Laurel Motors v. Airways

No. 2--95--1475


IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT


LAUREL MOTORS, INC., ) Appeal from the Circuit
) Court of Du Page County.
Plaintiff-Appellant, )
)
v. ) No. 95--L--769
)
AIRWAYS TRANSPORTATION GROUP )
OF COMPANIES, INC., AIRWAYS )
RENT A CAR COMPANY, AIRWAYS )
LEASING, INC., AIRWAYS RENT A )
CAR SYSTEM, ASTOR CHAUFFEURED )
LIMOUSINE, O'HARE VALET )
PARKING, LEASED CAR SALES, )
INC., JAMES COUVALL, PETER )
LEEB, LAWRENCE WRIGHT, BRIAN )
BARRISH, PETER NATHON, SIR )
MANAGEMENT, INC., BRYSSON CARE, )
INC., MARC ZARANSKY, MICHAEL )
ZARANSKY, DAVID ZARANSKY, VALET )
AUTOMOBILE LEASING, INC., )
HEDCO, a Partnership, and )
RIDGEVIEW MOTORS, INC., ) Honorable
) Robert K. Kilander,
Defendants-Appellees. ) Judge, Presiding.


JUSTICE INGLIS delivered the opinion of the court:

Plaintiff, Laurel Motors Inc., appeals for the second time
from an order of the circuit court of Du Page County. In the first
appeal, plaintiff challenged the circuit court's order directing it
to assign and deliver certificates of origin for four automobiles
to defendant, Bank One. We dismissed that appeal for lack of
jurisdiction. Plaintiff next asked leave to file an interlocutory
appeal from the entry of summary judgment in favor of Bank One. We
denied that request for leave to appeal. Plaintiff now appeals an
order granting summary judgment in favor of SIR Management, Inc.,
Brysson Care, Inc., Bryan Barrish, Peter Leeb, Hedco Partnership,
and Lawrence Wright (lessees) on counts I, II, and VII of
plaintiff's third amended complaint in replevin. We affirm.
Plaintiff is a corporation engaged in the sale of new
automobiles. Between January 31, 1995, and March 16, 1995, Leased
Car Sales (LCS) entered into an agreement with plaintiff to
purchase four new automobiles for a total purchase price of
$349,833, which automobiles are the subject of the present
controversy.
Prior to January 1995, plaintiff and LCS had a previous
relationship in which LCS had purchased between 50 and 150 luxury
vehicles from plaintiff. LCS would contact plaintiff by telephone
and order a specific make and model of vehicle. Plaintiff would
locate a vehicle matching LCS' request and prepare the necessary
documentation.
Plaintiff would then transfer possession of the vehicle to
LCS, often allowing LCS several days to make the necessary
payments. Plaintiff did not sign a security agreement with LCS.
Plaintiff would, however, retain a certificate of origin for the
vehicle until LCS' checks had cleared the bank.
The present controversy began when lessees approached LCS
about leasing several luxury automobiles. LCS contacted plaintiff
and ordered four automobiles. LCS then contacted Valet Auto
Leasing (VAL), a company in the business of arranging leases for
second-party financial institutions. LCS asked VAL to prepare a
Bank One lease and other appropriate forms for the sale and lease
of the subject vehicles.
VAL forwarded to Bank One a copy of the Bank One lease, a copy
of the certificate of origin, and additional information it
received from LCS. After Bank One approved the lessees' credit, it
issued a check payable to VAL for the purchase of the subject
vehicles.
After receiving payment from Bank One, VAL drafted and
delivered checks payable to LCS for each of the subject vehicles.
LCS was then responsible for tendering those monies to plaintiff
for the subject vehicles.
In February and March 1995, plaintiff delivered possession of
the subject vehicles to LCS and, in several cases, directly to Bank
One's lessees. The vehicles actually delivered by plaintiff had
the following vehicle identification numbers (VINs): (1)
WDBFA76E4SF110048 (048); (2) WDBGA51E8SA234692 (692); (3)
WDBEA66E3SC212531 (531); and (4) WDBGA43E2SA239071 (071). While
there is some dispute regarding certain VINs, the parties agree
that the above VINs accurately represent the vehicles actually in
the possession of the lessees.
LCS tendered three checks for three of the above automobiles
(VINs 048, 692, and 071). LCS did not tender payment on the
remaining automobile (VIN 531). Plaintiff presented the checks
submitted by LCS, but the checks were returned for insufficient
funds. In the interim, LCS transferred the vehicles to Bank One
for what appears to be a total purchase price of $294,000.
