{ "id": 3411947, "name": "AVAILABLE IRON AND METAL COMPANY, Plaintiff-Appellee, v. FIRST NATIONAL BANK OF BLUE ISLAND, Defendant-Appellant", "name_abbreviation": "Available Iron & Metal Co. v. First National Bank", "decision_date": "1977-12-23", "docket_number": "No. 76-789", "first_page": "516", "last_page": "532", "citations": [ { "type": "official", "cite": "56 Ill. App. 3d 516" } ], "court": { "name_abbreviation": "Ill. App. Ct.", "id": 8837, "name": "Illinois Appellate Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "259 A.2d 290", "category": "reporters:state_regional", "reporter": "A.2d", "opinion_index": 0 }, { "cite": "255 Md. 668", "category": "reporters:state", "reporter": "Md.", "case_ids": [ 1924158 ], "opinion_index": 0, "case_paths": [ "/md/255/0668-01" ] }, { "cite": "164 Mont. 237", "category": "reporters:state", "reporter": "Mont.", "case_ids": [ 5259380 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/mont/164/0237-01" ] }, { "cite": "357 N.E.2d 582", "category": "reporters:state_regional", "reporter": "N.E.2d", "opinion_index": 0 }, { "cite": "43 Ill. App. 3d 543", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 2725737 ], "pin_cites": [ { "page": "546-47" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/43/0543-01" ] }, { "cite": "91 N.E.2d 597", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1976, "opinion_index": 0 }, { "cite": "405 Ill. 440", "category": "reporters:state", "reporter": "Ill.", "case_ids": [ 2627691 ], "year": 1976, "pin_cites": [ { "page": "444" } ], "opinion_index": 0, "case_paths": [ "/ill/405/0440-01" ] }, { "cite": "206 N.E.2d 709", "category": "reporters:state_regional", "reporter": "N.E.2d", "year": 1950, "opinion_index": 0 }, { "cite": "32 Ill. 2d 421", "category": "reporters:state", "reporter": "Ill. 2d", "case_ids": [ 2840216 ], "year": 1950, "pin_cites": [ { "page": "428" } ], "opinion_index": 0, "case_paths": [ "/ill-2d/32/0421-01" ] }, { "cite": "538 P.2d 298", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10463689 ], "opinion_index": 0, "case_paths": [ "/p2d/538/0298-01" ] }, { "cite": "403 F. Supp. 75", "category": "reporters:federal", "reporter": "F. Supp.", "case_ids": [ 3833868 ], "opinion_index": 0, "case_paths": [ "/f-supp/403/0075-01" ] } ], "analysis": { "cardinality": 1126, "char_count": 42471, "ocr_confidence": 0.9, "pagerank": { "raw": 2.1084297638893413e-07, "percentile": 0.7628340493982467 }, "sha256": "c073d0597761f5ab93e3159cddb2db3f09bc68caa6dac9fc7759bc23685a5270", "simhash": "1:a09833bf4921b6b3", "word_count": 7448 }, "last_updated": "2023-07-14T16:43:47.132655+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "AVAILABLE IRON AND METAL COMPANY, Plaintiff-Appellee, v. FIRST NATIONAL BANK OF BLUE ISLAND, Defendant-Appellant." ], "opinions": [ { "text": "Mr. JUSTICE WILSON\ndelivered the opinion of the court:\nThis is an appeal from a judgment finding defendant, First National Bank of Blue Island (hereinafter \u201cBank\u201d), liable for the amount of three checks which plaintiff, Available Iron and Metal Company (hereinafter \u201cAvailable\u201d), presented for collection. The only issue raised on appeal is whether the Bank breached the duty imposed upon it by section 4 \u2014 302 of the Uniform Commercial Code (hereinafter \u201cCode\u201d) (Ill. Rev. Stat. 1975, ch. 26, par. 4 \u2014 302), to either pay, return, or send notice of dishonor of these checks in a timely manner. We affirm.\nAvailable collected scrap metal from various industries and delivered it to scrap yards. Reuben R. Graff Company (hereinafter \u201cGraff Co.\u201d) operated a scrap yard which processed such scrap metal and sold it to mills. For 10 or 12 years prior to 1972 Graff Co. provided Available with a rent free office at its yard and serviced some of Available\u2019s customers by picking up their scrap in its trucks and transporting the scrap to its yard. During this period Graff Co. paid Available by check on a weekly basis for both the scrap its trucks brought in from Available\u2019s customers and and the scrap Available\u2019s trucks delivered to its yard. At times one of Graff Co.\u2019s employees, Jane Duhick, requested that Available wait awhile before cashing these checks. Both companies were customers of the Bank in 1972.\nOn several occasions prior to 1972 Graff Co. had borrowed money from the Bank. By early 1972 the company owed the Bank approximately *500,000. Most of this debt was secured by Graff Co.\u2019s inventory, accounts receivable, fixed assets and land under the provisions of several security agreements signed by Reuben R. Graff, Graff Co.\u2019s president, on behalf of the company. The remainder was secured by stocks and a certificate of deposit owned by Mrs. Reuben R. Graff. The security agreements gave the Bank the right to apply all proceeds from inventory sales and all collections on accounts receivable to the reduction of the secured indebtedness upon default.\nIn late March of 1972 discrepancies between Graff Co. accounts receivable schedules held by the Bank and Graff Co.\u2019s books were discovered. Audits disclosed that the company\u2019s accounts receivable were significantly overstated in the schedules. Because the overstatement meant Graff Co. had less in the way of assets to secure its loans than the Bank thought was available, the Bank became concerned about its loans and sent its senior vice president and controller, Fred W. Mansfield, to Graff Co.\u2019s yard for the purposes of watching assets, converting inventory into cash and generally protecting the Bank\u2019s interest. Mansfield arrived in late March of 1972 and remained at the yard until late April or early May of 1972. While he was there, Mansfield picked up the mail each day, watched as it was opened by a Graff Co. employee and reviewed the checks that were received. He also reviewed the company\u2019s books and took physical control of Graff Co.