First Wis. Nat. Bank of Milwaukee v. Pierce

• Decision Date: 15 March 1938
• Citation: 278 N.W. 451,227 Wis. 581
• Parties: FIRST WISCONSIN NAT. BANK OF MILWAUKEE. v. PIERCE.
• Court: Wisconsin Supreme Court

227 Wis. 581

278 N.W. 451

FIRST WISCONSIN NAT. BANK OF MILWAUKEE.

v.PIERCE.

Supreme Court of Wisconsin.

March 15, 1938.

Appeal from orders of the Circuit Court for Dunn County; George Thompson, Judge.

Action on notes by the First Wisconsin National Bank of Milwaukee, a national banking association, against Frank Pierce, wherein the defendant filed a counterclaim. From orders denying the plaintiff's motion for a summary judgment and overruling of plaintiff's demurrers to the answer and counterclaim, the plaintiff appeals.-[By Editorial Staff.]

Orders overruling demurrers to answer and counterclaim reversed, and order denying motion for summary judgment reversed and cause remanded, with directions.

Action begun August 21, 1935, to recover upon two promissory notes, executed and delivered by the defendant-respondent to the plaintiff-appellant: One for $30,000, referred to in the first cause of action; the other for $60,000, referred to in the second cause of action. The defendant admits the execution and delivery of the notes, and alleges that they were “paid and satisfied” by reason of alleged improper handling on the part of the plaintiff of the collateral security pledged for the payment of said notes; defendant counterclaims for damages resulting from the alleged failure of the plaintiff to sell the collateral so pledged when the market therefor was high. The first counterclaim is based upon alleged negligence, and the second counterclaim is based upon alleged fraud.

Plaintiff moved for summary judgment as prayed for in the complaint; also moved for summary judgment dismissing the two counterclaims.

Plaintiff also demurred to the answer on the ground that it did not state a defense; and demurred to each counterclaim on the ground, first, that it did not state a cause of action, and, second, that the alleged cause of action was not pleadable as a counterclaim.

The court denied the motions for summary judgment; also overruled the plaintiff's demurrers to defendant's answer and to each counterclaim. The plaintiff appeals from the order denying its motion for summary judgment; also from the order overruling plaintiff's demurrers to the answer and to the counterclaims. The defendant has filed a motion for review of an order entered by the trial court striking out certain portions of the defendant's answer and counterclaims.

The plaintiff's first cause of action, so far as here material, alleges that on December 5, 1932, the defendant, for value received, executed and delivered to the plaintiff his promissory note, as follows:

“Due April 5

“December 5th, 1932. $30,000.00

“Interest to follow 504.17

“Four months after date, for value received, I promise to pay to the order of

“First Wisconsin National Bank of Milwaukee at its office, Thirty Thousand and no/100 Dollars with interest at the rate of 5 per cent per annum after date; having deposited with said Bank as collateral security for payment of this or any other direct or indirect liability or liabilities of _____ to said Bank, due or to become due, or that may hereafter be contracted or existing, however acquired by said Bank, the following property, to-wit: 15,800 shares Wisconsin Bankshares Corporation stock, the value of which is stated to be now $_____, with the right to call for additional security should the value in the judgment of the President, Vice-President or Cashier of said bank decline, and on failure to supply the amount demanded, this obligation shall be deemed to be due and payable on demand; with full power and authority to sell and assign and deliver the whole of said property, or any part thereof, or any substitute therefor, or any additions thereto, at any Brokers' Board or at Public or private sale, at the option of said Bank, or its assigns and with the right to be purchasers themselves at such Brokers Board, or public sale, on the non-performance of this promise, or the non-payment of any of the liabilities above mentioned, or at any time or times thereafter, without advertisement or notice. And after deducting all legal or other costs and expenses for collection, sale and delivery, to apply the residue of the proceeds of such sale or sales so to be made, to pay any, either or all of said liabilities, as said Bank, or its President or Cashier, shall deem proper, returning the overplus to the undersigned.

“Presentment, demand, notice of dishonor, and protest are hereby waived by each maker and endorser.

“Frank Pierce.”

