Bank Escapes Liability Where It Accepts Two-Party Check With Only One Indorsement – IL ND

BBCN Bank v. Sterling Fire Restoration, Ltd., 2016 WL 691784 homes in on the required showing to win a motion for judgment on the pleadings in Federal court, the scope of a general release, and the UCC section governing joint payee or “two-party” checks.

The plaintiff, an assignee of a fire restorer’s claim who did some repair work on a commercial structure, sued two banks for paying out on a two-party check (the “Check”) where only one payee indorsed it. The Assignor was a payee on the Check but never indorsed it.

The banks moved for summary judgment on the ground that the assignor previously released its claims to the Check proceeds in an earlier lawsuit and filed a third-party suit against the assignor for indemnification.  The assignor moved for judgment on the pleadings on the banks’ third-party action.

Result: Bank defendants’ motions for summary judgment granted; Assignor’s judgment on the pleadings motion (on the banks’ third-party indemnification claims) denied.

Rules/Reasons:

FRCP 12(c) governs motions for judgment on the pleadings.  A party can move for judgment on the pleadings after the complaint and answer have been filed.  When deciding a motion for judgment on the pleadings, the Court considers only the contents of the filed pleadings – including the complaint, answer, and complaint exhibits.  Like a summary judgment motion, a motion for judgment on the pleadings should be granted only if there are no genuine issues of material fact to be resolved at trial.

FRCP 56 governs summary judgment motions.  A party opposing a summary judgment must “pierce” (go beyond) the pleadings and point to evidence in the record (depositions, discovery responses, etc.) that creates a genuine factual dispute that must be decided after a trial on the merits.

UCC section 3-110 applies to checks with multiple payees.  It provides that if an instrument is jointly payable to 2 or more persons (not “alternatively”), it can only be negotiated, discharged or enforced by all of the payees.  810 ILCS 5/3-110(d).

Here, since both payees did not sign the Check, the banks plainly violated section 3-110 by accepting and paying it.  The Check was payable to two parties and only one signed it.

The banks still escaped liability though since the assigning restoration company previously released its claims to the Check proceeds.  In Illinois, a general release bars all claims a signing party (the releasor) has actual knowledge of or that he could have discovered upon reasonable inquiry.

Here, the assignor’s prior release of the bank defendants was binding on the plaintiff since an assignee cannot acquire greater rights to something than its assignor has.  And since the plaintiff’s claim against the banks was previously released by plaintiff’s assignor, plaintiff’s lawsuit against the banks were barred.

The Assignor’s motion for judgment on the pleadings on the banks’ third-party claims was denied due to factual disputes.  Since the court could not tell whether or not the assignor misrepresented to the plaintiff whether it had assigned its claim by looking only at the banks’ third-party complaint and the assignor’s answer, there were disputed facts that could only be decided after a trial.

Take-aways:

  • Motions for judgment on the pleadings and summary judgment motions will be denied if there is a genuine factual dispute for trial;
  • A summary judgment opponent (respondent) must produce evidence (not simply allegations in pleadings) to show that there are disputed facts that can only be decided on a full trial on the merits;
  • The right remedy for a UCC 3-110 violation is a conversion action under UCC section 3-420;
  • In sophisticated commercial transactions, a broadly-worded release will be enforced as written.

 

Published by

PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.