APPEAL from the Circuit Court of Cook County; the Hon. WALKER
BUTLER, Judge, presiding.
MR. PRESIDING JUSTICE ENGLISH DELIVERED THE OPINION OF THE COURT:
By amendment to a creditor's complaint on a judgment against Alvin Schultz, plaintiff sought to recover from Mary Schultz (hereafter defendant) $24,387.06 which it alleged represented its loss (1) for a personal check drawn by her and credited to her account with the plaintiff bank, but returned by the drawee bank uncollected, and (2) for various cashier's checks issued by plaintiff to defendant with no consideration therefor. At the close of plaintiff's case, the Master in Chancery (to whom this part of a larger complaint was referred) ruled that plaintiff had failed to prove a prima facie case. The trial court overruled plaintiff's exceptions to the Master's Report, and entered judgment for defendant, from which plaintiff appeals.
The record discloses very little dispute as to the facts. Defendant, Mary Schultz, and her husband, Alvin Schultz, owned substantially all of the outstanding stock in the Knox Steel and Wire Company, a corporation engaged in the business of manufacturing nails. (Alvin Schultz died prior to the hearing on the portion of plaintiff's suit involved herein.) From 1956 until 1959, defendant engaged herself in the business of Knox, reconciling bank statements, helping to get out merchandise, and doing general office work. Although she was a professionally trained bookkeeper, she performed no bookkeeping functions for the company. Defendant maintained two checking accounts in her own name, one at plaintiff bank in the name "Mary Schultz, Special Account," and the other at the Oak Park Trust and Savings Bank. She was the only person authorized to sign checks on either of these accounts. Her account at plaintiff bank was for the purpose of paying the bills of Knox. The account at the Oak Park bank was her personal account, but was sometimes used to pay bills of the company. She reconciled the monthly bank statements of both these accounts.
The first part of plaintiff's claim concerns $10,200 credited to defendant's account with plaintiff bank. On August 24, 1956, a check in the amount of $15,000 was deposited in defendant's personal account at the Oak Park bank. Prior to this deposit, her balance in that account had been $129.89. Defendant did not recall making this deposit, nor did she know the origin or purpose of this check, nor the bank on which it was drawn. She later found out that it had been deposited by her husband. On August 29, 1956, the $15,000 check was not honored by the drawee bank, and was charged back against her Oak Park account. She noted this fact in reconciling the August statement of the Oak Park bank. Her notation also bore the initials "H.V.G.," indicating that the check had come from Harry V. Gralnek of Highway Casualty Company.
On August 24 (the same day the $15,000 check had been deposited), a check for $10,200 bearing her signature was drawn on her Oak Park bank account. She acknowledged her signature as drawer, but said she had not typed the amount and payee, and did not know who had. The check was payable to the order of Knox Steel and Wire, Special Account, and on August 25, was deposited in and credited to her account at plaintiff bank, which had been overdrawn by $538.71 immediately prior to the deposit. When the $10,200 check was put through for collection by plaintiff, the Oak Park bank, as drawee, returned the check uncollected, hishonored, and marked N.S.F., apparently due to the dishonor of the $15,000 check referred to above. In the few days after deposit of the $10,200 check, defendant drew checks on the account at plaintiff bank and at the end of August, 1956, her balance in that account was $1,585.65. In an audit at the plaintiff bank almost three years later, it was determined that, although the $10,200 check had been dishonored, it had never been charged back against defendants' account. The facts relating to this check represent the first part of plaintiff's claim, as plaintiff alleges that defendant used the credit allowed for the dishonored check and has never been charged therefor.
Plaintiff's first contention is that the trial court erred in holding that plaintiff did not establish a prima facie case as to the liability of defendant to plaintiff on the check bearing her signature as drawer in the amount of $10,200. In this regard the Master made the following findings of fact (incorporated into the decree by reference), which plaintiff does not dispute, but which it claims entitles it to recovery: (1) The $10,200 check, drawn on defendant's account at the Oak Park bank on August 24, 1956, payable to Knox Steel and Wire Company, was signed by defendant Mary Schultz in blank; (2) The payee's name and amount on the check were typed in after she signed it; (3) Someone other than defendant deposited the check in her account at plaintiff bank, and the sum of $10,200 was credited to her account by plaintiff bank; (4) The check was returned to plaintiff by the Oak Park bank for insufficient funds; (5) At the time of the deposit and return of the check, defendant was unaware of the amount inserted or who deposited the check in her account; (6) Defendant did not know that there were insufficient funds in her Oak Park bank account at the time of issuance or negotiation of the check; (7) When defendant drew checks on her account at plaintiff bank, she did not know that there were insufficient funds in the account; (8) The proceeds of the $10,200 check were used to pay bills of Knox Steel and Wire Co. through checks drawn by defendant against her account at plaintiff bank; (9) Plaintiff failed to give to defendant timely notice of the dishonor of the $10,200 check.
