Appeal by plaintiff from the Circuit Court of McHenry county;
the Hon. WILLIAM M. CARROLL, Judge, presiding. Heard in this
court at the February term, 1952. Judgment affirmed. Opinion
filed May 2, 1952. Rehearing denied June 11, 1952. Released for
publication June 12, 1952.
MR. PRESIDING JUSTICE DOVE DELIVERED THE OPINION OF THE COURT. Rehearing denied June 11, 1952
Northern Illinois Corporation, a financing organization, whose chief place of business was in De Kalb, Illinois, and McHenry County Motor Sales, Inc., a corporation, which was engaged in buying and selling automobiles at retail and having its principal place of business in Woodstock, Illinois, executed, on November 8, 1948, a Statement of Trust Receipt Financing, as provided by section 13 of the Uniform Trust Receipts Act. This instrument was thereafter, on November 15, 1948, filed in the office of the Secretary of State as provided by law. (Ill. Rev. St. 1947, chap. 121 1/2, par. 178) [Jones Ill. Stats. Ann. 135.17 (13).] Hereafter, in this opinion Northern Illinois Corporation will be referred to as Entruster and McHenry County Motor Sales, Inc., will be referred to as Trustee, so designated in said Statement.
On November 16, 1948, the Trustee purchased a new Kaiser, four-door automobile from Allied Motors, Inc., a Kaiser-Frazer distributor in Rockford, and Richard V. Kausal, acting for the Trustee and employed by it as a salesman, drove the car from Rockford to Woodstock, and upon its arrival in Woodstock, it was placed in the showroom at the Trustee's place of business. At the time Richard V. Kausal obtained the car from Allied Motors, Inc., in Rockford, no money was paid Allied Motors, Inc., but Richard understood it was to be financed on a floor-plan arrangement with the Entruster. The Entruster, on the same day, paid for it by honoring a draft drawn upon it by Allied Motors, Inc., for $2,084.65.
On November 18, 1948, the Trustee, as dealer, executed and delivered to the Entruster, a demand promissory note for $2,084.65, a bill of sale covering the said Kaiser automobile, and a trust receipt. By this trust receipt, the Trustee agreed, among other things, to hold the car in question for the Entruster and to return it on demand in good order and unused. It further agreed that it would not sell the car at less than the stated price and that when sold, the proceeds would be kept separate from the dealer's funds, and on the day of the receipt of the purchase price it would transmit the same to the Entruster.
North American Acceptance Corporation is a financing company, and Emil H. Stassen was its agent and representative and had his office in Woodstock. Prior to December 18, 1948, the Acceptance Corporation had done considerable financing business with the Trustee, McHenry County Motor Sales, Inc., and on that day Ben A. Kausal, Jr., then president of said Trustee, and his brother, the said Richard V. Kausal, then a salesman of the Trustee, came to the office of Stassen and Richard V. Kausal executed a note for $1,926.97, payable to the order of said Acceptance Corporation in eighteen monthly installments, seventeen of $108 each and a final installment of $90.97. At the same time, Richard V. Kausal and the Trustee executed a conditional sales agreement by the terms of which the Trustee agreed to sell and Kausal agreed to purchase the Kaiser automobile involved herein. This contract recited that the price paid was $2,830, with a cash payment of $1,037.43, leaving an unpaid balance of $1,792.57 to which was added a finance charge of $134.40, making a total of $1,926.97. B.A. Kausal, Jr., president of the seller, guaranteed the payment of the note and assigned it and the conditional sales contract to the Acceptance Corporation.
About April 1, 1949, the Trustee became financially involved and, at the request of Ben A. Kausal, Jr., and Richard V. Kausal, their father, Benjamin A. Kausal, Sr., undertook to liquidate the company. At that time the car was on the showroom floor of the Trustee and so remained there until April 9, 1949, when it was delivered to Harold Breen, field man for the Entruster. Thereafter, the bill of sale, trust receipt, and note of November 18, 1948, were cancelled and returned to the Trustee. Breen then sold the car to Thomas Kiley of Kiley Motor Sales, who resold the car on May 10, 1949, to Thomas J. Weithers who financed his purchase of the car with the North American Acceptance Corporation.
