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Chicago Title & Trust Co. v. Walsh

NOVEMBER 20, 1975.

CHICAGO TITLE AND TRUST COMPANY, PLAINTIFF-APPELLEE, APPELLANT AND CROSS-APPELLANT,

v.

JACK WALSH ET AL., DEFENDANTS-APPELLANTS, APPELLEES AND CROSS-APPELLEES. — GALE L. MARCUS ET AL., PLAINTIFFS-APPELLANTS, APPELLEES AND CROSS-APPELLEES,

v.

CHICAGO TITLE AND TRUST COMPANY, DEFENDANT-APPELLEE, APPELLANT AND CROSS-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. FRANCIS T. DELANEY, Judge, presiding.

MR. JUSTICE DEMPSEY DELIVERED THE OPINION OF THE COURT:

Chicago Title and Trust Company filed an action to prohibit the negotiation of drafts it issued through an escrow to numerous creditors of Jack Walsh, who founded the escrow with a forged certified check in the sum of $2,500,000. Four of the drafts had been issued on behalf of or to Gale Marcus, Max Munson and Carl Verive. The title company also asked rescission of the escrow and return of its drafts.

Marcus, Munson and Verive filed a declaratory judgment action seeking payment of the drafts and of damages sustained in reliance on them. They alleged the breach by Chicago Title of express, implied, or constructive contracts, the breach of its duty as escrowee, conversion of documents by wrongfully releasing them to Walsh, negligence and willful, wanton, reckless conduct.

The two cases were consolidated. Counsel for the plaintiffs in the declaratory judgment action withdrew as attorneys for Verive, who apparently had fled the jurisdiction, and his interest in the cause was dismissed for want of prosecution. Munson died before trial and his estate was substituted as a party. The trial court ordered rescission of the escrow and the return of the drafts, but entered judgment against Chicago Title for damages sustained by Marcus and Munson in reliance on the dishonored drafts. Marcus and Munson filed a post-trial motion and the court amended its findings to state that a fraud was perpetrated by Jack Walsh and to increase the damages to Marcus by $2,300 for attorney's fees incurred during the trial.

Three issues are raised on appeal: (1) whether the court overreached its equitable powers by granting rescission of the escrow; (2) whether Marcus and Munson may enforce payment of the checks issued by Chicago Title, and (3) whether the damages awarded Marcus were properly computed.

The factual background of this case has been substantially delineated in civil and criminal litigation which sprang from these events. (See Munson v. American National Bank & Trust Co., 484 F.2d 620 (7th Cir. 1973), and People v. Lombardi (1973), 13 Ill. App.3d 754, 301 N.E.2d 70.) An escrow was opened at Chicago Title on November 18, 1969, by Paul Rudnick and Joseph Caracci, Chicago attorneys. Rudnick acted on behalf of Certified Grocers of Illinois, Inc., Caracci for Roger Walsh (the brother and business associate of Jack Walsh). For its services as escrowee Chicago Title received a $5,000 fee. The agreement, with one notable exception, was in the usual form which provided for the interchange and delivery of documents, deposited or to be deposited, upon the performance of stipulated conditions. The exception, which Caroline Vlasek, the officer assigned to the escrow, acknowledged in testimony to be unusual, provided that the agreement was not to be amended unless Rudnick executed the amendment in person and was known and identified by the escrowee. Despite this, Chicago Title on December 1, 1969, accepted an amendment signed only by Caracci which authorized the escrowee to accept directions from Jack Walsh as to disbursements. This opened the door for Walsh to bring into the escrow more of his creditors, among them Marcus and Munson. By supplemental instructions he then arranged to deposit $2,500,000 for disbursement to his creditors and those of his brother.

Rudnick, and another attorney who made a special trip to her office for the purpose, warned Vlasek that Jack Walsh was dishonest and could not be trusted. Rudnick even expressed a fear that his own name might be forged by another party to the escrow. Vlasek related these warnings to her superiors and suggested that the escrow be terminated, if at all possible. On the afternoon of December 15, 1969, Walsh brought her a photocopy of a check for $2,500,000 drawn by Woodstock, Inc., of Florida on the National Industrial Bank of Miami and payable to Chicago Title. He told her the original was still in Florida and asked if the check would be acceptable. Vlasek consulted with a senior escrow officer and informed Walsh that the check had to be certified and the corporation drawing it would either have to pass a resolution of authorization or make it payable to Walsh and he could endorse it to Chicago Title. Early the next morning, Walsh called her to say that another check was being flown in from Florida. She agreed to meet him outside of the Chicago Title offices and at 11 a.m. they met in a first-floor arcade connecting the Chicago Title and Trust Company building and the American National Bank building, where he gave her a check, purportedly certified by the Miami bank, payable to himself and endorsed by him to the title company. Vlasek took the check to the title company bookkeeping department. She gave instructions to deposit the check immediately, saying that she intended to disburse payments from the escrow that same day. She then drew 134 checks against Chicago Title's account at the First National Bank of Chicago, and began to pay them out to the various depositors to the escrow. She also passed releases and other documents out of the escrow to Walsh.

