Court Opinion

ID: 3496421
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:04:10.833275+00
Date Added: 2024-06-11T14:05:13.851870
License: Public Domain

This case submitted at the April, 1931, term, opinion in which is reported (254 Mich. 333), is before us on rehearing. There was judgment for plaintiff in the court below against all defendants. Defendant Hill alone appealed. As to him the judgment was reversed. B.W. Marr, president of B. W. Marr 
Company, a corporation, was a real estate speculator, dealing in pretended real estate holdings near Detroit. He procured Hill's notes for $17,500 by fraud. But one note of $2,500, signed by Hill, is before us; a copy of it is set up in the opinion above referred to. This note was given by Hill to B. W. Marr  Company. Defendant Vandermade was an insurance agent. He wanted to sell Marr life insurance. Marr agreed with Vandermade to buy life insurance and pay a premium thereon if Vandermade would take in payment the $2,500 note of Hill, given to B. W. Marr  Company, a corporation. Vandermade went to plaintiff bank and told its officers he could sell the insurance to Marr if the bank would cash Hill's note, and give Vandermade the amount of the premium on the insurance policy on Marr's life and deliver back to Vandermade a check for $2,096 payable to B. W. Marr  Company. With full knowledge disclosed to it by Vandermade that a part of the proceeds of the sale of the note of B. W. Marr  Company, a corporation, was to be used by B.W. Marr to pay his individual obligation, plaintiff accepted the note of the corporation indorsed by Marr, paid Vandermade his insurance premium, and delivered to him a check for the balance of $2,096 payable to B. W. Marr  Company. The president of B. W. Marr  Company had no implied authority to indorse its commercial paper. He had no presumptive right to convert the company's assets to his own use and benefit in payment of his personal *Page 220 
obligation. The testimony shows he had no actual authority to do so. B. W. Marr  Company is not here defending on the ground of Marr's lack of authority to indorse. The question here involved is whether plaintiff is a bona fide holder of defendant Hill's note in due course. No one is a holder in due course who takes a note belonging to a corporation with actual knowledge its proceeds are to be used to pay the individual debt of a member thereof without inquiry to ascertain the extent of the indorser's authority to transfer the note and convert the proceeds to his own use. Where the note was originally procured by fraud, the burden of proof is upon the holder thereof to show it is a bona fide holder for value.Newall v. Bridges, 251 Mich. 384.
A similar question was involved in McIntosh v. DetroitSavings Bank, 247 Mich. 10, 15-17, where it was said:
"When Cranston, having possession of valid checks of third persons belonging to the partnership, and payable to it, indorsed those checks in the partnership name per J.H. Cranston, and deposited them or the proceeds thereof to the credit of his own account in his own name in defendant bank, it, from the face of such checks themselves, not only had notice but knowledge of the ownership thereof and of their proceeds and of Cranston's misappropriation of such partnership funds. * * * It knew Cranston was, prima facie, committing a fraud upon his partner, * * * and neither the transfer nor the indorsement were binding on the firm without actual authority or ratification."
In Jones v. Turner, 249 Mich. 403, it was said:
"One who accepts company property in payment of the individual indebtedness of a member of the company knows thatprima facie the individual so *Page 221 
disposing of the company property is perpetrating a fraud upon the company, and the creditor who accepts company property on the indorsement of the company made by an individual in payment of his individual debt will be deemed to have acted in bad faith and in fraud of the company."
A substantially similar holding was made in Wagner TradingCo. v. Battery Park Nat. Bank, 228 N.Y. 37 (126 N.E. 347, 9 A.L.R. 340), where it was said:
"When it accepted the checks payable to the plaintiff and indorsed by Wagner as president of the plaintiff for deposit to the account of Wagner himself, it did so at its peril to ascertain whether Wagner had authority to indorse them and by his indorsement transfer the money to be paid thereon to his personal account."
Upon reconsideration of this case I see no reason why the conclusion arrived at when it was first disposed of by this court should not be adhered to. Judgment should be reversed, with costs; new trial should be granted.
McDONALD, FEAD, and WIEST, JJ., concurred with POTTER, J. *Page 222