Court Opinion

ID: 4692756
Source: CourtListenerOpinion
Date Created: 2021-06-03 22:00:36.149684+00
Date Added: 2024-06-11T08:05:17.867410
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
Nos. 20-2069 & 20-2155
KR ENTERPRISES, INC.,
                                                   Plaintiff-Appellee,
                                                    Cross-Appellant,

                                 v.

ZERTECK INC., doing business as BOAT-N-RV
WAREHOUSE, et al.,
                                      Defendants-Appellants,
                                            Cross-Appellees.
                    ____________________

        Appeals from the United States District Court for the
         Northern District of Indiana, South Bend Division.
         No. 3:16-cv-00708-PPS — Philip P. Simon, Judge.
                    ____________________

     ARGUED DECEMBER 8, 2020 — DECIDED JUNE 3, 2021
                ____________________

   Before EASTERBROOK, KANNE, and HAMILTON, Circuit
Judges.
    HAMILTON, Circuit Judge. In 2016, a manufacturer of recre-
ational vehicles delivered 21 new RVs to a group of aﬃliated
dealers. Those dealers did not pay before the manufacturer
went out of business. The dealers kept the RVs but have
2                                             Nos. 20-2069 & 20-2155

refused to pay the manufacturer’s secured creditor, which
brought this suit to collect the accounts receivable. After the
secured creditor assigned its rights to the owner of the manu-
facturer, the district court held a bench trial and found that
the secured creditor’s assignee was entitled to payment of the
purchase prices, minus some setoﬀs for warranty and rebate
claims that the manufacturer had owed to the dealers on ear-
lier RV sales. See KR Enterprises, Inc. v. Zerteck, Inc., 461 F.
Supp. 3d 825 (N.D. Ind. 2020).
   The defendant dealers have appealed, arguing they owe
nothing for the RVs they received, at least not to this plaintiﬀ.
The secured creditor’s assignee has cross-appealed, arguing
that the setoﬀs should not have been allowed and that it is
entitled to prejudgment interest. We aﬃrm in all respects.
I. Factual and Procedural History
    Evergreen Recreational Vehicles, LLC, manufactured RVs
and sold the 21 RVs at issue here in the spring of 2016. Ever-
green went out of business in June 2016, a couple of months
after delivering those 21 RVs to several legally distinct but af-
ﬁliated dealers, which all do business under “Boat-N-RV”
names. 1 Each dealer regularly purchased RVs from Ever-
green. The invoices for the 21 RVs totaled $808,663. The

    1  The defendant-dealers are Zerteck, Inc., d/b/a Boat-N-RV Ware-
house (NY); Tilden Recreational Vehicles, Inc., d/b/a Boat-N-RV Super-
store (PA); Ridgeland Recreational Vehicles, Inc., d/b/a Boat-N-RV Meg-
astore (SC); Ridgeland Recreational Vehicles, Inc., d/b/a Boat-N-RV World
(NC); Crossville BNRV Sales, LLC, d/b/a Boat-N-RV Supercenter (TN).
Florida BNRV Sales, LLC, d/b/a Factory Direct Marine & RV (FL) was the
sixth dealer involved in the original litigation but is now defunct and not
party to this appeal.
Nos. 20-2069 & 20-2155                                          3

dealers resold at least 20 of them to retail customers but have
yet to pay Evergreen or its secured creditor for any of them.
    This lawsuit was ﬁled originally in state court by 1st
Source Bank, which was the principal lender to Evergreen and
had a ﬁrst-priority blanket security interest in all Evergreen
assets, including accounts receivable like the amounts the
dealers owed for these 21 RVs. The defendant dealers re-
moved the case to federal court. While the case was pending,
1st Source assigned its rights to KR Enterprises, which had
been the principal owner of Evergreen, after KR paid oﬀ Ev-
ergreen’s debt to 1st Source. After the assignment, KR Enter-
prises was substituted as plaintiﬀ, asserting claims through
1st Source’s security interest in the collateral of Evergreen.
    Following a bench trial, the district court found that KR
Enterprises had standing as a secured party and had proven
that the dealers had breached the contracts by failing to pay.
The court ruled in favor of the dealers on several other theo-
ries of liability. On the breach-of-contract claims, the court al-
lowed the dealers certain setoﬀs for warranty and rebate
claims and denied prejudgment interest on the net amounts
the dealers owed. The dealers have appealed, denying all lia-
bility. KR Enterprises has cross-appealed on the setoﬀs and
the denial of prejudgment interest.
    The district court properly exercised jurisdiction under 28
U.S.C. § 1332(a). Complete diversity of citizenship existed be-
tween the parties, and the amount-in-controversy require-
ment was satisﬁed in at least two ways. First, plaintiﬀ KR En-
terprises oﬀered colorable grounds for holding all the sepa-
rate defendants jointly and severally liable for the full amount
in controversy, even though the district court declined to im-
pose joint and several liability. Second, even when the
4                                        Nos. 20-2069 & 20-2155

