Banking Comm'n v. First Wisconsin Nat. Bank of Milwaukee

• Decision Date: 12 March 1940
• Citation: 234 Wis. 60,290 N.W. 735
• Parties: BANKING COMMISSION v. FIRST WISCONSIN NAT. BANK OF MILWAUKEE et al. FIRST WISCONSIN NAT. BANK OF MILWAUKEE v. BANKING COMMISSION et al. (two cases).
• Court: Wisconsin Supreme Court

234 Wis. 60

290 N.W. 735

BANKING COMMISSION

v.FIRST WISCONSIN NAT. BANK OF MILWAUKEE et al.

FIRST WISCONSIN NAT. BANK OF MILWAUKEE

v.BANKING COMMISSION et al. (two cases).

Supreme Court of Wisconsin.

March 12, 1940.

Appeal from a judgment of the Circuit Court for Milwaukee County; John C. Kleczka, Judge.

Affirmed.

On August 12, 1935, the Banking Commission of the state of Wisconsin, in charge of the liquidation of the Liberty State Bank, a delinquent corporation, as plaintiff, instituted an action against First Wisconsin National Bank of Milwaukee, defendant, to recover certain assets of the Liberty State Bank which at the time of its closing were in defendant's possession as a pledge and for an accounting of all proceeds realized by defendant upon these assets. Defendant Pallange was interpleaded. On October 25, 1935, the First Wisconsin National Bank of Milwaukee, as plaintiff, commenced an action against the Banking Commission of the state of Wisconsin, Peter A. Cleary, Herbert F. Ibach, and S. N. Schafer, as members of the State Banking Commission of the state of Wisconsin, Hugo H. Hering, special deputy commissioner in charge of the liquidation of the Liberty State Bank, and Alfred Newlander, special deputy commissioner in charge of liquidation of banks, defendants, under sec. 220.08(5), Stats., to obtain a review of an order by the Commission of July 19, 1935, rejecting plaintiff's claim against the Liberty State Bank which had theretofore been filed with the Commission in the amount of $556.300. John G. Pallange was an interpleaded defendant in this action. In a third proceeding, John G. Pallange, as a depositor and creditor of the Liberty State Bank, filed objections in the liquidation proceedings of the Liberty State Bank under sec. 220.08(8), Stats., to the claim of the First Wisconsin National Bank involved in the other two actions. These proceedings all presented the same questions for determination and were tried together. While there are separate appeals from the judgment disposing of these matters, a single case has been printed, and the matters were argued together upon appeal. The cases were tried to the court without a jury, which duly made and entered its findings of fact and conclusions of law. On July 18, 1938, the court entered judgment dismissing the complaint of the Commission and the cross-complaint of Pallange in the first action, granted judgment to the plaintiff and against the Commission and Pallange in the second action, and entered judgment in the proceedings founded on Pallange's objections to the claim of the First Wisconsin National Bank of Milwaukee overruling the objections. The Banking Commission and John G. Pallange appeal. The material facts will be stated in the opinion.

George A. Affeldt, of Milwaukee, for plaintiff and appellant.

Miller, Mack & Fairchild, Corrigan & Backus, and Paul R. Newcomb, all of Milwaukee, and Nichols, Morrill, Wood, Marx & Ginter and Edward M. Brown, all of Cincinnati, Ohio, for respondents.

William E. Burke, of Milwaukee, for John G. Pallange.

WICKHEM, Justice.

The facts in this action are many and extremely complicated, and it is a matter of some difficulty to present them within the compass of a useful judicial opinion and at the same time to preserve a desirable degree of precision and accuracy. The trial of the case required seventy-three actual trial days, and involved examination of about eighty witnesses and the introduction of over one thousand exhibits. There are over ten thousand pages of testimony. Before setting forth the material facts, it may be useful to state briefly the principal issues upon this appeal, so that the materiality of the facts as related will appear as they are read. The issues may thereafter be more precisely stated and considered together with such other issues as arise upon the record. The principal issues are: (1) Whether the great weight and clear preponderance of the evidence requires a conclusion that the First Wisconsin National Bank of Milwaukee, hereafter called National, in making certain loans to the Liberty State bank, hereafter called Liberty, participated with the officers of Liberty in a scheme to manipulate the assets of the latter and to publish false statements of condition based upon the record of these transactions with the purpose and effect of deceiving the Commissioner of Banking, depositors and creditors or Liberty. (2) If this question be answered in the negative, whether the great weight and clear preponderance of the evidence requires the conclusion that officers of National knew of the unlawful purpose of the officers of Liberty in making the loans. The findings of the trial court constituted negative answers to both questions. (3) Assuming either (1) or (2) to be established, what legal consequences are to be visited upon National? Since the issues upon this appeal are very much narrower than the issues at the commencement of and during the trial, it is necessary to set forth here more facts than have a precise bearing upon the issues to be disposed of upon this appeal.