\u2019s unused checks. He kept these checks locked up and he had the only key to the lock. Consequently, the company could not issue a check without his permission. He frequently reported to the Bank about the amounts of money Graff Co. received and about the company\u2019s operations.\nIn late March of 1972 one of the owners of Available, Harold Silvers, noticed that Mansfield was at the Graff Co. yard every day and asked him why he was there and what he was doing. The controller responded that the company had problems and that he was there to straighten some things out. Later that month Harold Silvers and the other owner of Available, Arnold Silvers, met with Reuben R. Graff. During this meeting the president of Graff Co. told them he was in trouble but he also told them not to worry as he had enough inventory at the yard to straighten things out. Then on either April 3, 4, or 5, the two Silvers met with Mansfield in Available\u2019s office. The Silvers were concerned about the money, approximately *70,000 at this point, that Graff Co. owed them and asked Mansfield how bad things were. Mansfield was evasive and told them only that Graff Co. had little problems which the Bank was trying to straighten out. The controller suggested that they should \u201csit tight\u201d and told them not to \u201crock the boat.\u201d\nGraff Co. gave Available the three checks in issue on or about the date they were dated. One of these checks was dated March 17,1972, and was in the amount of *8,556.50. The second check was dated March 24,1972, and was for *9,139.15. The third check was dated April 5,1972, and was for *9,399.15. On April 6,1972, Harold Silvers took the third check to the Bank. He went to a teller and submitted the check for deposit. Instead of accepting it the teller told him to take it to Boyd A. Wagener, a vice president of the Bank. He went over to Wagener\u2019s desk and asked Wagener how he could get the check taken care of. Wagener said: \u201cWe\u2019ll put it in for collection now and we\u2019ll see that you get your money just as soon as there is money in the bank.\u201d Then Wagener took the check to another Bank employee and told her to put it in for collection and make out a receipt. While Silvers was sitting at her desk waiting for the receipt, Rueben R. Graff walked up. Silvers told Graff he was there to put some money in the Bank. Graff said: \u201cOh, I\u2019m making a big deposit now. There should be plenty of money to cover that check.\u201d Then the employee gave Silvers a receipt for the check.\nOn or about April 13, 1972, the Silvers met with a number of Bank officials at the Bank, including Hugh M. Driscoll, the president of the Bank, Vincent C. Yager, the executive vice president, Mansfield and Wagener. At this meeting the Silvers expressed concern about getting paid by Graff Co. and they were told that Graff Co. was on the verge of bankruptcy, that the Bank was a secured creditor and that the Bank\u2019s interests were going to come first.\nOn April 17, 1972, Harold Silvers took the March 17 and March 24 checks to the Bank and apparently went directly to Wagoner\u2019s desk upon entering the Bank. He asked Wagener if he should put these checks in for collection and Wagener responded in the affirmative. Then Silvers went through basically the same procedure as he did with the April 5 check. He had not taken these checks to the Bank earlier because of a request made by Jane Duhick to hold them.\nOn April 25, 1972, Harold Silvers received the April 5 check and a notice indicating that it was returned unpaid because of insufficient funds. On April 27, 1972, he received the other two checks and two notices indicating that they were also returned because of insufficient funds.\nOn or about May 1, 1972, Graff Co. went bankrupt. When it went into bankruptcy Graff Co. owed Available approximately *74,000. Available received approximately *11,100 of this amount. The Bank, on the other hand, did not lose any money.\nOpinion\nI\nThe court below found that the Bank had violated section 4 \u2014 302 of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 4 \u2014 302). The Bank argues that it gave Available timely notice of dishonor and that it \u201creturned\u201d the checks in question before the midnight deadline set forth by section 4 \u2014 302, thus it did not violate section 4 \u2014 302.\nSection 4 \u2014 302 provides in pertinent part:\n\u201cIn the absence of a valid defense * \u201d \u201d, if an item is presented on and received by a payor bank the bank is accountable for the amount of\n(a) a demand item \u00b0 * whether properly payable or not if the bank * \u00b0 \u00b0 does not pay or return the item or send notice of dishonor until after its midnight deadline \u00b0 \u00b0\nSection 4 \u2014 104(1) (h) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 4\u2014 104(1) (h)) defines \u201cmidnight deadline\u201d as midnight of the banking day following the banking day on which the item is received.\nA\nIn connection with the \u201creturned\u201d leg of its argument, the Bank accurately points out that section 4 \u2014 301(4) (b) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 4 \u2014 301 (4) (b) provides that an item is \u201creturned\u201d when it is delivered to the bank\u2019s customer, and correctly adds that this provision is controlling in the instant case. Then the Bank asserts that the following testimony of Harold Silvers establishes that he gave the teller the three checks in question and she gave them back to him and thereby \u201creturned\u201d them to him:\n\u201cQ. You went to the teller, is that correct?\nA. That\u2019s correct.\nQ. Did you submit the check for payment or deposit?\nA. Yes, I did.\nQ. And, was it refused?\nA. It was \u2014 Yes, it was refused and I took it to Boyd Wagner [sic].