No. 3--10--0003

Opinion filed January 27, 2011

_________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2011

JARRED NEWELL, ) Appeal from the Circuit Court

) of the 12th Judicial Circuit,

Plaintiff-Appellant, ) Will County, Illinois,

)

v. )

) No. 07--CH--1125

RUTH NEWELL, FIRST MIDWEST )

BANCORP INC., an Illinois )

Corporation, ) Honorable

) Michael J. Powers,

Defendants-Appellees. ) Judge, Presiding.

_________________________________________________________________

JUSTICE LYTTON delivered the judgment of the court, with

opinion.

Justice O'Brien concurred in the judgment and opinion.

Justice Schmidt dissented, with opinion.

_________________________________________________________________

OPINION

Jarred Newell filed a complaint against his mother, Ruth Newell,

and First Midwest Bancorp Inc. (FMB), alleging conversion and

breach of contract involving Ruth’s unauthorized withdrawal of

funds from a saving account in his name. The trial court ruled

that Jarred’s complaint was barred by the three-year statute of

limitations in section 4-111 of the Uniform Commercial Code, Bank

Deposits and Collections (UCC) (810 ILCS 5/4-111 (West 2006)) and

granted FMB’s motion for summary judgment. We reverse and remand

for further proceedings.
2

In 1989, Ruth and Jarred were involved in an automobile

accident. At the time of the accident, Jarred was six years old.

Ruth filed a lawsuit, individually and as the mother and next

friend of Jarred, against various defendants involved in the

accident. 

Several defendants eventually agreed to settle the case. On

December 29, 1993, the trial court approved the settlement and

dismissed the complaint as to those parties involved in the

agreement. In addition to ordering the payment of medical expenses

and awarding fees and costs, the order required that the funds

awarded to Jarred be deposited in an account at FMB or some other

federally insured depository. The order further stated: "No funds

shall be withdrawn from the minor's account without prior court

order." 

On January 14, 1994, Ruth opened a guardianship account at FMB

for Jarred's benefit. Ruth used Jarred's social security number to

open the account. The terms of the account included a signature

card, which was signed by Ruth "as guardian for Jarred Newel, a

minor." In accordance with the trial court's order, the signature

card included the following statement: "Minor account. No minor

withdraw until 18 years old on 5-18-00 per court order - See Louise

McLaren." Ruth's attorney, Thomas Cowgill, gave bank personnel a

copy of the court order when Ruth opened the account. 

Between January 14, 1994, and May 23, 1994, Ruth deposited a

total of $210,050.11 into the account. She subsequently removed

funds from the account without a court order. By June 30, 1997,
3

the account was substantially reduced to a balance of $46. Ruth's

last withdrawal from the account was on September 30, 2001. She

claimed that she used the money for her son's health and welfare.

She did not keep any records of the withdrawals. 

In his discovery deposition, Jarred explained that he became

aware of the FMB account during his teens; he was told that he

would be able to withdraw the funds when he turned 18 years of age.

When Jarred was 16 or 17 years old, he asked Ruth about the funds,

and she told him that she changed the age to obtain the funds from

18 to 21. Jarred did not ask his mother how much money was in the

account. 

When he was almost 21, Jarred again asked Ruth about the

account. Ruth told him that he had to wait until he was 23 years

old to withdraw the money. At that point, Jarred became "curious"

and "wondered what was going on." However, he trusted Ruth and

decided to wait until he turned 23 to withdraw the money because

that was when he graduated from college. 

In May 2005, Jarred graduated from college and turned 23 years

old. He asked his mother for the money. Once again, she was

evasive and said the funds were not available. Jarred then began

to investigate the status of the funds on his own. 

In late 2005 or early 2006, Ruth told Jarred that there was no

money left in the FMB account. In October or November of 2006,

Jarred contacted Attorney Cowgill. Cowgill told Jarred that he

helped Ruth deposit the settlement money into a bank account in

1994. In March 2007, Jarred's attorney confirmed that the FMB
4

account had been depleted. 

On April 11, 2007, Jarred filed a four-count complaint against

Ruth and FMB. Counts I through III alleged that Ruth committed

conversion and sought a petition for rule to show cause against her

for failing to obtain a court order prior to the withdrawal of

funds from his FMB account. Count IV claimed that FMB breached its

contract with Jarred by processing withdrawals from the account

without a court order. 

FMB filed a summary judgment motion in which it asserted,

among other things, that count IV should be dismissed because

Jarred's claim against the bank was barred by the three-year

statute of limitations under section 4-111 of the UCC (810 ILCS

5/4-111 (West 2006)). The trial court found that the three-year

statute of limitations applied and granted FMB’s motion.

