Third Division
March 29, 2002

No. 1-99-4471

PRESIDING JUSTICE HALL delivered the opinion of thecourt:

Plaintiff, General Automation, Inc. (GAI), appeals fromthe November 23, 1999, order denying its motion toreconsider. On April 30, 1997, GAI filed a two-countcomplaint against defendant, American National Bank (ANB). Count I sought damages for common law breach of contract,and count II sought damages for violation of section 9 ofthe Illinois Uniform Fiduciaries Act (the Act) (760 ILCS65/9 (West 1996)). GAI eventually assigned all of itscauses of action, rights and claims it had against ANB tothe Continental Casualty Insurance Company.

On June 2, 1999, ANB moved to dismiss GAI's seventhcomplaint pursuant to sections 2-615 and 2-619 of theIllinois Code of Civil Procedure (Code) (735 ILCS 5/2-615,2-619 (West 1998)), on the grounds that the complaint wassubstantially insufficient at law and was time-barred by anapplicable statute of limitations. The two motions werecombined pursuant to section 2-619.1 of the Code (735 ILCS5/2-619.1 (West 1998)).

On August 27, 1999, the trial court dismissed GAI'sseventh complaint with prejudice based on the three-yearlimitations period found in section 4-111 of the IllinoisUniform Commercial Code (UCC) (810 ILCS 5/4-111 (West 1996))and on the loss allocation rule in section 3-404(b) of theUCC (810 ILCS 5/3-404(b) (West 1994)). On November 23,1999, the trial court denied GAI's motion to reconsider. OnDecember 21, 1999, GAI filed a timely notice of appeal.

On appeal, GAI contends that: (1) the trial court erredin finding that its breach of contract claim was time-barredby the three-year limitations period found in section 4-111,which applies to an improper payment claim under UCC section4-401(a) (810 ILCS 5/4-401(a) (West 1994)); (2) its breachof contract claim is not time-barred by the three-yearlimitations period found in section 3-118(g) (810 ILCS 5/3-118(g) (West 1996)), which applies to a conversion of aninstrument claim under UCC section 3-420(a) (810 ILCS 5/3-420(a) (West 1994)); (3) the loss allocation rule in section3-404(b) of the UCC (810 ILCS 5/3-404(b) (West 1994)) doesnot provide ANB with a defense to GAI's breach of contractclaim; the material in this section is nonpublishable underSupreme Court Rule 23. (4) it has sufficiently pled aviolation of section 9 of the Act (760 ILCS 65/9 (West1996)); and (5) its claim under the Act is not time-barredby any UCC statute of limitations. For the reasons thatfollow, we reverse and remand.

FACTUAL BACKGROUND

In December 1982, the plaintiff, GAI opened a corporatechecking account with defendant-bank, ANB. The account wasgoverned by signature cards and a certified corporateresolution (Certified Resolution) defining the duties andobligations of ANB and GAI in relation to the corporatechecking account.

The Certified Resolution provided in relevant part thatANB was:

"hereby authorized and directed to honor and pay all checks, drafts or orders so drawn, when so signed, whether such checks, drafts or orders be payable to the order of any officer or person signing said checks, drafts or orders or any of said officers or persons in their individual capacities or not, and whether such checks, drafts or orders are deposited to the individual credit of any officer or person signing said checks, drafts or orders or to the individual credit of any of the other officers or persons aforesaid or not." 