On April 7, 1995, plaintiff filed a complaint in replevin,
seeking possession of the subject vehicles. The trial court
entered a replevin order, and plaintiff began repossessing the
vehicles. Bank One and the lessees, however, all filed a motion to
intervene and a motion to dismiss the replevin action. On April
24, 1995, the trial court entered an order requiring plaintiff to
return the vehicles that it had repossessed and ordered plaintiff
not to take any action pursuant to the order of replevin until the
matter proceeded to trial.
On May 19, 1995, plaintiff filed its third amended complaint
in replevin. Count I was a claim for replevin against the lessees
and Bank One. Count II sought a declaration that the lessees were
not lessees in the ordinary course of business. Count VII sought
damages from the lessees for their wrongful use of the automobiles.
The remaining counts of the complaint did not involve the lessees.
Both the lessees and Bank One each filed motions for summary
judgment. The trial court granted the lessees' motion on September
7, 1995, finding that plaintiff had no security interest in the
automobiles and that the cars were transferred to the lessees in
the ordinary course of business. The trial court found that there
was no just reason to delay enforcement or appeal of the order
granting summary judgment as to counts I, II, or VII, pursuant to
Supreme Court Rule 304(a) (155 Ill. 2d R. 304(a)). This timely
appeal followed.
On appeal, plaintiff contends the trial court erred in
granting summary judgment as to counts I, II, and VII of its third
amended complaint because genuine issues of material fact existed.
Summary judgment is properly granted if the pleadings, depositions,
and admissions on file, together with any affidavits, show there is
no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law. Leschinski v. Forest
City Steel Erectors, 243 Ill. App. 3d 124, 127 (1993); 735 ILCS
5/2--1005(d) (West 1994). In ruling on the motion, the court is
required to construe all evidentiary material strictly against the
movant and liberally in favor of the respondent. Pagano v.
Occidental Chemical Corp., 257 Ill. App. 3d 905, 908 (1994).
The propriety of an order granting summary judgment is a
question of law, and, as such, we review such orders de novo.
Pagano, 257 Ill. App. 3d at 909. If, after reviewing the pleadings
and evidentiary material before the trial court, the reviewing
court determines that a material issue of fact exists or that the
summary judgment was based on an erroneous interpretation of the
law, then reversal is warranted. Pagano, 257 Ill. App. 3d at 909.
Plaintiff first argues that its retention of the certificates
of origin for the automobiles is sufficient to create a security
interest in the automobiles. Plaintiff reasons that a certificate
of origin is a "document of title" under the Uniform Commercial
Code (Code) (810 ILCS 5/9--105(f) (West 1994)). A document of
title is a negotiable document, and a party can thus take and
perfect a security interest by retaining such a negotiable document
under section 9--305 of the Code. 810 ILCS 5/9--305 (West 1994).
Lessees counter that plaintiff failed to create a security
interest by failing to comply with the requirements of article 9 of
the Code. Moreover, lessees contend that plaintiff's reliance on
section 9--305 of the Code is misplaced and premature because that
section deals with perfecting a security interest and plaintiff
failed to first address whether it had created a security interest.
To address the issue of whether plaintiff created a security
interest in the automobiles by retaining the certificates of
origin, we must look first to the Code. Andrews v. Mid-America
Bank & Trust Co., 152 Ill. App. 3d 139, 143 (1987) (creation of
security interest in motor vehicle is solely governed by Code). In
order to create a security interest in collateral, the collateral
must be in the possession of the secured party, or there must be a
signed security agreement. 810 ILCS 5/9--203 (West 1994). It is
undisputed that plaintiff never signed a security agreement with
LCS or the lessees. Therefore, in order to create a security
interest here, plaintiff must retain the collateral.
Plaintiff claims that the certificates of origin for the
automobiles are the collateral. This contention is without merit.
