No. 3--10--0003
Opinion filed January 27, 2011
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
A.D., 2011
JARRED NEWELL, ) Appeal from the Circuit Court
) of the 12th Judicial Circuit,
Plaintiff-Appellant, ) Will County, Illinois,
)
v. )
) No. 07--CH--1125
RUTH NEWELL, FIRST MIDWEST )
BANCORP INC., an Illinois )
Corporation, ) Honorable
) Michael J. Powers,
Defendants-Appellees. ) Judge, Presiding.
_________________________________________________________________
JUSTICE LYTTON delivered the judgment of the court, with
opinion.
Justice O'Brien concurred in the judgment and opinion.
Justice Schmidt dissented, with opinion.
_________________________________________________________________
OPINION
Jarred Newell filed a complaint against his mother, Ruth Newell,
and First Midwest Bancorp Inc. (FMB), alleging conversion and
breach of contract involving Ruth’s unauthorized withdrawal of
funds from a saving account in his name. The trial court ruled
that Jarred’s complaint was barred by the three-year statute of
limitations in section 4-111 of the Uniform Commercial Code, Bank
Deposits and Collections (UCC) (810 ILCS 5/4-111 (West 2006)) and
granted FMB’s motion for summary judgment. We reverse and remand
for further proceedings.
In 1989, Ruth and Jarred were involved in an automobile
accident. At the time of the accident, Jarred was six years old.
Ruth filed a lawsuit, individually and as the mother and next
friend of Jarred, against various defendants involved in the
accident.
Several defendants eventually agreed to settle the case. On
December 29, 1993, the trial court approved the settlement and
dismissed the complaint as to those parties involved in the
agreement. In addition to ordering the payment of medical expenses
and awarding fees and costs, the order required that the funds
awarded to Jarred be deposited in an account at FMB or some other
federally insured depository. The order further stated: "No funds
shall be withdrawn from the minor's account without prior court
order."
On January 14, 1994, Ruth opened a guardianship account at FMB
for Jarred's benefit. Ruth used Jarred's social security number to
open the account. The terms of the account included a signature
card, which was signed by Ruth "as guardian for Jarred Newel, a
minor." In accordance with the trial court's order, the signature
card included the following statement: "Minor account. No minor
withdraw until 18 years old on 5-18-00 per court order - See Louise
McLaren." Ruth's attorney, Thomas Cowgill, gave bank personnel a
copy of the court order when Ruth opened the account.
Between January 14, 1994, and May 23, 1994, Ruth deposited a
total of $210,050.11 into the account. She subsequently removed
funds from the account without a court order. By June 30, 1997,
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the account was substantially reduced to a balance of $46. Ruth's
last withdrawal from the account was on September 30, 2001. She
claimed that she used the money for her son's health and welfare.
She did not keep any records of the withdrawals.
In his discovery deposition, Jarred explained that he became
aware of the FMB account during his teens; he was told that he
would be able to withdraw the funds when he turned 18 years of age.
When Jarred was 16 or 17 years old, he asked Ruth about the funds,
and she told him that she changed the age to obtain the funds from
18 to 21. Jarred did not ask his mother how much money was in the
account.
When he was almost 21, Jarred again asked Ruth about the
account. Ruth told him that he had to wait until he was 23 years
old to withdraw the money. At that point, Jarred became "curious"
and "wondered what was going on." However, he trusted Ruth and
decided to wait until he turned 23 to withdraw the money because
that was when he graduated from college.
In May 2005, Jarred graduated from college and turned 23 years
old. He asked his mother for the money. Once again, she was
evasive and said the funds were not available. Jarred then began
to investigate the status of the funds on his own.
In late 2005 or early 2006, Ruth told Jarred that there was no
money left in the FMB account. In October or November of 2006,
Jarred contacted Attorney Cowgill. Cowgill told Jarred that he
helped Ruth deposit the settlement money into a bank account in
1994. In March 2007, Jarred's attorney confirmed that the FMB
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account had been depleted.
On April 11, 2007, Jarred filed a four-count complaint against
Ruth and FMB. Counts I through III alleged that Ruth committed
conversion and sought a petition for rule to show cause against her
for failing to obtain a court order prior to the withdrawal of
funds from his FMB account. Count IV claimed that FMB breached its
contract with Jarred by processing withdrawals from the account
without a court order.
FMB filed a summary judgment motion in which it asserted,
among other things, that count IV should be dismissed because
Jarred's claim against the bank was barred by the three-year
statute of limitations under section 4-111 of the UCC (810 ILCS
5/4-111 (West 2006)). The trial court found that the three-year
statute of limitations applied and granted FMB’s motion.