The only persons authorized to sign checks for thisaccount were Max Starr, Irene Starr, and Bernard Cohn.Lawrence Cohn (Cohn) was GAI's comptroller but was not asignator to the account. Between June 14, 1992, and May 7,1993, Cohn instructed GAI to issue nine checks, all of whichwere signed by Max Starr and made payable to the order ofANB and drawn on GAI's corporate checking account at ANB forthe ostensible purpose of paying GAI's payroll taxes. Overthis 11 month period Cohn deposited the nine unaltered,nonforged checks ranging in amounts from $40,000 to $50,000each into an automatic teller machine (ATM), with depositslips attached for deposit into his own personal account. ANB did not pay itself on any of the checks but ratherallowed the checks to be deposited into Cohn's personalaccount. On May 28, 1996, agents from the Internal RevenueService (IRS) informed GAI that they had uncovered Cohn'sembezzlement scheme. Cohn absconded with all of the fundsand GAI sustained losses in excess of $370,000. On April30, 1997, GAI filed a two-count complaint against ANB. Count I sought damages for common law breach of contract,and count II sought damages for violation of section 9 ofthe Act (760 ILCS 65/9 (West 1992)).

ANALYSIS

Standard of Review

Where a trial court dismisses a complaint under eithersection 2-615 or section 2-619 of the Code (735 ILCS 5/2-615, 2-619 (West 1998)), this court applies a de novostandard of review. R-Five, Inc. v. Shadeco, Inc., 305 Ill.App. 3d 635, 639, 712 N.E.2d 913 (1999).

I. Breach of Contract Claim

GAI first contends that its complaint sufficientlyalleged facts establishing a cause of action for common lawbreach of a written contract. In response, ANB contendsthat GAI failed to plead a breach of contract because theCertified Resolution did not obligate ANB to refuse toaccept checks payable to itself into an ANB account, andbecause the breach of contract claim failed to allege theformation and terms of any tax-payment agreement. We cannotagree with ANB's contentions.

The relationship between a bank and its depositor iscontractual in nature. National Bank of Monticello v. Quinn,126 Ill. 2d 129, 134, 533 N.E.2d 846 (1988). A bindingcontract between a bank and its depositor is created bysignature cards and a deposit agreement. See, e.g., YourStyle Publications, Inc. v. Mid Town Bank & Trust Co., 150Ill. App. 3d 421, 427-28, 501 N.E.2d 805 (1986) (noting thatsignature card and fee schedule constitute a contractbetween a bank and its customer); Ohio Casualty InsuranceCompany v. Bank One, No. 95 C 6613 (N.D.Ill. 1997) (statingthat signature cards and deposit agreements for accounts atissue formed a contract between bank and its customer);Sanwa Business Credit Corporation v. Continental IllinoisNational Bank & Trust Company of Chicago, 247 Ill. App. 3d155, 160, 617 N.E.2d 253 (1993) (stating that checkingaccount creates a contractual, debtor-creditor relationshipbetween a bank and its customer). When money is depositedwith a bank, title to it passes and the bank becomes adebtor to the extent of the deposit and, to that extent, thedepositor becomes a creditor. Selby v. DuQuoin State Bank,223 Ill. App. 3d 104, 108, 584 N.E.2d 1055 (1991). In theinstant case, GAI's corporate checking account with ANB,along with the signature cards and the Certified Resolution,created a contractual relationship between GAI and ANB.

Implicit in such contracts is the common-law duty ofthe bank to use ordinary care in disbursing the depositor'sfunds. National Bank of Monticello, 126 Ill. 2d at 135. This duty of care is based on the well-established common-law rule:

"Where a check drawn to the order of a bank ispresented to such bank, and the drawer owes no [debt]to the bank, the bank must see that the proceeds arenot misapplied, and cannot without justification divertthe proceeds to the use of one other than the drawer,and is authorized to pay the proceeds only to personsspecified by the drawer. The bank takes a risk intreating the check as being payable to the bearer, andis placed on inquiry as to the authority of thedrawer's agent to receive payment. The duty to inquireof the drawer is not satisfied by making inquiry of thebearer. If the bank assumes without investigation thatthe instructions of the presenter are those of thedrawer, it takes a risk. Where the drawer's agent orone representing himself or herself to be such is notin fact authorized, the bank is liable to the drawerfor paying the check to such person ...." 9 C.J.S.Banks and Banking