{ "id": 3625046, "name": "FARMERS STATE BANK, Plaintiff-Appellant, v. GEORGE WEBEL, d/b/a Webel Feed Mill, Defendant-Appellee", "name_abbreviation": "Farmers State Bank v. Webel", "decision_date": "1983-02-23", "docket_number": "No. 4-82-0468", "first_page": "87", "last_page": "96", "citations": [ { "type": "official", "cite": "113 Ill. App. 3d 87" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "249 N.E.2d 352", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "111 Ill. App. 2d 190", "category": "reporters:state", "reporter": "Ill. App. 2d", "case_ids": [ 1592941 ], "opinion_index": 0, "case_paths": [ "/ill-app-2d/111/0190-01" ] }, { "cite": "72 Nw. U. L. Rev. 706", "category": "journals:journal", "reporter": "Nw. U. L. Rev.", "year": 1977, "opinion_index": 0 }, { "cite": "77 N.M. 554", "category": "reporters:state", "reporter": "N.M.", "case_ids": [ 2802861 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/nm/77/0554-01" ] }, { "cite": "119 Ariz. 176", "category": "reporters:state", "reporter": "Ariz.", "case_ids": [ 708009 ], "weight": 2, "pin_cites": [ { "page": "178" }, { "page": "10" } ], "opinion_index": 0, "case_paths": [ "/ariz/119/0176-01" ] }, { "cite": "288 N.Y.S.2d 525", "category": "reporters:state", "reporter": "N.Y.S.2d", "pin_cites": [ { "page": "534" } ], "opinion_index": 0 }, { "cite": "56 Misc. 2d 261", "category": "reporters:state", "reporter": "Misc. 2d", "case_ids": [ 1192546 ], "opinion_index": 0, "case_paths": [ "/misc2d/56/0261-01" ] }, { "cite": "392 N.E.2d 344", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 3, "pin_cites": [ { "page": "346" }, { "page": "347" } ], "opinion_index": 0 }, { "cite": "73 Ill. App. 3d 475", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3261788 ], "weight": 3, "pin_cites": [ { "page": "479" }, { "page": "480-81" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/73/0475-01" ] }, { "cite": "69 N.E.2d 261", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "395 Ill. 11", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 2468612 ], "opinion_index": 0, "case_paths": [ "/ill/395/0011-01" ] } ], "analysis": { "cardinality": 981, "char_count": 19906, "ocr_confidence": 0.767, "pagerank": { "raw": 1.556031247121087e-07, "percentile": 0.676101579667386 }, "sha256": "9825859945ee9aad068056a78f8e93eacc621e456bf736d7424fc7b2b823d23a", "simhash": "1:e1550a73719e5fee", "word_count": 3402 }, "last_updated": "2023-07-14T20:40:35.449940+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "FARMERS STATE BANK, Plaintiff-Appellant, v. GEORGE WEBEL, d/b/a Webel Feed Mill, Defendant-Appellee." ], "opinions": [ { "text": "PRESIDING JUSTICE WEBBER\ndelivered the opinion of the court:\nPlaintiff sued defendant in the circuit court of Pike County for the conversion of collateral said to be subject to its security interest. A jury trial was convened on the matter and at the close of the plaintiff\u2019s evidence, the trial court directed a verdict in favor of the defendant. Plaintiff appeals and we affirm.\nThere are three principal parties involved in the dispute: the plaintiff-creditor, Farmers State Bank, Pittsfield, Illinois (Bank); the debtor, Pigs Unlimited, Inc. (Pigs); and the defendant, George Webel, d/b/a Webel Feed Mill (Webel).\nPigs\u2019 basic business was that of buying and selling \u201cfeeder pigs\u201d; incidentally, it sometimes fattened them as described below. The \u201cfeeder pig\u201d enterprise consisted of purchasing newly weaned pigs and bringing them up to an average of about 120 to 130 pounds. They would then be sold to purchasers who would make such disposition of them as they chose. During its existence, Pigs sold to the public approximately 72,000 feeder pigs. It was licensed by the Department of Agriculture of Illinois as a feeder swine dealer. The original base of operations was on a farm in Pike County; later it leased two facilities on farms located in Hancock County and two facilities in Schuyler County.\nIn the fattening operation the pigs were retained and brought up to a \u201cmarket\u201d weight of 200-250 pounds and then sold to packing houses, such as Swift & Company, which was joined as an original defendant but dismissed by the Bank prior to trial. This would occur when, apparently because of market conditions, a feeder pig would remain unsold and exceed the weight of 120 to 130 pounds. It would then be retained, fattened to market weight, and sold to a packing house. This constituted about 5% of Pigs\u2019 operation.