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Clean World Engineering, Ltd. v. Midamerica Bank

June 25, 2003


Appeal from the Circuit Court of Cook County. Honorable Lee Preston, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice South


Defendant, third-party plaintiff, MidAmerica Bank, FSB (MidAmerica), appeals from two orders entered by the circuit court of Cook County following a bench trial. The first order was a judgment in favor of plaintiff, Clean World Engineering (Clean World), and against MidAmerica following a bench trial. The second order granted third-party defendant's, TCF Bank Illinois (TCF), motion for reconsideration of the court's prior order denying its motion for summary judgment as to count I of MidAmerica's third-party complaint and granting TCF's motion for summary judgment against MidAmerica.

Count I of Clean World's complaint, which was directed against MidAmerica, alleged that it violated section 4-401 of the Illinois Uniform Commercial Code (810 ILCS 5/4-401 (West 2000)) by unlawfully charging its account for items (forged checks) that were not properly payable. MidAmerica filed an amended third-party complaint against TCF Bank Illinois. Count I alleged that TCF breached its presentment warranties to MidAmerica pursuant to sections 3-417 and 4-208 of the Illinois Uniform Commercial Code (810 ILCS 5/3-417, 4-208 (West 2000)) when it presented the forged checks for collection. Count II of the complaint alleged a breach of the transfer warranties when MidAmerica paid TCF on checks that were presented to it for payment when those checks were not authorized, and that TCF was not entitled to enforce the draft or obtain payment in violation of sections 3-417(a)(1) and 4-208(a)(1) of the Illinois Uniform Commercial Code (810 ILCS 5/ 3-417(a)(1), 4-208(a)(1) (West 2000)). Count II is not a subject of this appeal.

The pertinent facts as adduced at trial are as follows: Clean World is an environmental engineering company specializing in providing pollution control services to government and industrial clients. Rita Kapur is Clean World's president, Victor Bhatia is its senior vice president, and Terri Schulz is its office manager.

On June 22, 1997, Nicholas Fredich placed an ad in the Denver Post classified section seeking applicants for a fictitious bookkeeping position. He used one of the resumes solicited by this ad in order to obtain a date of birth and social security number of "Robert C. Landrum" whose identity and accounting background he assumed in order to apply for a bookkeeping position with Clean World. He and Mario Carasco created a company called Vichor Corporation and opened a bank account for that company at TCF Bank. Fredich intended to use blank checks from Clean World's checking account with MidAmerica to make deposits into Vichor's account at TCF and then withdraw those funds from that account for his personal use.

Kapur, in her capacity as president of Clean World, interviewed Fredich posing as Landrum for a bookkeeper's position with Clean World. She reviewed his application, checked his references, and obtained a credit report using the social security number that he had provided. She also called "Landrum's" prior employer, Mario Carasco, who reportedly was the president of Mid-Continental Investment. Carasco gave Kapur a very favorable recommendation of "Landrum."

Schulz, in her capacity as Clean World's office manager, conducted a credit check on "Landrum." Based upon the favorable background and credit checks, Kapur extended an offer of employment to "Landrum," and he began working at Clean World on September 2, 1997, as a bookkeeper.

On Wednesday, September 17, 1997, "Landrum" left work early because he claimed he had received an emergency phone call that his mother- in-law had just died. Later, Kapur left a message on his home answering machine, expressing her condolences for his loss and requesting that he inform her as to when he would be returning to work. "Landrum" called Kapur back on Thursday, September 18, 1997, stating that he needed a couple of days off but would return to work on Saturday. Kapur told him that he could come back to work on Monday.

On Monday, September 22, 1997, after "Landrum" failed to show up for work, Kapur asked Schulz whether he had called in and said he was going to be late. Schulz did not have any information because she had not spoken to or received a message from him. Kapur and Schulz made several calls to "Landrum's" home and each time received a recorded message requesting a mail code. Kapur attempted to call Carasco to determine if "Landrum" had gone back to work for him, but she only reached an answering service.

By this time Kapur was becoming suspicious of "Landrum," so she checked her office to determine if anything was missing. She unlocked the file cabinet and with Schulz's assistance discovered that some checks were missing. She immediately informed Bhatia, and the two of them met with MidAmerica's manager, Kathy Filafusi, who informed them that the missing checks had already been processed by the bank, and that deposits had been made into other accounts of which Kapur and Bhatia had no knowledge. Kapur and Bhatia immediately filed a report with the local police.

A total of $137,445.02 had been taken from Clean World's account at MidAmerica. MidAmerica recovered $85,516.82 on behalf of Clean World but refused to credit Clean World's account for the remaining $51,928.20, which included three checks totaling $31,900.20 and a wire transfer in the amount of $20,020. Those checks were as follows: Check number 5150 payable to Vichor Company in the amount of $21,326.52 and presented to TCF for deposit on September 10, 1997; check number 5244 also payable to Vichor Company in the amount of $10,139.39 and presented to TCF for deposit on September 10, 1997; check number 5245 in the amount of $442.29 payable to Ameritech; and check number 5171 which evidenced a wire transfer in the amount of $20,020.

Clean World's bank account with MidAmerica listed Bhatia and Kapur as the only two signatories, and all of the checks purportedly bore Bhatia's signature. Bhatia later determined that the signatures on the missing checks and the unauthorized wire transfer application had been forged. Fredich was ultimately arrested and prosecuted for his crimes and pled guilty to the forgeries in the United States District Court for the Northern District of Illinois.

At the close of the evidence, the trial court found in favor of Clean World and awarded it $41,485.91. MidAmerica then filed a motion for reconsideration.

On the third-party complaint, TCF filed a motion for summary judgment prior to trial, arguing that it was not in breach of its presentment warranty to MidAmerica because there was no evidence that TCF knew that the drawer's signatures on the drafts were unauthorized or forged. MidAmerica filed its response, stating that it was not required to prove knowledge, and that TCF bore the burden of establishing the validity of the drawer's signature. The court granted TCF's motion as to count II, the transfer warranties, and granted MidAmerica's cross-motion for summary judgment as to count I, the presentment warranties, and awarded it $31,465.91 for the two forged checks deposited with TCF. TCF subsequently filed a motion for reconsideration.

At the conclusion of the trial on Clean World's complaint against MidAmerica, the trial court granted TCF's motion for reconsideration as to count I, the presentment warranties, and denied MidAmerica's ...

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