Township of Washington v. First National Bank , 147 Mich. 571 ( 1907 )

Montgomery, J.

{after stating the facts). The contention of the appellants is that the order in question is not negotiable under the law merchant, and that one who purchases it takes it subject to all equities in favor of third persons who have a prior lien on the order or fund.

It is unquestionably the general rule that the seller or pledgor of property other than negotiable securities can convey no greater rights than he himself has. 1 Mechem on Sales, § 157; Judge v. Vogel, 38 Mich. 568, 569; Walker v. Thompson, 108 Mich. 686; Carmody v. Crane, 110 Mich. 508; Miner v. Vedder, 66 Mich. 101.

It has been said that this rule does not protect latent equities, and that the rights of a prior assignee are latent equities; but the better ruléis that when the real owner of a chose in action is not in any way in fault in inducing a purchase by another the equity prior in time will prevail. 2 Pomeroy on Equity. Jurisprudence (3d Ed.), § 708.

The delivery of a past-due negotiable note indorsed in blank, but delivered for a special purpose, does not amount to such an inducement to the second purchaser as estops the true owner from claiming title as against one to whom the paper has been fraudulently transferred. Osborn v. McClelland, 43 Ohio St. 284; Davis v. Bechstein, 69 N. Y. 440. It is otherwise if the assignment or indorsement is made with the intention that it shall be negotiated. Bloomer v. Henderson, 8 Mich. 395.

It has also been held in many cases that where the owner of a chattel or a nonnegotiable chose in action has clothed another with the indicia of ownership and possession a subsequent bona fide purchaser from one having the apparent title takes the chattel or chose in action free of the equities or rights of the true owner, the principle governing being in all respects analogous to that which validates the acts of an agent to the extent; of his apparent authority. See Mechem on Agency, § 787 et seq.; McNeil v. National Bank, 46 N. Y. 325; Moore v. Moore, 112 Ind. 149. In 2 Pomeroy on Equity Jurisprudence (3d Ed.), § 698, it is stated:

‘ ‘ It may be said, in general, that, in order to protect himself against subsequent transfer by the assignor, where a notice is not given to the debtor or the holder of the legal interest, the assignee should obtain a delivery and possession of the written instrument, which, in ordinary language, constitutes the thing in action, which embodies and is the highest evidence of the existing demand; or, when such delivery and possession are impossible from the very nature of the subject-matter, that he should take all the steps permitted by the law which are equivalent to actual possession.”

See, also, Graham Paper Co. v. Pembroke, 124 Cal. 117 (44 L. R. A. 632).

Applying these principles to the present case, it seems clear that the equities of the Wabash bank should prevail. The bridge company was permitted to retain the original contract, and this without notice of any rights of the prior assignees. It was known that the only method of payment was by. orders drawn on the township treasurer, and that these must come to the hands of the bridge company as the apparent owner. The bridge company was thus invested with every indicia of ownership, and within the rule stated one who was thus induced to purchase these orders and who parts with value upon the strength of this apparent ownership may well assert that the prior assignees have estopped themselves. The case of Miner v. Vedder, 66 Mich. 101, is relied upon by the appellants. In that case two claims were asserted by the respondent, first, that there was a mistake in the amount of the order; and, second, that the order was subject to a lien in favor of ■ John K. Boies. The relator claimed to be a bona fide holder. His relation to the order was as between him and Boies the same as that of the Wabash bank in this case. The language used in the decision as it relates to both claims ia broad, but an examination of the record discloses that the question of relator’s bona fides was submitted to the jury, and that the finding wa.s adverse to the relator, thus eliminating the question of priority of equities. If the case be limited to the point in issue no rule opposed to the views above expressed was laid down, and it appears that the charge of Judge Howell was fully in accord with this opinion.

The decree is affirmed, with costs against the Huntington bank and E. W. Bowen & Co.

MoAlvay, C. J., and Carpenter, Grant, Blair, and Moore, JJ., concurred with Montgomery, J.