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Decatur Production Credit Ass'n v. Murphy

OPINION FILED NOVEMBER 3, 1983.

DECATUR PRODUCTION CREDIT ASSOCIATION, PLAINTIFF-APPELLANT,

v.

GEORGE E. MURPHY ET AL., DEFENDANTS-APPELLEES — (THE ILLINOIS NATIONAL BANK, DEFENDANT).



Appeal from the Circuit Court of Sangamon County; the Hon. Harvey Beam, Judge, presiding.

PRESIDING JUSTICE WEBBER DELIVERED THE OPINION OF THE COURT:

This appeal presents some novel questions concerning priorities in growing crops under the pertinent sections of the Uniform Commercial Code (UCC). (Ill. Rev. Stat. 1981, ch. 26, pars. 9-203, 9-204, 9-403, 9-312.) Plaintiff, Decatur Production Credit Association (PCA), was a secured creditor of the defendant debtor, George E. Murphy (Murphy). Defendant Rolin C. Carr (Carr) and Murphy had entered into a written agreement concerning the operation of the farm lands in which Murphy had an interest as a tenant on a crop-share basis as to the bulk of them and on a cash-rent basis as to the rest. Defendant Herrin, Ltd., furnished certain chemical products to Murphy for use in his farming operations. Defendant Illinois National Bank was a secured creditor of Carr, but has not participated in this appeal.

PCA filed suit for declaratory judgment in the circuit court of Sangamon County, seeking a declaration of its rights in the 1982 crops growing on the lands farmed by Murphy. In summary, the trial court held that Carr was entitled to one-fourth of the crops under his agreement with Murphy; that as to Murphy's one-fourth, Herrin, Ltd., had a paramount lien of $20,000 plus 18% interest, and that PCA had a lien on the balance of Murphy's interest to the extent of $116,080.80 plus interest at $41.6023 per day and attorney fees. The derivation of the figure representing PCA's lien is so obscure in the record as to defy rational analysis.

PCA has appealed the trial court's order. We affirm in part, reverse in part, and remand for an accounting.

The evidence at trial was not seriously controverted, but some recitation of it is necessary to an understanding of the case. Murphy had farmed for a number of years in the Springfield area. He apparently owned some tracts himself but they are not concerned in this litigation. On the tracts which are concerned, he held farm leases which were of the 50/50 crop-sharing nature, except for one tract, known as the Mendenhall property, which was on a cash-rent basis of $100 per acre. Murphy had financed his operations for many years through PCA, a federally chartered corporation and a part of the Federal farm credit system.

On or about March 27, 1981, Murphy signed a farm security agreement with PCA for the "crops: corn, soybeans and wheat which are now or will during the term of this Security Agreement become growing upon" certain tracts of land located in Sangamon County as follows:

"Bridges, 162 acres in Sections 20/29; Shuck, 85 acres in Section 16; Pearson, 268 acres in Sections 21/22; Mendenhall, 120 acres in Section 20; Neuman Estate, 34 acres in Section 21."

Other collateral included "farm products, stored grain" and a list of certain farm machinery, as had been customary over more than 20 years of doing business. Murphy signed the security agreement, financing statement, note and mortgage before PCA approved the loan. The loan for operating expenses was annual; each year the parties met to review payments of past due accounts and needs for the upcoming crop year, including personal living expenses of Murphy.

For 1981 PCA approved a total of $361,249.08 represented by a note due January 1, 1982. A portion of this represented renewal of old loans. Collateral for the note included the 1980 crops on hand, sale of the 1981 crops produced upon the foregoing acreage, and the sale of Murphy's farm machinery which was to take place following the 1981 harvest. Murphy also gave PCA a mortgage on his personal residence as further security. A financing statement in connection with the security agreement and covering the above-described tracts was filed with the recorder of Sangamon County on April 22, 1981.

PCA had determined that it would no longer finance Murphy after the 1981 crop year. Unquestionably he was in serious financial difficulties. The sale of the machinery was an important part of the scheme to pay off his loan, but without the machinery he could not continue farming.

Prior to the sale of the machinery, which occurred on March 30, 1982, Murphy had a discussion with Carr concerning farming operations. Murphy still had the leases on the approximately 667 acres described above. The gist of the discussion was that Carr would furnish the equipment and part of the labor for farming the tracts and in return would receive one-fourth of the crop. In order to purchase the machinery, Carr negotiated a loan from the Illinois National Bank for which he gave a security agreement; his financing statement with the Bank purported to cover his share of the 1982 crop on the Mendenhall, Pearson and Shuck tracts. As previously indicated, Illinois National Bank has not pursued this appeal, and we shall therefore ignore whatever interest it may have.

Murphy planted and harvested the 1981 crop, of which he sold a portion and stored a portion. During that year he paid PCA $62,543; however, PCA made no effort to call or accelerate the note due January 1, 1982. The machinery sale brought a total of $163,065, and this was paid over to PCA after the sale in March 1982. Carr purchased $24,000 of the machinery.

Prior to April 1, 1982, Murphy approached defendant Herrin, Ltd., with regard to furnishing fertilizer, chemicals, and other farming materials for the 1982 crop year. John E. Herrin, manager of Herrin, Ltd., testified that he prepared a note and financing statement and security agreement which Murphy signed. Herrin started delivering materials to Murphy on April 1, 1982. Prior to entering into the agreement with Murphy, Herrin did not cause anyone to make a check of the recorder's office to see if Murphy had pledged the 1982 crop to someone else. Herrin testified that he was aware that PCA had loaned money to Murphy. Herrin recorded its financing statement with the Sangamon County Recorder on April 12, 1982.

The security granted to Herrin, Ltd., was in the following traces:

"OWNER LOCATION

Shutt [sic] Farm approximately 100 acres Sec. 16, T.15, R.5 W Sangamon County

Pearson approximately 280 acres Sec. 22, T.15, R.5 W Sangamon County

Mendenhall approximately 259 acres Sec. 29, Sec. 20, T.15, R.5 W Sangamon County."

Sometime in April 1982 Murphy and Carr entered into a written agreement, apparently formalizing their prior discussion. In pertinent part that agreement provided:

"1. Murphy will provide leased land, herbicides, fertilizer, insecticides, seeds, any other necessary chemicals, a grain truck and grain storage bins for at least 10,000 bushels and ...


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