Lead Opinion
delivered the opinion of the court:
We consider here whether a holder in due course of a check is precluded from payment as against the drawer where the check was given in exchange for contract services for which the provider was required to be, but was not, a licensed plumber. We conclude such a claim is not precluded.
BACKGROUND
Pursuant to a written “work order,” Fred Fentress agreed to install a “flood control system” at the home of Eric and Beulah Hodge of Chicago for $900. In partial payment for the work, Beulah Hodge drafted a personal check payable to “Fred Fentress — A-OK Plumbing” for $500 from the Hodges’ joint account at Citicorp Savings.
The system’s components were not delivered to the Hodges’ home as scheduled. And, when Fentress failed to appear on the date set for installation, Eric Hodge telephoned him to announce the contract “cancelled.” Hodge also told Fentress that he would order Citicorp Savings not to pay the check Fentress had been given.
Records of Citicorp Savings confirm acknowledgment of a stop-payment order entered the same day.
Nevertheless, Fentress presented the check at the Kedzie & 103rd Street Currency Exchange (Currency Exchange), endorsing it as “sole owner” of A-OK Plumbing, and obtained payment. However, when the Currency Exchange later presented the check for payment at Citicorp Savings, payment was refused in accordance with the stop-payment order.
The Currency Exchange, alleging it was a holder in due course (see Ill. Rev. Stat. 1989, ch. 26, par. 3— 302), then sued Beulah Hodge, as drawer of the check, and Fentress for the amount stated. Hodge, in turn, filed a counterclaim against Fentress. Hodge also moved to dismiss the Currency Exchange’s action against her (see Ill. Rev. Stat. 1989, ch. 110, par. 2— 619). The disposition of Hodge’s motion gives rise to this appeal.
Hodge asserted a defense provided by section 3— 305 of the Uniform Commercial Code (UCC) (Ill. Rev. Stat. 1989, ch. 26, par. 3 — 305). Under that section, the claim of a holder in due course of a negotiable instrument may be barred based on “illegality of the transaction.” (Ill. Rev. Stat. 1989, ch. 26, par. 3-305(2)(b).) Hodge contended Fentress was not a licensed plumber as was required under the Illinois Plumbing License Law (see Ill. Rev. Stat. 1989, ch. Ill, pars. 1101 through 1140). The director of licensing and registration of the Chicago department of buildings and the keeper of plumbing licensing records of the Illinois Department of Public Health provided affidavits supporting that contention. Hodge asserted that, because Fen-tress was in violation of the Illinois Plumbing License Law, his promised performance under the contract gave rise to the requisite “illegality” to bar the Currency Exchange’s claim for payment.
The circuit court granted the motion and dismissed the Currency Exchange’s action against Hodge. The appellate court, with one justice dissenting, affirmed. (
DISCUSSION
Section 2 — 619(a)(9)
Hodge moved for involuntary dismissal under section 2 — 619 of the Code of Civil Procedure. (Ill. Rev. Stat. 1989, ch. 110, par. 2 — 619(a)(9).) Generally, section 2 — 619 affords a “means of obtaining *** a summary disposition of issues of law or of easily proved issues of fact, with a reservation of jury trial as to disputed questions of fact.” (Ill. Ann. Stat., ch. 110, par. 2 — 619, Historical & Practice Notes, at 662 (Smith-Hurd 1983); see Barber-Colman Co. v. A & K Midwest Insulation Co. (1992),
The phrase “affirmative matter” encompasses any defense other than a negation of the essential allegations of the plaintiff’s cause of action. (See 4 R. Michael, Illinois Practice §41.7 (1989).) For that reason, it is recognized that a section 2 — 619(a)(9) motion to dismiss admits the legal sufficiency of the plaintiff’s cause of action much in the same way that a section 2 — 615 motion to dismiss admits a complaint’s well-pleaded facts. Barber-Colman,
If the “affirmative matter” asserted is not apparent on the face of the complaint, the motion must be supported by affidavit. (Ill. Rev. Stat. 1989, ch. 110, par. 2 — 619(a); see also 4 R. Michael, Illinois Practice §41.8, at 334 (1989) (observing that “materials of the same nature as are used to support motions for summary judgment” may serve as support for the motion), citing Sierens v. Clausen (1975),
The plaintiff must establish that the defense is unfounded or requires the resolution of an essential element of material fact before it is proven. The plaintiff may do so by “affidavit[ ] or other proof.” (Ill. Rev. Stat. 1989, ch. 110, par. 2 — 619(c).) A counteraffidavit is necessary, however, to refute evidentiary facts properly asserted by affidavit supporting the motion else the facts are deemed admitted. If, after considering the pleadings and affidavits, the trial judge finds that the plaintiff has failed to carry the shifted burden of going forward, the motion may be granted and the cause of action dismissed.
