New Randoldph Halsted Currency Exchange, Inc. v. Regent Title Insurance Agency, LLC ( 2010 )

Third Division
November 24, 2010
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NEW RANDOLPH HALSTED CURRENCY ) Appeal from the
EXCHANGE, INC., ) Circuit Court of
) Cook County.
Plaintiff-Appellant and Cross-Appellee, )
) 06 M1 128058
v. )
)
REGENT TITLE INSURANCE AGENCY, LLC, ) Honorable
) Ronald F. Bartkowicz,
Defendant-Appellee and Cross-Appellant. ) Judge Presiding.
JUSTICE NEVILLE delivered the opinion of the court:
New Randolph Halsted Currency Exchange (New Randolph) cashed a check drawn on a bank
account of Regent Title Insurance Agency (Regent). Regent stopped payment on the check. New
Randolph sued Regent for payment, claiming that New Randolph qualified as a holder in due course
of the check. Following a bench trial, the trial court held that New Randolph was not a holder in due
course because the check-cashing transaction raised several warning signals that should have alerted
New Randolph to the possibility of fraud. The court entered judgment in favor of Regent.
New Randolph also sought sanctions against Regent for its responses to requests to admit.
The court imposed sanctions for one of the responses but not for others.
On New Randolph’s appeal, we find that New Randolph took commercially reasonable
precautions before cashing the check, and therefore it qualifies as a holder in due course, and we
reverse the trial court. We also find that the trial court did not abuse its discretion by denying part
of New Randolph’s motion for sanctions, and we affirm the trial court. On Regent’s cross-appeal,
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we find that the trial court did not abuse its discretion by imposing the sanction against Regent, and
we affirm the trial court. Thus, we affirm in part, reverse in part, and remand this case to the trial
court.
BACKGROUND
Regent served as a settlement agent for closing real estate transactions. Regent cut checks
to distribute funds to all the parties to such transactions.
On December 23, 2005, New Randolph cashed a check from Regent, made out to Charae
Pearson, for $1,945.99. Four days later, New Randolph cashed another check for Pearson, again
from Regent, this time for $2,500. On January 11, 2006, Pearson brought to New Randolph
Regent’s check number 22221, for $29,588.31. Unlike the prior checks, which spelled Pearson’s
name correctly, this check showed the payee as “CHAREA PAERSON.” The check indicated that
Pearson received it as a “LOAN PAYOFF.” Pearson presented the check to Patrice Keys, manager
of New Randolph. Pearson showed Keys her state identification card, which had been issued on
December 30, 2005. Pearson told Keys that Regent issued the check to her to pay her a commission
she earned from the sale of property.
PLS Check Cashers, which owned New Randolph, did not authorize Keys to cash checks in
excess of $5,000 without approval from her supervisor. Keys contacted Sandra Arizaga of PLS.
Arizaga authorized Keys to cash the check.
Police arrested Pearson on January 23, 2006, charging her with check fraud. Two days later,
police arrested Tatiana Auson, an employee of Regent, on the same charge. Regent had hired Auson
to work as a funder, meaning that Regent authorized Auson to cut checks for the parties to real estate
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transactions. According to Regent’s investigator, Auson cancelled checks intended for parties to real
estate transactions, then issued new checks to different payees for the amounts of the original checks.
Pearson admitted that Auson gave her the three checks New Randolph cashed for Pearson. Pearson
kept about $5,000 of the proceeds from the checks, and she gave the remainder to Auson. All three
checks appeared to bear the signature of Karen Hendricks, who had authority to sign checks on
behalf of Regent.
Regent told its bank to stop payment on the check. New Randolph sued Regent for payment
of the check, claiming that its status as a holder in due course entitled it to payment, despite the
evidence that Auson and Pearson conspired to defraud Regent. See 810 ILCS 5/3-302 (West 2006);
First of America Bank-Northeast Illinois, N.A. v. Bocian, 245 Ill. App. 3d 495, 499 (1993).
Before the trial, New Randolph sent to Regent a request to admit certain facts, including the
following:
“1. On or about January 11, 2006, Regent Title drew its check number 22221
in the amount of $29,588.31 on American Chartered Bank of Downers Grove, Illinois
payable to Charea Paerson (the ‘Check’).
***
3. The Check bears an authorized signature of Regent Title.”
Regent answered:
“[1.] Regent denies it drew check number 22221 on American Chartered
Bank or that anyone was authorized to cut such a check to Charea Paerson. Regent
admits Charea Paerson was listed as payee on such numbered check. Regent denies
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the remaining allegations in this request to admit.