\nPigs entered into financing arrangements with the Bank. During the period from September 1975 to November 1976 it furnished the Bank with 21 notes totaling approximately $800,000. It was understood that the line of credit was $100,000 maximum, against which Pigs would draw from time to time, evidenced by short term notes. The proceeds of sale were to be deposited by Pigs in the Bank and the record contains no indication that this was not done. In fact, about $3,700,000 was so deposited. Also, from time to time as notes became due, they would be renewed upon payment of the accrued interest.\nIn connection with the loans the Bank took two security agreements and filed financing statements based thereon in each of the three counties in which Pigs conducted operations. A summary of the financing statements is as follows:\nFiled March 29, 1976, for the \u201cPittsfield\u201d location in Pike County \u2014 \u201c1200 head mixed pigs averaging 90 lbs. (90-150 range) located on farm land situated 7 miles west of Pittsfield and owned by Donald Sperry and Dave Doerring, running along route 54 and any and all livestock acquired hereafter.\nThe above security is to cover all indebtedness either now or any in the future dating from January 19,1976.\u201d\nFiled June 16, 1976, for the \u201cPittsfield\u201d location Pike County\u2014 \u201c1280 head hogs located on land owned by Donald Sperry located in South East Quarter of Section 31, Township 5, South Range 4 West Pike County, Illinois.\u201d\nFiled June 16, 1976, for the \u201cCarthage\u201d (Sutton & Whitcomb land) and \u201cDallas City\u201d (Rohn land) located in Hancock County. \u201c1070 head hogs located in Hancock County on the following tracts of land: land belonging to Don Rohn located in the Southwest Quarter, Section 3, Twp 7, North Range 6W; Paul Sutton in NE 1/4, Sec. 26, 5N, 6W & SE 1/4, 5N, 6W Sect. 26; Ron Whitcomb \u2014 SE 1/4 Sect. 34, 5N, 7W. All the above property is located in Hancock County and belonging to respectively above named persons.\u201d\nFiled June 16, 1976. The Bank claims that this filing covers livestock in the \u201cCamden\u201d location on land 8 miles away and that described here in which is owned by a man named Eck. \u201c1000 head hogs located on land belong to J. W. Byers located in Schuyler County SE 1/4, Sec. 9, 2N, 9W.\u201d\nOne of Pigs\u2019 customers was defendant Webel, who owned and operated a feed mill at Pittsfield. From time to time Webel purchased feeder pigs and either placed them on his own farm for fattening for market, or on the farms of others with whom he had a fattening arrangement.\nIn addition to purchasing feeder pigs, Webel also entered into a special fattening arrangement with Pigs. The nature of this arrangement was such that Webel would pay Pigs for a number of feeder pigs which were either already located on one of the above lots controlled by it, had been purchased by Pigs but had not yet arrived, or were then obtained and delivered to one of the lots of Pigs. Feeder pigs were bought COD and most of the time they were sold, and the money deposited, before they arrived. Not more than 25% of the pigs Webel purchased would have already been in Pigs\u2019 lots. Its records would not differentiate among the pigs.\nWebel would provide the feed for the pigs. Pigs provided the facilities, the day-to-day care, and would decide when to take the hogs to market. Upon receipt of the settlement check, Pigs would bring it to Webel, who would deduct out the original price advanced, the feed cost, and any profit would be split between Webel and Pigs. Any loss would be born by Webel.\nUnder this arrangement Webel did not remove the animals from the premises. Webel\u2019s records did indicate how many and in which pens his pigs were located among the Pigs\u2019 facilities. Webel had no security agreement, or any written agreement concerning this arrangement. He did not investigate to see whether or not anyone else did. He posted no signs or other notice to the public at large concerning his interest, nor were the pigs identified to the public as being Webel\u2019s property. By March 8, 1977, all of the pigs located in Pigs\u2019 lots in Pike, Hancock and Schuyler Counties were the subject of this fattening arrangement and as such, Webel claimed they belonged to him.