An appeal from such a dismissal is the same in nature as one following a grant of summary judgment and is likewise a matter given to de novo review (see Myers v. Health Specialists, S.C. (1992),
Hodge’s Motion
The legal sufficiency of the Currency Exchange’s action, including the allegation that it possesses the check as a holder in due course, is admitted by Hodge’s motion. The reason asserted for dismissal — “illegality” grounded upon noncompliance with a statutory licensure requirement — was raised properly as affirmative matter and supported by affidavit.
The Illinois Plumbing License Law requires that all plumbing, including “installation *** or extension” of “drains,” be performed by plumbers licensed under the Act. (Ill. Rev. Stat. 1989, ch. 111, pars. 1102(5), (8), 1103.) The affidavits establish that Fentress was not licensed either by the City of Chicago or the State of Illinois. That failure is a violation of the Illinois Plumbing License Law and is punishable as a misdemeanor. Ill. Rev. Stat. 1989, ch. Ill, pars. 1103, 1128.
Hodge therefore carried the burden of going forward.
No counteraffidavit was supplied. For purposes of the motion, the fact that Fentress was not a licensed plumber is deemed admitted. No other matter was presented to refute the defense.
No material fact remains to be resolved. The question is simply whether Hodge is entitled, as a matter of law, to a judgment of dismissal in view of the defense asserted under UCC section 3 — 305.
“Illegality” under Section 3 — 305
Section 3 — 305 provides, in relevant part:
“[A] holder in due course *** takes the instrument free from * * *
(2) all defenses of any party to the instrument with whom the holder has not dealt except * * *
(b) *** illegality of the transaction, as renders the obligation of the party a nullity.” (Ill. Rev. Stat. 1989, ch. 26, par. 3 — 305.)
The concern is whether noncompliance by Fentress with the Illinois Plumbing License Law gives rise to “illegality of the transaction” with respect to the contract for plumbing services so as to bar the claim of the Currency Exchange, a holder in due course of the check initially given Fentress.
The issue of “illegality” arises “under a variety of statutes.” (Ill. Ann. Stat., ch. 26, par. 3 — 305, Uniform Commercial Code Comment, at 66 (Smith-Hurd Supp. 1992).) In view of the diverse constructions to which statutory enactments are given, “illegality” is, accordingly, a matter “left to the local law.” (Ill. Ann. Stat., ch. 26, par. 3 — 305, Uniform Commercial Code Comment, at 66 (Smith-Hurd Supp. 1992).) Even so, it is only when an obligation is made “entirely null and void” under “local law” that “illegality” exists as one of the “real defenses” under section 3 — 305 to defeat a claim of a holder in due course. (Ill. Ann. Stat., ch. 26, par. 3 — 305, Uniform Commercial Code Comment, at 66 (Smith-Hurd Supp. 1992).) In effect, the obligation must be no obligation at all. If it is “merely voidable” at the election of the obligor, the defense is unavailable. Ill. Ann. Stat., ch. 26, par. 3 — 305, Uniform Commercial Code Comment, at 66 (Smith-Hurd, Supp. 1992).
Historically, this court has recognized “illegality” to arise only in view of legislative declaration affecting both the underlying contract or transaction and the instrument exchanged upon it. (Pope v. Hanke (1894),
Thus, “illegality” has been held to defeat the claims of holders in due course in cases involving contracts of a gaming nature or for retirement of gambling debts (see Ill. Rev. Stat. 1989, ch. 38, par. 28 — 1). (See Riordon v. McCabe (1930),
That the existence or absence of legislative declaration controls the issue was recognized by our appellate court in McGregor v. Lamont (1922),
Lamont moved to vacate the judgment. Lamont asserted that, the purchase of the shares of stock was void under the Illinois Securities Law because the Association had not complied with its requirements. Because the transaction was void, Lamont concluded, the note given in payment must also be void despite Mc-Gregor’s status as a holder in due course.
