Opinion ID: 2973734
Heading Depth: 3
Heading Rank: 1

Heading: Claims Under Michigan’s Commercial Code

Text: Michigan has adopted Article 3 of the Uniform Commercial Code. Michigan Compiled Laws § 440.3202 permits a party, “[t]o the extent permitted by other law,” to rescind negotiation of an instrument, except “against a subsequent holder in due course or a person paying the instrument in good faith and without knowledge of facts that are a basis for rescission.” Sections 440.3302, 440.3306, and 440.3307 define who may qualify as a holder in due course. First Independence maintains that Michigan Compiled Laws § 440.3307(2), working with the other sections, precludes Merrill Lynch from asserting a holder-in-due-course defense to First Independence’s claims. First Independence also argues that, contrary to the bankruptcy court’s conclusion, these sections create an independent cause of action for rescission, the elements of which mirror a common-law claim for rescission. Section 440.3307(2) provides: If (i) an instrument is taken from a fiduciary for payment or collection or for value, (ii) the taker has knowledge of the fiduciary status of the fiduciary, and (iii) the represented person makes a claim to the instrument or its proceeds on the basis that -4- No. 05-1618 First Independence, et al. v. Merrill Lynch, et al. the transaction of the fiduciary is a breach of fiduciary duty, the following rules apply: (a) Notice of breach of fiduciary duty by the fiduciary is notice of the claim of the represented person.