Commercial Discount Corp. v. Milwaukee Western Bank, 192

• Decision Date: 21 January 1974
• Docket Number: No. 192,192
• Citation: 214 N.W.2d 33,61 Wis.2d 671
• Parties: , 13 UCC Rep.Serv. 1202 COMMERCIAL DISCOUNT CORP., a corporation, Respondent, v. MILWAUKEE WESTERN BANK, a banking corporation, Appellant.
• Court: Wisconsin Supreme Court

Page 33

214 N.W.2d 33

61 Wis.2d 671, 13 UCC Rep.Serv. 1202

COMMERCIAL DISCOUNT CORP., a corporation, Respondent, v. MILWAUKEE WESTERN BANK, a banking corporation, Appellant.

No. 192.

Supreme Court of Wisconsin.

Jan. 21, 1974.

Edward S. Grodin, Milwaukee, for appellant.

Allan Polacheck and E. H. Snyder, Milwaukee, for respondent.

WILKIE, Justice.

We have often stated that summary judgment is a drastic remedy and is not a substitute for demurrer, judgment on the pleadings, or a motion to make a pleading more definite and certain. ¹ Of course, summary judgment should not be granted where the material facts are in dispute or permit inconsistent inferences as to necessary ultimate facts. ² We have even said that a trial court, in the exercise of its discretion, need not in all cases decide questions of law upon a motion for summary judgment. ³

The summary judgment statute vests discretion in the trial court as to whether the case should be tried. It follows that an order denying a motion for summary judgment will not be reversed unless it appears that the trial court has abused its legal discretion or has not exercised it. ⁴ The trial court will not be said to have abused its discretion in denying a motion for summary judgment 'unless it either incorrectly decides a legal issue or it declines to decide a legal issue which is capable of resolution in a factual vacuum.' ⁵

In this case the defendant made a demurrer which was denied, and from which denial the defendant has not appealed. While the motion for summary judgment is not a substitute for demurrer this court must 'initially examine the pleadings to determine the controlling issue or issues of law in order to determine whether the facts in dispute, if any, are material. . . . in such an examination the pleadings are to be given a reasonable and liberal construction. . . . Where there is no issue of fact that should be tried or where there is an issue of law that can be determined so as to conclude the case, summary judgment should be used.' ⁶ Thus, we said in Sullivan v. State: ⁷

'If, however, the real spirit and purpose of the summary judgment law are to be given effect, the search of the record should include the affidavits in support of the complaint, and, where these affidavits disclose no cause of action, the complaint should be dismissed even though, without the affidavits and solely upon the pleadings, a demurrer would have to be overruled as to all or a part of it. . . . It seems quite as important to us that the plaintiff's cause of action should be summarily dismissed when no cause of action is shown by the pleading and affidavits as it is that defendant's formally sufficient pleadings should be disregarded when the plaintiff has satisfied the terms of the statute and the defendant has failed to convince the court that there exists a genuine issue.'

Before we examine the record and apply the correct principles on summary judgment motions to this case, an initial problem should be considered. The order denying summary judgment does not state any reason for such denial. This same situation existed in Zimmer v. Daun. ⁸ In that case this court sustained the denial of summary judgment by the trial court because we assumed that the trial court considered it wanted to have the facts of the case determined by trial rather than deciding that a policy (of automobile liability insurance) extended coverage to two defendants. Here the situation is different. Although during oral argument respondent's counsel asserted that the reason for the denial of the motion for summary judgment (given orally by the trial court) was that there were unresolved issues of material fact, there is nothing in the record to show that the existence of a factual dispute was a specific reason given by the trial court for the denial of summary judgment. The reasons given by a trial court in a ruling from the bench are, of course, part of its decision.

The trial court could also have felt that the legal issues were not clearly decided in Wisconsin and that it wanted a full factual basis on which to make important policy decisions as to the liability claimed in this case. The most that can be assumed here is that the trial court decided that this case was not suitable for summary disposition, for whatever reason. The respondent's counsel prepared the order for the trial court to sign and the appellant's attorney did not ask that reasons be assigned after the order was issued. The trial court should not have signed an order which did not assign reasons for the action taken unless they were explained in a memorandum decision.

