Page 5 - John Hundley 2011

Banking Law Roundup

Sharp Thinking

No. 43 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. March 2011

Account Agreement, Statute Protect Bank on Forged Check

A bank’s account agreement and the provisions of the Illinois Uniform Commercial Code (“UCC”)
concerning customer duties to discover and report unauthorized signatures were sufficient to protect the
bank when the customer untimely objected to a forged check having been charged to his account, the
Illinois Appellate Court’s First District ruled this month.

In Napleton v. Great Lakes Bank, N.A., __ Ill.App.3d __, 2011 WL 873435 (2011), the payment of the
forged check appeared on the depositor’s monthly statement for November 2007 but he did not become
aware of the forgery until March 2008. Noting that the depositor had been informed of his duty to check
monthly statements in a timely manner and that 810 ILCS 5/4-406(d)(1) provided protection from an
untimely claim “if the bank also proves that it suffered a loss by reason of the failure” of the depositor to
timely object to an improper payment, the court said the depositor was precluded from making his
untimely claim for reimbursement of the paid-out sum.

Waiver of Defenses in Forbearance Agreement Enforced

A forbearance agreement provision that defendants had “no claims or defenses to the enforcement of
the rights and remedies of Lender” was enforceable as to all defenses and counterclaims except those
arising under the Consumer Fraud & Deceptive Business Practices Act (815 ILCS 505) (“CFDBPA”) and
the duty of good faith and fair dealing under the UCC, the Appellate Court’s First District ruled last month.

Noting prior case law requiring express disavowal of the duty of good faith and fair dealing, and a
statutory provision against waiver of claims under the CFDBPA, the court said the forbearance agreement
was enforceable against the debtor’s other claims and defenses.

► Moreover, the court ruled that there was nothing wrong with the bank’s application of the 365/360
method of computing interest. The court said that that method (in which the daily rate of interest is
determined based on a 360-day year but applied to up to the actual 365 days in a year) was adequately
disclosed, did not violate the Interest Act (815 ILCS 205), and did not violate either the CFDBPA or the
UCC duty of good faith and fair dealing. RBS Cititzens N.A. v. RTG-Oak Lawn, LLC, __ Ill.App.3d __,
2011 WL 477737 (2011).

UCC Statute Governs Improper Savings Account Withdrawal

The three-year statute of limitations set forth in the UCC, not the 10-year statute for breach of contract,
governed a mother’s allegedly improper withdrawals of sums from a savings account established for the
benefit of her son, a panel in the Appellate Court’s Third District ruled in late January.

In Newell v. Newell, __ Ill.App.3d __, 2011 WL 477654 (2011), the savings account was established
with proceeds of an injury claim after the son was injured in an automobile accident, and a court order

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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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