Van Dellen v. Van Dellen

Wiest, J.

George Yan Dellen was engaged in selling automobiles, and forged and sold chattel mortgages to defendant Fidelity Corporation. Officers of the corporation discovered the fraud, estimated loss thereby at $8,000, and immediately pressed the forger to make settlement. George Yan Dellen, on January 6, 1931, executed a chattel mortgage to the Fidelity Corporation, covering the stock of goods in a store owned by him at Hoytville; gave a real estate mortgage to the Fidelity Corporation, covering his Hoytville real estate; gave a warranty deed, in which he was joined by his wife, to Albert P. Theophile, covering the same property at Hoytville; and a bill of sale of the store stock of goods to Theophile. Theophile was merely serving in behalf of the Fidelity Corporation. Within a few days officers of the Fidelity Corporation found that the loss was $12,000 instead of $8,000, and insisted on further security. The local manager of the Fidelity Corporation went with George Yan Dellen to obtain the indorsements of John Yan Dellen, his wife, Jennie, and George Richardson, a brother-in-law, upon two notes of $2,000 each.

Plaintiffs, the indorsers of the notes, filed the bill herein to have their indorsements canceled on the ground that they were induced to sign the notes by *277 fraudulent representations made by tbe manager of tbe Fidelity Corporation, and by fraudulent concealment of tbe fact that George Van Dellen bad turned over all of bis property to tbe Fidelity Corporation.

Tbe fraudulent representation was, that if plaintiffs indorsed tbe notes George Van Dellen would be allowed to conduct bis store or sell it during tbe sixmontbs period before maturity of tbe notes. Tbe fraud lay in tbe fact that at that time it was tbe fixed intention of tbe Fidelity Corporation to take possession of tbe store at once under tbe instruments given by George Van Dellen and close him out. At tbe time of making tbe indorsements tbe plaintiffs bad no knowledge of George Van Dellen’s criminal acts or of bis conveyances to tbe Fidelity Corporation, and believed that within six months, tbe period stated in tbe notes, be would be able to take care of tbe same.

Tbe circuit judge found tbe fraud, and canceled tbe indorsements.

Tbe Peoples State Savings Bank of East Jordan was made a defendant, and, by answer, claimed to be a bona fide purchaser of tbe notes, for value, before maturity, but, at tbe trial, offered no evidence.

Defendants invoke tbe well-known rule that fraud must relate to a present or pre-existing fact, and cannot ordinarily be based on unfulfilled promises or statements as to future events. Tbe rule, however, is not without exceptions.

In J. B. Colt Co.

v. Cousino, 226 Mich. 518 , it was said:

“This court has recognized an exception to tbe rule where tbe promise is made for tbe purpose of securing tbe execution of tbe instrument and without a then existing intention on tbe part of tbe promisor to keep it.”

*278 See, also, Matteson v. Weaver, 229 Mich. 495 .

In Crowley v. Langdon, 127 Mich. 51 , it was held, quoting syllabus:

“A chattel mortgage given in consideration of the promises of a mortgagee to extend the time of payment of the debt secured, and to grant a further credit to the mortgagor, which promises the mortgagee at the time had a fixed intention not to perform, may be avoided by the mortgagor on the ground of fraud.”

See, also, Jones v. Brammer, 229 Ky. 649 (17 S. W. [2d] 736);

Zuckerman v. Geller, 103 N. J. Eq. 145 ( 142 Atl. 344 );

Pease & Elliman, Inc., v. Wegeman, 223 App. Div. 682 ( 229 N. Y. Supp. 398 );

Feldman v. Witmark, 254 Mass. 480 ( 150 N. E. 329 ).

Defendants also contend that there was no legal obligation to inform plaintiffs of the true situation, and, therefore, no fraudulent concealment.

We need spend no time on this beyond stating that such concealment perfectly dovetailed with the active fraud practiced. It is manifest that, had the slightest disclosure been made, the indorsements would not have been procured.

The indorsements, having been procured by fraud practiced by the payee, the notes are void as to the indorsers, unless now in the hands of a bona fide purchaser for value and before maturity.

The issue, raised by the answer of the bank, called for some evidence of good faith on the part of the bank, and it was not sufficient for the president of the Fidelity Corporation, who was also a director of the bank, to merely testify that the notes were sold to the bank before maturity and for a valuable consideration. The notes were introduced in evidence and showed no indorsements thereon to the bank.

*279 We said in Case v. City National Bank of Battle Creek, 240 Mich. 419 , quoting syllabus:

“In a suit for the cancellation of a note and mortgage on the ground of fraud, where plaintiffs established fraud in the inception thereof, the burden of proof was upon defendant to show that it was a bona fide purchaser for value.”

The decree is affirmed, with costs to plaintiff.

Clark, C. J., and McDonald, Potter, Sharpe, North, Fead, and Butzel, JJ., concurred.