APPEAL from the Circuit Court of Du Page County; the Hon. CARL
F.J. HENNINGER, Judge, presiding.
MR. JUSTICE LINDBERG DELIVERED THE OPINION OF THE COURT:
Defendants, Robert and Beth J. Catalano, appeal from a judgment of the Circuit Court of Du Page County ordering them to make restitution to plaintiff, the Bank of Naperville. Restitution was ordered to be made by the Catalanos jointly in the amount of $2,780.94, by Robert Catalano individually in the amount of $1,825.45, and by Beth J. Catalano individually in the amount of $35.97. The bank cross-appeals the trial court's denial of its claim for interest and attorney's fees.
The business relationship between the parties began on April 3, 1975, when the Catalano's took up residence on real estate in Naperville and retained the former owner's real estate trust with the bank. The Catalano's thereafter conducted various transactions with the bank, including the maintenance of a checking account and a commercial loan account. Mr. Catalano testified at trial to instances where the bank had paid checks over stop-payment orders and failed to honor checks when sufficient funds to cover them were on deposit.
On September 13, 1975, Mrs. Catalano took out a $4,000 loan from the bank, secured by a note on which Mr. Catalano was guarantor. The note was renewed seven times and was due following the last renewal on July 5, 1977. As of August 3, 1977, the note was approximately 30 days past due, and Mrs. Catalano's checking account was overdrawn in the amount of $35.95. Mr. Stearns, the bank's president, determined that the loan was a "troublesome credit" which had been renewed too many times and that there was considerable difficulty with the checking account. Accordingly, he instructed that the checking account be closed and that the loan be paid off.
On August 4, 1977, Mr. Catalano went to the bank's drive-in window to make a deposit. The teller asked him to step inside, at which time an employee told him that his deposit could not be accepted and that his account had been closed. The employee tendered to Mr. Catalano a group of documents, including a paid-up loan statement, a cashier's check drawn on the bank for $1,825.45 and the documents which had accompanied the attempted deposit. Mr. Catalano refused to accept these papers and asked to see the bank president. He was shown into Mr. Stearns' office shortly thereafter. Mr. Stearns testified that he told Mr. Catalano that the bank would charge his savings account for the principal and interest due on the note and for the overdraft, with the balance being returned to him in the form of a cashier's check. Mr. Catalano admitted at one point that Stearns had said the money came from a savings account, but elsewhere denied having been so informed. Mr. Catalano stated that his money was "scattered all over," implying that he was uncertain as to which accounts had been used by the bank to produce the cashier's check.
Mr. Stearns testified that Catalano had thereafter made a telephone call from the bank lobby and cashed the check. According to Mr. Stearns, Catalano then threatened Stearns' life and Stearns called the police. Following arrival of the police, Catalano left the premises. Mr. Catalano, on the other hand, denied threatening Stearns' life. Catalano testified that Stearns had said that the bank did not choose to do business with people of Catalano's character, and that Stearns had called the police when he had refused to accept the various papers given to him. The police advised Catalano to accept the documents, so Catalano, not trusting the bank, had cashed the cashier's check and departed.
Subsequent to these events, it was discovered that defendants did not maintain a savings account at the Bank of Naperville, and that the money which the bank had applied to the overdraft, the loan and the cashier's check had been inadvertently taken from the savings account of a third party who coincidentally was also named Robert Catalano. Mr. Stearns admitted that preparation of the cashier's check had been done in "a less than careful manner."
Three issues are presented by this appeal: (1) whether a bank which erroneously applies funds on deposit from one party to obligations owed the bank by a second party may obtain restitution of those funds from the second party, (2) whether the bank was erroneously denied interest and/or attorney's fees, and (3) whether the Catalano's are entitled to attorney's fees for the defense of the bank's cross-appeal.
• 1, 2 As a general rule, where money is paid under a mistake of fact, and payment would not have been made had the facts been known to the payor, such money may be recovered. The fact that the person to whom the money was paid under a mistake of fact was not guilty of deceit or unfairness, and acted in good faith, does not prevent recovery of the sum paid, nor does the negligence of the payor preclude recovery. Board of Education v. Holt (1976), 41 Ill. App.3d 625, 354 N.E.2d 534; Salvati v. Streator Township High School District No. 40 (1964), 51 Ill. App.2d 1, 200 N.E.2d 122.
The Catalanos, citing Central Bank & Trust Co. v. General Finance Corp. (5th Cir. 1961), 297 F.2d 126, argue that special rules of restitution apply in the case of commercial banks, and that the amount paid by a bank on its customer's check under a mistaken belief that the customer had sufficient funds to his credit to cover the checks is not recoverable in an action for restitution where there is no showing of fraud, misrepresentation or overreaching. The Catalanos also contend that inasmuch as a bank has a duty to know the state of its depositors' accounts, it must abide by the consequences of any mistakes it makes in administering those accounts. (See Citizen's Bank v. Schwarzschild & Sulzberger Co. (1909), 109 Va. 539, 64 S.E. 954.) In Central Bank & Trust Co., the bank paid the holder of the check in the mistaken belief that the drawer had sufficient funds on deposit. However, the payee stopped payment on certain checks to the drawer, resulting in the drawer's account being insufficient to cover the check to the payee. The bank was denied restitution against the payee, the court finding inapplicable the general rule allowing recovery of funds paid under a mistake of fact. Part of the court's rationale was that while the bank was in a position to know the state of its own accounts, the payee had no means of knowing the state of the drawer's account. Citizen's Bank of Norfolk also involved a ruling against restitution where the bank had made a payment on an instrument under the mistaken belief that the drawer had sufficient money on deposit to the bank to cover the payment. In the course of denying restitution, the court discussed the pertinent rules:
"The general rule is that money paid under a mistake of fact may be recovered, but the payment of a check or note by a bank upon which it is drawn, or at which it is made payable, under the mistaken belief that the drawer of the check or the maker of the note has sufficient funds to his credit to pay the check or note, seems to be an exception to the general rule. The cases do not seem to be entirely agreed upon what principle this exception is based * * *. Some place it upon the ground that there is no privity between the holder of the check or note and the bank; others upon the ground that since the bank always has the means of knowing the state of the depositor's account by simply looking at his own books, the payment is not a payment by mistake within the meaning of the legal rule which permits a recovery; others still place their decision upon both grounds." Citizen's Bank, 109 Va. 539, 541-42, 64 S.E. 954, 955.
The situation in Central Bank and Trust and Citizen's Bank is distinguishable from the case at bar. Mr. Catalano was not simply a holder of an instrument presenting it for payment. Rather, he was informed that the cashier's check represented the proceeds of an account which he had previously maintained in the bank and which was being closed. The bank president testified that he informed Mr. Catalano that the funds being given to him purportedly came from his savings account, and even if defendant did not understand the reference to a savings account specifically, he apparently understood that the money was supposedly from funds that he had ...