The opinion of the court was delivered by: BUA
NICHOLAS J. BUA, UNITED STATES DISTRICT JUDGE
Plaintiff Alexander & Alexander, Inc. ("Alexander") commenced this diversity action against defendant Wachovia Bank & Trust Company, N.A. ("Wachovia"), alleging that Wachovia improperly charged Alexander's bank account for a check containing an unauthorized indorsement. Wachovia, in turn, filed a third-party action against Pathway Financial, F.A. ("Pathway"), the Federal Reserve Bank of Richmond, and the Federal Reserve Bank of Chicago, for breach of their presentment warranties. Wachovia and the third-party defendants now move for summary judgment against Alexander. For the reasons stated herein, the motion for summary judgment is denied.
This lawsuit arises from a financing agreement between Tifco, Inc. ("Tifco"), an insurance premium finance company, and Financial Assurance Consultants ("FAC"),
an insurance broker. When FAC obtained an "Errors and Omissions" insurance policy from Cadillac Insurance Company ("Cadillac"), it approached Tifco for purposes of obtaining the necessary financing. Tifco agreed to finance the policy, and the parties executed a premium finance agreement on August 10, 1987. One day later, Tifco issued a check in the amount of $ 600,000 ("check # 322550") to pay for the insurance. The check, drawn on Tifco's checking account at Wachovia, was made payable to "Cadillac Insurance Company."
Because Cadillac was operating through agents in Illinois, Tifco did not send check # 322550 to Cadillac. Instead, it delivered the check to Carmen Monaco, the president of UDC. Monaco indorsed the check as follows:
Carmen F. Monaco (signed)
Administrator for Cadillac Insurance Company
The check was deposited in FAC's money-market account at Pathway -- despite the fact that the underlying insurance was for FAC's own benefit.
Pursuant to the finance agreement between FAC and Tifco, FAC proceeded to make a $ 120,000 downpayment to Tifco. The remainder of the $ 600,000 was to be paid in nine monthly installment payments of $ 55,466.64. FAC paid the first monthly installment, but it defaulted on the second installment. On October 7, 1987, Tifco sent FAC a "Notice of Intent to Cancel" the insurance coverage. By October 28, 1987, Tifco still had not received payment from FAC, so Tifco issued a "Notice of Cancellation." When Cadillac received the notice, it informed Tifco that the insurance policy at issue did not exist. Tifco then demanded repayment from Cadillac, UDC, and FAC. Its demands were unsuccessful.
After obtaining a copy of check # 322550, Tifco informed its bank, Wachovia, that the check contained an unauthorized indorsement. To support this assertion, Tifco submitted an affidavit from Ernest M. Solomon, the president of Cadillac. In the affidavit, dated November 17, 1987, Solomon stated that the indorsement was indeed unauthorized and that Cadillac never received the proceeds of the check. Wachovia apparently took no action in response to this affidavit.
On January 11, 1988, Tifco filed suit in federal court, naming FAC, Andrew Ahern (FAC's president), UDC, Monaco, and Pathway as defendants. Tifco, Inc. v. Financial Assurance Consultants, Inc., 754 F. Supp. 133 (N.D. Ill. 1991) (Conlon, J.). Seeking to recover the unpaid funds from these defendants, Tifco asserted claims for, inter alia, breach of contract, conversion, and fraud. More specifically, Tifco alleged that FAC, UDC, Ahern, and Monaco unlawfully converted Tifco's funds by depositing check # 322550 into FAC's money-market account. ...