***
[3.] Regent denies Request 3 and further states that no Regent employee was
authorized to cut such a check to Ms. Paerson.”
At the trial, Keys testified that she looked up Pearson in PLS’s database and found that she
had recently cashed two other checks from Regent for lesser amounts. Keys called Regent, using
a phone number she found in PLS’s database. The person who answered the call for Regent
confirmed that Regent issued the check to Pearson for the dollar amount shown, as payment of a
commission. According to the person who answered the call for Regent, Pearson earned the
commission from her work as an employee of Regent.
Arizaga, who worked as director of operations for PLS, testified that she approved about
three checks each week for amounts exceeding the amount of Regent’s check number 22221. She
spoke with Keys about the check, and then she looked up the phone number for Regent at Regent’s
Web site. Arizaga testified that she called the number and asked to speak with someone about
verifying a check. The woman with whom she spoke confirmed that Regent issued the check to
Pearson in the amount shown. Arizaga then contacted American Chartered Bank, which confirmed
that the check came from a valid account with sufficient funds to cover the check, and Regent had
not stopped payment on the check.
On cross-examination, Arizaga admitted that according to PLS’s manual, the misspelling of
Pearson’s name could signal fraud. Pearson’s recent identification card should also raise suspicion.
Arizaga did not remember whether she noticed that the check indicated its purpose as “LOAN
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PAYOFF,” instead of listing the payment as a commission.
Regent introduced PLS’s manual into evidence. The manual emphasizes that PLS earns its
fees by cashing checks, so the employee should “[s]pend *** time proving that the check can be
cashed and not looking for excuses not to cash it.” (Emphasis omitted.) The manual identifies
several signs that a check might not be valid, including several of the factors present in this case.
According to the manual, the employee should “verify that the check is good” by “phoning the
maker.” (Emphasis omitted.)
William Andrews, the president of Regent’s commercial division, testified that Pearson never
worked for Regent, and no woman working at Regent would have fielded a call about who worked
at Regent. Andrews admitted that the check appears to bear Hendricks’s authorized signature.
Andrews did not know whether Hendricks actually signed the fraudulently issued check.
The trial court summarized its findings of fact. It found that Arizaga and Keys called Regent
to verify the check. When they called, they failed to ask about the discrepancy between the purpose
shown on the check and the purpose Pearson stated. According to the court, that discrepancy “was
enough to cause the currency exchange to pause and think twice about cashing the check. And then
when *** they decided to go ahead with negotiating the check *** they did it at their own risk.” The
court added:
“[I]t’s not a question of anybody being dishonest or anything of that
nature.***
***
So I’m not talking about any kind of dishonesty or illegality. I’m just simply
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saying perhaps a mistake was made.”
The trial court entered an order on December 18, 2008, finding in favor of Regent on New
Randolph’s complaint.
New Randolph filed a motion and requested the entry of sanctions against Regent for its
responses to two of its requests to admit. In an order dated April 22, 2009, the trial court imposed
sanctions against Regent totaling of $2,203.86 for the response to request number 1, but the court
denied the motion for sanctions with respect to request number 3. In the same order, the court
entered judgment in favor of Regent on the complaint.
New Randolph appealed from “the trial court’s Order of December 18, 2008 and the final
judgment entered on April 22, 2009.” Regent cross-appealed from the award of sanctions against
it for its answer to the request to admit.
ANALYSIS
Holder in Due Course
The trial court entered judgment for Regent following a trial. We defer to the trial court’s
findings of fact, reversing only if the court committed clear error, but we review rulings of law de
novo. Johnson v. Thomas, 342 Ill. App. 3d 382, 391 (2003).
The trial court awarded the judgment based on its finding of fact that New Randolph did not
qualify as a holder in due course of the check. See Atlanta National Bank v. Johnson Tractor Sales,
130 Ill. App. 2d 793, 796 (1971) (question of whether a party is a holder in due course is an issue
of fact), citing Foncannon v. Lewis, 327 Ill. 455, 462 (1927). The Uniform Commercial Code
defines a holder in due course as:
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“ the holder of an instrument if:
(1) the instrument when issued or negotiated to the holder does not bear such
apparent evidence of forgery or alteration or is not otherwise so irregular or
incomplete as to call into question its authenticity, and
(2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without
notice that the instrument is overdue or has been dishonored or that there is an
uncured default with respect to payment of another instrument issued as part of the
same series, (iv) without notice that the instrument contains an unauthorized
signature or has been altered, (v) without notice of any claim to the instrument ***,
and (vi) without notice that any party has a defense or claim in recoupment.” 810
ILCS 5/3-302 (West 2006).
