Mitchell Buick & Oldsmobile Sales, Inc. v. National Dealer Services, Inc.

• Decision Date: 20 November 1985
• Docket Number: No. 2-84-0970,2-84-0970
• Citation: 485 N.E.2d 1281,138 Ill.App.3d 574,93 Ill.Dec. 71
• Parties: , 93 Ill.Dec. 71 MITCHELL BUICK & OLDSMOBILE SALES, INC., Plaintiff-Appellee, v. NATIONAL DEALER SERVICES, INC., Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 1281

485 N.E.2d 1281

138 Ill.App.3d 574, 93 Ill.Dec. 71

MITCHELL BUICK & OLDSMOBILE SALES, INC., Plaintiff-Appellee, v. NATIONAL DEALER SERVICES, INC., Defendant-Appellant.

No. 2-84-0970.

Appellate Court of Illinois Second District.

Nov. 20, 1985.

Fraterrigo, Best & Beranek, Jerald M. Mangan, Wheaton, for defendant-appellant.

Cowlin, Ungvarsky, Kukla & Curran, Michael F. Kukla, Crystal Lake, for plaintiff-appellee.

HOPF, Justice:

This appeal arises out of an action for declaratory judgment brought pursuant to chapter 110, par. 57.1 (Ill.Rev.Stat.1979, ch. 110, par. 57.1, now codified at Ill.Rev.Stat.1981, ch. 110, par. 2-701). This action was brought by the plaintiff, Mitchell Buick & Oldsmobile Sales, Inc., against National Dealer Services, Inc., (National Dealer) concerning an insurance coverage for certain bad check losses sustained by the plaintiff. Following a bench trial in the circuit court of McHenry County, the court found the losses covered under the False Pretense provision of the defendant's policy, and judgment was entered in favor of the plaintiff in the amount of $12,331.

The defendant now raises the following contentions before this court: (1) that plaintiff failed to establish a prima facie case of deceptive practices necessary to support a False Pretense claim under the policy; (2) that plaintiff's failure to comply with the notice requirement under the policy defeated its claim for coverage; (3) that plaintiff's alleged losses fell within the specific policy exclusion justifying a denial of coverage under the policy; and (4) that plaintiff's failure to reply to defendant's affirmative defenses operated to admit the truth of the matter as alleged.

The policy in question was issued by defendant-company, National Dealer, to plaintiff, a car dealership, in January 1978. It was sold to the plaintiff through its primary owner, John A. Mitchell, by Mr. Kluever, an insurance broker for Key Insurance Agency. Mitchell testified that at the time he bought the policy he believed Kluever was also an agent for the defendant, National Dealer. The notice provision of that policy reads as follows:

"In the event of LOSS the INSURED shall:

(a) protect the COVERED AUTOMOBILE, whether or not this insurance applies to the LOSS, and any further LOSS or damage due to the INSURED'S failure to protect shall not be recoverable under this insurance; reasonable expenses incurred in affording such protection shall be deemed incurred at the Company's request;

(b) give notice thereof as soon as practicable to the Company or any of its authorized agents and also, in the event of theft or larceny, to the police;

(c) File with the Company, within 60 days after LOSS, his sworn proof of LOSS in such form and including such information as the Company may reasonably require and, upon the Company's request, shall exhibit the damaged property and submit the examination under oath;"

Under the coverage portion the policy provided in relevant part:

"1. The Company will pay for LOSS to COVERED AUTOMOBILES under:

* * *

* * *

COVERAGE F--FALSE PRETENSE (BROAD FORM TRICK and DEVICE):

(1) caused by theft or larceny and arising out of the INSURED's voluntarily parting with evidence of TITLE to or possession of a COVERED AUTOMOBILE, if induced to do so by any criminal scheme, trick, device, or false pretense; * * *."

However, under the exclusion portion, the policy also read:

"This insurance does not apply:

(w) under coverage F, to any LOSS when credit (including the post-dating of checks) has been extended toward the purchase price of the COVERED AUTOMOBILE unless induced so to do by any criminal scheme, criminal trick, criminal device, or criminal false pretense;

* * *

* * *

(y) under coverage F, unless the INSURED shall as soon as practicable after LOSS, obtain a warrant for the arrest of the person or persons procuring evidence of TITLE to or possession of such COVERED AUTOMOBILE * * *."

On August 31, 1978, plaintiff sold four used vehicles to C.F. Payne Motors (Payne) for $14,800. Payne a one-man used car operation headquartered in Boaz, Alabama, had done business with plaintiff's company for over 25 years. As was their customary practice, Payne paid for each automobile by check and in exchange received a title and possession from plaintiff. All four of Payne's checks were returned for insufficient funds. Subsequently, Mitchell contacted Payne to discuss this matter. Payne told him he was having a bit of problems but that he would deliver certified funds to cover the checks in a few weeks. In the meantime Mitchell had accepted several other checks on vehicles sold to Payne during the first two weeks of September. All of these checks were also returned for lack of sufficient funds.

