{ "id": 3261788, "name": "BARBARA F. HERMAN, Plaintiff-Appellee, v. FIRST FARMERS STATE BANK OF MINIER, Defendant-Appellant", "name_abbreviation": "Herman v. First Farmers State Bank", "decision_date": "1979-07-06", "docket_number": "No. 79-7", "first_page": "475", "last_page": "481", "citations": [ { "type": "official", "cite": "73 Ill. App. 3d 475" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "185 S.E.2d 580", "category": "reporters:state_regional", "reporter": "S.E.2d", "weight": 2, "pin_cites": [ { "page": "582" } ], "opinion_index": 0 }, { "cite": "124 Ga. App. 636", "category": "reporters:state", "reporter": "Ga. App.", "case_ids": [ 731782 ], "weight": 2, "pin_cites": [ { "page": "637-38" } ], "opinion_index": 0, "case_paths": [ "/ga-app/124/0636-01" ] }, { "cite": "309 N.E.2d 567", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "57 Ill. 2d 29", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 5407489 ], "opinion_index": 0, "case_paths": [ "/ill-2d/57/0029-01" ] }, { "cite": "87 A.L.R.3d 11", "category": "reporters:specialty", "reporter": "A.L.R. 3d", "weight": 2, "pin_cites": [ { "page": "\u00a72" }, { "page": "\u00a72" } ], "opinion_index": 0 }, { "cite": "119 Ariz. 176", "category": "reporters:state", "reporter": "Ariz.", "case_ids": [ 708009 ], "weight": 6, "pin_cites": [ { "page": "178" }, { "page": "10" }, { "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", "weight": 4, "year": 1978, "pin_cites": [ { "page": "529, 532" }, { "page": "534" }, { "page": "534" } ], "opinion_index": 0 }, { "cite": "56 Misc. 2d 261", "category": "reporters:state", "reporter": "Misc. 2d", "case_ids": [ 1192546 ], "weight": 2, "year": 1978, "opinion_index": 0, "case_paths": [ "/misc2d/56/0261-01" ] } ], "analysis": { "cardinality": 632, "char_count": 12881, "ocr_confidence": 0.894, "pagerank": { "raw": 2.2631335362074993e-07, "percentile": 0.782856838371658 }, "sha256": "609909d41078cc534af8ff03b40e9531254f19f4575931bd5f2be6b61342e2d0", "simhash": "1:cb055e5643145ca3", "word_count": 2181 }, "last_updated": "2023-07-14T21:56:34.335432+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "BARBARA F. HERMAN, Plaintiff-Appellee, v. FIRST FARMERS STATE BANK OF MINIER, Defendant-Appellant." ], "opinions": [ { "text": "Mr. JUSTICE STENGEL\ndelivered the opinion of the court:\nThe sole question presented on this appeal is whether plaintiff Barbara F. Herman, was a \u201cbuyer in the ordinary course of business\u201d under section 9 \u2014 307 of our Uniform Commercial Code (Ill. Rev. Stat. 1977, ch. 26, par. 9\u2014307). Following a bench trial the Circuit Court of Tazewell County held that plaintiff was such a \u201cbuyer\u201d and entered a $2,200 judgment for her. We affirm.\nThe facts of this case are not in dispute. At all relevant times since March 13, 1974, defendant, First Farmers State Bank of Minier, had a perfected security interest in the inventory of Newell Soil Supplies, Inc., a company engaged in the retail business of selling and applying chemicals and fertilizers used by farmers. The security agreement between defendant and Newell allowed Newell to sell the inventory and gave defendant a security interest in the proceeds of any such sale. On February 22, 1978, plaintiff, through her tenant, contracted to buy 40,000 pounds of 28 \u2014 0\u20140 liquid nitrogen solution from Newell. Plaintiff paid Newell the full purchase price of $2,200, and the solution was to be delivered and applied at a later, unspecified date. This arrangement was customary in the business, and plaintiff had purchased solution from Newell on the same basis in other years.\nOn April 14,1978, prior to delivery of the solution to plaintiff, Newell defaulted, and defendant took possession of Newell\u2019s inventory, which it later sold. At the time of default Newell had over 500 tons of 28 \u2014 0\u20140 solution in stock. Plaintiff never received the 40,000 pounds of solution she ordered, and she brought this action against defendant to recover the $2,200 she paid to Newell.\nArticle 9 of our Uniform Commercial Code establishes a priority system for determining the rights of parties who claim competing interests in secured property. (Introductory Comment, Ill. Ann. Stat., ch. 26, art. 9 (Smith-Hurd 1977).) 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.\n\u201c\u00a79 \u2014 201. General Validity of Security Agreement.\nExcept 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.\u201d (Ill. Rev. Stat. 1977, ch. 26, par. 9\u2014201.)\nHowever, the principle exception to this general rule is found in section 9 \u2014 307(1), which provides:\n\u201c\u00a79 \u2014 307. Protection of Buyers of Goods.