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10/19/89 Central Production Credit v. Elmer Hans Et Al.

October 19, 1989

PRODUCTION CREDIT ASSOCIATION, PLAINTIFF-APPELLANT AND CROSS-APPELLEE

v.

ELMER HANS ET AL., DEFENDANTS (JULIE LINDSTROM, DEFENDANT-APPELLEE AND CROSS-APPELLANT)



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

CENTRAL PRODUCTION CREDIT ASSOCIATION, F/K/A Northwest

545 N.E.2d 1063, 189 Ill. App. 3d 889, 137 Ill. Dec. 302 1989.IL.1652

Appeal from the Circuit Court of Carroll County; the Hon. John W. Rapp, Jr., Judge, presiding.

APPELLATE Judges:

JUSTICE McLAREN delivered the opinion of the court. LINDBERG and REINHARD, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MCLAREN

Plaintiff, Central Production Credit Association , appeals from the trial court's denial of its motion for judgment n.o.v. or, in the alternative, for a new trial on count I of its complaint and the court's entry of a directed verdict for $18,512 in favor of CPCA on count II. Defendant Julie Lindstrom (Lindstrom) filed a cross-appeal claiming the court erred by finding that the action was not barred, in granting a new trial, and in denying her motion for fees pursuant to section 2-611 of the Code of Civil Procedure (Ill. Rev. Stat. 1987, ch. 110, par. 2-611). We affirm in part, reverse in part, and remand.

Elmer Hans, a farmer, along with his two sons Ronald and Terry, produced crops on various lands either owned or leased by the three men. In 1982, Elmer completely removed himself from the operations of the farms. The day-to-day activities were handled by Ronald and Terry. Elmer also had a daughter, Lindstrom, who was not engaged in the farming operations.

In 1979 and 1980, Ronald, Terry and Elmer Hans together with their respective wives executed certain notes with plaintiff's predecessor in interest. In 1980, the total amount outstanding under these notes was $550,000. These notes were consolidated, and the Hanses agreed to pay $110,000 per year plus accrued interest until the total amount outstanding was paid off. The installments were due on April 1 of each year, and the payments were timely made in 1981 and 1982.

On April 1, 1983, the Hanses were only able to pay $50,000 of their 1983 obligation under the consolidation agreement. Also in 1983, the Hanses were participating in the United States government's payment-in-kind program. Participants in this program agreed to leave a certain number of acres unfarmed and in return received corn which the government had stored from previous surplusage. This corn could then be sold and the proceeds kept by the participant. CPCA agreed to extend the time for payment of the $60,000 balance due until December 1983, the time at which the PIK corn could be sold.

It is apparent that the Hanses became concerned about the possibility that they would lose the farm. According to an affidavit of Evelyn Prins, Terry Hans' former wife, the Hanses met with advisors in September or October 1983. These advisors presented a scheme in which the Hanses would dispose of certain assets and execute certain notes in favor of Lindstrom in an attempt to place these assets outside the reach of creditors. Additionally, the Hanses would attempt to give sufficient cash to Lindstrom to keep the farm operational. They would also invest any additional cash they had in commodities so when the farm was foreclosed upon they would be in a position to redeem it. According to the Hanses, the meetings with the advisor, Bennett Little, were to obtain advice pertaining to estate planning and commodity investing.

In October and November 1983, Ronald and Terry Hans sold their 1983 corn crop. These transactions involved the corn that was actually produced by Ronald and Terry and not the corn received pursuant to the PIK program. The proceeds from these sales, $107,073.42, were deposited into an account maintained at Blunt, Ellis & Loewi, Inc. . This account appears to be three accounts in one: a cash account, a money market account, and a commodities account. While there was only one account number assigned to this account, the account statement reflected activity in all three accounts.

Also, in November 1983, Ronald and Terry executed a demand promissory note in the amount of $250,000 made payable to Lindstrom. The note listed the account maintained with BE&L as "security for repayment." In consideration for the note, Lindstrom gave Ronald and Terry "all of her rights to any estate that she may later inherit from her father or that she previously inherited from her mother." The record is scant as to how these rights were valued at $250,000. Also, in November and continuing through February 1984, and on the advice of Bennett Little, Ronald and Terry purchased cattle commodities through BE&L. These commodities were purchased with monies in the BE&L account.

