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The Michigan Court of Appeals first recognized a common law duty of inquiry in Allis Chalmers Leasing Servs. Corp. v. Byron Ctr. State Bank, 129 Mich. App. 602, 341 N.W.2d 837 (Mich. Ct. App. 1983). In Allis Chalmers, the plaintiff wrote a check payable to the defendant, Byron Center State Bank, as part of a purchase and leaseback agreement that the plaintiff had entered into with Gary Deneen, a customer of the defendant. Id. at 839. Deneen presented the check to the defendant as part of a fraudulent scheme Deneen devised to defraud the plaintiff. Id. The defendant's employee distributed the proceeds according to Deneen's instructions without making any inquiry into how the funds should be used. Id.

Seeking to recover its losses, the plaintiff brought a negligence action against the defendant bank for the amount of the check. The plaintiff alleged that the defendant bank was negligent in disbursing the check to Deneen without first inquiring into how the funds should be disbursed. Id. On appeal, the Michigan Court of Appeals affirmed the trial court's grant of summary judgment in favor of the plaintiff, citing the general rule that '[w]here a check is ...

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