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05/24/89 James B. Crabtree Et Al., v. the Illinois Department of

May 24, 1989

JAMES B. CRABTREE ET AL., APPELLANTS

v.

THE ILLINOIS DEPARTMENT OF AGRICULTURE, DIVISION OF AGRICULTURAL INDUSTRY REGULATION, BUREAU OF

THE CRABTREES SOUGHT JUDICIAL REVIEW OF THE DIRECTOR'S DECISION IN THE CIRCUIT COURT PURSUANT TO SECTIONS 3-103 AND 3-104 OF THE CODE OF CIVIL PROCEDURE (ILL. RE

v.

STAT. 1985, CH. 110, PARS. 3-103, 3-104).



SUPREME COURT OF ILLINOIS

Warehouses, et al., Appellees

539 N.E.2d 1252, 128 Ill. 2d 510, 132 Ill. Dec. 446 1989.IL.784

Appeal from the Appellate Court for the Fourth District; heard in that court on appeal from the Circuit Court of Macoupin County, the Hon. Joseph P. Koval, Judge, presiding.

APPELLATE Judges:

JUSTICE CALVO delivered the opinion of the court.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE CALVO

Plaintiffs, James B. Crabtree and Douglas Crabtree, filed a complaint for administrative review in the circuit court of Macoupin County after the Director of Agriculture found they were not entitled to recovery on claims filed pursuant to the Illinois Grain Insurance Act (Ill. Rev. Stat. 1983, ch. 114, par. 701 et seq.). The circuit court upheld the Director's decision, and the appellate court affirmed the judgment of the circuit court (170 Ill. App. 3d 387). We granted the plaintiffs' petition for leave to appeal under Supreme Court Rule 315 (107 Ill. 2d R. 315).

The claims filed by the Crabtrees arose from the economic failure of the Atwater Grain Company (Atwater) and were based on two warehouse receipts. The receipt submitted by James Crabtree was issued by Atwater on January 4, 1985, for 50,000 bushels of corn. The face of the receipt states: "Received for account of James B. Crabtree." No storage charges were listed. James Crabtree testified that the receipt represented 50,000 bushels of corn he purchased from Atwater for $140,000. The receipt submitted by Douglas Crabtree was issued by Atwater on January 7, 1985, for 25,000 bushels of corn. It recites: "Received for account of Douglas Crabtree (Collateral Receipt)." Douglas Crabtree testified he had received the receipt as collateral for a loan of $100,000. Payment of the foregoing sums of money to Atwater is not in dispute.

The hearing officer denied James Crabtree's claim on the Grain Insurance Fund, holding that Crabtree had only a "general creditor claim," unrelated to a grain transaction and payable only after satisfaction of "grain claims." Officer Crews found that James Crabtree's intent was not to purchase Atwater's grain, but to "finance the elevator operation." Apparently this finding was based on Crabtree's testimony that he bought the grain to help alleviate Atwater's cash-flow problems and thereby keep Atwater in the community. Having found that the transaction was in reality a loan, Officer Crews determined that James Crabtree's warehouse receipt was not duly issued to reflect the true nature of the transaction. Officer Crews also found Douglas Crabtree's warehouse receipt "improperly issued" and relegated both James and Douglas Crabtree to the subordinate status of general creditors.

The Crabtrees filed a petition for reconsideration of the hearing officer's decision. On June 18, 1985, the Director of Agriculture affirmed the order of the hearing officer. In upholding the denial of James Crabtree's claim on the Grain Insurance Fund, the Director concurred that Crabtree's transaction with Atwater was in fact a loan, finding dispositive the fact that Crabtree was not assessed storage charges for the storage of the grain and testimony that Crabtree's motivation for purchasing the grain "was to provide money to Atwater Grain Company for operating expenses." The Director determined, "both James and Douglas Crabtree's claims arose from making loans to Atwater Grain Company and taking warehouse receipts as collateral." Although the Director acknowledged that lenders may hold warehouse receipts as collateral, he ruled that the manner of issuance "is of paramount importance." The Director's response to the Crabtrees' petition for reconsideration states in pertinent part:

"Paragraph 214.7a of the Illinois Public Grain Warehouse and Warehouse Receipts Act [Ill. Rev. Stat. 1983, ch. 114, par. 214.1 et seq. ] . . . states that a warehouseman may issue a warehouse receipt for grain owned by himself and dispose of the title or interest in such grain through the medium of such receipt. It does not set forth the manner in which this is done, but logic dictates that a collateral receipt must reflect that the warehouseman is the owner of the grain being used as collateral. In the matter under consideration, this is not the case. The warehouse receipts issued to the Crabtrees show that the grain covered by these receipts was received for their account when, in fact, they should show Atwater Grain Co. the owner of the grain utilized as collateral. Therefore, the warehouse receipts issued to James and Douglas Crabtree are invalid and do not entitle them to treatment as claimants under the Illinois Grain Insurance Act."

In its brief in support of its administrative ruling, the Department of Agriculture interjected "evidence" not presented during the administrative hearing. The "evidence" was purportedly discovered after the hearings before Officer Crews. The Department claimed that the Crabtrees had "intimate knowledge" of Atwater's financial affairs, that they had admitted Atwater had no company-owned grain at the time the warehouse receipts were issued, and that Douglas Crabtree was not the holder of the warehouse receipt on which his claim was based, having endorsed the receipt to the Carlinville National Bank. The Department alleged that Douglas Crabtree presented only a copy of the front of the receipt as evidence. The Department appended to its brief the affidavit of a warehouse examiner who had reconstructed Atwater's daily position records for December of 1984 and January of 1985 and determined that Atwater had issued warehouse receipts for company-owned corn in excess of the supply on hand. Also appended to the Department's brief were the daily position records of Atwater, a copy of the reverse side of Douglas Crabtree's warehouse receipt showing endorsement to the Carlinville National Bank, and the affidavit of the bank's vice-president attesting that Douglas Crabtree had endorsed the receipt as security for a loan.

The Crabtrees moved to strike portions of the Department's brief wherein the Department referred to facts not of record in the administrative proceedings and requested remand for the presentation of additional evidence in the event the circuit court reversed the administrative decision. The Crabtrees argued, based on language in section 3-111(a)(7) of the Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 3-111(a)(7)), that remand to consider additional evidence bearing on the circumstances surrounding negotiation of the warehouse receipts was unwarranted where the Department had made no showing that such evidence was "unobtainable through the exercise of reasonable diligence at the time of the original administrative hearing."

By order entered December 3, 1986, the circuit court granted the Crabtrees' motion to strike evidence not contained in the administrative record and arguments not raised during the administrative hearing. The court found, however, that the decision of the Director of Agriculture, denying the Crabtrees' ...


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