Anna National Bank v. Prater, 154 Ill. App. 3d 6

Summary

The Illinois Appellate Court, Fifth District, reversed and remanded a summary judgment awarding a mortgagee proceeds from a soybean crop grown on foreclosed farmland. The court held that the tenant and crop lender were not bound by determinations in the foreclosure and temporary restraining order proceedings because they had not been joined in the main foreclosure action. It further held that the mortgagee’s interest in crops under a rents-and-profits clause was an incident of the real estate mortgage, not a personal-property security interest subject to UCC section 9-312(2).

Holdings

1. Noble White and Goreville State Bank were not bound by any determination in the main foreclosure proceeding concerning their rights to the soybean crop because they were not joined as defendants and did not have an opportunity to litigate that issue.
2. Under Illinois law, a rents-and-profits clause in a real-estate mortgage creates an equitable lien incident to the mortgage and does not create a personal-property security interest governed by Article 9 of the UCC.
3. If no valid tenant interest alters the parties' rights, Anna National Bank's mortgage-based right to unsevered crops became superior to Goreville State Bank's Article 9 security interest when Anna National Bank took possession of the property before the crops were severed.
4. Summary judgment for Anna National Bank was improper because the record presented a genuine issue of material fact concerning whether a valid, arm's-length lease existed and whether its terms were performed so as to give Noble White an interest in the soybean crop.

Questions Presented

1. Whether Noble White and Goreville State Bank were bound by findings made in the foreclosure and temporary-restraining-order proceedings when they were not joined as parties to the proceeding in which the possession order was entered.
2. Whether a real-estate mortgage clause granting the mortgagee rents, issues, and profits creates an Article 9 security interest in growing crops subject to the UCC's current-year crop-lender priority rule under section 9-312(2).
3. Whether summary judgment was proper when a genuine issue existed concerning the validity and performance of the alleged cash-rent farm lease and the resulting rights to the soybean crop.

Disposition

reversed_and_remanded