When the $60,000 balance on the 1983 installment payment became due in December 1983, Ronald and Terry requested an extension. Ronald and Terry, "for tax reasons," did not want to sell the PIK corn until January 1984. CPCA acquiesced in this request. However, the PIK corn was not sold in January 1984. The Hans brothers thought that the price of corn would increase so they held on to the PIK corn.

On February 28, 1984, the PIK corn remained unsold. Mike Anderson of CPCA met with Terry Hans. Anderson noted that the $60,000 balance due on the 1983 installment was overdue. This balance was supposed to have been paid in January 1984 out of the proceeds of the sale of the PIK corn. Additionally, Anderson noted that the $110,000 installment for 1984 was due on April 1. Anderson informed Terry that CPCA would initiate collection action on the entire balance of the loan if both payments were not made.

On March 1, Lindstrom demanded payment on the $250,000 note executed by Ronald and Terry. On March 6, Lindstrom quitclaimed her real estate interest in the Hans farm properties to Ronald and Terry. Additionally, Lindstrom assigned any interest she had in the Hans farming operation to Ronald and Terry. The record is silent as to what the value of these interests was.

On March 12, Ronald and Terry filed documents with the Agriculture Stabilization and Conservation Service of the United States Department of Agriculture, indicating that they were splitting the crops on all lands farmed in 1984 on a 50/50 basis.

On March 13, Anderson met with Ronald and Terry and again requested that the PIK corn be sold and the proceeds turned over to CPCA to satisfy the balance due from 1983. Anderson also reaffirmed that the $110,000 installment for 1984 was expected to be received on time. The payments were not made, and on April 2, Anderson and Randy Peterson of CPCA met with Ronald and Terry. Payment of the $60,000 balance on the 1983 installment and the $110,000 installment for 1984 were demanded. Ronald and Terry informed the CPCA representatives that they could not pay the $110,000 1984 installment. They asked CPCA to wait until the 1984 crop was sold for payment. Additionally, Ronald and Terry stated that, instead of paying the $60,000 balance due from 1983, they wanted to use the proceeds from the sale of the PIK corn to plant the 1984 crop.

Also in March, the commodities purchased by Ronald and Terry through BE&L were sold, and the proceeds were transferred from the BE&L commodities account into the BE&L cash account. On April 2, Ronald and Terry paid Lindstrom $203,996.27 pursuant to her March 1 demand for payment of the note. This payment was made out of the BE&L account.

Sometime in April, Lindstrom leased approximately 160 acres of land from Robert Helm and Howard Johnson for $11,000 per year. This land had been leased and farmed by Ronald and Terry in prior years. It was at Ronald's request that the landlords leased the land to Lindstrom instead of him and Terry. The lease documents are dated March 1, 1984, but Lindstrom testified that they were not executed until after April 1.

On April 23, Anderson and two other representatives from CPCA met with Ronald and Elmer. The Hanses requested that they be allowed to retain the proceeds from the sale of the PIK corn. Additionally, they requested that CPCA grant an extension on the $110,000 1984 installment. Ronald informed the CPCA representatives that they were intending to farm the same number of acres in 1984 as they did in 1983. CPCA proposed that the Hanses sell the PIK corn and pay off the balance due on the 1983 installment. CPCA also offered to wait until the fall of 1984 for the 1984 installment if Ronald and Terry would assign their interest in 120 acres of land they were purchasing on contract from Elmer and his sister as additional collateral. CPCA would also loan the Hanses an additional $35,000 to facilitate the 1984 planting.

On April 27, Elmer deeded his home to Lindstrom, subject to a life estate in Elmer. As consideration for this transfer, Lindstrom paid off the outstanding mortgage balance of $20,905.92. This property was valued at $75,000 by the Hanses.