STANDARD OF REVIEW

Summary judgment is a drastic means of disposing of litigation

and, as such, the right of the moving party must be clear and free

of doubt. Jackson Jordan, Inc. v. Leydig, Voit & Mayer, 158 Ill.

2d 240 (1994). Summary judgment should be granted only where "the

pleadings, depositions, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law." 735 ILCS 5/2-1005(c) (West 2006). In

deciding whether a ruling for summary judgment is appropriate, we

construe the record strictly against the movant and liberally in

favor of the nonmoving party. Espinoza v. Elgin, Joliet & Eastern
5

Ry. Co., 165 Ill. 2d 107 (1995). We review the trial court's

decision to grant a motion for summary judgment de novo. Friends

of Parks v. Chicago Park District, 203 Ill. 2d 312 (2003).

 ANALYSIS

I. Applicable Statute of Limitations

Jarred contends that the trial court erred in finding that his

breach of contract claim against FMB was barred by the 3-year

statute of limitations under section 4-111 of the UCC, rather than

the 10-year period for a common law breach of contract action.

Where two statutes of limitations arguably relate to the same

cause of action, the statute that more specifically relates to the

action must be applied. Haddad’s of Illinois, Inc. v. Credit Union

1 Credit Union, 286 Ill. App. 3d 1069 (1997). A plaintiff cannot

avoid the application of a UCC statute of limitations by

characterizing its cause of action as a non-UCC claim. Watseka

First National Bank v. Horney, 292 Ill. App. 3d 933 (1997).

Section 13-206 of the Code of Civil Procedure (735 ILCS 5/13-

206 (West 2006)) governs common law breach of contract suits and

applies a 10-year statute of limitations. Section 13-206 provides:

"[A]ctions on bonds, promissory notes, bills of exchange,

written leases, written contracts, or other evidences of

indebtedness in writing, shall be commenced within 10

years next after the cause of action accrued." 735 ILCS

5/13-206 (West 2006).

Section 13-206 is a general statute that applies not only to

written contracts but also to bonds, promissory notes, bills of
6

exchange, leases and other indebtedness. 735 ILCS 5/13-206 (West

2006). 

Section 4-111, on the other hand, directly relates to a bank’s

duties and obligations to its customers under article 4 of the UCC.

810 ILCS 5/4-101 et seq. (West 2006). Section 4-111 of the UCC

states:

"An action to enforce an obligation, duty or right

arising under this Article must be commenced within 3

years after the cause of action accrues." 810 ILCS 5/4-

111 (West 2006).

Article 4 governs claims involving unauthorized signatures on

items from "accounts." See 810 ILCS 5/4-104(a) (West 2006). The

term "account" is defined under article 4 to include a savings

account. 810 ILCS 5/4-104(a)(1) (West 2006); see Boutros v. Riggs

National Bank, 655 F. 2d 1257 (D.C. Cir. 1981) (Article 4 of UCC

governs savings accounts). Additionally, a saving account

withdrawal slip is an "item" as defined in section 4-104(a)(9).

810 ILCS 5/4-104(a)(9) (West 2006); Boutros, 655 F.2d at 1260.

Thus, the article 4 statute of limitations in section 4-111 more

specifically pertains to the unauthorized withdrawal of funds from

a savings account. 

Jarred's allegations of common law breach of contract do not

insulate his cause of action from the applicable UCC statute of

limitations. His complaint claims that the bank breached its

contractual obligation to him by allowing Ruth to withdraw funds by

presenting her signature on a withdrawal slip without an
7

accompanying court order. Section 4-401(a) of the UCC provides

that an item is "properly payable if it is authorized by the

customer and is in accordance with any agreement between the

customer and the bank." 810 ILCS 5/4-401(a) (West 2006). Section

4-401 applies to situations where, as here, a withdrawal is alleged

to be in breach of the signatory card and included instructions

that formed the bank/customer agreement. National City Bank v.

Rhoades, 150 Ohio App. 3d 75, 2002-Ohio-6083, 779 N.E.2d 799;

Ahrens v. Westchester Federal Savings & Loan Ass'n, 58 A.D.2d 799

(N.Y. App. Div. 1977). We therefore hold that section 4-111's

three-year statute of limitations applies to Jarred’s cause of

action. 

II. The Discovery Rule

The application of section 4-111 does not necessarily time-bar

Jarred’s claim against FMB. Section 4-111 provides that an action

to enforce a right or obligation must be commenced within three

years after the cause of action accrues. The UCC does not define

when a cause of action "accrues." Therefore, we must look to other

Illinois law applying statutes of limitations. See Continental

Casualty Co. v. American National Bank & Trust Co. of Chicago, 329

Ill. App. 3d 686 (2002). 

