractual undertaking. UCC 9-105(1)(a), 810 ILCS
2 No. 02-3254
5/9-105(1)(a); see Newcombe v. Sundara, 654 N.E.2d 530, 534
(Ill. App. 1995); Factofrance Heller v. I.P.M. Precision Machin-
ery Co., 627 F. Supp. 1412, 1415 n. 3 (N.D. Ill. 1986). Assign-
ments of accounts are subject to Article 9 of the UCC. 4
James J. White & Robert S. Summers, Uniform Commercial
Code § 30-2, p. 4 (4th ed. 1995).
The other statute, the Illinois Comptroller Act, provides,
so far as bears on this case, that whenever the state owes
money to someone who owes the state money “the Comp-
troller may deduct the entire amount due and payable to the
State.” 15 ILCS 405/10.05. In other words, the state has a
right of setoff. Furthermore, “no sale, transfer or assignment
of any claim or demand against the state, or right to a
warrant on the treasurer, shall prevent or affect the right of
the comptroller to make the deduction and off-set provided
in the foregoing section.” 15 ILCS 405/10.06. The potential
tension between the Comptroller Act and the UCC lies in
the fact that the former purports to create an unqualified
right in the state to a setoff against an assignee while the
latter makes assignees subject only to the terms of the
original contract plus those defenses of the account debtor
against the assignor that while they do not arise from the
contract do at least accrue before the account debtor (the
assignor’s debtor, the state in this case) learns of the
assignment. The state’s defense in this case, namely a tax
claim that it seeks to set off against a claim of payment
for services to Medicaid recipients, arose after the state
received notice of the assignment. But if the right of setoff
constituted a term of the assigned contract, the state can
enforce the Comptroller Act without violating the UCC.
Setoffs—statutory, common law, and explicitly contractual,
and whether in favor of government entities or private
ones—are commonplace. But Illinois’s statute is unusual
in providing that a class of setoffs is not to be affected by
assignment.
No. 02-3254 3
The facts, at any rate, are simple. (The law is complex and
uncertain, as we shall see.) Doctors Hospital assigned its
accounts receivables to Daiwa, and the receivables included
money owed the hospital by the state under a contract
whereby the state had agreed to reimburse the hospital for
expenses incurred by the hospital in providing services to
Medicaid patients. The contract did not contain a clause
authorizing the state to offset, against any amount it owed
the hospital, tax or other obligations that the hospital might
owe it; had the contract contained such a clause, Daiwa
would have no ground for an appeal. See Commerce Bank,
N.A. v. Chrysler Realty Corp., 244 F.3d 777, 780-84 (10th Cir.
2001) (Kansas law).
Doctors Hospital went broke, and the state moved to lift
the automatic stay against creditors’ enforcement actions to
the extent necessary to enable the state to set off against the
money it owed Daiwa, as the hospital’s assignee, taxes that
the hospital owed the state plus a small amount of Medicaid
overpayments that the state had made to the hospital.
Daiwa acknowledged that the latter setoff (actually “re-
coupment,” as we’ll see in a moment) was proper, but not
the former. The bankruptcy court agreed with Daiwa and
denied the state’s motion to lift the automatic stay, but the
district court disagreed and allowed the setoff of the state
taxes as well, 272 B.R. 677 (Bankr. N.D. Ill.), rev’d, 291 B.R.
453 (N.D. Ill. 2002), and Daiwa appeals. The district court’s
order granting the state’s motion to lift the automatic stay
was final and therefore appealable to us. Colon v. Option One
Mortgage Co., 319 F.3d 912, 916 n. 1 (7th Cir. 2003); see also
In re James Wilson Associates, 965 F.2d 160, 166-67 (7th Cir.
1992).
The state persuaded the district court that the Comptrol-
ler Act created an implied term in the contract between the
state (an account debtor by virtue of its Medicaid contract
with the hospital) and the hospital (the assignor of the
4 No. 02-3254
accounts receivable arising from the contract) that bound
the assignee (Daiwa). If this is right, then there is no incon-
sistency between the two statutes and we would not have
to consider which prevails if they do clash—the UCC be-
cause it was adopted in Illinois before the latest version
of the Comptroller Act and repeals by implication are
said to be disfavored, e.g., Posadas v. National City Bank,
296 U.S. 497, 503 (1936), and because it deals specifically
with assignments? Or the Comptroller Act because the
original Act, an antique dating back to 1851; La Pine Scien-
tific Co. v. Lenckos, 420 N.E.2d 655, 657 (Ill. App. 1981),
preexisted the UCC and deals specifically with setoffs
arising from state contracts? Whichever statute were held to
prevail would necessarily be repealing the other by implica-
tion, since the current Comptroller Act is newer than the
UCC (making the UCC repealed by implication if the
Comptroller Act prevails) but the UCC is newer than the
original Comptroller Act (making the Comptroller Act
repealed by implication if the UCC prevails).
