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James B. Schafer and Mary E. Schafer v. Unionbank/Central

July 18, 2012


Appeal from the Circuit Court of the 13th Judicial Circuit, Bureau County, Illinois Circuit No. 06-MR-10 Cornelius J. Hollerich, Honorable Judge, Presiding

The opinion of the court was delivered by: Justice Holdridge

JUSTICE HOLDRIDGE delivered the judgment of the court, with opinion. Justice Lytton specially concurred, with opinion. Presiding Justice Schmidt dissented, with opinion.


¶ 1 Plaintiffs, James and Mary Schafer (the Schafers), appeal from the trial court's grant of summary judgment on their complaint alleging Centrue Bank (formerly UnionBank) (the Bank) converted their personal property. The Bank raised as an affirmative defense to the complaint the existence of a commercial security agreement (CSA) which purported to give the Bank the authority to take immediate possession of the property at issue in the complaint. Following discovery and lengthy motion practice, the Bank sought summary judgment on its affirmative defense. The Schafers responded that the CSA as drafted contained a mutual mistake of fact as to the nature and extent of the personal property secured and, thus, a genuine issue of material fact existed as to the validity of the Bank's affirmative defense. In support of their response to the summary judgment motion, the Shafers submitted certain affidavits and deposition testimony of the loan officer who executed the CSA for the Bank. The Bank moved to strike the affidavit and testimony. The trial court granted the Bank's motion to strike and its motion for summary judgment. The Schafers then appealed. For the following reasons, we reverse the judgment of the circuit court and remand for further proceedings.


¶ 3 On April 29, 2003, the Schafers borrowed $30,000 from the Bank. The only employee of the Bank involved in the transaction was Jeff Hunt. In conjunction with their execution of a promissory note for the $30,000, the Schafers signed the CSA by which they granted the Bank a security interest in certain assets to secure the payment and performance on certain "Secured Debts." The CSA contained two boxes on the front page that could be checked to indicate whether "Secured Debts" referred to all the debts the Schafers owed to the Bank or only specific debts, such as the debt instrument being executed simultaneously with the CSA. The box for "All Debts" was checked. If the box for "Specific Debts" had been checked, there was a corresponding blank space in which to write a description of the specific debts to be secured by the CSA. Pursuant to the CSA, the Schafers granted the Bank a security interest in property including, but not limited to, inventory, equipment, and farm product and supplies. The loan originated on April 29, 2003, and was paid in full the following month.

¶ 4 In 2005, the Bank instituted foreclosure proceedings on 18 separate real estate mortgages given by the Schafers. In December 2005, the Bank's collection officer, Stephen Sendelbach, discovered the April 2003 CSA in the credit file. When the foreclosures failed to recoup all funds due under the mortgages, the Bank, relying upon the CSA, arranged for the Schafers' farm equipment to be taken from their farm. The property was taken on December 27, 2005.

¶ 5 On March 8, 2006, the Schafers filed a complaint for declaratory judgment against the Bank and Hatzer & Nordstrom, the commercial auctioneer where the property was being stored pending a public auction. The complaint alleged that the Bank took possession of the property without lawful authority. The complaint sought an order requiring the return of the property. In addition to the complaint for declaratory judgment, the Schafers also filed a motion seeking a preliminary injunction to prevent the impending sale of their property by the auctioneer. The Schafers attached to their complaint for declaratory judgment what they alleged was a "[t]rue, correct, and genuine copy" of the CSA. They alleged, on information and belief, that the CSA was the instrument upon which the Bank relied to justify its seizure of their property. Also attached to the complaint was an affidavit from Hunt in which he stated that it was "the intention of [the Bank] and the Schafers at the time the loan originated to release any lien or security interest created at the time of loan origination when that particular loan was paid." He further stated that "[n]o security interest in any collateral was to survive the payment of the specific loan made April 29, 2003."

¶ 6 The Bank filed a motion to dismiss the motion for preliminary injunction. On March 14, 2006, following a brief hearing at which James Schafer and Sendelbach testified, the court denied the preliminary injunction. Shortly thereafter, the property taken by the Bank was sold at auction.

¶ 7 Approximately three years later, on March 25, 2009, the Schafers filed an amended complaint for declaratory relief which was substantially the same as the original complaint. The amended complaint merely dropped the auctioneers as defendants. The Bank filed a motion to dismiss the amended complaint, maintaining that the CSA was a clear and unambiguous bar to the cause of action alleged in the amended complaint. The Bank further maintained that the complaint failed to allege how the CSA was not a clear and unambiguous bar to recovery. In their response to the motion to dismiss, the Schafers maintained that the CSA as drafted was the result of a mutual mistake of fact. Attached to the response was a new affidavit executed by Jeff Hunt, in which he contradicted his previous statement that the CSA was "a true" copy. He now asserted that the CSA was "inaccurate" in that the box on the CSA for "All Debts" was marked in error.