\nBy February 1977 it became apparent that Pigs was in serious financial trouble. Officials of the Bank conferred with the principals of Pigs, who gave them a verified inventory of all pigs located at any of the lots including weights, numbers, and approximate values. In fact, all of such pigs were subject to the fattening arrangement with Webel. Based on its further investigations, the Bank determined to call the loan and foreclose the collateral. After about a week of unsuccessful attempts to obtain the cooperation of Pigs\u2019 principals, the Bank on March 8, 1977, went to the Pittsfield location to pick up the livestock. The Bank\u2019s personnel were met by agents of Webel who blocked their attempts; Webel\u2019s agents then took all of the pigs located at Pitts-field, as well as the other locations, about 1,500 in number, and subsequently sold them for approximately $103,000. The Bank claimed that the incident on March 8 was its first knowledge of any claim of ownership by Webel.\nThe Bank then filed the instant suit on November 8, 1977. It alleged its security agreements and the filing of financial statements, as above described; it further alleged that the debtor, Pigs, agreed not to transfer without the Bank\u2019s consent any interest in the collateral; and that Webel had seized the collateral, as above described.\nAfter a great deal of preliminary skirmishing, including several motions for summary judgment, Webel was required to answer. This he did on March 17, 1981. It was in substance a general denial and with it he filed two affirmative defenses. The first in effect pleaded waiver; i.e., that the Bank never enforced its right under the security agreements to require Pigs to obtain authorization to make sales of the livestock covered by the agreements. The second setup that the livestock in the hands of Pigs was \u201cinventory\u201d and not \u201cfarm products\u201d and that Webel was a \u201cbuyer in the ordinary course of business\u201d within the meaning of the Uniform Commercial Code. 111. Rev. Stat. 1975, ch. 26, pars. 9 \u2014 109,1\u2014201(9).\nAt the conclusion of the plaintiff\u2019s evidence, Webel argued strongly for a directed verdict. His first ground was that it had been established by the evidence that he was a buyer of inventory in the ordinary course of business and therefore he took free of the Bank\u2019s security interest under section 9 \u2014 307(1) of the Uniform Commercial Code (UCC). (111. Rev. Stat. 1979, ch. 26, par.9 \u2014 307(1).) He further argued that the security agreements did not cover after-acquired property and that the security agreement on the \u201cCamden\u201d location contained a misdescription.\nAs has been indicated, the trial court granted the motion. Upon being pressed by the Bank to articulate its reasons, the trial court declined and commented only that the security agreements were \u201cnot valid.\u201d\nWhile we do not agree with the trial court that the security agreements were invalid, the question on appeal is always whether its judgment is justified in the law for any reason or ground appearing in the record, irrespective of the trial court\u2019s assigned reasons. Harrison v. Kamp (1946), 395 Ill. 11, 69 N.E.2d 261.\nIn our opinion the record fully sustains Webel\u2019s contention that he was a buyer in the ordinary course of business and not a buyer of farm products.\nThe question is controlled by various sections of article 9 of the Uniform Commercial Code \u2014 Secured Transactions. (111. Rev. Stat. 1979, ch. 26, par. 9 \u2014 101 et seq.) Most significant is section 9 \u2014 307(1) which provides:\n\u201cA buyer in ordinary course of business (subsection (9) of Section 1 \u2014 201) other than a person buying farm products from a person engaged in farming operations 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.\u201d 111. Rev. Stat. 1979, ch. 26, par. 9 \u2014 307(1).\nDefinitions are provided by section 9 \u2014 109:\n\u201cGoods are\n* * *\n(3) \u2018farm products\u2019 if they are crops or livestock or supplies used or produced in farming operations or if they are products of crops or livestock in their unmanufactured states (such as ginned cotton, wool-clip, maple syrup, milk and eggs), and if they are in the possession of a debtor engaged in raising, fattening, grazing or other farming operations. If goods are farm products they are neither equipment nor inventory;\n(4) \u2018inventory\u2019 if they are held by a person who holds them for sale or lease or to be furnished under contracts of service or if he has so furnished them, or if they are raw materials, work in process or materials used or consumed in a business. Inventory of a person is not to be classified as his equipment.\u201d 111. Rev. Stat. 1979, ch. 26, par. 9-109(3), (4).\nPart of the Comment to section 9 \u2014 109 states:\n\u201cWhen crops or livestock or their products come into the possession of a person not engaged in farming operations they cease to be \u2018farm products\u2019. If they come into the possession of a marketing agency for sale or distribution or of a manufacturer or processor as raw materials, they become inventory.