The appellate court noted that the Illinois Securities Law did, indeed, make transactions for the sale of shares of stock void based on noncompliance with the Law’s requirements. (McGregor,
The same rule obtains in New Jersey. In New Jersey Mortgage & Investment Corp. v. Berenyi (App. Div. 1976),
Several other jurisdictions also find reason to draw a distinction between the voidness of a negotiable instrument and the underlying contract or transaction upon which it is exchanged. (See Annot.,
A plaintiff is precluded from recovering on a suit involving an illegal contract because the plaintiff is a wrongdoer. (See Bankers Trust Co. v. Litton Systems, Inc. (2d Cir. 1979),
But a holder in due course is an innocent third party. (Litton,
The holder in due course concept is intended to facilitate commercial transactions by eliminating the need for “elaborate investigation” of the nature of the circumstances for which an instrument is initially exchanged or of its drafting. (Litton,
It is, therefore, not enough simply to conclude that the initial obligation to pay arising from a void contract or transaction is void. Negation of that obligation as between the contracting parties has little bearing on whether a holder in due course of an instrument arising from the contract or transaction should nevertheless be permitted to make a claim for payment.
The “local law” (Ill. Ann. Stat., ch. 26, par. 3 — 305, Uniform Commercial Code Comment, at 66 (SmithHurd Supp. 1992)) of this State has been formulated upon this court’s recognition, in cases predating the UCC, of legislative prerogative regarding negotiable instruments. In adopting the UCC and, in particular, section 3 — 305, our legislature chose to confer upon a holder in due course of a negotiable instrument considerable protection against claims by persons to it. Our legislature also continues to declare certain obligations void because of the circumstances of the agreements from which they arise and without regard to the status of who may claim ownership. (Ill. Rev. Stat. 1989, ch. 38, par. 28 — 7(b) (subjecting “[a]ny obligation” made void by reason of gambling to be “set aside and vacated” by any court).) The selective negation of obligations reflects a legislative aim to declare what will and will not give rise to “illegality” in cases now governed by the UCC. As legislative direction indicates which obligations are always void, legislative silence indicates when the protection afforded a holder in due course must be honored.
We therefore reaffirm, today, the view this court has consistently recognized in cases predating the UCC. Unless the instrument arising from a contract or transaction is, itself, made void by statute, the “illegality” defense under section 3 — 305 is not available to bar the claim of a holder in due course.
Conclusion
To determine whether Hodge is entitled to a judgment of dismissal, we need not engage in an analysis aimed at characterizing the contract between Fentress and the Hodges. Whether the underlying contract should be considered void because Fentress was not licensed as required by the Illinois Plumbing License Law is not dis-positive of the Currency Exchange’s right, as a holder in due course, to claim payment of the check. It is relevant only to determine whether the Illinois Plumbing License Law provides that any obligation arising from a contract for plumbing services made in violation of its requirements is void. It does not.
For the reasons stated, the judgments of the appellate and circuit courts are reversed, and the cause is remanded to the circuit court for further proceeding.
Judgments reversed; cause remanded.
JUSTICE McMORROW took no part in the consideration or decision of this case.
Dissenting Opinion
dissenting:
I
Because the Currency Exchange’s complaint fails to adequately allege a cause of action against Hodge, I would affirm the circuit court’s dismissal of the Currency Exchange’s action against Hodge. (See Falk v. Martel (1991),
In its complaint, the Currency Exchange alleged, in pertinent part, as follows:
“1. That on or about March 8, 1990, for value received, the Defendant, Beulah M. Hodge, made and delivered to the Defendant, Fred Fentress, her certain check, a copy of which is hereto attached marked Exhibit ‘A’ and made a part hereof.
2. That thereafter, the Defendant, Fred Fentress, endorsed said check to the Plaintiff for value and who [sic] became a holder in due course under the Uniform Commercial Code.
* * *
3. That Plaintiff holds and owns said check and there is due and owing to the Plaintiff from the Defendants and each of them the sum of $500.00.”
On appeal to this court, the Currency Exchange contends that its status as a holder in due course entitles it to payment from Hodge no matter what Hodge’s legal rights were with respect to Fentress.' According to the Currency Exchange, it is entitled to recovery from Hodge even if Hodge could rightfully have refused to pay Fentress.
In Knox College v. Celotex Corp. (1981),
“Notice pleading, as known in some jurisdictions, is not sufficient under our practice act. ***
‘This court has repeatedly held that a complaint which does not allege facts, the existence of which are necessary to enable a plaintiff to recover does not state a cause of action and that such deficiency may not be cured by liberal construction or argument.’ (Emphasis added.)” Knox College,88 Ill. 2d at 426-27 , quoting People ex rel. Kucharski v. Loop Mortgage Co. (1969),43 Ill. 2d 150 , 152.
See also Beckman v. Freeman United Coal Mining Co. (1988),
The UCC defines a holder in due course of a negotiable instrument as follows:
“(1) A holder in due course is a holder who takes the instrument
(a) for value; and
(b) in good faith; and
(c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.” Ill. Rev. Stat. 1989, ch. 26, par. 3 — 302.