\u201d\nOne of the problems with this assertion is that it ignores the context in which the quoted testimony was given. The testimony immediately prior to this testimony refers only to the April 5 check, and nothing within the quoted testimony stretches its import beyond that check. Indeed, there is nothing in the record before us which indicates that Harold Silvers took the March 17 and March 24 checks to the teller before taking them to Wagener. Thus neither this testimony nor any other testimony in the record before us establishes that the teller \u201creturned\u201d the latter checks to Silvers.\nAnother problem with this assertion is connected with a necessary condition for operation of section 4 \u2014 302, namely, that the payor bank receive the item. While the teller must have looked at the check before refusing to pay or deposit it, the quoted testimony does not establish that the teller in any way \u201creceived\u201d the April 5 check. In other words, this testimony establishes the facts that Silvers presented, tendered, offered, extended or held out the check for either payment or deposit and that the teller did not accept it for either payment or deposit, but does not establish that the teller even temporarily took physical control of the check. Nor is there any other evidence in the record which shows that the teller even had physical control of the April 5 check. The significance of the teller refusing to accept the check for payment or deposit and of no evidence establishing that she ever had physical control of this check is that: (1) the Bank had not received the check, and hence was not liable for it under section 4 \u2014 302, when Silvers left the teller\u2019s window; and (2) it cannot logically be said that the teller gave the check back, or \u201cdelivered\u201d the check, to Silvers if she never \u201creceived\u201d it in the first place. Of course, the significance of being unable to say that the teller \u201cdelivered\u201d the April 5 check to Silvers is our inability to find that the teller \u201creturned\u201d the April 5 check to Silvers.\nFurthermore, when we add other testimony before us to the quoted testimony, even if (1) the teller touched the April 5 check or took it from Silvers and held it in her hand, and thereby \u201creceived\u201d it in the sense of acquiring possession of it, and (2) the teller thereafter gave the check back to Silvers and thereby \u201cdelivered\u201d it to him in the sense of handing it over or transferring possession, we are not at all sure that the transfers of possession from Silvers to the teller and from the teller back to Silvers constitute a section 4 \u2014 302 receipt and return. The only evidence before us concerning the teller\u2019s actions and statements is Silvers\u2019 testimony. The Bank has pointed to a portion of this testimony but ignored additional pertinent passages. The testimony we refer to immediately follows the quoted testimony and is:\n\u201cQ. So, the teller said that there were insufficient funds to pay the check?\nA. No, she said take it to Mr. \u2014 She didn\u2019t say that, she said to me, \u2018Take it to Mr. Wagner [sic].\u2019\nQ. She said take it to Mr. Wagner [sic]?\nA. Yes, she told me to take it to Mr. Wagner [sic].\nQ. Or, did you take it to Mr. Wagner [sic] on your own volition?\nA. No, I didn\u2019t.\nQ. Well, in any event, the check was refused and dishonored at that time, is that right?\nA. I don\u2019t know about being dishonored.\u201d\nUpon combining this testimony and the previously quoted testimony we find that the only statement made by the teller to Silvers was a direction to take the check to Wagener. Even if we assume the teller took the check and then handed it back to Silvers, from these actions and the teller\u2019s statement it could be inferred that the teller simply postponed the receipt of the check and that it was not \u201creceived\u201d by the Bank until the next Bank employee took it from the payee. Of course, if the teller simply caused a delay in the Bank\u2019s receipt of the check, and her actions and direction consequently did not trigger the operation of section 4 \u2014 302, the teller could not satisfy the section 4 \u2014 302 requirement of a seasonable \u201creturn\u201d of the item after its receipt by the payor bank by handing the check back to Silvers.\nB\nIn connection with the timely notice of dishonor leg of its argument, the Bank asserts that the testimony it points to also establishes that Silvers received oral notice of dishonor of the three checks.\nThere are numerous problems with this assertion. The first involves section 3 \u2014 508(3) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 3\u2014 508(3)), which provides:\n\u201cNotice may be given in any reasonable manner. It may be oral or written and in any terms which identify the instrument and state that it has been dishonored. A misdescription which does not mislead the party notified does not vitiate the notice. Sending the instrument bearing a stamp, ticket or writing stating that acceptance or payment has been refused or sending a notice of debit with respect to the instrument is sufficient.\u201d\nSection 4 \u2014 104(3) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 4 \u2014 104(3)) makes section 3 \u2014 508 applicable to article 4 of the Code (Ill. Rev. Stat. 1975, ch. 26, pars. 4 \u2014 101 through 4 \u2014 504). On the basis of these provisions the Bank assumes in its assertion that oral notice of dishonor is sufficient notice of dishonor to establish compliance with section 4\u2014 302(a). This assumption conveniently ignores the pertinent language of section 4 \u2014 302(a), which is: \u201csend notice of dishonor.