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For purposes of former 810 Ill. Comp. Stat. 5/9-306 (1994), tracing is not a measure of damages. It is the primary means of demonstrating the plaintiff's rights, and therefore the defendant's liability, in cases involving commingled accounts. Without equitable tracing, the plaintiff cannot make out a claim for conversion because it cannot establish that the funds allegedly converted were identifiable proceeds in which it had a security interest.
Van Diest Supply Co. and Shelby County State Bank ("Shelby") both assert a security interest in proceeds of accounts resulting from inventory Van Diest sold to Hennings Feed and Crop Care ("Hennings"). This case arose after Hennings filed for bankruptcy and was unable to pay for certain inventory it had purchased from Van Diest. Pursuant to a loan agreement with Hennings, Shelby had received the proceeds of many Hennings accounts receivable. Van Diest claimed a first, perfected purchase money security interest in proceeds of inventory it sold to Hennings and sued Shelby for conversion, seeking to recover the proceeds of inventory it sold to Hennings. The district court, in granting Shelby's motion for summary judgment, ruled that Van Diest had not presented evidence sufficient to carry its burden of identifying the proceeds.
Did the district court err in granting Shelby's motion for summary judgment and ruling that Van Diest had not presented evidence sufficient to carry its burden of identifying the proceeds?
The court held that the district court properly granted summary judgment for Shelby pursuant to Fed. R. Civ. P. 56. Van Diest’s interest in commingled funds existed only so long as Van Diest’s proceeds were identifiable, former 810 Ill. Comp. Stat. 5/9-306 (1994). Van Diest could not use a proration to trace its collateral because it could not establish what percentage of the business's inventory came from Van Diest --the business obtained inventory from multiple suppliers and it did not track the sales of inventory by supplier. Without knowing the starting proportions, all future percentages calculated by Van Diest were merely speculative.