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been purchased, amounted to fraud in procuring the check, under the negotiable instruments law, Act No. 265, Pub. Acts 1905, § 57 (2 How. Stat. [2d Ed.] § 2728), and gave rise to a defense in defendant's favor against the paper in the hands of a third party. 2. SAME CHECK PROOF.

- FRAUDULENT REPRESENTATIONS

- BURDEN OF

Upon proof of a fraud of the brokerage firm in procuring defendant's check, the burden of proof rested upon the plaintiff to prove that it acquired title in due course for a valuable consideration and in good faith. Sections 5461, Act No. 265, Pub. Acts 1905.

3. BILLS AND NOTES-CHECKS-PRINCIPAL AND AGENT EVIDENCE. Where the plaintiff bank had printed upon its pass book a notice to customers that in receiving checks and drafts, etc., for deposit, it acted as agent only and assumed no responsibility beyond carefulness in selecting its agents, that the amount of dishonored checks or drafts would be charged to the customer, plaintiff bank was not a holder in good faith but was agent for the collection; title to the paper remained in the depositor.1

4. SAME-BANKS AND BANKING-NEGOTIABLE INSTRUMENTS. The fact that plaintiff permitted its patrons to check against the credit allowed upon paper deposited for collection did not preclude the bank from charging back the amount of the dishonored check; the title vested and remained in the depositor.

5. BANKS AND BANKING-BONA FIDE PURCHASER BILLS AND NOTES.

Where there was evidence that defendant's brokerage firm engaged in extensive "kiting" operations with the plaintiff bank, that its officials were familiar with the methods employed by the firm and permitted the same, having notice of its insolvency, and there was evidence that a large amount of paper deposited to the credit of the brokers was for the purpose of procuring a fictitious credit, evidence tending to show the real nature of the transactions was properly received as a defense to the action of plaintiff bank as holder in due course of a check deposited by the brokers who had obtained the paper by misrepresentation.

1 The question of the title of a bank to a check drawn on another bank, which has been credited to depositor is treated in notes in 7 L. R. A. (N. S.) 694 and 47 L. R. A. (N. S.) 552.

6. SAME-NEGOTIABLE INSTRUMENTS-BONA FIDE HOLDER. Where the plaintiff bank, through its assistant cashier, assented to the action of the brokerage firm in kiting checks and otherwise procuring fictitious credit upon its books, the contention that because plaintiff bank had made advances on the faith of the check received as a deposit for collection from the brokers, who had fraudulently procured the same from defendant, would not sustain an action in plaintiff's favor as a holder in due

course.

Error to Wayne; Halley, J. Submitted January 6, 1915. (Docket No. 15.) Decided April 19, 1915. Rehearing denied July 23, 1915.

Action by People's State Bank against Guy A. Miller upon a dishonored check. Judgment for defendant on a directed verdict. Plaintiff brings error. Affirmed.

Keena, Lightner, Oxtoby & Oxtoby, for appellant. Alex. J. Groesbeck, for appellee.

KUHN, J. The defendant, who is a practicing attorney in the city of Detroit, in the year 1908 occasionally bought and sold stock through Cameron Currie & Co., a firm of brokers, whose business methods have been reviewed and passed upon by this court in the recent case of Austin v. Hayden, 171 Mich. 38 (137 N. W. 317). This firm of brokers were customers of the plaintiff bank, and for some years up to the date of their failure maintained with it a general deposit and checking account. On the 10th day of July, 1908, Mr. Miller gave an order to Cameron Currie & Co. to purchase for his account 100 shares of United States Steel common stock, but did not pay the brokers firm any money at that time. Mr. Miller, being advised by the firm that they had purchased the stock pursuant to this order, on the 15th day of July paid them $500, to be applied on the purchase

price of the stock, which was $4,012.50. On that day Mr. Miller saw Mr. Case, who was a member of the brokers firm, and told him that he proposed borrowing the money at the Michigan Savings Bank to pay the balance on the stock, and asked him whether he would carry the transaction for a few days and have the certificate made out in his name, to be transferred on the books of the steel corporation, to which it is claimed Mr. Case agreed, and upon the 17th of July, 1908, at about 1 o'clock in the afternoon, Mr. Miller delivered to Mr. Case a check which read as follows: "No. 400. DETROIT, MICH., 7/17/1908. "Michigan Savings Bank of Detroit:

"Pay to the order of Cameron Currie & Co. $3,526.37, three thousand five hundred twenty-six 37/100 dollars. GUY A. MILLER.”

