No. 3--05--0102 

Filed July 11, 2006. 

 IN THE 

 APPELLATE COURT OF ILLINOIS 

 THIRD DISTRICT 

 A.D., 2006 

INTERIOR CRAFTS, INC. ) Appeal from the Circuit Court 

 ) of the 12th Judicial Circuit 

Plaintiff, ) Will County, Illinois 

 ) 

and AMERICAN INSURANCE CO. ) 

as assignee/subrogee of ) 

INTERIOR CRAFTS, INC. ) 

 ) 

Plaintiff-Appellee, ) 

 ) 

v. ) No. 01--MR--187 

 ) 

TODD LEPARSKI, a/k/a Todd ) 

Joseph Leparski, MARLENE ) 

LEPARSKI, and MARQUETTE ) 

NATIONAL BANK. ) 

 ) 

Defendants, ) 

 ) 

and ) 

 ) 

PAN AMERICAN BANK, ) Honorable 

 ) Amy M. Bertani-Tomczak, 

Defendant-Appellant., ) Judge, presiding 

JUSTICE HOLDRIDGE delivered the opinion of the court: 

Interior Crafts, Inc. (Interior), hired Todd Leparski to be an assistant comptroller. 

Due to extremely lax accounting procedures at Interior, Leparski was allowed to both 

receive and deposit incoming checks from Interior=s customers. Consequently, Leparski 

managed to steal approximately one-half million dollars from Interior during his 
2 

employment from October 2000 to February 2001. Leparski accomplished his theft by 

taking several checks from the incoming mail which were made payable to Interior by 

customers. He would then endorse the checks - "Interior Crafts - For Deposit Only" - 

and place the checks into deposit envelopes. He then placed those envelopes into an 

automatic teller machine (ATM) owned by Pan American Bank, with instructions to 

deposit the checks into a bank account which he maintained in his own name at 

Marquette Bank. Following the instructions on the deposit slip, Pan American deposited 

funds to Leparski=s account at Marquette Bank. Eventually, Marquette Bank alerted 

Interior to the fact that Leparski was depositing checks into his personal account which 

were payable to Interior. After Leparski=s actions were discovered, Interior was able to 

recover in cash from Leparski approximately half of the money he had stolen. In 

addition, Interior had an insurance policy with American Insurance Company which 

included commercial crime coverage. American paid Interior $250,000 pursuant to that 

insurance policy. Interior then sued Leparski and both Pan American Bank and 

Marquette Bank for conversion seeking recovery of the money not recovered from 

Leparski. American Insurance joined in the suit as Interior=s assignee and subrogee. 

The trial court granted summary judgment as to both liability for conversion and 

damages in favor of American Insurance against Pan American Bank. Pan American 

appeals to this court from the trial court=s grant of summary judgment against it. 

The only issue on appeal is whether summary judgment was properly entered 

against Pan American Bank as to liability for conversion and damages. 

Interior alleged that Pan American was liable for damages in conversion. 

Interior=s claim is based upon the theory that Pan American was obligated under the 
3 

restrictive endorsement - "Interior Crafts - For Deposit Only" - to deposit the funds only 

in an Interior Crafts account. Interior maintains that Pan American=s depositing the 

funds in Leparski=s account constituted a conversion, for which Pan American was liable 

to Interior for damages. 

The ATM into which Leparski placed the stolen checks was owned and serviced 

by Pan American. A bank that owns an ATM does not have any information that tells it 

the name of the owner of an account in another bank into which a check placed in the 

ATM is to be deposited. The bank that owns the ATM has access only to the check 

itself and the card number of the person who placed the check into the machine. 

Accordingly, the bank which owns an ATM has no way of knowing whether the name on 

the account at the depository bank matches the name of the payee on the check. In the 

instant case, the Marquette Bank deposit slips that Leparski used when he put the 

stolen checks into the ATM, did not state the name of the owner of the account. 