amounts sought by plaintiﬀ were separated for each of the de-
fendants, the gross invoices to each individual defendant ex-
ceeded $75,000 before any discounts for the disputed setoﬀs
for rebate and warranty claims. The parties agree that Indiana
law applies, and we exercise appellate jurisdiction under 28
U.S.C. § 1291.
    We consider in Part II the defendant dealers’ argument
that KR Enterprises does not have proper standing as a se-
cured party. Part III addresses both sides’ challenges to the
district court’s treatment of the dealers’ claims for warranty
repairs and rebates owed on earlier RV sales, as well as the
denial of prejudgment interest.
II. Plaintiﬀ’s Standing as a Secured Party
    In 2009, Evergreen and its lender 1st Source Bank signed
an agreement for a secured loan. In exchange for the loan and
line of credit, Evergreen granted 1st Source a ﬁrst-priority
blanket security interest in all assets, including accounts re-
ceivable. Under the terms, nonpayment resulted in default,
and if default continued, 1st Source could “exercise all rights
and remedies provided in this Agreement….”
    As noted, Evergreen closed its operations in June 2016. It
stopped paying 1st Source and went into default. As of No-
vember 2016, Evergreen owed 1st Source more than $1 mil-
lion, leading 1st Source to ﬁle this lawsuit to collect the
amounts owed by the defendant dealers for the 21 disputed
RVs.
     In 2018, while this suit was pending, 1st Source assigned
its rights as a secured lender to plaintiﬀ KR Enterprises in re-
turn for a payment by KR Enterprises that satisﬁed Ever-
green’s debt to 1st Source. (KR Enterprises had been the
Nos. 20-2069 & 20-2155                                                     5

principal owner of Evergreen and its owner, Kelly Rose, had
personally guaranteed Evergreen’s debt to 1st Source.) De-
fendants argue that 1st Source and KR Enterprises timed and
documented the transaction so clumsily as to wipe out both
parties’ security interest in the Evergreen accounts receivable.
The district court rejected that audacious theory, and so do
we.
    Defendants seize on the fact that KR Enterprises made its
big payment to 1st Source on the Evergreen account on
March 2, 2018, while 1st Source did not execute its General
Assignment of its rights as a secured lender until two months
later, on May 1, 2018. As defendants see things, after the
March 2, 2018 payment, 1st Source recorded the debt owed by
Evergreen as zero, eﬀectively wiping out both the debt and
the accompanying security interest that allowed it to sue. By
May 1, 2018, goes the theory, when 1st Source signed the Gen-
eral Assignment to KR Enterprises, 1st Source no longer had
any security interest to assign, making the assignment inef-
fective. 2

    2 The parties have briefed this question in terms of standing. We think
the better approach would be in terms of whether KR Enterprises is the
real party in interest, but because KR Enterprises prevails either way, we
need not dwell on this point. See generally Rawoof v. Texor Petroleum Co.,
521 F.3d 750, 756 (7th Cir. 2008) (“The requirements of Rule 17 should not
be confused with the jurisdictional doctrine of standing.”); Frank v.
Hadesman and Frank, Inc., 83 F.3d 158, 159 (7th Cir. 1996) (plaintiff’s prob-
lem “is not standing (in the sense that the complaint does not allege a ‘case
or controversy’ justiciable under Article III) but the identity of the real
party in interest”); 6A Wright & Miller, Federal Practice & Procedure
§ 1542 (3d ed.) (distinguishing among capacity to sue, real party in inter-
est, and standing: “a person may have capacity to sue under Rule 17(b),
6                                              Nos. 20-2069 & 20-2155

    Testimony from 1st Source vice president Richard Ro-
zenboom and KR’s Kelly Rose made unmistakably clear that
KR Enterprises and 1st Source understood and intended that
1st Source gave the General Assignment in exchange for KR
Enterprises’ payment of Evergreen’s debt to 1st Source. Those
parties did not close that exchange at one time at one confer-
ence table, but the intent to exchange was clear and perfectly
valid.
    “Under Indiana law, a determination of whether or not an
assignment has been made focuses on the intent of the parties.
Any actions or words which show an intention of transferring
the [chosen] action to an assignee for valuable consideration
are suﬃcient.” Crowel v. Admin. of Veterans’ Aﬀairs, 699 F.2d
347, 352 (7th Cir. 1983) (cleaned up); see also 2A Anderson,
U.C.C. § 2-210:24 (3d ed. 2020) (“The intent of the parties to
make an assignment is a question of fact to be derived not
only from the instrument executed by the parties, but also
from the surrounding circumstances.”).
    In response to the testimony from Rozenboom and Rose
explaining that this was all one transaction that took a while
to close, the dealers invoke the parol evidence rule, part of
every ﬁrst-year law student’s education. Under that rule, the
dealers argue, such oral testimony and other documents can-
not be used to vary the unambiguous terms of the General
Assignment. See, e.g., Amici Resources, LLC v. Alan D. Nelson
Living Trust, 49 N.E.3d 1046, 1050 (Ind. App. 2016) (under pa-
rol evidence rule, “extrinsic evidence is inadmissible to add
to, vary, or explain the terms of a written instrument if the

but if the person has assigned all interest in the claim before the action is
instituted, the person no longer is the real party in interest …”).
Nos. 20-2069 & 20-2155                                            7