STANDARD OF REVIEW
Summary judgment is a drastic means of disposing of litigation
and, as such, the right of the moving party must be clear and free
of doubt. Jackson Jordan, Inc. v. Leydig, Voit & Mayer, 158 Ill.
2d 240 (1994). Summary judgment should be granted only where "the
pleadings, depositions, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law." 735 ILCS 5/2-1005(c) (West 2006). In
deciding whether a ruling for summary judgment is appropriate, we
construe the record strictly against the movant and liberally in
favor of the nonmoving party. Espinoza v. Elgin, Joliet & Eastern
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Ry. Co., 165 Ill. 2d 107 (1995). We review the trial court's
decision to grant a motion for summary judgment de novo. Friends
of Parks v. Chicago Park District, 203 Ill. 2d 312 (2003).
ANALYSIS
I. Applicable Statute of Limitations
Jarred contends that the trial court erred in finding that his
breach of contract claim against FMB was barred by the 3-year
statute of limitations under section 4-111 of the UCC, rather than
the 10-year period for a common law breach of contract action.
Where two statutes of limitations arguably relate to the same
cause of action, the statute that more specifically relates to the
action must be applied. Haddad’s of Illinois, Inc. v. Credit Union
1 Credit Union, 286 Ill. App. 3d 1069 (1997). A plaintiff cannot
avoid the application of a UCC statute of limitations by
characterizing its cause of action as a non-UCC claim. Watseka
First National Bank v. Horney, 292 Ill. App. 3d 933 (1997).
Section 13-206 of the Code of Civil Procedure (735 ILCS 5/13-
206 (West 2006)) governs common law breach of contract suits and
applies a 10-year statute of limitations. Section 13-206 provides:
"[A]ctions on bonds, promissory notes, bills of exchange,
written leases, written contracts, or other evidences of
indebtedness in writing, shall be commenced within 10
years next after the cause of action accrued." 735 ILCS
5/13-206 (West 2006).
Section 13-206 is a general statute that applies not only to
written contracts but also to bonds, promissory notes, bills of
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exchange, leases and other indebtedness. 735 ILCS 5/13-206 (West
2006).
Section 4-111, on the other hand, directly relates to a bank’s
duties and obligations to its customers under article 4 of the UCC.
810 ILCS 5/4-101 et seq. (West 2006). Section 4-111 of the UCC
states:
"An action to enforce an obligation, duty or right
arising under this Article must be commenced within 3
years after the cause of action accrues." 810 ILCS 5/4-
111 (West 2006).
Article 4 governs claims involving unauthorized signatures on
items from "accounts." See 810 ILCS 5/4-104(a) (West 2006). The
term "account" is defined under article 4 to include a savings
account. 810 ILCS 5/4-104(a)(1) (West 2006); see Boutros v. Riggs
National Bank, 655 F. 2d 1257 (D.C. Cir. 1981) (Article 4 of UCC
governs savings accounts). Additionally, a saving account
withdrawal slip is an "item" as defined in section 4-104(a)(9).
810 ILCS 5/4-104(a)(9) (West 2006); Boutros, 655 F.2d at 1260.
Thus, the article 4 statute of limitations in section 4-111 more
specifically pertains to the unauthorized withdrawal of funds from
a savings account.
Jarred's allegations of common law breach of contract do not
insulate his cause of action from the applicable UCC statute of
limitations. His complaint claims that the bank breached its
contractual obligation to him by allowing Ruth to withdraw funds by
presenting her signature on a withdrawal slip without an
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accompanying court order. Section 4-401(a) of the UCC provides
that an item is "properly payable if it is authorized by the
customer and is in accordance with any agreement between the
customer and the bank." 810 ILCS 5/4-401(a) (West 2006). Section
4-401 applies to situations where, as here, a withdrawal is alleged
to be in breach of the signatory card and included instructions
that formed the bank/customer agreement. National City Bank v.
Rhoades, 150 Ohio App. 3d 75, 2002-Ohio-6083, 779 N.E.2d 799;
Ahrens v. Westchester Federal Savings & Loan Ass'n, 58 A.D.2d 799
(N.Y. App. Div. 1977). We therefore hold that section 4-111's
three-year statute of limitations applies to Jarred’s cause of
action.
II. The Discovery Rule
The application of section 4-111 does not necessarily time-bar
Jarred’s claim against FMB. Section 4-111 provides that an action
to enforce a right or obligation must be commenced within three
years after the cause of action accrues. The UCC does not define
when a cause of action "accrues." Therefore, we must look to other
Illinois law applying statutes of limitations. See Continental
Casualty Co. v. American National Bank & Trust Co. of Chicago, 329
Ill. App. 3d 686 (2002).
