motion for summary judgment and for dismissal of defendants' counterclaims, and third-party defendant's motion to dismiss the third-party complaint. For the reasons set out below, both plaintiff's and third-party defendant's motions will be granted.
On February 18, 1981, defendants Railserv Management Corporation ("Railserv") and American Railcar Exchange, Inc. ("American") executed a loan and security agreement with plaintiff Beneficial Commercial Corporation ("Beneficial"). Under this agreement, Railserv was advanced $1,472,062.00 for the purchase and refurbishment of 45 hopper railcars from Western Pacific Railroad. Thereafter, as contemplated by the parties, Railserv leased the railcars to the Allied Chemical Corporation for a one year period.
As one of its obligations under the loan agreement, Railserv was required to enter into a repurchase agreement with a company known as the North American Car Corporation ("NAC"). The agreement between Railserv and NAC provided that for consideration of $25,000.00 paid by Railserv to NAC, NAC agreed to purchase the 45 railcars from Railserv upon 60 days notice at a price of $35,000.00 per car. In this manner, it was guaranteed that Railserv would be able to liquidate the railcars if a new lease could not be secured when the Allied lease expired. Only defendant Railserv, and not defendant American, entered into the repurchase agreement with NAC.
As collateral for the loan, American and Railserv granted Beneficial a security interest in both the railcars and the proceeds from their lease agreement with Allied. As additional security for the loan, Railserv assigned to Beneficial Railserv's rights in the repurchase agreement with NAC.
Upon the conclusion of the Allied lease, Railserv was unable to obtain a new lessee and by letter dated March 31, 1982, notified NAC to purchase the railcars pursuant to the repurchase agreement. NAC refused to do so claiming that the notice provided in the letter was defective. A few weeks later, on June 30, 1982, defendants Railserv and American were required to make a balloon payment of $1,575,000.00 to Beneficial. Defendants were unable to make this payment and, consequently, Beneficial brought the present action to obtain: (1) a judgment in the amount of $1,575,000.00; and (2) an order to compel defendants to turn over the hopper cars representing collateral security. Beneficial also instituted a suit against NAC in the Circuit Court of Cook County, Illinois, in an effort to enforce the terms of the repurchase agreement between Railserv and NAC to which Beneficial is the assignee.
In response to Beneficial's complaint herein, Railserv and American have filed a counterclaim, seeking a judgment against Beneficial for any amount Beneficial fails to recover from NAC in the Illinois action, or in the alternative, a declaration that Beneficial should be required to accept return of the hopper railcars in full satisfaction of defendants' obligation. Railserv and American have also filed a third-party complaint against NAC based on a claim of breach of the repurchase agreement.
A. Motion to Dismiss the Third-Party Complaint
The crux of Railserv and American's third-party complaint is that NAC breached its obligation to repurchase the hopper cars after it received notice to do so from Railserv. Railserv and American contend that because of NAC's default they have been unable to repay Beneficial and, consequently, they seek judgment against NAC for any amounts Beneficial recovers against them. NAC submits, however, that this third-party claim of Railserv and American should be dismissed because they are not real parties in interest having assigned their claims to Beneficial. NAC asserts that the only proper plaintiff against it in a claim arising out of the repurchase agreement is Beneficial.
The Court agrees.
Rule 17(a) of the Federal Rules of Civil Procedure sets forth the basic principle governing who may bring an action by requiring that it be prosecuted "in the name of the real party in interest." The rule directs attention to whether the plaintiff in question possesses the right sought to be enforced. Generally, if a person has validly assigned all of his interest in a claim before an action is brought he is no longer the real party in interest. Rodriguez v. Compass Shipping Co. Ltd., 617 F.2d 955 (2d Cir. 1980), aff'd 451 U.S. 596, 68 L. Ed. 2d 472, 101 S. Ct. 1945 (1981). There is authority for the proposition that where there has been only a partial assignment, as in an assignment for security, both the assignor and the assignee have an interest in the claim and both are real parties in interest. Diversa-Graphics v. Management & Technical Services Company, 561 F.2d 725 (8th Cir. 1977). See generally C. Wright & A. Miller, Federal Practice and Procedure, Civil § 1545 (1971). However, the Court is persuaded that the better rule as applied to the circumstances of this case was suggested in Talmadge v. United States Shipping Board, Emergency Fleet Corp., 54 F.2d 240 (2d Cir. 1932) (L. Hand, J.), wherein the court found that an unconditional assignee for collateral security is the only real party in interest. In Talmadge, checks due under a contract were assigned by a company to its financee (plaintiff therein), as security for a loan which enabled the company to complete the contract. The court stated that if the checks were dishonored then the proper party to enforce collection was not the company but the financer, as assignee of the checks for collateral security.
Ordinarily of course a cheque is not payment, and that was the case here. Hence it might be argued that the company retained its right to enforce payment, in case the defendant dishonored the cheques, and that the assignment did not therefore divest it of all interest. Such an interpretation, while theoretically possible, appears to us to frustrate the obvious purpose of the parties. They meant to give the plaintiffs adequate security. . . . the company having assigned its interest in the cheques as security, it would defeat the purpose to exclude the purely ancillary right to collect in case of their dishonor. Hence it seems reasonable to hold that the two passed together. If so, the company had no further interest in the payments, except as pledgor, and the plaintiffs might sue at law, as they did.