Case Name: TOWNSHIP OF WASHINGTON v. FIRST NATIONAL BANK OF HUNTINGTON
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1907-03-26
Citations: 147 Mich. 571
Docket Number: Docket No. 157
Parties: TOWNSHIP OF WASHINGTON v. FIRST NATIONAL BANK OF HUNTINGTON.
Judges: MoAlvay, C. J., and Carpenter, Grant, Blair, and Moore, JJ., concurred with Montgomery, J.
Reporter: Michigan Reports
Volume: 147
Pages: 571–580

Head Matter:
TOWNSHIP OF WASHINGTON v. FIRST NATIONAL BANK OF HUNTINGTON.
Assignments — Nonnegotiable Instruments — Priority Between Assignees — Estoppel.
A bridge company, having entered into a contract with a township for the erection of a bridge, executed an assignment thereof to a bank, attaching a copy of the contract, retaining the original, and agreeing to collect the money becoming due thereon and remit it to the bank. On receipt of the township order for the balance due, the bridge company sold it to another bank for value, the purchaser having no knowledge of the assignment. Held, that the prior assignee, by permitting the bridge company to retain the indicia of ownership, estopped itself to assert its superior right to the nonnegotiable paper, and that the equities of the second assignee should prevail. Hooker and Ostrander, JJ., dissenting.
Appeal from Gratiot; Stone, J.
Submitted November 14, 1906.
(Docket No. 157.)
Decided March 26, 1907.
Bill of interpleader by the township of Washington against the Wabash Bridge & Iron Works, the First National Bank of Wabash, the First National Bank of Huntington, and E. W. Bowen & Company to determine the title to a township order. From a decree for defendant First National Bank of Wabash, defendants First National Bank of Huntington and E. W. Bowen & Company appeal.
Affirmed.
On the 20th day of August, 1902, the Wabash Bridge & Iron Works, of Wabash, Ind., entered into a contract with the complainant for the work and material to erect the superstructure of a bridge across Maple river in Gratiot county for the contract price of $995, to be completed November 20, 1902, and to be paid for in two township orders — one for $497.50, due March 1, 1903, and one for $497.50, due March 1, 1904, with interest at 6 per cent.
On the 27th day of August, 1902, the bridge company made to the Huntington National Bank, of Huntington, Ind., a writing setting forth in substance that for the purpose of securing payment of a certain obligation held by said bank it assigned to said bank said contract, describing it by its number and amount, and attached a copy of said contract to said writing. It was further agreed therein that the bridge company should collect the money to come due on said contract, and remit the same to said bank in full satisfaction of the debt secured thereby, with interest.
On the 14th day of October, 1902, the bridge company entered into another contract with the complainant for the erection of the substructure of said bridge for the price of $760, to be paid one-half in cash March 1, 1903, and the balance March 1,1904, with interest at 6 per cent., and the work to be completed on or before the 20th day of December, 1902.
On the 20th day of October, 1902, the bridge company executed a writing to E. W. Bowen & Co., bankers, of Delphi, Ind., in all respects similar to the one it had previously made to the Huntington bank, except that it described by number and amount the contract last above mentioned, and set forth that the same was to secure a loan of $5,500. A copy of this contract was attached, and it contained the same agreement that the bridge company was to collect and remit to the satisfaction of the loan. At the time of these assignments the original contracts were not delivered in either case, and it was the understanding in both cases that the bridge company should go on and complete the contracts and make settlements with complainant therefor.
The bridge company went on and completed the work under both contracts in accordance with their terms, and on March 7, 1903, the complainant accepted the work, and made settlement with the bridge company and paid it in full for said contract by making and delivering to said company’s demand township orders for $877.25, and one township order -for $877.75, payable March 1, 1904, with interest at 6 per cent. The bridge company received the money upon the demand orders, and neither the orders nor the money received therefrom are in controversy in this case, and the evidence does not disclose what the bridge company did with the money.
On March 30, 1903, the bridge company sold the time order of $877.75 to the First National Bank of Wabash, Ind., and indorsed and delivered said order to said bank. The bank purchased said order in good faith in the regular course of its business, without notice of either of the assignments aforesaid, and paid the bridge company $869 net therefor. At the time the complainant settled with the bridge company and gave the order in question, it had received no notice from either the Huntington bank or the Delphi bank that they, or either of them, claimed any interest in the contracts in question.
On September 29, 1903, the bridge company was adjudged insolvent, and at that time was owing to the Huntington bank, upon the debt mentioned in the written assignment, the sum of $3,700, and to E. W. Bowen & Oo. $5,500 on the debt mentioned in the assignment from the bridge company to this firm.
