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Farns Associates, Inc. v. South Side Bk.

OPINION FILED FEBRUARY 23, 1981.

FARNS ASSOCIATES, INC., PLAINTIFF-APPELLANT,

v.

SOUTH SIDE BANK, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Cook County; the Hon. MYRON T. GOMBERG, Judge, presiding.

MR. PRESIDING JUSTICE GOLDBERG DELIVERED THE OPINION OF THE COURT:

Rehearing denied March 23, 1981.

Farns Associates, Inc. (Farns) brought this action against South Side Bank (Bank) for an alleged conversion of $35,484.40. Both parties moved for summary judgment. The trial court granted summary judgment in favor of the Bank and denied Farns' motion. Farns appeals.

On February 8, 1973, Farns and Patrick Brakie, doing business as Dependable Ambulance Company (Dependable), executed a loan and security agreement. Farns was given a security interest in Dependable's accounts receivable and all proceeds thereof as collateral for loans made by Farns to Dependable. The agreement specifically gave Farns a security interest by way of assignment of all account proceeds owed Dependable by the Illinois Department of Public Aid, Dependable's principal account debtor. The agreement also granted Farns a power of attorney with regard to these accounts. Farns filed a financing statement concerning this transaction with the Security of State of Illinois on February 21, 1973.

On May 23, 1973, the Bank and Dependable executed a security agreement, later augmented, which granted the Bank a security interest in Dependable's accounts receivable and a power of attorney. The Bank filed its financing statement on May 23, 1973. Between May 23, 1973, and October 16, 1973, the Bank made loans totaling $47,181 to Dependable. The Bank conducted a credit investigation of both Patrick Brakie and Dependable but failed to discover Farns' previously filed financing statement.

Commencing September 24, 1973, and until August 15, 1974, the Bank received checks payable to Dependable directly from the Illinois Department of Public Aid. Subsequent to August 15, 1974, all additional checks were sent directly to Dependable and delivered in turn to the Bank. Pursuant to its security agreement, all such checks were endorsed by the Bank with the legend "credited to the account of the within named payee * * *." These checks were collected by the Bank and the loan balance of Dependable reduced by the amount of each collection.

In July 1976, Farns obtained a judgment against Dependable and Patrick Brakie for outstanding loans including but not limited to the security agreement at issue. The judgment remains unsatisfied in excess of $60,000.

In this court, Farns contends: the trial court erred in denying its motion for summary judgment because the rights of the Bank in the funds were inferior to its own; the Bank could not be a holder in due course of the checks; and the trial court erred by refusing to allow Farns to take additional discovery and in not certifying a report of proceedings. The Bank urges Farns failed to perfect its security interest; the Bank was a holder in due course of the cash proceeds received from Dependable, free and clear of any security interest of Farns; and the trial court properly declined to allow additional discovery and to certify a report of proceedings.

• 1 Summary judgment may be entered if no genuine issue as to any material fact exists and if the moving party is entitled to a summary judgment as a matter of law. (Ill. Rev. Stat. 1979, ch. 110, par. 57(3).) "[W]hile summary judgment is to be encouraged, it is a remedy to be awarded with due caution in view of its drastic nature." (Rivan Die Mold Corp. v. Stewart Warner Corp. (1975), 26 Ill. App.3d 637, 640-41, 325 N.E.2d 357.) Summary judgment should be granted only when the party's right thereto is clear and free from doubt. Kitsos v. Terry's Chrysler-Plymouth, Inc. (1979), 70 Ill. App.3d 728, 731, 388 N.E.2d 1054.

Farns contends it had a prior perfected security interest in Dependable's public aid accounts receivable and all proceeds thereof. Secured transactions are governed by article 9 of the Uniform Commercial Code. (Ill. Rev. Stat. 1979, ch. 26, par. 9-101 et seq.) Section 9-102(1)(a) of the Code (Ill. Rev. Stat. 1979, ch. 26, par. 9-102(1)(a)) provides in part:

"Except as otherwise provided in Section 9-104 on excluded transactions, this Article applies

(a) to any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper or accounts; * * *." (Emphasis added.)

The parties do not dispute that the "Loan and Security Agreement" between Farns and Dependable is covered by this portion of the Code. The agreement specifically grants Farns a security interest in all of Dependable's public aid accounts "whether in existence as of the date hereof or created or acquired hereafter and in all proceeds thereof" as collateral for Farns' loans. It is also undisputed Farns' security interest in this collateral attached when Dependable obtained rights in these accounts. Ill. Rev. Stat. 1979, ch. 26, par. 9-203.

It is Farns' position the proper filing of its financing statement perfected its security interest in the collateral pursuant to section 9-302(1) of the Code (Ill. Rev. Stat. 1979, ch. 26, par. 9-302(1)). Therefore, Farns maintains, the payments made to Dependable by the account debtor constituted "identifiable cash proceeds" of Farns' secured collateral in which Farns maintained a continuing security interest pursuant to ...


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