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02/20/87 State Bank of Piper City, v. A-Way

February 20, 1987

STATE BANK OF PIPER CITY, APPELLEE

v.

A-WAY, INC., APPELLANT

ALL FACTS PROPERLY PLEADED IN A COMPLAINT AND ITS EXHIBITS ARE TO BE TAKEN AS TRUE IN CONSIDERING WHETHER TO GRANT A MOTION TO DISMISS. SOULES

v.

GENERAL MOTORS CORP. (1980), 79 ILL. 2D 282, 284.



SUPREME COURT OF ILLINOIS

504 N.E.2d 737, 115 Ill. 2d 401, 105 Ill. Dec. 452 1987.IL.208

Appeal from the Appellate Court for the Third District; heard in that court on appeal from the Circuit Court of Iroquois County, the Hon. Robert L. Dannehl, Judge, presiding.

APPELLATE Judges:

JUSTICE WARD delivered the opinion of the court.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WARD

The plaintiff, State Bank of Piper City, filed a complaint in the circuit court of Iroquois County against the defendant, A-Way, Inc., to enforce its security interest in grain and the proceeds from sales of grain held by the defendant on account for a debtor of the plaintiff. The circuit court granted the defendant's motion to dismiss the complaint and denied the plaintiff's motion to vacate the order of dismissal. On the plaintiff's appeal, the appellate court reversed and remanded (135 Ill. App. 3d 1010), and we granted the defendant's petition for leave to appeal (103 Ill. 2d R. 315).

In February 1982, the plaintiff was awarded a judgment in the amount of $131,083.91 against William C. Brenner upon his default on promissory notes that had been secured, under article 9 of the Uniform Commercial Code (Ill. Rev. Stat. 1979, ch. 26, par. 9-101 et seq.), by a security interest in grain owned by Brenner which was stored in the defendant's warehouse. In a supplementary proceeding to enforce its judgment (Ill. Rev. Stat. 1981, ch. 110, par. 73), the plaintiff served the defendant with a citation to discover assets that it held on Brenner's behalf. The defendant responded by an affidavit acknowledging the accuracy of an attached ledger sheet with information regarding Brenner's account. The ledger sheet listed, inter alia, the number of bushels of grain the defendant held for him, 5,141.20, and the costs of drying and storing the grain. The plaintiff then moved for a citation order requiring the defendant to pay the plaintiff $5,141.20, confusing the number of bushels with their value, "as partial satisfaction for the judgment entered" in its suit against Brenner. The court held a hearing at which the defendant failed to appear, and allowed the plaintiff's motion. Acting upon the order, the defendant sold the grain, obtaining $11,310.64; of that amount, the defendant remitted $5,141.20 to the plaintiff and applied the balance to outstanding charges on Brenner's accounts.

Approximately eight months later, realizing its mistake, the plaintiff brought this action under article 9 of the UCC (Ill. Rev. Stat. 1979, ch. 26, par. 9-101 et seq.), to enforce its security interest in the proceeds of the grain sale over and above $5,141.20. The court dismissed the plaintiff's complaint on the grounds that the doctrines of merger and res judicata barred the suit. As stated, the appellate court reversed the dismissal.

The defendant first contends that the trial court properly dismissed the plaintiff's complaint under the doctrine of merger and that any rights the plaintiff had under the promissory notes of Brenner merged into the judgment, extinguishing any interest it had in the grain. "'The general rule is, that by a judgment at law or a decree in chancery, the contract or instrument upon which the proceeding is based becomes entirely merged in the judgment. By the judgment of the court it loses all of its vitality and ceases to bind the parties to its execution. Its force and effect are then expended, and all remaining legal liability is transferred to the judgment or decree. Once becoming merged in the judgment, no further action at law or suit in equity can be maintained . . ..'" (Doerr v. Schmitt (1941), 375 Ill. 470, 472, quoting Wayman v. Cochrane (1864), 35 Ill. 152, 154; Rock Island Bank & Trust Co. v. Stauduhar (1978), 59 Ill. App. 3d 892, 900.) Second, under principles of res judicata, it says, citing Hughey v. Industrial Com. (1979), 76 Ill. 2d 577, 582-83, that the plaintiff is barred from bringing the present action because the issue now raised could have been litigated in the citation proceeding.

The defendant's contentions have not been directly addressed by this court. We Judge that, under the language of article 9 of the UCC (Ill. Rev. Stat. 1979, ch. 26, pars. 9-501(1), (5)) and from constructions in other jurisdictions, these contentions are without merit.

Section 9 -- 501(1) of the UCC serves to broaden the options available to a secured creditor upon a debtor's default. (Michigan National Bank v. Marston (1970), 29 Mich. App. 99, 107, 185 N.W.2d 47, 51, cited in McCollough v. Mobiland, Inc. (1976), 139 Ga. App. 260, 263, 228 S.E.2d 146, 148-49; Land v. Cessna Aircraft Co. (Fla. App. 1985), 466 So. 2d 1265, 1268.) Section 9 -- 501(1) of the UCC states:

"When a debtor is in default under a security agreement, a secured party has the rights and remedies provided in this Part [concerning default] . . .. He may reduce his claim to judgment, foreclose or otherwise enforce the security interest by any available judicial procedure. . . . The rights and remedies referred to in this subsection are cumulative." (Ill. Rev. Stat. 1979, ch. 26, par. 9-501(1).)

When a secured creditor has chosen to reduce his claim to judgment "the lien of any levy which may be made upon his collateral by virtue of any execution based upon the judgment shall relate back to the date of the perfection of the security interest in such collateral" (Ill. Rev. Stat. 1979, ch. 26, par. 9-501(5)) and serve as a continuation of the secured creditor's original perfected security interest (Ill. Ann. Stat., ch. 26, par. 9-501(5), Uniform Commercial Code Comment, at 322 (Smith-Hurd 1974)). Thus, a secured creditor's effort to collect its debt through the judicial process will not "operate to destroy his security interest vis-a-vis the debtor or to impair its priority [interest] over third parties" (2 G. Gilmore, Security Interests in Personal Property sec. 43.7, at 1209-10 (1965); Tax/Investments Concepts, Inc. v. McLaughlin (Okla. 1982), 670 P.2d 981, 984), because a secured creditor may take any action or combination of actions necessary to satisfy the debt (Ceres Fertilizer, Inc. v. Beekman (1981), 209 Neb. 447, 450-51, 308 N.W.2d 347, 349; Bilar, Inc. v. Sherman (1977), 40 Colo. App. 38, 41, 572 P.2d 489, 491; Ruidoso State Bank v. Garcia (1978), 92 N.M. 288, 289-90, 587 P.2d 435, 437; Olsen v. Valley National Bank (1968), 91 Ill. App. 2d 365, 371; B. Clark, Secured Transactions under the Uniform Commercial Code par. 4.3

The doctrine of merger does not, contrary to the defendant's argument, preclude a secured creditor from enforcing its security interest ...


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