443
Chapter 27
Checks and Banking in the
Digital Age
Case 27.1
MidAmerica Bank, FSB v. Charter One Bank, FSB
— N.E.2d —-, 2009 WL 711337 (Ill.)
NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE
PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR
WITHDRAWAL.
Supreme Court of Illinois.
MIDAMERICA BANK, FSB, Appellant,
v.
CHARTER ONE BANK, FSB, et al., Appellees.
No. 106804.
March 19, 2009.
Justice KILBRIDE delivered the judgment of the court, with opinion.
*1 In this appeal, we consider: (1) whether a bank may issue a stop-payment order on a cashier’s check under the Illinois Uniform
Commercial Code (810 ILCS 5/1-101
et seq.
(West 2002)); and (2) whether the circuit court of Du Page County erred in denying
MidAmerica loss of interest and attorney fee expenses under the UCC. The circuit court held that a cashier’s check is the
equivalent of currency and that Charter One must, therefore, honor its cashier’s check but declined to award MidAmerica loss of
444 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
interest and attorney fees. The appellate court reversed the circuit court’s holding that Charter One must honor its cashier’s check,
and affirmed the circuit court’s decision not to award loss of interest and attorney fee expenses to MidAmerica. 383 Ill.App.3d 243,
wrongfully stopped payment on the cashier’s check in violation of section 3-411 of the UCC (810 ILCS 5/3-411 (West 2002)).
MidAmerica sought $50,000 plus interest from January 24, 2002, attorney fees, and costs of suit.
Charter One answered the complaint, admitting that it issued a stop-payment order on the cashier’s check and that MidAmerica
made demands for payment. Charter One also filed affirmative defenses, alleging the cashier’s check was issued in furtherance of
a fraudulent scheme or by mistake. Charter One then filed a third-party complaint seeking damages against Christelle, Hernandez
One permits stop-payment orders to issue on a cashier’s check only if the check is lost, destroyed or stolen, and that bank policy
permits it to seek indemnification from the person who placed the stop-payment order. The bank also requires an affidavit to
support the stop-payment order, but Charter One could not locate an affidavit in this case. According to the security officer,
Christelle’s account contained sufficient funds to cover the cashier’s check upon issuance. She was unable to determine that ETI
was directly involved in the issuance of the cashier’s check or that ETI caused Christelle to purchase the cashier’s check.
Christelle’s request was the only basis for the stop-payment order. At the time of the stop-payment order, there was no shortage in
Christelle’s account, nor was there any evidence of fraud.
In this appeal, we consider: (1) whether a bank may issue a stop-payment order on a cashier’s check under the Illinois Uniform
Commercial Code (810 ILCS 5/1-101
et seq.
(West 2002)); and (2) whether the circuit court erred in denying MidAmerica loss of
interest and attorney fees. We first consider the stop-payment issue.
A. Stop-payment Orders on Cashier’s Checks
[1] MidAmerica asserts that the UCC does not permit stop-payment orders on cashier’s checks. Charter One counters that the
or superfluous.
People v. Jones,
214 Ill.2d 187, 193, 291 Ill.Dec. 663, 824 N.E.2d 239 (2005). We do not depart from the plain
language of a statute by reading into it exceptions, limitations, or conditions that conflict with the legislature’s expressed intent.
People v. Martinez,
184 Ill.2d 547, 550, 235 Ill.Dec. 452, 705 N.E.2d 65 (1998).
*3 Section 4-403(a) of the UCC addresses a customer’s right to stop payment on checks, as follows:
“(a) A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item
check drawn on the customer’s account within the meaning of subsection (a); hence, a customer purchasing a cashier’s check or
teller’s check has no right to stop payment of such a check under subsection (a). If a bank issuing a cashier’s check or teller’s
check refuses to pay the check as an accommodation to its customer or for other reasons, its liability on the check is governed
by Section 3-411. There is no right to stop payment after certification of a check or other acceptance of a draft, and this is true no
matter who procures the certification. See Sections 3-411 and 4-303. The acceptance is the drawee’s own engagement to pay,
refuses to pay after receiving notice of particular circumstances giving rise to the damages.
*4 (c) Expenses or consequential damages under subsection (b) are not recoverable if the refusal of the obligated bank to pay
occurs because (i) the bank suspends payments, (ii) the obligated bank asserts a claim or defense of the bank that it has
reasonable grounds to believe is available against the person entitled to enforce the instrument, (iii) the obligated bank has a
reasonable doubt whether the person demanding payment is the person entitled to enforce the instrument, or (iv) payment is
request to stop payment on the cashier’s check issued by Charter One, and then refusing payment based solely on that request,
Charter One wrongfully dishonored the cashier’s check and is, therefore, liable under section 3-411.