\n(1) A 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 (Ill. Rev. Stat. 1977, ch. 26, par. 9\u2014307(1).)\nThe definitional provision of the Code states:\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. * \u2022 \u00b0.\u201d Ill. Rev. Stat. 1977, ch. 26, par. 1\u2014201(9).\nPlaintiff in the instant case contends she is a \u201cbuyer in the ordinary course of business\u201d and, therefore, is entitled to recover from defendant the $2,200 she paid Newell for the nitrogen solution. Defendant, on the contrary, argues that plaintiff is not a \u201cbuyer\u201d under section 9 \u2014 307(1), but an unsecured creditor of Newell\u2019s whose interest in the secured property is inferior to that of defendant. In support of this argument defendant relies on the passage-of-title provisions under article 2 of the Uniform Commercial Code, particularly section 2 \u2014 401 (2) (b), which provides that, if a contract for the sale of goods requires delivery by the seller, title to the goods does not pass to the buyer until the delivery has been made. (Ill. Rev. Stat. 1977, ch. 26, par. 2\u2014401(2)(b).) Thus, the question before us is whether plaintiff is a \u201cbuyer in the ordinary course of business\u201d under section 9 \u2014 307 even though she never actually received the nitrogen solution or title to it.\nAlthough this is a case of first impression in Illinois, plaintiff\u2019s argument that she is a \u201cbuyer\u201d under section 9 \u2014 307 is supported by decisions of other State courts. Both Chrysler Credit Corp. v. Sharp (1968), 56 Misc. 2d 261, 288 N.Y.S.2d 525, and Rex Financial Corp. v. Mobil America Corp. (1978), 119 Ariz. 176, 580 P.2d 8, involved disputes between a retail lender who had financed the buyer\u2019s purchase of secured goods and the seller\u2019s financer who held a perfected security interest in the seller\u2019s inventory. In each case the court held the purchaser was a \u201cbuyer in the ordinary course of business\u201d under section 9 \u2014 307, notwithstanding the fact he had not received delivery of the goods prior to the seller\u2019s default. Defendant\u2019s claim in this case, that passage-of-title rules under article 2 should govern the conflict, was specifically rejected by both courts. In Chrysler the court stated:\n\u201cThis Court is inclined to feel that while title questions may be of significance in determining many issues under the UCC, the theory of the act and its relation to the problem relegates the issue of title in this case to a subordinate position.\u201d\n\u201cObligations and remedies are not determined by the location of the title but rather on function, compliance with statutory requirements and the nature of the transaction.\u201d (288 N.Y.S.2d 525, 529, 532.)\nThe court in Rex Financial concurred in the Chrysler reasoning:\n\u201cWe disagree with appellant and agree fully with the philosophy expressed by the Chrysler court that a good faith purchaser who signs such a purchase money security agreement should be considered a buyer in the ordinary course \u2018without regard to the technicalities of when title is to pass pursuant to collateral oral agreements or as to time of delivery * *.' 288 N.Y.S.2d at 534.\u201d 119 Ariz. 176, 178, 580 P.2d 8, 10.\nWe believe the Chrysler and Rex Financial reasoning should be applied to the case at bar. The Comments to section 9 \u2014 101 of our Code state:\n\u201cRights, obligations and remedies under the Article do not depend on the location of title.\u201d (Comments, Ill. Ann. Stat., ch. 26, par. 9\u2014101 (Smith-Hurd 1977); also, Annot., 87 A.L.R.3d 11, \u00a72(b) (1978).)\nThe purpose of section 9 \u2014 307 is to protect the \u201cbuyer in the ordinary course of business,\u201d and the Code is to be \u201cliberally construed and applied to promote its underlying purposes and policies.\u201d (Ill. Rev. Stat. 1977, ch. 26, par. 1\u2014102(1).) Whether a party is a \u201cbuyer\u201d under section 9 \u2014 307 is a question of fact for the trial court, and that court\u2019s determination will not be disturbed unless it is against the manifest weight of the evidence. (American National Bank & Trust Co. v. MAR\u2014K\u2014Z Motors & Leasing Co. (1974), 57 Ill. 2d 29, 309 N.E.2d 567.) The trial court\u2019s determination in this case is justified by the evidence.