\u201d 111. Ann. Stat., ch. 26, par. 9 \u2014 109, Uniform Commercial Code Comment, at 83 (Smith-Hurd 1974).\nIn our judgment Pigs was a marketing agency within the meaning of the Comment and was selling inventory and not farm products. The question is somewhat clouded by the fact that Pigs also engaged in fattening operations. However, the record shows that this was at most incidental to the marketing operation and came about only because some of its inventory (feeder pigs) was unsold and the only feasible disposition was to fatten and market. The record does not sustain any contention that Pigs intended this result but rather it came about from market conditions beyond its control. As to the arrangement with Webel, the record is plain that Pigs sold inventory to him; he purchased feeder pigs; and at that point under section 9\u2014 307(1) he took free of the Bank\u2019s security interest.\nWebel fits squarely within the definition of a buyer in the ordinary course of business referred to in section 9 \u2014 307(1). Section 1\u2014 201(9) therein incorporated provides:\n\u201c \u2018Buyer in ordinary course of business\u2019 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 but does not include a pawnbroker. All persons who sell minerals or the like (including oil and gas) at wellhead or minehead shall be deemed to be persons in the business of selling goods of that kind. \u2018Buying\u2019 may be for cash or by exchange of other property or on secured or unsecured credit and includes receiving goods or documents of title under a pre-existing contract for sale but does not include a transfer in bulk or as security for or in total or partial satisfaction of a money debt.\u201d Ill. Rev. Stat. 1979, ch. 26, par. 1\u2014 201(9).\nNo argument is made that Webel had actual knowledge of the Bank\u2019s security interest; neither is it contended that he did not pay for the feeder pigs, or that the sale was in bulk. It is argued that Webel had constructive knowledge by reason of his joint venture with Pigs. Such an argument ignores that plain language of section 9\u2014 307(1) which protects a buyer in ordinary course, even though he knows of the existence of a perfected security interest.\nThe Bank has made several subsidiary arguments which require brief mention. It contends that since Webel did not take possession of the pigs, he cannot be a buyer in the ordinary course of business. Initially, it may be questioned whether the record bears out the contention that he did not take possession. It is clear that he furnished feed to the locations while Pigs had the day-to-day care of the animals; it would appear to be a joint possession. However, we do not deem possession to be the controlling factor. A similar argument was rejected in Herman v. First Farmers State Bank (1979), 73 Ill. App. 3d 475, 392 N.E.2d 344. In that case the plaintiff purchased fertilizer and left it with the debtor to be delivered and applied at a later date. The creditor attempted to include it under its security interest and argued that no sale had taken place since delivery had not been made; therefore, plaintiff was not a buyer in the ordinary course of business. The court, after citing a comment to section 9 \u2014 101, stated:\n\u201cWe do not think the technical passage-of-title rules under article 2 should be applied to defeat the plaintiff\u2019s claim in this case. Rather, we believe the focus in a case such as this should be on the \u2018ordinary course of business\u2019 requirement of section 9 \u2014 307. ***. The transaction between plaintiff and Newell was customary in the business, and plaintiff had purchased solution from Newell on the same basis in earlier years.\u201d 73 Ill. App. 3d 475, 479, 392 N.E.2d 344, 346.\nWe agree with this rationale, and the record here shows that Webel had fattening arrangements with numerous farmers in the area over a period of several years and with Pigs for over a year. It is less clear that such arrangements were a common practice in the area but by the same token there is no evidence to negate the proposition.\nNext, the Bank contends that the arrangement between Pigs and Webel was a consignment and subject to the consignment provisions of the Uniform Commercial Code. While the pleadings below raised such a theory, it was not strongly urged as an alternative to the principal one. We have examined the theory as expounded in the briefs of the parties and find it to be without merit.