City of Rice Lake v. Citizens' State Bank of Rice Lake

• Decision Date: 10 March 1931
• Citation: 204 Wis. 228,235 N.W. 398
• Parties: CITY OF RICE LAKE v. CITIZENS' STATE BANK OF RICE LAKE ET AL.
• Court: Wisconsin Supreme Court

204 Wis. 228

235 N.W. 398

CITY OF RICE LAKE

v.CITIZENS' STATE BANK OF RICE LAKE ET AL.

Supreme Court of Wisconsin.

March 10, 1931.

Appeal from a judgment of the Circuit Court for Barron County; W. R. Foley, Circuit Judge.

Action by the City of Rice Lake against the Citizens' State Bank of Rice Lake and others, in which C. D. Nelson and other individual defendants filed cross-complaints. From the judgment on the cross-complaints, the Citizens' State Bank of Rice Lake and others appeal.--[By Editorial Staff.]

Affirmed.

The action was commenced on April 25, 1930, by the city of Rice Lake against the Citizens' State Bank of Rice Lake, as principal, and the defendants, C. D. Nelson, Max Finsterwaider, J. H. Johnson, Jacob Svacina, John Mallo, Conrad Gerland, and Jim Hansen, as sureties upon a depository bond. The complaint alleges the closing of the bank and its taking in charge by the commissioner of banking; alleges an indebtedness from the defendant bank to the city by reason of deposits made in the defendant bank by the city. The defendant Hansen, by way of cross-complaint, demands judgment against the defendant bank, the defendant commissioner of banking, and the defendant deputy commissioner of banking, for the amount of any payment made by him to the plaintiff by reason of his liability on the bond. The defendant Nelson alleges that at and prior to the commencement of the action he was indebted to the Citizens' Bank on notes in the sum of $1,600, and prays that judgment be entered directing that an offset be allowed on the notes for any amount he may pay plaintiff on the bond. The other defendant sureties filed cross-complaints similar to that of the defendant Nelson, except that the amounts of their notes vary from $1,000 to $6,850.

The defendants Citizens' State Bank, C. F. Schwenker, commissioner of banking, and John R. Hayes, special deputy commissioner of banking, filed an answer to the complaint expressly admitting all the allegations thereof, and filed identical answers to the various cross-complaints, in none of which any issue of fact is raised. There is no appeal from the judgment in favor of the plaintiff. The appeal is by the defendant bank, the defendant commissioner of banking, and the defendant special deputy commissioner of banking, from the portion of the judgment allowing offsets to the defendant sureties and permitting the defendant Hansen to be subrogated to the rights of the plaintiff.

Hile & Dahl, of Superior, and Glenn R. Douglas, of Spooner, for appellants.

William A. Cameron, of Rice Lake, for respondent City of Rice Lake.

Charles A. Taylor, of Barron, for other respondents.

WICKHEM, J.

[1] In the state of the record, no issues of fact having been raised by the answer of the defendant bank and the defendant commissioner of banking, we are presented solely with a question of law as to the legal sufficiency of the cross complaints. The principal contention of the appellant is that the debtor of the insolvent bank cannot set off against this debt his liability as a surety upon a bond given by the bank to secure the repayment of deposits. The depository bond in this action was conditioned to be void “if the said bank shall truly and faithfully account for and pay over on demand any and all moneys and funds belonging to the said city and now in the possession of the said bank. * * * and all such moneys and funds which shall hereafter come into the possession of the said bank, however deposited.” The bond further provided that “in case any surety shall pay any amount hereunder to the said city he or she shall be entitled to offset the amount of such payment against any indebtedness then owing by such surety to the said bank, whether such indebtedness be due or to become due, and whether it be as maker, surety, endorser, or otherwise.”

This court has held that deposits owing from an insolvent bank at the time of the commencement of its liquidation may be set off by the depositor against his obligations to the bank. Jones v. Piening, 85 Wis. 264, 55 N. W. 413;Herold v. Pfister, 92 Wis. 417, 66 N. W. 355;Citizens' Savings & T. Co. v. Rogers, 162 Wis. 216, 155 N. W. 155.

Hence, the first question in this case would seem to be whether a surety who had not paid his principal's obligations at the time of the liquidation proceedings or insolvency can be treated as the creditor of the bank at or prior to such proceedings.

If a surety, at or prior to liquidation proceedings, and without payment of the principal's obligation, had a right to proceed to compel exoneration by his principal, or if at such time and under such circumstances he was to be treated, by reason of his right of indemnity, as a creditor of the principal debtor, he clearly would be entitled to the offset. Whether such a surety becomes a creditor prior to his payment of the obligation is a question upon which there is conflict of authority. It has been held that he is not such a creditor; that the only process by which he could be treated as a creditor is the fiction that upon payment of the principal obligation the indebtedness is considered to relate back to the time when the suretyship obligation was entered into, and that, in case of the insolvency of the principal intervening between the time of the suretyship contract and the payment by the surety, the rights of the creditors in the liquidation proceedings to a ratable distribution of the assets is superior to any rights that the surety has to be considered a creditor prior to the insolvency. See United States Fidelity & G. Co. v. Maxwell, 152 Ark. 64, 237 S. W. 708;Storing v. Stutsman, 54 N. D. 701, 210 N. W. 653;Veigel v. Converse, 168 Minn. 408, 210 N. W. 162. Other authorities hold to the contrary. Chenault v. Bush, 84 Ky. 528, 2 S. W. 160;Cosgrove v. McKasy, 65 Minn. 426, 68 N. W. 76;Morrow's Assignees v. Bright, 20 Mo. 298.

In Momsen v. Noyes, 105 Wis. 565, 81 N. W. 860, 861, this court appears to have adopted the doctrine of relation in such a situation as is here presented. In that case the assignee under a voluntary assignment of one FrederickT. Day brought action to recover...