\u201d Section 1 \u2014 201(38) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 1 \u2014 201(38)) defines \u201csend\u201d as follows:\n\u2018Send\u2019 in connection with any writing or notice means to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and in the case of an instrument to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances. The receipt of any writing or notice within the time at which it would have arrived if properly sent has the effect of a proper sending.\u201d\nSection 4 \u2014 104(4) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 4 \u2014 104(4)) makes this definition applicable in the provisions of article 4 of the Code. When we insert this definition in section 4 \u2014 302(a), we are led to the conclusion that oral notice of dishonor is not sufficient notice of dishonor to establish compliance with section 4 \u2014 302(a). (Cf. In re United States v. Loskocinski (E.D. N.Y. 1975), 403 F. Supp. 75.) Moreover, section 4\u2014 102(1) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 4 \u2014 102(1)) provides that when there is a conflict between a provision of article 4 and a provision of article 3 of the Code (Ill. Rev. Stat. 1975, ch. 26, pars. 3 \u2014 101 through 3 \u2014 805), the article 4 provision governs. It could be argued that there is a conflict between section 3 \u2014 508(3) and section 4 \u2014 302(a) because under the former section an oral notice of dishonor could be found to be sufficient notice of dishonor to establish compliance with section 4 \u2014 302(a)\u2019s \u201csend notice of dishonor\u201d requirement, while under the latter, oral notice would not be sufficient. Even if this argument was made, in light of section 4 \u2014 102(1), we would hold that oral notice of dishonor is not sufficient notice of dishonor under section 4 \u2014 302(a), and that only written notice of dishonor is sufficient to establish compliance with that section of the Code. See Valley Bank & Trust Co. v. First Security Bank (Utah 1975), 538 P.2d 298.\nEven if we were to find oral notice of dishonor satisfactory, however, other problems with the Bank\u2019s assertion that Silvers received oral notice of dishonor of the three checks would cause us to find it unpersuasive. Under section 4 \u2014 302, after a check is presented on and received by a payor bank which is also the depositary bank, the bank is accountable for the amount of a check only if it does not pay it, return it, or send notice of dishonor with regard to it, by the midnight deadline, and only if it cannot establish a valid defense, such as a settlement. As we have indicated, there is nothing in the record before us which indicates that Harold Silvers took the March 17 and March 24 checks to the teller before he presented them to Wagener. Consequently we could not find either that the teller \u201creceived\u201d these checks, or that she gave oral notice of dishonor with regard to them. Additionally, as we have already noted, the record before us does not support the finding that the teller in any way \u201creceived\u201d the April 5 check. Thus we could not find that she gave an oral notice of dishonor of this check which satisfied section 4 \u2014 302, that is, an oral notice of dishonor given after receipt, even if we decided in the abstract that oral notice of dishonor could satisfy section 4 \u2014 302.\nFurthermore, even under section 3 \u2014 508(3), an oral notice of dishonor must be given in a reasonable manner and in some terms which state that the instrument has been dishonored. Even if we found that oral notice of dishonor could satisfy section 4 \u2014 302, and even if we found that the teller did \u201creceive\u201d the April 5 check and then hand it back to Silvers, her statement to Silvers after she received it and her action of handing the check back to him would not constitute an oral notice of dishonor given in a reasonable manner. The teller did not tell Silvers that there were insufficient funds to pay the check. While the teller \u201crefused\u201d the check, it appears that this refusal was implicit in her direction to take the check to Wagener and in her action of handing the check back to Silvers (assuming she did so). A direction to take a check to another bank employee and the action of handing the check back to the payee, without more, cannot reasonably be said to constitute a statement that the check has been dishonored. Indeed, the evidence before us supports not only the finding that the teller did not give notice of dishonor in a reasonable manner, but also a finding that the teller\u2019s statement and action simply deferred or postponed the Bank\u2019s acceptance of the April 5 check. Hence, it could arguably be concluded that (1) the teller did not actually refuse to accept it and (2) she did not dishonor the check.\nC\nAlso in connection with the timely notice of dishonor leg of its argument, the Bank asserts that the collection receipts Silvers received for the three checks constituted written notices of dishonor of the three checks. In our view the collection receipts Silvers received were merely the Bank\u2019s written acknowledgements of its receipt or acceptance of the checks for collection. Furthermore, section 3 \u2014 508(3) appears to require that a written notice of dishonor must bear some terms which state the dishonor. These collection receipts bear no terms expressing dishonor or any other indication that the checks were dishonored. Consequently we certainly could not find that the collection receipts Silvers received gave him notice of dishonor in a reasonable manner.\nII\nIn the alternative, the Bank argues that an agreement between the parties freed or released the Bank from its section 4 \u2014 302(a) obligation to Available.