Bank of Viola v. Nestrick

• Decision Date: 31 May 1979
• Docket Number: No. 78-227,78-227
• Citation: 390 N.E.2d 636,28 Ill.Dec. 469,72 Ill.App.3d 276
• Parties: , 28 Ill.Dec. 469, 26 UCC Rep.Serv. 943 BANK OF VIOLA, a Banking Corporation, Plaintiff-Appellant, v. Donald NESTRICK, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 636

390 N.E.2d 636

72 Ill.App.3d 276, 28 Ill.Dec. 469,

26 UCC Rep.Serv. 943

BANK OF VIOLA, a Banking Corporation, Plaintiff-Appellant, v. Donald NESTRICK, Defendant-Appellee.

No. 78-227.

Appellate Court of Illinois, Third District.

May 31, 1979.

Dwight L. Shoemaker, Conway & Shoemaker, Aledo, for plaintiff-appellant.

Ronald C. Taber, Collinson, Taber & Darrow, Ltd., Milan, for defendant-appellee.

SCOTT, Presiding Justice:

This case arises out of an appeal from a bench trial in the Circuit Court of Mercer County. The plaintiff, Bank of Viola, filed suit to recover the balance due on a certain promissory note executed by the defendant, Donald Nestrick. The note in question was executed on May 7, 1975, with a principal sum of $15,884.54 and a stated rate of interest of eight percent per annum. The note recites that the funds were advanced for the purpose of renewal, and in fact the evidence adduced at trial reveals that this note is but one in a series of notes executed by the defendant to secure an uninterrupted line of credit which began in August of 1971. The defendant in sworn testimony concedes subscribing to the note in the following manner:

"Liberty Advertizer (sic)

Donald E. Nestrick"

The trial court did not determine nor are we asked on appeal to determine the effect of this signature in what purports to be a representative capacity.

The Liberty Advertiser was a weekly advertising paper that was published in Aledo, Illinois. Defendant's precise relationship with the Liberty Advertiser is a matter of some dispute, but it is clear that defendant executed the note in question in the manner previously set forth, as well as those notes which preceded it. In pertinent part, the note reads:

"For value received, the undersigned promises to pay to the Order of Bank of Viola, Viola, Illinois, the principal sum of $15,884.54 payable in installments Or as follows: Or Payable $80.00 per week from Jack & Jill contract with interest at the rate of 8.00 per cent per annum from date until paid." (Underlined segments hand written in original.)

The Jack & Jill contract referenced in the instrument was identified at trial as a contract entered into by the Aledo Jack & Jill store for advertising space in the Liberty Advertiser. In his answer the defendant affirmatively asserts that the proceeds of the advertising contract with the Aledo Jack & Jill store are the sole source of funds to which the plaintiff can look for satisfaction of the note in question.

After a full hearing on the merits and at the conclusion of all testimony, the circuit court made the following findings:

"1. The note was a conditional note to be paid from a particular fund.

2. Even though the note was conditional, it was fully paid if the payments made by Jack & Jill store were properly credited to the note. It is therefore ordered that judgment is hereby awarded to the Defendant and against the Plaintiff."

Plaintiff appeals from this decision arguing in part that there is insufficient evidence in the record to warrant a finding that the note was conditional. We agree.

A promissory note is conditional if it is to be paid only from a particular fund. In the instant case, if the note in question was a conditional note, it was fully paid if the payments made by the Jack & Jill store were properly credited to the note. In short, if the note is conditional, the plaintiff bank has no recourse against the defendant Nestrick on his personal liability.

There is considerable discussion in the case law as to whether a note or draft is conditional. Most of the case law hinges on the question of negotiability. In the case Sub judice, negotiability is not an issue. Rather, the issue is collectability. Nevertheless, the same legal test applies. The statutory standard for determining whether a note is conditional is set forth in Illinois Revised Statutes, 1973, chapter 26, section 3-105(2)(b). Therein it states:

"(2) A promise or order is not unconditional if the instrument

(b) states that it is to be paid only out of a particular fund or source * * *."

The drafters of this statutory section advise that the test set forth is merely a re-statement of prior law. (Ill.Ann.Stat., ch. 26, par. 3-105, Official Comment, p. 30. (Smith-Hurd 1973).) An excellent discussion of that prior law, the Uniform Negotiable Instruments Act is set forth by the supreme court of Alabama in Rhodes v. Schofield (1955), 263 Ala. 256, 82 So.2d 236:

" * * * it has been generally said * * * that an unqualified promise to pay is unconditional although coupled with 'an indication of a particular fund out of which reimbursement is to be made'; also that a 'promise to pay out of a particular fund is not unconditional'. The distinction between those two principals is not very clear. It is said at 7 Am.Jur. 854, Section 119: 'the courts seem(ed) to have experienced some difficulty in determining whether particular instruments require a payment to be made out of a particular fund. The true test in every case under the Uniform Act as well as the common law is whether the general credit of the maker or drawee accompanies the instrument. If it does, the instrument is negotiable (unconditional), otherwise it is not. (citations omitted) The wording of the particular instrument is not determinative of the question, but the intention of the parties as disclosed by the surrounding circumstances must also be considered. In this connection, it is to be borne in mind that the negotiability of bills and notes is favored in law, and whenever the promise can be held unconditional without doing violence to the ordinary meaning of the language used, it will be so held.' "

Thus, because current law merely restates prior rules, a promise will be held unconditional whenever it is possible to do so without doing violence to the ordinary meaning of the language used.

The current statute provides that a promise is not unconditional if the instrument states that it is to be paid Only out of a particular fund or source. (Emphasis added.) This is in accord with prior law. In the Washington case of First National Bank v. Sullivan (1911), 66 Wash. 375, 119 P. 820, the court held that an instrument to be negotiable must contain an unconditional promise to pay; but an unqualified order to pay was unconditional even though coupled with an indication of a particular fund out of which reimbursement was to be made. The same court held that a promise to pay Only out of a particular fund was not unconditional. Similarly, the Florida court in Wright v. Board of Public Instruction (1955), 77 So.2d 435, held that "a provision for payment from a certain source, in the absence of language limiting payment to that source alone, 'does not constitute a mandatory restriction on the source of payment and does not render the (instruments) non-negotiable if they are issued as general obligations of the maker'." The court went on to determine that if the instrument reads "shall be payable out of a certain fund" and not if it reads "shall only be payable out of a certain fund",...