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11/21/89 Chicago Limousine Service, v. Hartigan Cadillac

November 21, 1989

CHICAGO LIMOUSINE SERVICE, INC., APPELLEE AND CROSS-APPELLANT AND PLAINTIFF-COUNTERDEFENDANT

v.

HARTIGAN CADILLAC, INC., DEFENDANT (GENERAL MOTORS ACCEPTANCE CORPORATION, APPELLANT AND CROSS-APPELLEE AND DEFENDANT-COUNTERPLAINTIFF)



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION

548 N.E.2d 386, 191 Ill. App. 3d 886, 139 Ill. Dec. 1 1989.IL.1805

Appeal from the Circuit Court of Cook County; the Hon. Irwin Cohen, Judge, presiding.

Rehearing Denied January 17, 1990.

APPELLATE Judges:

JUSTICE HARTMAN delivered the opinion of the court. DiVITO, J., concurs. PRESIDING JUSTICE BILANDIC, Dissenting in part.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE HARTMAN

This appeal involves a commercial dispute between a secured inventory lender and a rescinding purchaser, following default by a third-party borrower. Chicago Limousine Service, Inc. , brought a replevin action against Hartigan Cadillac, Inc. (Dealership),1 and General Motors Acceptance Corporation , the secured inventory lender of the Dealership, seeking possession of two 1985 Cadillac limousines. After a six-day bench trial, the circuit court awarded possession of the vehicles,2 damages, and costs to CLS, and dismissed GMAC's affirmative defenses and counterclaim.

On appeal, GMAC questions whether the circuit court erred in finding that CLS had a superior right to possession of the vehicles and, alternatively, challenges the damage award. On cross-appeal, CLS claims the court erred in not awarding damages for the lost use and enjoyment of the vehicles. The following facts emerge from the evidence adduced at trial.

CLS provides private livery and limousine service to corporate and individual clients, and primarily uses stretch Cadillac and Lincoln limousines in its operations.

Since 1976, GMAC, the inventory lender to the Dealership under a security agreement (Agreement) dated May 26, 1976, advanced money to the latter for the purchase of its new car inventory (floor plan financing), as well as for costs incurred in converting new Cadillacs into stretch limousines. The Agreement gave the Dealership the right to sell the vehicles in the ordinary course of business and also provided that GMAC's security interest attached to proceeds derived from such sales, as well as to after-acquired property. Among the vehicles financed under this Agreement were two 1985 Cadillac limousines (subject vehicles), upon which the Dealership owed GMAC over $72,000 as of June 1986.

The Dealership began doing business with CLS in the summer of 1985. Around June 24, 1986, Alvin Golub (Al), the president of CLS, received a telephone call from Kenneth Schielka, the Dealership's general manager, inquiring whether CLS was interested in purchasing two 1985 stretch limousines for a price of $27,000, among other vehicles. Al told Schielka he wasn't interested, and the price was "out of line" since the 1987 models were about to come out. Nevertheless, Al told Schielka he would stop by the Dealership to discuss the matter, which he did the next day, and spoke with Schielka and James Hartigan, its president, regarding the two limousines. The subject limousines were similar to the type of vehicle CLS always purchased, and Al agreed to take them. Initially priced at $27,000, eventually they agreed on a price of $25,000 for each car.

Typically, CLS would not take immediate physical possession of vehicles purchased from the Dealership; CLS lacked adequate garage facilities, so it arranged that equipment installation be completed at the Dealership. Al told Hartigan he would be sending a man from CLS to install radios in the vehicles within a few days. Schielka advised Al that he would process the necessary paperwork and send salesman Tim Godomski to the CLS office the next day with the purchase documents. On the 25th and 26th of June, Godomski arrived at the CLS offices, where he and Al executed the necessary sales instruments, including a purchase order and invoice for each vehicle, a form stating that CLS had taken delivery of the limousines on June 25, 1986, and a CLS check in the amount of $50,000 payable to the Dealership. The original documents were taken by Godomski and maintained by the Dealership in a "deal jacket" kept in its files, except for the check, which was deposited on June 27, 1986.

Around June 30, Schielka telephone Al and asked to cancel the deal since the Dealership had a buyer willing to pay more money for the two vehicles. Due to the good business relationship between CLS and the Dealership, Al agreed to cancel, telling Schielka to keep the cars and "just send me back my money." Within a day or two, Al received two checks for $25,000 each from the Dealership, which were deposited into the CLS account.

Around July 5, Al heard that GMAC had taken over the Dealership and called Schielka to inquire about the Dealership's financial situation. According to Al, he was not informed previously that the Dealership was experiencing financial difficulty. Schielka told Al that there should be no problem; nevertheless, Al immediately called CLS's bank in an attempt to stop payment on the $50,000 check to the Dealership. The check already had been paid, however.