terms of the instrument are clear and unambiguous”) (cita-
tions omitted).
    The correct response to the dealers’ argument is that even
where the parol evidence rule might apply to a dispute be-
tween the parties to the unambiguous written contract,
strangers to that contract are not entitled to invoke the rule.
In Amici Resources, for example, the court explained: “the in-
admissibility of parole evidence to vary the terms of a written
instrument does not apply to a controversy between a third
party and one of the parties to the instrument.” Id. (citations
omitted).
    The stranger-to-the-contract exception is well-established
in Indiana law. It seems to be litigated most often in disputes
over litigation releases but applies to other sorts of contracts
as well. See, e.g., State Highway Comm'n v. Wilhite, 31 N.E.2d
281, 282 (Ind. 1941) (holding that “the general rule that resort
may not be had to parol evidence … does not apply to others
than the parties to the instrument,” and permitting extrinsic
evidence where injured employee sued a third-party em-
ployer not a party to the original release); White v. Woods, 109
N.E. 761, 763 (Ind. 1915) (“The relations between two persons
who have contracted in writing may be brought in issue col-
laterally in a suit between others. In such a case the parol evi-
dence rule does not apply. The facts may be proved as they
exist, regardless of the oral evidence varying the terms of any
writing between the parties.”) (quotations omitted); Burns v.
Thompson, 91 Ind. 146, 150 (Ind. 1883) (“[A]side from the ques-
tion of fraud, while a dispositive instrument can not be varied
by parol, so far as the parties to it are concerned, yet, in respect
to strangers, written instruments, usually have no binding
force, and the familiar rule against the variation of such
8                                      Nos. 20-2069 & 20-2155

instruments by parol evidence applies only to parties and
privies, and does not forbid their being attacked and contra-
dicted by parol by strangers to them.”) (citations omitted); De-
pew v. Burkle, 786 N.E.2d 1144, 1148–49 (Ind. App. 2003) (con-
sidering parol evidence about a release of original tortfeasor
to determine whether patient also intended to release third-
party doctor); Cooper v. Cooper, 730 N.E.2d 212, 216 (Ind. App.
2000) (applying stranger-to-the-contract exception to dispute
over land sale and concluding that “the inadmissibility of pa-
rol evidence to vary the terms of a written instrument does
not apply to a controversy between a third party and one of
the parties to the instrument”) (citations omitted).
   The dealers respond to the stranger-to-the-contract cases
by saying they do not apply if the written contract is unam-
biguous, citing Evan v. Poe & Assoc., Inc., 873 N.E.2d 92, 103–
05 (Ind. App. 2007). This suggested limit would eﬀectively
nullify the stranger-to-the-contract exception, of course, since
the general rule against parol evidence applies only when the
contract is unambiguous. We rejected the dealers’ suggested
limit in Deckard v. General Motors Corp., 307 F.3d 556 (7th Cir.
2002):
       Indiana already recognizes that parol evidence
       can be considered if the contract is ambiguous.
       See, e.g., Huﬀman [v. Monroe County Community
       Sch. Corp., 588 N.E.2d 1264, 1267 (Ind. 1992)]
       (holding that where “contradictory references
       cloud the intent of the document … parol evi-
       dence may be utilized to determine the parties’
       true intentions respecting the document’s appli-
       cation”). The “stranger to the contract” excep-
       tion is an additional exception to the parol
Nos. 20-2069 & 20-2155                                        9

       evidence rule. For example, in Wilhite, despite
       the plain and unambiguous language of the
       contract, the court held that parol evidence
       could be used to determine the intent of the par-
       ties. Wilhite, 31 N.E.2d at 282. While commenta-
       tors have criticized the “stranger to the con-
       tract” exception to the parol evidence rule, see
       13 A.L.R.3d 313, § 2c (arguing that the parol ev-
       idence rule should apply both to strangers and
       to parties), Wilhite, White and Burns have not
       been overruled in Indiana.
307 F.3d at 565.
    To avoid the stranger-to-the-contract exception, the deal-
ers here cite a case we decided in 1993, some years before
Deckard. In McWaters v. Parker, 995 F.2d 1366 (7th Cir. 1993),
the parties disputed the scope of a settlement that released
one of several joint tortfeasors. We applied Indiana law and
aﬃrmed summary judgment enforcing the unambiguous lan-
guage of the release. Id. at 1370, 1375–76. We declined to look
beyond the four corners of the release agreement, ﬁnding that
“the language of the form clearly demonstrates the existence
of adequate consideration and a meeting of the minds.” Id. at
1375. In McWaters, however, we did not address the “stranger-
to-the-contract” line of cases, nor did the parties’ briefs even
cite those cases. Deckard thus represents our latest application
of the “stranger-to-the-contract” exception, in which we ex-
pressly rejected the attempt to limit the exception to ambigu-
ous written contracts, for that would be no exception at all.
   Complicating matters, however, one decision by the Indi-
ana Court of Appeals noted that it was “not bound by the Sev-
enth Circuit’s interpretation of Indiana law” in Deckard and
10                                      Nos. 20-2069 & 20-2155