\nSection 4\u2014103(1) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 4\u2014103(1)) provides in pertinent part:\n\u201cThe effect of the provisions of this Article may be varied by agreement except that no agreement can disclaim a bank\u2019s responsibility for its own lack of good faith or failure to exercise ordinary care * *\nObviously an agreement which varies the effect of a provision is different from an agreement which varies the terms of a provision. Admittedly, sometimes, perhaps often, the result of varying the terms of a provision will be a variation in the effect of the provision. However, this is not always the case. We also note that since the language of section 4\u2014103(1) is clear and unambiguous, we have no occasion to engage in statutory construction. (See Nordine v. Illinois Power Co. (1965), 32 Ill. 2d 421, at 428, 206 N.E.2d 709; People ex rel. Nelson v. Olympic Hotel Building Corp. (1950), 405 Ill. 440, 444, 91 N.E.2d 597; Shanahan v. Policemens Annuity & Benefit Fund (1976), 43 Ill. App. 3d 543, 546-47, 357 N.E.2d 582.) Hence we would not be justified in construing \u201ceffect\u201d in the quoted passage to include \u201cterms.\u201d The importance of these observations is as follows. Under the facts of the case at bar, the pertinent effect of section 4 \u2014 302 is that the Bank is liable for the checks in question if it did not either return them, or send notice of dishonor with regard to them, by the midnight deadline, and if it cannot establish a valid defense. In this argument the Bank assumes arguendo that it did not return or send notice of dishonor of these checks by the midnight deadline. Thus, in the context of this argument, the pertinent effect of section 4 \u2014 302 is that the Bank is liable for the checks if it cannot establish a valid defense. By way of \u00e1 valid defense, the Bank advances this argument that an agreement between the parties excused the Bank from its obligation to either return, or send notice of dishonor of the checks in question by the midnight deadline. In our view, section 4 \u2014 103(1) makes any agreement which negates or nullifies the effect of section 4 \u2014 302 (here, the Bank\u2019s liability for the checks), a valid defense. In other words, under the facts of the case at bar an agreement which provided in effect that if the Bank did not return or send notice of dishonor of the checks by the midnight deadline, then it would not be liable for them even though it violated its section 4\u2014 302 obligation, would be a valid defense. However, section 4 \u2014 103(1) does not expressly permit an agreement to vary the terms of the provisions of article 4. In our view, any agreement releasing the Bank from its section 4 \u2014 302(a) obligation to return or send notice of dishonor would be an agreement which varied the terms of section 4 \u2014 302(a). Since such an agreement is not expressly permissible under section 4\u2014 103(1), it could be argued that such an agreement would not constitute a valid defense to liability under section 4 \u2014 302(a). Consequently, it could arguably be found that even if the agreement advanced by the Bank exists, it is not a valid defense. However, we choose instead to assume, arguendo, that such an agreement can be a valid defense and deal with the Bank\u2019s argument.\nThe Bank points out that section 1 \u2014 201(3) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 1 \u2014 201(3)) defines \u201cagreement\u201d as \u201cthe bargain of the parties in fact as found in their language or by implication from other circumstances including course of dealing * * Section 4 \u2014 104(4) makes this definition applicable throughout article 4.\nIn support of its \u201cagreement which released it from its obligation\u201d argument, the Bank asserts that there was an understanding between the parties which constituted an implied agreement to excuse the Bank from its obligation. This understanding was that the checks in question would be accepted for collection on the condition that they would be held until the Graff Co. account had sufficient funds to cover them. According to the Bank a necessary implication of this understanding was that the length of time the checks would be held would be determined by Graff Co.\u2019s account and not section 4 \u2014 302. The \u201cother circumstances\u201d which allegedly gave rise to this implied agreement were: (1) the circumstances surrounding the presentation of the checks; (2) the discussion at the Bank on or about April 13, 1972; and (3) a course of dealing.\nThe circumstances surrounding the presentation of the checks were. that on April 6, 1972, Harold Silvers took the April 5 check to Wagener and asked him how he (Silvers) could get the check taken care of. According to Silvers, Wagener said: \u201cWe\u2019ll put it in for collection now and we\u2019ll see that you get your money just as soon as there is money in the bank.\u201d While waiting for his receipt, Reuben R. Graff came up and told Silvers he was at the Bank for the purpose of making a deposit and that there should be \u201cplenty of money\u201d to cover the check. On April 17,1972, Silvers took the other checks to Wagener and asked if these checks should be put in for collection. Wagener responded affirmatively and told him these checks would be handled in the same manner as the first one. In addition, Vincent C. Yager, the executive vice president of the Bank, testified that the Bank\u2019s auditor discovered in March of 1972 that all collections on Graff Co. receivables had not been reported to the Bank. Thereupon the Bank sent Mansfield to Graff Co. and, through him, took over financial management of Graff Co. The Bank\u2019s purpose in doing so was to protect its secured interest by liquidating Graff Co.\u2019s inventory and seeing that all receivable collections reached the Bank. Yager further testified that during this period the Bank took all of Graff Co.\u2019s collections on receivables and applied them to the outstanding debt. At the same time the Bank made working capital loans to Graff Co. so that it could continue to function while the Bank attempted to liquidate inventory. Over this period all of Graff Co.