Riney v. Weiss & Neuman Shoe Co.

• Decision Date: 06 August 1991
• Docket Number: No. 4-90-0652,4-90-0652
• Citation: 160 Ill.Dec. 375,217 Ill.App.3d 435,577 N.E.2d 505
• Parties: , 160 Ill.Dec. 375 William E. RINEY, Deborah L. Campbell, and Paula S. Woolen, Plaintiffs-Appellants, v. WEISS & NEUMAN SHOE COMPANY, a Missouri Corporation, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 505

577 N.E.2d 505

217 Ill.App.3d 435, 160 Ill.Dec. 375

William E. RINEY, Deborah L. Campbell, and Paula S. Woolen Plaintiffs-Appellants, v. WEISS & NEUMAN SHOE COMPANY, a Missouri Corporation Defendant-Appellee.

No. 4-90-0652.

Appellate Court of Illinois Fourth District.

Aug. 6, 1991.

A. Clay Cox and James P. Ginskey, Hayes, Schneider, Hammer, Miles & Cox, Bloomington, for plaintiffs-appellants.

Stephen Novack and Karen L. Levine, Novack & Macey, Chicago, and Robert S. White, Costigan & Wollrab, P.C., Bloomington, for defendant-appellee.

Justice SPITZ delivered the opinion of the court:

Plaintiffs appeal from a trial court's order granting defendant summary judgment in this suit for conversion. We affirm.

Plaintiffs in this matter are former shareholders of the Susan Lee Corporation (SLC). Plaintiff William Riney owned 50% of the SLC stock, and plaintiffs Deborah Campbell and Paula Woolen each owned 25% of the stock. SLC was the sole owner of Roland's of Bloomington, Inc. (Roland's), which operated retail clothing stores in Champaign and Bloomington, Illinois.

On November 7, 1986, L & L Acquisitions, Inc. (L & L), purchased all shares of SLC stock from plaintiffs for $700,000. At the time of the sale, Roland's was indebted to the State Bank of Lincoln (Lincoln) on two promissory notes in the amounts of $200,000 and $400,000 (Lincoln notes). To secure these notes, Lincoln held a security interest in the following assets of Roland's:

"[A]ccounts receivable, inventory, equipment, leasehold improvements, documents, instruments, furniture, fixtures, money, chattel paper, consumer goods and general intangibles together with the proceeds of all such property and accessions thereto; and specifically including but not limited to goodwill and contract rights."

Lincoln perfected this security interest by filing a financing statement as required by section 9-302 of the Uniform Commercial Code--Secured Transactions (UCC) (Ill.Rev.Stat.1989, ch. 26, par. 9-302).

The stock purchase agreement between L & L and plaintiffs provided that L & L would pay $300,000 in cash at closing, and finance $400,000 in the form of three promissory notes: a note to Riney for $200,000, and a note each to Campbell and Woolen for $100,000. To secure these three notes, plaintiffs took a second security interest in:

"All inventory, stock-in-trade, trade fixtures, furniture of debtor's stores known as 'Roland's' at two locations: Eastland Mall, E. Empire, Bloomington, Mclean County, Illinois, and Market Place Mall, North Neil Street, Champaign, Champaign County, Illinois."

L & L filed a financing statement for this security interest.

Lincoln consented to L & L's purchase of the SLC stock on certain conditions. First, Lincoln's security interest in Roland's assets was retained and kept of record. Next, Riney was required to personally sign the two Lincoln notes as an additional obligor. Finally, all plaintiffs were required to pledge the $300,000 cash payment from L & L as additional collateral for the $400,000 Lincoln note.

The UCC security agreement between L & L and plaintiffs contained the following language:

"7. That DEBTOR will not sell or otherwise transfer the Collateral or any interest therein and will not permit any other lien or security interest to be attached thereto without the written consent of the SECURED PARTY." (Emphasis added.)

The stock purchase agreement between L & L and plaintiffs, executed the same day as the security agreement, included an addendum containing the following language:

"1. L & L Acquisitions, Inc., nor any representative on its behalf, shall remove any money or other asset from Roland's of Bloomington, Inc. or the Susan Lee Corporation, nor shall any successor to those corporate entities remove any money or asset from the retail stores operated by those corporations at Bloomington and Champaign except to meet payroll obligations, other day-to-day operating expenses of those two stores, accounts payable for those two stores, or existing debt to State Bank of Lincoln.

* * * * * *

4. Subject only to the payroll obligations * * * the undersigned agree that the primary obligation of Roland's of Bloomington, Inc. shall be the payment of outstanding promissory notes held by State Bank of Lincoln." (Emphasis added.)