instead found McWaters “persuasive.” Evan, 873 N.E.2d at
103–04. In Evan, homeowners had a dispute with their insur-
ance company. They resolved that dispute by signing a settle-
ment agreement that released the homeowners’ claims
against the insurance company and its “agents.” The home-
owners then sued the insurance agency through which they
had purchased the policy, asserting that the agency had been
negligent in omitting key information about their prior claims
against other insurers, leading to the dispute with the insurer.
The Indiana Court of Appeals aﬃrmed summary judgment
for the agency based on the release, despite testimony from
the homeowners and their attorney that they had not in-
tended to release the negligent agency. The court held: “in the
context of a controversy that exists between a third party and
one of the parties to the instrument, when a release is unam-
biguous we need not look at any other evidence to determine
the parties’ intent.” 873 N.E.2d at 104.
    Evan and McWaters do not persuade us to depart from our
express holding in Deckard. McWaters did not address the
“stranger-to-the-contract” issue at all, and we ﬁnd it diﬃcult
to reconcile Evan’s treatment of this issue with the Indiana Su-
preme Court cases and other precedents that we relied upon
in Deckard. In applying state law, our task is to predict how
we think the state supreme court would rule on the issue if it
were presented now. We ordinarily give great weight to deci-
sions of intermediate appellate courts, but where one decision
by an intermediate court seems to stray from the established
course of the state’s law, especially as written by the state su-
preme court, we need not follow it. See Luna v. United States,
454 F.3d 631, 636 (7th Cir. 2006) (district court erred by follow-
ing recent decision of intermediate state court that departed
from state supreme court precedent); see generally
Nos. 20-2069 & 20-2155                                        11

Anderson v. Gulf Stream Coach, Inc., 662 F.3d 775, 782–83 (7th
Cir. 2011) (“In deciding questions of state law, decisions of the
state appellate courts control, unless there are persuasive in-
dications that the state supreme court would decide the issue
diﬀerently.”) (citation omitted); Allstate Ins. v. Menards, Inc.,
285 F.3d 630, 637 (7th Cir. 2002) (in absence of prevailing au-
thority from highest state court, federal court can give “great
weight to the holdings of the state’s intermediate appellate
courts” but can deviate “when there are persuasive indica-
tions that the highest court of the state would decide the case
diﬀerently from the decision of the intermediate appellate
court”). Moreover, releases of joint tortfeasors pose some spe-
cial problems for the state courts that handle by far the greater
volume of tort cases. So we do not decide here that Evan states
Indiana law incorrectly for such cases. It is enough to say that
its treatment of the release problem should not be extended to
a case like this one, involving an assignment of a security in-
terest in exchange for payment of the underlying debt. Apply-
ing the Evan approach to this case would eﬀectively nullify
Indiana’s established “stranger-to-the-contract” exception to
the parol evidence rule.
    The district court did not err by admitting and then cred-
iting the relevant testimony from Rozenboom and Rose and
recognizing that KR Enterprises paid oﬀ the Evergreen loan
in return for assignment of 1st Source’s security interest. The
district court thus correctly found that the parties did not in-
tend to erase the security interest at the heart of the transac-
tion and that the General Assignment transferred a priority
security interest in the RVs from 1st Source to KR Enterprises,
making KR Enterprises the proper plaintiﬀ here.
12                                     Nos. 20-2069 & 20-2155

III. “Material” Breaches and Setoﬀs
    To avoid paying for the 21 RVs they received, the defend-
ant dealers also argue that Evergreen was the ﬁrst to breach
the relevant contracts. The dealers rely primarily on Ever-
green’s failure to pay the dealers promised rebates and war-
ranty obligations on earlier RV sales. The dealers argue fur-
ther that Evergreen breached its contracts with them by deliv-
ering defective RVs and by shutting down its business, leav-
ing the manufacturer’s warranty worthless. The dealers con-
tend that all of these actions relieve them of any obligation to
pay the purchase prices for the 21 new RVs. The district court
rejected these arguments. It concluded that the solution was
to hold the dealers liable for the purchase prices of the RVs
but to allow them setoﬀs for the rebates and warranty pay-
ments that Evergreen owed them, eﬀectively netting out the
parties’ respective obligations. That was the right solution.
     A. Voiding the Manufacturer’s Warranty
    In this set of issues, we ﬁrst address the dealers’ argu-
ments that they are not required to pay for the RVs because
they were defective when they were delivered. The dealers
say the defective deliveries were the ﬁrst material breaches
and that those breaches excuse them from paying for the RVs
at all. We need not address some obvious legal questions
posed by this theory, such as what types of defects in a com-
plex product allow a buyer to rescind the sale rather than have
the manufacturer repair the product under a warranty. See,
e.g., Mathews v. REV Recreation Group, Inc., 931 F.3d 619, 622–
24 (7th Cir. 2019) (ﬁnding no breach of express warranty be-
cause defendant was not given reasonable opportunities to ﬁx
several defects); Anderson v. Gulf Stream Coach, 662 F.3d at
782–83 (concluding that plaintiﬀs had given defendant
Nos. 20-2069 & 20-2155                                                   13

reasonable opportunity to cure multiple defects and reversing
district court’s rejection of plaintiﬀs’ claims for breach of ex-
press warranty); Reger v. Arizona RV Centers, LLC, No. 3:16-
CV-778-MGG, 2021 WL 274316 (N.D. Ind. Jan. 26, 2021) (dis-
cussing whether rust, frame-rail extension issues, and other
defects were covered by warranty); Pegg v. Nexus RVs LLC,
No. 3:16-CV-783-PPS, 2019 WL 2772444 (N.D. Ind. July 2,
2019) (addressing which defects were under warranty). Nor
do we need to decide what the buyer’s remedy should be if
the buyer has already resold the allegedly defective product.
We can reject this defense on simpler factual grounds. The dis-
trict court made no ﬁnding that these 21 RVs were defective;
the dealers simply failed to support that factual claim. We ﬁnd
no clear error in that respect, so we need not sort out the ways
in which the dealers seek remedies that would not ﬁt such al-
leged breaches. 3
    The dealers also argue that Evergreen breached the sales
contracts for these 21 RVs by shutting down its business so
that it would no longer honor the manufacturer’s warranty.
Again, the dealers’ theory is that those were “ﬁrst breaches,”
relieving the dealers of their obligation to pay the purchase
prices. And again, the remedy they seek does not ﬁt the al-
leged breaches. But the more basic factual problem is that Ev-
ergreen’s failure to honor its manufacturer’s warranty after its
June closure could not have been a “ﬁrst” breach on RVs