Each of the claimants — the Huntington bank, the Wabash bank, and E. W. Bowen & Co. — made claims upon the complainant for the amount of the order in question. The complainant filed the bill of interpleader, and deposited with the court the amount of the order. The defendants have interpleaded, and the case was heard upon its merits upon such interpleadings. The controversy is between the Wabash bank on the one side, and the Huntington bank and the Delphi bank on the other. The Wabash bank claims the money as an innocent bona fide purchaser of the order for value without notice, and the Huntington and Delphi banks claim under their respective assignments of the contract. The circuit judge held that the First National Bank of Wabash was entitled to priority, and from this decree the Huntington bank and E. W. Bowen & Co. appeal.
J. Leé Potts, for appellant First National Bank of Huntington.
" John M. Everden, for appellant E. W. Bowen & Co.
O. G. Tuttle, for appellee First National Bank of Wabash.
As to priority rights of different assignees of fund in hands of third person, see note to Re Phillips (Pa.), 66 L. R. A. 760.

Opinion:
Montgomery, J.
{after stating the facts). The contention of the appellants is that the order in question is not negotiable under the law merchant, and that one who purchases it takes it subject to all equities in favor of third persons who have a prior lien on the order or fund.
It is unquestionably the general rule that the seller or pledgor of property other than negotiable securities can convey no greater rights than he himself has. 1 Mechem on Sales, § 157; Judge v. Vogel, 38 Mich. 568, 569; Walker v. Thompson, 108 Mich. 686; Carmody v. Crane, 110 Mich. 508; Miner v. Vedder, 66 Mich. 101.
It has been said that this rule does not protect latent equities, and that the rights of a prior assignee are latent equities; but the better ruléis that when the real owner of a chose in action is not in any way in fault in inducing a purchase by another the equity prior in time will prevail. 2 Pomeroy on Equity. Jurisprudence (3d Ed.), § 708.
The delivery of a past-due negotiable note indorsed in blank, but delivered for a special purpose, does not amount to such an inducement to the second purchaser as estops the true owner from claiming title as against one to whom the paper has been fraudulently transferred. Osborn v. McClelland, 43 Ohio St. 284; Davis v. Bechstein, 69 N. Y. 440. It is otherwise if the assignment or indorsement is made with the intention that it shall be negotiated. Bloomer v. Henderson, 8 Mich. 395.
It has also been held in many cases that where the owner of a chattel or a nonnegotiable chose in action has clothed another with the indicia of ownership and possession a subsequent bona fide purchaser from one having the apparent title takes the chattel or chose in action free of the equities or rights of the true owner, the principle governing being in all respects analogous to that which validates the acts of an agent to the extent; of his apparent authority. See Mechem on Agency, § 787 et seq.; McNeil v. National Bank, 46 N. Y. 325; Moore v. Moore, 112 Ind. 149. In 2 Pomeroy on Equity Jurisprudence (3d Ed.), § 698, it is stated:
' ' It may be said, in general, that, in order to protect himself against subsequent transfer by the assignor, where a notice is not given to the debtor or the holder of the legal interest, the assignee should obtain a delivery and possession of the written instrument, which, in ordinary language, constitutes the thing in action, which embodies and is the highest evidence of the existing demand; or, when such delivery and possession are impossible from the very nature of the subject-matter, that he should take all the steps permitted by the law which are equivalent to actual possession."
See, also, Graham Paper Co. v. Pembroke, 124 Cal. 117 (44 L. R. A. 632).
Applying these principles to the present case, it seems clear that the equities of the Wabash bank should prevail. The bridge company was permitted to retain the original contract, and this without notice of any rights of the prior assignees. It was known that the only method of payment was by. orders drawn on the township treasurer, and that these must come to the hands of the bridge company as the apparent owner. The bridge company was thus invested with every indicia of ownership, and within the rule stated one who was thus induced to purchase these orders and who parts with value upon the strength of this apparent ownership may well assert that the prior assignees have estopped themselves. The case of Miner v. Vedder, 66 Mich. 101, is relied upon by the appellants. In that case two claims were asserted by the respondent, first, that there was a mistake in the amount of the order; and, second, that the order was subject to a lien in favor of John K. Boies. The relator claimed to be a bona fide holder. His relation to the order was as between him and Boies the same as that of the Wabash bank in this case. The language used in the decision as it relates to both claims ia broad, but an examination of the record discloses that the question of relator's bona fides was submitted to the jury, and that the finding wa.s adverse to the relator, thus eliminating the question of priority of equities. If the case be limited to the point in issue no rule opposed to the views above expressed was laid down, and it appears that the charge of Judge Howell was fully in accord with this opinion.
The decree is affirmed, with costs against the Huntington bank and E. W. Bowen & Co.
MoAlvay, C. J., and Carpenter, Grant, Blair, and Moore, JJ., concurred with Montgomery, J.