Daiwa has, as we have indicated, no quarrel with the
state’s deducting from what Daiwa is owed the over-
payments that the state made to the hospital. The state
never owed the hospital the full amount of the accounts
receivables because it had overpaid, and so the full amount
was not the hospital’s to assign to Daiwa. Recoupment of
that amount merely conformed the assignee’s debt to the
express terms of the contract between the account debtor
and the assignor. In re TLC Hospitals, Inc., 224 F.3d 1008(9th Cir. 2000); United States v. Consumer Health Services of
America, Inc., 108 F.3d 390 (D.C. Cir. 1997). But the taxes
are an unrelated debt of the hospital to the state, and while
the Medicaid contract could have contained a provision
expressly entitling the state to set off any taxes the hos-
pital owed it against any Medicaid payments that it owed
the hospital, it did not.
No. 02-3254 5
The state does not rely on a common law right of setoff;
we’re not sure why. Although we said in another case that
common law setoffs “are permitted only when the debts are
‘mutual’, and debts arising at different times out of different
circumstances are not mutual,” Soo Line R.R. v. Escanaba &
Lake Superior R.R., 840 F.2d 546, 551 (7th Cir. 1988), the
general rule is that mutuality is satisfied when the offsetting
obligations are held by the same parties in the same capacity
(that is, as obligor and obligee) and are valid and enforce-
able, and (if the issue arises in bankruptcy) both offsetting
obligations arise either prepetition or postpetition, even if
they arose at different times out of different transactions. In
re Davidovich, 901 F.2d 1533, 1537 (10th Cir. 1990); see, e.g.,
In re Bevill, Bresler & Schulman Asset Management, 896 F.2d
54, 59 (3d Cir. 1990); In re Bay State York Co., 140 B.R. 608,
613-15 (Bankr. D. Mass. 1992); In re Thurston, 139 B.R. 14, 15
(Bankr. W.D. Mo. 1992).
There is however, disagreement over whether different
agencies of the same state government are one party or
more than one party for mutuality purposes; if the latter, the
“held by the same parties” requirement of mutuality is not
satisfied. Compare In re Lakeside Community Hospital, 139
B.R. 886, 889-90 (Bankr. N.D. Ill. 1992) (state agencies not
one entity for setoff purposes), aff’d, 151 B.R. 887, 891-93
(N.D. Ill. 1993), with In re Bison Heating & Equipment, Inc.,
177 B.R. 785, 789-91 (Bankr. W.D.N.Y. 1995) (state agencies,
as “creatures of the State” are a “single entity capable of
holding mutual credits and debts”), and In re Bennett Co.,
118 B.R. 564, 565-66 (M.D. Tenn. 1990) (same). In United
States v. Maxwell, 157 F.3d 1099, 1102 (7th Cir. 1998), we held
that different federal agencies are to be treated as one for
setoff purposes, but there does not appear to be a definitive
ruling concerning the status of Illinois state agencies.
Because the state is not invoking a common law right of
setoff and there is no express setoff provision in the
6 No. 02-3254
Medicaid contract, the state needs the Comptroller Act to
have any right to deduct the taxes that the hospital owes it
from the money that it owes Daiwa by virtue of the hospi-
tal’s assignment of its accounts receivables to the latter.
