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Hills Bank & Trust v. Arnold Cattle Co.

SEPTEMBER 17, 1974.




APPEAL from the Circuit Court of Henry County; the Hon. ROBERT M. BELL, Judge, presiding.


Rehearing denied October 11, 1974.

Plaintiff, Hills Bank and Trust Company, appeals from a judgment of the Circuit Court of Henry County granting a motion for summary judgment to defendant, Arnold Cattle Company, in an action to recover damages for the conversion of 144 head of cattle upon which plaintiff held a security interest.

The action with which we are concerned was originally commenced by Hills Bank and Trust Company, an Iowa corporation, against defendant, Arnold Cattle Company, a Delaware corporation, to recover damages for conversion of 144 head of cattle upon which the bank held a security interest under chattel mortgages executed in 1964 and in 1966, by one G.E. Grace, an Iowa farmer. A financing statement evidencing the plaintiff's security interest was properly filed in Iowa in the Johnson County recorder's office on July 5, 1966. On December 6, 1967, Grace brought the 144 head of cattle from Iowa to the place of business of Arnold Cattle Company in Illinois. At that time and location, defendant, Arnold Cattle Company, auctioned the cattle and disposed of them by sale.

Nearly 5 years later, on November 21, 1972, judgment was confessed by Grace upon the promissory notes which the mortgages had secured. Before the confession of judgment, however, Grace requested and received from plaintiff releases of the chattel mortgages. These releases were filed of record on November 22, 1972. On December 4, 1972, the present action was commenced as against defendant Arnold Cattle Company.

• 1 In support of the trial court's decision, granting summary judgment to defendant on the motion made in the trial court, defendant, among other things, argues that it is the intent of the Uniform Commercial Code (Ill. Rev. Stat. 1971 ch. 26, § 1-101 et seq.) hereinafter referred to as the "Code", to allow a secured party only those remedies that are provided in section 9-501, which, the defendant contends, limits the secured party to those remedies that it may have as against the debtor and therefore precludes any remedies the secured party may have against third parties. We do not agree with the reasoning of defendant on this issue. While it is true that article 9 of the Code contains no specific provision establishing a cause of action against a third party for the conversion of property upon which another holds a security interest, that omission does not preclude or pre-empt another remedy. It is made manifest that no such pre-emption was intended in section 1-103 of the Code, which states in part:

"Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions."

Thus, as is stated in the official comments (S.H.A., ch. 26, § 9-306, at 403 (1963)):

"In most cases when a debtor makes an unauthorized disposition of collateral, the security interest, under prior law and under this Article, continues in the original collateral in the hands of the purchaser or other transferee. That is to say, since the transferee takes subject to the security interest, the secured party may repossess the collateral from him or in an appropriate case maintain an action for conversion."

See, e.g., Farmers State Bank v. Stewart, 454 S.W.2d 908, 916 (Mo. App. 1970); Clovis National Bank v. Thomas, 77 N.M. 554, 425 P.2d 726, 731 (1967).

In absence of facts creating a waiver or release or showing an acquiescence or consent to the sale, the defendant, Arnold Cattle Company, an auctioneer, became liable to the plaintiff for the conversion of the cattle in 1967 when defendant sold the cattle. As stated at 96 A.L.R.2d 208, 210 (1964):

"The great weight of authority follows the rule that a sale by an auctioneer for a principal who has no title to the property or who holds it subject to a mortgage or other lien, or who for other reasons has no right to dispose of it, entails liability to the true owner, lienor, or conditional vendor, as for a conversion, on the part of the auctioneer who sells it under such circumstances, pays over the proceeds to the principal, and hands the property over to the purchaser with a view to passing the title to him, notwithstanding the auctioneer acts without knowledge of the principal's lack of authority to sell * * *."

See Farmers State Bank v. Stewart, 454 S.W.2d 908 (Mo. App. 1970); Clovis National Bank v. Thomas, 77 N.M. 554, 425 P.2d 726, 731 (1967); Rapid City Production Credit Association v. Transamerica Insurance Co., 85 S.D. 395, 184 N.W.2d 49 (1971); Duvall-Wheeler Livestock Barn v. United States, 415 F.2d 226 (5th Cir. 1969).

Since the record does not disclose any evidence of consent or acquiescence to the sale of the cattle, the issue to which this court will first direct its attention is whether or not the release of the security interest in the cattle did in fact waive plaintiff's cause of action for defendant's conversion of cattle or release such cause of action. It is important to note that whether or not there is a waiver or release of a cause of action is a matter which hinges on the intention of the parties involved. (76 C.J.S. Release §§ 24, 38, 51 (1952); 31 I.L.P. Release §§ 6, 21, 26 (1957); 18 I.L.P. Estoppel § 21 (1956); Shaw v. Close, 92 Ill. App.2d 1, 235 N.E.2d 830 (1st Dist. 1968); Podbielniak v. Podbielniak, 38 Ill. App.2d 451, 187 N.E.2d 454 (1st Dist. 1962); Butcher v. United Electric Coal Company, 174 F.2d 1003 (7th Cir. 1949).) The plaintiff contends that there was no intention to waive or release its cause of action against the defendant when it released the chattel mortgages. In support of its position, the plaintiff first argues that it was required to execute such releases under section 9-404 of the Code since there no ...

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