South-Western Legal Studies in Business

Actual Knowledge, Not Constructive Knowledge, of Converted Goods Needed for Liability under Michigan Law
Description Michigan high court held that a lumber company could not be held liable for damages under a state law because it did not have actual knowledge that it was selling lumber to an employee of a building company that forged documents to get goods in the name of her employer.
Topic Real and Personal Property
Key Words Conversion; Aiding and Abetting; Knowledge; Constructive Knowledge
C A S E   S U M M A R Y
Facts Echelon Homes, a builder, employed Wood as bookkeeper for three years before it was discovered that she was stealing. She charged $87,000 in materials to an unauthorized account at Carter Lumber. She used the materials to remodel her home. Carter had extended the credit to Echelon based on a credit application forged by Wood. Echelon sued Carter for aiding and abetting conversion. Under a Michigan law, a person who buys, receives, or aids in concealing stolen or converted property can be held liable for treble damages if he knew the property was illegally obtained. Echelon contended that Carter had constructive knowledge of the conversion and should be liable on that basis.
Decision

For defendant. Constructive knowledge is not sufficient to impose liability under the statute. The plain language of the statute is that the person receiving the converted property "knew" it was stolen or converted. Knowledge is awareness of a fact or circumstance. Constructive knowledge is different, it is knowledge that one using reasonable care or diligence should have. Michigan law distinguishes between the two, so the statute will be taken as it is written, which is that it applies only to cases of actual knowledge, not constructive knowledge. There was no evidence that Carter had actual knowledge of the conversion.

Citation Echelon Homes, LLC v. Carter Lumber Co., 472 Mich. 192 (Sup. Ct., Mich., 2005)

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