The trial court found that New Randolph did not qualify as a holder in due course because
the check at issue was “so irregular *** as to call into question its authenticity.” However, grounds
for suspicion about a check will not always prevent one from taking the check as a holder in due
course. Peoria Savings & Loan Ass'n v. Jefferson Trust & Savings Bank, 81 Ill. 2d 461, 471 (1980).
Where all of the evidence available to the holder shows that it lacked notice of a defense, it becomes
a holder in due course. Peoria Savings, 81 Ill. 2d at 471. “ ‘To defeat the rights of one dealing with
negotiable securities it is not enough to show that he took them under circumstances which ought
to excite the suspicion of a prudent man and cause him to make inquiry, but that he had actual
knowledge of an infirmity or defect, or of such facts that his failure to make further inquiry would
indicate a deliberate desire on his part to evade knowledge because of a belief or fear that
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investigation would disclose a vice in the transaction.’ ” Valley Bank & Trust Co. v. American
Utilities, Inc., 415 F. Supp. 298, 301-02 (E.D. Pa. 1976), quoting First National Bank of Blairstown
v. Goldberg, 340 Pa. 337, 340, 17 A.2d 377, 378-79 (1941) ; see Grand Western Currency Exchange,
Inc. v. A:M Sunrise Construction Co., 163 Ill. App. 3d 51, 56 (1987) (holder acted in a commercially
reasonable manner and became holder in due course when it had successfully cashed several checks
for payee and it called to verify that check’s signer had authority to sign the check).
A federal case involved a similar issue. In McCook County National Bank v. Compton, 558
F.2d 871 (8th Cir. 1977), McCook cashed a check despite several irregularities, including a
discrepancy in the amount of the check. McCook contacted Northwestern, the bank on which the
payor drew the check, and Northwestern confirmed the correct amount and assured McCook the
check was “ ‘okay to cash.’ ” McCook, 558 F.2d at 873. The trial court held that McCook did not
qualify as a holder in due course. The McCook court said:
“McCook bank was presented with a check that had an obvious $10,000
discrepancy on its face. As any prudent bank would, McCook contacted the
Northwestern bank to ascertain the correct amount and whether adequate funds
existed to cover the check. Assured by the bank and indirectly by Compton, who
issued the check, that the check was ‘okay’, McCook proceeded to cash the check
and issue money orders. There were no remaining irregularities in the instrument
itself. Since this court has found no actual notice and insufficient constructive notice
from the reporting service, and no other notice at the time the check was cashed, we
can find no bad faith or dishonesty on the part of McCook bank in cashing the check.
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In sum, while a better judgment concerning the negotiability of the check
might have been made we can not find the requisite notice or bad faith that would
deprive McCook bank of its status as holder in due course.” McCook, 558 F.2d at
877.
See also First National Bank of Cicero v. United States, 664 F. Supp. 1169, 1172 (N.D. Ill. 1987)
(irregularities on check imposed on bank a duty to call payor before cashing check).
Here, New Randolph had some grounds for suspecting that the check could be invalid.
Regent misspelled Pearson’s name, the purpose stated on the check did not match the purpose
Pearson described, the check greatly exceeded the amount of prior checks made out to Pearson, and
Pearson had only recently renewed her state identification card. However, when it cashed the check,
New Randolph also knew that Regent had issued two other checks to Pearson, and those checks had
cleared. Most significantly, Arizaga and Keys called Regent and Regent directly confirmed that it
issued the check to Pearson for the stated amount.
We agree with the trial court’s finding that irregularities involving the check called its
authenticity into question. But New Randolph investigated those irregularities in a commercially
reasonable manner by calling Regent to verify the check. In this case, unlike McCook, the holder
did not rely on an indirect verification from the payor. New Randolph contacted Regent directly, as
well as American Chartered Bank. New Randolph might have acted more cautiously and asked more
questions of the person who spoke to them when they called Regent. But that person’s verification
of the check made the decision to cash the check commercially reasonable. We find that the trial
court committed clear error when it found that New Randolph was not a holder in due course of
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check number 22221. Therefore, we reverse the judgment entered in favor of Regent and remand
for entry of judgment in favor of New Randolph for payment of the check.
