Midwest Industrial Funding, Division of Rivera Lend Lease, Inc. v. First National Bank of Lockport F/k/a Heritage First National Bank of Lockport, 973 F.2d 534, 1st Cir. (1992)

973 F.
2d 534
18 UCC Rep.Serv.2d 474, 20 UCC Rep.Serv.2d 986
MIDWEST INDUSTRIAL FUNDING, DIVISION OF

RIVERA LEND LEASE,
INC., Plaintiff-Appellee,
v.
FIRST NATIONAL BANK OF LOCKPORT f/k/a Heritage
First
National Bank of Lockport, Defendant-Appellant.
No. 91-2846.
United States Court of Appeals,

Seventh Circuit.
Argued April 17, 1992.
Decided Aug. 21, 1992.
Robert P. Zapinski (argued), Robert L. Graham, Jeffrey L. Elegant, Jenner

& Block, Chicago, Ill., for plaintiff-appellee.
Martin W. Salzman, Eric S. Rein, Schwartz, Cooper, Kolb & Gaynor,
Chicago, Ill., Timothy J. Rathbun, Gary S. Mueller (argued), McKeown,
Fitzgerald, Zollner, Buck, Hutchison & Ruttle, Joliet, Ill., for defendantappellant.
Before POSNER and KANNE, Circuit Judges, and WOOD, Jr., Senior
Circuit Judge.
KANNE, Circuit Judge.
As the district court recognized, the transactions at issue in this case are
relatively straightforward. Plaintiff-appellee Midwest Industrial Funding
entered into a funding contract with Complete Service Electric, Inc. Midwest
and Complete notified Complete's customers of the funding agreement and
advised them to send checks for services rendered to:
Complete Service Electric, Ltd.

2
2
3c/o Midwest Industrial Funding
17W415 Roosevelt Road
Oakbrook Terrace, IL 60181
4
Under the notification agreement, it is undisputed that checks were to be made

payable solely to Complete.
Eagle Construction Corporation, a customer of Complete, made out four checks

in payment for services rendered by Complete. But the checks were made
payable to:
6Complete Service Ele.

Midwest Industrial
717W412 Roosevelt Rd.
Oakbrook Terrace, IL 60181
8
The checks were endorsed by Complete, but not by Midwest, and were
presented to the defendant-appellee First National Bank of Lockport ("the
Bank") for payment. The Bank paid the checks in an amount totalling
$53,056.10. Midwest then brought this suit which alleged that the Bank
converted the checks by paying them without first obtaining Midwest's
endorsement.
Before the district court, both parties moved for summary judgment. Midwest
relied upon the then current version of chapter 26, p 3-116 of the Illinois
Revised Statutes (also Sec. 3-116 of the Uniform Commercial Code). See
ILL.REV.STAT. ch. 26, p 3-116 (Smith-Hurd 1963). That paragraph stated:
An instrument payable to the order of two or more persons

10
11
(a) if in the alternative is payable to any one of them and may be negotiated,
discharged or enforced by any of them who has possession of it;
12
(b) if not in the alternative is payable to all of them and may be negotiated,
discharged or enforced only by all of them.
13
Id. See also (1974) (defendant bank held liable for honoring a cashier's check
13
without endorsement of both payees); (1960) (applying the Uniform Negotiable

