Rock Island Auction Sales, Inc. v. Empire Packing Co.

• Decision Date: 21 January 1965
• Docket Number: No. 38745,38745
• Citation: 204 N.E.2d 721,18 A.L.R.3d 1368,32 Ill.2d 269
• Parties: , 18 A.L.R.3d 1368, 2 UCC Rep.Serv. 319 ROCK ISLAND AUCTION SALES, Inc., Appellee, v. ,EMPIRE PACKING CO., Inc., et al. Appeal of ILLINOIS NATIONAL BANK AND TRUST COMPANY OF ROCKFORD, Illinois.
• Court: Illinois Supreme Court

Page 721

204 N.E.2d 721

32 Ill.2d 269, 18 A.L.R.3d 1368, 2

UCC Rep.Serv. 319

ROCK ISLAND AUCTION SALES, Inc., Appellee, v. ,EMPIRE PACKING CO., Inc., et al. Appeal of ILLINOIS NATIONAL BANK AND TRUST COMPANY OF ROCKFORD, Illinois.

No. 38745.

Supreme Court of Illinois.

Jan. 21, 1965.

As Modified on Denial of Rehearing March 17, 1965.

Chapman & Cutler, Chicago (John B. Huck, Ralph F. Huck and Roscoe C. Nash, Chicago, of counsel), for appellant.

Oakleaf & Churchill, Moline (Cyrus Churchill, Moline, of counsel), for appellee.

SCHAEFER, Justice.

This case presents issues concerning the construction and validity of section 4-302 of the Uniform Commercial Code. Ill.Rev.Stat.1963, chap. 26, par. 4-302.

The facts were admitted or stipulated. On Monday, September 24, 1962, the plaintiff, Rock Island Auction Sales, Inc., sold 61 head of cattle to Empire Packing Co., Inc. and received therefor Empire's check in the sum of $14,706.90. The check was dated September 24, 1962, and on that day the plaintiff deposited it in the First Bank and Trust Company of Davenport, Iowa. It was received by the payor bank, Illinois National Bank and Trust Company of Rockford, Illinois, on Thursday, September 27, 1962. Empire's balance was inadequate to pay the check, but the payor bank, relying upon Empire's assurances that additional funds would be deposited, held the check until Tuesday morning, October 2, 1962. It then marked the check 'not sufficient funds', placed it in the mail for return to the Federal Reserve Bank of Chicago and sent notice of dishonor by telegram to the Federal Reserve Bank. The depositary bank, the First Trust and Savings Bank of Davenport, received the check on October 4, 1962. The check was never paid. On November 7, 1962, bankruptcy proceedings were instituted against Empire and on December 13, 1962, it was adjudicated a bankrupt.

On February 15, 1963, the plaintiff instituted this action against Illinois National Bank and Trust Company of Rockford, Empire Packing Co., Inc., and Peter Cacciatori, the officer of Empire who had signed the check. Cacciatori was not served with process, and no further action was taken against Empire after a stay order was issued by the United States District Court in the bankruptcy proceeding. The plaintiff's case against Illinois National Bank and Trust Company of Rockford, (hereafter defendant) rests squarely on the ground that as the payor bank it became liable for the amount of the check because it held the check without payment, return or notice of dishonor, beyond the time limit fixed in section 4-302 of the Uniform Commercial Code. Ill.Rev.Stat.1963, chap. 20, par. 4-302.

The defendant relies upon several alternative defenses. It first asserts that section 4-302, properly construed, does not make it liable for the face amount of the check, and that if the section is construed to impose that liability it violates the principle of separation of powers, and deprives the defendant of due process of law and equal protection of the laws. It then asserts that section 4-214(4) of the Code is invalid because it attempts to provide for preferred claims against national banks, and it contends that the asserted invalidity of that section renders the entire article 4 of the Code void. It relies also upon certain conduct of the plaintiff, which will be described, as establishing defenses by way of waiver and estoppel. The trial court entered judgment for the plaintiff for the face amount of the check, and the defendant has appealed directly to this court because the case involves questions arising under the Constitution of the United States and of this State.

Section 4-302 of the Uniform Commercial Code provides: 'In the absence of a valid defense such as breach of a presentment warranty (subsection (1) of Section 4-207), settlement effected or the like, if an item is presented on and received by a payor bank the bank is accountable for the amount of (a) a demand item * * * if the bank * * * retains the item beyond midnight of the banking day of receipt without settling for it or * * * does not pay or return the item or send notice of dishonor until after its midnight deadline; * * *.' Section 4-104(h) of the Code defines the 'midnight deadline' of a bank as midnight on the banking day following the day on which it received the item.

The important issues in the case involve the construction and validity of section 4-302. The defendant argues that the amount for which it is liable because of its undenied retention of the check beyond the time permitted by section 4-302 is not to be determined by that section, but rather under section 4-103(5) which provides that '(t)he measure of damages for failure to exercise ordinary care in handling an item is the amount of the item reduced by an amount which could not have been realized by the use of ordinary care * * *.' To support this argument it points out that other provisions of article 4 use the words 'liable' 'must pay' and 'may recover.' Its position is that the word 'accountable' in section 4-302 means that 'the defendant must account for what it actually had (which is zero because there were not funds on deposit sufficient to pay the check) plus the damages (as measured by Section 4-103(5)) sustained by the plaintiff as the result of the failure to meet the deadline, but for no more.'

But the statute provides that the bank is accountable for the amount of the item, and not for something else. 'Accountable' is synonymous with 'liable', (Webster's New Twentieth Century Dictionary...