Sanctions
Next, New Randolph asks us to reverse the denial of sanctions for Regent’s response to
number 3 of New Randolph’s requests to admit. Regent argues that New Randolph’s notice of
appeal does not permit this court to decide the issue. The notice of appeal lists the judgment order
dated April 22, 2009, as the order from which New Randolph appealed. In that order the trial court
entered judgment in favor of Regent on the complaint, and it also granted in part and denied in part
New Randolph’s motion for sanctions against Regent for its responses to requests to admit. Supreme
Court Rule 303 (210 Ill. 2d R. 303(b)(2)) “gives the appellant the option of naming *** the entire
judgment *** as the subject of his or her appeal.” Bank of America, N.A. v. 108 N. State Retail
LLC, 401 Ill. App. 3d 158, 169 (2010). We find that New Randolph’s notice of appeal complies
with Rule 303. 210 Ill. 2d R. 303(b)(2). Therefore, it gives this court jurisdiction to review the
propriety of the judgment of April 22, 2009, including the denial of sanctions for the response to
number 3 of the requests to admit.
Supreme Court Rule 219 permits the court to impose sanctions for denial of a request to
admit, “[u]nless the court finds that there were good reasons for the denial.” 210 Ill. 2d R. 219(b).
We will not reverse the trial court’s decision on a motion for sanctions absent an abuse of discretion.
First National Bank of LaGrange v. Lowrey, 375 Ill. App. 3d 181, 218 (2007).
New Randolph asked Regent to admit that check number 22221 “bears an authorized
signature of Regent Title.” Regent denied the request. Andrews admitted that the signature looked
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like the signature of Karen Hendricks, who had authority to sign checks on Regent’s behalf.
However, the witness did not see Hendricks sign the check and he did not know whether Auson and
her coconspirators forged the signature. Neither party presented testimony from Hendricks about
the check. Hendricks left Regent to take a job with a California-based corporation.
In Exchange National Bank of Chicago v. DeGraff, 110 Ill. App. 3d 145, 161 (1982), the
defendant asked the bank to admit that the defendant signed the document in January 1973. The
bank’s witness testified that he did not recall the date of signing. The trial court imposed no sanction
for denial of the request to admit, and the appellate court affirmed, saying, “we do not find it
unreasonable for the Bank not to admit the truth of that which it could not recall.” DeGraff, 110 Ill.
App. 3d at 162.
Here, similarly, Regent did not know whether Hendricks signed the check. We cannot say
that the trial court abused its discretion by refusing to impose sanctions against Regent for its
response to request number 3.
Cross-Appeal
Regent cross-appeals from the imposition of sanctions against Regent for its answer to
number 1 of the requests to admit. New Randolph asked Regent to admit that “On or about January
11, 2006, Regent Title drew its check number 22221 in the amount of $29,588.31 on American
Chartered Bank of Downers Grove, Illinois payable to Charea Paerson.” Regent answered:
“Regent denies it drew check number 22221 on American Chartered Bank or
that anyone was authorized to cut such a check to Charea Paerson. Regent admits
Charea Paerson was listed as payee on such numbered check. Regent denies the
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remaining allegations in this request to admit.”
Regent admitted that it authorized Auson to cut checks drawn on Regent’s account. Regent
admitted that Auson prepared check number 22221, drawn on Regent’s account with American
Chartered Bank, and made it payable to Charea Paerson. To show that it was a holder in due course,
New Randolph needed to prove that Regent drew the check on Regent’s account. We find no abuse
of discretion in the trial court’s decision to impose sanctions against Regent for its denial of New
Randolph’s request to admit that it drew check number 22221 on its account with American
Chartered Bank.
CONCLUSION
New Randolph cashed check number 22221 only after calling Regent for verification of the
check. Because New Randolph followed commercially reasonable procedures to verify the check
before cashing it, New Randolph qualifies as a holder in due course of the check. Accordingly, we
reverse the judgment of the trial court and remand for entry of judgment in favor of New Randolph
on its claim for payment of the check. The trial court did not abuse its discretion when it sanctioned
Regent for one, and only one, of its answers to New Randolph’s requests to admit. Therefore, we
affirm the denial of sanctions for one response and we affirm the award of sanctions for another
response to the requests to admit.
Affirmed in part and reversed in part; cause remanded with instructions.
QUINN, P.J., and MURPHY, J., concur.
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