An action for breach of contract accrues when the breach of
the contractual duty or obligation occurs. ABF Capital Corp. v.
McLauchlan, 167 F. Supp. 2d 1011 (N.D. Ill. 2001). The discovery
rule is an equitable exception that tolls the statute of
limitations period until the plaintiff discovers, or has reason to
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discover, the cause of action. Knox College v. Celotex Corp., 88
Ill. 2d 407 (1981). The rule was created to alleviate the harsh
consequences that result from a strict application of a limitations
period. Continental Casualty, 329 Ill. App. 3d at 701. It
typically applies in cases where the relationship between the
injury and the alleged wrongful conduct is obscure. Rodrigue v.
Olin Employees Credit Union, 406 F.3d 434 (7th Cir. 2005). Thus,
under the discovery rule, the statute of limitations does not begin
to run until the plaintiff knew, or in the exercise of reasonable
diligence should have known, that he was injured, the cause of his
injury, and that there was some indication of wrongdoing.
Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 199
Ill. 2d 325 (2002).
Generally, the issue of whether an action was brought within
the time allowed by the discovery rule is a question of fact.
Witherell v. Weimer, 85 Ill. 2d 146 (1981). However, where it is
clear from the undisputed facts that only one conclusion can be
drawn, the question may be resolved as a matter of law. Castello
v. Kalis, 352 Ill. App. 3d 736 (2004).
In this case, Jarred alleged that his mother did not tell him
that the money was gone until late 2005 or early 2006. Prior to
that time, he did not know how much money was in the savings
account. Jarred later had a conversation with attorney Cowgill in
October or November 2006 and learned that the settlement money had
all been deposited into the account. He ultimately verified that
the money was gone in March 2007.
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Under these circumstances, Jarred contends there was no way he
reasonably should have discovered that Ruth withdrew the funds from
his account without a court order since she was in a position of
trust. He claims that he accepted his mother’s explanation of the
change in age to withdraw funds for several years, but eventually
decided to investigate the matter in the 2005. FMB questions the
reasonableness of Jarred’s delayed investigation and argues that
the section 4-111 clock began ticking in the spring of 2003 when
Jarred became "curious" about Ruth's evasiveness. Given the
disputed allegations, there is a question of fact concerning
whether Jarred should have discovered the unauthorized withdrawal
of funds from the saving account before the fall of 2005.
FMB nevertheless insists that the discovery rule does not
apply to UCC or breach of contract claims. It cites several cases
that have refused to apply the rule to claims involving the
conversion of negotiable instruments under the UCC. See Haddad’s
of Illinois, 286 Ill. App. 3d at 1072; Kidney Cancer Ass'n v. North
Shore Community Bank & Trust Co., 373 Ill. App. 3d 396 (2007); and
Rodrigue, 406 F.3d at 441. Those cases recognize the viability of
the discovery rule, but note that the rule is only applicable in
conversion of negotiable instruments cases when there are
allegations of fraudulent concealment. Specifically, in Haddad’s
of Illinois, the court explained that under the UCC, liability of
negotiable instruments under article 3 cannot be open-ended. Thus,
while harsh, the discovery rule is inapplicable to section 3-
118(g)’s statute of limitations absent fraud. See Haddad’s of
9
Illinois, 286 Ill. App. 3d at 1075; 810 ILCS 5/3-118(g) (West
2006).
We decline to follow the holding in those cases for three
reasons. First, we find them distinguishable because they involve
the conversion of negotiable instruments under article 3. This is
not an article 3 case. This is a breach of contract case involving
an agreement between a bank and the customer. While both claims
fall within the UCC, the commercial policies of certainty and
finality of negotiable instruments that govern article 3 are not
the same policies that influence the provisions of article 4. See
Continental Casualty, 329 Ill. App. 3d at 702; T. Quinn, Quinn’s
Uniform Commercial Code Commentary & Law Digest §§4-103, 4-401 (2d
ed. 2001) (article 4 defines the bank-depositor relationship; bank
cannot absolve itself from responsibility to act in good faith and
exercise ordinary care).
Second, Illinois courts have utilized the discovery rule in
UCC and breach of contract cases. Although the majority of
Illinois cases refuse to apply the discovery rule to conversion of
negotiable instruments suits, the rule has been used to toll
article 3's statute of limitations under circumstances of
fraudulent concealment. Continental Casualty, 329 Ill. App. 3d at
701-02. The discovery rule has also been applied to article 2 of
the UCC and breach of contract claims. 810 ILCS 5/2-725(2) (West
2006) (breach of warranty; discovery rule applies where warranty
extends to future performance); Zielinski v. Miller, 277 Ill. App.
