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Massey-ferguson, Inc. v. Helland

OPINION FILED APRIL 7, 1982.

MASSEY-FERGUSON, INC., PLAINTIFF-APPELLANT,

v.

BENNIE HELLAND, D/B/A NEWARK TRUCKING AND IMPLEMENT COMPANY, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Kendall County; the Hon. PATRICK J. DIXON, Judge, presiding.

JUSTICE VAN DEUSEN DELIVERED THE OPINION OF THE COURT:

After a hearing on the issuance of the entry of an order for replevin (Ill. Rev. Stat. 1979, ch. 119, par. 4c), the trial court entered an order denying issuance of the replevin order. Plaintiff appeals the order of denial.

Plaintiff, Massey-Ferguson, Inc., and Colusa Farm Equipment, Inc. (Colusa), entered into a dealer sales and service agreement on October 23, 1980, whereby Colusa became a dealer for Massey-Ferguson Agricultural Machinery. Mr. David Batson, plaintiff's district sales manager and former service supervisor, called on Colusa at least twice a month. Mr. Batson was responsible for being informed of a dealer's financial condition and maintaining a monthly inventory sheet listing all Massey-Ferguson machinery in the dealer's possession. Where a piece of equipment was not on the lot and its absence was not satisfactorily explained by the dealer, the dealer had to immediately settle with plaintiff for the equipment, as required by the floor plan financing agreement between the parties.

In mid-April 1981, Mr. Batson called on Colusa and found machinery missing from the dealer's lot. When the dealer failed to settle for this missing machinery, Mr. Batson terminated Colusa as a Massey-Ferguson dealer.

Defendant Bennie H. Helland is a partner in Newark Trucking and Implement Company, a partnership dealing in the purchase for sale to the public of new and used farm equipment. Between March 18, 1981, and April 14, 1981, Mr. Helland purchased approximately 30 pieces of new and used machinery from Colusa and paid Colusa in cash and/or in trade. Some of these pieces were put on defendant's sales lot, and some were transported to defendant's farm for use. Certain Massey-Ferguson equipment from Colusa had been put up for sale at auction by the defendant on or about March 28, 1981, but only one piece of equipment listed on the replevin complaint had been sold.

On April 30, 1981, plaintiff Massey-Ferguson filed statutory notice of filing of a replevin complaint (Ill. Rev. Stat. 1979, ch. 119, par. 4a) and the replevin complaint itself. The complaint alleged that, pursuant to a security interest from Colusa perfected by filing, plaintiff was lawfully entitled to possession of certain property described in the complaint and allegedly wrongfully detained by defendant. That property, according to the complaint, had not been taken for tax, assessment, or fine levied by virtue of law. (Ill. Rev. Stat. 1979, ch. 119, par. 4.) Further, the complaint alleged that the value of the property taken was $200,000 and that statutory notice had been served.

On June 15, 1981, defendant filed a motion to dismiss for failure to state a cause of action. On June 19, 1981, prior to the hearing on the order of replevin, this motion to dismiss was heard and denied. Immediately thereafter, a hearing was held on the issuance of the entry of an order for replevin. For the entry of an order for replevin, the court must find as a matter of record that plaintiff has established a prima facie case to a superior right to possession of the disputed property and that plaintiff has also demonstrated to the court the probability that he will ultimately prevail on the underlying claim to possession. Ill. Rev. Stat. 1979, ch. 119, par. 4c.

On June 30, 1981, the trial court entered an order denying the petition for an order for replevin. Among the specific findings in that order, the court found that plaintiff's security interest appeared to have been perfected but that plaintiff had failed to establish a prima facie case that it would ultimately prevail on the underlying claim to possession. One of the controlling issues to be decided on this appeal is whether the trial court erred in making this finding. As plaintiff recognizes, the decision of the trial court must be against the manifest weight of the evidence in order to cause said decision to be overturned. (Schulenburg v. Signatrol, Inc. (1967), 37 Ill.2d 352, 356; see American National Bank & Trust Co. v. Mar-K-Z Motors & Leasing Co. (1974), 57 Ill.2d 29, 33.) In this case, the trial court's determination is justified by the evidence.

Plaintiff's claim to possession of the goods which are the subject of this replevin action is grounded on a security interest in those goods. Plaintiff insists that the security interest continued in the collateral notwithstanding the disposition of the goods to defendant by plaintiff's dealer Colusa. It is defendant's position that he took the goods in question free of plaintiff's security interest. If so, then plaintiff could not meet the burden of demonstrating the probability of its prevailing on the underlying claim.

According to section 9-306(2) of the Uniform Commercial Code (Ill. Rev. Stat. 1979, ch. 26, par. 1-101 et seq.) (UCC), a purchaser takes free of a security interest where "the disposition was authorized by the secured party in the security agreement or otherwise." (Ill. Rev. Stat. 1979, ch. 26, par. 9-306(2).) In this case, the disposition of collateral "in the ordinary course of business upon customary terms for value received" was authorized in the security agreement (Ill. Rev. Stat. 1979, ch. 26, par. 9-105(1)(l)) contained in the dealer sales and service agreement signed by plaintiff and Colusa. Additionally, section 9-307(1) of the UCC provides that "[a] buyer in the ordinary course of business (subsection (9) of Section 1-201) * * * 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. 1979, ch. 26, par. 9-307(1).) Section 1-201(9) of the UCC defines "buyer in the ordinary course of business" as follows:

"a person who in good faith 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 the ordinary course from a person in the business of selling goods of that kind * * *."

The gist of plaintiff's argument is that defendant was not a buyer in the ordinary course of business because he did not meet the test of good faith required of a merchant to be entitled to the protection of section 9-307(1) of the UCC. Additionally, plaintiff maintains that Colusa's disposition of collateral to the defendant was not authorized by the secured party because it was not in the ordinary course of business so that defendant is not entitled to protection under section 9-306(2) either.

Therefore, a basic determination which must be made in this case is whether or not the defendant purchased the goods in question in the ordinary course of Colusa's business. If so, the disposition was authorized by the secured party so that defendant took free of the security interest under the terms of section 9-306(2) of the UCC. Also, if defendant purchased the goods in the ordinary course of Colusa's business, in good faith and without knowledge that the sale to him violated plaintiff's ownership rights or security interest, then defendant took free of the security interest created by plaintiff even if, as the court found, the security interest was perfected and even if defendant knew of its existence. Ill. Rev. Stat. 1979, ch. 26, par. 9-307(1).

In support of his position that defendant was not a buyer in the ordinary course of business, plaintiff first contends that defendant was a merchant within the definition of section 2-104(1) of the UCC. Therefore, plaintiff argues, defendant was required to meet the test of "good faith" defined in section 2-103(1)(b) of the UCC (Ill. Rev. Stat. 1979, ch. 26, par. 2-103(1)(b)). This section adds the additional requirement of "the observance of reasonable commercial standards of fair dealing in the trade" to the general definition of "good faith" contained in section 1-201(19) ...


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