The automobiles themselves, and not the certificates, are the items
of collateral. An examination of the purposes of the filing
requirements confirms this conclusion.
The purpose of filing a financing statement is to put third
parties on notice that the secured party has a security interest in
the collateral. Signal Capital Corp. v. Lake Shore National Bank,
273 Ill. App. 3d 761, 771 (1995). Similarly, possession of the
collateral also puts third parties on notice that the possessor may
have an interest in the collateral. Edibles Corp. v. West Ontario
Street Ltd. Partnership, 273 Ill. App. 3d 550, 554 (1995).
Here, plaintiff's retention of the certificates of origin
fails to notify any third parties of plaintiff's claimed security
interests. Only a dealer receives a certificate of origin for an
automobile. If a purchaser of the automobile is not a dealer, then
the dealer sends the certificate of origin directly to the
Secretary of State for processing. Thus, a nondealer purchaser
would never even see a certificate of origin in any event.
Therefore, plaintiff's retention of the certificates of origin
would fail to notify third parties purchasing cars from LCS that
plaintiff had claimed a security interest in the automobile. This
is especially true in the case of a lessee, who would not even
receive the title to the vehicle. Plaintiff's retention of the
certificates of origin of the automobiles is therefore ineffective
to create a security interest.
Plaintiff seeks to avoid the effect of article 9 by claiming
a security interest was created pursuant to section 2--507 of the
Code, which states in pertinent part "[w]here payment is due and
demanded on the delivery to the buyer of goods ***, his right as
against the seller to retain or dispose of them is conditional upon
his making the payment due." 810 ILCS 5/2--507(2) (West 1994).
Thus, because LCS did not immediately tender a check to plaintiff,
plaintiff could exercise its right of reclamation. Plaintiff would
then turn to the priority rules to determine whether its interest
in the automobiles was superior to Bank One's interest.
Lessees respond first by pointing out that plaintiff raises
this argument for the first time on appeal. Additionally, lessees
contend it was undisputed that payment for the automobiles was
neither due nor demanded upon delivery, but several days later.
Hence the transfer and payment conformed to the parties'
expectations, and section 2--507 is not properly invoked for these
transactions.
Where a party raises an issue for the first time on appeal, we
need not consider it. Randle v. Hinckley Parachute Center, Inc.,
141 Ill. App. 3d 660, 663 (1986). Plaintiff did not raise its
section 2--507 argument before the trial court in its memorandum in
opposition to the motion for summary judgment or elsewhere, and,
therefore, we do not consider it. We note, however, that
plaintiff's argument is nevertheless unavailing.
While the plaintiff's purchase order form contains the
notation "unpaid cash balance due on delivery," the form also
states "if this is a credit sale" and the appropriate forms have
not been provided to the purchaser, then "this [purchase] order is
not binding and either party may cancel ***." Moreover, the form
does not provide any indication of whether the transaction is to be
cash or credit. The binding effect of the "due on delivery"
language is therefore questionable. Equally important, the form
does not prohibit oral modifications or waivers of the agreement.
It is undisputed that LCS was not required to tender payment on
delivery of an automobile. As payment was never "due and demanded
on the delivery," the provisions of section 2--507 do not apply.
Thus, plaintiff did not create a security interest pursuant to
article 2.
Finally, plaintiff argues that it intended to retain ownership
of the vehicles by retaining the certificates of origin pending
clearance of the checks LCS tendered. It is clear, however, that
plaintiff knew that LCS would resell the subject vehicles. Thus,
plaintiff could not have intended to retain ownership of the
vehicles in light of its knowledge that, upon their transfer, the
vehicles would have been resold to third parties.
For the foregoing reasons, the judgment of the circuit court
of Du Page County is affirmed.
Affirmed.
BOWMAN and DOYLE, JJ., concur.