APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. THE HONORABLE ARTHUR L. DUNNE, JUDGE PRESIDING.
Released for Publication May 26, 1995.
Presiding Justice Scariano delivered the opinion of the court: DiVITO and McCORMICK, JJ., concur.
The opinion of the court was delivered by: Scariano
PRESIDING JUSTICE SCARIANO delivered the opinion of the court:
On April 2, 1992, plaintiff Midwest Decks, Inc. (Midwest) and defendant Butler & Baretz Acquisition, Inc., d/b/a Mid-America Decks, Inc. (Butler & Baretz), executed an "Asset Purchase Agreement" (the purchase agreement) for the bulk sale of Midwest's assets. Butler & Baretz agreed to pay a total of $232,000 in four installments, the first of which was $82,000, due at the time of closing. Section 1.04(d) of the agreement, a "cash hold-back" provision, stated that
"on the closing date, the Purchase Price installment set forth in Section 1.04(b)(1) shall be reduced by, and Buyer shall hold, the amount of any Stop Order received from the Illinois Department of Revenue. Buyer shall pay to Seller, the balance, without interest, if any, of the amount so withheld after all amounts owing to the Illinois Department of Revenue have been paid in full and within five (5) days of such payment."
On April 2, 1992, the closing date, $23,200 was subject to the cash hold-back provision because the Illinois Department of Revenue (the Department) claimed a lien on that amount. On October 26, 1992, the Department informed Midwest's attorneys that after reviewing the bulk sale, it had determined that no taxes were due.
However, Butler & Baretz did not pay the $23,200 to Midwest, asserting that Midwest had breached the purchase agreement, thus terminating any payment obligations. In the meantime, Butler & Baretz had defaulted on a $150,000 loan received from LaSalle National Bank to facilitate its purchase of Midwest's assets. Consequently, it planned to liquidate its assets at a public sale on January 27, 1993, in order to satisfy its obligation to LaSalle and other creditors.
On January 22, 1993, Midwest filed a complaint for "declaratory judgment and other relief" claiming, inter alia, that it had a right to $23,200 from the sale of Butler & Baretz' assets and requesting payment prior to the satisfaction of other creditors' claims. *fn1 On the same day, Midwest filed an emergency motion for a temporary restraining order to prevent the sale of Butler & Baretz' assets. The trial court denied the motion, but ordered that $23,200 in proceeds from the sale be deposited with the Clerk of the Court to be held in an interest bearing account until further order of the court.
Midwest filed an amended verified complaint on February 4, 1993. On March 3, 1993, Lloyd Baretz, the father of one of the principals of Butler & Baretz, petitioned to intervene in the action, claiming that he had a superior right to the proceeds in relation to Midwest. The trial court entered an agreed order allowing Lloyd Baretz to intervene in the action.
According to his pleadings and attachments thereto, Lloyd Baretz had loaned $150,000 to Butler & Baretz on July 24, 1992. The loan was evidenced by a secured promissory note expressly subordinate to LaSalle National Bank's secured interest. The parties executed a security agreement under which Lloyd Baretz obtained a security interest in Butler & Baretz' machinery, equipment, accounts receivable, all tangible and intangible property in its possession, and in after-acquired property. Additionally, Lloyd Baretz was granted a security interest in any proceeds from the sale of the collateral. He filed a financing statement with the Secretary of State on August 14, 1992. His verified complaint indicated that the balance due on the note exceeded $23,200.
On June 4, 1993, the parties filed a "Stipulation to Dismiss" LaSalle National Bank, agreeing that "all matters in controversy" had been "fully settled." The trial court entered an order dismissing LaSalle National Bank with prejudice on the same day. The details of the settlement with the bank are not of record.
Shortly thereafter, Lloyd Baretz moved for summary judgment. He reiterated his claim that the balance due on the promissory note evidencing his $150,000 loan to Butler & Baretz exceeded $23,200. He argued that since he held a perfected security interest in the equipment and assets sold, he had a right to the proceeds subordinate only to LaSalle National Bank's interest in the same collateral. He reasoned that since the debt owed to LaSalle National Bank had been satisfied, he had a right to the $23,200 being held by the Clerk of the Court.
On August 6, 1993, Chillicothe Supply Co. (Chillicothe), as assignee of Midwest, filed a counterclaim and a motion for "Declaratory and Summary Judgment against Lloyd J. Baretz, Intervenor and in favor of Chillicothe." Chillicothe argued that the $23,200 never belonged to Butler & Baretz, and that, therefore, Lloyd Baretz could not have a lien on that property. Chillicothe further argued that the $23,200 was held in constructive trust for the ...