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Able & Associates v. Orchard Hill Farms





APPEAL from the Circuit Court of Cook County; the Hon. JAMES A. CONDON, Judge, presiding.


Defendant Union National Bank of Chicago (Union) appeals from a judgment entered against it in an action to collect on a cashier's check issued by Union upon which it had later stopped payment. The issue presented is whether Union was legally justified in refusing to honor its cashier's check.

The essential facts in this case are not in dispute. It appears that plaintiff, an engineering firm, entered into a contract to perform certain engineering and construction services for Orchard Hill Farms of Illinois (Orchard). Upon the purported completion of its work, plaintiff sent Orchard a bill for approximately $12,000 and, in partial payment thereof, Orchard sent plaintiff its check drawn on Union in the amount of $7,108.48. When the check failed to clear, apparently due to insufficient funds in Orchard's account, Earl Bennecke (president of plaintiff) telephoned the president of Orchard (Robert Flude) who told Bennecke to send the check through again. It appears, however, that sometime after this conversation, a dispute arose between plaintiff and Orchard concerning whether the contract had been properly performed. As a result, Flude telephoned Union on Saturday, March 6, 1976, and, speaking to Mr. Rew (Union's president) requested that payment be stopped on Orchard's check. Flude then personally signed a stop order authorization on Monday, March 8, at Union. On that same day, Bennecke came to Union and inquired of Judy Boyer (a bank officer) whether there were funds in Orchard's account sufficient to cover its check. She examined the account and determined that there were sufficient funds, but she did not check for any stop payment orders. Bennecke then asked for a cashier's check in exchange for Orchard's check and, since Boyer was unaware of the stop order, she issued a cashier's check payable to plaintiff. Later, when Union realized it had issued the cashier's check in exchange for Orchard's check (upon which payment had been stopped), it responded by stopping payment on its check.

Plaintiff filed a complaint against Orchard (which is not involved in this appeal) and Union. This appeal is by Union, from a judgment against it for $7,108.48 — the amount of the dishonored cashier's check.


Union essentially contends that, under certain circumstances, the law allows a bank to stop payment on its cashier's check and that such circumstances were present in the instant case. In support, it is first argued that since Orchard had ordered payment stopped on the check which plaintiff exchanged for Union's cashier's check, plaintiff did not give value for such cashier's check; that under section 3-302 of the Uniform Commercial Code (Ill. Rev. Stat. 1977, ch. 26, par. 3-302) (hereinafter cited as the Code), plaintiff is therefore not a holder in due course of the cashier's check; that because plaintiff is not a holder in due course, Union may refuse payment on the grounds of failure of consideration under section 3-306; that there was in fact a failure of consideration inasmuch as payment was stopped on Orchard's check which was given in exchange for the cashier's check; and that, therefore, Union was justified in stopping payment on the cashier's check.

In support of this argument, plaintiff cites Bank of Niles v. American State Bank (1973), 14 Ill. App.3d 729, 303 N.E.2d 186. There, after an individual named Kantaris had been charged with defrauding the Bank of Niles by means of a worthless check, an agreement was worked out whereby the charges against Kantaris were to be reduced from a felony to a misdemeanor if she repaid $2,000. Kantaris, using a check ostensibly drawn by her employer on another bank, purchased a cashier's check from the American State Bank made payable to the vice president of the Bank of Niles. When American State later ascertained that this check had been forged, it refused to honor its cashier's check when it was presented for payment by the Bank of Niles, which then brought an action on the check against American State. In its defense, American State contended that the only purported consideration given by the Bank of Niles for the cashier's check was a promise not to prosecute the felony charge against Kantaris; that this constituted an illegal agreement; that, as a result, the Bank of Niles gave no value for the cashier's check and, not being a holder in due course, it was subject to American State's defense that it was justified in refusing to honor its cashier's check because the check given in exchange for it was forged.

In determining the merits of American State's defense, the court stated:

"As was said, in Ross v. Peck Iron & Metal Co., Inc. (4th Cir. 1959), 264 F.2d 262, at page 269:

`* * * [A] cashier's check is a bill of exchange drawn by a bank upon itself, accepted in advance by the act of issuance, and is a non-countermandable promise by the bank to pay, a primary obligation of the bank. [Citations.] Thus, the bank assumes the dual position of drawer and drawee. * * *'

Another excellent statement is found in Wright v. Trust Company of Georgia (1963), 108 Ga. App. 783, 134 S.E.2d 457, where the court * * * said, at page 461:

`"A cashier's check is a bill of exchange drawn by a bank upon itself. The bank by issuing the check incurs the same primary liability on the instrument as a bank certifying an ordinary check. When payment has been stopped on a draft given to the bank in exchange for its cashier's check, the bank has received no consideration for its own check and is liable on it only to a holder in due course."'"

(14 Ill. App.3d 729, 733-34, 303 N.E.2d 186, 188-89.)

The court then went on to hold that the Bank of Niles took the cashier's check in payment of an antecedent claim against Kantaris and that it therefore gave value for the instrument and was a holder in due course thereof (section 3-303(b)), not ...

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