Pan American employees removed the checks from the ATM and inspected the 

checks for the presence of an endorsement. Pan American maintained that, because 

the checks were not deposited into an account at Pan American Bank, its employees 

had no means to verify the authenticity of the endorsements on the checks, nor could 

they verify that the payee name matched the name on the account into which the 

checks were being deposited. The checks were physically transported to a Pan 

American Bank facility where Pan American wire transferred the amount of each check 

to Marquette Bank for deposit into Leparski=s account at Marquette Bank, in accordance 

with the instructions on the deposit slip. Pan American then endorsed the checks and 

sent them through a series of collecting banks back to the various drawee banks on 
4 

which the drawers, the customers of Interior Banks, had drawn the checks. Consistent 

with automated banking procedures, the actual checks were never physically in the 

possession of Marquette Bank. Plaintiffs moved for summary judgment against Pan 

American Bank asserting conversion under Uniform Commercial Code (UCC) section 3-

206(c)(2), which imposes conversion liability on a depository bank for failure to honor a 

restrictive endorsement. Specifically: 

"If an instrument bears an indorsement * * * in blank or to a 

particular bank using the words "for deposit," "for collection," 

or other words indicating a purpose of having the instrument 

collected by a bank for the indorser or for a particular 

account, the following rules apply: * * * 

A depository bank that purchases the instrument or 

takes it for collection when so indorsed converts the 

instrument unless the amount paid by the bank with respect 

to the instrument is received by the indorser or applied 

consistently with the indorsement." 810 ILCS 5/3-

206(c)(2)(West 2000). 

The trial court granted summary judgment, finding: (1) that Pan American Bank 

was a "depository bank" subject to section 3-206 of the Code; and (2) that Pan 

American Bank, as a depository bank was strictly liable to the payee of the checks. Pan 

American Bank now appeals. 

This is an appeal from an order granting summary judgment. Therefore, the 

standard of review is de novo, meaning no deference is given to the judgment below. 
5 

Gullen v. Potomac Insurance Co., 203 Ill. 2d 141 (2003). Under de novo review, the 

court considers the facts and law related to the case to determine whether the trial court 

was correct in its conclusion that there was no genuine issue of material fact and the 

movant was entitled to judgment as a matter of law. Bank One, Springfield v. Roscetti, 

309 Ill. App. 3d 1048 (1999). Summary judgment is a drastic remedy to be granted only 

where the movant=s right to it is so clear as to be free from doubt. Groshek v. Frainey, 

274 Ill. App. 3d 566, 569 (1995). 

The key issue in this matter is whether the trial court was correct in determining 

that Pan American Bank is a "depository bank" within the meaning of section 3-206 of 

the UCC. Pan American Bank maintains that it is not a "depository bank" and thus is 

not liable for conversion under section 3-206. 

A discussion of what is a "depository bank" must begin with a definition. The 

UCC as codified in Illinois contains a definition of "depository bank." Under the Illinois 

Code, a "depository bank" is "the first bank to take an item even though it is also the 

payor bank, unless the item is presented for immediate payment over the counter. 810 

ILCS 5/4-105(2)(West 2000). 

Thus, if we follow the Illinois Code definition of "depository bank" Pan American 

Bank clearly is a "depository bank." It was the first bank to take the checks when the 

checks were deposited in the ATM. Section 3-206 imposes conversion liability on the 

depository bank for failure to honor a restrictive endorsement. Pan American Bank 

maintains, however, that the statutory definition of "depository bank" is erroneous in that 

the definition of "depository bank" as been preempted by a federal regulatory definition. 

 
6 

Pan American notes that under federal bank regulations at 12 C.F.R section 

229.2(o): 

"Depository bank means the first bank to which a check is 

transferred even though it is also the paying bank or the 

payee. A check deposited in an account is deemed to be 

transferred to the bank holding the account into which the 

check is deposited, even though the check is physically 

received and indorsed first by another bank." 12 C.F.R. 

section 229.2 (2006). 

Under this definition, in the instant matter, Marquette Bank, not Pan American 

Bank, was the depository bank. Leparski used Pan American=s ATM machine to 

deposit the checks into his account at Marquette Bank. Thus, under the federal 

regulation, Marquette Bank, not Pan American would have been solely liable for 

conversion as a "depository bank." 