Our interpretation of the UCC is also consistent with this court’s prior holding in
Gillespie v. Riley Management Corp.,
59 Ill.2d 211,
319 N.E.2d 753 (1974). In
Gillespie,
this court determined that the purchaser of a cashier’s check retains the right to cancel the
cashier’s check until the purchaser delivers or negotiates the check to the payee.
Gillespie,
59 Ill.2d at 217, 319 N.E.2d 753. We
See
Able & Associates, Inc. v. Orchard Hill Farms of Illinois, Inc.,
77 Ill.App.3d 375, 32 Ill.Dec. 757, 395 N.E.2d 1138 (1979).
Relying in part on this court’s holding in
Gillespie, Able
held that a bank has no right to stop payment on cashier’s checks because
they are the equivalent of cash.
Able,
77 Ill.App.3d at 381-82, 32 Ill.Dec. 757, 395 N.E.2d 1138. Particularly persuasive is
Able’s
explanation of the “policy considerations” requiring a rule prohibiting banks from refusing to honor their cashier’s checks:
“ ‘A cashier’s check circulates in the commercial world as the equivalent of cash. [Citation.] People accept a cashier’s check as a
equivalents” to treating them as “demand notes.” Charter One argues that all defenses to the enforcement of a note now apply to
cashier’s checks. Specifically, Charter One relies on the language of section 3-412 of the UCC (810 ILCS 5/3-412 (West 2002)).
MidAmerica, on the other hand, argues that although section 3-412 was rewritten in 1992, the changes were not intended to
change the treatment of cashier’s checks as “cash equivalents.” Rather, the revision merely allows a bank to dishonor a cashier’s
check under very limited circumstances, and none of those circumstances apply here.
607 (2006);
Brandt v. Boston Scientific Corp.,
204 Ill.2d 640, 647, 275 Ill.Dec. 65, 792 N.E.2d 296 (2003). In determining the
legislative intent of section 3-412, we find UCC comment 1 instructive:
“1. The obligations of the maker, acceptor, drawer, and indorser are stated in four separate sections. Section 3-412 states the
obligation of the maker of a note and is consistent with former Section 3-413(1).Section 3-412 also applies to the issuer of a
cashier’s check or other draft drawn on the drawer. Under former Section 3-118(a), since a cashier’s check or other draft drawn
notes. Section 3-412 simply addresses the liability of the bank. The liability of a bank is that of the maker of a note because
issuance of a cashier’s check establishes the bank as both drawer and drawee, representing that it will honor the draft when
presented. Thus the 1992 revisions to section 3-412 do not represent a change in the former law.
The UCC comment preceding article 3 supports our interpretation:
“Section 3-411 and related provisions considerably improve the acceptability of bank obligations like cashier’s checks as
cash
a cashier’s check is the equivalent of cash”).
We determine that the express language of the UCC prohibits stop-payment orders on cashier’s checks. Christelle’s request to
stop payment on the cashier’s check was the only reason Charter One refused to honor payment on it. When Charter One issued
the cashier’s check, Christelle’s account had sufficient funds. Thus, Charter One’s dishonor of the cashier’s check was wrongful.
[9] Charter One, nonetheless, attempts to assert defenses to support its dishonor of the cashier’s check, arguing that the cashier’s
2002).Section 3-309 states:
“(a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the
instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer
by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the
instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a
448 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
ETI possessed the cashier’s check, entitling it to enforce the check when the loss occurred; (2) ETI did not transfer the cashier’s
check, nor was it lawfully seized; (3) MidAmerica cannot locate the cashier’s check; (4) MidAmerica returned the cashier’s check to
ETI when its account attained a positive balance; (5) ETI cannot locate the cashier’s check; and (6) ETI’s interest in the cashier’s
check was assigned to MidAmerica. MidAmerica therefore introduced sufficient evidence to establish a viable reason for its failure
(b) the counterclaim shall be a part of the answer, and shall be designated as a counterclaim. Service of process on parties
already before the court is not necessary.”735 ILCS 5/2-608 (West 2002).
[12] Our appellate court has held that although the pleading requirements of section 2-608 are framed as permissive, a party
cannot be afforded relief without a corresponding pleading.
