Appeal from the Circuit Court of the 13th Judicial Circuit, La Salle County, Illinois No. 97-SC-1137
The opinion of the court was delivered by: Justice Lytton
The plaintiff, Brian P. McIntyre, filed a complaint against the defendants, Twin Oaks Savings Bank (Bank) and Robert E. Harris (Harris), the Bank's executive vice-president. McIntyre alleged that the defendants coerced him into signing a $2,000 personal note made payable to the Bank after the Bank had erroneously paid out a check over McIntyre's valid stop payment order. The defendants counterclaimed, demanding payment on the overdue note. After a bench trial, the court found in favor of the defendants. On appeal, McIntyre contends: (1) the trial court erred in ruling that Sandra Bennett, the payee on the check, was a holder in due course; (2) McIntyre was denied a fair trial when the defendants introduced a copy of his prior felony conviction into evidence; and (3) one of the defendants' exhibits was an altered document. We affirm.
In mid-October 1996 McIntyre's company, Total Home, placed a telemarketing call to Sandra Bennett. As a result, Ray Archie visited Bennett's home and quoted her a price to repair her roof. McIntyre testified that since his company did not repair roofs, he referred the job to Archie. Bennett, however, believed that Archie worked for Total Home.
At trial, McIntyre identified defendant's exhibit 2, a carbon copy of a proposal written by Archie for Bennett's roof. The price for the job was $3,850, including $2,000 for materials. At the bottom of the proposal, Archie had signed his name and written "House Doctor" as the company performing the work. At the top of the proposal, "Total Home" was written in ink.
Around October 19, 1996, McIntyre visited Bennett and told her that in order to complete the job, it was necessary for her to give Archie $2,000 for the materials. Bennett wrote a check to Total Home for $2,000 that day. In return, McIntyre wrote Bennett a check for $2,000 and postdated it to October 28, 1996. Bennett said that McIntyre told her that she could cash his check if her roof was not repaired by October 28, 1996. McIntyre cashed Bennett's check and deposited it in his business account at the Bank. Even so, McIntyre maintained that he was simply acting as an intermediary for Archie.
McIntyre admitted that Bennett's roof was not repaired by October 28, 1996. Nevertheless, on November 14, 1996, he ordered the Bank to stop payment on the check to Bennett.
Around November 27, 1996, the Bank erroneously paid out on McIntyre's check over his stop payment order. After McIntyre learned that the Bank had withdrawn the $2,000 from his business account, he spoke with Harris and told him that the withdrawal would cause his account to be overdrawn. He then went to the Bank and signed an agreement to pay the Bank $2,000 plus interest due by July 1, 1997. In return, the Bank agreed to leave the $2,000 in his account. McIntyre admitted that he never paid on the note and at the time of trial he was currently 2½ months overdue on it.
Over McIntyre's objection, the defendants submitted an offer of proof that on April 26, 1993, McIntyre pled guilty to unlawful possession of a controlled substance. See 720 ILCS 570/402 (West 1992). The Judge ruled that it would allow the evidence of McIntyre's prior felony, but stressed that the conviction was inconsequential because its decision was based on the testimony given during the bench trial.
The Judge further stated that it did not believe that McIntyre had no involvement with the roof transaction. He found that Bennett was a holder in due course of the $2,000 check. Therefore, under the Uniform Commercial Code, the Bank was subrogated to the rights of Sandra Bennett and could recover the money from McIntyre. The court then found in favor of the defendants on both McIntyre's complaint and the defendants' counterclaim.
After trial, the court granted McIntyre's motion to supplement the record to include evidence that his conviction had been dismissed pursuant to the first offender statute of the Controlled Substances Act. 720 ILCS 570/410 (West 1992). The court denied McIntyre's motion to reconsider, again noting that it did not consider McIntyre's prior conviction in its decision.
McIntyre first contends that the Bank is not entitled to a $2,000 reimbursement. In deciding this issue, we must determine two questions under section 4-407 of the Uniform Commercial Code (UCC) (810 ILCS 5/4-407 (West 1996)): (1) whether the Bank properly paid out over a valid stop payment order to prevent unjust enrichment, and (2) whether the Bank can be subrogated to the rights of a holder in due course, or of a mere holder in due course of a negotiable instrument. McIntyre contends that the Bank could not be subrogated because Bennett was not a holder in due course.
Section 4-407 of the UCC provides that if a payor bank has paid an item over the stop order of the drawer or maker, the bank may become subrogated to the rights of other parties in order to prevent unjust enrichment to the extent necessary to prevent loss to the bank by reason of its payment of the item. Specifically, the payor bank may become subrogated to the rights of: "(1) any holder in due course on the item against the drawer or maker; (2) the payee or any other holder in due course of the item against the drawer or maker either on the item or under the transaction out of which the item arose; and (3) the drawer or maker against the payee or any other holder in due course of the item with respect to the transaction out of which the item arose." 810 ILCS 5/4--407 (West 1996). When a bank pays out a check ...