National Bank of Monticello v. Quinn

• Decision Date: 15 December 1988
• Docket Number: No. 65761,65761
• Citation: 126 Ill.2d 129,533 N.E.2d 846,127 Ill.Dec. 764
• Parties: , 127 Ill.Dec. 764, 7 UCC Rep.Serv.2d 631 NATIONAL BANK OF MONTICELLO, et al., Appellees, v. Frank M. QUINN, Appellant.
• Court: Illinois Supreme Court

Page 846

533 N.E.2d 846

126 Ill.2d 129, 127 Ill.Dec. 764, 7

UCC Rep.Serv.2d 631

NATIONAL BANK OF MONTICELLO, et al., Appellees, v. Frank M. QUINN, Appellant.

No. 65761.

Supreme Court of Illinois.

Dec. 15, 1988.

Rehearing Denied Jan. 30, 1989.

William J. McKenna, Jr., and David B. Goroff of Hopkins & Sutter, Chicago, for appellant.

James P. Ginzkey of Costigan & Wollrab, P.C., Bloomington, for appellees.

Justice CLARK delivered the opinion of the court:

This commercial law case presents for the court's review a question centered on an interpretation of the terms "properly payable" and "authorized" found in this State's codification of the Uniform Commercial Code (Ill.Rev.Stat.1985, ch. 26, par. 1-101 et seq.). Specifically at issue here is a determination of the scope of the drawee bank's responsibility to its customer under the provisions of section 4-401(1): "As against its customer, a bank may charge against his account any item which is otherwise properly payable from that account even though the charge creates an overdraft." Ill.Rev.Stat.1985, ch. 26, par. 4-401(1).

Appellant, as drawer of a check, had sought to have his account recredited for a check which National Bank of Monticello (National) had paid and which, he asserted, was not "properly payable." The appellate court held that under the provisions of the Code, the trial court of Piatt County should have granted National's motion for summary judgment; it therefore reversed the trial court's finding for appellant. (158 Ill.App.3d 694, 110 Ill.Dec. 424, 511 N.E.2d 259.) In reaching its conclusion, the appellate court relied primarily on the signature card of the intended payee on file with the collecting bank as well as on section 9 of the fiduciaries act (Ill.Rev.Stat.1983, ch. 17, par. 2009) to determine the scope of the drawee bank's liability following an assertion that an item was not properly payable. For the reasons stated herein, we reverse the decision of the appellate court.

In March 1985, Frank Quinn made demand upon National to recredit his account $30,000 for a check drawn on June 15, 1984, payable to Limetree Beach Associates, Ltd. (Limetree Beach). The check was issued for the purpose of making a purchase into an investment partnership being formed by Dan L. Wey (Wey). Quinn had determined, after talking with co-workers and reading the offering memorandum for the Limetree limited partnership and the limited partnership agreement, that he wanted to make an investment in that venture. Appellant personally delivered his check payable to the partnership to Wey.

Quinn now alleges that the check is not "properly payable" because Wey indorsed the reverse side of the check directing deposit into Wey's personal business account rather than into the Limetree Beach account. Wey's indorsement on the back of the check read: "Deposit 049 580." There is no dispute among any of the parties that Wey wrote the word "deposit" and the numbers on the back of the check.

Wey was the sole individual general partner of the Limetree Beech limited partnership and the person to whom appellant personally delivered the $30,000 check. He maintained the partnership account and a personal business account at the same bank. Both the Limetree Beach account and Wey's personal business account were at Marine American State Bank, f/k/a American State Bank of Bloomington (American State). Wey was one of two authorized signatories on each of the two noted accounts at American State. Because Wey was an authorized signatory on the Limetree account, American State accepted Wey's indorsement of appellant's check for deposit into the personal account and stamped the check with its own guarantee of prior indorsements.

Through his attorneys, Quinn made demand for recredit to his account in March 1985. National refused to recredit Quinn's account and, instead, initiated a two-count action seeking declaratory relief. National sought a determination of whether it owed Quinn a duty to recredit his account and, if it did owe Quinn such a duty, an order requiring American State to compensate National. Appellant filed a counterclaim against National seeking an order to compel National to recredit his account in the amount of $30,000 plus interest. National responded by filing a third-party complaint against American State for reimbursement of any amounts due to appellant. American State answered by denying liability.