Bartsch v. Gordon N. Plumb, Inc.,
138 Ill.App.3d 188, 200, 92 Ill.Dec.
862, 485 N.E.2d 1105 (1985). A defendant is required to raise a claim for a setoff in the pleadings to give the plaintiff notice and an
opportunity to defend against the claim. See
Vieweg v. Friedman,
173 Ill.App.3d 471, 474, 122 Ill.Dec. 105, 526 N.E.2d 364
(1988), citing
Mayfield v. Swafford,
106 Ill.App.3d 610, 612, 62 Ill.Dec. 155, 435 N.E.2d 953 (1982).
An examination of Charter One’s pleadings reveals that it did not claim any right to a setoff. The first mention of a setoff appears in
Charter One’s written closing argument to the trial court. MidAmerica did not have notice or opportunity to defend against Charter
One’s setoff claim. Under these circumstances, we find that the trial court did not err in denying Charter One’s late request for a
Case 27.2
879 N.E.2d 1086, 64 UCC Rep.Serv.2d 1027
Supreme Court of Indiana.
AUTO-OWNERS INSURANCE COMPANY, Appellant (Plaintiff below),
v.
1998. Wulf started out as a claims representative, and then became a resident adjustor. In his capacity as a resident
adjustor, Wulf handled various kinds of insurance claims for Auto-Owners. One of Wulf’s responsibilities was to
FN1. In this context, “subrogation” is “[t]he principle under which an insurer that has paid a loss under an
insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with
respect to any loss covered by the policy.”
Black’s Law Dictionary
1467 (8th ed.2004). “Salvage” is “property
saved or remaining after a … loss, sometimes retained by an insurance company that has compensated the
3.1-118(g), precluded recovery for any checks paid before October 30, 1995. The trial court granted Bank One’s
motion for summary judgment and denied Auto-Owners’s motion for partial summary judgment (on the statute of
limitations issue only) on October 15, 2005. The Court of Appeals affirmed.
Auto-Owners Ins. Co. v. Bank One,
852
N.E.2d 604 (Ind.Ct.App.2006). Auto-Owners sought, and we granted, transfer on two questions: whether Bank One
was subject to an ordinary care requirement for its actions in opening an account for Wulf, and if so, whether Bank
instrument and the employee or a person acting in concert with the employee makes a fraudulent endorsement of
the instrument, the endorsement is effective as the endorsement of the person to whom the instrument is payable if
it is made in the name of that person. If the person paying the instrument or taking it for value or for collection fails
to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss resulting
from the fraud, the person bearing the loss may recover from the person failing to exercise ordinary care to the
an instrument. Indeed, Bank One pointed out during oral argument that the procedures in place to be applied during
the opening of an account are often there for the protection of the bank, not a particular customer.
See also
2 James
J. White & Robert S. Summers,
Uniform Commercial Code
§ 19-4(h) (4th ed.1995) (implying that bank account-
opening procedures may be self protection). Such an approach, which is not incompatible with the requirements of §
405(b), would suggest that often a bank hurts no one but itself if it fails to follow its own procedures when opening a
new account. FN2
FN2. After the events of September 11, 2001, the nation changed the way it thinks about the potential
dangers of undocumented parties opening new bank accounts.
See, e.g.,
31 U.S.C. § 5311 (Supp. II 2002)
1991.
As to the purpose behind the statute, the first comment to § 405 reveals, and the Court of Appeals also pointed out,
that in the absence of a bank’s negligence, § 405 shifts the responsibility for monitoring possibly wayward employees
away from a bank and onto the employer. The rationale for this responsibility shift is that an employer is in a better
position to select and supervise its employees than an outside*1090 bank. More relevant to the situation at hand, an
the check.
”
Id.
(emphasis added). This emphasis is consistent with the language of § 405(b), which stresses “ordinary
care in paying or taking the instrument.” Thus, while the manner of opening an account might be considered in the
context of all the facts surrounding the paying or taking of a check, the manner of opening an account, by itself, is not
a focus of the rule.
In this case, the facts differ materially from the relevant behavior in the comment’s example. In the comment, the
FN3. Auto-Owners’s website indicates that it has been doing business in Indiana since 1935. By 1991, it was
doing business in 19 states. Auto-Owners Insurance Corporate Information, History, http:// www. autoowners.
com/ Default. aspx? tabid= 102 (last visited Jan. 24, 2008).
FN4. This is not to say that an amount over $10,000 is necessarily a “very large amount of money” for
purposes of interpreting this example. However, it is instructive to note that Auto-Owners viewed that amount
as one up to which employees might settle unsupervised: Wulf stated that he had authority in his position to
settle a claim on behalf of Auto-Owners for up to $10,000 without consultation with a superior. Indeed, Wulf
suggested that the amount might have gone up to $20,000 at one point.
cause” test. Under the less stringent test the preclusion should be easier to establish. Conduct “substantially
contributes” to a material alteration or forged signature if it is a contributing cause of the alteration or signature and
a substantial factor in bringing it about. The analysis of “substantially contributes” in former Section 3-406 by the
court in
Thompson Maple Products v. Citizens National Bank of Corry,
211 Pa.Super. 42, 234 A.2d 32 (1967),
states what is intended by the use of the same words in revised Section 3-406(b). Since Section 3-404(d) and
While none of these practices, in isolation, might be sufficient to charge the plaintiff with negligence within the
meaning of § 3-406, the company’s course of conduct,
viewed in its entirety,
is surely sufficient to support the trial
judge’s determination that it substantially contributed to the making of the unauthorized signatures.