The plaintiff's second cause of action alleges that: “On September 5, 1933, defendant executed and delivered to plaintiff his further promissory note, identical in form with the note set forth in the first cause of action excepting that it is dated September 5, 1933, is in the principal sum of $60,000, and is payable 60 days after date, and the collateral is stated to be 3,160 shares of Wisconsin Bankshares Corporation stock.”

There is an allegation that the plaintiff owns and holds both notes, no part of which has been paid, although due demand has been made. The prayer for judgment is for the principal sum of each note, plus interest, with costs.

The answer admits the execution and delivery of the two notes and admits that plaintiff is still the holder thereof, but denies that the plaintiff is the owner, further denies demand for payment, or that any sum is due and unpaid upon either note; also alleges that the notes were “‘paid in full prior to the commencement of this action, such payment having been made in the form and manner set forth in the first and second counterclaims, hereinafter set forth,’ which so far as relevant are incorporated into the answer by reference.”

The defendant's first counterclaim based upon alleged negligence is, in substance, as follows: That the defendant collateralized the notes described in the complaint by stock of the Wisconsin Bankshares Corporation; that the plaintiff bank was then, and now is, a unit of Wisconsin Bankshares Corporation, and their officers nearly identical; that the plaintiff has superior knowledge concerning the value of the collateral; that a fiduciary relationship existed between plaintiff and defendant; that defendant advised plaintiff that he desired to sell such collateral as soon as it was released for sale, which was on or about July 1, 1930, at which time the market was about $11 per share; that plaintiff carelessly and negligently failed to sell the Bankshares stock of the defendant, so pledged as collateral to the notes; that if a sale had been made in July, 1930, the plaintiff would have received $151,800 therefor, which would have more than paid and discharged said notes; that by reason of such negligence plaintiff is chargeable with having received $151,800 as of August 1, 1930, for defendant's use and benefit, and the amount necessary to pay the two notes set forth in the complaint should be offset in full as of August 1, 1930, and the balance thereof be paid to the defendant; and that defendant did not discover the facts essential to the establishment of this counterclaim until March 13, 1934.

The second counterclaim is based on fraudulent representations alleged to have been made by plaintiff respecting the value of Bankshares stock and the sale thereof, and upon alleged fraudulent concealments by the plaintiff from the defendant, and seeks recovery of damages for same, less such sum as may be necessary to pay the two notes described in the complaint, or which may be recovered by defendant upon the first counterclaim.

The specific acts of alleged negligence pleaded in the first counterclaim are, in substance, as follows:

“(a) By failing to use and act upon the superior knowledge which it then had to the effect that such stock was then and there selling for all that it was reasonably worth, and that the market would in all probability not go higher for some time, if at all.

“(b) By failing to sell such collateral at such market and in the manner that it sold the same kind of stock pledged as collateral security to it by other debtors to plaintiff, and which it in fact sold at such time and market for the purpose of paying such other indebtedness of the plaintiff.

“(c) By failing to sell such stock at such time and at such price when plaintiff well knew that a considerable portion of the volume of the market thereon at or about $11 per share was being maintained by its affiliate First Wisconsin Company by purchases of such stock in the open market in July, 1930, at not less than $10 per share, and that on July 28, 1930, Wisconsin Bankshares Corporation entered into an agreement with the First Wisconsin Company for the purpose of strengthening the position of its said affiliate, to purchase 66,216 shares of Wisconsin BanksharesCorporation stock at any time within five years at $10 per share.

“(d) By failing to sell said stock when in the exercise of ordinary care it should have been sold, which failure to sell was because plaintiff on account of its desire to maintain the market on Wisconsin Bankshares stock, which was then largely owned by its stockholders, directors and officers, was desirous of avoiding the sale of such quantity of stock as was owned by defendant, and acted adversely to the interests of the defendant, and acted for the benefit of itself and Wisconsin Bankshares Corporation.

“(e) By failing to sell such stock when it knew there would be an active market therefor at such price on the stock exchanges for only a limited time after the shares of Wisconsin Banshares Corporation were released for sale, and that thereafter the market therefor would be lower.

“(f) By failing to act upon and follow the request of defendant that such stock be sold at such time and market in order to pay his debts in full to plaintiff and others.

“(g) By failing to use due care and judgment in arriving at a decision as to when and whether to sell such collateral.

“(h) By failing to advise defendant of all facts and information in its...