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10/26/88 the First State Bank of v. the De Kalb Bank

October 26, 1988

THE FIRST STATE BANK OF MAPLE PARK, PLAINTIFF-APPELLANT

v.

THE DE KALB BANK, AS TRUSTEE, ET AL., DEFENDANTS-APPELLEES



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

530 N.E.2d 544, 175 Ill. App. 3d 812, 125 Ill. Dec. 386 1988.IL.1576

Appeal from the Circuit Court of De Kalb County; the Hon. Richard Larson, Judge, presiding.

APPELLATE Judges:

JUSTICE REINHARD delivered the opinion of the court. NASH and WOODWARD, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE REINHARD

Plaintiff, the First State Bank of Maple Park, filed a complaint for replevin against the De Kalb Bank, as trustee, George Stratton, Mary Rita, Inc., and Mary R. Nelson. Plaintiff alleged that the De Kalb Bank, as trustee, and George Stratton (hereinafter defendants) had seized certain personal property under a landlord's distress warrant and that the seized property was plaintiff's collateral for a loan to Mary Rita, Inc., and Mary R. Nelson which was in default. Both plaintiff and defendants moved for summary judgment, seeking a declaration of priority over proceeds from the seized property which had been sold by agreement of the parties, yielding $18,684.13. The trial court granted defendants' motion for summary judgment and denied plaintiff's motion. Mary Rita, Inc., and Mary R. Nelson were defaulted and are not parties to plaintiff's appeal.

The following issues are raised on appeal: (1) whether there is any distinction between a landlord's lien on growing crops and his lien under a distress warrant on personal property other than crops for purposes of determining priority as against a security interest under article 9 of the Uniform Commercial Code (Ill. Rev. Stat. 1985, ch. 26, par. 9-101 et seq.); (2) whether the priority rules of article 9 apply to a conflict between a landlord's lien under a distress warrant and an article 9 security interest; and (3) whether, under the appropriate priority rule, a landlord's lien under a distress warrant is superior to an article 9 security interest which is perfected before the distress warrant is levied upon.

Leave was granted to the Community Bankers Association of Illinois to file an amicus brief in support of plaintiff.

Plaintiff's complaint for replevin alleged that plaintiff made a loan to Mary Rita, Inc., and Mary R. Nelson to enable them to purchase equipment and inventory for a health club. On October 23, 1986, Mary Rita, Inc., and Mary R. Nelson executed a promissory note in the amount of $40,000. On that same date, these two parties executed a security agreement, assigning as collateral for the loan, among other things, machinery, equipment and inventory, then owned or after-acquired, situated at the Olympic Health Club in Sycamore, Illinois. On November 5, 1986, plaintiff filed a financing statement containing the same description of collateral as contained in the security agreement.

On March 4, 1987, Mary R. Nelson executed a further promissory note for $2,000 payable to plaintiff. Both notes were defaulted upon, with a balance of $28,048.96 owing on the October 23 note and a balance of $2,000 owing on the March 4 note as of May 12, 1987. On June 15, 1987, defendants executed a distress warrant and seized property of Mary Rita, Inc., listed in the distress warrant and claimed by plaintiff as collateral.

Plaintiff moved for summary judgment, and defendants thereafter moved for summary judgment. The trial court denied plaintiff's motion for summary judgment and granted defendants' motion holding that defendants were entitled to priority under their distress warrant over plaintiff's perfected article 9 security interest in spite of the fact that the perfection of plaintiff's security interest occurred prior to the creation, filing or service of, or any levy under the distress warrant by the defendants. The trial court held that in determining priorities between a landlord's lien under a distress warrant and a prior security interest, there is no distinction between a landlord's lien on crops and a landlord's lien on personal property other than crops. The trial court then concluded that this case was governed by Dwyer v. Cooksville Grain Co. (1983), 117 Ill. App. 3d 1001, 454 N.E.2d 357, where a landlord's lien on crops was held superior to an article 9 security interest.

Plaintiff contends on appeal that the trial court erred in finding no distinction between a landlord's lien on crops and a landlord's lien on personal property other than crops for purposes of determining priority as against a security interest under article 9 of the UCC. Plaintiff further argues that, recognizing that a landlord's general lien on personal property under a distress warrant does not carry the same priority as a crop lien, defendants' lien is inferior to plaintiff's security interest under either the priority rules of article 9 of the UCC or under common law principles.

In support of the contention that a distinction must be drawn between a landlord's lien on crops and his remedy under a distress warrant, plaintiff notes that the two remedies are established under separate statutory provisions. The landlord's distress remedy arises under section 9 -- 301 of the Code of Civil Procedure, which provides:

"In all cases of distress for rent, the landlord, by himself or herself, his or her agent or attorney, may seize for rent any personal property of his or her tenant that may be found in the county where such tenant resides, and in no case shall the property of any other person, although the same may be found on the premises, be liable ...


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