\u2019s working capital came from these new loans from the Bank.\nMoreover, while Mansfield was at Graff Co.\u2019s yard, he was informed of the company\u2019s checking account balance each day by telephone, he kept the company\u2019s check book locked up and Graff Co. could not issue a - check without his permission. In late March of 1972 he told Harold Silvers that the company had problems and he was at the scrap yard to straighten some things out. Later that month the owners of Available were reassured by Reuben R. Graff. Then in early April Mansfield told them that Graff Co. had little problems which the Bank was trying to straighten out and added that they should \u201csit tight\u201d and not \u201crock the boat.\u201d Subsequently Silvers took the checks in question to the Bank. Additionally, Mansfield testified that the Bank gave Graff Co. 13 loans between April 7,1972, and April 29, 1972, for the general purpose of keeping Graff Co. in business and for the specific purposes of permitting the company to meet payrolls, pay current expenses and pay off old loans. On April 14,1972, the balance in Graff Co.\u2019s checking account was *15,187.40. On April 22, 1972, the balance in the company\u2019s checking account was *10,199.70. These balances were the end-of-day balances and were arrived at after all transactions on those days had been posted. The three checks in question were written on this Graff Co. account. Mansfield further testified that one of the checks in question was being held by the Bank for collection on April 14 and all three checks in question were being held for collection on April 22. Nevertheless one of these checks was returned to Available on April 25 and the other two were returned on April 27. Mansfield was in accord with the decision to return them for insufficient funds even though on both April 14 and April 22 there were sufficient funds in Graff Co.\u2019s account to cover at least one of the checks. Mansfield added that there were sufficient funds in the checking account on Friday, April 14, to cover the April 5 check because a loan made to cover a payroll was erroneously left in the checking account and not transferred to Graff Co.\u2019s payroll account. On Saturday, April 22, there were sufficient funds because another bank employee made a similar error. Thus one of the checks could have been honored on these dates only out of funds intended for the payroll account and these funds existed only because of two loans made for the purpose of meeting Graff Co.\u2019s weekly payroll.\nIn connection with the discussion at the Bank on or about April 13,1972, Harold Silvers testified that he and his brother were told that Graff Co. was on the verge of bankruptcy, that the Bank was a secured creditor and that the Bank\u2019s interests were going to come first. However, Harold Silvers also testified that during this meeting either Mansfield or Yager said Available would receive 80 percent of the amount of its invoices on all shipments subsequently delivered to Graff Co.\u2019s yard and Driscoll concurred. Because the Silvers had done business with the Bank for many years, they thought the Bank would honor this promise and they thereafter continued to ship scrap to Graff Co.\u2019s yard in reliance on the promise. Arnold Silvers testified that concern was expressed at this meeting about getting paid by Graff Co. for past shipments. The Bank officials told him that Available was in a position to help Graff Co. get back on its feet and Available would collect 80 percent of the price of scrap delivered to Graff Co.\u2019s yard in the future. Mansfield testified that he did not recall any discussion about 80 percent payments at the meeting but subsequently, while at Graff Co.\u2019s yard, he noticed that Available continued to make deliveries. Yager testified that there was no conversation during the meeting about a promise to pay Available 80 percent on future shipments. Driscoll testified that there was no discussion at the meeting about the Bank promising to pay for 80 percent of the scrap Available delivered to Graff Co. after that date.\nThe course of dealing which the Bank points to is the receipt of deposit slips in the past when checks were presented for deposit.\nIn our view, taking over financial management of its customer Graff Co. put the Bank in a unique position in a relation to its other customer, Available. In the context of this unique position, Mansfield made misleading statements to the Silvers and instructed them to \u201csit tight\u201d and not \u201crock the boat.\u201d On two occasions there were sufficient funds in Graff Co.\u2019s checking account to honor one of the checks in question. The explanation for the presence of these funds in the checking account was that mistakes by Bank employees caused funds earmarked for Graff Co.\u2019s payroll account to be left in the checking account. The Silvers learned that Graff Co. was on the verge of bankruptcy at the April 13 meeting but they testified that they were promised 80 percent of the amount of invoices on all future shipments at that meeting and, in reliance on this promise, they continued to ship scrap to Graff Co. Mansfield could not recall this promise being made, Yager said there was no such promise and Driscoll said no such promise was made at the meeting. Obviously there is a disagreement between the parties as to whether this promise was made. The trial judge, sitting as the finder of fact in the bench trial below, could have chose to believe the Silvers. Furthermore, since the Silvers were told at the April 13 meeting that Graff Co. was on the verge of bankruptcy, it seems doubtful to us that Available would have made subsequent deliveries if the Silvers had not been given some assurance as to payment for future deliveries at that meeting. The Bank maintains that the court below ruled that this 80 percent promise was not enforceable and not relevant to any issue presented. There is no such mling in the record before us, but even if there was and even if the promise was not enforceable, we would not agree that it was not relevant. In our opinion it is very relevant to whether the Bank acted in good faith.