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First National Bank v. Lachenmyer

OPINION FILED SEPTEMBER 3, 1986.

FIRST NATIONAL BANK OF THOMASBORO, PLAINTIFF-COUNTERDEFENDANT-APPELLEE AND CROSS-APPELLANT,

v.

RUSSELL L. LACHENMYER, DEFENDANT-COUNTERCLAIMANT-APPELLANT AND CROSS-APPELLEE.



Appeal from the Circuit Court of Champaign County; the Hon. George S. Miller, Judge, presiding. JUSTICE WEBBER DELIVERED THE OPINION OF THE COURT:

This case was before us once before in First National Bank v. Lachenmyer (1985), 131 Ill. App.3d 914, 476 N.E.2d 755. The factual background was sufficiently set forth in that opinion and needs no further expansion here. We affirmed the trial court in its judgment for the plaintiff on the note which was the subject of the complaint; we likewise affirmed in favor of the plaintiff-counterdefendant (bank) on count I of the counterclaim, which alleged conversion of the airplane, and in favor of the bank on count II of the counterclaim, alleging conversion of an escrow account. We reversed the trial court's judgment in favor of the bank on count III of the counterclaim, alleging violation of the provisions of the Uniform Commercial Code — secured transactions (Code) (Ill. Rev. Stat. 1981, ch. 26, par. 9-101 et seq.) and remanded for a new trial on that count.

Prior to retrial defendant-counterplaintiff (Lachenmyer) filed an amended count III to his counterclaim. It contained three essential allegations: (1) violation of the duty of reasonable care of collateral specified in section 9-207(1) of the Code (Ill. Rev. Stat. 1981, ch. 26, par. 9-207(1)); (2) that the plane was a "consumer good" within the meaning of section 9-507(1) of the Code (Ill. Rev. Stat. 1981, ch. 26, par. 9-507(1)) entitling him to the penalties contained in that section; and (3) that the bank's actions with regard to the plane constituted an "other disposition" within the meaning of section 9-504(1) of the Code (Ill. Rev. Stat. 1981, ch. 26, par. 9-504(1)) thereby discharging the underlying indebtedness.

The trial court found in favor of Lachenmyer on the violation of section 9-207(1) and assessed damages in the amount of $16,125; the court found in favor of the bank on the other two allegations. Lachenmyer has appealed, and the bank has cross-appealed.

The positions of the parties on appeal should be briefly set forth in order to have a better understanding of our disposition. In arriving at its damage figure of $16,125, the trial court took a rough average of the testimony of the value of the plane on the date on which the bank took possession of it, May 7, 1982, that is, $22,625; and subtracted from that figure the estimate of the salvage value on the date of hearing, September 1985, that is, $6,500.

Lachenmyer claims that the court should have held the plane to be a "consumer good" within the meaning of section 9-109(1) of the Code and calculated damages under section 9-507(1). He calculates such damages as of October 1, 1985, at $24,869. He further maintains that the court should have held the bank's actions with regard to the plane as an "other disposition" under section 9-504(1) of the Code, thus eliminating the underlying indebtedness. Alternatively, he claims that the damages should be the estimated value of the plane on May 7, 1982, or $22,625.

The bank's position is that the trial court was correct in finding that the plane was not a "consumer good" and that it did not make an "other disposition." It then calculates Lachenmyer's damages under section 9-207(1) as follows: $22,625 (estimated value on May 7, 1982) minus $10,900 cost of overhaul of the engine (explained below) minus $6,750 salvage value, for a net figure to him of $4,975.

We are of the opinion that damages were properly calculated under section 9-207(1), although we reach a different result from that of the trial court. We are also of the opinion that the plane was not a "consumer good" and that the bank did not make an "other disposition."

• 1 We turn first to the latter issues, first, that of "consumer good." Lachenmyer executed the note which was the subject of the complaint in favor of the bank for $40,000 on June 20, 1980. The note included a box at the top labeled "Business or Agricultural." This box was marked with an "X." The note also contained the following provision: "Borrower hereby warrants and represents that the proceeds of this note will be used for the following purposes:" The words "Business capital" were typed onto the form of the note following that provision. A security agreement was executed with the note pledging the plane.

Lachenmyer testified at the retrial that he acquired the plane in 1974 as a hobby. Sometime later he made an agreement with Mid-State Aviation of Champaign. Under the agreement Mid-State could use the plane for commercial purposes. In return it stored, maintained, and insured the plane. Lachenmyer could fly whenever he wanted to and Mid-State would provide the pilot. He stated that he never received any money for allowing Mid-State to use the plane, never took any depreciation on his tax returns for it, and paid for the fuel used on flights taken by him.

The Code divides goods into four classes: consumer goods, equipment, farm products, and inventory. (Ill. Rev. Stat. 1981, ch. 26, par. 9-109.) Uniform Commercial Code, comment 2, to that section states:

"The classes of goods are mutually exclusive; the same property cannot at the same time and as to the same person be both equipment and inventory, for example. In borderline cases — a physician's car or a farmer's jeep which might be either consumer goods or equipment — the principal use to which the property is put should be considered as determinative. Goods can fall into different classes at different times; a radio is inventory in the hands of a dealer and consumer goods in the hands of a householder." (Ill. Ann. Stat., ch. 26, par. 9-109, Uniform Commercial Code Comment, at 82 (Smith-Hurd 1974).)

Consumer goods are defined as goods "used or bought for use primarily for personal, family or household purposes." Ill. Rev. Stat. 1981, ch. 26, par. 9-109(1).

As has been indicated, Lachenmyer seeks to have the plane declared a "consumer good" in order to recover the damages provided in section 9-507(1) of the Code (Ill. Rev. Stat. 1981, ch. 26, par. 9-507(1)), which provides in pertinent part:

"If the collateral is consumer goods, the debtor has a right to recover in any event an amount not less than the credit service charge plus 10% of the principal amount of the debt or the ...


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