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12/15/88 National Bank of v. Frank M. Quinn

December 15, 1988





533 N.E.2d 846, 126 Ill. 2d 129, 127 Ill. Dec. 764 1988.IL.1795

Appeal from the Appellate Court for the Fourth District; heard in the court on appeal from the Circuit Court of Piatt County; the Hon. Frank W. Lincoln, Judge, presiding.

Rehearing Denied January 30, 1989


JUSTICE CLARK delivered the opinion of the court.


This commercial law case presents for the court's review a question centered on an interpretation of the terms "properly payable" and "authorized" found in this State's codification of the Uniform Commercial Code (Ill. Rev. Stat. 1985, ch. 26, par. 1-101 et seq.). Specifically at issue here is a determination of the scope of the drawee bank's responsibility to its customer under the provisions of section 4-401(1): "As against its customer, a bank may charge against his account any item which is otherwise properly payable from that account even though the charge creates an overdraft." Ill. Rev. Stat. 1985, ch. 26, par. 4-401(1).

Appellant, as drawer of a check, had sought to have his account recredited for a check which National Bank of Monticello (National) had paid and which, he asserted, was not "properly payable." The appellate court held that under the provisions of the Code, the trial court of Piatt County should have granted National's motion for summary judgment; it therefore reversed the trial court's finding for appellant. (158 Ill. App. 3d 694.) In reaching its Conclusion, the appellate court relied primarily on the signature card of the intended payee on file with the collecting bank as well as on section 9 of the fiduciaries act (Ill. Rev. Stat. 1983, ch. 17, par. 2009) to determine the scope of the drawee bank's liability following an assertion that an item was not properly payable. For the reasons stated herein, we reverse the decision of the appellate court.

In March 1985, Frank Quinn made demand upon National to recredit his account $30,000 for a check drawn on June 15, 1984, payable to Limetree Beach Associates, Ltd. (Limetree Beach). The check was issued for the purpose of making a purchase into an investment partnership being formed by Dan L. Wey (Wey). Quinn had determined, after talking with co-workers and reading the offering memorandum for the Limetree limited partnership and the limited partnership agreement, that he wanted to make an investment in that venture. Appellant personally delivered his check payable to the partnership to Wey.

Quinn now alleges that the check is not "properly payable" because Wey indorsed the reverse side of the check directing deposit into Wey's personal business account rather than into the Limetree Beach account. Wey's endorsement on the back of the check read: "Deposit 049 580." There is no dispute among any of the parties that Wey wrote the word "deposit" and the numbers on the back of the check.

Wey was the sole individual general partner of the Limetree Beech limited partnership and the person to whom appellant personally delivered the $30,000 check. He maintained the partnership account and a personal business account at the same bank. Both the Limetree Beach account and Wey's personal business account were at Marine American State Bank, F/K/A American State Bank of Bloomington (American State). Wey was one of two authorized signatories on each of the two noted accounts at American State. Because Wey was an authorized signatory on the Limetree account, American State accepted Wey's endorsement of appellant's check for deposit into the personal account and stamped the check with its own guarantee of prior indorsements.

Through his attorneys, Quinn made demand for recredit to his account in March 1985. National refused to recredit Quinn's account and, instead, initiated a two-count action seeking declaratory relief. National sought a determination of whether it owed Quinn a duty to recredit his account and, if it did owe Quinn such a duty, an order requiring American State to compensate National. Appellant filed a counterclaim against National seeking an order to compel National to recredit his account in the amount of $30,000 plus interest. National responded by filing a third-party complaint against American State for reimbursement of any amounts due to appellant. American State answered by denying liability.

All parties moved for summary judgment: appellant against National, and National and American State against appellant. The trial court granted appellant's motion, ruling that Wey's endorsement was invalid because he exceeded his authority as delineated in the offering memorandum for the limited partnership and in the limited partnership agreement. Because he exceeded his authority, the court held, the indorsement was invalid. Both banks appealed.

The appellate court reversed, finding that because Wey was the listed signatory on the signature card on file with American State he was authorized to indorse the check. The court reasoned that the trial court had erred in looking to such extraneous documents as the partnership agreement and the offering memorandum. The signature card, the court stated, was evidence of the contract between American State and Wey; American State had acted within the bounds of that contract and was therefore not liable on the check. American State, and through it, National, could rely, the court held, on the signature card held by American State to establish Wey's authority. Thus the check ...

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