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Sexton v. Smith

OPINION FILED APRIL 4, 1986.

SAM C. SEXTON ET AL., APPELLEES,

v.

ROBERT F. SMITH, APPELLANT.



Appeal from the Appellate Court for the Fifth District; heard in that court on appeal from the Circuit Court of Bond County, the Hon. Norman Kinder, Judge, presiding.

JUSTICE WARD DELIVERED THE OPINION OF THE COURT:

Rehearing denied June 2, 1986.

The plaintiffs, Sam and Frances Sexton, filed a complaint for legal malpractice in the circuit court of Bond County against the defendant, Robert Smith. Following a bench trial, the court entered judgment in favor of the plaintiffs for $42,130. On the defendant's appeal, the appellate court, with one judge dissenting, entered a Rule 23 order (87 Ill.2d R. 23) affirming the trial court's judgment. (129 Ill. App.3d 1168.) We granted the defendant's petition for leave to appeal (94 Ill.2d R. 315).

Sam Sexton testified that Jeffrey Hampton visited the Sexton farm in mid-August 1976 and told him that Roger Riedemann, the president of the Bradford National Bank in Greenville, had told him that the Sexton farm was for sale. Sexton and Hampton agreed to terms for the sale of the 161-acre farm and the cattle and machinery on it and, according to Hampton, Sexton and he went to Riedemann's office in late August to discuss the financing. Riedemann told them that financing for the sale of the cattle and machinery would be available if the Sextons and Hamptons between themselves would arrange for the financing of the sale of the farm. Riedemann testified that he told them that the bank "would have to have proper security." On August 31, 1976, Hampton and Sexton went to the defendant's office, where, representing Sexton, he prepared a contract, deed and escrow agreement for the sale of the property. The contract provided for a $50,000 down payment by Jeffrey and Karen Hampton, and the balance was payable in installments over a 25-year period. It was agreed that title was to remain with the Sextons until the completion of payments. The contract, which was dated September 1, 1976, provided that the Hamptons would take possession of the property as of that date and commence farm operations. It does not appear from the record that there was any discussion of the Sextons' retaining a security interest in the cattle and machinery.

On September 27, Hampton delivered a check for $50,000 to Sexton, and the two then went to the Bradford National Bank. Sexton deposited the check in an account he and his wife maintained, and Hampton obtained a loan of $44,600. Hampton and his wife signed a note, a security agreement, and a financing statement giving the bank, under the Uniform Commercial Code (U.C.C.), a first lien on the cattle and machinery. The contract, deed and escrow agreement were not delivered to the bank until sometime after the loan had been made.

It appears from the record that the Hamptons subsequently defaulted on the note and that the bank brought suit, naming apparently both the Hamptons and Sextons, to enforce its lien. Judgment was entered in favor of the bank. The proceeds of the sale of the personalty was not sufficient to satisfy the Hamptons' obligation to the bank.

In testifying, Sam Sexton acknowledged that he knew Hampton would be obtaining financing from the bank in order to purchase the cattle and machinery. He said, too, that although he alone had negotiated and acted to complete the sale, he had been authorized by his wife to do so.

Hampton testified that in late August he and Sexton talked with Riedemann regarding financing the purchase of the cattle and the machinery. At that time, Riedemann told Sexton that the bank would finance the purchase of the cattle and machinery if Sexton would finance the sale of the farm. Hampton testified that Sexton said that "he could handle that without any problem" and that the next thing to do would be to secure the services of a lawyer. He stated that nothing was said about the Sextons' retaining title to the chattels.

Hampton said that on September 27 in Riedemann's office, he gave the banker an inventory of the cattle and machinery and that, in Sexton's and his presence, Riedemann gave the inventory to his secretary to prepare a note, security agreement, and U.C.C. financing statement. At that time Riedemann stated that he was making the loan to allow Hampton to purchase the cattle and machinery. Hampton testified that Riedemann said that the bank was to have a lien on that property and that Sexton was to finance the farm. Hampton said that Sexton did not comment or object. Hampton testified that when Riedemann asked Sexton if it would be necessary for Sexton to sign a waiver of any prior interest, Sexton replied that it would be unnecessary since it was a "gentleman's agreement," and "it was understood that the bank had a lien on the cattle and the machinery."

The defendant testified that when Sexton was in his office on August 31 he told him that an inventory of the cattle and machinery had been given to the bank. The defendant had the impression that the bank was to act only as escrow agent, he testified, and he was unaware of the bank's financing role until, over a year later, the bank enforced its security interest. At that time, Sexton told the defendant that he allowed the bank to have a lien on the cattle and machinery since the bank would not make the loan without security.

Riedemann testified that, when Hampton and Sexton were in his office two to four weeks prior to making the loan, he told Hampton that the bank would lend him the money if proper security were provided; the security suggested was the cattle and machinery. The testimony of Riedemann as to what occurred in his office on September 27 was substantially the same as Hampton's. Riedemann, however, did not testify that he asked Sexton whether it would be necessary for Sexton to sign a waiver and that Sexton replied that it would not be necessary.

Vicky Unger, a friend and neighbor of the Sextons and a former secretary of Smith, testified that during her employment with Smith she overheard a conversation between Smith, Sexton and Riedemann. She stated she heard Smith say that the bank should not have taken a first lien on the cattle and machinery without Sam Sexton's consent. Both Smith and Riedemann denied the conversation.

Martin Corbell, an attorney, was called as an expert witness by the plaintiffs. He testified that the only "safe way" to protect and perfect a security interest in personal property is to file a financing statement pursuant to provisions in the U.C.C. If the debtor-buyer has possession of ...


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