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Herman v. First Farmers State Bk. of Minier

OPINION FILED JULY 6, 1979.

BARBARA F. HERMAN, PLAINTIFF-APPELLEE,

v.

FIRST FARMERS STATE BANK OF MINIER, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Tazewell County; the Hon. CHARLES J. PERRIN, Judge, presiding.

MR. JUSTICE STENGEL DELIVERED THE OPINION OF THE COURT:

Rehearing denied August 2, 1979.

The sole question presented on this appeal is whether plaintiff Barbara F. Herman, was a "buyer in the ordinary course of business" under section 9-307 of our Uniform Commercial Code (Ill. Rev. Stat. 1977, ch. 26, par. 9-307). Following a bench trial the Circuit Court of Tazewell County held that plaintiff was such a "buyer" and entered a $2,200 judgment for her. We affirm.

The 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 28-0-0 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.

On April 14, 1978, prior to delivery of the solution to plaintiff, Newell defaulted, and defendant took possession of Newell's inventory, which it later sold. At the time of default Newell had over 500 tons of 28-0-0 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.

• 1 Article 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.

"§ 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. 1977, ch. 26, par. 9-201.)

However, the principle exception to this general rule is found in section 9-307(1), which provides:

"§ 9-307. Protection of Buyers of Goods.

(1) A buyer in ordinary course of business (subsection (9) of Section 1-201) 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." (Ill. Rev. Stat. 1977, 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 but does not include a pawnbroker. * * *." Ill. Rev. Stat. 1977, ch. 26, par. 1-201(9).

Plaintiff in the instant case contends she is a "buyer in the ordinary course of business" 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 "buyer" under section 9-307(1), but an unsecured creditor of Newell's 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 2-401(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. ...


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