Court Opinion

ID: 9535903
Source: CourtListenerOpinion
Date Created: 2023-08-07 06:46:20.019963+00
Date Added: 2024-06-11T13:33:22.857161
License: Public Domain

JUSTICE HEIPLE, dissenting: This is a suit for replevin brought by a farmer against a farm implement manufacturer. The controversy arose after the farmer, Wilson, had prepaid an order to a farm implement dealer, Colusa, for a grain drill that was not in stock at the time of the order. The dealer was to obtain a drill of a certain make and type and deliver it to the farmer. Later, however, and before a drill was delivered to Wilson, the dealer inventory was repossessed by the manufacturer, M & W Gear, pursuant to a security agreement. At the time of repossession, the inventory repossessed included a grain drill of the make and type ordered by Wilson. Wilson claimed that it was his. Wilson’s replevin suit also included a claim for damages resulting from the retention of the chattel by M & W Gear. The trial court found for Wilson and awarded him a judgment for the value of the grain drill, but denied his claim for damages for retention. It was not possible for the trial court to award the drill itself since it was no longer in defendant’s possession. M & W Gear appeals. In a carelessly reasoned opinion, the majority chooses to affirm and, in so doing, takes off on a discussion of the Uniform Commercial Code that defies rational analysis, states bad law, and republishes an earlier erroneous decision of this court in the 1979 case of Herman v. First Farmers State Bank (1979), 73 Ill. App. 3d 475. Such distortions cannot be endorsed and should not go unremarked. Article 9 of our Uniform Commercial Code establishes a priority system for determining the rights of parties who claim competing interests in secured property. (Ill. Ann. Stat., ch. 26, art. 9, Introductory Comment (Smith-Hurd 1979).) As a general rule, the holder of a perfected security interest has an interest in the secured property, and the proceeds from the sale thereof, which is superior to the interests of unsecured creditors of the debtor and subsequent purchasers of the secured property. “Sec. 9 — 201. General Validity of Security Agreement. Except as otherwise provided by this Act a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors.” (Ill. Rev. Stat. 1979, ch. 26, par. 9 — 201.) However, the principal exception to this general rule is found in section 9 — 307(1), which provides: “Sec. 9 — 307. Protection of Buyers of Goods. (1) A buyer in ordinary course of business (subsection (9) of Section 1 — 201) *** takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence.” (Ill. Rev. Stat. 1979, ch. 26, par. 9-307(1).) The definitional provision of the Code states: “ ‘Buyer in ordinary course of business’ means a person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind ***.” (Ill. Rev. Stat. 1979, ch. 26, par. 1-201(9).) “A ‘sale’ consists in the passing of title from the seller to the buyer for a price. ***” (Ill. Rev. Stat. 1979, ch. 26, par. 2— 106(1).) “Goods must be both existing and identified before any interest in them can pass. Goods which are not both existing and identified are ‘future’ goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.” (Ill. Rev. Stat. 1979, ch. 26, par. 2 — 105(2).) The manner of identification of goods is as follows: “(1) The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them. Such identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement identification occurs (a) when the contract is made if it is for the sale of goods already existing and identified; (b) if the contract is for the sale of future goods other than those described in paragraph (c), when goods are shipped, marked or otherwise designated by the seller as goods to which the contract refers.” (Ill. Rev. Stat. 1979, ch. 26, par. 2-501(1).) Identification is required for title to pass: “Title to goods cannot pass under a contract for sale prior to their identification to the contract (Section 2 — 501), and unless otherwise explicitly agreed the buyer acquires by their identification a special property as limited by this Act. *** Subject to these provisions and to the provisions of the Article on Secured Transactions (Article 9), title to goods passes from the seller to the buyer in any manner and on any conditions explicitly agreed on by the parties.” (Ill. Rev. Stat. 1979, ch. 26, par. 2— 401(1).) Delivery passes title: “Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading * * * (b) if the contract requires delivery at destination, title passes on tender there.” Ill. Rev. Stat. 1979,. ch. 26, par. 2-401(2). The foregoing is the statutory law applicable to this transaction. What are the facts? The record discloses that on or about March 7 to March 9, 1981, Wilson paid Colusa $3,600 in cash and gave them his old drill which Colusa valued at $1,800 for tradein purposes. This total of $5,400 was to cover the purchase price of a new 14-foot M & W grain drill which was not then on the premises of Colusa but was to be obtained by Colusa for Wilson. Wilson, testifying as to the agreement, stated: “Well, the agreement was that [Colusa] was supposed to deliver the drill before season or May 1st, I believe, it was to be delivered to my farm.” This testimony supplements and corroborates the dealer’s receipt to Wilson on March 7 and Wilson’s $3,600 check to Colusa dated March 9. Thus, it is seen that the transaction of March 7-9 amounted to the placing of a prepaid order for future delivery of a particular type of farm implement but not a particular implement. The implement was not identified as to serial number, color, nor, in fact, in any other way except as to make and type. Indeed, it could not have been identified as it was not on the premises of Colusa at such time. Presumably, any drill of the make and type ordered that Colusa would have procured would have been satisfactory. The new drill was to become Wilson’s when it was delivered to Wilson at his farm. With the payment and order which Wilson gave to Colusa, Wilson became a contract buyer and an unsecured