\nWe 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 \u201cordinary course of business\u201d requirement of section 9 \u2014 307. As 1 Anderson, Uniform Commercial Code \u00a71 \u2014 201:25 (2d ed. 1970) suggests:\n\u201cWhether the buyer is a buyer in ordinary course is not affected by whether there has been a completed sale or merely the making of the contract to sell, since the fact that title has not yet been transferred as between the dealer and the purchaser does not prevent the latter from being regarded as a buyer in the ordinary course of business, insofar as the secured creditor of the dealer is concerned, where the transaction between the dealer and the purchaser is ordinary or typical in the trade.\u201d\nThe transaction between plaintiff and Newell was customary in the business, and plaintiff had purchased solution from Newell on the same basis in earlier years. Plaintiff paid the full purchase price for the solution and justifiably expected delivery as in past years. Under article 2, \u201cBuyer\u201d is defined as \u201ca person who buys or contracts to buy goods.\u201d (Emphasis added.) (Ill. Rev. Stat. 1977, ch. 26, par. 2\u2014103(1)(a).) There is no question that plaintiff in the instant case contracted to buy the liquid nitrogen solution from Newell. Plaintiff was a typical buyer in an ordinary business transaction with Newell, and her interests must be protected under section 9 \u2014 307(1).\nDefendant\u2019s attempts to distinguish Chrysler and Rex Financial are without merit. Defendant argues that the purchased goods in those cases were specific ones, which had been set aside or \u201cidentified\u201d to the contract under section 2 \u2014 401 so as to complete the sale and pass title to the buyer. (See Ill. Rev. Stat. 1977, ch. 26, par. 2\u2014401.) However, we find nothing in either of those opinions to suggest that the courts based their decisions on section 2 \u2014 401 or any of the other provisions of article 2 relating to passage of title and consummation of sales. In fact, as noted above, such an argument was specifically rejected in both cases.\nDefendant\u2019s reliance on Troy Lumber Co. v. Williams (1971), 124 Ga. App. 636, 185 S.E.2d 580, is also misplaced. In Troy, the plaintiff did not purchase or contract to purchase the secured goods, but merely made a $600 downpayment on a \u201cproposal\u201d to purchase an unspecified mobile home. Moreover, the plaintiff there rescinded his contract with the dealer by demanding return of the down payment and elected to become a lien creditor of the dealer. The court, in response to plaintiff\u2019s claim that he was a buyer under section 9 \u2014 307(1), stated:\n\u201cThis would be a valid argument if the plaintiffs were in fact buyers, i.e. if they were either attempting to enforce the contract of sale or defending their right to free possession of the property after having performed under the contract. However, the plaintiffs have, in effect, rescinded this contract by demanding refund of their down payment.\u201d (124 Ga. App. 636, 637-38; 185 S.E.2d 580, 582. See also Annot, 87 A.L.R.3d 11, \u00a72(a) (1978).)\nIn the instant case plaintiff fully performed under her contract with Newell and is seeking the only contractual remedy now available to her in light of defendant\u2019s seizure and sale of Newell\u2019s stock. We believe that plaintiff in the case at bar would be able to recover even under the rule of Troy.\nFinally, 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\u201cIf 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.\u201d 56 Misc. 2d 261,_, 288 N.Y.S.2d 525, 534.\n\u201cIf 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.\u201d (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 fmancer, not only because it is better able to guard against those risks than the unwary buyer or the retail fmancer, but also because a contrary rule would inequitably allow the inventory fmancer a double recovery.\nWe hold that plaintiff is a \u201cbuyer in the ordinary course of business\u201d under section 9 \u2014 307(1), who is entitled to recover the *2,200 she paid to Newell. The judgment of the Circuit Court of Tazewell County is affirmed.\nAffirmed.\nSTOUDER, P. J., and SCOTT, J., concur.", "type": "majority", "author": "Mr. JUSTICE STENGEL" } ], "attorneys": [ "Kuhfuss & Kuhfuss, of Pekin, for appellant.", "Swain, Johnson & Card, of Peoria, for appellee." ], "corrections": "", "head_matter": "BARBARA F. HERMAN, Plaintiff-Appellee, v. FIRST FARMERS STATE BANK OF MINIER, Defendant-Appellant.\nThird District\nNo. 79-7\nOpinion filed July 6, 1979.\nRehearing denied August 2, 1979.\nKuhfuss & Kuhfuss, of Pekin, for appellant.\nSwain, Johnson & Card, of Peoria, for appellee." }, "file_name": "0475-01", "first_page_order": 497, "last_page_order": 503 }