Kaskel, Dana v. Northern Trust Co ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-3771
DANA KASKEL,
Plaintiff-Appellant,
v.
NORTHERN TRUST CO.,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 2421—Charles R. Norgle, Sr., Judge,
____________
ARGUED FEBRUARY 10, 2003—DECIDED MAY 5, 2003
____________
Before POSNER, MANION, and KANNE, Circuit Judges.
POSNER, Circuit Judge. Dana Kaskel, a widow with five
children, invested $250,000 of the proceeds of her late
husband’s life insurance policy with Martin, Livingston &
Sterling, Ltd. in the form of a loan that MLS was to repay
at the end of six weeks with interest at an annual rate of
8 percent. She wrote a check for $250,000 to MLS, and an
agent of MLS named Forrester mailed the check to a Dr.
Steven Shook. He was supposed to use it to obtain a $25
million loan from a company of which he was a principal
and to invest the proceeds of the loan, generating profits
in which MLS would share over and above the amount
2 No. 01-3771
necessary to repay Mrs. Kaskel’s $250,000 loan with the
agreed-upon interest. Shook deposited the check in his
personal account at the Bank of America, which presented
the check for payment to Northern Trust Company, that
being the bank in which the insurance company had
deposited the proceeds of Mr. Kaskel’s life insurance
policy in an account of which she was the beneficiary.
Although MLS had not endorsed the check, Northern
paid it and so the $250,000 went into Shook’s account. We
do not know what happened to the money and have only
the vaguest impressions of MLS. We do not even know
Forrester’s role in the firm, though it is conceded that he
was authorized to act on its behalf in the matter of the
$250,000 loan. As permitted by the Uniform Commercial
Code, Northern Trust did not return the check or a copy of
it to Mrs. Kaskel, see UCC § 4-406(a), so it was not until
much later that she discovered that the check had not been
endorsed. Although her contract with the bank required
her to report any discrepancies in her bank statement
within 30 days, the statement did not reveal the fact that
the bank had paid her check to an unauthorized person.
Mrs. Kaskel’s loan to MLS has never been repaid, al-
though over a period of slightly less than two years she
did receive some $40,000 in dribs and drabs from Shook,
MLS, and others associated with the transaction. MLS still
exists, and it acknowledges the debt, but whether the
remaining balance of the loan will ever be repaid, with or
without the mounting interest due on it, is uncertain. In any
event the loan is certainly in default. In an attempt to
recover the unpaid balance, Mrs. Kaskel brought this
diversity suit (which is governed by Illinois law)—but
against Northern Trust rather than against MLS. When
Northern paid $250,000 from Mrs. Kaskel’s account to
Shook, it violated the terms of its contract with her (more
precisely, the contract between the bank and the insurance
No. 01-3771 3
company of which she was a third-party beneficiary), which
authorized the bank to disburse money in her account only
to a payee or endorsee of her check. Shook was neither,
because MLS, the payee, had not endorsed the check. So the
bank broke its contract with her, see, e.g., UCC § 4-401(a);
National Bank of Monticello v. Quinn, 533 N.E.2d 846, 849 (Ill.
1988); Continental Casualty Co. v. American Nat’l Bank & Trust
Co., 768 N.E.2d 352, 358 (Ill. App. 2002); Kosic v. Marine
Midland Bank, 430 N.Y.S.2d 175, 177 (App. Div. 1980), but
the district court nevertheless granted summary judgment
for the bank because she had failed to prove causation
and anyway had ratified the transaction by later accepting
part payments on the loan.
Mrs. Kaskel argues that had the bank refused to pay
Shook he would not have gotten hold of her $250,000, and
therefore the bank’s violation of its contract with her was
the cause, or more precisely a cause, of her loss. But the
premise is incorrect. Had the bank refused to pay Shook
it would have returned the check to him and he in turn
would have returned it to Forrester for endorsement.
Forrester would have endorsed the check to Shook (his
authority to do so is not questioned) because he wanted
Shook to be able to cash the check. Mrs. Kaskel would have
been in exactly the same pickle that she is in today. Not
having been harmed by the bank’s breach of contract, she
cannot recover damages (beyond nominal damages, which
she does not seek) for the breach. Sanwa Business Credit
Corp. v. Continental Ill. Nat’l Bank & Trust Co., 617 N.E.2d
253, 260 (Ill. App. 1992); Modern Equipment Corp. v. Northern
Trust Co., 1 N.E.2d 105, 107 (Ill. App. 1936); Ambassador
Financial Services, Inc. v. Indiana Nat’l Bank, 605 N.E.2d
746, 754 (Ind. 1992); Hall v. Mid-Century Ins. Co., 811 P.2d
855, 858-59 (Kan. 1991); Tonelli v. Chase Manhattan Bank,
N.A., 363 N.E.2d 564, 567 (N.Y. 1977).
4 No. 01-3771
In any event, she ratified the transfer of the money from
her bank account to Shook. For she accepted several partial
payments on her loan after learning that her check had
not been endorsed and that her contract with the bank had
therefore been broken. No more is required for ratifica-
tion under Illinois law. E.g., Stathis v. Geldermann, Inc.,
692 N.E.2d 798, 808 (Ill. App. 1998); Athanas v. City of Lake
Forest, 657 N.E.2d 1031, 1037 (Ill. App. 1995); Reavy Grady
& Crouch Realtors v. Hall, 442 N.E.2d 307, 310-11 (Ill. App.
1982); Kores v. Western Office Supply Co., 110 N.E.2d 461, 463
(Ill. App. 1953). If the other party to your contract breaks
it, and instead of walking away from it you act as if it
remains in force, it does remain in force. You cannot later
repudiate it. That would be to play heads I win tails you
lose, since you would take the benefit of the contract if it
turned out well and walk away from it if it turned out
badly, as may indeed have been the case here. Sanwa
Business Credit Corp. v. Continental Ill. Nat’l Bank & Trust
Co., supra, 617 N.E.2d at 253; Freeport Journal-Standard
Publishing Co. v. Frederic W. Ziv Co., 103 N.E.2d 153, 158
(Ill. App. 1952).
Although the partial payments did not all come from
MLS, they all came from persons or entities that, as Mrs.
Kaskel well knew, were involved in the transactions over
her investment. By accepting the money without warning
Northern Trust that it had violated its obligations to her
by paying over the proceeds of her check to Shook, she
gambled on her investment’s turning out well after all.
Maybe if alerted the bank could have taken steps to re-
cover her $250,000 before it vanished down a sinkhole.
One function served by the doctrine of ratification is to
induce the victim of a breach of contract to notify the other
party of the breach promptly so that that party can miti-
gate its damages. Inn Foods, Inc. v. Equitable Co-Operative
Bank, 45 F.3d 594, 597-98 (1st Cir. 1995); Northern Helex
No. 01-3771 5
Co. v. United States, 455 F.2d 546, 555 (Ct. Cl. 1972); United
States Navigation Co. v. Black Diamond Lines, Inc., 124 F.2d
508, 510-11 (2d Cir. 1942); United Parcel Service, Inc. v. World
Time Corp. of America, 556 So. 2d 1223, 1224 (Fla. App. 1990)
(per curiam). Had Mrs. Kaskel notified the bank that it had
violated its contract with her by paying the proceeds of the
check to Shook, the bank might have been able to recover
the money before it was dissipated. Cf. Leather Mfrs’ Nat’l
Bank v. Morgan, 117 U.S. 96, 114-16 (1886).
AFFIRMED.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—5-5-03