Instruments Act to reach the same result); (1939); (1920).
14
Midwest argued that the checks were made payable to two payees, Complete
and Midwest; and that the Bank converted the checks by failing to obtain
Midwest's endorsement before paying on the checks. The Bank responded that
Eagle clearly intended to make the checks payable only to Complete. In support
of that argument, the Bank relied upon the notification sent by Midwest and
Complete to Complete's customers, under which checks were to be sent to
Complete c/o Midwest.
15
Judge Norgle was unpersuaded by the Bank's argument because the Bank did
not contend that it ever received the notification. He found that the notification
was irrelevant: "[the Bank] was simply presented with a series of checks with
two names as payee. [The Bank] had no reason to treat the checks differently
than any other check with two payees." Accordingly, he entered summary
judgment in favor of Midwest and against the Bank on the grounds that the
checks were made payable to joint payees and that the Bank failed to obtain
Midwest's endorsement.
16
The Bank then moved to stay enforcement of the judgment pursuant to Rule
62(h) of the Federal Rules of Civil Procedure to allow it to file a cross-claim
against defendant-Downers Grove National Bank. Rule 62(h) allows the district
court to stay enforcement of a judgment pending the entry of a subsequent
judgment in a multi-defendant case.
17
The district judge denied the motion. He reasoned that a stay was unnecessary
because the Bank had chosen to wait until it had been found liable to bring a
cross-claim. The district judge also found that there was no indication that
Midwest would seek recovery against Downer's Grove or that any judgment,
other than that sought through the Bank's cross-claim, would be forthcoming in
the suit. According to the district judge, there was no just reason to delay the
entry of judgment. The Bank appealed.
18
We review a grant or denial of summary judgment de novo. (7th Cir.1992); (7th

Cir.1992). Summary judgment is appropriate if we can determine that "there is
no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law." FED.R.CIV.P. 56(c); see also (7th Cir.1992). In
examining a grant of summary judgment, we " 'view the review the record and
all inferences drawn from it in a light most favorable to the party opposing the
motion.' " (quoting (7th Cir.1990)); see also (7th Cir.1992).
19
The principal issue in this case is whether the checks were made payable to
joint payees or whether they were made payable in the alternative. The Bank
argues that the district judge erred in granting summary judgment because there
is a genuine issue of material fact as to the number of payees on the checks.
The Bank maintains that there are either five payees (namely, "Complete,"
"Service," "Ele.," "Midwest" and "Industrial") or four payees ("Complete
Service Ele.," "Midwest Industrial," "17W412 Roosevelt Road," and
"Oakbrook Terrace, IL 60181"). It contends that because the identity of the
payee(s) of the checks was ambiguous, the district judge erred in failing to
admit parole evidence to aid in the interpretation of the checks.
20
The Bank's argument that "17W412 Roosevelt Road" and "Oakbrook Terrace,
IL 60181" are payees is preposterous. Those terms refer to the address of one
of the payee[s] on the check. We are also unpersuaded by the Bank's attempt to
describe "Complete," "Service," "Ele.," "Midwest" and "Industrial" as separate
payees on the checks. We therefore conclude that there could only be two
possible payees on the checks: Complete and Midwest.
21
The Bank's more serious argument is based upon the notification, which was in
effect when the checks at issue were sent. The Bank contends that under the
notification agreement any checks were to be made payable to Complete and
sent c/o Midwest Industrial. The Bank concludes that there is no indication in
the notification agreement nor evidence in the record that Midwest was ever
intended to be a payee on the checks. As such, the Bank reasons that Midwest's
endorsement on the checks was never required and, if it had been present on
the checks, would have had no effect. The Bank further argues that the
omission of "c/o" on the checks should not allow Midwest to be unjustly
enriched.
22
According to Midwest, the Bank cannot rely upon the notification agreement
because the Bank was not aware of it when it made payment on the checks.
Midwest points out that the term "c/o" does not appear on the four checks
issued by Eagle. Midwest contends that the Bank seeks to rewrite the checks
after the fact, to include "c/o" and recharacterize the status of Midwest.
23
We agree with Midwest that the district court correctly found that two separate
names--Complete and Midwest Industrial--appear on the checks following "Pay
to the Order of" language. We must next decide whether, under p 3-116, by
operation of law, the two persons named on the checks should be deemed to be
joint payees.
24
Courts which have applied p 3-116 have generally refused to examine the
24
Courts which have applied p 3-116 have generally refused to examine the
drawer's intent in determining whether a check is jointly payable. See (1978);
(1972); (S.D.Iowa 1990) (In construing the meaning of the Iowa equivalent of
p 3-116, the court stated, "to argue that the intent of the parties controls the
payee designation ignores the plain meaning of the statute."). One court
examined the drawer's intent because it found that the check was ambiguous.
(1977) (finding that a comma between the names of two persons on the check
made the check ambiguous and required the court to ascertain the parties'
intent). The general rule is that if there are two names on the check and the
check is not payable in the alternative then the statute establishes that check is
jointly payable. ; 28 Cal.App. at 735, 104 Cal.Rptr. 912; Van Lunen, 751
F.Supp. at 147-48. Under these decisions, the checks at issue here were jointly
payable because they contained two names without any indication that they
were payable in the alternative. Therefore, under a literal application of p 3-116,
the checks could be negotiated only by both Midwest and Complete.
25
Nevertheless, it is undisputed that under the notification agreement checks