Under the circumstances the key summary judgment issues are (1) is there in reality a major fact dispute to be resolved by trial; (2) is it necessary to have a full factual basis developed on which to resolve legal issues which are involved in this dispute. Our consideration of these two summary judgment issues will follow our discussion of the principal legal issues in the case.

Before considering those legal issues we choose to consider another problem involved in this case as to summary judgment practice, namely, the length and form of affidavits in support of and in opposition to the motions for summary judgment. The affidavit of the plaintiff-respondent in this case consists in its entirety of over 200 pages of adverse examinations of officers of the defendant bank. Although it is proper to use adverse examinations as part of the factual proof required on motions for summary judgment, 'where such a deposition is so voluminous that counsel, in fairness, ought to specify the portions relied upon, the trial court may order that this be done.' ⁹ In Hyland Hall & Co. v. Madison Gas & Electric Co. ¹⁰ this court stated that the use of voluminous adverse examinations was an imposition on both the trial court and this court on appeal. The court suggested that it would be better practice for parties to specify which portions of adverse examinations they deem to be material and on which they rely, and that the trial court would have the discretion to order such specification on proper application. Although in the instant case the defendant-appellant's counsel properly utilized only certain excerpts from an adverse deposition in support of his motion, he did not move the trial court to have the plaintiff-respondent do likewise.

Hereafter in using adverse examinations to support or refute a motion for summary judgment, the party using such adverse examination shall specify which portions of the adverse examination he deems to be material and on which he relies. This practice shall be mandatory and failure to follow this practice shall constitute good cause for the trial court or this court to disregard the adverse examination in appraising that party's position on the motion.

With these preliminary observations we now proceed to consider the two legal issues raised on this appeal:

1. Does a bank's right to set-off under sec. 895.07, Stats., extend to funds of third persons deposited in the debtor's name in an account with the bank?

2. Can a bank be held liable to a secured creditor as an aider and abettor of a debtor who deposits the cash proceeds of collateral subject to the creditor's perfected security interest in an account with said bank and draws checks on the account to the order of other claimants in violation of the security agreement and the secured creditor's rights in the collateral and its proceeds?

Legality of the Bank's Set-off.

The Simplex Shoe Company opened two checking accounts with the defendant bank on August 16, 1965. On November 1st Simplex borrowed $240,000 from the defendant bank evidenced by a promissory note. This note became in default and mature prior to October 12, 1966, and demand was made of Simplex for full payment in a letter dated October 12, 1966. The bank thereafter charged the Simplex Shoe Company accounts against the outstanding debt and notified Simplex of such action by a letter dated November 4, 1966. The total amount remaining in the two accounts and which was set off by the bank ws $7,057.66. Because the set-off reduced the balances in both accounts to zero, the bank refused to honor a check drawn by Simplex and made payable to the plaintiff in the amount of $6,956.65. In June of 1965 the plaintiff had made a large loan to Simplex Shoe Company and had filed a security agreement with the proper filing authorities which covered, among other things, the 'accounts' of the Simplex Shoe Company and all 'proceeds' of the named collateral.

The plaintiff claims that the funds set off by the bank were subject to the prior perfected security interest of the plaintiff and properly belonged to the plaintiff and that the appropriation of the remaining funds of Simplex was wrongful and in violation of the plaintiff's right thereto. The plaintiff further alleges that the defendant bank knew or should have known of the plaintiff's interest in the funds on deposit.

The defendant claims it has a statutory right to set-off under sec. 895.07, Stats. ¹¹, and that the only prerequisite to the exercise of the right is a mature obligation.

The right of a bank to apply the funds of a third person deposited in the debtor's name on the debtor's obligation to the bank is discussed in 8 A.L.R.3d at page 235. The annotation states that it is the well-settled rule that if a bank actually knows that sums deposited in the account of one of its debtor's belong to a third person, it cannot apply such funds against the debtor's obligation to it. A bank is also denied the right of set-off where it has knowledge of circumstances sufficient to necessitate inquiry concerning the sums.

However, the courts are divided about the bank's right to set off funds belonging to a third person where the bank lacks knowledge of such claim or knowledge of facts requiring it to inquire about such sums. A considerable number of courts permit set-off in...