On August 23, 1949, the instant complaint was filed in the circuit court of McHenry county by North American Acceptance Corporation which alleged, among other things, that it was the owner of and entitled to the possession of this Kaiser automobile; that without plaintiff's consent, the defendant, Northern Illinois Corporation, on April 9, 1949, seized said automobile and converted the same to its own use. The plaintiff demanded judgment for $2,000. The defendant answered denying plaintiff's ownership of the automobile, denied the conversion, and asserted its own ownership, and alleged that the plaintiff by its conduct in permitting the automobile to remain in the showroom of McHenry Motor Sales, Inc., and by refinancing the automobile on May 10, 1949, and by failing to assert its lien at the time application was made to it for refinancing on May 10, 1949, had waived its right to maintain this action. As an affirmative defense, the defendant alleged that it was in the business of financing automobiles by floor-plan-type financing and that in the course of its business it floor-planned the automobile in question with McHenry County Motor Sales, Inc.; that the automobile was a new car and was floor-planned immediately upon its receipt by the McHenry County Motor Sales, Inc.; that said car was never sold to any bona fide purchaser, was never in the actual possession of anyone after being floor-planned, other than McHenry County Motor Sales, Inc.; that plaintiff has no legal right to said car that is dominant to defendant's claim, and that said car is the sole property of the defendant. To this affirmative defense the plaintiff replied denying that the automobile was never off of the floor of the McHenry County Motor Sales, Inc., before being taken by the defendant; denied that the car was never sold to a bona fide purchaser; denied that the car was never in the possession of anyone other than McHenry County Motor Sales, Inc., after being floor-planned; denied that plaintiff had no legal right to the car, and denied that the car was the sole property of the defendant. The issues thus made were submitted to the court for determination without a jury resulting in a finding and judgment for defendant, and plaintiff appeals.
It is insisted by counsel for appellant that the evidence discloses that Richard V. Kausal bought this automobile on December 18, 1948, paid the Trustee $1,037.43 and executed a note for the balance of the purchase price and also a conditional sale agreement; that the transaction was a sale in the ordinary course of trade and made in good faith, and that under the provisions of the Uniform Trust Receipts Act, appellant is a bona fide purchaser for value of the note and conditional sale contract and its right to the automobile described in its conditional sale contract is superior to that of appellee.
Counsel for appellee insist that the evidence discloses that Richard V. Kausal had knowledge of appellee's lien at the time he purported to purchase the car; that the car remained in the showroom of the dealer without any visible change of ownership from the time of its purported sale until it was seized by appellee on April 9, 1949, and that Kausal never did have possession of it; that Kausal was not a purchaser in the ordinary course of trade; that Kausal had actual notice of the interest of appellee in the car in question; that it is immaterial whether he did or did not have or whether appellant did or did not have notice of appellee's interest, because both Kausal and appellant were bound to make inquiry at the time of the purported sale to Kausal and the execution by him of the conditional sale contract, under which appellant claims, inasmuch as the "Statement of Trust Receipt Financing" executed by appellee and by McHenry County Motors, Inc., was on file in the office of the Secretary of State as provided by law.
This is a contest between an entruster finance company holding a trust receipt given under the Uniform Trust Receipts Act for an entrusted Kaiser automobile and a finance company holding an assigned conditional sale contract for the balance of the purchase price of the same automobile. Appellee rests its claim to this car upon the provisions of the Uniform Trust Receipts Act (Ill. Rev. St. 1947, chap. 121 1/2, pars. 166-187) [Jones Ill. Stats. Ann. 137.17(1)-135.17(22)]. Section 7 of this Act provides that if the Statement of Trust Receipt Financing is filed with the Secretary of State, as provided by the Act, then such filing shall be effective to preserve the security interest of the Entruster in documents for goods against all persons save as otherwise provided. Section 9, subsec. (1-a) defines the limitations of an entruster's protection against purchasers and provides that nothing in the Act shall limit the rights of purchasers of negotiable instruments from the trustee in good faith and for value, and nothing in the Act shall limit the rights of purchasers taking from the trustee for value in good faith and by transfer in the customary manner, instruments, in such forms as are by common practice purchased and sold as if negotiable and such purchasers shall hold such instruments free of the entruster's interest, and the filing of the Statement of Trust Receipt Financing with the Secretary of State shall not be deemed to constitute notice of the entruster's interest to purchasers of such instruments in good faith and for value. (Ill. Rev. St. 1947, chap. 121 1/2, par. 174 subpar. 1) [Jones Ill. Stats. Ann. 135.17 (9) subpar. 1].