\nThirdly, the Bank makes certain arguments in the realm of public policy, viz., a more favored status for inventory lenders. We feel that these are adequately answered in the following quotation from Herman:\n\u201cFinally, defendant contends that a holding in favor of plaintiff would make the entire concept of security on inventory unworkable, placing on any inventory security holder the impossible burden of accounting to numerous unknown creditors of the dealer who had made payments on account, but never received their goods. This contention is without merit. The same argument was raised in both Chrysler and Rex Financial, and the courts firmly responded:\n\u2018If there is a usage of trade which exposes an entruster on floor plan to certain risks, these are risks against which he can guard by audits and accounting procedures or he can. refuse to knowingly expose himself to the risk with the particular dealer. To fail to place the exposure of such risk with the entruster in such situation would make it impossible for retail finance companies to do business with any dealer unless the entruster were directly a participant. To hold otherwise, would expose the retail financer to a double loss as against at most a partial loss for both.\u2019 56 Misc. 2d 261, [270], 288 N.Y.S.2d 525, 534.\n\u2018If this result exposes an inventory financer to certain risks, they are risks which he is in a better position to guard against than the retail financer.\u2019 (119 Ariz. 176, 178, 580 P.2d 8, 10.)\nWe fully agree with the reasoning of these courts. We believe that the risks involved in situations such as that at bar should be placed on the inventory financer, not only because it is better able to guard against those risks than the unwary buyer or the retail financer, but also because a contrary rule would inequitably allow the inventory financer a double recovery.\u201d 73 Ill. App. 3d 475, 480-81, 392 N.E.2d 344, 347.\nOne last matter deserves some comment: the question of waiver and whether Illinois recognizes such a doctrine. The security agreements in the instant case contained what is almost a standard provision: that \u201c[without first obtaining the written consent of the Secured Party, the Debtor will not voluntarily, or permit any involuntary transfer of the Collateral or any interest therein by way of sale, creation of a security interest, levy or other judicial process.\u201d\nSubstantial evidence appears in the record indicating that the Bank knew it was financing a feeder pig inventory with a rapid turnover; among other things, over $3,700,000 had been deposited on a line of credit of $100,000; it not only made no objection, but apparently expected the same to occur. From this evidence, Webel argues that the Bank waived the requirement under the rationale of the leading case of Clovis National Bank v. Thomas (1967), 77 N.M. 554, 425 P.2d 726.\nCourts of other jurisdictions have split widely, some (probably the minority) following Clovis, others following it, but with some modifications. Most commentators regard Clovis as the better rule. (See, e.g., Dolan, Section 9 \u2014 307(1): The UCC\u2019s Obstacle to Agricultural Commerce in the Open Market, 72 Nw. U. L. Rev. 706 (1977).) Only one Illinois case, so far as we have been able to determine, has had occasion to comment on Clovis: Vermilion County Production Credit Association v. Izzard (1969), 111 Ill. App. 2d 190, 249 N.E.2d 352. We do not interpret that case as either accepting or rejecting Clovis.\nSince we hold that Webel was a buyer in the ordinary course of business of inventory and not of farm products and hence took free of the security interest under section 9 \u2014 307(1), we need not decide the question of waiver and offer no opinion on it.\nFor all the foregoing reasons, the judgment of the circuit court of Pike County is affirmed.\nAffirmed.\nTRAPP and GREEN, JJ., concur.", "type": "majority", "author": "PRESIDING JUSTICE WEBBER" } ], "attorneys": [ "Jonathan H. Barnard and Mark A. Drummond, both of Schmiedeskamp, Robertson, House, Neu & Mitchell, of Quincy, for appellant.", "R. P. O\u2019Connell, of Quincy, and William E. Lowry, of Pittsfield, for appellee." ], "corrections": "", "head_matter": "FARMERS STATE BANK, Plaintiff-Appellant, v. GEORGE WEBEL, d/b/a Webel Feed Mill, Defendant-Appellee.\nFourth District\nNo. 4\u201482\u20140468\nOpinion filed February 23, 1983.\n\u2014 Modified on denial of rehearing April 6, 1983.\nJonathan H. Barnard and Mark A. Drummond, both of Schmiedeskamp, Robertson, House, Neu & Mitchell, of Quincy, for appellant.\nR. P. O\u2019Connell, of Quincy, and William E. Lowry, of Pittsfield, for appellee." }, "file_name": "0087-01", "first_page_order": 109, "last_page_order": 118 }