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November 10, 1997


Appeal from the Circuit Court of Cook County. No. 95-CH-3816. Honorable Ellis E. Reid, Judge Presiding.

Released for Publication December 24, 1997.

The Honorable Justice Gallagher delivered the opinion of the court. Campbell, P.j., and O'brien, J., concur.

The opinion of the court was delivered by: Gallagher

The Honorable Justice GALLAGHER delivered the opinion of the court:

Plaintiff, Bank One, Milwaukee, N.A. (Bank One), filed a complaint in chancery against several automobile dealerships, namely, Loeber Motors, Liberty Buick, Bob Krumpholz Chevrolet-Buick, McHenry Jeep-Eagle, Perillo BMW, Perillo Lincoln-Mercury, and Highland Park Lincoln-Mercury (hereinafter the dealers or defendants). By filing its complaint, Bank One sought to enjoin the dealers from repossessing ten vehicles and a declaratory judgment establishing Bank One as the rightful owner of said vehicles. The trial court issued a temporary restraining order against the defendants in order to preserve the status quo. After the parties exchanged documents and deposed witnesses, both Bank One and the defendant dealers filed cross-motions for summary judgment. The trial court denied Bank One's motion for summary judgment, but granted summary judgment in favor of the dealers and awarded them damages. Bank One then filed this appeal.

The material facts are not in dispute. Bank One's business activities include the purchasing of motor vehicles and the leasing of said vehicles to consumers. To this end, Bank One enters into "dealer agreements" with new car dealers. Pursuant to these agreements, the dealers undertake to arrange lease financing through Bank One for their customers. Essentially, the dealers find the lessee, order the car to be leased (or locate it in their auto lot), set up the lease terms and then present the entire package to Bank One. Once the dealer presents the proper documentation and Bank One approves of the lessee and the terms, Bank One signs the lease and purchases the car from the dealer. Bank One also enters into dealer agreements with automobile leasing companies; the leasing companies perform the same task as the new car dealers, but instead of ordering the desired car from the manufacturer, a leasing company simply locates the car at a new car dealership and purchases it. Bank One then buys the car from the leasing company. Bank One has entered into dealer agreements with some 2,000 new car dealers (or originating dealers) and with roughly 35 leasing companies (or private lessors). *fn1

On July 7, 1992, Bank One entered into a dealer agreement with Valet Automobile Leasing, Inc. (Valet), an entity Bank One recognized as a leasing company/private lessor. Among other things, the agreement obliged Valet to "assist [a lessee] in the preparation of the application, individual lease, security agreement and other documents." Valet also made several warranties in the agreement, particularly as to the genuineness of a given lessee's signature and the truth of the facts contained in all documents submitted to Bank One.

Valet, in turn, had an oral arrangement with Leased Car Sales (Leased Car). Although Leased Car was not a licensed new car dealer, it was licensed as a used car dealer and engaged in the purchase and resale of automobiles. It also arranged automobile leases. Pursuant to their oral arrangement, Leased Car agreed to find lessees, locate automobiles and arrange lease transactions; Valet agreed to submit the proposed leases to Bank One according to its dealer agreement. If Bank One approved, it would pay Valet and purchase the auto that was the subject of the lease. Valet then paid Leased Car. In short, Leased Car performed Valet's duties under the Valet-Bank One dealer agreement, and Valet presented the lease package to Bank One as if Valet had organized it. The record demonstrates that no relationship ever existed between Bank One and Leased Car. Furthermore, according to the definition used by Bank One employees, Leased Car was merely another private lessor or leasing company and not an originating dealer.

Before Bank One approved a lease and purchased a car, the signatory to the dealer agreement had to provide Bank One with several documents outlined on Bank One's "Freedom Lease Checklist." These documents included: the invoice or MSRP (manufacturer's suggested retail price) for the vehicle; the lease agreement signed by the customer; title/registration to the vehicle indicating Bank One as owner; and the certificate of origin (CO) for the vehicle (referred to as the MSO or manufacturer's statement of origin), among several other documents. Where Bank One dealt with leasing companies rather than originating dealers, it required that the leasing company submit a copy of the certificate of origin showing an assignment of the CO to Bank One.

For the vehicles at issue in this litigation, a typical transaction proceeded as follows. Leased Car would either contact or be contacted by prospective lessees. After determining what type of car the lessee desired, Leased Car would contact various originating or new car dealerships looking for an automobile matching that type. If Leased Car succeeded in locating such an automobile, it would then request from the relevant dealer reproductions of several documents required under Bank One's "Freedom Lease Checklist." In particular, the dealer would, via facsimile, send Leased Car copies of both sides of a particular vehicle's CO. Leased Car would then prepare a counterfeit CO, which falsely showed a chain of assignments from the original new car dealer, to Leased Car, and then to Bank One. Employees of Leased Car would fraudulently sign the counterfeit COs on behalf of the new car dealer that originally owned the vehicle.

Next, Leased Car would prepare the necessary lease documents and then forward all of the documents Bank One required under its checklist--including the counterfeit COs--to Valet. Valet would then present the entire lease package to Bank One; upon Bank One's approval of the lease package, Bank One would make out a check to Valet for the price of the car, plus an additional amount to cover the state sales tax. Valet would then pay Leased Car.

Finally, after receiving payment from Valet, a representative of Leased Car would return to the relevant dealership, present a post-dated check, and then drive away with that particular automobile for which the Bank One lease had been prepared, delivering it to the lessee. As part of each of these transactions, the various dealers would complete an Illinois Department of Revenue ST-556 sales tax transaction form for each vehicle. The completed form would indicate the reason why the original dealer was exempt from paying sales tax--because the vehicles were to be resold by Leased Car. Customarily, the dealer would retain possession of the original CO until it received full payment for the automobile in question (i.e., until Leased Car's check cleared).

Significantly, in the documents submitted to Bank One by Valet, the selling price of each vehicle was always less than the amount Leased Car paid to the originating dealer. As mentioned above, in addition to the selling price, Bank One gave Valet sufficient funds to pay the (diminished) state sales tax; presumably, these funds were forwarded to Leased Car as well. However, the record reflects that, in all but two instances, Valet did not forward Leased Car funds equivalent even to the original purchase price of the automobile. Moreover, after accounting for the sales tax on each transaction, Bank One never tendered Leased Car (through Valet) funds sufficient to cover Leased Car's costs. In essence, then, Leased Car purchased each of the cars at issue here only to immediately resell them at a loss. The inexorable--if unsurprising--result of this scheme was that when the defendant dealers attempted to cash the checks tendered by Leased Car, those checks bounced. The defendants moved to repossess the cars, and Bank One filed suit on April 27, 1995, seeking, among other things, a declaration as to who rightfully owned the vehicles.

Incidentally, deposition testimony indicated that back in October of 1994, Bank One became aware of titling problems with certain other vehicles it had purchased pursuant to its dealer agreement with Valet. To wit, the vehicle identification numbers (VINs) on the titles received by Bank One did not match the VINs shown on Bank One's lease documents. *fn2 As a result, Bank One set up special payment procedures unique to Valet. *fn3 Yet the transactions forming the basis for this litigation took place in January, February and March of 1995. Thus, Bank One recognized that ...

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