The district court ruled, as we said, that the Act created
an implied term in the contract between Doctors Hospital
and the state, binding Daiwa as the assignee of Doctors
Hospital’s rights under the contract. “[S]tatutes are a
source of implied contractual terms—the Uniform Com-
mercial Code being the most common such source—just like
common law doctrines, such as the duty of good faith,
which in Illinois is read into all contracts.” Selcke v. New
England Ins. Co., 995 F.2d 688, 689 (7th Cir. 1993) (citations
omitted); see Schiro v. W.E. Gould & Co., 165 N.E.2d 286, 290
(Ill. 1960). It seems plain enough that if an Illinois statute
expressly provided that every Medicaid contract entitled
the state to a setoff of any money owed it by the Medicaid
contractor, a right of setoff would become a term in all such
contracts by operation of law. In re Estate of Dierkes, 730
N.E.2d 1101, 1107 (Ill. 2000); Brandt v. Time Ins. Co., 704
N.E.2d 843, 850 (Ill. App. 1998); Lincoln Towers Ins. Agency,
Inc. v. Boozell, 684 N.E.2d 900, 903-04 (Ill. App. 1997). Daiwa
would still argue that implied terms, though effective
between the parties to the contract, should not be deemed
within the reach of section 318(1)(a) of the UCC, because
section 318(4) (which persists in the successor provision,
UCC § 9-406(d)) provides that “a term in any contract
between an account debtor and an assignor is ineffective if
it prohibits assignment;” in addition, as we noted in Bank of
America, N.A. v. Moglia, 330 F.3d 942, 947-48 (7th Cir. 2003),
the common law of Illinois is hostile to antiassignment
clauses, though less so than the common law of many states.
See id.; Piasecki v. Liberty Life Assurance Co., 728 N.E.2d 71,
73-74 (Ill. App. 2000); Henderson v. Roadway Express, 720
N.E.2d 1108, 1111-13 (Ill. App. 1999). But the argument
No. 02-3254 7
would fail. A prohibition against assignment is just that, a
prohibition, which is not the same thing as subjecting an
assignee—meaning of course that assignment has not been
prevented—to his assignor’s contractual duties. Section
318(1)(a) does that explicitly, and we cannot find any cases,
whether interpreting section 318(4) of the Uniform Commer-
cial Code or applying the common law policy against
antiassignment clauses, that suggest that such clauses allow
an assignment to wipe out all defenses against assignors.
Few people would agree to contracts that allowed the other
party, by assigning the contract, to escape all its contractual
obligations.
Still, bearing in mind the objective of the policy against
antiassignment clauses, namely the objective of facilitating
assignment by protecting assignees against unsuspected
obligations of their assignors, one might want to distinguish
between a duty (giving rise to a defense) stated in the
contract itself, and therefore obvious to the assignee at the
time of the assignment, and a duty that could be discovered
only by searching the statute books. An analogy might be
drawn to the distinction in property law between covenants
that do and covenants that do not run with the land. The
former are effective against subsequent purchasers but the
latter are not unless expressed in the subsequent sale
contract. Spencer’s Case, 77 Eng. Rep. 72, 74 (K.B. 1583); see
also U.S. Fidelity & Guarantee Co. v. Old Orchard Plaza
Limited Partnership, 672 N.E.2d 876, 884-85 (Ill. App. 1996);
Purvis v. Shuman, 112 N.E. 679, 682 (Ill. 1916). The reason
for the difference is that covenants are allowed to run with
the land only if they regulate the use of the land (for
example, a covenant against building a fence) and so are
discoverable by a search of the title records or by visual
inspection; if they arise from unrelated contracts, they are
not readily discoverable and so they do not bind subse-
quent purchasers unless repeated in the contracts with
8 No. 02-3254
those purchasers. Susan F. French, “Toward a Modern Law
of Servitudes: Reweaving the Ancient Strands,” 55 S. Cal. L.
Rev. 1261 (1982). Daiwa could glean the express terms of
its assignor’s Medicaid contracts just by reading the con-
tracts. But it couldn’t discover the Comptroller Act by
reading the contracts and anyway the Act itself is not as
specific (not quite, at any rate) as the variant of it that we
hypothesized in the previous paragraph.
These arguments prove too much; they imply that no
implied contractual terms are enforceable against assignees,
which is false. Hasse Contracting Co. v. KBK Financial, Inc.,
980 P.2d 641, 645 (N.M. 1999). An assignor can assign only
what he has, and so, as the cases say, the assignee stands in
the shoes of the assignor. Collins Co. v. Carboline Co., 532
N.E.2d 834, 839 (Ill. 1988); Block v. Pepper Construction Co.,
710 N.E.2d 85, 90 (Ill. App. 1999); Bank of Waunakee v.
Rochester Cheese Sales, Inc., 906 F.2d 1185, 1189 (7th Cir.
