ITT Commercial Finance v. UNLIMITED AUTOMOTIVE
| Decision Date | 01 April 1994 |
| Docket Number | No. 92 C 1059.,92 C 1059. |
| Citation | 166 BR 637 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | ITT COMMERCIAL FINANCE CORP., a Nevada corporation, Plaintiff, v. UNLIMITED AUTOMOTIVE, INC., d/b/a Fox Valley R.V., an Illinois corporation, Bank One Milwaukee, N.A., a federally chartered banking association, and Richard Messenger, Defendants. CHRYSLER FIRST COMMERCIAL CORPORATION, a Pennsylvania corporation, Intervenor, v. UNLIMITED AUTOMOTIVE, INC., d/b/a Fox Valley R.V., an Illinois corporation, and Everett J. Hiller, Defendants. |
Daniel John Voelker, Peter C. Woodford, James L. Curtis, Christopher V. Langone, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, for ITT Commercial Finance Corp.
Douglas Allan Lindsay, Blake T. Lynch, Michele K. Parthum, Lewis, Overbeck & Furman, Chicago, IL, for Bank One.
This matter is before the court on the parties' cross-motions for summary judgment. For the reasons set forth below, plaintiff's motion is granted and defendants' motion is denied.
The subject of this dispute is a 1986 Airstream motor home. On August 10, 1989, Edward Darby ("Darby") purchased the vehicle (hereafter, "the vehicle" or "the Darby vehicle") from Unlimited Automotive, Inc., d/b/a Fox Valley R.V. ("Unlimited"). Defendant herein, Bank One, Milwaukee, N.A., acquired an interest in the vehicle on that date, when Unlimited assigned to it the retail installment contract with Darby. Defendant concedes that its security interest in the vehicle was not perfected by notation of its lien on the certificate of title.1
Plaintiff claims a security interest dating from sometime around July 19, 1991, when Darby returned the vehicle to Unlimited's premises. In a letter of July 19, 1991, defendant's assistant manager of collections gave Unlimited the following instructions:
As discussed later in connection with plaintiff's motion for summary judgment, the parties dispute whether this letter created a consignment or "sale or return" within the meaning of § 2-326 of the Illinois Uniform Commercial Code ("UCC"). If so, the vehicle while at Unlimited's place of business might be subject to the claims of Unlimited's creditors, including plaintiff.
Plaintiff was one of Unlimited's secured creditors, providing financing for the purchase of some of its inventory by means of floor planning. Under the agreement for wholesale financing, Unlimited gave plaintiff a security interest in all of its inventory and in other collateral, including after-acquired property. On December 17, 1991, plaintiff and Unlimited entered into an amended written wholesale financing agreement.2 Under the terms of that agreement, plaintiff had a right to take immediate possession of its secured collateral in the event of a default by Unlimited. It is undisputed that plaintiff filed an amended financing statement with the Secretary of the State of Illinois for the purpose of perfecting its security interest in its collateral.
Shortly after December 17, 1991, Unlimited was in default of its obligations under the agreement with plaintiff. On February 11, 1992, the date this lawsuit was instituted, the Darby vehicle was still in Unlimited's possession. After one of Unlimited's principals executed a February 25, 1991 agreement voluntarily surrendering the remainder of Unlimited's inventory and other collateral, plaintiff took possession of all vehicles, including the Darby vehicle. On February 28, 1991, defendant's representative removed the vehicle from Unlimited's premises.
Defendant moves for summary judgment, relying on the fact that Unlimited was involuntarily dissolved by the Illinois Secretary of State on March 1, 1991. Thus, when the Darby vehicle was brought to Unlimited in or around July 1991, the corporation would have lacked authority to carry on its normal business. 805 ILCS 5/12.30. Similarly, on December 17, 1991, the date plaintiff and Unlimited entered into the amended wholesale financing agreement relied on in the complaint, Unlimited would have lacked authority to do so. Plaintiff argues that its interest really stems from an earlier security agreement executed before the involuntary dissolution, but it would have been beyond Unlimited's powers to continue to acquire inventory under an earlier agreement as well. Defendant notes authority that where corporate principals continue to carry on the business of a corporation after its involuntary dissolution, they may be held personally liable for debts of the corporation. See 805 ILCS 5/8.65(a)(3); Chicago Title & Trust Co. v. Brooklyn Bagel Boys, Inc., 222 Ill.App.3d 413, 164 Ill.Dec. 930, 584 N.E.2d 142 (1st Dist.1991), appeal denied, 144 Ill.2d 632, 169 Ill.Dec. 140, 591 N.E.2d 20 (1992); Richmond Wholesale Meat Co. v. Hughes, 625 F.Supp. 584 (N.D.Ill.1985). See also Anderson v. Hillsborough Sheet Metal, Inc., 513 So.2d 1359 (Fla.Dist.Ct.App.1987); McLean Bank v. Nelson, 232 Va. 420, 350 S.E.2d 651 (1986); Adams v. Mt. Pleasant Bank & Trust Co., 355 N.W.2d 868 (Iowa 1984); K & J Markets, Inc. v. Martin Packing Corp., 18 N.J.Super. 124, 86 A.2d 715, aff'd, 20 N.J.Super. 515, 90 A.2d 507 (1952).