creditor of Colusa to the extent of $5,400. For its part, M & W Gear, the manufacturer, supplied farm equipment on credit to Colusa, the dealer, for sale to customers of Colusa. To secure this extension of credit, M & W had an agreement with Colusa commonly known as a floor plan. Under this floor-plan agreement, it became Colusa’s obligation to remit payment to M & W whenever an included item of inventory was sold. Colusa also executed a promissory note and a security agreement in favor of M & W. Under the terms of the security agreement, M & W received a security interest in all of Colusa’s inventory, equipment, and all cash and noncash proceeds arising out of the sale of M & W products sold by Colusa. The agreement further spelled out that such “proceeds” included all cash, chattel paper, contract rights and instruments presently owned or later acquired by Colusa upon the sale of any item of inventory. Pursuant to statute, M & W perfected this security interest with a filing in the office of the recorder of deeds of Hancock County, which was the site of the transaction. Ill. Rev. Stat. 1979, ch. 26, pars. 9 — 401, 9-402. On March 20, M & W delivered two identical 14-foot grain drills to Colusa of the make and type ordered by Wilson. All M & W drills have individual serial numbers and these two were numbered 1018 and 1057. On March 31, M & W determined that drill number 1057 had been sold by Colusa and payment rendered to M & W. On April 20, M & W seized drill 1018-under its security agreement and further disposed of it. After Wilson made an unsuccessful demand upon Colusa for delivery of the drill he had ordered, he brought this replevin action against the manufacturer. The evidence concerning whether drill number 1018 was identified to the contract of sale between Colusa and Wilson is in dispute. Wilson testified that after he was told by his neighbor, Dennis Pilkington, that his drill was in, that he went over to Colusa and looked at a drill there. He claims there were some things he felt needed to be done before delivery. A U-bolt needed to be replaced; the tires needed to be checked; an acre meter and scratches needed to be attached. The record is unclear if these concerns were communicated to anyone at Colusa and if they agreed to do them to the drill now identified as number 1018. The record does not clearly support the proposition that anyone at Colusa told him his drill was in nor the drill that was his is the one now identified as number 1018. Wilson acknowledged at trial he gave a deposition shortly after the seizure by M & W. He admitted that in the deposition he said that no one called him from Colusa to say his drill was in. While Wilson had tried to telephone them when he heard his drill was in, he was never able to make contact with anyone at Colusa. In short, there is no solid evidence in the record to show that grain drill number 1018 was designated or marked by Colusa as the one to fill their contract of sale with Wilson. Wilson never claimed that he was told by Colusa that the drill grain number 1018 was his drill. The trial judge, although finding that Wilson was a buyer in the ordinary course of business, made no finding that drill number 1018 was identified as to Wilson. Wilson offered the only testimony pointing towards identification and it was self-serving, equivocal and impeached. In short, the judge did not find identification. And if he had so found, the evidence would not have supported it. In a total misconception of the law, the majority opinion says that such lack of identification makes no difference; that, “Although the defendant’s statement of the law on this point may be correct, it does not determine the resolution of this appeal.” Nothing could be further from the truth. For if the drill had never been identified as to Wilson, then Wilson could have no interest in it. Certainly, Wilson had a valid claim against Colusa for breach of contract when May 1 came and went and the ordered drill was not delivered to him. That is clear. But that is not what this lawsuit is about. This lawsuit is a replevin suit to recover a particular drill that allegedly belonged to Wilson. If it wasn’t Wilson’s drill, it wasn’t subject to replevin. And if it wasn’t subject to replevin, M & W wasn’t liable for the value of the drill which they repossessed from Colusa. It is also notable that on April 21, when M & W repossessed drill 1018, there were 10 days still remaining on Wilson’s contract with Colusa before delivery of a 14-foot M & W drill had to be made. Wilson had no clear right to insist on delivery of any drill on April 21, much less drill 1018. Assuming arguendo that fire or act of God had destroyed the drill or that the drill was stolen during the period it was on the premises of Colusa, would the loss have fallen on Wilson? Clearly not. Wilson had a contract of purchase for delivery of a 14-foot M & W drill on or before May 1. His contract did not call for drill 1018 nor for any other specific identifiable chattel. Rather, it called for the delivery of a particular make and type of drill on or before May 1. Wilson had a right to insist on performance of such contract by Colusa and could have maintained a suit for breach of contract against Colusa if delivery failed. Since drill 1018 was not identified as to him, he would not have had to accept the loss if it had been destroyed on Colusa’s sales lot or been stolen. Likewise, it is clear that he had no right to replevin that item. Having dismissed out of hand the significance of identification, the majority concludes that the only issue in the case is whether Wilson was a buyer in the ordinary course of business. Finding that he was such a buyer and relying on Herman, the majority affirms the judgment of the trial court in favor of Wilson. Such finding cannot survive analysis. Section 9 — 307(1) of the Uniform Commercial Code which protects a “buyer in the ordinary course of business” cannot be said to protect all persons who have paid money to a seller. There must be a buyer. The very term presupposes a sale as shown by the