McIntosh v. Detroit Sav. Bank

• Decision Date: 03 June 1929
• Docket Number: No. 19,Jan. Term.,19
• Citation: 225 N.W. 628,247 Mich. 10
• Parties: McINTOSH v. DETROIT SAV. BANK et al.
• Court: Michigan Supreme Court

247 Mich. 10

225 N.W. 628

McINTOSH

v.DETROIT SAV. BANK et al.

No. 19, Jan. Term.

Supreme Court of Michigan.

June 3, 1929.

Appeal from Circuit Court, Wayne County, in Chancery; Major L. Dunham, Judge.

Suit by Charles McIntosh against the Detroit Savings Bank and another. Decree for defendants, and plaintiff appeals. Reversed and remanded.

Argued before the Entire Bench.Groesbeck, Sempliner & Kelly, of Detroit, (Jason L. Honigman, of Detroit, of Counsel), for appellant.

Miller Canfield, Paddock & Stone, of Detroit, for appellee Detroit Sav. Bank.

POTTER, J.

Plaintiff, as assignee of the C. & S. Auto Sales Company, a partnership which consisted of James H. Cranston and Floyd Z. Sweet, filed a bill in the Wayne circuit court in chancery against defendant, for an accounting, and to recover from it $9,060, which he claimed the bank owed him as assignee of the C. & S. Auto Sales Company. It is the claim of plaintiff that the C. & S. Auto Sales Company was dealing in secondhand cars in Detroit; that, at the time the partnership business began, it opened a bank account with defendant, and defendant contracted with the partnership that the signature of both partners should be signed to the orders for withdrawals of its funds, or checks, and no funds could be withdrawn from the bank, except on the signatures of both Cranston and Sweet.

The signature card and agreement was as follows:

‘Form 258

‘C. & S. Auto Sales Co. In Account with the Detroit Savings Bank, Detroit, Michigan.

‘Below please find duly authorized signatures, which you will recognize in the payment of funds or the transaction of other business on this account. I hereby authorize you to charge this account the sum of $1.00 per month, if the daily average balance is less than $100.00.

‘[signed] James H. Cranston To sign

‘[signed] Floyd Z. Sweet To countersign

‘Address 3740 Cass Ave.

‘Dated 9/23/21.’

It is the further claim that, during the time the C. & S. Auto Sales Company was doing business, Cranston, one of the partners, forged Sweet's signature to three checks on defendant bank and received thereon a total of $700. The partnership owed plaintiff $10,265.53, and prior to the commencement of suit assigned to him its claim against defendant. There is no dispute about the $700 withdrawn from defendant on Cranston's forgeries. The partnership owed the bank $1,171.79, and upon an accounting the trial court dismissed the bill of complaint, inasmuch as it found the partnership owed the bank more than the amount the bank had permitted to be withdrawn on Cranston's forgeries. Plaintiff appeals.

The dispute arises over money of the partnership obtained by Cranston substantially as follows: The partnership was engaged in buying and selling automobiles. When an automobile was sold, a check would be given in payment therefor to the partnership. Cranston would indorse the check with the name of the partnership, per J. H. Cranston, and present it to defendant for deposit in his personal account, or take part or all the proceeds of the check in cash, and deposit in the partnership account either no part of the proceeds of the check or a part thereof, as the case might be.

Cranston's balance in his personal account in defendant bank was augmented by credits resulting from the deposit of checks drawn to the partnership or the proceeds thereof, the credit being made by defendant to Cranston's individual account, instead of the account of the partnership. No inquiry was made by the defendant bank as to Cranston's authority to convert the partnership funds to his individual account, though it acted with full knowledge of his acts. The question is whether the bank is liable for paying money to Cranston on his indorsement of partnership checks, which belonged to the partnership, and knowingly giving him credit for partnership funds.

‘A partnership is an association of two or more persons to carry on as co-owners a business for profit.’ Section 7966(6)(1), 1922 Supp. to C. L. 1915. It is a legal entity, separate from the individuals composing it. Thurston v. Detroit Asphalt & Paving Co., 226 Mich. 505, 198 N. W. 345; Parsons Partnership (4th Ed.) p. 63. Its property is distinct from that of the individual members of the partnership. Hubbardston Lumber Co. v. Covert, 35 Mich. 254;Dobson v. Whitker, 242 Mich. 308, 218 N. W. 770. There is community of property, interest, and profits. Beecher v. Bush, 45 Mich. 188, 7 N. W. 785,40 Am. Rep. 465;Dutcher v. Eli Buck, 96 Mich. 160, 55 N. W. 676,20 L. R. A. 776;Brotherton v. Gilchrist, 144 Mich. 274, 107 N. W. 890,115 Am. St. Rep. 397.