The question presented for our determination upon this record is whether appellant, on December 18, 1948, acquired the note and conditional sale contract from McHenry Motor Sales, Inc., for value, in good faith, and by transfer in the customary manner. This conditional sale contract recited that the cash price for this Kaiser, four-door sedan was $2,830, that the buyer had paid $1,037.43, leaving an unpaid balance of $1,792.57, and this amount together with the finance charge of $134.40 made the total time balance of $1,926.97. The contract recited that this amount was payable in eighteen consecutive installments, seventeen being for $108 each, commencing January 18, 1949, and a final installment of $90.97, according to the terms of a promissory note of even date executed by the buyer, said note being given not as payment but to evidence the said total time balance. The principal sum of the note was $1,926.97. It was payable to the order of North American Acceptance Corporation its payment was guaranteed by McHenry County Motor Sales, Inc., and bore this endorsement: "For value received, the within contract and note therein described are hereby sold, assigned and transferred to North American Acceptance Corporation, Chicago, Illinois, its successors and assigns. The undersigned represents that this contract was executed in connection with the conditional sale to the within buyer of the described property which has been delivered to and accepted by said buyer on the within conditions; that the undersigned has good title to said contract, note, and property; that the said property is free and clear of all liens; and that the whole of the deferred balance of the purchase price stipulated therein is unpaid; and that there are no claims against same; and that no agreement or contract, oral or written, except the within contract, was executed or given by the Seller in connection with said conditional sale."
The evidence discloses that prior to December 18, 1948, appellant had had previous financial transactions with Richard V. Kausal and, also, with McHenry County Motor Sales, Inc. At the time the conditional sale agreement and note were executed on December 18, 1948, under which appellant claims, the books of appellant showed that Richard V. Kausal was entitled to a credit of $13.80 on a previous car financing deal with appellant, and this amount was credited to his account when the transaction involving the Kaiser automobile involved in this proceeding was set up on the books of appellant.
Emil H. Stassen testified that he was the agent of appellant, lived in Woodstock, had his office at 109 Dean street in that city and had had his office there for twenty years, and had represented appellant since January 21, 1943, and was also district manager for the Chicago Motor Club; that the business of appellant was financing automobiles, loaning money on used cars and making repair loans; that he, Stassen, knew McHenry County Motor Sales, Inc., and its officers and knew that it was engaged in selling Kaiser and Frazer automobiles and had previously done some business with McHenry County Motor Sales, Inc., that on December 18, 1948, Ben A. Kausal, Jr., president of McHenry County Motor Sales, Inc., and Richard V. Kausal came to his office in Woodstock and that the occasion of their coming was to finance a new 1949 Kaiser, four-door, green sedan; that they drove to his office in a new 1949 Kaiser, four-door, green sedan automobile; that the conditional sale contract and note were on one of appellant's printed forms and he caused it to be prepared and it was executed by McHenry County Motor Sales, Inc., and by Ben A. Kausal, its president, and by Richard V. Kausal, as buyer, and he, Stassen, witnessed their signatures; that after the execution of the documents they were sent to the Chicago office of appellant; that on December 18, 1948, at the time the conditional sale contract and note were executed in his office he did not know of the trust-receipt agreement between appellee and McHenry County Motor Sales, Inc.; that on June 27, 1949, he first learned that appellee had taken possession of the car, and prior to that time he had no knowledge that this Kaiser car had been financed by appellee on a trust-receipt basis.
On cross-examination, this witness, Emil H. Stassen, testified that on December 18, 1948, he and Richard V. Kausal and Ben A. Kausal, Jr., were standing at the counter in his office when "we made this deal and there was a green Kaiser sitting in front of the office." He further testified that he did not go out and examine the car and did not learn the motor or serial number of the car by any examination of the car. He made no explanation of what the "deal" he testified about consisted of except to state that the note, conditional sale contract and guaranty were signed by the respective parties and delivered to him. He was not asked, nor did he testify, whether anything passed from him or from appellant in exchange for these documents. All the record shows is that the instruments upon which appellant seeks to recover were signed and delivered to appellant. If any consideration passed from appellant to McHenry County Motor Sales, Inc., or to Richard V. Kausal for these instruments, it is not shown by this record. Richard V. Kausal testified in this case, not as a witness for appellant, but for appellee. He was not asked whether he did or did not pay anything to McHenry County Motor Sales, Inc., for this car, nor did he testify that he did, and he did not ...