When another check was returned for insufficient funds Mitchell called Payne and Payne explained that he was having some problem with his bank honoring some drafts but he assured Mitchell that everything would be cleared up in a week or two. Mitchell told Payne he would give him until the end of September to try to get things straightened out. In the interim, the plaintiff accepted two additional checks from Payne on two more automobiles. In total, plaintiff accepted 11 checks during the month of September, all of which were returned.

Mitchell testified that he talked to Mr. Float, a Key Insurance Agency agent, between September 20 and 25, 1978. Mitchell said that he advised Float of the problem but told Float that he thought he could handle it himself. Subsequently, plaintiff recovered $8,900 at an auction in which some of Payne's automobiles were sold. He reported this fact to Mr. Kluever at Key Insurance Company, but told Kluever he still had not gotten any money from Payne. When it was evident that Payne would not make good on his checks, Mitchell continued to consult with Kluever. According to Mitchell, Kluever told him that he had coverage for the bad checks but told Mitchell to try and collect as much as he could on his own before attempting to recover under the policy. Thereafter, Mitchell sued Payne civilly and collected $9,270 in payments, resulting in a final loss of $12,331.

In August 1979 Mitchell received a letter from a representative of Kluever and Associates advising him that defendant, National Dealer, was aware of the loss and would be sending a man out to investigate the claim. Mitchell stated that subsequent to the letter Mr. Zinselmeyer from National Dealer came to his office and reviewed all of his transactions with Payne. National Dealer, thereafter, denied the claim, and plaintiff then brought this action for declaratory judgment seeking a ruling that plaintiff's losses were covered under the False Pretense provision of the defendant's policy. Following a bench trial an order was entered on September 11, 1984, finding coverage under the policy and awarding judgment in favor of the plaintiff in the amount of $12,331. Subsequently, defendant filed this appeal. We affirm.

Defendant's first contention is that plaintiff failed to establish a prima facie case of deceptive practices against Payne under section 17-1(B)(d) ( Ill.Rev.Stat.1979, ch. 38, par. 17-1(B)(d)), as alleged in its complaint. Specifically, defendant argues that plaintiff failed to produce sufficient evidence to show Payne had the intent to defraud at the time he issued the bad checks. Therefore, defendant concludes that plaintiff is not entitled to coverage under the False Pretense provision of the policy. Plaintiff, on the other hand, maintains that coverage was proper since Payne's intent to defraud can be inferred from the returned checks themselves.

Section 17-1(B)(d) of the Illinois Criminal Code of 1961 reads as follows:

" § 17-1. Deceptive practices.

(B) General Deception

A person commits a deceptive practice when, with intent to defraud:

* * *

* * *

(d) With intent to obtain control over property or to pay for property, labor or services of another he issues or delivers a check or other order upon a real or fictitious depository for the payment of money, knowing that it will not be paid by the depository. Failure to have sufficient funds or credit with the depository when the check or other order is issued or delivered is prima facie evidence that the offender knows that it will not be paid by the depository, and that he has the intent to defraud; * * *."

(Ill.Rev.Stat.1979, ch. 38, par. 17-1(B)(d).)

As noted by the court in People v. Sumner (1982), 107 Ill.App.3d 368, 370, 63 Ill.Dec. 137, 437 N.E.2d 786, the language of the Deceptive Practice statute clearly indicates that a deceptive practice is a specific intent crime, that a person who writes and delivers a check knowing the account is deficient or that the bank will not pay when the check is presented is guilty of deceptive practice only if the check is written with the specific intent to defraud. (See also, People v. Ogunsola (1981), 87 Ill.2d 216, 221, 57 Ill.Dec. 744, 429 N.E.2d 861.) Thus, it cannot be inferred that because payment on a check was later stopped the drawer issued it intending to defraud the payee. 87 Ill.2d 216, 221, 57 Ill.Dec. 744, 429 N.E.2d 861.

In this case, we have only the testimony of James Mitchell and the evidence of returned checks themselves from which to infer an intent to defraud. As such, there is no way to prove conclusively that Payne had the requisite intent to deceive plaintiff when he wrote the checks. However, Mitchell testified that when he talked to Payne after the initial four checks were returned, Payne indicated that he was having trouble with his bank honoring drafts but assured him that everything would be cleared up within a week or 10 days. He also promised to send certified funds to Mitchell by the end of September 1978. Neither promise was carried out. Relying on these assurances and the knowledge that Payne had been a good customer for over 25 years, plaintiff was induced to accept not just one or two but...