Court Opinion

ID: 9725420
Source: CourtListenerOpinion
Date Created: 2023-08-26 11:47:07.270413+00
Date Added: 2024-06-11T13:12:09.975778
License: Public Domain

CHIEF JUSTICE MORAN delivered the opinion of the court: Plaintiff, Wilder Binding Company, filed this breach of contract action in the circuit court of Cook County against defendant, Oak Park Trust and Savings Bank. Plaintiff sought to recover $19,630 in damages from defendant, because of its alleged improper payment of a series of forged checks. Plaintiff filed a motion for summary judgment pursuant to section 2 — 1005 of the Code of CivH Procedure (Code) (Ill. Rev. Stat. 1985, ch. 110, par. 2 — 1005). The circuit court granted the motion and entered judgment in favor of plaintiff in the amount of $19,630.° Defendant appealed. On appeal, a majority of the appellate court affirmed, holding that there was no genuine issue as to any material fact and that plaintiff was entitled to summary judgment as a matter of law. The court reasoned that a bank fails to exercise ordinary care under section 4 — 406(3) of the Uniform Commercial Code (Ill. Rev. Stat. 1985, ch. 26, par. 4 — 406(3)) (section) when it uses automated check-sorting equipment and automatically pays checks drawn for less than a designated amount without manually verifying the signatures on those checks. The dissent stated that summary judgment should not have been entered, because the question regarding whether a bank exercised ordinary care in paying checks under the section is one of fact which should be answered by the trier of fact. 173 Ill. App. 3d 34. This court granted defendant’s petition for leave to appeal (107 Ill. 2d R. 315) and accepted amicus curiae briefs from the Illinois Public Action Council in support of plaintiff, and from the American Bankers Association, the Illinois Bankers Association and the Chicago Clearing House Association in support of defendant. 107 Ill. 2d R. 345. The only issue presented for review is whether the appellate court erred in affirming the circuit court’s entry of summary judgment in favor of plaintiff. On April 23, 1981, plaintiff opened a business checking account with defendant. On that same date, plaintiff filed a signature card with defendant which designated Donald W. McCarrell, plaintiff’s president, and Douglas S. McCarrell, plaintiff’s vice-president, as the authorized signatories on its business checking account No. 864— 398. In December 1983, Lorine Daniels was hired as plaintiffs bookkeeper. Between December 20, 1983, and June 29, 1984, Daniels embezzled $25,254.78 from plaintiff by forging Douglas S. McCarrell’s signature on 42 checks which were made payable to herself. Each of the forged checks was drawn for less than $1,000. Once defendant paid the forged checks, they were cancelled and returned to plaintiff in the monthly statements of account. Plaintiff received statements containing forged checks for the following months: December 1983 and January, February, March, April, May, June and July 1984. However, under plaintiff’s bookkeeping system, Daniels reviewed the monthly statements and cancelled checks. The checks forged by Daniels were not discovered until July 15, 1984, when plaintiff’s comptroller found them while examining company records. On July 20, 1984, plaintiff notified defendant of the forged checks and demanded reimbursement of $25,254.78, the sum total of the 42 forged checks. As an accommodation to plaintiff, a long-standing customer, defendant reimbursed $5,624.78, which represented the sum total of forged checks contained in the monthly statements for June and July 1984. Defendant refused to reimburse the remaining $19,630 on the basis that affirmative defenses contained in the Commercial Code prevented plaintiff from recovering those funds. On December 24, 1984, plaintiff filed its verified complaint seeking to recover $19,630 in damages from defendant. On March 20, 1985, defendant filed its answer and affirmative defenses to plaintiff’s verified complaint. Defendant asserted as its affirmative defenses sections 3 — 404, 3 — 406 and 4 — 406 of the Commercial Code (111. Rev. Stat. 1985, ch. 26, pars. 3 — 404, 3 — 406, 4 — 406). On July 9, 1985, plaintiff filed its answer to defendant’s affirmative defenses alleging the insufficiency of those defenses. Over one year later, on July 16, 1986, plaintiff filed a “Request to Admit Facts.” The request provided in relevant part that: (1) between December 1, 1983, and July 1, 1984, defendant utilized automated check-sorting equipment which separated checks drawn for less than $1,000 from checks drawn for $1,000 or more; (2) the signatures on checks which were drawn for less than $1,000 were not manually verified before being paid; and (3) as a consequence of defendant’s use of automated check-sorting equipment, none of the signatures on the forged checks were manually verified. As defendant