Commonwealth Bank v. Dunn

335 Mich. 665 (1953)

57 N.W.2d 294

COMMONWEALTH BANK v. DUNN.

Docket No. 1, Calendar No. 45,579.

Supreme Court of Michigan.

Decided March 10, 1953.

*667 Robert T. Adams, for plaintiff.

Dennis Boyle, for defendants.

BUSHNELL, J.

This is an appeal by plaintiff, Commonwealth Bank, from a circuit court judgment of no cause of action on appeal from a like judgment entered in the common pleas court. The circuit judge, after an examination of the record made in the common pleas court, found that its findings of fact were well within that record, and that the law pertaining thereto had been correctly applied.

The bank brought its action in assumpsit upon the common counts, and especially upon a "promissory note." The "promissory note" was in fact a check dated September 28, 1949, drawn by defendant S.E. Dunn Company on the National Bank of Detroit, and payable to the order of Edward J. Fallon. The check was typewritten and appeared to be in the sum of $504.98. Fallon, who was then an employee of Dunn, deposited this check in his account in the Commonwealth Bank on September 29, 1949. It was indorsed by that bank for collection through the clearing house on September 30th, but was not paid by the drawee bank because Dunn had stopped payment thereon.

S.E. Dunn, Jr., who, with his father, Simon E. Dunn, Sr., was conducting a brewery supply business in Detroit under the name of S.E. Dunn Company, *668 testified that a few days before the check was issued it was discovered that Fallon had been embezzling money from their company. Dunn assumed, on September 29th, that the check in question, which had been issued to reimburse Fallon for cash which he spent for office supplies, had been raised from its correct amount of $4.98 to $504.98, because on that date Fallon admitted that he had been raising checks. Dunn explained that this check was written on a typewriter after Fallon had told him that the check-writing machine was not working.

On September 30th Dunn went to the Commonwealth Bank and told them that Fallon had been embezzling money and that he was suspicious that he had also been raising checks. He stated that at the time he did not know which specific checks had been raised. Dunn asked one Louis Page, and another person unidentified except by the description of "brother-in-law," how much money Fallon had in his account. When informed that the balance was $544, Dunn obtained a check from Fallon in this amount and had it certified by the Commonwealth Bank that same day. The certified check was held by Dunn until June 21, 1951, when he either cashed or deposited it in the National Bank of Detroit. That bank sent it through the clearing house for payment by the Commonwealth Bank, and it was so paid.

After the bank had rested its case, permission was granted to call Charles F. Mayler, general counsel for the Commonwealth Bank, as a witness. Mayler was not cross-examined by the defendant, nor did Dunn Company offer any rebuttal testimony. Mayler testified that, almost immediately, efforts were made to adjust the matter. Dunn objected to this testimony, but it was admitted by the court, in the light of his testimony, that he did not authorize his then counsel to negotiate with the bank. It appears from this testimony that, when defendant's then attorney, *669 Edgar Pugh, was asked to return the certified check because it had been certified against a deposited check of the Dunn Company, on which payment had been stopped, Pugh told Mayler that "it would take a week or something like that to work this out," meaning Fallon's defalcation of approximately $4,000. Pugh said that eventually the Dunn Company would either return the certified check to the bank or raise the stop payment on the one in question, and that they would not transfer or try to cash the certified check. This conversation took place on October 28, 1949.

The Commonwealth Bank began its action in the common pleas court on June 14, 1951, a few days prior to its payment of Fallon's certified check.

In the amended answer to plaintiff's declaration, defendant company denied that exhibit A (the check for $504.98) was a true copy of the $4.98 check which it had given to Fallon and on which payment was stopped before it had cleared. Defendant alleged that the check given to Fallon had been raised by him and liability thereon was denied under certain statutes, which will hereafter be discussed. Defendant further insisted that it was entitled to a dismissal of plaintiff's suit because it was prematurely brought, in that it was instituted before the presentment and payment of the certified check and at a time when the bank had not as yet suffered any damage or loss.