An action for breach of contract accrues when the breach of

the contractual duty or obligation occurs. ABF Capital Corp. v.

McLauchlan, 167 F. Supp. 2d 1011 (N.D. Ill. 2001). The discovery

rule is an equitable exception that tolls the statute of

limitations period until the plaintiff discovers, or has reason to
8

discover, the cause of action. Knox College v. Celotex Corp., 88

Ill. 2d 407 (1981). The rule was created to alleviate the harsh

consequences that result from a strict application of a limitations

period. Continental Casualty, 329 Ill. App. 3d at 701. It

typically applies in cases where the relationship between the

injury and the alleged wrongful conduct is obscure. Rodrigue v.

Olin Employees Credit Union, 406 F.3d 434 (7th Cir. 2005). Thus,

under the discovery rule, the statute of limitations does not begin

to run until the plaintiff knew, or in the exercise of reasonable

diligence should have known, that he was injured, the cause of his

injury, and that there was some indication of wrongdoing.

Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 199

Ill. 2d 325 (2002). 

Generally, the issue of whether an action was brought within

the time allowed by the discovery rule is a question of fact.

Witherell v. Weimer, 85 Ill. 2d 146 (1981). However, where it is

clear from the undisputed facts that only one conclusion can be

drawn, the question may be resolved as a matter of law. Castello

v. Kalis, 352 Ill. App. 3d 736 (2004). 

In this case, Jarred alleged that his mother did not tell him

that the money was gone until late 2005 or early 2006. Prior to

that time, he did not know how much money was in the savings

account. Jarred later had a conversation with attorney Cowgill in

October or November 2006 and learned that the settlement money had

all been deposited into the account. He ultimately verified that

the money was gone in March 2007. 
9

Under these circumstances, Jarred contends there was no way he

reasonably should have discovered that Ruth withdrew the funds from

his account without a court order since she was in a position of

trust. He claims that he accepted his mother’s explanation of the

change in age to withdraw funds for several years, but eventually

decided to investigate the matter in the 2005. FMB questions the

reasonableness of Jarred’s delayed investigation and argues that

the section 4-111 clock began ticking in the spring of 2003 when

Jarred became "curious" about Ruth's evasiveness. Given the

disputed allegations, there is a question of fact concerning

whether Jarred should have discovered the unauthorized withdrawal

of funds from the saving account before the fall of 2005. 

FMB nevertheless insists that the discovery rule does not

apply to UCC or breach of contract claims. It cites several cases

that have refused to apply the rule to claims involving the

conversion of negotiable instruments under the UCC. See Haddad’s

of Illinois, 286 Ill. App. 3d at 1072; Kidney Cancer Ass'n v. North

Shore Community Bank & Trust Co., 373 Ill. App. 3d 396 (2007); and

Rodrigue, 406 F.3d at 441. Those cases recognize the viability of

the discovery rule, but note that the rule is only applicable in

conversion of negotiable instruments cases when there are

allegations of fraudulent concealment. Specifically, in Haddad’s

of Illinois, the court explained that under the UCC, liability of

negotiable instruments under article 3 cannot be open-ended. Thus,

while harsh, the discovery rule is inapplicable to section 3-

118(g)’s statute of limitations absent fraud. See Haddad’s of
10

Illinois, 286 Ill. App. 3d at 1075; 810 ILCS 5/3-118(g) (West

2006). 

We decline to follow the holding in those cases for three

reasons. First, we find them distinguishable because they involve

the conversion of negotiable instruments under article 3. This is

not an article 3 case. This is a breach of contract case involving

an agreement between a bank and the customer. While both claims

fall within the UCC, the commercial policies of certainty and

finality of negotiable instruments that govern article 3 are not

the same policies that influence the provisions of article 4. See

Continental Casualty, 329 Ill. App. 3d at 702; T. Quinn, Quinn’s

Uniform Commercial Code Commentary & Law Digest §§4-103, 4-401 (2d

ed. 2001) (article 4 defines the bank-depositor relationship; bank

cannot absolve itself from responsibility to act in good faith and

exercise ordinary care). 

Second, Illinois courts have utilized the discovery rule in

UCC and breach of contract cases. Although the majority of

Illinois cases refuse to apply the discovery rule to conversion of

negotiable instruments suits, the rule has been used to toll

article 3's statute of limitations under circumstances of

fraudulent concealment. Continental Casualty, 329 Ill. App. 3d at

701-02. The discovery rule has also been applied to article 2 of

the UCC and breach of contract claims. 810 ILCS 5/2-725(2) (West

2006) (breach of warranty; discovery rule applies where warranty

extends to future performance); Zielinski v. Miller, 277 Ill. App.

