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12/10/87 the Bank of Illinois, v. R. Edward Dye

December 10, 1987





517 N.E.2d 38, 163 Ill. App. 3d 1018, 115 Ill. Dec. 73 1987.IL.1823

Appeal from the Circuit Court of Champaign County; the Hon. George S. Miller, Judge, presiding.


PRESIDING JUSTICE GREEN delivered the opinion of the court. McCULLOUGH and SPITZ, JJ., concur.


Plaintiff Bank of Illinois (bank) brought suit in replevin in the circuit court of Champaign County on May 9, 1986, seeking recovery of a 1985 Buick Riviera automobile. The parties agreed that defendant R. Edward Dye had possession of the vehicle, and plaintiff had a valid, perfected security interest in the vehicle on the basis of its "floor plan" financing to Gordon McGrath, d/b/a McGrath Auto Sales (McGrath). Defendant was purported to have purchased the vehicle from McGrath. Thus, the factual issue to be determined was whether defendant was a buyer in the ordinary course of business from McGrath. After a hearing on the merits, where the parties agreed that the court might consider a stipulation, testimony, pleadings, and affidavits, the court determined that plaintiff failed to sustain its burden of proof that defendant was not such a buyer. Accordingly, the court entered judgment in favor of defendant on April 23, 1987. Plaintiff has appealed. We reverse.

This case involves the interpretation of certain sections of the Uniform Commercial Code, designed to protect buyers of goods. Section 9 -- 307(1) states:

"(1) Except as provided in subsection (4), a buyer in the ordinary course of business, as defined in subsection (9) of Section 1-201, takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence." (Ill. Rev. Stat. 1985, ch. 26, par. 9-307(1).)

A buyer in the ordinary course of business is defined as:

"person who in good faith and without knowledge that the sale to him is in violation of the ownership rights or security interest of a third party in the goods buys in ordinary course from a person in the business of selling goods of that kind . . .." Ill. Rev. Stat. 1985, ch. 26, par. 1-201(9).

The facts before the trial court indicated that, on July 16, 1984, plaintiff filed a financing statement with the office of the Secretary of State pursuant to section 9-302 of the Uniform Commercial Code (Ill. Rev. Stat. 1985, ch. 26, par. 9-302). That statement covered, inter alia, "new and used motor vehicles" acquired by McGrath and authorized McGrath to sell, lease and consume its inventory in the ordinary course of business. In July 1985, McGrath pledged a 1985 Buick Riviera to plaintiff, delivered a duplicate Indiana certificate of title to the vehicle, and received, in return, a $15,300 advance. The date the vehicle came into defendant's possession is in dispute, but, as stated previously, the parties agreed plaintiff's security interest was created, under the floor-plan financing, prior to defendant's possession.

Defendant testified in his deposition that he and Gordon McGrath had been close friends for over 30 years. He said that, from the "early 1980's" through 1985, he had bought and sold 8 or 10 cars through McGrath at a dealers' auction in Indianapolis. He stated that he gave McGrath a profit of $500 extra per sale for the first "couple" of cars so purchased, but he then discontinued that practice. He testified that he would usually select a car at the auction site and McGrath would bid on it. He said he frequently bought and sold vehicles at auction in this manner. Defendant stated that in 1982 or 1983, McGrath suggested defendant could cut costs by allowing McGrath to keep the "paperwork," including certificates of title, and defendant could use a set of dealer's license plates. He admitted he had no proof of ownership of any of the vehicles, but he did not find that unusual, because he and Gordon "were very good friends." He further indicated that he was "sure" that Gordon McGrath handled the transactions involving the vehicles defendant bought and sold in a different manner than those for other people who purchased cars from the dealership.

With respect to the purchase of the 1985 Buick Riviera, defendant testified (1) the "purchase" was on June 12, 1985; (2) he paid for the vehicle with (a) the proceeds from the sale of a 1983 Buick (sold at auction by McGrath on behalf of defendant), (b) a check, dated June 13, 1985, for $3,500, and (c) cash of $2,400 paid on June 14, 1985; (3) he asked for and eventually received a certificate of title from McGrath; and (4) he paid the sales tax and applied for a new certificate of title in December 1985. Defendant admitted that in November 1985, he learned McGrath was having difficulties, and it was then that defendant wrote the check for the sales tax. He said he was not aware of the bank's interest in the vehicle until he received a letter from the bank in February or March of 1986.

The new certificate of title received by defendant, and the sales tax form, filed with the Illinois Department of Revenue and signed by both defendant and McGrath, both indicated a purchase date of December 17, 1985. An affidavit attached to the complaint indicated that the application for the new certificate of title was received by the Secretary of State's office on December 19, 1985. An affidavit from an officer of plaintiff indicated that plaintiff's agents checked the vehicles available at the McGrath place of business in August, September, October, November, and December 1985, and, on each occasion, the Buick Riviera in question was shown to one of them as part of McGrath's ...

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