¶ 8 The trial court granted the Bank's motion to dismiss the amended complaint. The court observed that mutual mistake was raised in the response to the motion to dismiss but ruled, nonetheless, that the complaint itself failed to allege sufficient facts that would state the elements necessary for relief. The court pointed out that, since the property had already been sold at auction, declaratory relief could no longer be granted, and any future cause of action would have to be for monetary damages. Thereafter, the Schafers obtained leave to file a second amended complaint.

¶ 9 A second amended complaint was filed on September 29, 2009, in which the Schafers alleged that the Bank had taken their personal property without their consent and sought judgment for the fair market value of the items. The complaint for conversion contained no mention of the CSA, and Hunt's affidavit was not attached.

¶ 10 The Bank filed an answer and affirmative defense to the second amended complaint. The Bank denied that the removal of the personal property had been unlawful and accomplished without consent. For its sole affirmative defense, the Bank attached a copy of the CSA, maintaining that the CSA secured "all present and future debts owed by the Schafers to [the Bank] ." The Bank pointed out that the CSA authorized it to "enter upon [the Schafers'] premises and to take possession of all or any part of [their] [p]roperty to protect [the Bank's] interest, all without payment or compensation to [the Shafers]" and to "use any remedy allowed by state or federal law, or provided in any agreement evidencing or pertaining to the [s]ecured [d]ebts." The Schafers filed a general denial to material allegations contained in the affirmative defense.

¶ 11 The Bank filed a motion for summary judgment on October 22, 2010. The gist of the motion was that it lawfully seized and sold the property at issue pursuant to the terms of the CSA, which the Bank maintained secured all present and future debts of the Schafers. The Bank pointed out that the CSA contained a provision stating "[n]o modification of the Agreement is effective unless made in writing and signed by [both parties]." Attached to the motion for summary judgment was an affidavit from Roger Dotson, the Bank's executive vice president and head of operations, stating that "[t]here is no written modification of the CSA signed by [the parties]." It was noted in the motion that Dotson's statement was confirmed by Hunt's affidavit.

¶ 12 Dotson also stated that "the Bank filed a UCC-1 Financing Statement with the Illinois Secretary of State as Document No. 6943608, naming [the Schafers] as debtors and for the benefit of [the Bank]" and that the Bank never terminated the financing statement. Hunt also verified both of these facts in his deposition, relevant portions of which were attached to the Bank's motion for summary judgment.

¶ 13 In further support of its motion, the Bank established that, on various dates between 1999 and 2002, it made no less than 18 real estate mortgage loans to the Schafers, and they had defaulted on all of these loans. On October 20, 2005, after these loans went into default, the Bank sent a notice of acceleration and demand for full payment. The notice identified 18 loans and itemized the various defaults under each loan. Upon being asked in his deposition if he received the original notice, James Schafer replied, "Yeah, I think so." On various dates between November 22, 2005, and December 21, 2005, the Bank filed 18 complaints for foreclosure against the Schafers. In December 2005, the Schafers continued to be in default on all of their then outstanding loans from the Bank.

¶ 14 The Schafers filed their response to the Bank's motion for summary judgment on November 24, 2010. They incorporated by reference Hunt's affidavit dated August 7, 2009, which had previously been with their response to the Bank's motion to dismiss the amended complaint. They also attached the transcript of Hunt's deposition which was taken on July 7, 2010. They argued that Hunt's affidavit and deposition testimony established that the CSA mistakenly indicated that it was the intention of the parties that it secured all their debts to the Bank rather than securing only the loan originating on April 12, 2003, the same date the CSA was executed. The Schafers further maintained, therefore, that the CSA should have been released when that loan was paid in full on May 12, 2003.

¶ 15 The Bank moved to strike Hunt's affidavit and bar his testimony concerning the intent of the parties with respect to the CSA. The Bank argued that Hunt's testimony, in both his affidavit and deposition, sought to modify the CSA in violation of the parol evidence rule and the Illinois Credit Agreements Act (Credit Agreements Act) (815 ILCS 160/1 et seq. (West 2008)).

ΒΆ 16 On December 6, 2001, the trial court entered an order granting both the motion to strike the affidavit and bar certain testimony by Hunt and the motion for summary ...

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