Here, the Currency Exchange’s status as a holder in due course is an essential element of the Currency Exchange’s action. The complaint alleges that “the Defendant *** endorsed said check to the Plaintiff for value” and that the plaintiff thereby “became a holder in due course under the UCC.” The Currency Exchange’s complaint, however, does not contain sufficient allegations of fact to support its claim that it is a holder in due course. The complaint fails to allege any relevant facts to establish the claim that the Currency Exchange took the check “for value,” “in good faith” and “without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.” (Ill. Rev. Stat. 1989, ch. 26, pars. 3-302(l)(a), (l)(b), (l)(c).) Accordingly, the complaint fails to adequately state a cause of action against Hodge.
The record in this case suggests that the Currency Exchange is not a holder in due course. Initially, I note that the check in this case was an uncertified personal check. It was not a payroll check or a government check. It can hardly be doubted that any currency exchange would question whether it would be able to collect on an uncertified personal check. Further, the check in this case was made payable to “Fred Fentress — A-OK Plumbing.” It was endorsed “Fred Fentress A-OK Plumbing,” underneath which was the notation “Sole Owner.” Any currency exchange presented with such a check would have to question whether the named individual was indeed the sole owner of the named business and entitled to the proceeds of the check. (See, e.g., Owens v. Nagel (1929),
The majority here states that “[t]he legal sufficiency of the Currency Exchange’s action, including the allegation that it possesses the check as a holder in due course, is admitted by Hodge’s motion [to dismiss].” (
II
Even if the conclusion that the Currency Exchange is a holder in due course were deemed admitted by Hodge’s motion to dismiss, I would affirm the trial court’s dismissal of the Currency Exchange’s complaint. The majority here incorporates into section 3 — 305 of the UCC an additional requirement that must be met before the defense of illegality can be raised to defeat the claim of an alleged holder in due course. That additional requirement is not found anywhere in the plain language of section 3 — 305, however. Section 3 — 305 provides, in pertinent part:
“[A] holder in due course *** takes the instrument
free from * * *
(2) all defenses of any party to the instrument with
whom the holder has not dealt except * * *
(b) *** incapacity, or duress, or illegality of the transaction, as renders the obligation of the party a nullity.” (Emphasis added.) (Ill. Rev. Stat. 1989, ch. 26, par. 3 — 305.)
With respect to the defenses of duress and illegality, the comments to section 3 — 305 of the UCC state, in pertinent part, that “[t]hey are primarily a matter of local concern and local policy. All such matters are therefore left to the local law. If under that law the effect of the duress or the illegality is to make the obligation entirely null and void, the defense may be asserted against a holder in due course.” (Emphasis added.) Ill. Ann. Stat., ch. 26, par. 3 — 305, Uniform Commercial Code Comment, at 66 (Smith-Hurd Supp. 1992).
The plain language of section 3 — 305 and the comments to section 3 — 305 make it clear that where the illegality of a transaction renders the obligation of the maker of an instrument a nullity, the illegality of the transaction can be raised as a defense by the maker of the instrument, even against a holder in due course. Section 3 — 305 does not state that illegality is a defense only where the instrument arising from a contract or transaction has been expressly declared void by the legislature due to the illegality of the transaction. Had the legislature intended for illegality to be a defense only where it had expressly declared an instrument void due to the illegality of the underlying transaction, it could easily have said so in section 3 — 305. It did not say so, however.
The only inquiry necessary to resolve the issue presented in this case, then, is whether the contract between Hodge and Fentress is void on the grounds of illegality. The comments to the UCC instruct that one must look to Illinois statutory and case law to determine whether the underlying contract was illegal and, as a result of that illegality, void. (Ill. Ann. Stat., ch. 26, par. 3 — 305, Uniform Commercial Code Comment, at 66 (Smith-Hurd Supp. 1992).) An examination of the statute providing for the licensing of plumbers, the public policy behind that statute, and Illinois case law concerning the illegality of contracts made in contravention of professional licensing laws establishes that the contract between Hodge and Fentress is illegal and void.
The Illinois Plumbing License Law (Ill. Rev. Stat. 1989, ch. 111, par. 1101 et seq.) specifically prohibits the performance of plumbing work by nonlicensed plumbers. Pursuant to the Act, “all plumbing shall be performed only by plumbers licensed under the provisions of this Act.” (Ill. Rev. Stat. 1989, ch. Ill, par. 1103(1).) The Act imposes criminal penalties on anyone performing plumbing services without a license. (Ill. Rev. Stat. 1989, ch. Ill, par. 1128.) The rationale behind the prohibition of plumbing work by nonlicensed plumbers is set forth in the Plumbing License Law. The portion of the Law setting forth its purpose and underlying policy states:
“It has been established by scientific evidence that improper plumbing can adversely affect the health of the public. *** Faulty plumbing is potentially lethal and can cause wide spread disease and an epidemic of disastrous consequences.