\nIn short, the circumstances which allegedly give rise to the \u201cagreement\u201d also support the findings that: (1) prior to April 13 the Bank, through Mansfield, misled Available\u2019s owners as to Graff Co.\u2019s financial condition; (2) the Bank made loans to Graff Co. for the purpose of paying current expenses but did not honor any of the checks in question despite the fact that there were funds that could have been used to honor at least one of the checks; (3) the Bank made repeated mistakes in its financial management of Graff Co. and used these mistakes and an alleged \u201cpayroll purpose\u201d for certain funds to justify not honoring one of the checks in question; and (4) the Bank promised Available\u2019s owners that they would receive at least 80 percent of the invoice price of scrap deliveries made after the April 13 meeting. In addition, Mansfield was at Graff Co.\u2019s yard protecting the Bank\u2019s interest and seeing that all collections on receivables went to the Bank where they were applied to outstanding loans. He knew additional deliveries were being made after April 13, and he reported to the Bank on a regular basis.\nSection 4 \u2014 103(1) provides that no agreement can disclaim a bank\u2019s responsibility for its own lack of good faith or failure to exercise ordinary care. We believe the unique position of the Bank in relation to Available entailed a duty of acting in good faith in dealings with Available which was more extensive than the good faith burden which banks normally bear. However, we believe the foregoing circumstances amount to action in bad faith in dealings with Available and its owners under not only this more extensive duty, but also under the normal good faith burden of \u201chonesty in fact\u201d imposed by sections 1 \u2014 201(19), 1 \u2014 203 and 4 \u2014 104(4)). For example, while the \u201chonesty in fact\u201d burden may not have required Mansfield to disclose information about Graff Co.\u2019s financial condition to the Silvers, that is, to answer or respond to the Silvers\u2019 questions in any manner whatsoever, at the very least this burden required him to tell the truth about the seriousness of Graff Co.\u2019s condition upon answering. In our view, Mansfield\u2019s misleading answers are one instance of bad faith under the \u201chonesty in fact\u201d burden of good faith.\nThe Bank argues that the checks were accepted for collection on the condition that they would be held until the Graff Co. account had sufficient funds to cover them. On two occasions the account had sufficient funds to honor at least one of the checks in question and the Bank did not honor one of the checks. We fail to see how this failure could be considered honesty in fact in the conduct or transaction of holding the checks for collection. Even if we accept at face value the Bank\u2019s \u201cmistakes and earmarkings\u201d explanation of why the funds were in the Graff Co. checking account, we fail to see how this negligence raises the failure to live up to the \u201ccondition\u201d to the level of honesty in fact.\nAlso, we fail to see how the failure to .live up to the 80 percent promise could be considered being honest in fact. We believe any reasonable businessman would expect to receive 80 percent payment on checks subsequently placed for collection upon receipt of such a promise and under such circumstances. Hence we again find that the Bank misled the Silvers. Indeed; in our opinion the entire record before us supports the finding that the Bank, having intimate knowledge of Graff Co.\u2019s financial condition, took unfair advantage of Available and its owners and acted in bad faith in its dealings with them. Consequently, even if there was an agreement which released the Bank from its obligation to either return or send notice of dishonor (and assuming, arguendo, that such an agreement would be a valid defense to liability under section 4\u2014302(a)), we would hold that it was ineffective. Cf. Sun River Cattle Co. v. Miners Bank (1974), 164 Mont. 237, 521 P.2d 679.\nIll\nAgain in the alternative, the Bank argues that its obligation under section 4 \u2014 302 was excused because (1) section 3 \u2014 511 (2) (b) of the Code (Ill. Rev. Stat. 1975, ch. 26, par. 3 \u2014 511(2)(b)) provides that notice of dishonor may be entirely excused when a party has no reason to expect that an instrument will be honored, (2) section 3 \u2014 511(2) (b) is applicable to the obligation imposed by section 4 \u2014 302 and (3) the Silvers had no reasonable expectation of receiving any payment. Even if we assume, arguendo, that, in the abstract, under section 3 \u2014 511(2)(b)\u2019s \u201cno reason to expect\u201d passage, a showing of no reason to expect payment would excuse the section 4 \u2014 302 obligation of giving notice of dishonor and be a valid defense to section 4 \u2014 302 liability arising out of a failure to send a timely notice of dishonor, the Bank\u2019s argument fails to explain why there is no obligation under section 4 \u2014 302 to \u201creturn\u201d the checks in question in a timely manner. The Bank\u2019s obligation under section 4 \u2014 302 was to either pay the checks, return them or send notice of dishonor. It had to do one of these three things in a timely manner. The checks were not paid and we assume in this argument that sending notice of dishonor was excused. However, we fail to see how a release from one alternative releases the Bank from the remaining alternative. A release from one alternative method of satisfying a duty does not logically constitute a release from another alternative method of satisfying the duty, and it seems to us that the duty continues to exist until all alternatives are excused, or, at least, some reasonable explanation is offered for failure to satisfy the duty through the other alternatives.