1990); National City Bank v. Columbia Mutual Life Ins. Co., 282
F.3d 407, 409 (6th Cir. 2002). Otherwise assignment would
be a method of shucking off contractual obligations without
the consent of the obligee. Section 318(1)(a) of the Uniform
Commercial Code, and its successor provision, are explicit
in subjecting the assignee to the contractual duties assumed
by the assignor. And the binding terms of a contract include
implied as well as express terms. For example, in Illinois a
duty of good faith is, as we noted earlier, read into every
contract. Can an assignee nevertheless collect a debt based
on his assignor’s bad faith? Surely not. And if common law
doctrines create implied terms that bind assignees, so,
obviously, should statutory doctrines.
We are mindful that Bank of Kansas v. Hutchinson Health
Services, Inc., 785 P.2d 1349, 1355-56 (Kan. 1990), the princi-
pal case on which Daiwa relies, analyzed the Kansas
statutory right to setoff, Kan. Stat. Ann. § 75-6204, which is
much the same as section 10.05 of the Illinois Comptroller
No. 02-3254 9
Act, under section 318(1)(b) of the UCC. But it is not a
compelling precedent. The court did not discuss the pos-
sibility that the applicable subsection was actually (a)
even though Kansas law accepts the proposition that
“applicable or relevant and valid statutes, ordinances,
regulations, and settled law at the time the contract was
made become a part of the contract and must be read into
it, unless a contrary intention is shown.” Heartland Premier,
Ltd. v. Group B & B, L.L.C., 31 P.3d 978, 981 (Kan. App. 2001).
Other cases as well treat statutory and common law setoff
rights under subsection (b), see Bank of Waunakee v. Rochester
Cheese Sales, Inc., supra, 906 F.2d at 1191; In re Davidson
Lumber Sales, Inc., 66 F.3d 1560, 1564-65 (10th Cir. 1995);
Chase Manhattan Bank (N.A.) v. State, 357 N.E.2d 366, 368-
69 (N.Y. 1976), but again without considering the applicabil-
ity of (a). Hasse Contracting Co. v. KBK Financial, Inc., supra,
is to the contrary, treating a New Mexico statute that
required prompt payment of contractual obligations in
public works projects as incorporated into the contracts,
thus giving rise to a defense governed by section 318(1)(a).
Bringing implied terms within the reach of section
318(1)(a) does not make subsection (b) superfluous. A
contract party might have a defense that did not arise out of
the contract itself and therefore was not subject to subsec-
tion (a). Suppose that A and B have two contracts, the first
is silent on setoff, there is no applicable statute entitling
either party to an offset, and the contracts are not related
closely enough for common law setoff to be available. The
second contract, however, contains a provision entitling A
to set off any debt to B arising from that contract against any
debt of B to A arising from the first contract. If B had
assigned the first contract to C before making the second
one, A, which let’s assume is owed money by B on the
second contract, could not defend against C on the basis of
the setoff clause in the second contract, because C when it
10 No. 02-3254
took the assignment had no notice of A’s setoff right. A
more common example (for we cannot find any cases
corresponding to our hypothetical) would be where the
second contract modified the first; but that example is the
subject of a separate provision of section 318, section 318(2).
Perhaps, then, we should have said that bringing implied
terms within the reach of section 318(1)(a) does not make
subsection (1)(b) completely superfluous.
The state wants to be able to set off taxes and other money
owed it against any state debts, and this policy would be
compromised if the right of setoff could be defeated by
assignment—hence section 10.06 of the Comptroller Act.
Without a right of setoff it is unlikely that the state will be
able to collect any of the taxes owed it by Doctors Hospital.
According to its Chapter 11 petition, Doctor’s Hospital
when it declared bankruptcy had total assets of some $24
million and total liabilities of $81 million of which $60
million was secured debt, an amount greatly in excess of
the hospital’s assets. So if there is no right of setoff, the
state will get nothing. Assignments of accounts receiv-
ables are common and would on Daiwa’s approach render
state taxes uncollectible in many cases in which an assignor
owed money by the state assigns his right to collect the
money and then becomes insolvent owing secured debt. The
principal effect of ruling for Daiwa might be to induce
the state to include explicit setoff rights in its contracts, in
which event such a ruling would merely have increased
the costs of transacting.
