ADVOCATE HEALTH AND HOSPITALS CORP. v. Bank One, NA

810 N.E.2d 500, 284 Ill. Dec. 710, 348 Ill. App. 3d 755, 53 U.C.C. Rep. Serv. 2d (West) 175, 2004 Ill. App. LEXIS 399
Appellate Court of Illinois·Decided April 19, 2004·No. 1-03-1539·Published·Cited by 49 cases

Opinion

JUSTICE McBRIDE

delivered the opinion of the court:

The issues on appeal are whether the imposter defense contained in section 3 — 404(a) of the Illinois version of the Uniform Commercial Code — Negotiable Instruments (810 ILCS 5/3 — 404(a) (West 2000)) (UCC) may be properly asserted in a section 2 — 615 motion to dismiss a complaint for failure to state a claim (735 ILCS 5/2 — 615 (West 2000)) and whether the defense is factually applicable to the present dispute.

As detailed in this court’s earlier opinion, Blutcher v. EHS Trinity Hospital, 321 Ill. App. 3d 131, 746 N.E.2d 863 (2001), one of the defendants in that action, a hospital, issued a $200,000 check in settlement of a patient’s medical malpractice claim, after the patient’s attorney falsely represented that he was authorized to settle the claim and tendered a notarized covenant not to sue bearing his client’s forged signature. Blutcher, 321 Ill. App. 3d 131, 746 N.E.2d 863. The client only learned of the settlement a year later, when he questioned why the hospital was no longer named as a defendant in an amended version of the complaint. Blutcher, 321 Ill. App. 3d at 134, 746 N.E.2d at 866. The circuit court granted the client’s subsequent petition to vacate the falsified settlement agreement, vacate the order dismissing the hospital as a defendant, and reinstate the medical malpractice claim as to the hospital, and was affirmed on appeal. Blutcher, 321 Ill. App. 3d 131, 746 N.E.2d 863.

The present suit is the hospital’s attempt to recoup the $200,000 debited to its checking account by its bank, defendant First National Bank of Chicago, n/k/a Bank One, N.A. (First National). The hospital alleged in a second amended complaint that the attorney forged his client’s endorsement on the check, endorsed the check himself, deposited it into an account the attorney maintained with nonparty American National Bank of Chicago (American National), and kept the proceeds. The hospital claimed that First National’s payment of the check bearing the client’s forged endorsement was a breach of section 4 — 401 of the UCC (810 ILCS 5/4 — 401 (West 2000)). Section 4 — 401 indicates a bank may charge an item against a customer’s account only if the item is “properly payable,” and the official comment to that section indicates an item bearing a forged endorsement is not considered properly payable. 810 ILCS 5/4 — 401 (West 2000). The hospital gave no indication in its second amended complaint as to why it had issued the check to the attorney.

Those circumstances, however, were disclosed to the trial judge by First National, after it obtained a copy of a legal memorandum that the hospital had filed in the Blutcher proceedings in an effort to enforce the forged settlement agreement. First National relied on the facts disclosed in the hospital’s Blutcher memorandum, in a successful section 2 — 615 motion to dismiss the hospital’s UCC claim with prejudice (735 ILCS 6/2 — 615 (West 2000)). First National’s argument was that since the forged covenant not to sue had induced the hospital to issue the check to the dishonest attorney, the UCC’s imposter defense precluded the hospital from shifting its $200,000 loss to First National. Under the imposter defense, an endorsement in the name of the payee is “effective” if an imposter “by use of the mails or otherwise” has induced the drawer to issue the check to the imposter in the name of the payee. 810 ILCS 5/3 — 404(a) (West 2000). Title to the check passes as though the forged endorsement is genuine, and liability on the check lies with the drawer, rather than a depositary bank, such as American National in this instance, or a payor or drawee bank, such as First National in this instance, as long as there is no lack of good faith by the banks involved. See generally First National Bank of Chicago v. MidAmerica Federal Savings Bank, 303 Ill. App. 3d 176, 707 N.E.2d 673 (1999). The rationale for the imposter defense is that “[t]he drawer is in the best position to avoid the fraud and thus should take the loss.” 810 ILCS Ann. 5/3 — 404, Uniform Commercial Code Comment 3, at 211 (Smith-Hurd 1993). Furthermore, “because the drawer *** has increased the chance of forgery by dealing with a person who intends to commit a forgery, and has even permitted the forger to chose the name that he will forge, the drawer’s *** culpability is deemed to outweigh that of subsequent purchasers.” 4 Hawkland, Uniform Commercial Code Series § 3 — 405 (2002) (section 3 — 405 has been renumbered as section 3 — 404). Aside from the imposter defense, due to the client’s forged signature on the check, the bank that accepted it, American National, would be liable for warranting to the subsequent bank, First National, that “all signatures on the item are authentic and authorized.” 810 ILCS 5/4 — 207(a)(2) (West 2000); Southern Provisions, Inc. v. Harris Trust & Savings Bank, 96 Ill. App. 3d 745, 422 N.E.2d 33 (1981).

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ADVOCATE HEALTH AND HOSPITALS CORP. v. Bank One, NA, 810 N.E.2d 500, 284 Ill. Dec. 710, 348 Ill. App. 3d 755, 53 U.C.C. Rep. Serv. 2d (West) 175, 2004 Ill. App. LEXIS 399 (Ill. Ct. App. 2004).

810 N.E.2d 500 (ADVOCATE HEALTH AND HOSPITALS CORP. v. Bank One, NA) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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