Liberty was a state bank, organized in 1921, and closed by resolution of its board of directors on July 18, 1932. On the date of its closing it was indebted to National in the sum of $583,300 for money loaned to it and used in the normal and usual course of its banking business. This indebtedness was evidenced by promissory notes in the sums, respectively, of $402,000, $50,000 $39,300, $5,000, $65,000, and $22,000. As collateral for this indebtedness National had in its possession assets of Liberty of the face value of $1,136,753.55. After Liberty closed, it books, records, and assets were taken over by the Commissioner of Banking, and the bank was liquidated by his deputies. During the period intervening between the taking of possession by the Commissioner of Banking and the institution of action by the Banking Commission in August, 1935, the status of National's claim as a validly secured claim was recognized by the Commission and by a creditors' committee which was organized subsequent to the closing of the bank. During this period both the Commissioner, the Commission (which was created by Ch. 374, Laws of 1933, to succeed the Commissioner) and the creditors' committee from time to time joined in petitions to the circuit court representing that National's claim was valid, and requesting authorization for application of collateral to its payment. Fourteen petitions were so filed and in each instance an order was made granting the petition. As a consequence, National liquidated such portion of the collateral as was necessary completely to pay the indebtedness of Liberty, and returned to Liberty surplus collateral of an aggregate face value of $547,777.65. In 1935, the Commission came to the conclusion that its concession of the validity of National's claim had been improvident and commenced one of the three actions here involved. Since the pleadings of the Commission adequately set forth its position, a summary of its amended complaint will satisfactorily disclose the issues proposed at the outset of this litigation.

The complaint alleges that one I. J. Rosenberg, ever since the organization of Liberty, had been its president, a member of its board, and in the active charge and management of its business; that one Ray Tiegs was it cashier, and in the transactions involved acted under the domination of Rosenberg; that Rosenberg had no experience in banking matters and advised with the officers of National in regard to the affairs and business of Liberty; that Liberty cleared through National, and at various times borrowed money from it; that the relations between the two banks were close and confidential, and that National at all times had complete and intimate knowledge of the condition of Liberty; that at the times involved one Kasten was president and George T. Campbell vice-president of National, and as such officers had authority to and did make loans to numerous banks and bankers in the state of Wisconsin which loans were from time to time approved by the financial and executive committees and board of directors; that all the loans made to Rosenberg and to Liberty were made by officers of National with full authority and were approved by the financial and executive committees and the board of directors; that commencing in 1929 banks and trust companies in Wisconsin and in the United States generally were severely affected by the depression and compelled to maintain their liquidity in order to satisfy demands of depositors, and the value of stocks, bonds and other securities and property had depreciated and their conversion into cash had become increasingly difficult; by reason of this, banks were required to collect loans, and resort to means to secure cash with which to operate; that to assist numerous banks and trust companies within the state, National, during the period beginning 1930 and ending July 1, 1932, loaned sums in excess of $20,000,000 to these institutions; that in June, 1931, Liberty was in such condition that an orderly liquidation for the protection of depositors and creditors might become necessary, which condition was known to the officers of National; that at or about this time Rosenberg consulted with officers of National in regard to the then condition of Liberty and set forth and disclosed fully its condition; that Rosenberg then contemplated the voluntary closing and liquidation of Liberty and the conversion of its assets into cash for payment of depositors and creditors, and that he communicated this intention to National; that such closing and liquidation to National's knowledge would tend to increase the alarm and uneasiness of depositors in banks including National and those with which it was affiliated; that to prevent these consequences National offered to loan Liberty money from time to time as required, secured by the pledge to National of assets of Liberty;...