    3 An Evergreen executive testified vaguely that “the amount of prod-
uct that Evergreen had put out the door wasn’t—was just—wasn’t all that
great.” Another testified that warranty costs were a “factor” in Ever-
green’s 2016 financial losses. This evidence fell well short of showing that
these 21 RVs were “defective” as the dealers contend.
14                                        Nos. 20-2069 & 20-2155

delivered in April and May. The dealers breached ﬁrst by fail-
ing to pay.
     B. Warranty and Rebate Obligations
   As a part of each RV sale, Evergreen promised rebates to
dealers and oﬀered a manufacturer’s warranty in which it
agreed to pay the dealers to make covered repairs. In the ﬁrst
quarter of 2016, however, Evergreen failed to pay the defend-
ant dealers rebates and warranty repairs for 45 RVs it had pre-
viously sold to them. The total amount that Evergreen owed
these dealers was $160,059. Despite these arrearages, in the
spring of 2016, the dealers ordered the 21 additional new RVs
from Evergreen, with invoices totaling $808,663. In June 2016,
the dealers terminated their dealership agreements with Ev-
ergreen and instructed their lender not to make any more pay-
ments to Evergreen for the RVs that had been delivered.
     Both sides overreach in their arguments about the eﬀect of
these debts that Evergreen owed on other RVs. The dealers
contend that Evergreen’s failure to make timely payments en-
titles them to keep (and resell) the 21 new RVs without paying
for them. KR Enterprises contends that it has no obligation to
give the dealers any credit for the amounts Evergreen owed
them. The district court rejected both positions, ﬁnding that
the rebate and warranty arrearages did not relieve the dealers
of their obligations to pay for the 21 new RVs but that they
were entitled to setoﬀs.
   The dealers base their position on the theory that the entire
account between Evergreen and each dealer was the relevant
contract, so that an earlier failure to pay a rebate or a warranty
obligation amounted to a ﬁrst “material” breach of the entire
contract. The parties’ briefs debate whether the relevant
Nos. 20-2069 & 20-2155                                        15

contract for “ﬁrst breach” purposes is the entire account or
whether each RV was the subject of a separate contract under
an umbrella of a course of dealing. With respect, we do not
agree that this rather metaphysical question is decisive.
Whether each dealer’s account with Evergreen constituted a
contract or, as the district court found, only a course of deal-
ing, the proper remedy for Evergreen’s breach of warranty
and rebate payments was not for the dealers to order and then
refuse to pay for 21 new RVs. It was to allow the dealers setoﬀs
on the amounts they owed for those 21 new RVs.
    While we aﬃrm the district court’s judgment in its en-
tirety, there are two points on which we disagree with its legal
analysis. The ﬁrst was the district court’s ﬁnding that Ever-
green’s failures to pay rebates and warranty obligations were
not “material” breaches of the contracts for the sales of the
earlier RVs. We disagree. A manufacturer’s promises to pay
its dealers rebates and the costs of warranty repairs easily
qualify as material terms of the sales contracts, and such
breaches call for remedies. The district court’s ultimate han-
dling of those debts, however, was exactly right, by allowing
the dealers to set those debts oﬀ against the amounts they
owed Evergreen (and now KR Enterprises).
    “Material” is a slippery term in the law in general and in
contract law more speciﬁcally. It is best to get beyond labels
and focus on consequences and remedies, as we try to do here.
To explain, courts say in broad terms that a material breach is
one that goes to the “heart” of the contract. State v. Int’l Bus.
Machines Corp., 51 N.E.3d 150, 158–59 (Ind. 2016). To deter-
mine whether a “failure to perform a contractual duty
amounts to a material breach, Indiana has adopted the view
of the Restatement (Second) of Contracts, which considers
16                                               Nos. 20-2069 & 20-2155

several factors [, including…] the extent to which the injured
party will be deprived of the beneﬁt which he reasonably ex-
pected….” Dick v. Conseco, Inc., 458 F.3d 573, 578 (7th Cir.
2006); Int’l Bus. Machines Corp., 51 N.E.3d at 160 (instructing
courts to revert to common-law Restatement factors where a
contract is silent as to materiality); Restatement (Second) of
Contracts § 241 (1981) (listing signiﬁcant circumstances to de-
termine whether a failure is material). 4
    Price is of course a material term of a sales contract, and a
promised rebate directly aﬀects the price. See, e.g., Adams Ap-
ple Dist. Co. v. Papeleras Reunidas, S.A., 773 F.2d 925, 929 (7th
Cir. 1985) (applying Illinois law; failure to pay rebates consti-
tuted material breach of contract for sale of cigarette rolling
papers). Warranties of goods are also material terms, as any
new-car buyer can appreciate, and that holds true in sales by
manufacturers to dealers, too. See U.C.C. § 2-313 (“Express
warranties by the seller are … [a]ny … promise made by the
seller to the buyer which relates to the goods and becomes part
of the basis of the bargain….”) (emphasis added).
   So we assume that Evergreen’s failures to make timely
payments for rebates and warranty repairs were “material”

