Meretta v. Peach, Docket No. 130227

• Decision Date: 08 September 1992
• Docket Number: Docket No. 130227
• Citation: 195 Mich.App. 695,491 N.W.2d 278
• Parties: Leonard V. MERETTA, Plaintiff, Counter-Defendant, Appellee, v. Janet J. PEACH, Defendant, Cross-Plaintiff, Appellant, and Great Lakes Federal Savings, a/k/a Great Lakes Bancorp, Defendant, Cross-Defendant, Appellant, and Dennis J. Fend and Cheryl K. Fend, Defendants, Counter-Plaintiffs, Appellants.
• Court: Court of Appeal of Michigan — District of US

Page 278

491 N.W.2d 278

195 Mich.App. 695

Leonard V. MERETTA, Plaintiff, Counter-Defendant, Appellee, v. Janet J. PEACH, Defendant, Cross-Plaintiff, Appellant and Great Lakes Federal Savings, a/k/a Great Lakes Bancorp Defendant, Cross-Defendant, Appellant and Dennis J. Fend and Cheryl K. Fend, Defendants Counter-Plaintiffs, Appellants.

Docket No. 130227.

Court of Appeals of Michigan.

Submitted March 5, 1992, at Lansing.

Decided Sept. 8, 1992, at 9:20 a.m.

Released for Publication Nov. 19, 1992.

Andrew S. Muth, P.C. by James K. Fett and Andrew S. Muth, Ypsilanti, for plaintiff.

McGinty, Brown, Jakubiak, Frankland, Hitch & Henderson, P.C. by Charles E. Henderson, East Lansing, for defendants.

Before MARILYN KELLY, P.J., and McDONALD and ALLEN, ^* JJ.

MARILYN KELLY, Presiding Judge.

This case arose out of the collapse of the Diamond Mortgage Company. Plaintiff was the assignee of defendant Peach's mortgage. After the assignment, Peach paid off the mortgage in full. The prepayment was made through the servicing company, Diamond Mortgage, which failed to forward it to plaintiff before going bankrupt. Plaintiff brought this action to foreclose on Peach's mortgage. The trial judge granted him summary disposition.

Defendants argue on appeal that Diamond Mortgage had actual or apparent authority to accept prepayment of the mortgage. They argue also that payments they made prior to receiving actual notice of the mortgage's assignment effected a pro tanto discharge of the mortgage. Also, since the note was not properly executed, plaintiff's security interest was lost. Finally, Peach is entitled to credit for payments she made to the servicing agent until notified to pay another. We reverse.

Defendant Peach financed the purchase of her house through Commerce Mortgage Corporation. Commerce assigned the note and mortgage to Commerce Mortgage Investments, Ltd. (CMI), an affiliate of Diamond Mortgage. CMI assigned the mortgage and note to A.J. Obie, Inc., which assigned them to plaintiff as security for his investments. Plaintiff considered Obie, CMI, and Diamond to be one and the same. In fact their mailing addresses were identical. Plaintiff was aware of the servicing agreement between CMI and Diamond which authorized Diamond to collect principal and interest due on mortgages.

In time, defendants Dennis and Cheryl Fend purchased the Peach property from Peach. Defendant Great Lakes Federal Savings and Loan closed the transaction between Peach and the Fends and made the prepayment of the mortgage to Diamond Mortgage. Diamond Mortgage filed bankruptcy, never turning over to plaintiff the amount owing. After discovering Diamond's fraud, plaintiff demanded payment from the Fends and then initiated this action to foreclose on the Peach mortgage.

Defendants argue initially that the trial court erred in granting summary disposition, because Diamond Mortgage had actual or apparent authority as plaintiff's agent to receive a prepayment of the mortgage. A motion for summary disposition under MCR 2.116(C)(10) tests whether there is factual support for a claim. Courts are liberal in finding a genuine issue of material fact. St. Paul Fire & Marine Ins. Co. v. Quintana, 165 Mich.App. 719, 722, 419 N.W.2d 60 (1988). Where there is a disputed question of agency, any testimony, either direct or inferential, tending to establish agency creates a question of fact for the jury to determine. Jackson v. Goodman, 69 Mich.App. 225 230, 244 N.W.2d 423 (1976), citing Miskiewicz v. Smolenski, 249 Mich. 63, 70, 227 N.W. 789 (1929).

An agency relationship may arise when there is a manifestation by the principal that the agent may act on his account. 1 Restatement Agency, 2d, Sec. 15, p 82. The test of whether an agency has been created is whether the principal has a right to control the actions of the agent. Little v. Howard Johnson Co., 183 Mich.App. 675, 455 N.W.2d 390 (1990).

In this case, a fact question exists concerning whether Diamond acted as plaintiff's agent. A jury could find that plaintiff had control over Diamond, since he could have terminated Diamond's collection activities. That fact was evidenced by a showing that, at the time in question, he was collecting payments from another mortgagor, directly.

The authority of an agent to bind the principal may be either actual or apparent. Actual authority may be express or implied. Implied authority is the authority which an agent believes he possesses. After the agency relationship and the extent of the agent's authority have been shown, the principal has the burden of proving that the agent's authority was limited. 3 Am Jur 2d, Agency, Sec. 359, p 870.

An agent has implied authority from his principal to do business in the principal's behalf in accordance with the general custom, usage and procedures in that business. See 1 Restatement Agency, 2d, Sec. 36, p 124. However, the principal must have notice that the customs, usages and procedures exist. Id.

In the case on appeal, defendants argue that it is a usual practice in the mortgage industry for servicing companies to accept prepayments. Whether this...