Noting the above principles of corporate law, defendant argues that after March 1, 1991, the security agreement between plaintiff and Unlimited was a nullity. Hence, after that date, and at the time Darby returned the vehicle, plaintiff would have no security interest in Unlimited's inventory. Since defendant acquired its security interest on August 10, 1989, it argues that its interest was necessarily prior to plaintiff's.
Defendant cites no authority, however, to the effect that the involuntary dissolution of a corporation deprives secured creditors of their security interests in corporate assets. Such a rule would no doubt impose considerable burdens on secured creditors, since they would have to continually check on the status of corporate debtors with which they do business in order to protect their security interests. At the same time, the Illinois statutory framework arguably makes allowance for the fact that in many instances, dissolved corporations continue to do business despite involuntary dissolution. Thus, § 12.45 of the Business Corporations Act provides that, upon taking prescribed steps, a corporation may be reinstated within five years of dissolution. "Upon the issuance of the certificate of reinstatement, the corporate existence shall be deemed to have continued without interruption from the date of the issuance of the certificate of dissolution, and the corporation shall stand revived with such powers, duties and obligations as if it had not been dissolved; and all acts and proceedings of its officers, directors, and shareholders, acting or purporting to act as such, which would have been legal and valid but for such dissolution, shall stand ratified and confirmed." 805 ILCS 5/12.45(d); Regal Package Liquor, Inc. v. J.R.D., Inc., 125 Ill.App.3d 689, 80 Ill.Dec. 957, 466 N.E.2d 409 (5th Dist.1984).
Defendant has presented no evidence that plaintiff knew of Unlimited's dissolution. Based on the above authorities, this court cannot agree with defendant that Unlimited's dissolution invalidated plaintiff's security interest in Unlimited's inventory. There remains, though, the question of whether that interest remained a perfected interest. If plaintiff failed to take some action needed to insure that its security interest remained perfected, then defendant's unperfected security interest in the Darby vehicle might have priority over plaintiff's interest. As defendant sees it, the involuntary dissolution of Unlimited constituted such an event because at that point, Unlimited's principals become personally liable for the actions and debts of the business. Thus, they become the "debtors" under plaintiff's wholesale financing agreement. Although there is no evidence of an official change in the business name, defendant contends that Unlimited become a "trade name" used by Unlimited's principals in their individual capacities. As set forth below, defendant argues that after the involuntary dissolution, the existing financing statement no longer properly identified the debtor under the wholesale financing agreement.
Under the Illinois Uniform Commercial Code, a financing statement is sufficient to perfect a security interest in collateral if it provides the information prescribed in § 9-402, which information includes "the name of the debtor." 810 ILCS 5/9-402(1). The following provision relates to the use of trade names or changes in the name of the debtor:
A financing statement sufficiently shows the name of the debtor if it gives the individual, partnership or corporate name of the debtor, whether or not it adds other trade names or names of partners. Where the debtor so changes his name or in the case of an organization its name, identity or corporate structure that a filed financing statement becomes seriously misleading, the filing is not effective to perfect a security interest in collateral acquired by the debtor more than 4 months after the change, unless a new appropriate financing statement is filed before the expiration of that time. . . .
810 ILCS 5/9-402(7).
A financing statement substantially complying with the requirements of this Section is effective even though it contains minor errors which are not seriously misleading.
810 ILCS 5/9-402(8). Applying § 7-402, courts have found that a filing in a debtor's trade name alone is insufficient to perfect a security interest unless the...
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