Whirlpool Corp. v. Bank of Naperville

• Decision Date: 05 June 1981
• Docket Number: No. 80-550,80-550
• Citation: 421 N.E.2d 1078,97 Ill.App.3d 139,52 Ill.Dec. 215
• Parties: , 52 Ill.Dec. 215, 33 UCC Rep.Serv. 1792 WHIRLPOOL CORPORATION, Plaintiff-Appellee, Cross-Appellant, v. BANK OF NAPERVILLE, Defendant-Appellant, Cross-Appellee.
• Court: United States Appellate Court of Illinois

Page 1078

421 N.E.2d 1078

97 Ill.App.3d 139, 52 Ill.Dec. 215,

33 UCC Rep.Serv. 1792

WHIRLPOOL CORPORATION, Plaintiff-Appellee, Cross-Appellant, v.BANK OF NAPERVILLE, Defendant-Appellant, Cross-Appellee.

No. 80-550.

Appellate Court of Illinois, Second District.

June 5, 1981.

Fawell, James & Brooks, Ashley S. Rose, Naperville, for defendant-appellant, cross-appellee.

McMahan & Benjamin, Ltd., Robert R. Benjamin, Chicago, for plaintiff-appellee, cross-appellant.

VAN DEUSEN, Justice:

This action was brought by the plaintiff, Whirlpool Corporation(Whirlpool), to recover damages occasioned by the alleged conversion by the defendant, Bank of Naperville (Bank), of certain personal property in which Whirlpool claimed to hold a security interest superior to any claimed by the Bank.

On October 4, 1973, Raymond B. Brooks d/b/a CARPET CASTLE (Carpet) then located at Route 30, Joliet Road, Plainfield, Illinois, executed a security agreement with the Bank in exchange for a commitment to receive advances of cash or credit or both.In this security agreement, the description of collateral to serve as security for the loan did not include inventory, but the description of collateral in financing statements filed in January 1974 with the Secretary of State and with the DuPage County Recorder did include inventory.Both financing statements were executed by Raymond B. Brooks, naming the debtor as CARPET CASTLE with the words "by" adjacent to his written signature and identified the address of the debtor as 1010 North Washington Street, Naperville, Illinois.A store was operated by the debtor at this address in addition to the Plainfield store.

On October 18, 1974, Whirlpool filed a financing statement with the Secretary of State which covered certain collateral made by Whirlpool and sold to Carpet Castle, Inc. located at Route 30, Joliet Road in Plainfield, Illinois.

On September 2, 1975, Brooks executed and delivered a new note and security agreement to the Bank which included inventory in its description of collateral.The debtor was now described as Carpet Castle, Inc. located at Route 30, Joliet Road, Plainfield, Illinois.No new financing statement was filed.

Predicating its rights on its security interest in the goods in question as security for the loan, the Bank seized them at the Plainfield store of the debtor on February 18, 1977, and sold them pursuant to notice and the receipt of bids because the debtor had defaulted.In a letter to Carpet Castle, Inc. dated February 16, 1977, the Bank stated that its action was based on the debtor's default of the September 2, 1975, agreement, although at trial the Bank contended that it relied on the 1973 security agreement.On April 20, 1977, Whirlpool filed a suit for conversion against the Bank based upon the aforesaid sale.

After a bench trial held November 29-30, 1979, the trial judge entered judgment for the plaintiff, Whirlpool, in the amount of $2,817.26 plus costs, and subsequently the court denied Whirlpool's motion for fees and costs.The defendant appeals the judgment in the plaintiff's favor, and the plaintiff cross-appeals the denial of its motion for fees and costs.

On appeal, the Bank first contends that Whirlpool did not introduce its security agreement, a necessary element of its cause of action (Ill.Rev.Stat.1979, ch. 26, pars. 9-203, 9-204;seePeterson v. Ziegler(1976), 39 Ill.App.3d 379, 350 N.E.2d 356), at trial.Therefore, the Bank argues, Whirlpool did not prove that it had a security interest in the contested goods, and the Bank's perfected security interest gave it a superior right to possession of the goods as collateral when Carpet defaulted on the loan.However, Whirlpool's complaint clearly alleges the existence of a written security agreement.The Bank did not object at trial to Whirlpool's failure to introduce the document itself into evidence nor did the Bank offer any testimony or other evidence to contradict the testimony of Joseph Napolitan, Credit Manager of Whirlpool, that Brooks signed a written security agreement with Whirlpool.This evidence, while perhaps not the best evidence, was sufficient to support the finding of the court that Whirlpool had a security interest in the property.Whirlpool perfected the security interest by filing.

The Bank's second contention is that its perfected security interest was superior to that of the plaintiff so that its action in seizing the collateral was pursuant to its superior right and, therefore, did not constitute conversion.The Bank insists that the trial court erred in failing to construe the defendant's October 4, 1973, security agreement and the January 18, 1974, financing statement together to constitute the security agreement required by the Uniform Commercial Code(U.C.C.)(Ill.Rev.Stat.1979, ch. 26, par. 9-203).That security agreement failed to include inventory in the description of collateral but the financing statement did include inventory.

Although there is some authority for construing multiple documents together to comprise the written security agreement containing a description of the collateral as required by the U.C.C. (seeYorkville Nat'l Bk. v. Schaefer(1979), 71 Ill.App.3d 137, 27 Ill.Dec. 263, 388 N.E.2d 1312) so that the October 4, 1973, security agreement and subsequently filed financing statement could be construed to include the inventory in question, the critical inquiry in this case is whether the Bank's January 1974 filing remained effective after Carpet terminated operation as a sole proprietorship and began operation as a corporation.

The fact that the Bank required a new agreement from the debtor dated September 2, 1975, and furnished fresh consideration is not dispositive.Merely taking the new note even with an advance of additional cash did not extinguish the old obligation, which was the basis of the Bank's 1973-74 security interest, where, as the debtor testified here, the new note was given in renewal and not in payment.Community Bank of E. Peoria v. Meister Bros.(1973), 12 Ill.App.3d 1004, 1008, 299 N.E.2d 589, citingContinental Ill. Nat. Bank etc. v. Cardwell(1936), 287 Ill.App. 227, 4 N.E.2d 770.

However, there was uncontroverted evidence that the Bank's January 1974 financing statement actually became seriously misleading when the debtor, Brooks, transferred assets of the sole proprietorship, Carpet Castle, to the successor incorporated entity, Carpet Castle, Inc.(Ill.Rev.Stat.1979, ch. 26, par. 9-402(7).)The basic purpose of the U.C.C. filing requirements is to put subsequent potential creditors on notice of the security interest claimed by the prior secured party in certain collateral.(In re Nyack Rug & Furniture Co. Inc.(S.D.N.Y.1977), 21 U.C.C.Rep. 904, 906;Borg-Warner Acceptance Corp. v. Wolfe City National Bank(Tex.Civ.App.1976), 544 S.W.2d 947, 21 U.C.C.Rep. 631, 634;Ill.Ann.Stat., ch. 26, par. 402(7), Official Code Comments, at 285(Smith-Hurd 1974).)In In re Little Brick Shirthouse, Inc.(N.D.Ill.1972), 347 F.Supp. 827, 829, the federal court said that "(t)he purpose of the financing statement is to put third parties on notice that a security interest may exist in certain property and that they should contact the parties to obtain...