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Gillespie v. Riley Management Corp.

OPINION FILED NOVEMBER 27, 1974.

MARGARET A. GILLESPIE, APPELLEE,

v.

THE RILEY MANAGEMENT CORPORATION ET AL. — (NATIONAL CITY BANK IN CHICAGO, APPELLANT.)



Appeal from the Appellate Court for the Second District; heard in that court on appeal from the Circuit Court of Du Page County; the Hon. Bert E. Rathje, Judge, presiding. MR. JUSTICE DAVIS DELIVERED THE OPINION OF THE COURT:

The plaintiff filed a six-count complaint against the defendants, the Riley Management Corporation, William G. Riley, National City Bank in Chicago, and Lyles Zabriskie. Counts I and II were against Riley Management Corporation for the conversion of $25,000; count III was against Riley Management Corporation, William G. Riley and Lyles Zabriskie for the conversion of $25,000 by misrepresentations; count IV was against Riley Management Corporation for fraud and misrepresentation whereby said defendant obtained $25,000 of plaintiff's money; count V alleged the same charges against the defendant William G. Riley; count VI was against the defendant National City Bank in Chicago and alleged the facts hereinafter set forth with reference to the issuance by said bank of its cashier's check in the sum of $25,000 payable to Riley Management and plaintiff, which check said bank paid to Riley Management without plaintiff's endorsement thereon, by issuing to Riley Management two new cashier's checks payable to the management corporation only.

This appeal pertains only to count VI. The trial court dismissed the plaintiff's complaint, and she appealed to the appellate court, which reversed the trial court. The defendant National City Bank in Chicago appealed from the judgment of the appellate court (13 Ill. App.3d 988) holding that a cashier's check, purchased by a corporation and made payable to it and a third party, may not be returned by the purchaser to the issuing bank for credit without the endorsement of the two payees. We allowed petition for leave to appeal.

The stipulated facts are that the Riley Management Corporation (the Corporation) entered into a contract with plaintiff, Margaret A. Gillespie, to construct, convey and sell an apartment building to her. The total purchase price was $176,400, with $25,000 down payment as earnest money. The earnest money was to be held by the Corporation in an escrow account requiring the plaintiff's signature for withdrawal, as well as the Corporation's. After he received the $25,000 earnest money, but before establishing an escrow account, William G. Riley, president of the Corporation, rather than setting up an escrow, purchased a cashier's check, payable to both the Corporation and the plaintiff. He assured the plaintiff that both their signatures would be necessary to negotiate the check and he advised the plaintiff that he did this to avoid the charges for an escrow; the plaintiff apparently made no objection.

At the time he deposited the earnest money in the Corporation's account at the defendant bank, Riley requested the cashier's check. The balance in the Corporation's account was only $13,000 at the time, and the defendant bank refused to issue the check until such time as plaintiff's check for the earnest money cleared. Upon notification of clearance, the defendant bank issued the $25,000 cashier's check payable to the Corporation and plaintiff. About one month later, Riley returned the cashier's check to the defendant bank, notified the defendant bank that the check had not been used for the intended purpose, and requested two new cashier's checks (one for $15,000 and one for $10,000) payable to the Corporation only.

We hold that the foregoing circumstances were unusual and sufficient to raise a duty in the defendant bank of inquiry concerning delivery or wrongdoing by the Corporation, and the bank was not justified in relying on the presumption of continued ownership by the Corporation. There were no endorsements by the payees. The defendant bank requested Riley to write on the reverse of the cashier's check "not used for purpose issued" and he did so. The defendant bank then issued the two new checks as requested.

About two months later, plaintiff demanded that defendant bank return $25,000 to her, and upon refusal plaintiff sued the defendants for conversion. Upon the stipulated facts, the trial court found for the defendant bank. The appellate court reversed and remanded.

The defendant bank argues that the Corporation, as purchaser of the cashier's check, has the right to have it cancelled under section 3-605 of the Uniform Commercial Code (Ill. Rev. Stat. 1965, ch. 26, par. 3-605), which provides:

"Section 3-605. Cancellation and Renunciation.

(1) The holder of an instrument may even without consideration discharge any party

(a) in any manner apparent on the face of the instrument or the endorsement, as by intentionally canceling the instrument or the party's signature by destruction or mutilation, or by striking out the party's signature; or

(b) by renouncing his rights by a writing signed and delivered or by surrender of the instruments to the party to be discharged.

(2) Neither cancellation nor renunciation without surrender of the instrument affects the title thereto."

The plaintiff contends that the cashier's check was issued when the defendant bank signed and delivered it to Riley, and that since the Corporation was named as a co-payee thereon, there was delivery of the cashier's check to the Corporation when Riley, its president, picked it up from the bank; and that thereafter, under section 3-116 of the Uniform Commercial ...


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