\nA second problem with the Bank\u2019s argument is the assumption that section 3 \u2014 511 (2) (b) applies to Available. Section 3 \u2014 511 (Ill. Rev. Stat. 1975, ch. 26, par. 3 \u2014 511) provides in pertinent part:\n\u201c(2) * * * notice * * * is entirely excused when\n(a) the party, to be charged has waived it * * * or\n(b) such party has himself dishonored the instrument or has countermanded payment or otherwise has no reason to expect or right to require that the instrument be accepted or paid * * \u2022\u201d\n\u201cSuch party\u201d in section 3 \u2014 511 (2) (b) refers to \u201cthe party to be charged\u201d in section 3 \u2014 511 (2)(a). Commonly \u201cthe party to be charged\u201d is an indorser who can be held liable for the instrument in an action by the payee only if he has received timely notice of dishonor. (See, e.g., Hane v. Exten (1969), 255 Md. 668, 259 A.2d 290.) Here the Bank would have us treat the plaintiff-appellee Available, who is the payee on the three \u201con us\u201d instruments in question, as \u201cthe party to be charged\u201d or the party to be held hable, even though the defendant and party against whom liability is asserted is the Bank. Assuming, arguendo, that section 3 \u2014 511 is applicable in article 4, we have serious doubts as to whether it would be proper for us to treat Available as \u201cthe party to be charged\u201d, and consequently as to whether section 3 \u2014 511 (2) (b) applies to Available, under the facts and circumstances of the case at bar.\nFurthermore, section 3 \u2014 511(2) (b) speaks of no reason to expect payment and the Bank argues that the Silvers had no reasonable expectation of receiving payment. We believe there was both some reason to expect payment and a reasonable expectation of receiving payment. In late March of 1972 Mansfield told Harold Silvers that Graff Co. had problems and that he was at the yard to straighten some things out. Later that month Reuben R. Graff told the Silvers that he was in trouble but assured them that he had enough inventory at the yard to get things straightened out. Then on either April 3, 4, or 5, Mansfield told the Silvers that Graff Co. had little problems which the Bank was trying to straighten out. He also told them to \u201csit tight\u201d and advised them not to \u201crock the boat.\u201d Harold Silvers testified that after this meeting he knew Graff Co. was in trouble but he did not know how bad the trouble was or how close Graff Co. was to going bankrupt. Harold Silvers took the April 5 check to the Bank on April 6. Instead of accepting the check the teller told him to take it to Wagener. Wagener told him that the check would be taken care of by putting it in for collection. While he was waiting for his receipt, Reuben R. Graff assured him that there would be sufficient funds to cover the check. Harold Silvers further testified that he had presented checks for deposit in the past and he had always received a regular deposit slip when he had done so. However, he did not know at this time what \u201cput it in for collection\u201d meant, and despite the fact that he received a \u201ccollection\u201d receipt for this check, he thought it would be deposited right away because Graff was making a deposit and had told him there would be plenty of money to cover the check after the deposit was made. At the April 13 meeting the Silvers expressed concern about getting paid by Graff Co. for past shipments. Yager testified that at this meeting the Silvers requested that funds be advanced to pay the April 5 check. The Silvers were told that Graff Co. was on the verge of bankruptcy but that they were in a position to help Graff Co. get back on its feet and Available would receive 80 percent of the amount of its invoices on all shipments subsequently delivered to Graff Co. Because they had done business with the Bank for many years, the Silvers thought the Bank would honor this promise and they consequently relied upon it and continued to ship scrap to Graff Co. On April 17, the March 17 and March 24 checks were accepted for collection. Under these facts and circumstances we believe that both the Silvers and any reasonable businessman would have both a reason to expect receipt of full payment, and a reasonable expectation of receiving full payment, of the April 5 check prior to April 13. After April 13, we believe both the Silvers and any reasonable businessman would have both a reason to expect at least 80 percent payment, and a reasonable expectation of receiving at least 80 percent payment, of all three checks.\nFor the foregoing reasons we affirm the judgment of the Circuit Court of Cook County.\nAffirmed.\nSULLIVAN, P. J., and LORENZ, J., concur.", "type": "majority", "author": "Mr. JUSTICE WILSON" } ], "attorneys": [ "Andrew R. Laidlaw and James F. Best, both of Seyfarth, Shaw, Fairweather & Geraldson, of Chicago, for appellant.", "William L. Smith, Jr., of Hollobow & Taslitz, of Chicago, for appellee." ], "corrections": "", "head_matter": "AVAILABLE IRON AND METAL COMPANY, Plaintiff-Appellee, v. FIRST NATIONAL BANK OF BLUE ISLAND, Defendant-Appellant.\nFirst District (5th Division)\nNo. 76-789\nOpinion filed December 23, 1977.\nAndrew R. Laidlaw and James F. Best, both of Seyfarth, Shaw, Fairweather & Geraldson, of Chicago, for appellant.\nWilliam L. Smith, Jr., of Hollobow & Taslitz, of Chicago, for appellee." }, "file_name": "0516-01", "first_page_order": 538, "last_page_order": 554 }