Plaintiff's argument is that, contrary to the trial court's finding that plaintiff had not proved a prima facie case, defendant is liable to plaintiff for the $10,200 check under the provisions of the Negotiable Instrument Law which were in effect at the time of the transactions involved herein. Concerning this check, the Master's conclusions of law, adopted by the trial court, were that defendant was not liable because her signature as endorser thereon was a forgery, within the meaning of Section 23 of The Negotiable Instruments Act (Ill. Rev. Stat. 1955, ch. 98, par. 43); and, further, that under Section 102 of the Act (Ill. Rev. Stat. 1955, ch. 98, par. 123) plaintiff was estopped from recovering against defendant as drawer of the check because of its failure to give defendant timely notice of the check's dishonor.
• 1 Plaintiff concedes that, under Section 102 of the Act, defendant would not be liable on the check by virtue of the endorsement (forged or not) because she was not given the notice of dishonor necessary to fix liability on a person secondarily liable. Plaintiff argues, however, that as a drawer, defendant is liable on the check, as her liability is discharged only to the extent of her loss, if any, suffered by reason of plaintiff's failure to give her timely notice of dishonor, and that the evidence disclosed no such loss. Plaintiff cites Section 185 of The Negotiable Instruments Act (Ill. Rev. Stat. 1955, ch. 98, par. 207):
"A check must be presented for payment within a reasonable time after its issue, and notice of dishonor given to the drawer as provided for in the case of bills of exchange, or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay."
Plaintiff also calls our attention to the case of Heartt v. Rhodes, 66 Ill. 351, 354, where the court held:
"The want of due presentment, or notice of the dishonor of a check, does not discharge the drawer unless he has suffered some loss or injury thereby."
Granting this proposition, the applicable rule concerning the burden of proof in this regard, is that it rests on the holder of the check to show that the drawer suffered no loss as a result of delay in notice of dishonor. In Stevens v. Park, 73 Ill. 387, 389, the court explained the rule and the reason for it:
"Although the holder of the check did not, by the mere act of delay, lose his right of recourse on the drawer, still it was his duty to present the check for payment within a reasonable time, and give notice to the drawer of its dishonor within a like reasonable time; and if he failed to do so, the delay was at his peril. Story on Promissory Notes, § 492. By his omission he assumed the burden of showing that the failure to obtain payment of the check was through no fault of his; and, necessarily, that no damage had occurred to the drawer by his delay. [Citation omitted.]"
(See also Arnold v. Mangan, 89 Ill. App. 327, 333, and Forgan v. Allen Bros., 224 N.W. 500, 502 (Iowa).) Further, in National Plumbing & Heating Supply Co. v. Stevenson, 213 Ill. App. 49, 54-55, the court restated the rule of the Stevens case, quoted above, and affirmed a trial court judgment for the defendant drawer, because the plaintiff holder had failed to present any evidence on the subject of the loss or lack thereof to the drawer.
• 2 Plaintiff contends that the above cited cases are inapplicable to the facts of the instant case because they involved a failure of due presentment rather than notice of dishonor, and it argues that there is apparently no case in which a drawer has been shown to suffer loss by a lack of timely notice of dishonor. We recognize that in the instant case due presentment was established, and that, ordinarily, loss due to delay in presentment is readily provable. In Section 185 (quoted above), however, the two situations (delay in either presentment or notice of dishonor) are linked together, and the rule locating the burden of proof is appropriate to both, since both situations arise from failure of timely action by the holder.
• 3 Plaintiff next argues that since defendant drew checks against the full amount of the credit in her account for the dishonored check, she could have had no loss resulting from its failure to give her notice of dishonor; and that plaintiff therefore met its burden of proof. We think this oversimplifies the question of loss caused by delay in notice of dishonor. For example, it is quite apparent in this case that if the $15,000 check which defendant deposited in her Oak Park bank account had been cleared for payment, then the $10,200 check drawn against that account would also have cleared. Without ever having received notice that the $10,200 check had not been honored, defendant was not given a timely opportunity or necessity to attempt a recovery of funds from the drawer of the $15,000 check. As another example of possible loss, if defendant had been given timely notice of dishonor, it might have been possible for her to tap other sources of funds (perhaps her husband) to make good the $10,200 credit she used to pay the company's ...