APPEAL from the Circuit Court of Du Page County; the Hon.
WILLIAM V. HOPF, Judge, presiding.
MR. JUSTICE NASH DELIVERED THE OPINION OF THE COURT:
Rehearing denied May 27, 1981.
In this appeal we consider whether plaintiff, a junior secured creditor, has stated a cause of action pursuant to sections 9-504(1)(c) or section 9-507(1) of the Uniform Commercial Code (Ill. Rev. Stat. 1979, ch. 26, pars. 9-504(1)(c) and 9-507(1)) against defendant, a senior secured creditor, and others, to recover damages for the alleged improper disposition of the collateral which secured their respective loans to the debtor.
Plaintiff, Louis Zahn Drug Co., commenced this action in the circuit court of Du Page County in which it filed a five-count complaint against defendant, Bank of Oak Brook Terrace, and others. The case was subsequently removed to the United States District Court for the Northern District of Illinois, which dismissed counts 3 and 4 brought under Federal law, and remanded the remainder of the case to the circuit court of Du Page County. Defendant's motion to dismiss counts 1, 2 and 5 of the complaint was granted by the trial court and plaintiff appeals.
In count 1 plaintiff alleged that prior to June 6, 1977, defendant, Bank of Oak Brook Terrace (Bank) loaned $25,000 to George Meringolo and GJM Enterprises, Inc. (debtor). According to a financing statement filed on June 6, 1977, the loan was secured by a security interest in "inventory, fixtures, equipment now owned or hereafter acquired [by the debtor]." On December 20, 1977, plaintiff loaned $82,282.82 to the debtor and, according to a financing statement filed on January 9, 1978, plaintiff was given a security interest in
"All fixtures, furnishings, fittings, utensils, tools and equipment, signs, prescription records and files, stock in trade, inventory, pharmaceuticals, drugs, sundry products, lease hold improvements, accounts receivable, proceeds, franchises, contract rights, good will, assignment of store lease, including, but not limited to, all other goods, wares, merchandise furniture, fixtures, equipment, appliances, prescriptions and miscellaneous items, now existing or hereafter acquired by debtor * * *."
The debtor subsequently defaulted on the obligations to both plaintiff and defendant.
After the debtor defaulted, plaintiff attempted to find purchasers for the business and defendants, Harold Schapiro and Donald Warsaw (Buyers), expressed an interest in purchasing it for $70,000. Plaintiff alleged that prior to October 20, 1978, it entered "into negotiations with the defendant [Bank], with an intent to obtain a settlement of the first lien position of the defendant [Bank] * * * by way of verbal and written communications with said Bank * * *." At about the same time, plaintiff began negotiations with defendant American National Bank & Trust Co., as Trustee (Trustee), which held legal title to the debtor's premises, and its rental agent, defendant Triangle Management Co., in order to assure that the Buyers would be able to obtain a lease of the premises. James Guido was alleged to be the beneficial owner of the premises and also a major shareholder and chairman of the board of the defendant Bank. Plaintiff alleged it also received another offer to purchase the business for $100,000 and then invited the Buyers to reconsider their previous bid. When plaintiff did not hear from them, it resumed its attempts to consummate a sale of the business to the high bidder.
Plaintiff alleges that on October 30, 1978, the bank had, without notice to plaintiff, obtained a renunciation of rights in the collateral from the debtor and sold the entire inventory, assets, fixtures and equipment of the debtor's business for $70,000 to others. The complaint asserts that the sale was commercially unreasonable "in that, among other things, a higher price could have been obtained" and that the Bank, the Buyers, and Triangle Management Co. "did enter into a conspiracy" to defraud plaintiff. Plaintiff further alleged that the Bank had failed to exercise good faith in its dealings with plaintiff concerning the sale, in failing to give notice of it, and in failing to disclose the relationship between the Bank, the beneficiaries of the trust under which title to the premises was held, and Triangle Management Co. Plaintiff also alleged that although the Bank had received payment in full for its loan, it had refused to account for the balance of the funds received or to pay over any excess amount to the plaintiff. Plaintiff prayed that the sale be held commercially unreasonable and that damages be awarded pursuant to section 9-507(1) of the Uniform Commercial Code (Ill. Rev. Stat. 1979, ch. 26, par. 9-507(1)).
In count II of its complaint, plaintiff alleged that defendants Triangle Management Co., the Trustee, the Buyers, and Terrace Drugs, Inc. "did conspire, one with the other, to deprive the plaintiffs of funds rightfully theirs" and sought damages in the sum of $75,000.
In the fifth and remaining count of its complaint, plaintiff averred that the Bank failed to account to it for the proceeds of the sale and that the "actions of the [Bank] have been fraudulent and have unjustly enriched said bank." Plaintiff requested that the Bank be required to account to it as to the disposal of the funds and to refund to plaintiff any sums which exceed the amount then due and owing to the Bank.
Section 9-504(1) of the Uniform Commercial Code describes a secured party's right to dispose of collateral after default and provides that the proceeds of the disposition shall be applied first (a) to the expenses incurred, then (b) to satisfaction of the principal indebtedness secured, and then (c) to
"* * * the satisfaction of indebtedness secured by any subordinate security interest in the collateral if written notification of demand therefor is received before distribution of the proceeds is completed. * ...