The problem of notice that we mentioned earlier is not a
compelling objection to deeming the Comptroller Act to
have created an implied term in the contract between the
state and the hospital. Daiwa when it took the assignment
of that contract knew that it was getting rights against the
state, and in the exercise of the normal due diligence for a
No. 02-3254 11
substantial transaction would have looked up any state laws
that might limit those rights—for it is well known that
government entities are subject to all sorts of legal restric-
tions that private contracting parties are not. (One must
“turn square corners” in dealing with the government, it
used to be said.) A responsible search would have discov-
ered sections 10.05 and 10.06 of the Illinois Comptroller Act
and so Daiwa would have learned that the state reserved a
right to set off debts against money that it owed to provid-
ers of services to the state, such as Doctors Hospital. There
are an enormous number of state laws, and it might be
unreasonable to expect a person taking an assignment of a
contract with the state to determine in advance the possible
bearing of all of them. Not that ignorance of law is a defense
(usually; there are of course exceptions, such as the one
discussed in Cheek v. United States, 498 U.S. 192, 199-200
(1991)); but the question is not whether the law is known; it
is whether it gets incorporated into all contracts. A right of
setoff, however, is the kind of thing that one expects to find
in a contract, whether put there by agreement of the parties
or implied in the contract by operation of law. Statutory
setoff rights are a commonplace of contract law. Lincoln
Towers Ins. Agency, Inc. v. Boozell, supra, 684 N.E.2d at 903-04;
Selcke v. New England Ins. Co., supra, 995 F.2d at 689. Daiwa
cannot plead surprise.
The last case we cited, Selcke, concerned an Illinois statute
that created a mutual right of setoff between insurance
companies. We held, citing Illinois cases, that the statute
created an implied term in contracts between such compa-
nies. The effect was to give each company what amounted
to a secured interest, and that effect is particularly pro-
nounced in the present case, where, assuming as we have
held that the Comptroller Act creates an implied term, the
account debtor (the state) trumps a secured creditor (the
assignee of the account creditor’s accounts receivables). We
12 No. 02-3254
do not have the situation in which a statute is so far afield
of matters of normal interest to contracting parties that they
would not have thought it would affect the terms of their
contract. Cf. Bank of America, N.A. v. Moglia, supra, 330 F.3d
at 948; Schiro v. W.E. Gould & Co., supra, 165 N.E.2d at 290. It
is conceivable that such statutes would not be deemed to
create implied contractual terms, though unlikely in view of
such commonplace judicial remarks as that “as a general
principle of contract law, statutes and laws in existence at
the time a contract is executed are considered part of the
contract. It is presumed that parties contract with knowl-
edge of the existing law.” Braye v. Archer-Daniels-Midland
Co., 676 N.E.2d 1295, 1303 (Ill. 1997) (citations omitted); to
the same effect see, e.g., Liccardi v. Stolt Terminals, Inc., 687
N.E.2d 968, 973 (Ill. 1997); Lincoln Towers Ins. Agency, Inc. v.
Boozell, supra, 684 N.E.2d at 903-04; McMahon v. City of
Chicago, 789 N.E.2d 347, 350 (Ill. App. 2003). The presump-
tion is artificial, but to the extent that it states the policy of
Illinois law, we are of course bound. Although Daiwa cites
eleven reported cases that it claims stand for the proposition
that Illinois does not automatically allow statutes to create
implied contractual terms, only one of those cases, a diver-
sity decision by this court, refused to allow the statute in
question to be used to create an implied term, Johnson v.
Levy Organization Development Co. 789 F.2d 601, 609 (7th Cir.
1986), and there is no discussion of the basis of this ruling,
which was merely made in passing in the opinion.
This case is even stronger for reading the statute into the
contract than Selcke was, because a decision against the state
might precipitate an effort to amend the UCC to create a
new defense assertible by the state account debtor against
the assignee. Illinois wants its taxes; but under the approach
espoused by Daiwa the only way it can get them from an
assignee when the taxpayer-assignor is insolvent is to
amend the UCC. Granted, this is something of an overstate-
No. 02-3254 13
ment, since the state can include an express setoff clause in
all its contracts. But it would be likely to fear slippage—a
state enters into thousands of contracts every year and
cannot guarantee that its contract officers will always
include a particular term. (This is why estoppel rights are so
much more limited against public than against private
entities.) Any state can amend its statute adopting the UCC,
but such amendments are to be discouraged because they
undermine the UCC’s goal of nationwide uniformity.