‘Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership.’ Section 7966(9)(1), 1922 Supp. to C. L. 1915. ‘An act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership unless authorized by the other partners.’ Section 7966(9)(2), 1922 Supp. to C. L. 1915.

If the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority, then his acts do not bind the partnership. Section 7966(9)(1), 1922 Supp. to C. L. 1915. ‘A person has knowledge of a fact within the meaning of this act not only when he has actual knowledge thereof, but also when he has knowledge of such other facts as in the circumstances show bad faith.’ Section 7966(3)(1), 1921 Supp. to C. L. 1915.

The authority of a partner to make lawful contracts for the firm does not authorize making unlawful contracts without the knowledge of the other partners. Minthorn v. Haines, 169 Mich. 169, 134 N. W. 1113. Each partner is the agent of his copartners in the transaction of partnership business, but not in matters foreign to that business. One partner cannot bind his copartner by any contract without the scope of the partnership. Township of Wexford v. Seeley, 196 Mich. 634, 163 N. W. 16.

The law has always been solicitous not to hinder the free circulation of commercial paper having a legitimate inception. Nichols v. Sober, 38 Mich. 678. ‘To constitute notice of an infirmity in the instrument, or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.’ 2 Comp. Laws 1915, § 6097.

‘It will be observed from this provision of the Negotiable Instruments Law that one on whom the law imposes the burden of showing good faith must show something more than that he had no actual knowledge of the fraud. He must show that he had no knowledge of facts or circumstances that would operate to create a belief in his mind that there was fraud. He must show that there were no facts or circumstances known to him of such a character as to show bad faith in the taking of the instrument.’ Case v. City National Bank of Battle Creek, 240 Mich. 419, 215 N. W. 362.

If there is nothing on the face of commercial paper to cast suspicion on its character, it can be impeached in the hands of a holder for value only by evidence of the holder's bad faith. Miller v. Finley, 26 Mich. 249, 12 Am. Rep. 306;Stevens v. McLachlan, 120 Mich. 285, 79 N. W. 627. An indorsee can be deprived of his right as a bona fide holder only upon evidence sufficient to show bad faith. Nichols v. Sober, 38 Mich. 678;New York Iron Mine v. Citizens' Bank, 44 Mich. 344, 6 N. W. 823;Goodrich v. McDonald, 77 Mich. 486, 43 N. W. 1019;Chapman v. Remington, 80 Mich. 552, 46 N. W. 34;Stevens v. McLachlan, 120 Mich. 285, 79 N. W. 627;Case v. City National Bank, 240 Mich. 419, 215 N. W. 362; Section 6097, C. L. 1915. Bad faith may be shown by evidence of actual knowledge of the purposes for which the paper was given. Section 7966(3)(1), 1922 Supp. to C. L. 1915; Stevens v. McLachlan, 120 Mich. 285, 79 N. W. 627. An indorsee of commercial paper has no right to disregard any circumstance known to him calculated to lead a prudent man to suspect the indorser might be acting in fraud of his principal. New York Iron Mine v. Citizens' Bank, 44 Mich. 344, 6 N. W. 823.

All partnerships are more or less limited in scope. 3 Kent, Comm. (14th Ed.) p. 42. One partner may not use partnership funds for private purposes. Kemeys v. Richards, 11 Barb. (N. Y.) 312;Rogers v. Batchelor, 12 Pet. 221, 9 L. Ed. 1063;Viles v. Bangs, 36 Wis. 131;Cotzhausen v. Judd, 43 Wis. 213, 28 Am. Rep. 539; Burwell & Clarke v. Springfield, 15 Ala. 273; Price v. Hunt, 59 Mo. 258;McNair v. Platt, 46 Ill. 211; Gove v. Lawrence, 6 Lans. (N. Y.) 89; Hurt v. Clarke, 56 Ala. 19, 28 Am. Rep. 751; Smith v. Andrews, 49 Ill. 28;Billings v. Meigs, 53 Barb. (N. Y.) 272;Purdy v. Powers, 6 Pa. (6 Barr) 492; Ex parte Bushell, 3 Montagu, Deacon & De Gex's Rep. 615; Todd v. Lorah, 75 Pa. 155; Wise v. Copley, 36 Ga. 508; Arden v. Sharpe, 2 Esp. 524; Kendal v. Wood, 6 Law R. Ex. 243; Green v. Deakin, 2 Starkie, 347; 3 Kent, Comm. p. 42; Story on Partnership (7th Ed.) pp. 131, 132.

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. 3 Kent's Comm. (14th Ed.) p. 42; Green v. Deakin, 2 Starkie, 347; 1 Lindley, Partnership, p. 171; 30 Cyc. 510; Hale v. Windsor Sav. Bank, 90 Vt. 487, 98 A. 993;U. S. Fidelity &...