were to be made payable to Complete c/o Midwest. The notification agreement
raises the possibility that Midwest was not intended to be a payee on the
checks. Midwest argues that p 3-116 makes the notification agreement
irrelevant because the Bank cannot prove that it was aware of the agreement
when it paid on the checks. We are troubled by Midwest's position because,
even if the Bank was unaware of the notification agreement when it paid on the
checks, the notification agreement suggests that Midwest would receive a
windfall if it recovered the face value of the checks. As we shall explain, the
Bank's inability to prove that it was aware of the notification agreement before
paying on the checks does not render the agreement entirely irrelevant.
26
In a hypothetical case, we will assume that the Bank had received a check with
the payee designation "Complete/Acme" which had only been endorsed by
Complete. We will also assume that "Acme" was erroneously included as a
payee on the check and that Acme had no entitlement to payment. If the Bank
had paid on the checks, there would be no doubt that the Bank had erred under
p 3-116 because the Bank failed to obtain Acme's endorsement. However, we
do not agree with Midwest's contention at oral argument that the Bank's
mistake would entitle Acme to recover on the checks. If Acme could recover
based upon a mechanical application of p 3-116, it would be unjustly enriched.
27
The Illinois Supreme Court has allowed a defendant bank to raise common law
defenses in a situation similar to this case. See (1989). In the defendant bank
cashed a check drawn on the account of the plaintiff although the check was
missing the drawer's signature. Section 3-401(1) of the Uniform Commercial
Code provides that: "[n]o person is liable on an instrument unless his signature
appears thereon." ILL.REV.STAT. ch. 26 p 3-401(1). Despite the plain

language of the Code provision, the Illinois Supreme Court ruled that the
defendant bank could raise common law defenses, which include unjust
enrichment. In (1988), the payee-plaintiff alleged that the defendants had
converted a check by paying it on a forged endorsement. The court held that
the plaintiff could not recover from the drawee the face amount of the check
because the plaintiff had already received partial payment from another
defendant.
28
Other courts have allowed drawees to assert unjust enrichment defenses in

analogous situations. For example, in (1978), the defendant bank paid a check
even though it had been endorsed by one co-payee. The drawer of the check
sued the defendant bank to recover on the check. The court held that the bank
could assert an unjust enrichment defense if it could prove that the proceeds
actually reached all of the payees designated by the drawer. The court reasoned
that the drawer should not be permitted to recover where it had not experienced
a loss from the improper payment of the check. Other courts have allowed
drawees to assert an unjust enrichment defense in similar cases. See
(Ct.App.1977); (1976); (1974); (S.D.Miss.1991). We believe that this case may
present an appropriate situation to recognize an unjust enrichment defense
because "c/o" may have been omitted from the check by mistake.
29
Moreover, in view of and we believe that the Illinois courts would allow the
bank in the case to raise an unjust enrichment defense. See (1983) (A party may
recover on an unjust enrichment claim if it proves "an unjust retention of a
benefit, including money, by one party to the detriment of another party, against
the fundamental principles of justice, equity, and good conscience.").
30
Turning to the merits of the unjust enrichment argument, Midwest has not
explained why it should be allowed to recover on the checks in view of the
notification agreement, which makes clear that Complete was to be the only
payee on checks. Midwest's argument and the record evidence do not exclude
the possibility that its rights are no better than those of Acme in our
hypothetical case. Therefore, although the district judge ruled correctly that the
Bank violated p 3-116, we conclude that the grant of summary judgment
should be reversed to allow the parties to more fully address the unjust
enrichment problem posed by a strict application of p 3-116. The parties should
be allowed to admit extrinsic evidence relevant to the Bank's unjust enrichment
defense.
31
Our holding does not contradict the plain meaning of p 3-116 because it applies
only in the rare case where a payee may be included on a check by mistake and
where allowing the apparent payee to recover would constitute unjust