     4 The factors are: “(a) the extent to which the injured party will be de-
prived of the benefit which he reasonably expected; (b) the extent to which
the injured party can be adequately compensated for the part of that ben-
efit of which he will be deprived; (c) the extent to which the party failing
to perform…will suffer forfeiture; (d) the likelihood that the party failing
to perform … will cure his failure …; (e) the extent to which the behavior
of the party failing to perform … comports with standards of good faith
and fair dealing.” Conseco, Inc., 458 F.3d at 578, citing Frazier v. Mellowitz,
804 N.E.2d 796, 803–04 (Ind. App. 2004), quoting Restatement (Second) of
Contracts § 241 (1981).
Nos. 20-2069 & 20-2155                                          17

breaches for earlier sales of RVs and would warrant a remedy
for the breaches. Saying that they were material breaches,
though, does not really decide this case. The issue here is not
materiality in the abstract but the appropriate remedy. The deal-
ers contend that Evergreen’s breaches of the warranty and re-
bate terms of earlier sales entitled them to keep the new RVs
without paying for them. This extraordinary assertion is a
misguided variant of what the Restatement (Second) and Wil-
liston describe as a “total” breach of a contract. See 23 Willis-
ton on Contracts § 63:3 (4th ed.) (“A ‘total breach’ is a breach
that so substantially impairs the value of the contract to the
injured party at the time of the breach that it is just in the cir-
cumstances to allow that party to recover damages based on
all of its remaining rights to performance.”), citing Mobil Oil
Exploration & Producing Southeast, Inc. v. United States, 530 U.S.
604, 608 (2000), citing in turn Restatement (Second) of Con-
tracts § 243.
    A manufacturer’s breach of one warranty or rebate claim
would ordinarily seem easy to remedy with a repair or a pay-
ment of the amount due, without broader legal consequences
for the parties’ relationship. But a manufacturer’s repeated
breaches of warranty or rebate claims could so undermine a
dealer’s conﬁdence in the manufacturer’s products, promises,
or credit that they would “substantially impair the value of
the contract” to the dealer. We can assume here for purposes
of argument that the combined eﬀects of Evergreen’s earlier
warranty and rebate breaches would have met that standard
and given the dealers suﬃcient cause to terminate any deal-
ership contracts with Evergreen and to refuse delivery or can-
cel orders they had placed earlier. See, e.g., United States v.
Under Seal, 902 F.3d 412, 418 (4th Cir. 2018) (where one party
commits a material breach, the non-breaching party may elect
18                                      Nos. 20-2069 & 20-2155

to terminate the entire agreement), citing 23 Williston on Con-
tracts § 63:8 (using language of “total” breach). Corbin makes
the same point using the language of “material” breach. 10
Corbin on Contracts § 53.4, n.1 (2021) (“When one party to a
contract materially breaches the contract, the other party is—
if it so chooses—discharged and freed of any obligation to
perform and may at that point sue for damages.”).
    The problem with the dealers’ position here is not materi-
ality but the remedy they claim for the earlier warranty and
rebate breaches. They claim the right to keep the new RVs
without paying for them. That’s ridiculous. The remedy they
demand simply does not ﬁt the terms of the breaches and
would violate the most basic premise of contract remedies. It
would put the dealers in a much better position than if Ever-
green had honored all of its warranty and rebate promises.
“One of the broad remedial goals of the Uniform Commercial
Code is that the aggrieved party be put in as good a position
as if the other party had fully performed, but not in a better
position.” General Motors Corp. v. Sheets, 818 N.E.2d 49, 54
(Ind. App. 2004); Ind. Code. § 26-1-1-106 (“The remedies …
shall be liberally administered to the end that the aggrieved
party may be put in as good a position as if the other party
had fully performed….”). Accord, 11 Corbin on Contracts
§ 55.3 (2021) (“One who commits a breach of contract must
make compensation to the injured party. In determining the
amount of this compensation as the ‘damages’ to be awarded,
the aim in view is to put the injured party in as good a position
as that party would have been in if performance had been ren-
dered as promised.”); 24 Williston on Contracts § 64:1 (4th
ed.) (“[T]he disappointed promisee is generally entitled to an
award of money damages in an amount reasonably calculated
to make him or her whole and neither more nor less; any
Nos. 20-2069 & 20-2155                                       19

greater sum operates to punish the breaching promisor and
results in an unwarranted windfall to the promisee, while any
lesser sum rewards the promisor for his or her wrongful act
in breaching the contract and fails to provide the promisee
with the beneﬁt of the bargain he or she made.”). We see no
plausible basis for allowing the dealers to keep new products
without paying for them when the purchase prices far ex-
ceeded the amounts owed in the opposite direction.
   C. Setoﬀs
   Both sides attack the district court’s sensible handling of
these issues, which was to allow the dealers to set oﬀ the
amounts Evergreen owed them against the amounts they
owed to Evergreen (and thus KR Enterprises) for the 21 dis-
puted RVs. KR Enterprises argues there was no legal basis for
any setoﬀs. The dealers argue that the setoﬀs were not large
enough because they did not account for what the dealers say
were diminished values of the new RVs due to the voided
manufacturer warranties.
       1. Legal Basis for Setoﬀs
    As a preliminary matter, plaintiﬀ KR Enterprises contends
there is no legal basis for any setoﬀs in this case. KR Enter-
prises argues that the security interest in the 21 RVs was per-
fected under Indiana Code § 26-1-9.1-607 when Evergreen
held them as inventory, and that § 26-1-9.1-402 then protects
KR Enterprises from Evergreen’s debts to the dealers. The
dealers argue that Indiana Code § 26-1-9.1-404 applies, ren-
dering KR Enterprises liable for the dealers’ claims for unpaid
rebates and warranties. We agree with the district court and
the dealers: § 26-1-9.1-404 applies and § 26-1-9.1-402 does not.
20                                      Nos. 20-2069 & 20-2155