To protect the health of the public it is essential that plumbing be installed by persons who have proven their knowledge of the sciences of pneumatics and hydraulics and their skill in installing plumbing.
Consistent with its duty to safeguard the health of the people of this State, the General Assembly therefore declares that individuals who plan, inspect, install, alter, extend, repair and maintain plumbing systems shall be individuals of proven skill. *** [T]his Act is therefore declared to be essential to the public interest.” Ill. Rev. Stat. 1989, ch. 111, par. 1101.
Here, the contract between Hodge and Fentress presents the kinds of dangers the Illinois Plumbing License Law was intended to guard against. Affidavits attached to Hodge’s section 2 — 619 motion to dismiss, which were not contradicted by the plaintiff, establish that Fentress was not a licensed plumber. The affidavits also establish that Hodge and her husband, Eric, believed that Fentress was a licensed plumber at the time they contracted with him for plumbing services. Had Fentress performed the work required of him pursuant to the contract with Hodge, it is likely that his work would not have conformed to acceptable plumbing standards and would have posed the kinds of dangers which the Plumbing License Law was intended to prevent.
Illinois courts have recognized that “generally a statute which declares an act illegal and which imposes a penalty for its violation renders the contract for the performance of the act void and unenforceable.” (T.E.C. & Associates, Inc. v. Alberto-Culver Co. (1985),
Like the contract in Wright, the contract made between Hodge and Fentress in this case must be considered illegal and void. Performance of plumbing services under the contract expressly contravenes the current Plumbing License Law. The Law provides for criminal sanctions against unlicensed plumbers. The Law further contains a strong public policy statement concerning the relationship between licensing plumbers and the need to protect the public health. Clearly, the contract for the services of an unlicensed plumber in the instant case is the type of contract which Illinois courts have consistently declared illegal and void. (See, e.g., T.E.C. & Associates, Inc.,
Courts in other States have ruled that the defense of illegality of the contract may be asserted against a holder in due course without requiring that the negotiable instrument in question be expressly declared void by statute. In Wilson v. Steele (1989),
In Columbus Checkcashiers and Wilson, as in the instant case, the subject matter of the contract, performance by an unlicensed individual, was prohibited by law. Accordingly the courts held that the contract was illegal and void. Moreover, the courts held that this defense could be asserted against a holder in due course. Most importantly, the courts in Columbus Checkcashiers and Wilson did not require that a statute expressly declare the note in question void in order for the defense of illegality to be available. Such a requirement is likewise not a part of Illinois’ version of section 3 — 305. In contrast, under New Jersey law, which the majority here purports to follow, the comments to that State’s version of section 3 — 305 expressly state that, “[i]n New Jersey, a holder in due course takes free and clear of the defense of illegality, unless the statute which declares the act illegal also indicates that payment thereunder is void.” (Emphasis added.) (N.J. Stat. Ann. §12A:3 — 305(2)(b), New Jersey Study Comments (West 1962), as quoted in New Jersey Mortgage & Investment Corp. v. Berenyi (1976),
The majority asserts that to bar recovery by the Currency Exchange in this case would be unfair because the Currency Exchange is an innocent third party which had no knowledge of the circumstances of the contract between Hodge and Fentress. However, section 3 — 305 clearly provides that the general policy favoring free negotiability is not absolute. There is a competing policy disfavoring certain transactions, such as those involving infancy, duress, illegality or misrepresentation as to the true nature of an instrument (i.e., fraud in the factum). (Ill. Rev. Stat. 1989, ch. 26, par. 3 — 305.) Pursuant to section 3 — 305, the Currency Exchange takes a check subject to these and certain other real defenses. The Illinois legislature has provided that, by definition, a holder in due course is one who does not have notice of any of the real defenses listed in section 3 — 305. (See Ill. Rev. Stat. 1989, ch. 26, par. 3 — 302(l)(c).) By statute, the innocence of the holder in due course cannot defeat any of the real defenses listed in section 3 — 305, including illegality. Accordingly, the argument that the Currency Exchange could not have known that the underlying transaction was illegal is simply misplaced. Such reasoning would lead to the conclusion that all of the defenses listed in section 3 — 305 should be unavailable to defeat the claim of a holder in due course, a conclusion obviously contrary to the provisions of section 3 — 305.
For the above reasons, I dissent. I would affirm the judgment of the appellate court which affirmed the circuit court’s dismissal of the Currency Exchange’s action against Hodge.