CLS was informed on July 10 that the two $25,000 checks from the Dealership were dishonored. The debit notice from the bank directed the payee to "Refer to maker." Al called Schielka, who advised him that the checks would be made good. CLS never redeposited the checks. Previously, the Dealership had a line of credit with its bank to cover overdrafts. In early July, however, its bank froze the Dealership's account.

Prior to July 1, 1986, GMAC knew of the Dealership's financial problems, considering it one of the financially weaker dealerships "for a number of years." On July 2, GMAC learned the Dealership was "out of trust," meaning it had not turned over to GMAC the applicable proceeds derived from the sale of vehicles in which GMAC maintained a security interest. On that date, GMAC received one-half million dollars in checks from the Dealership which were dishonored. In response, Mark Daly, a control branch manager for GMAC, immediately placed Carl Swanson, a GMAC employee, at the Dealership to monitor the inventory. According to Daly, he did not ask Swanson on that day to determine which vehicles physically located on the premises had been sold; he did expect Swanson to ascertain such information eventually.

After July 2, Swanson or another GMAC employee was at the Dealership during all business hours. When the Dealership received a payment by check, it immediately was endorsed over to and deposited by GMAC. At some point, GMAC took control of all keys to the vehicles on the premises. The public was not advised of GMAC's involvement at the Dealership, however.

On July 16, Al and Harold Golub went to the Dealership in person, where Schielka advised them he could not release the limousines. He referred them to Swanson, who claimed the cars belonged to GMAC. The Golubs then met with Hartigan, who signed a note3 promising that the Dealership would pay CLS $50,000 if the limousines were not delivered within 30 days. Hartigan testified that as far as he was concerned, CLS bought the two vehicles from the Dealership. The Dealership never paid GMAC the $72,000 balance it owed for the subject vehicles.

Meanwhile, after talking with Golub, Swanson called Daly to advise him of that conversation. Swanson related that Golub described some transaction involving the purchase of the limousines by CLS and another in which CLS obtained a check from the Dealership; he told Daly he did not think the Golubs had the paperwork evidencing these transactions. Daly did not direct Swanson to investigate the matter with Schielka or check the Dealership's records.

Al called Daly and requested the subject vehicles. Daly told Al that CLS was not a good-faith purchaser of the two limousines; because of the two checks sent to CLS from the Dealership, Daly considered CLS to be an unsecured creditor. Daly also believed CLS was not a good-faith purchaser because it did not take physical possession of the vehicles and had paid under value for them. Based on these Conclusions, Daly instructed Swanson not to release the vehicles to CLS. Daly admitted at trial, however, that he never talked to Schielka or Hartigan, nor asked Swanson to check the Dealership's records, nor caused GMAC to investigate CLS's claim. GMAC also continued to hold the certificates of origin for the subject vehicles.

CLS filed a complaint for replevin on August 21, 1986, against the Dealership and GMAC, claiming it was the owner and lawfully entitled to possession of the subject vehicles; the vehicles were being wrongfully detained by the Dealership and/or GMAC; and the value of the property was $50,000. The complaint sought possession of the vehicles, the value of the property not delivered, and damages.

In response, GMAC filed a motion to dismiss or in the alternative for judgment on the pleadings, which the circuit court denied on August 29, 1986, and then also entered a preliminary order for replevin, finding CLS "established a prima facie case to a superior right to possession of the disputed property."

On January 5, 1987, the circuit court entered an order finding as premature GMAC's motion for judgment on the pleadings. GMAC then filed its verified answer, affirmative defenses, and counterclaim. The affirmative defenses asserted: (1) CLS was not a good-faith purchaser for value because it acted in bad faith by allowing the vehicles to remain at the Dealership, paid grossly inadequate value for the vehicles, and accepted checks from the Dealership in consideration for its interest in the vehicles or alternatively, as part of a "check kiting" scheme; and (2) CLS's acceptance of the two checks from the Dealership constituted a sale, thus rendering the vehicles "after acquired property" to which GMAC's security interest attached. GMAC's counterclaim sought possession of the vehicles, the value of the property wrongfully withheld by CLS, and damages, based on the same rationales asserted in the affirmative defenses. CLS filed a verified reply to the affirmative defenses and a verified answer to the counterclaim.

Eight witnesses testified at the ensuing trial. On August 13, 1987, the circuit court found in favor of CLS and against GMAC on the complaint for replevin; it dismissed GMAC's affirmative defenses; and found for CLS on GMAC's countercomplaint, which was also dismissed. Further, the court determined CLS was entitled to possession of both vehicles.4 The circuit court also entered a $19,100 judgment for CLS as damages against GMAC for wrongful detention of the limousines, but denied CLS rental value damages. From this judgment GMAC appeals, and CLS cross-appeals. I

The primary issue on appeal is whether CLS or GMAC had the superior right to possession of the two limousines under the provisions of the Uniform Commercial Code (Ill. Rev. Stat. 1985, ch. 26, par. 1-101 et seq.) . GMAC contends it has a security interest in the subject vehicles under UCC section ...


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