Anderson testified that on April 30, Ronald phoned Anderson and informed him that Ronald and Terry were not willing to assign their interest in the 120 acres as CPCA had requested. Ronald testified that he did not refuse to give the assignment. Instead, CPCA withdrew its offer before the Hanses could respond. On May 1, representatives of CPCA again met with Ronald and Terry. CPCA was presented with a financial statement dated May 1, 1984, and signed by Elmer, Ronald and Terry. The statement made no reference to the balance due Lindstrom by Ronald and Terry pursuant to the demand note. Ronald and Terry again refused to assign their interest in the 120 acres as additional collateral. Also, by this time, Ronald and Terry had prepared most of the acreage that was going to be farmed in 1984 for planting, and they had possession of the seed.

On May 2, a number of transactions between Lindstrom and the Hanses were executed. Elmer leased 400 acres to Lindstrom for $20,000 per year. Elmer testified that the lease was incorrect and it was actually 480 acres that were leased. This same acreage had been leased to Ronald and Terry for $50,000 to $60,000 per year in prior years. Additionally, Lindstrom only paid $10,000 of the rent, and the other $10,000 was forgiven.

Ronald and Terry assigned their interest in an installment contract for deed for 120 acres they were purchasing from Elmer and his sister to Lindstrom. The contract was originally entered into by William Hans, Elmer's late father. The contract provided for payments of $1,000 per year until the purchase price of $144,000 was satisfied. William's rights under the contract had been devised to Elmer and his sister. At the time of the assignment to Lindstrom, the outstanding balance on the contract was $131,000. In consideration for their rights under the contract, Lindstrom agreed to make all payments and abide by all terms, conditions and stipulations of the contract. No other consideration was given or requested. This land was listed as having a value of $320,000 on the financial statement dated May 1. As a result of this assignment, Lindstrom became the contract purchaser of the 120 acres.

Elmer also deeded to Lindstrom his one-half undivided interest in the 120 acres being sold to Ronald and Terry under the above-mentioned contract. Lindstrom paid $30,000 to Elmer for his interest as a contract seller. As a result of this transaction, Lindstrom became a contract seller of land in which she was also the contract purchaser pursuant to the above assignment.

Lindstrom also leased a total of 158 acres from Elmer, Ronald and Terry at a cost of $7,900 per year. Additionally, Ronald and Terry assigned their interest as lessee in an oral lease to farm 80 acres of land owned by Lyle Ashby. The lease amount was $5,500 per year.

As a result of the above transactions, Lindstrom was the lessee of approximately 878 acres of farmland at a total cost of $44,400 per year. Additionally, Lindstrom was the contract purchaser of 120 acres of farmland in which she owned a one-half undivided interest as contract seller. Prior to this time, Lindstrom had never engaged in farming operations as either a landlord or a tenant.

Anderson testified that on May 8, he received a phone call from Ronald. Ronald stated that he would not assign his rights under the contract for the 120 acres (it should be noted that, at this time, he could not have assigned his rights under the contract as he had already assigned them to Lindstrom on May 2), but would pay the $60,000 balance due on the 1983 installment from the proceeds of the sale of the PIK corn. Ronald also asked Anderson to refrain from attempting to collect the loan and to wait until fall for the 1984 installment payment. Ronald testified that he does not remember this conversation.

On June 2, there were more transactions involving the Hanses and Lindstrom. Ronald and Terry transferred automobiles, snowmobiles and a boat to Lindstrom as further payment on the demand note. This property was valued at approximately $17,000. Ronald and Terry retained exclusive possession and use of all property transferred to Lindstrom.

On June 21, representatives of CPCA again met with Ronald. CPCA had learned that the PIK corn was being sold and requested the proceeds of the sale. Ronald refused to tender the checks at this time but eventually the Hanses did tender checks totaling $60,479.88.

On July 12, in "Report of Acreage Reports" filed with the ACSC, Ronald and Terry listed themselves as producers on all land being farmed in 1984. They also assigned their rights to payments they were entitled to under government programs to Lindstrom as security for "final rent payments that will be advanced." The record does not reflect the value of these rights or the amount of money Ronald and Terry were entitled to under these government programs. The record is also silent as to any lease in which Lindstrom was the lessor and Ronald and Terry the lessees, or any lease in which Ronald and Terry were obligated under and Lindstrom was paying so as to give rise to an ...


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