We are faced with two conflicting definitions of "depository bank" and the 

definition which applies will determine the outcome. Pan American argues that the 

federal code has preempted the statutory definition. We disagree. 

Pan American cites no authority for the proposition that the 

UCC definition of "depository bank" has been pre-empted by the 

federal regulatory definition. We note that while the federal 

regulatory definition dates back to at least 1988 (see 53 FR 

31290-01) Illinois courts have continued to rely upon the UCC 

definition. See, Continental Casualty Co., Inc. v. American 
7 

National Bank and Trust Co. of Chicago, 329 Ill. App. 3d 686 

(2002). Preemption cannot occur by accident, but only by the 

manifest intent of the federal government acting within its 

jurisdiction. Fifth Third Bank ex rel. Trust Officers v. CSX 

Corp., 415 F.3d 741 (7th Cir. 2005). 

Moreover, in reading the federal regulatory scheme in its 

entirety, it is clear that the definition of "depository bank" 

contained in the cited federal regulations, was intended to be 

limited in scope and was not intended to preempt the UCC law of 

negotiable instruments. We therefore find that the trial court 

was correct as a matter of law in finding that Pan-American Bank 

was a depository bank. 

Pan-American next maintains that the trial court erred in 

determining that it strictly liable for failure to honor the 

restrictive endorsement "Interior Crafts - For Deposit Only." We 

disagree. 

Article 3 of the UCC imposes certain duties and 

responsibilities on the depository bank. With respect to 

restrictive endorsements, the depository bank is liable in 

conversion for failing to honor a restrictive endorsement. 

Section 3-206(c)(2) of the Code provides: 

"If an instrument bears an indorsement * * * 

in blank or to a particular bank using the 

words "for deposit," "for collection," or 

other words indicating a purpose of having 

the instrument collected by a bank for the 
8 

indorser or for a particular account, the 

following rules apply: * * * 

A depository bank that purchases the 

instrument or takes it for collection when so 

indorsed converts the instrument unless the 

amount paid by the bank with respect to the 

instrument is received by the indorser or 

applied consistently with the indorsement."

810 ILCS 5/3-206(c)(2)(West 2000). 

Under section 3-206 a depository bank is liable in conversion 

unless the payee under a restrictive endorsement receives the 

amount of the check or unless the amount of the check is 

deposited in the endorser=s account. It is undisputed that 

neither occurred in the instant matter. 

However, Pan-American maintains that it can escape liability 

for conversion because Leparski, not Interior Designs was the 

restrictive endorser. We disagree. The Code provides for 

liability if payment is made inconsistent with the restrictive 

endorsement. There is no requirement that the restrictive 

endorsement be made only by an by authorized agent. Pan-American 

suggests that Western Assurance Co., Inc. v. Star Financial Bank 

of Indianapolis, 3 F.3d 1129 (7th Cir. 1993), provides support for 

its proposition. However, Western Assurance is distinguishable 

in one salient detail: Western Assurance dealt with the question 

of apparent authority to negotiate checks, not whether the 
9 

depository bank was liable for failure to honor a restrictive 

endorsement. Western Assurance, 3 F.3d at 1131-32. 

Pan-American lastly maintains that the trial court erred in 

not allowing it to assert certain affirmative defenses. 

Specifically, Pan-American maintains that it should be able to 

asset Interior Crafts= alleged comparative negligence available 

to a depository bank against strict liability for conversion for 

paying an instrument over a forged endorsement. 810 ILCS 5/3-405 

and 3-406 (West 2000). We disagree. The affirmative defense of comparative 

negligence is available where the indorsement is forged, not, as in the instant matter, 

where the depository bank simply fails to honor the restrictive endorsement. 

For the foregoing reasons, we find that the trial court did not err in granting 

summary judgment. The judgment of the circuit court of Will County is affirmed. 

Affirmed. 

LYTTON and BARRY, JJ., concur.