3d 735 (1995) (breach of implied warranties); Swann & Weiskopf,
11

Ltd. v. Meed Associates, Inc., 304 Ill. App. 3d 970 (1999) (breach

of contract; limitations period begins to run when plaintiff knows

or reasonably should know of defect). 

Third, fraudulent concealment by a third party tolls the

statute of limitations where the person fraudulently concealing the

cause of action is in privity or has an agency relationship with

the defendant. Serafin v. Seith, 284 Ill. App. 3d 577 (1996).

This case involves allegations of fraud committed by Jarred’s

mother, someone in a position of trust and the guardian of the FMB

account. Because Ruth was the guardian of the savings account and

Jarred resided with her, account statements were mailed to Ruth.

Thus, while the victim of a conversion of negotiable instruments

case is typically in the best position to easily and quickly detect

the loss and take action (see Haddad's of Illinois, 286 Ill. App.

3d at 1073), it would have been difficult for Jarred to uncover any

wrongdoing that may have been apparent in the account records (see

Continental Casualty, 329 Ill. App. 3d at 702). In this case, the

bank was in a better position than Jarred to enforce the depository

agreement and monitor any unauthorized withdrawal of funds. 

The discovery rule is intended to prevent the harsh

consequences of the statute of limitations, particularly in cases

where the relation between the injury and the alleged harmful

conduct is obscure. Rodrigue, 406 F.3d at 444. The circumstances

in this case compel its application. We therefore reverse the

trial court's grant of summary judgment to FMB and remand for the

trier of fact to determine when Jarred knew, or had reason to know,
that a cause of action might exist. 

CONCLUSION

The judgment of the circuit court of Will County is reversed,

and the cause is remanded for further proceedings.

Reversed and remanded. 

JUSTICE SCHMIDT, dissenting: 

Illinois first adopted the UCC in 1961. 1961 Ill. Laws 2101.

In 1991, the legislature adopted the 1990 amendments to article 4,

including the statute of limitations at issue in this case. Pub.

Act 87-582 (eff. Jan. 1, 1992) (adding 810 ILCS 5/4-111); 810 ILCS

5/4-111 (West 2006). The 1990 amendments to article 4 of the UCC

have been adopted by every state except New York and South Carolina

(I spared you a string cite to the 48 state codes; they can be

found at the following :

http://www.law.cornell.edu/uniform/ucc.html#a4 (last visited Jan.

20, 2011)).

The majority acknowledges that the relevant statute of

limitations is section 4-111 of the UCC. Slip op. at 6. There is

no question that section 4-111, on its face, does not envision a

discovery rule. Neither our legislature nor the drafters of the

UCC were unfamiliar with the discovery rule. For example, article

4 of the UCC provides that a cause of action for breach of a

transfer warranty "accrues when the claimant has reason to know of

the breach." 810 ILCS 5/4-207(e) (West 2006). Likewise, a cause

of action for breach of a presentment warranty "accrues when the

claimant has reason to know the breach." 810 ILCS 5/4-208(f) (West
13

2006). Had the drafters intended the discovery rule to apply to

all article 4 claims, they would have included this discovery rule

language in section 4-111. If, as the majority suggests, the

language is hidden there somewhere, then the language cited in

sections 4-207(e) and 4-208(f) is superfluous. I believe that the

more reasonable construction is that the drafters and the

legislature intended the discovery rule to apply only to breach of

transfer warranties and presentment warranties. Otherwise, the

legislature would have incorporated the discovery rule in section

4-111, as it did in sections 4-207 and 4-208. 

Neither plaintiff nor the majority cites to a single decision

applying the discovery rule to section 4-111 absent allegations of

fraudulent concealment. My research has disclosed none. As far as

I can tell, this court is the first in the nation to judicially

modify section 4-111 with a discovery rule.

Rather than rewrite the UCC, I would exercise some judicial

restraint. It seems clear that the majority is troubled by the

effect enforcement of the statute has on what might be a valid

claim. However, the enforcement of a statute of limitations, by

its very nature, always has harsh consequences: it terminates the

prosecution of a claim regardless of the underlying merits. There

are reasons for statutes of limitations. The legislature adopted

this statute of limitations. The job of this court, absent

unconstitutionality, is to enforce the Code as written. I would

affirm the trial court. I therefore dissent.