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State Bank of Piper City v. A-Way, Inc. - 115 Ill. 2d 401, 105 Ill. Dec. 452, 504 N.E.2d 737 (1987)

Rule:

When a secured creditor has chosen to reduce his claim to judgment, the lien of any levy which may be made upon his collateral by virtue of any execution based upon the judgment shall relate back to the date of the perfection of the security interest in such collateral. Ill. Rev. Stat. ch. 26, par. 9-501(5) (1979)) and serve as a continuation of the secured creditor's original perfected security interest. Ill. Ann. Stat., ch. 26, par. 9-501(5) (1979). Thus, a secured creditor's effort to collect its debt through the judicial process will not operate to destroy his security interest vis-a-vis the debtor or to impair its priority interest over third parties because a secured creditor may take any action or combination of actions necessary to satisfy the debt.

Facts:

In February 1982, the State Bank of Piper City was awarded a judgment in the amount of $ 131,083 against William C. Brenner for his default on promissory notes that had been secured by a security interest in grain owned by Brenner which was stored in the defendant, A-Way, Inc.’s warehouse.  In a supplementary proceeding to enforce its judgment, the Bank served the defendant with a citation to discover assets that it held on Brenner's behalf. The defendant responded by an affidavit acknowledging the accuracy of an attached ledger sheet with information regarding Brenner's account. The ledger sheet listed the number of bushels of grain the defendant held for him, $ 5,141, and the costs of drying and storing the grain. The Bank then moved for a citation order requiring the defendant to pay the Bank $ 5,141, confusing the number of bushels with their value, as partial satisfaction for the judgment entered in its suit against Brenner. The trial court granted the Bank's motion. Acting upon the order, the defendant sold the grain, obtaining $ 11,310. The defendant remitted $ 5,141 to the Bank and applied the balance to outstanding charges on Brenner's accounts. Thereafter, the Bank filed a complaint in the circuit court of Iroquois County against the defendant to enforce its security interest in the proceeds of the grain sale over and above $ 5,141. The circuit court dismissed the Bank's complaint on the grounds that the doctrines of merger and res judicata barred the suit. On the plaintiff's appeal, the appellate court reversed and remanded. The defendant then filed a petition for leave to appeal. 

Issue:

Did the trial court err in its decision to dismiss the complaint?

Answer:

Yes.

Conclusion:

The Supreme Court of Illinois held that the trial court erred in dismissing the complaint. The Court held that the merger of the note in the bank's judgment against debtor and the bank's citation action did not affect the bank's security interest in the remaining grain-sale proceeds. According to the Court, Article 9 of the U.C.C. was intended to provide a secured creditor with multiple remedies upon a debtor's default. Affirming, the Court concluded that even if the order entered in the citation proceeding against the granary was a final order, it did not under res judicata preclude the bank from pursuing the instant action.

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