First Wis. Nat. Bank of Milwaukee v. Kingston

• Decision Date: 09 January 1934
• Parties: FIRST WISCONSIN NAT. BANK OF MILWAUKEE v. KINGSTON, STATE COMMISSIONER OF BANKING, ET AL.
• Court: Wisconsin Supreme Court

213 Wis. 681

252 N.W. 153

FIRST WISCONSIN NAT. BANK OF MILWAUKEE

v.KINGSTON, STATE COMMISSIONER OF BANKING, ET AL.

Supreme Court of Wisconsin.

Jan. 9, 1934.

Appeal from a judgment of the Circuit Court for Trempealeau County; R. S. Cowie, Circuit Judge.

Action by the First Wisconsin National Bank of Milwaukee against A. C. Kingston, Commissioner of Banking of the State of Wisconsin, and the First State Bank of Strum, a bank in liquidation. From a judgment allowing plaintiff's claim against the bank in an amount less than that claimed, plaintiff appeals.--[By Editorial Staff.]

Reversed and remanded with directions.

The action was commenced on April 26, 1933, pursuant to section 220.08 (5), Wis. Stats. 1931, upon the rejection by the commissioner of banking of plaintiff's claim against the First State Bank of Strum, a bank in liquidation. The claim of plaintiff was in the amount of $63,000, which was secured by certain collateral. During the course of the liquidation the collateral was sold and applied to plaintiff's claim, leaving a balance of $17,685.52. Plaintiff's claim was disallowed by the commissioner except as to this balance. The case was tried to the court, which made findings of fact and conclusions of law, and ordered judgment allowing plaintiff's claim in the sum of $17,956.68. Plaintiff appeals.Miller, Mack & Fairchild, of Milwaukee, and Barlow & Fugina, of Arcadia (Paul R. Newcomb, of Milwaukee, of counsel), for appellant.

Alden Losby and Ramsdell, King & Linderman, all of Eau Claire, for respondents.

WICKHEM, Justice.

There is no issue of fact involved in this case, and the sole question presented is whether plaintiff, a secured creditor, should be permitted to receive dividends upon the full amount of its claim, or, as was held by the commissioner of banking and the trial court, upon the balance due after deducting the amounts realized by the sale of the collateral security.

Upon this question there is a conflict of authority. The English rule applicable in this situation, frequently known as the chancery rule, has been adopted by a majority of courts in this country. Under this rule, which plaintiff contends for, the creditor is permitted to prove the full amount of his claim and to receive dividends upon the basis of this amount regardless of sums realized by sales of collateral after the transfer of the assets to the liquidator, provided the dividends thus received, plus the amount realized upon the collateral, does not exceed the full amount of his claim. Under the so-called bankruptcy rule the secured creditor must either credit the value or the proceeds of the collateral upon the obligation and prove for the balance, or surrender his security and prove for the entire amount of the claim. Variations of these rules are noted, but fundamentally the bankruptcy and the chancery rules may be said to represent the difference in opinion upon the subject. This court is definitely committed to the chancery rule. In Harrigan v. Gilchrist, 121 Wis. 127, 99 N. W. 909, the court very clearly lays down the rule applicable in this state to such a situation as is here presented. Speaking through Mr. Justice Marshall, it was there said:

“Even that would not necessarily condemn as fraudulent, or wrongful, expenditure from the trust fund in the interest of securing as great a reduction of the secured debt by the collateral as possible; because the holder thereof is not bound to have his collateral valued and applied upon his claim, nor is he bound to exhaust his collateral and confine his claim against the trust fund to the balance. True, there is some conflict in the authorities on this, but the better rule, it seems, and the only one that can be enforced without trespassing upon the constitutional right of property, is that every creditor of an insolvent, whose property is in the hands of a court receiver for the benefit of creditors, has an equal...