enrichment. We recognize that the Bank could have avoided this costly
litigation by more carefully examining the checks, but we must remand this
case because we cannot determine whether Midwest would be unjustly
enriched if it recovered on the checks.
32
We REVERSE the judgment of the district court and REMAND this case for
further proceedings consistent with our opinion.
.33The Illinois Legislature has recently enacted revisions to the Uniform Commercial
Code but the amendments did not take effect until January 1, 1992, which was after
the district court entered judgment in favor of Midwest. Under the amended version
the rule contained in p 3-116 is now located in chapter 26, p 3-110(1)(d). The
amended version in p 3-110(1)(d) did not alter the substantive rule of p 3-116 that a
check made out to joint payees must be endorsed by all payees. However, the new
version adds an additional sentence which reads: "[i]f an instrument payable to 2 or
more persons is ambiguous as to whether it is payable to the persons alternatively,
the instrument is payable to the persons alternatively." ILL.REV.STAT. ch. 26, p 3110(1)(d).
.34If the Bank had been aware of the notification agreement when it paid on the
checks, it could prove that it knew that the checks were not jointly payable under p
3-116.
.35This paragraph has been recently amended, but the substantive rule quoted in the
text has not been altered. The new version took effect on January 1, 1992.
.36At oral argument, counsel for Midwest raised the possibility that the notification
agreement was not in effect at the time Eagle issued the four checks.
.37In view of our holding, we need not determine whether the district court acted
within its discretion in denying the Bank's motion to stay the entry of judgment.

Midwest Industrial Funding, Division of Rivera Lend Lease, Inc. v. First National Bank of Lockport F/k/a Heritage First National Bank of Lockport, 973 F.2d 534, 1st Cir. (1992)

Uploaded by

Copyright:

Available Formats

Midwest Industrial Funding, Division of Rivera Lend Lease, Inc. v. First National Bank of Lockport F/k/a Heritage First National Bank of Lockport, 973 F.2d 534, 1st Cir. (1992)

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Midwest Industrial Funding, Division of Rivera Lend Lease, Inc. v. First National Bank of Lockport F/k/a Heritage First National Bank of Lockport, 973 F.2d 534, 1st Cir. (1992)

Uploaded by

Copyright:

Available Formats

973 F.

MIDWEST INDUSTRIAL FUNDING, DIVISION OF

United States Court of Appeals,

Robert P. Zapinski (argued), Robert L. Graham, Jeffrey L. Elegant, Jenner

Complete Service Electric, Ltd.

Under the notification agreement, it is undisputed that checks were to be made

Eagle Construction Corporation, a customer of Complete, made out four checks

6Complete Service Ele.

An instrument payable to the order of two or more persons

without endorsement of both payees); (1960) (applying the Uniform Negotiable

We review a grant or denial of summary judgment de novo. (7th Cir.1992); (7th

Nevertheless, it is undisputed that under the notification agreement checks

appears thereon." ILL.REV.STAT. ch. 26 p 3-401(1). Despite the plain

Other courts have allowed drawees to assert unjust enrichment defenses in

where allowing the apparent payee to recover would constitute unjust

You might also like