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First National Bank of Chicago v. Midamerica Federal Savings Bank

February 11, 1999

THE FIRST NATIONAL BANK OF CHICAGO, A NATIONAL BANKING ASSOCIATION, PLAINTIFF-APPELLEE,
v.
MIDAMERICA FEDERAL SAVINGS BANK, A NATIONAL BANKING ASSOCIATION, DEFENDANT-APPELLANT.



The opinion of the court was delivered by: Justice Quinn

Appeal from the Circuit Court of Cook County

Honorable David Lichtenstein, Judge Presiding.

Plaintiff, The First National Bank of Chicago (First Chicago), filed a complaint against defendant MidAmerica Federal Savings Bank (MidAmerica), claiming breach of certain warranties pursuant to the Illinois version of the Uniform Commercial Code-Negotiable Instruments (810 ILCS 5/3-101 et seq. (West 1996)) and seeking a judgment in the amount of $157,611.30. Both First Chicago and MidAmerica filed motions for summary judgment. The trial court granted summary judgment in favor of First Chicago and entered a money judgment in its favor in the amount of $157,611.30 plus interest and costs. On appeal, MidAmerica contends that the trial court erred in granting summary judgment in favor of First Chicago because: (1) there was a genuine issue of material fact as to whether MidAmerica breached certain presentment warranties; (2) MidAmerica had a valid defense pursuant to section 3-404 of the Illinois version of the Uniform Commercial Code (UCC); and (3) MidAmerica had a valid defense pursuant to section 3-406 of the UCC.

For the following reasons, we affirm the judgment of the circuit court.

The following facts are undisputed. Prior to June 21, 1995, First Chicago mailed a maturity notice to its customer Muhamad Mustafa, at his home in Naperville, Illinois, informing him that his certificate of deposit was coming to maturity. The maturity notice allows a First Chicago customer to make a written election with respect to the handling of the certificate of deposit. Once the customer has made the election on the maturity notice form, the customer is required to return the form to First Chicago. The maturity notice form also includes a signature area that must be signed by the First Chicago customer in order to close the account. The form was returned to First Chicago with instructions to close the certificate of deposit account, apparently signed by Muhammad Mustafa.

On June 21, 1995, after receiving the maturity notice form, First Chicago issued a cashier's check in the amount of $157,611.30, payable to Muhamad S. Mustafa. First Chicago mailed the cashier's check to Muhamad Mustafa's address in Naperville via first class mail.

On or about June 26, 1995, Michael Mustafa deposited the check into his account at MidAmerica. Michael Mustafa was a MidAmerica customer at the time and shared the same residential address as Muhamad Mustafa. Michael Mustafa is also the nephew of Muhamad Mustafa. When the check was deposited into Michael Mustafa's MidAmerica account, the purported signature of Muhamad Mustafa and the signature of Michael Mustafa both appeared on the reverse side of the check.

First Chicago paid the check on or about June 27, 1995.

Approximately 10 days later, Michael Mustafa withdrew the funds from his MidAmerica account representing substantially all of the check proceeds. In the middle of July 1995, Michael Mustafa telephoned First Chicago and informed it that he had forged the signature of Muhamad Mustafa, taken the cash and lost it gambling at a riverboat casino.

On August 14, 1995, Muhamad Mustafa went to the First Chicago branch in Naperville, Illinois, to redeem the certificate of deposit. First Chicago informed Muhamad Mustafa that a cashier's check was already issued and that the account was closed. Muhamad Mustafa stated that he was out of the country at the time the cashier's check was issued. First Chicago then prepared and obtained Muhamad Mustafa's signature on a forged endorsement affidavit and issued a replacement check to him for the full amount.

First Chicago filed suit against MidAmerica alleging that MidAmerica breached certain warranties and was liable to First Chicago for $157,611.30. MidAmerica filed a third-party complaint against Michael Mustafa, alleging that he endorsed the check knowing that he was not authorized to do so and intended that MidAmerica rely on his endorsement to honor and pay the check.

The following deposition testimony was taken. Aida Rivera, assistant vice president and transaction processing unit manager for First Chicago, testified that her responsibilities included insuring that all mail transactions to First Chicago were processed accurately on all retail accounts. Rivera stated that the first time she became aware of Muhamad Mustafa was when she received a telephone call from the risk control department, which is responsible for investigating any errors or fraudulent transactions. The risk control department requested documentation of the cashier's check issued to Muhamad Mustafa and any instructions Muhamad Mustafa gave First Chicago regarding his account.

Rivera pulled the file and found the maturity notice and a copy of the cashier's check issued to Muhamad Mustafa. Rivera testified that there was a handwritten portion on the maturity notice that said "close account and mail check to my home address." Rivera assumed that the customer, Muhamad Mustafa, wrote that instruction.

Rivera testified that once the customer returns the maturity notice form to First Chicago, the signature on the notice is verified. Signature verification involves taking the purported signature on the notice and comparing it with a digitized signature on file at First Chicago. Rivera testified that bank employees are trained to compare and verify the signatures. Rivera also testified that First Chicago further checks its system to insure that no holds, restraints or alerts were placed on the account. Once everything is verified, the check is issued. First Chicago then conducts ...


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