   Section 9-404 of the Uniform Commercial Code regarding
the rights of an assignee provides in relevant part that
       the rights of an assignee are subject to: (1) all
       terms of the agreement … and any defense or
       claim in recoupment arising from the transac-
       tion that gave rise to the contract; and (2) any
       other defense or claim of the account debtor
       against the assignor which accrues….
Ind. Code § 26-1-9.1-404(a). Accordingly, KR Enterprises took
its “assignment subject to defenses and claims of an account
debtor,” i.e., the dealers here. U.C.C. § 9-404, cmt. 2. KR En-
terprises’ assignment is subject both to claims arising from the
“transaction that gave rise to the contract” (the sales of the 21
RVs), and to “any other defense or claim of [the dealers]
against [KR Enterprises] which accrues…” (such as past-due
rebates and warranties). U.C.C. § 9-404.
    Courts commonly apply setoﬀs to settle outstanding debts
owed in both directions. See generally Coplay Cement Co. v.
Willis & Paul Group, 983 F.2d 1435, 1440 (7th Cir. 1993) (dis-
cussing history of setoﬀ doctrine and concluding that setoﬀs
outside of bankruptcy are subsets of permissive counter-
claims; holding that since amounts claimed were exceeded by
setoﬀ debts, plaintiﬀ subcontractors were entitled to nothing);
In re U.S. Aeroteam, Inc., 327 B.R. 852, 865 (S.D. Ohio 2005)
(“Generally, courts are in agreement that an assignment of
rights can create mutuality for setoﬀ purposes.”), citing
Schechter v. ACME Screw Co. (In re Assured Fastener Prods.
Corp.), 773 F.2d 105, 107 (7th Cir. 1985) (bankruptcy proceed-
ing; setoﬀs allowed against assigned receivables).
Nos. 20-2069 & 20-2155                                        21

    On this issue, this case is similar to InﬁnaQuest, LLC, where
one party purchased the security interest in a defaulted loan.
The court oﬀset the amount owed to that party by the remain-
ing amounts owed on accounts receivable because those ac-
counts were part of the purchased security interest. In-
ﬁnaQuest, LLC v. DirectBuy, Inc., 18 F. Supp. 3d 959, 965 (N.D.
Ind. 2014) (“InﬁnaQuest thus took its interest in the existing
accounts subject to this pre-existing right of set oﬀ.”). In this
case, when KR Enterprises took assignment of 1st Source’s in-
terest in Evergreen’s accounts receivable, the transfer was
subject to the debts Evergreen owed on those accounts.
    To avoid the setoﬀs, KR Enterprises claims that its security
interest was perfected under Indiana Code § 26-1-9.1-607
when Evergreen held the 21 RVs as inventory. It relies on § 26-
1-9.1-402 to protect it from liability for debts to the dealers.
This argument misreads § 9.1-402, which protects a secured
party only from independent liability for the debtor’s tort or
contract violations “merely because a security interest exists.”
Ind. Code § 26-1-9.1-402, cmt. 2; U.C.C. § 9-402, cmt. 2. It does
not provide a blanket protection from counterclaims relating
to the transaction or account at issue; § 26-1-9.1-404 ensures
that such claims survive, as they are bound to the assignment.
    If § 26-1-9.1-402 applied the way KR Enterprises argues it
does, we would expect to see extensive caselaw indicating as
much, leaving lots of unhappy dealers stuck with paying full
price for new products while old debts owed by manufactur-
ers to those dealers would have been wiped away. We have
not found that body of case law. The best KR Enterprises can
do to support its remarkable theory (heads we win, tails you
lose) is a tangential quotation from a district court in Wash-
ington noting that the Ninth Circuit had previously refused
22                                      Nos. 20-2069 & 20-2155

to apply § 9-404 to suits for “repossession or conversion since
the basis for a conversion suit is the secured party’s superior
interest in the inventory itself, not the assignment of the ac-
count held by the debtor.” See DZ Bank AG Deutsche Zentral-
Genossenschaftsbank v. Connect Ins. Agency, Inc., No. C14-5880-
JLR, 2015 WL 3797162, at *5 (W.D. Wash. June 17, 2015), quot-
ing United States v. Handy & Harman, 750 F.2d 777, 786 (9th
Cir. 1984) (discussing predecessor to U.C.C. § 9-404). The ob-
servation is not relevant here because this case involves nei-
ther a repossession nor a conversion. KR Enterprises wants
cash. Its claims fall squarely under § 26-1-9.1-404.
   We conclude that Indiana Code § 26-1-9.1-404 applies: the
amounts the dealers owe KR Enterprises for the unpaid 21
RVs should be oﬀset by the amounts Evergreen still owed the
dealers for rebates and warranties, exactly as the district court
decided.
       2. No Setoﬀs for Diminished Value
    The district court found “no legal theory for [the dealers’]
claimed entitlement to setoﬀ for diminished value of the RVs
due to Evergreen’s going out of business and the loss of a
manufacturer’s warranty.” This is the second legal point on
which we disagree with the district court, but it also does not
change the bottom line here. There is a legal basis for setoﬀs
for diminished value, but the dealers failed to establish a fac-
tual basis for the larger setoﬀs they seek here.
    We have acknowledged that “impairment of the marketa-
bility of an asset reduces its value, since sale value is a dimen-
sion of value even when hypothetical.” Transcraft, Inc. v. Gal-
vin, Stalmack, Kirschner & Clark, 39 F.3d 812, 820 (7th Cir. 1994)
(concluding that jury should have been asked to estimate how
Nos. 20-2069 & 20-2155                                               23