neither denied nor objected to plaintiff’s “Request to Admit Facts,” the aforementioned facts were considered admissions by defendant pursuant to Supreme Court Rule 216(c) (107 Ill. 2d R. 216(c)). Approximately two weeks later, on August 1, 1986, plaintiff filed its motion for summary judgment (111. Rev. Stat. 1985, ch. 110, par. 2 — 1005). The motion was supported by a memorandum of law and the affidavit of Douglas S. McCarrell. The affidavit provided in part that: (1) Douglas S. McCarrell was plaintiff’s vice-president; (2) only he and Donald W. McCarrell were authorized signatories on plaintiff’s checking account No. 864 — 398; (3) 42 checks purportedly bearing his signature were drawn on plaintiff’s account, but neither did he sign the checks nor did he or anyone else authorize the signing of those checks; (4) plaintiff’s comptroller discovered the forged checks and notified him of them on July 15, 1984; and (5) plaintiff notified defendant of the forged checks and demanded reimbursement of the total amount paid, but defendant only reimbursed $5,624.78 and has refused to reimburse the remaining $19,630. On November 10, 1986, defendant responded to plaintiff’s motion for summary judgment by filing a memorandum of law and the counter affidavit of Robert S. Visconti, defendant’s assistant vice-president. The counteraffidavit provided in part that: (1) Robert S. Visconti was defendant’s assistant vice-president in charge of bookkeeping and check disbursement; (2) defendant processed an average of between 8,000 and 11,000 checks per day and that an average of 650 to 750 of those checks were written for more than $1,000; (3) defendant maintained a staff of five full-time employees and additional part-time employees to manually verify the signatures on all checks written for $1,000 or more; (4) defendant and at least four other banks in the metropolitan Chicago area utilized automated check-sorting equipment to separate checks drawn for less than the designated amount from checks drawn for the designated amount or more; and (5) the signatures on checks drawn for less than the designated amount were not manually verified before being paid, while signatures on checks drawn for more than the designated amount were manually verified before being paid. Plaintiff contends that the appellate court did not err in affirming the circuit court’s entry of summary judgment. Its contention is based on its belief that no genuine issue as to any material fact exists and, accordingly, that it is entitled to summary judgment. It argues that defendant’s admitted use of automated check-sorting equipment and automatic payment of checks drawn for less than $1,000 without manual verification of the signatures on those checks conclusively establishes, as a matter of law, defendant’s failure to exercise ordinary care under the section. Section 4 — 406 of the Commercial Code provides banks with an affirmative defense to the general rule that they are liable for paying forged checks. (See 111. Rev. Stat. 1985, ch. 26, par. 3 — 401.) Under sections 4— 406(1) and (2) of the Commercial Code, if a bank pays a forged check and later establishes that its customer was negligent in examining bank statements, detecting forgeries and notifying the bank of the forgeries, the customer is precluded from asserting the bank’s liability. (111. Rev. Stat. 1985, ch. 26, pars. 4 — 406(1), (2).) However, under the section, if the customer establishes that his bank failed to exercise ordinary care in paying a forged check, the bank’s section 4 — 406(1) and (2) affirmative defense is inapplicable and, as such, the bank is liable to its customer for the total amount of the forged checks. Therefore, according to plaintiff, even assuming arguendo that it was negligent, defendant is nevertheless liable for the total amount of the forged checks, because defendant's admissions conclusively establish, as a matter of law, its failure to exercise ordinary care under the section. Notwithstanding its admissions, defendant argues that its use of automated check-sorting equipment and automatic payment of checks drawn for less than $1,000 without manual verification of the signatures on those checks constitutes the prima facie exercise of ordinary care. Defendant’s argument is based on section 4 — 103(3) of the Commercial Code, which provides in pertinent part: “[I]n the absence of special instructions, action or non-action consistent *** with a general banking usage not disapproved by this Article, prima facie constitutes the exercise of ordinary care." (Emphasis added.) Ill. Rev. Stat. 1985, ch. 26, par. 4 — 103(3). The term general banking usage “is not defined but should be taken to mean a general usage common to banks in the area concerned." (Emphasis added.) (Ill. Ann. Stat., ch. 26, par. 4 — 103, Uniform Commercial Code Comment, at 441 (Smith-Hurd 1963).) Additionally, “[wjhere the adjective ‘general’ is used, the intention is to require a usage broader than a mere practice between two or three banks but it is not intended to require anything as broad as a country-wide usage. A usage followed generally throughout a state, a substantial portion of a state, a metropolitan area or the like would certainly be sufficient.” (Emphasis added.) (Ill. Ann. Stat., ch. 26, par. 4 — 103, Uniform Commercial Code Comment, at 441 (Smith-Hurd 1963).) Therefore, defendant concludes that its use of automated check-sorting equipment and automatic payment of checks drawn for less than $1,000 without manual verification of the signatures on those checks constitutes the prima facie exercise of ordinary care. Defendant’s conclusion is based on Visconti’s counteraffidavit, which indicates that more than two or three banks in the metropolitan Chicago area also use automated check-sorting equipment and automatically pay checks drawn for less than a designated amount without manually verifying the signatures on those checks. In affirming the circuit court’s entry of summary judgment, the appellate majority relied primarily on the case of Medford Irrigation District v. Western Bank (1984), 66 Or. App. 589, 676 P.2d 329. In Medford, a majority of the Oregon Court of Appeals held that, as a matter of law, Western Bank failed to exercise ordinary care pursuant to the Oregon Commercial Code when it used automated check-sorting equipment and automatically paid checks drawn for less than $5,000 without manually verifying the signatures on those checks. (Medford, 66 Or. App. at 593, 676 P.2d at 332.) The dissent expressed the opinion that the question regarding whether a bank exercised ordinary care in the payment of checks is one of fact which should be answered by the trier of fact. Medford, 66 Or. App. at 598, 676 P.2d at 335 (Van Hoomissen, J., dissenting). Like the Medford dissent and the dissent in this case, several other courts have held that the question of whether a bank exercised ordinary care in paying a check presents a genuine issue of material fact which should be answered by the trier of fact and, therefore, summary judgment should not be entered. (See Five Towns College v. Citibank, N.A. (1985), 108 A.D.2d 420, 489 N.Y.S.2d 338; Space Distributors, Inc. v. Flagship Bank (Fla. App. 1981), 402 So. 2d 586; K & K Manufacturing, Inc. v. Union Bank (App. 1981), 129 Ariz. 7, 628 P.2d 44; Exchange Bank & Trust Co. v. Kidwell Construction Co. (Tex. App. 1971), 463 S.W.2d 465; see also 7 R. Anderson, Uniform Commercial Code §4 — 406:12 (3d ed. 1985).) We agree with the rationale of these cases. Accordingly, in order to determine whether the appellate court erred in affirming the circuit court’s entry of summary judgment in this case, the general principles governing summary judgment must be discussed. The purpose of a summary judgment proceeding is to determine whether there are any genuine issues of material fact. (Purtill v. Hess (1986), 111 Ill. 2d 229, 240.) Summary judgment should be granted only when “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.” Ill. Rev. Stat. 1985, ch. 110, par. 2-1005(c). Summary judgment is both “an aid in the expeditious disposition of a lawsuit” and “a drastic means of disposing of litigation.” (Purtill, 111 Ill. 2d at 240.) When considering the pleadings, depositions, admissions, exhibits and affidavits on file, a court “must construe them strictly against the movant and liberally in favor of the opponent” and enter a summary judgment “only when the right of the moving party is clear and free from doubt.” Purtill, 111 Ill. 2d at 240. In applying these general principles to this case, we must consider the pleadings, admissions, exhibits and affidavits on file and construe them strictly against plaintiff and liberally in favor of defendant. After carefully reviewing the record, including both defendant’s admissions and Visconti’s counteraffidavit, we believe that a genuine issue of material fact exists regarding whether defendant exercised ordinary care in paying checks under the section. Therefore, it should be left up to the trier of fact to determine whether defendant’s use of automated check-sorting equipment and automatic payment of checks drawn for less than $1,000 without manual verification of signatures on those checks is “consistent with general banking usage” and, accordingly, “prima facie constitutes the exercise of ordinary care.” As such, we hold that the appellate court erred in affirming the circuit court’s entry of summary judgment in favor of plaintiff. For the reasons stated above, the decisions of both the appellate court and the circuit court are reversed and this cause is remanded to the circuit court for proceedings consistent with this opinion. Appellate court reversed; circuit court reversed; cause remanded. JUSTICE STAMOS took no part in the consideration or decision of this case.