Opinion ID: 438944
Heading Depth: 1
Heading Rank: 2

Heading: right to setoff.

Text: 8 Tenneco argues that the court erred as a matter of law in ruling that Tenneco could not apply a portion of the June 1 advance payment from Arizona Fuels against past deficiencies. Under a contract dating from February, 1981, Arizona Fuels paid Tenneco in advance for deliveries, and Tenneco had the right to deduct past deficiencies from current advance payments. Tenneco relies primarily on a contractual provision: 9 Adjustment of Insufficient Payments. In the event that the advance payment for a particular month of delivery is determined to have been insufficient, Seller will deduct from the current month's advance payment an amount equal to such deficiency, and add an equal amount to the advance payment which was due for the month of delivery. Seller will notify Buyer promptly in writing of the adjusted amount of the current month's advance payment and the amount by which such payment is in arrears. Within three (3) working days of receipt of such notice, Buyer will transfer by wire the amount in arrears in order to maintain full advance payments for all estimated monthly deliveries. 10 [R. 378, exhibit 3, p 5(c)(i).] Tenneco also claims a general equitable right of setoff. 11 Although setoffs are permitted in a variety of circumstances, a creditor cannot setoff pre-receivership debts against receivership assets in his possession. Bien v. Robinson, 1908, 208 U.S. 423, 428, 28 S.Ct. 379, 381, 52 L.Ed. 556; Quittner v. Los Angeles Steel Casting Co., 9 Cir., 1953, 202 F.2d 814, 815-16; Republic Supply Co. v. Richfield Oil Co., 1932, 59 F.2d 35, 36-37; 75 C.J.S. Receivers Sec. 113. Tenneco concedes the principle, but argues that it properly applied pre-receivership payments to pre-receivership deficiencies (except for Sec. 6,549), under the above contractual provision [Aplt's Brief at 33, 39]. 12 Tenneco, focussing on the June 9 appointment of the Receiver, does the accounting differently from that of the district court. Arizona Fuels paid a $750,000 advance on June 1; Tenneco delivered about $327,357 worth of oil from June 1 to June 9; Tenneco deducted from the pre-receivership payment deficiencies of $233,411 from May and $195,791 from December, leaving Arizona Fuels with a net debt of $6,549 as of June 9. From June 9 to July 15, the Receiver paid $1,383,000; Tenneco delivered $1,324,653 worth of oil, recouped the remaining $6,549 debt, and refunded the balance of $51,793. 13 Tenneco's argument that the June 1 advance funds were not receivership assets is predicated on a proposition for which it offers no support, and we find none: that a setoff relates back to the date when the creditor obtained the assets offset against the debtor. Here, the terms of the contract did not make setoffs automatic, but rather provided a specific procedure (Seller shall deduct ..., Seller will notify Buyer ..., Buyer will transfer ... [p 5(c)(i), quoted above]. Tenneco did not deduct or notify before the appointment of the Receiver on June 9, as it would have been entitled to do, but afterward on June 15 and August 10. 14 Tenneco purports to have applied the setoffs, or at least the first one (even under the district court's accounts, Tenneco argues, the June 1 advance exceeded the June 1 to 15 deliveries by $208,924, which thus was pre-receivership money available to setoff the pre-receivership debt [Aplt's Brief at 36], against funds belonging to Arizona Fuels, not the Receiver. But the district court vested all rights and title to all Arizona Fuels' assets in the Receiver on the date of appointment. The appointment order authorized the Receiver to hold, protect and preserve, manage and control the monies and properties of Arizona Fuels, but not to pay creditors' claims without court approval [R. 210 at 2, 4]. The latter limitation is crucial to the purpose and function of receiverships, which suspend all creditors' claims, contractual or otherwise, pending judicial determination of assets, liabilities, and claimants' priorities. Notwithstanding Tenneco's actual possession of Arizona Fuels' funds, Tenneco lost its right, contractual or otherwise, to unilaterally settle past debts on June 9. After that date, the balance of the advance payment and any oil delivered against that credit were receivership property. We therefore hold that the district court properly rejected Tenneco's claimed right to setoff. 15