Thompson Maple Products, Inc.,
211 Pa.Super. 42, 234 A.2d 32, 36 (1967) (emphasis added).
[3] Thus, to determine whether conduct has substantially contributed to a loss, we follow the second comment to §
406 and ask whether the opening of the bank account was (1) a contributing factor to Auto-Owners’s loss
and
(2)
whether the opening of the bank account was a substantial factor in bringing the loss about. I.C. § 26-1-3.1-406 cmt.
2. Like the court in
Thompson Maple Products,
we will view the conduct of Bank One “in its entirety.” 234 A.2d at 36.
Wulf opened an account with Bank One in 1991 and began depositing checks meant for Auto-Owners. Wulf’s
deception was not discovered for almost eight years. Other than the lack of procedure used in opening the bank
account in 1991, Bank One appears to have followed required protocol in depositing checks from Wulf.
See Auto-
Owners Ins. Co.,
852 N.E.2d at 612-16. Even if we assume that Bank One’s conduct in opening the account was a
demonstrate Bank One’s negligence under another law, regulation, or the common law.
Conclusion
For the foregoing reasons, we affirm the trial court. The issues not addressed in this opinion, but addressed by the
Court of Appeals, are summarily affirmed pursuant to App. R. 58(A).
SHEPARD, C.J., and RUCKER, J., concur.
that if a bank “fails to exercise ordinary care in paying or taking” the check, and that failure “substantially contributes”
to the loss from the employee’s fraud, the employer can recover from the bank “to the extent that” the bank’s failure
“substantially contributed” to the loss.
I believe the facts relevant to the bank’s exercise of ordinary care are easily stated, and present an issue for trial.
CHAPTER 27: CHECKS AND BANKING IN THE DIGITAL AGE 453
himself, as an individual perhaps using “Auto–Owners Insurance” as his assumed business name. I assume such a
name could be used by an insurance agency operated as a sole proprietorship. Ind.Code § 27-1-15.6-10 (2004)
(permitting use of assumed names by licensed sellers of insurance if the Commissioner is notified). If so, Auto–
Owners designated evidence that it was Bank One’s practice, and the practice throughout the industry, to obtain an
assumed business name certificate to open such an account. All of this adds up to a genuine issue of material fact as
to the bank’s exercise of ordinary care in opening the account.
FN1. If there ever was any documentation surrounding the opening of the account, Bank One says it is no
longer locatable. Wulf testified that he was not asked to provide any documentation. Specifically, he said he
supplied no articles of incorporation or board resolution. Wulf also testified that no one asked about his “type
of business” or the “type of account” or whether the account was corporate or personal. Wulf testified that he
opened the account in the name of “Auto–Owners, Kenneth B. Wulf.” Bank statements were mailed to “Auto
FN2. The name of an Indiana insurance company must include “insurance” and either “company,”
“incorporated,” “corporation,” or an abbreviation of one of these terms.
Id.
§ 27-1-6-3. Foreign insurers are
exempt from this requirement, provided that the name is authorized by the state in which the foreign
insurance company is organized and the name does not “negate the characteristic of such company as an
FN3. Auto-Owners supplied an affidavit from an experienced bank officer stating that the existing commercial
practice for sole proprietorship accounts was to list first the name of the individual, in this case, Wulf. In this
case, the first name on the account was “Auto–Owners Insurance.” The affidavit also states that existing
commercial practices prohibit the deposit of a corporate check into a noncorporate account.
The majority points out that comment 4 to section 405 describes a deposit into an individual account of a large check
bank concluded without further investigation that the account was owned by a military officer whose surname was
Widget. Here we have acceptance of checks payable to an insurance company, endorsed by a variant of the
company’s name, and deposited into an individual account created with none of the paperwork associated with a
corporate account or an assumed business name.
The majority suggests that any requirements for opening an account in a corporate name are for the benefit of the
at 7-8. Assuming the majority is correct that the designated evidence establishes that Auto-Owners contributed
substantially to the loss, that does not warrant summary *1095 judgment for the bank. Section 405 sets up a “pure”
comparative negligence exercise. In such a regime, the plaintiff’s negligence proportionally reduces, but does not