much sale value was diminished by lack of insurance and em-
phasizing that any such diminished value should be consid-
ered in context of probabilistic loss). But Transcraft involved
the sale of a company and its diminished value due to lack of
insurance. This case involves the sale of 21 RVs with agreed-
upon invoice prices. The dealers argue that the values were
diminished after the sales when Evergreen closed up shop
and was no longer in a position to honor its warranties. There
is an important distinction between the sale of a business, the
price of which is quite variable, and the sale of an item like an
RV for which there is an invoice deﬁning a clear and negoti-
ated price. Transcraft does not mandate setoﬀs for diminished
value, but there is a legal basis for such setoﬀs. The district
court erred in concluding the opposite.
   The district court went on to conclude correctly, though,
that even if the dealers’ claims for setoﬀs for diminished value
had a legal basis, their proof was inadequate. The dealers ar-
gue that the court improperly “imposed an expert evidentiary
standard for diminished value setoﬀs.” The argument misun-
derstands the district court’s decision.
   The district court did not require expert evidence. It only
noted, fairly, that the dealers “did not present expert testi-
mony on the subject, but merely relied on the testimony of its
General Counsel … who oﬀered nothing more than vague tes-
timony about discounted prices on Evergreen’s RVs post-clo-
sure.” While the district court addressed in its opinion only
two of the four lay witnesses put forward by the dealers, it
considered the evidence presented and simply viewed it as
unpersuasive. 5 We cannot disagree with the district court’s

   5 The dealers’ evidence came from four lay witnesses: (1) the general
counsel for the dealers testified vaguely about discounted prices on the
24                                               Nos. 20-2069 & 20-2155

conclusion: “These cobbled-together bits of indeﬁnite anecdo-
tal testimony are an insuﬃcient basis to reasonably determine
an appropriate setoﬀ for diminished value.” 6
    KR Enterprises disputed the district court’s ruling as to
granting setoﬀs at all but did not dispute the district court’s
calculation of the amounts. We aﬃrm both the district court’s
refusal to calculate or incorporate setoﬀs for diminished value

RVs and that after June 8, 2016, some new RVs were liquidated at a dis-
counted rate of up to 50%; (2) a 1st Source witness testified that during
Evergreen’s liquidation, it sold “some” of its RV inventory at 20% to 30%
off of the manufacturer’s retail price; (3) an Evergreen executive testified
that in June 2016, Evergreen was liquidating new RVs at 30% to 35% off
the standard invoice pricing and that some of the discounts Evergreen of-
fered reached 50%; and (4) an Evergreen executive testified that prior to
June 10, 2016, he began liquidating RVs by discounting the standard in-
voice pricing, starting at 15% to 20% off of invoices.
     6 In addition, later events that might affect the resale value of the 21
RVs should not be relevant to their value on the date of delivery. See
U.C.C. § 2-607(1) (“The buyer must pay at the contract rate for any goods
accepted.”); U.C.C. § 2-607(5) & cmt. 5 (addressing breach of warranty);
see generally Quaker Alloy Casting Co. v. Gulfco Industries, Inc., 686 F. Supp.
1319, 1344 (N.D. Ill. 1988) (seller entitled to unpaid purchase price of parts
accepted by buyer, even though buyer’s breach of warranty claim had not
been resolved and buyer claimed right to setoff); Stimpson Hosiery Mills,
Inc. v. Pam Trading Corp., 392 S.E.2d 128, 135 (N.C. App. 1990) (buyer must
pay contract price to seller after accepting defective goods, but may sue
for breach of warranty); Fred J. Miller, Inc. v. Raymond Metal Prods. Co., 290
A.2d 527, 529–30 (Md. 1972) (acceptance or rejection of pipe was relevant
only to liability for its purchase price and was of no consequence to
buyer’s right to maintain action against seller for breach of pipe’s war-
ranty). And in the case of a breach of manufacturer’s warranty, given that
there is a secondary market for warranties and repairs, the diminution in
value caused by such a breach should be measurable and provable with
evidence. The dealers did not offer such evidence here.
Nos. 20-2069 & 20-2155                                       25

and its ultimate calculations of the rebate and warranty set-
oﬀs.
    Finally, because we aﬃrm the setoﬀs for Evergreen’s
breaches on the rebate and warranty claims, we also aﬃrm the
district court’s denial of prejudgment interest. KR Enterprises
made clear in its briefs and oral argument that it could prevail
on the prejudgment interest only if we reversed on the setoﬀs.
  For these reasons, the judgment of the district court is
AFFIRMED.