3d 735 (1995) (breach of implied warranties); Swann & Weiskopf,
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Ltd. v. Meed Associates, Inc., 304 Ill. App. 3d 970 (1999) (breach
of contract; limitations period begins to run when plaintiff knows
or reasonably should know of defect).
Third, fraudulent concealment by a third party tolls the
statute of limitations where the person fraudulently concealing the
cause of action is in privity or has an agency relationship with
the defendant. Serafin v. Seith, 284 Ill. App. 3d 577 (1996).
This case involves allegations of fraud committed by Jarred’s
mother, someone in a position of trust and the guardian of the FMB
account. Because Ruth was the guardian of the savings account and
Jarred resided with her, account statements were mailed to Ruth.
Thus, while the victim of a conversion of negotiable instruments
case is typically in the best position to easily and quickly detect
the loss and take action (see Haddad's of Illinois, 286 Ill. App.
3d at 1073), it would have been difficult for Jarred to uncover any
wrongdoing that may have been apparent in the account records (see
Continental Casualty, 329 Ill. App. 3d at 702). In this case, the
bank was in a better position than Jarred to enforce the depository
agreement and monitor any unauthorized withdrawal of funds.
The discovery rule is intended to prevent the harsh
consequences of the statute of limitations, particularly in cases
where the relation between the injury and the alleged harmful
conduct is obscure. Rodrigue, 406 F.3d at 444. The circumstances
in this case compel its application. We therefore reverse the
trial court's grant of summary judgment to FMB and remand for the
trier of fact to determine when Jarred knew, or had reason to know,
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that a cause of action might exist.
CONCLUSION
The judgment of the circuit court of Will County is reversed,
and the cause is remanded for further proceedings.
Reversed and remanded.
JUSTICE SCHMIDT, dissenting:
Illinois first adopted the UCC in 1961. 1961 Ill. Laws 2101.
In 1991, the legislature adopted the 1990 amendments to article 4,
including the statute of limitations at issue in this case. Pub.
Act 87-582 (eff. Jan. 1, 1992) (adding 810 ILCS 5/4-111); 810 ILCS
5/4-111 (West 2006). The 1990 amendments to article 4 of the UCC
have been adopted by every state except New York and South Carolina
(I spared you a string cite to the 48 state codes; they can be
f o u n d a t t h e f o l l o w i n g :
http://www.law.cornell.edu/uniform/ucc.html#a4 (last visited Jan.
20, 2011)).
The majority acknowledges that the relevant statute of
limitations is section 4-111 of the UCC. Slip op. at 6. There is
no question that section 4-111, on its face, does not envision a
discovery rule. Neither our legislature nor the drafters of the
UCC were unfamiliar with the discovery rule. For example, article
4 of the UCC provides that a cause of action for breach of a
transfer warranty "accrues when the claimant has reason to know of
the breach." 810 ILCS 5/4-207(e) (West 2006). Likewise, a cause
of action for breach of a presentment warranty "accrues when the
claimant has reason to know the breach." 810 ILCS 5/4-208(f) (West
2006). Had the drafters intended the discovery rule to apply to
all article 4 claims, they would have included this discovery rule
language in section 4-111. If, as the majority suggests, the
language is hidden there somewhere, then the language cited in
sections 4-207(e) and 4-208(f) is superfluous. I believe that the
more reasonable construction is that the drafters and the
legislature intended the discovery rule to apply only to breach of
transfer warranties and presentment warranties. Otherwise, the
legislature would have incorporated the discovery rule in section
4-111, as it did in sections 4-207 and 4-208.
Neither plaintiff nor the majority cites to a single decision
applying the discovery rule to section 4-111 absent allegations of
fraudulent concealment. My research has disclosed none. As far as
I can tell, this court is the first in the nation to judicially
modify section 4-111 with a discovery rule.
Rather than rewrite the UCC, I would exercise some judicial
restraint. It seems clear that the majority is troubled by the
effect enforcement of the statute has on what might be a valid
claim. However, the enforcement of a statute of limitations, by
its very nature, always has harsh consequences: it terminates the
prosecution of a claim regardless of the underlying merits. There
are reasons for statutes of limitations. The legislature adopted
this statute of limitations. The job of this court, absent
unconstitutionality, is to enforce the Code as written. I would
affirm the trial court. I therefore dissent.
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