Against this Daiwa argues that if the Comptroller Act is
held inapplicable to assignments governed by the UCC,
assignees will have the same rights whether their debtor is
the state or a private individual. But the uniformity that the
UCC seeks to foster is uniformity in the rules governing
commercial transactions, not uniformity in the transactions
themselves. The parties are free to make their own
contract—and the state is free is to tell them that contracts
to which it is a party must contain a provision allowing the
state to offset taxes or other money due it against any
money it owes under the contract. The State of Illinois told
its contract parties this by enacting sections 10.05 and 10.06;
it is as if every contract with the state contained the setoff
provision as part of the contract’s boilerplate.
All this said, we cannot feel utterly confident of the
soundness of our ruling when we consider the number of
cases that have treated statutory setoff rights in favor of the
state under section 318(1)(b) and the fact that very little
“work” is left for that subsection to do if such rights are
deemed implied terms of every contract made by the
state. Prudence therefore moves us to consider whether,
if we are wrong in the analysis to this point, the state might
nevertheless prevail, on the theory that the Comptroller
Act, to the extent inconsistent with the UCC (as it would
be if the Act creates an absolute right of setoff in favor of the
14 No. 02-3254
state against assignees and the UCC a right only if the
obligation giving rise to the setoff arises before notice of the
assignment), takes precedence. The parties ground their
arguments on which statute takes precedence on the
principle of statutory interpretation that repeals by implica-
tion are disfavored. Like so many of the familiar “canons”
of statutory interpretation, however, this one is shaky. If
two statutes conflict, why would the legislature that en-
acted the second want the first—the handiwork of an
earlier legislature with doubtless many different members
from the later legislature—to take precedence? Criticizing
the canon in Edwards v. United States, 814 F.2d 486, 488 (7th
Cir. 1987), we said that it “rests on an unrealistic premise
about the legislative process. The premise is that when a
legislature contemplates passing a new statute it is care-
ful to search the statute book for any statute that might
overlap the new one, and if it finds any such older statute
and doesn’t want to continue that statute in force it
repeals it explicitly when passing the new one. ‘The pre-
sumption against implied repeals is founded upon the
doctrine that the legislature is presumed to envision the
whole body of the law when it enacts new legislation.’ 1A
Sutherland Statutory Construction § 23.10, at p. 346 (4th ed.
1985). But, of course, neither Congress nor any other
legislature in the United States ‘envision[s] the whole body
of the law when it enacts new legislation.’ Cf. Barrett v.
United States, 423 U.S. 212, 223-24 (1976). How could it,
given the vast expanse of legislation that has never been
repealed and the even vaster expanse of judicial and
administrative rulings glossing that legislation?”
But maybe the real justification for the canon has nothing
to do with trying to reconstruct legislators’ intentions.
Maybe it is just intended to limit judicial discretion. Friedrich
v. City of Chicago, 888 F.2d 511, 516 (7th Cir. 1989), vacated
and remanded for reconsideration, 499 U.S. 933 (1991). We
No. 02-3254 15
need not wade farther into these deep waters, however,
since, as we noted earlier, because of the complex pattern of
enactment and reenactment of the statutes in question, the
principle that repeals by implication are disfavored cannot
be used to decide this case.
Deprived of that crutch, we nevertheless think it reason-
ably clear that the Illinois legislature did mean the Comp-
troller Act to trump the UCC in a case such as this. The
main significance of setoff is found in cases of insolvency; if
the obligor is solvent, it usually will not make a critical
difference whether the obligee recovers from him by way of
setoff or in an independent suit. Setoff rights mainly operate
to create priorities in bankruptcy. It is apparent from the
emphatic language of section 10.06 (“no sale, transfer or
assignment of any claim or demand against the state, or
right to a warrant on the treasurer, shall prevent or affect
the right of the comptroller to make the deduction and off-
set provided in the foregoing section”) that the Illinois
legislature meant to give the state priority over assignees of
state contracts in the event of bankruptcy. That specific
intention overrides the provisions of the UCC, which give
no special weight to the interests of the state. Knolls Condo-
minium Ass’n v. Harms, 781 N.E.2d 261, 267 (Ill. 2002); Buffum
v. Chase National Bank, 192 F.2d 58, 61 (7th Cir. 1951). We
conclude, therefore, that by either analytic route—implied
contractual term or statutory precedence—the state prevails
in this case. The judgment of the district court is therefore
AFFIRMED.
16 No. 02-3254
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-28-03