clear and convincing

Gataric v. Colak, 2016 IL App (1st) 151281 presents a collection tug of war between a judgment creditor and a third party concerning funds in a joint bank account. The salient issue is what level of proof the third party must meet in order to rebut the presumption that the bank account funds belong not to the third party, but to the judgment debtor.

The plaintiff judgment creditor served a third-party citation on the judgment debtor’s bank who then froze the account. The respondent, a joint account holder, intervened and asserted she was the account’s sole owner and the debtor was only added for “convenience” purposes.

The trial court sided with the plaintiff, and found the respondent failed to prove by clear and convincing evidence that she was entitled to all funds in the account and did not intend to gift the joint account funds to the debtor at the time the account was opened. The court granted the creditor’s turnover motion and defendant appealed.

Held: Affirmed.

Reasons:

The defendant argued that she was only required to prove her rights to the joint account by a preponderance of evidence – a less exacting burden than the clear and convincing evidence standard applied by the trial court. To meet the preponderance standard, the claimant must prove that her allegations “more likely than not” occurred. The common mathematical description of the preponderance standard is that there is a 51% chance that plaintiff’s version of events happened as opposed to defendant’s.

The third party in Gatarik argued that she alone set up the joint account as a convenience account. She claimed to add the judgment debtor as a joint account holder simply to facilitate the repayment of a short-term loan.

Under Illinois law, joint bank account holders are presumed to have equal access to account funds and a creditor of only one holder can attach the account. The burden shifts to the non-debtor account owner to establish what part of the account belongs to him/her.

When a garnishee (i.e. a bank or bank account holder) answers that a judgment debtor holds money in a joint bank account, this establishes a prima facie case that the money in the account belongs to the judgment debtor. The burden then shifts to the garnishee to prove what part of the funds belong exclusively to him/her.

When deciding who owns joint bank account funds, the court examines: (1) who exercised control of the funds, (2) who made contributions to the account and from what source and in what amount, (3) who paid taxes on the account’s earnings, and (4) the purpose for which the account was established. (¶¶ 19-20)

Here, the trial court found, after hearing live testimony, that the citation respondent didn’t establish by clear and convincing evidence that she was the sole owner of the account funds and that the account was a mere convenience account.

Since the respondent couldn’t show that the trial court misapplied the law or the facts, her appeal failed. As a result, the trial court’s turnover order related to the account funds was upheld.

Afterwords:

In situations where two or more people are claiming rights in frozen bank account funds, it is incumbent on the non-debtor to establish by clear and convincing evidence his/her dominant right to the funds.

The clear and convincing evidentiary burden falls midway between preponderance of evidence (the most relaxed burden) and beyond a reasonable doubt (the most severe) on the proof spectrum.

In Chamanara v. Djahanguiri, 2013 IL App (1st) 122885-U, the First District discussed the contours of the fraud in the execution defense in a specific performance suit to enforce a stock purchase agreement.

Facts: The case involves two adjacent Chicago commercial properties located at 1206 N. State (“1206 Space”) and 1212 N. State St. (“1212 Space”). Plaintiff rented the 1206 Space from defendant for several years and operated various restaurants on it.

The plaintiff sued to enforce a convoluted agreement involving the two spaces. The agreement called for the parties to become 50/50 shareholders in defendant’s property management firm and share rent proceeds for both the 1206 and 1212 Spaces. The relationship crumbled and the plaintiff sued to enforce the agreement. Defendant raised the fraud in the execution defense; saying he never agreed to partner with the plaintiff on the 1212 Space. After a bench trial, the Circuit Court found for defendant and plaintiff appealed.

Held: Affirmed. Defendant proved by clear and convincing evidence that he was tricked into signing the agreement.

Rules/reasoning:

Central to the Court’s fraud in the execution finding was the evidence that plaintiff “surreptitiously substituted” the 1212 Space agreement for the 1206 Space agreement (which defendant intended to sign). This resulted in the defendant unwittingly signing away a 50% interest in both the 1206 and 1212 Space’s future rental stream.

The Court espoused the following key fraud in the execution principles:

(i) fraud in the execution is an exception to the general rule that one who has ample opportunity to read a document can’t later claim he was deceived as to a document’s meaning or content;

(ii) the party claiming fraud in the execution must prove the defense by clear and convincing evidence (a higher burden than the more-likely-than-not preponderance standard);

(iii) fraud in the execution applies where the instrument is misread to the party signing it,

(iv) where there is surreptitious substitution of one paper for another or where (as here) a party is tricked into signing a document he didn’t mean to sign.

(¶¶ 74-75).

The First District agreed with the trial court that this was classic fraud in the execution. The defendant’s unchallenged fraud in the execution evidence at trial included (a) testimony from multiple witnesses that the parties’ never came to agreement on the 50/50 partnership; and (b) the suspicious circumstances surrounding defendant’s execution of the 1212 Space agreement – namely, that plaintiff immediately snatched the papers away from defendant after he signed them, precluding defendant from a meaningful opportunity to see what he was signing. (¶¶ 76-81).

And since the plaintiff failed to counter defendant’s evidence at trial, the First District agreed with the trial court and found that defendant met his burden of proving that plaintiff tricked him into signing the stock purchase agreement for the 1212 Space.

Take-aways: Fraud in the execution requires an elevated proof burden burden. In Chamanara, the defendant offered both testimonial (from multiple sources) and documentary evidence to support his claim that plaintiff hoodwinked him into signing away a 50% interest in his leasing company. The plaintiff’s inability to counter this evidence made it impossible for him to defeat defendant’s fraud defense. The case also illustrates a court’s willingness to look into the minute details (i.e., the court discussed at length how plaintiff only showed the documents upside down on his coffee table to defendant at the moment of signing) of circumstances surrounding a document’s execution in order to fully inform its fraud analysis.

Joint Owner of Checking Account Must Prove Exclusive Right to Funds by Elevated Burden of Proof – IL Appeals Court

Fraud in the Execution Dooms Plaintiff’s Specific Performance Claim Against Business Partner

clear and convincing

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