The bank, in reply, asserted that defendant was unjustly enriched and was estopped to assert the statutory defense of alteration; that when the Dunn Company had the Fallon check certified, it had knowledge that it was so certified against funds represented by defendant's uncollected check, and thereby a fraud was perpetrated upon plaintiff bank. It denied that its action was prematurely brought, in that, having certified Fallon's check, it became *670 liable for its payment. The bank further charged that Dunn did not give notice of the alteration of its check prior to the certification of Fallon's check, and that the first notice the bank had of a claim of alteration was on July 23, 1951, when it received defendant's amended answer. In reply to plaintiff's answer to the amended plea, the Dunn Company asserted that the bank did not become a holder in due course, as defined in CL 1948, § 439.54 (Stat Ann § 19.94), but that the entire matter is governed by the bank collection code, CL 1948, § 487.601 et seq. (Stat Ann 1943 Rev § 23.331 et seq.). The allegations of fraud and estoppel, and the lack of notice of claim of alteration, were denied; the payment of the certified check was admitted.

The bank on its appeal here renews its claim of estoppel and adds an allegation of negligence on the part of defendant company in permitting its employee, Fallon, to use a typewriter to make out checks in such a manner that they could easily be altered. Defendant company urges the application of section 126 of the uniform negotiable instruments law (CL 1948, § 439.126 [Stat Ann § 19.166]) which reads as follows:

"Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration, and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder, in due course, not a party to the alteration, he may enforce payment thereof according to its original tenor."

A material alteration is defined in CL 1948, § 439.127 (Stat Ann § 19.167), as "any alteration which changes * * * the sum payable, either for principal or interest."

*671 The alteration was material and was made without the assent of Dunn. The bank is a holder in due course and, not being a party to the alteration, it may enforce payment according to the original tenor of the check, i.e., $4.98. When the bank certified the check drawn on it by Fallon in favor of Dunn in the sum of $544, it was mistaken in believing that Fallon had this amount of money on deposit. Although Dunn has not changed its position in reliance upon this certification (see 9 CJS, p 793) the bank cannot in this action recover the money it paid on the certified check, because it has relied solely upon the altered check.

The bank argues that Dunn's negligence in permitting Fallon to write checks on a typewriter creates an estoppel. It cites Goldsmith v. Atlantic National Bank of West Palm Beach (Fla), 55 So2d 804; and Weidman v. Symes, 120 Mich 657. See, also, Holmes v. Trumper, 22 Mich 427.

The Goldsmith Case is comparable on the facts. Decision there was planted on the proposition that the trial court's exoneration of the maker did not square with the appellate court's concept of simple justice, and that it was incompatible with common sense and fair dealing to relieve the negligent maker at the expense of the bank. This case, like the Weidman and Holmes Cases, was, however, decided without reference to the negotiable instruments law. The question of unjust enrichment is not properly before this Court in an appeal from an action based upon the altered check. It would more properly be presented in an action on the certified check.

We also note, but do not discuss, because it is not before us (see Poelman v. Payne, 332 Mich 597, 605), the suggested negligence of the bank in certifying a check for the item or items entering into the balance in Fallon's account which had been credited but not paid by the drawee bank. It may be *672 unfortunate that the bank's remedy is limited, but we deem it of vital importance to preserve the integrity of the negotiable instruments law, and for that reason, and that reason alone, we feel the herein quoted alteration section of that law should be strictly applied.

Under the facts as presented, Dunn's use of the certified check, after knowledge of Fallon's alteration of the deposited check, cannot be held to be an assent to the alteration. Nor was Dunn estopped to rely upon the statutory protection of the quoted section of the negotiable instruments law.

An examination of the record does not disclose any proof of fraud or deceit on the part of Dunn. The claim that the action of the bank was prematurely commenced need not be considered in the light of our conclusions.

The judgment of the circuit court is reversed and the cause is remanded for entry of a judgment in the amount of $4.98 in favor of plaintiff. Plaintiff will also recover its costs in both courts.

DETHMERS, C.J., and ADAMS, BUTZEL, CARR, SHARPE, BOYLES, and REID, JJ., concurred.