First National Bank of Steeleville, N.A. v. ERB Equipment Co.

First National Bank of Steeleville, N.A. (First National) (plaintiff) loaned AmEarth Corporation, (AmEarth), a mining company, more than one-half million dollars. AmEarth granted First National a security interest in all its equipment now held or later acquired. AmEarth later purchased two John Deere machines from ERB Equipment Co. (ERB) (defendant) and secured payment with a security interest in each machine. AmEarth also acquired three other machines from ERB. Not long after, AmEarth began to struggle financially. As a result, on December 27, 1988, AmEarth entered a new financing agreement with ERB that consolidated all the debts AmEarth owed to ERB. The plan covered the five machines, some of which had purchase-money status, some that did not have purchase-money status, and some for which the status was not clear. The plan only indicated the amount owed for each, less credit for trade-ins. At some point, ERB repossessed the machines and then purchased the same machines at a foreclosure sale despite First National’s interest. First National filed suit to receive the sale proceeds of the two John Deere machines. A trial court determined that because of the December 27 agreement, any purchase-money status of the five covered machines was transformed and destroyed. The court also determined that the First National had a right to the sale proceeds and that ERB was a purchaser and no longer a secured creditor because ERB bought the machinery on its own behalf at the foreclosure sale. Given that purchase, the court determined that ERB’s purchase was subject to First National’s prior interest and that ERB committed conversion because it kept the equipment after the foreclosure sale. However, the court ruled in ERB’s favor on First National’s request for punitive damages and prejudgment interest. First National and ERB appealed.