Vermilion County Production Credit Ass'n v. Izzard

• Decision Date: 15 July 1969
• Docket Number: Gen. No. 11043
• Citation: 111 Ill.App.2d 190,249 N.E.2d 352
• Parties: , 6 UCC Rep.Serv. 940 VERMILION COUNTY PRODUCTION CREDIT ASSOCIATION, Plaintiff-Appellee, v. Harold IZZARD, Howard Stotler and Kenneth Stotler, doing business as Fithian Grain Company, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 352

249 N.E.2d 352

111 Ill.App.2d 190, 6 UCC Rep.Serv. 940

VERMILION COUNTY PRODUCTION CREDIT ASSOCIATION, Plaintiff-Appellee, v. Harold IZZARD, Howard Stotler and Kenneth Stotler, doing business as Fithian Grain Company, Defendants-Appellants.

Gen. No. 11043.

Appellate Court of Illinois, Fourth District.

July 15, 1969.

Thomas, Mulliken & Mamer, Champaign, Roger E. Haughey, Champaign, of counsel, for appellants.

John T. Allen, Danville, for appellee.

CRAVEN, Presiding Justice.

This appeal arises from a judgment on the pleadings entered in favor of plaintiff, holder of a security agreement on corn, against the operators of a grain elevator, who had purchased the corn from the farmer who had given the security agreement and financing statement to plaintiff.

David J. Smith, tenant on a farm near Fithian, Illinois, borrowed $14,710 from plaintiff and executed a security agreement and financing statement as security for the loan. The security agreement and financing statement covered a certain corn crop of Smith's and other personal property. The financing statement was filed in the recorder's office of Vermilion County.

Thereafter defendants-elevator operators, on three separate dates, purchased all of this corn from Smith at a net price of $12,828.26 after deducting shelling and hauling expenses. Of such proceeds defendants credited Smith with $10,403.26 on notes and an open account due by him to them and paid him the cash balance of $2,425.

Plaintiff brought this action as lender against defendants to recover the proceeds of the corn. Defendant's motion to dismiss the complaint was denied. Defendants answered and plaintiff filed separate motions to strike portions of the answer and for judgment on the pleadings. The trial court granted judgment on the pleadings and entered judgment for plaintiff for $12,828.26 and costs. Post-trial motion was denied.

The pleadings show that at no time after taking the security agreement did the plaintiff give specific affirmative consent to Smith's selling the corn or release its financing statement.

The issues raised here, then, are (1) whether the security agreement and financing statement gave the farmer-borrower authority to sell the corn free of the lien of the security agreement by reason of the clauses which provided that it included products and proceeds of the crop, and (2) whether plaintiff waived its lien or gave the farmer authority to sell free of the lien by reason of a course of dealing between plaintiff and defendants or as a result of a custom or usage of trade in the area.

The financing statement contained a clause as follows:

'Products and proceeds of collateral, and after acquired property and natural increase are covered.'

The security agreement had no direct language either permitting or prohibiting sale, but did contain the following:

'4. After-acquired Property. All property similar to that described under Items 2 and 3 above which may at any time hereafter be acquired by Debtor(s) or any of them, including, but not limited to, all offspring of livestock, additions to and replacements of livestock and poultry, replacements of and additions to equipment, machinery, fixtures, and other personal property above described, wool to be clipped from sheep, and all harvested crops, feed, and seed.

'5. Products and Proceeds. All products into which the goods and property described or referred to under Items 1 to 4, inclusive, or any part thereof, have been or shall at any time hereafter be manufactured, processed, or assembled; and all cash and non-cash proceeds from the sale, exchange, collection, or other disposition of any of said goods and property, and all accounts receivable resulting from the sale or other disposition of any of said goods or property.'

Appellants contend that the above language of the financing statement and of the security agreement clearly acknowledge that the crop as the original collateral may be sold or otherwise disposed of without any requirement of approval. They insist that reading the agreement as a whole suggests full utilization of the so-called 'floating or shifting' lien authorized by the Commercial Code under which new collateral is added under an after-acquired property clause and other collateral is eliminated through sale or other disposition.

A review of the law pertaining to secured transactions prior to enactment of the Uniform Commercial Code in many states of this country and in Illinois (Ill.Rev.Stat.1967, ch. 26, secs. 9--101 Et seq.), shows that while previously many statutes had been enacted to give relief to merchants in connection with business financing, virtually none of these were applicable to farm credit or loans on farm products or equipment. Certain changes wrought by the Uniform Commercial Code in Article 9, when applied to the farmer, would seem aimed to eliminate many archiac limitations on farm credit. (Coates, UCC Brief No. 6: Financing the Farmer, The Practical Lawyer (Vol. 13--No. 5), May 1967, p. 59.)

The Uniform Commercial Code, as enacted in Illinois, however, recognizes that the rights of the secured lender depend upon the type of collateral taken as security and not so much upon the form of the transaction. Thus, section 9--307(1) of the Code excepts a person buying farm products from a person engaged in farming operations from its liberalization provision that a buyer in the ordinary course of business takes free of a security interest even though the security interest is perfecteed and even though the buyer knows of its existence. The Code, therefore, must be interpreted reasonably as to all its language, and its limitations and requirements must be followed by more valid tests than to judge it entirely as a liberalization of credit or secured requirements.

Appellants also contend that...