Written in red ink across the face of the check was "Payment stopped." Indorsed on the face of the

check was the following:

"Protested July 18, 1908, for nonpayment. JAMES S. PARK, Notary Public, Wayne Co., Mich."

Indorsed on the back of the check was this:

"Pay to the order of the People's State Bank, Detroit, Mich. CAMERON CURRIE & Co."

When he presented the check, Mr. Miller asked Mr. Case when the certificate made out in his name would be along, and Mr. Case replied that it had been ordered and would probably be there on the morning of the 18th of July, or certainly on the 20th. His check was deposited by Cameron Currie & Co. with the plaintiff bank during banking hours on the afternoon of July 17th. At about 8:30 o'clock on the morning of July 18th a receiver was appointed for and took possession of the affairs of Cameron Currie & Co. Mr. Miller, having learned that morning of the failure of the brokerage firm, upon inquiry at their office concerning the check he had given the day before, was informed

that it had been deposited at the People's State Bank. He thereupon went to the bank before it was open for business, and saw Mr. Lawson, who was the vice president of the bank, and told him of the circumstances under which he had given the check, and demanded its return to him. Mr. Lawson told him that the check had been cashed, and refused to surrender it to Mr. Miller, and Mr. Miller thereupon went to the Michigan Savings Bank and stopped payment on the check. An action in assumpsit was thereupon brought upon the check by the plaintiff, and the plea herein is the general issue, with notice that the check was given to the payee in payment for 100 shares of United States Steel Company stock; that the check was delivered to payee with instructions to use the same in full payment for said stock, and with the further instruction to secure a certificate for such stock and deliver the same to defendant; that such stock certificate was not procured by said payee and has not been delivered to defendant; that the failure to so procure and deliver said stock certificate, together with the taking of said check, constituted a fraud as between defendant and payee; that, at the time the check was indorsed by the payee to the plaintiff, payee was insolvent; that plaintiff at that time knew payee was insolvent, and had knowledge of the facts constituting a defense as between defendant and payee; that the plaintiff parted with no value whatever on the receipt of said check, and had knowledge or notice of such facts as to make its acceptance of the check a bad-faith and not a good-faith acceptance.

At the conclusion of the evidence the trial judge, reading the provisions of section 54 of the negotiable instruments law of this State (Act No. 265, Pub. Acts 1905, 2 How. Stat. [2d Ed.] § 2725), charged the jury that the check is complete and regular upon its face; that the bank became a holder of the check

before it became overdue; that there was no evidence that it had been previously dishonored; that the bank took it in good faith; that at the time it was negotiated with the bank it had no notice of any infirmity in the instrument or defect in the title of the person negotiating it; but that there was no affirmative evidence that the bank parted with value or gave any consideration for the check, and upon that ground the jury was directed to render its verdict for the defendant. Judgment being entered thereon, the plaintiff brings the case here by writ of error.

The trial court found, and so instructed the jury, that, in taking the check under the circumstances under which it was taken, a fraud was perpetrated by Cameron Currie & Co. upon Mr. Miller, and that therefore the title to the check was defective. It is contended by appellant that this instruction to the jury was not warranted because there is no evidence of any infirmity or defect in the check in suit as between the defendant and Cameron Currie & Co.

Section 57 of the negotiable instruments law provides as follows:

"The title of a person who negotiates an instrument is defective within the meaning of this act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud."

It conclusively appears in this case that Cameron Currie & Co. assumed to act as agents for Mr. Miller in buying the 100 shares of steel common stock, for which they were to be paid a commission; and also that they fraudulently stated to him that the stock had been ordered transferred to his name on the books of the steel corporation, whereas in fact it was not so transferred; and also that, at the time the check was delivered by them to the bank, they were insolvent,

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