Page 1 - John Hundley 2013

Banking Law Roundup

Sharp Thinking

No. 82 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. January 2013

Three-Year Statute Governs Conversion of Check

Conversion and negligence claims against a bank, arising from a lawyer’s forgery of a client’s
signature to a settlement check, are governed by the three-year statute of limitation of 810 ILCS 5/3-
118(g), a panel in the Appellate Court’s Fifth District has held.

Moreover, the panel held that Illinois’ “discovery rule” does not apply in such contexts and that only
acts of fraudulent concealment by the defendant bank will toll the statute. Hawkins v. Nalick, 2012 IL App
(5th) 110553.

The case is similar to but distinguishable from Newell v. Newell, 406 Ill. App. 3d 1046 (2011),
discussed in Sharp Thinking No. 43 (March 2011). Newell involved conversion by withdrawal from a
savings account and the three-year bar of 810 ILCS 5/4-111. It held that the discovery rule, under which
the statute does not commence to run until the plaintiff knows or should know of her cause of action, did
apply. The Hawkins panel conceded there were “no facts suggesting that the plaintiff should have known
about her conversion claim prior to the running of the statute.” Acknowledging that its approach led to “a
harsh result,” the court reasoned that the discovery rule is “inimical to the underlying purposes” of the
Uniform Commercial Code, such as “certainty of liability, finality, predictability, uniformity, and efficiency in
commercial transactions.”

Lawyer Liable for Bank’s Attorney Fees in IOLTA Litigation

A lawyer into whose Interest on Lawyers Trust Accounts (“IOLTA”) account were deposited two
settlement checks with inauthentic client signatures has been held liable to indemnify the bank for its
attorneys fees incurred in litigation over the matter.

The court in Henry v. Waller, 2012 IL App (1st) 2514726, acted pursuant to an indemnification
provision in the account agreement, which it sustained reasoning that “no bank would willingly undertake
the risk of incurring attorney fees and costs . . . in return for the privilege of providing a depositor with an
IOLTA account that generates a relatively small amount of bank fees.” Given the broad language of the
indemnity clause, the court said it was immaterial that a power of attorney allegedly gave the lawyer the
right to sign the client’s name to the settlement checks. Also ruled immaterial was the fact that the
indemnifying lawyer paid over the settlement to a separate, referring lawyer, and it was he who
embezzled the client’s funds.

No Stay Violation By Bank Holding Onto Garnished Funds

Absent a court order or the garnishing creditor’s release, a garnishee bank does not violate the
automatic stay of 11 U.S.C. § 362 by refusing to release garnished funds upon receipt of notice of the
account holder’s bankruptcy, a bankruptcy court in Pennsylvania has concluded.

Noting that courts nationwide have disagreed on whether the bankruptcy stay creates a duty to
release funds to the bankrupt in such a context, In re Linsenbach, 482 B.R. 522 (M.D. Pa. 2012), was

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Sharp Thinking is an occasional newsletter of The Sharp Law Firm, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp
Thinking shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein
constitute educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal
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