Appeal from the Circuit Court of Fayette County; the Hon. Paul
M. Hickman, Judge, presiding.
PRESIDING JUSTICE KASSERMAN DELIVERED THE OPINION OF THE COURT:
Defendants, Richard and Lucille McGovern, E. Andrew and Eileen Orlet, Donald Bergman, William Kamm (hereinafter referred to as the investors) and the First National Bank of Belleville, have perfected this appeal from an order of the circuit court of Fayette County which approved the final receivership accounting of defendant, Trail Ridge Farm, Inc., and discharged the receivers and their surety. The facts are as follows:
In 1976, Trail Ridge Farm, Inc., was established for the purpose of operating a dairy farm. In order to finance farm operations, the corporate principals executed a real estate mortgage and security agreement with plaintiff, The First National Bank of Vandalia, and obtained a $180,000 loan. The security agreement provided that $80,000 of this loan would be secured by various articles of personal property "now owned or hereinafter acquired" by Trail Ridge Farm. Included in these items were "All Holstein Dairy Cattle, now owned or hereinafter acquired, and the proceeds therefrom, all to be used in the dairy operation of Trail Ridge Farm, Inc." Pursuant to the Uniform Commercial Code, the plaintiff sought to perfect its security interest in the personal property by filing three financing statements: two in June 1976 and one in August 1976. (Ill. Rev. Stat. 1975, ch. 26, par. 9-401 et seq.) These financing statements included the items of personal property listed in the security agreement. Plaintiff filed no continuation statements to keep its security interest perfected as required by the Uniform Commercial Code. Ill. Rev. Stat. 1981, ch. 26, par. 9-403(3).
On September 1, 1977, the investors purchased all of the cows then owned by Trail Ridge Farm; and the investors apparently claim no priority rights in these cows. Trail Ridge Farm subsequently purchased other cows for the investors. These purchases were financed by the First National Bank of Belleville. In exchange for this financing, the investors signed a security agreement which gave the First National Bank of Belleville a security interest in the subsequently purchased cows. It is conceded by the parties that the First National Bank of Belleville perfected a security interest in these cows which did not lapse. Ill. Rev. Stat. 1977, ch. 26, par. 9-401 et seq.
In order to finance the investors' purchases, a special escrow account was established at the First National Bank of Belleville. When the manager of Trail Ridge Farm found suitable cows to purchase for the investors, he would contact the First National Bank of Belleville. If the bank consented to the purchase, Trail Ridge Farm would buy the cow(s), ask the person who sold the cow(s) to hold the check issued by Trail Ridge Farm, and notify the First National Bank of Belleville of the purchase. The First National Bank of Belleville would then supply the money and the purchase would be consummated.
After purchasing the cows from Trail Ridge Farm, the investors leased the cows to Trail Ridge Farm pursuant to the terms of a breeding-herd-management agreement. This agreement provided in pertinent part that Trail Ridge Farm was to pay the investors not less than $600 per 12-month period as milk income for each cow purchased by the investors.
Subsequently, Trail Ridge Farm was unable to meet its financial obligations. On February 13, 1980, plaintiff filed an action seeking to "foreclose" all its security interests in real and personal property held against Trail Ridge Farm. The cows the investors had bought from Trail Ridge Farm were included in the collateral in which plaintiff sought to enforce a security interest. The defendants were subsequently joined in the action.
On April 25, 1980, plaintiff filed a motion requesting that a receiver be appointed for Trail Ridge Farm. On May 20, 1980, the investors and the First National Bank of Belleville filed an answer and a counterclaim seeking an accounting of the milk income due to the investors. The investors also sought the appointment of a receiver for the cows bought with the investors' money.
On June 3, 1980, a hearing was held on the appointment of a receiver. At this hearing it was established that Trail Ridge Farm had not made a payment on its indebtedness to plaintiff for 2 1/2 years and had not paid milk income to the investors since April 1979. According to Alex Armstrong, the manager of Trail Ridge Farm, the milk income from the cows was insufficient to pay both farm expenses and the payments due the investors under the breeding-herd-management agreement.
Randy Ostrum, the investors' nominee for receiver of the cows, testified that he was experienced in the operation of dairy farms and that he would be willing to undertake the responsibility of the cows in accordance with the breeding-herd-management agreement. Plaintiff tendered Alex Armstrong, Harold Hartwick, the president of plaintiff bank, and William Wells as its nominees for receiver. Mr. Wells was appointed receiver on June 5, 1980.
After the receiver's first accounting was filed, the investors and the First National Bank of Belleville filed an objection to the accounting (as they did with each subsequent accounting) and a motion seeking the release of cows in which only the investors had asserted an interest. This motion as to the release of the investors' cows was subsequently granted.
On August 29, 1980, the circuit court entered judgment in favor of plaintiff against Trail Ridge Farm and ordered that all secured assets except the cows be sold to satisfy the judgment. These assets were sold at a judicial sale conducted on December 19, 1980. The plaintiff bank bought all of these assets, with the exception of a $50 plow, for $201,152. On October 1, 1980, the receiver filed its second accounting to which the investors and the First National Bank of Belleville objected. Upon subsequently discovering that receiver William Wells was a shareholder in plaintiff bank, the investors and the First National Bank of Belleville moved to have Mr. Wells removed as receiver. This motion was granted on November 3, 1980. At plaintiff's request, Max Grinnel was appointed receiver. This receivership continued through the termination of the instant litigation in the circuit court.
On January 14, 1981, Trail Ridge Farm filed a voluntary petition under chapter eleven of the Bankruptcy Code (11 U.S.C.A. sec. 1101 et seq. (1979).) On January 15, 1981, the circuit court entered orders approving the sheriff's report of sale and granting the receiver's motion to enter into a lease and purchase agreement with plaintiff. On December 7, 1981, following the dismissal of the bankruptcy proceeding, the investors and the First National Bank of Belleville filed a motion to set aside the orders entered on January 15, 1981. This motion was denied.
On March 22, 1982, a hearing was held on plaintiff's complaint and the counterclaim of the investors for an accounting of the milk income and other monies due them. On July 30, 1982, the circuit court ruled in favor of plaintiff on its complaint. It ordered all the cows sold and ordered that plaintiff had priority to the entire proceeds of the sale. On September 27, 1982, the circuit court entered judgment against ...