Representatives of L & L, Riney as chairman of the board of SLC, and all plaintiffs individually, signed this addendum. Although a representative of Lincoln was present at this closing, no representative of Lincoln signed the addendum.

On December 23, 1986, Roland's leased its shoe department and sold its entire shoe inventory and certain fixtures to defendant. The agreement provided that defendant would pay 30% of the retail value of the shoes, plus an amount for the fixtures. In addition to this, defendant would pay Roland's 11% of its net shoe sales, and advertise and modernize the shoe department. Roland's applied the $62,950.40 payment from the sale of the shoe department to the Lincoln notes.

On September 2, 1987, plaintiffs and Lincoln filed their initial complaint against defendant for conversion, asserting that the sale to defendant violated their security agreements. Roland's had gone into bankruptcy. On November 7, 1989, Lincoln withdrew from the case after the Lincoln notes were paid during the bankruptcy proceeding. Plaintiffs filed a motion for summary judgment, which was denied, and later filed a second motion for summary judgment. Defendant thereafter filed its motion for summary judgment.

On May 2, 1990, a hearing was held on the motions for summary judgment, during which the trial court denied plaintiffs' motion, granted defendant's, and entered final judgment in favor of defendant. The trial court granted defendant's motion on the ground that the sale was authorized by the language of the addendum, which permitted sales of the collateral as long as the proceeds were used to make payment on the Lincoln notes.

On May 31, 1990, plaintiffs filed a motion for reconsideration of the trial court's ruling. Plaintiffs argued for the first time that the parties did not intend the addendum to authorize Roland's to sell an entire department as long as the money was used to retire the Lincoln notes, and that the addendum was ambiguous as such. Attached to plaintiffs' motion were three affidavits never before submitted to the trial court. These affidavits were from Riney; Terry Brown, the president of Lincoln; and Donald Wilcox, the attorney who drafted the addendum and security agreements for plaintiffs. The substance of these affidavits was that the parties did not intend the addendum to authorize the sale of the shoe department. Plaintiffs also attached deposition testimony on which they had not previously relied. The deposition testimony consisted of plaintiffs' assertions that they were unaware of the sale of the shoe department until after it had occurred, and the statement of Steven Lewark, secretary and treasurer of L & L, that he read the secured promissory note given by L & L to plaintiffs, and saw that it contained a reference to the security agreement.

Defendant filed a motion to strike plaintiffs' motion, and argued that the affidavits and deposition testimony had been available but not offered or relied upon by plaintiffs in connection with the motions for summary judgment. Defendant also argued that plaintiffs' argument concerning the ambiguity of the addendum had not been argued in their previous motion for summary judgment.

On August 24, 1990, a hearing was held on plaintiffs' motion for reconsideration. The trial court denied defendant's motion to strike and considered plaintiffs' affidavits, deposition testimony, and argument that the addendum was ambiguous. However, the court denied plaintiffs' motion and stated:

"Here, in my opinion, this Paragraph One [of the Addendum] is very, very crystal clear on its face * * * and to me there is no ambiguity in this paragraph one at all. It is very clear to me that they [Roland's] can sell these things [the Merchandise] as long as the money went to the Bank, and it went to the Bank, so the Plaintiffs in this case did not have their interest, their secured interest under these agreements violated by the Defendant * * *."

Plaintiffs subsequently filed this appeal, in which they ask this court to vacate or reverse the summary judgment entered by the trial court and grant any and all relief to which they may be entitled on appeal.

Plaintiffs' claim is for conversion of collateral. Section 9-306(2) of the UCC, as adopted in Illinois, provides:

"Except where this Article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor." (Ill.Rev.Stat.1989, ch. 26, par. 9-306(2).)

Where a debtor makes an unauthorized disposition of collateral which is subject to a security interest, the security interest continues in the original collateral while in the possession of the purchasor or transferee. The secured party may thus repossess the collateral from the purchasor or transferee in an action for conversion. Hills Bank & Trust Co. v. Arnold Cattle Co. (1974), 22 Ill.App.3d 138, 140, 316 N.E.2d 669, 671.

The trial court held, in granting summary judgment, that the addendum was clear and unambiguous, and was the written consent required by the security agreement to sell the collateral. Summary judgment may only be granted where the pleadings, depositions, and affidavits show that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. Ill.Rev.Stat.1989, ch. 110, par. 2-1005(c); Hagy v. McHenry County Conservation District (1989), 190 Ill.App.3d 833, 842, 137 Ill.Dec. 453, 459, 546 N.E.2d 77, 83.

Plaintif...