Among the payees was Attorney Gale Marcus, who received one draft for $25,000 payable to himself, and another in the amount of $80,000 as agent and attorney for Munson and the Munson Mortgage and Investment Corporation. These sums had been included in a confession judgment of $573,980.15, obtained earlier on a promissory note prepared by Marcus and executed by Walsh. Munson was trustee of a number of creditors whose claims were consolidated in the note and judgment. Some of these claims were apparently spurious (see People v. Lombardi), but there was no evidence that this was known to Marcus or Munson. The $25,000 payment to Marcus represented attorney's fees for the debt consolidation and judgment. Munson's $80,000 represented a compromise of a $130,000 debt due him from Walsh. Marcus had deposited in the escrow, pursuant to an amendatory instruction prepared by Vlasek at his request, a general release running from Munson to Walsh, an unrecorded satisfaction of the judgment note and two quitclaim deeds to property which was the subject of the original escrow. Walsh had some time earlier conveyed the property to Munson by deeds which turned out to be forged.

Marcus received his drafts from Miss Vlasek on December 16. At the same time he gave her certain NSF checks, defaulted notes and a check forged by Walsh for $6,000. These instruments evidenced Munson's claims against Walsh totaling approximately $115,000. Marcus also gave Vlasek Walsh's affidavit of interest in the property which was the subject of the escrow. All the instruments were turned over to Walsh when he collected the other documents in the escrow.

On the following day, Marcus and Munson negotiated the two Chicago Title drafts at the American National Bank. Marcus deposited his $25,000 draft in his personal checking account. Munson exchanged his $80,000 draft for three cashier's checks and $1,000 in cash. Two more days passed before the title company learned that the Walsh check was a forgery and stopped payment on its own drafts. American National then debited Marcus' account for $25,000 and stopped payment on two of the three cashier's checks issued to Munson, actions which were subsequently upheld in the Federal court. Munson v. American National Bank & Trust Co.

Marcus and the estate of Munson claim that by granting rescission of the escrow the court abused its discretion, first, because Chicago Title negligently and even recklessly acted under a unilateral mistake when it issued its drafts; second, because they, as defendants in the rescission action cannot be placed in status quo. Chicago Title rejoins that the parties were mutually mistaken in their belief the escrow had been funded and that its alleged negligence in failing to learn of the forgery before issuing its drafts is irrelevant as a matter of law to the rescission issue.

We believe the question of negligence is relevant. Vlasek testified that the procedures used to process Walsh's check were customary in the escrow department, where the receipt of very substantial sums is a routine matter. (But compare her testimony in People v. Lombardi, where she said that normally an inquiry would be made to see if a check was valid before disbursement.) Even if the procedure used in this case is routine in the escrow department of Chicago Title, the present transaction was, at best, conducted with surprising carelessness. An important and distinctive condition in the escrow was ignored. Repeated warning signals that this was not a routine transaction were given little heed. Vlasek and, through her, her superiors were informed of Walsh's reputation and record. In spite of this she followed his directions, accommodated him by meeting him away from her office, accepted his $2,500,000 check without question and hastily processed the escrow. With this background, and the fact that a debacle of this magnitude might have been averted by a simple telephone call to the bank that purportedly certified the check, the only conclusion possible is that there was gross negligence.

Marcus and his co-defendants in the rescission action cite People ex rel. Department of Public Works & Buildings v. South East National Bank (1971), 131 Ill. App.2d 238, 266 N.E.2d 778, as authority for the conditions generally required for rescission due to unilateral mistake, namely, that the mistake was related to a material feature of the contract; that it occurred notwithstanding the exercise of reasonable care; that it was of such grave consequence that enforcement of the contract would be unconscionable, and that the other party can be placed in status quo.

On the other hand, Chicago Title cites cases which have taken a much different view toward persons in its position. It has been held that money paid under a mistake of fact, which would not have been paid had the facts been known to the payors, may be recovered. The fact that the person to whom the money was paid was not guilty of deceit or unfairness, but acted in good faith, does not preclude recovery, nor does the negligence of the payor. (Salvati v. Streator Township High School District Number 40 (1964), 51 Ill. App.2d 1, 200 N.E.2d 122; Stifel, Nicolaus & Co. v. Coloia (1971), 2 Ill. App.3d 224, 276 N.E.2d 408.) But that general rule does not apply where the payment has caused a change in the position of the payee so that it would be unjust to require him to refund, as where he releases security not readily recoverable. (Baxter v. Continental Illinois National Bank & Trust Co. (1940), 304 Ill. App. 117, 26 N.E.2d 179.) Although Chicago Title replevined Munson's release of Walsh on the confession judgment and the other documents which were officially a part of the escrow, Marcus ...


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