definition of such buyer in section 1 — 201(9) where the word “sale” is used. Merely paying the money does not constitute a sale. At some point in time there must be a transfer of ownership, at which time the person becomes a buyer. A sale consists of the “passing of title from the seller to the buyer for a price.” (Ill. Rev. Stat. 1979, ch. 26, par. 2 — 106(1).) “Title to goods cannot pass under a contract for sale prior to their identification to the contract.” (Ill. Rev. Stat. 1979, ch. 26, par. 2 — 401(1).) Thus, prior to identification, no property interest could pass to Wilson so as to bring him within the protection of a buyer in the ordinary course of business. Although the question of title passage is of prime importance in determining the respective interest of Colusa’s customers and Colusa’s secured creditor, the Uniform Commercial Code has, to a great extent, softened the concept of title through the use of specific provisions determining the rights and duties of buyers and sellers with regard to such things as risk of loss and insurable interest. Even under those specific provisions, however, the Uniform Commercial Code does not impose the risk of loss on the buyer until tender of delivery is made to the buyer (Ill. Rev. Stat. 1979, ch. 26, par. 2 — 509(3)), nor does it give buyer an insurable interest until goods are existing and identified. (Ill. Rev. Stat. 1979, ch. 26, par. 2 — 501.) In fact, as logic would require, the Code provides that no interest in specific goods can pass before the goods are (1) existing, and (2) identified. The Uniform Commercial Code’s definition of goods provides: “Goods must be existing and identified before any interest in them can pass. Goods which are not both existing and identified are ‘future’ goods. A purported present sale of future goods or of any interest therein operates as a contract to sell.” Ill. Rev. Stat. 1979, ch. 26, par. 2 — 105(2). The plaintiff could not be a buyer in ordinary course of business until there were goods which were existing and identified to comprise the subject matter of the purchase. In this case, since no identification took place, no interest in any particular item of inventory passed to plaintiff. Although Wilson’s contract with Colusa was a valid contract, his rights to the Colusa inventory are inferior to the rights of M & W as the holder of a perfected security interest. As already noted, the Code provides that no passage of title could occur under the facts of this case, as it says that title to goods cannot pass under a contract for sale prior to their identification to the contract. Passage of title to goods would be controlled by the explicit agreement of the parties, and as there is no explicit agreement regarding title, title passes to the buyer at the time and place which the seller completes his performance with reference to physical delivery of the goods (Ill. Rev. Stat. 1979, ch. 26, par. 2 — 401(2)) and, in particular, if the contract requires delivery at destination, title passes on tender there. (Ill. Rev. Stat. 1979, ch. 26, par. 2 — 401(2)(b).) It will be recalled that the contract between Wilson and Colusa called for delivery of the drill to Wilson’s farm on or before May 1. Such delivery never took place, and no identification under the Code took place on the premises of Colusa prior to repossession. There are few cases squarely on the point. One case which appears precisely on point is Troy Lumber Co. v. Williams (1971), 124 Ga. App. 636, 185 S.E.2d 580, where plaintiffs made a down payment of $600 to a mobile home dealer. There were mobile homes in the lot, but the payment was not on a specific mobile home. The court held that plaintiffs were not “buyers in ordinary course” and the security interest was held to be prior. In Draper v. Minneapolis-Moline, Inc. (1968), 100 Ill. App. 2d 324, a buyer of a tractor took prior to the secured party because “there was a complete and sufficient identification of the tractor to the contract.” In that case a particular tractor was shown to the purchaser who was told that it was his. This case clearly recognizes the principle that there must be an identification and appropriation to the contract. The majority opinion, as a practical matter, makes the concept of security on inventory an entirely unworkable concept. It makes any inventory on hand subject to the claims of unsecured buyers of “future goods,” and it makes these goods subject to such claims without regard to when the goods came into possession of the dealer, without regard as to whether they have been identified as to the contract, and without regard to delivery conditions of the contract. The secured party cannot know on repossession of a particular item whether one or several unknown persons may have a prior claim to that particular item. After repossession and sale by the secured party, claims by one or more previously unknown buyers may be filed against the proceeds. Suppose, for instance, that Colusa had contracted to sell an undetermined number of drills for future delivery. Suppose further that one drill comes into inventory and is repossessed and sold by the manufacturer prior to identification or delivery to any customer. The repossessing secured party would have to sit on the proceeds until the four-year statute of limitations (Ill. Rev. Stat. 1979, ch. 26, par. 2 — 725) expired in order to know that it was entitled to keep the money. They would have no way of knowing how many claims existed against the repossessed inventory or when, or if, or in what manner they would be presented. That is the evil of the ruling in this case and that is the evil of Herman. The majority says that Herman is indistinguishable from this case. That is true. Herman was wrong and pronounced bad law. There is no need to dissect Herman here. Such analysis would be a reiteration of my dissenting opinion in this case. Errors once made, if recognized, need not be repeated. I would not follow Herman and I would not affirm the judgment in this case. Rather, I would direct the entry of judgment for the secured creditor.