All parties moved for summary judgment: appellant against National, and National and American State against appellant. The trial court granted appellant's motion, ruling that Wey's indorsement was invalid because he exceeded his authority as delineated in the offering memorandum for the limited partnership and in the limited partnership agreement. Because he exceeded his authority, the court held, the indorsement was invalid. Both banks appealed.

The appellate court reversed, finding that because Wey was the listed signatory on the signature card on file with American State he was authorized to indorse the check. The court reasoned that the trial court had erred in looking to such extraneous documents as the partnership agreement and the offering memorandum. The signature card, the court stated, was evidence of the contract between American State and Wey; American State had acted within the bounds of that contract and was therefore not liable on the check. American State, and through it, National, could rely, the court held, on the signature card held by American State to establish Wey's authority. Thus the check was "properly payable." As additional support, the appellate court noted that the fiduciaries act limited the liability of the bank for the actions of one who is a fiduciary.

Appellant petitioned for appeal to our court pursuant to Rule 315 (107 Ill.2d R. 315), which petition was granted, and raised the following questions for our review: (1) whether the courts may deny consideration of parol evidence in determining the extent of the authority of an agent to indorse a check and instead rely solely on the signature card in the possession of the bank; (2) whether Wey's indorsement of the check to his personal account was in fact authorized; (3) whether the fiduciaries act is to be applied to a bank that has no direct contact with the fiduciary; and (4) whether the appellate court's decision creates a conflict between the Uniform Commercial Code and the fiduciaries act by allowing a payor bank to debit its depositor's account for an item that purportedly was not "properly payable."

We need not answer each question individually because, in essence, our court is being asked to determine the boundaries of the duty owed by a drawee bank to its customer in determining whether a check is "properly payable." By what standard may a bank assess whether an item is properly payable?

Appellant's claim before our court for a recredit to his account is based on section 4-401 (Ill.Rev.Stat.1985, ch. 26, par. 4-401), asserting that the check was not "properly payable." Appellant contends that by exceeding his authority to indorse the check, Wey's indorsement was unauthorized. Under the Code, appellant further contends, an unauthorized signature is equivalent to a forged signature (Ill.Rev.Stat.1985, ch. 26, par. 1-201(43)) and as such the drawee bank may not properly charge his account. Support for a showing that Wey exceeded his authority, appellant alleges, is found in the partnership agreement and the offering memorandum. While the trial court resorted to use of these documents, the appellate court confined its review to the signature card on file at American State. No question is raised on the authenticity of Wey's indorsement; that is, there is no question of actual forgery. Instead, appellant rests his claim solely on the unauthorized nature of Wey's signature.

As our court has previously held, and as appellant cites, the relationship between a drawer and a drawee is a contractual one. The terms of this contract create a debtor and creditor relationship; moreover,

"the law implies the contract on the part of the bank to pay the depositor's checks, to the amount of his deposit, to the persons to whom he orders payment to be made. If the check is made payable to the order of a person named, the duty of the bank is absolute to pay only to the payee or according to his order." (United States Cold Storage Co. v. Central Manufacturing District Bank (1931), 343 Ill. 503, 513, 175 N.E. 825.)

Also, as appellant notes, our court stated in Cosmopolitan State Bank v. Lake Shore Trust & Savings Bank (1931), 343 Ill. 347, 175 N.E. 583, that a drawee bank is "bound to pay the amount of the check of the drawer to the payee or to its order, and to no other person." (343 Ill. at 350, 175 N.E. 583.) In noting that the drawee's duty toward the drawer is absolute, the court stated that:

"[t]he general rule is well settled that the obligation of a bank is to pay, on demand, the funds of the depositor to the payee named in each check, or to his order or to bearer, as the check may direct, and it must ascertain at its peril the identity of the payee and the genuineness of the indorsements, though each indorsement is a...