Koberg v. Jones

• Decision Date: 08 March 1968
• Docket Number: No. 40703,40703
• Citation: 157 N.W.2d 47,279 Minn. 406
• Parties: Raymond J. H. KOBERG and Irene H. Koberg, individually, and as assignee of Otto Bergemann, Respondents, v. Ben J. JONES, Admr. C.T.A. of the Estate of H. E. Glaeser, Appellant.
• Court: Minnesota Supreme Court

Page 47

157 N.W.2d 47

279 Minn. 406

Raymond J. H. KOBERG and Irene H. Koberg, individually, and as assignee of Otto Bergemann, Respondents, v. Ben J. JONES, Admr. C.T.A. of the Estate of H. E. Glaeser Appellant.

No. 40703.

Supreme Court of Minnesota.

March 8, 1968.

Syllabus by the Court

1. A person indebted to an insolvent estate may not purchase a claim against 2. The order in which claims shall be paid in case the estate of the decedent is insolvent is prescribed by statute (Minn.St. 525.44). Upon the death of a debtor the rights of his creditors become fixed and the laws of distribution are applicable. Where, as in this case, the estate is insolvent, and the creditors will receive only a percentage of their respective claims, the claim of one of the creditors cannot be given a preference over other claims by means of an assignment to a debtor of the estate for the purpose of using such claim as a setoff.

such estate after the death of the intestate and make it available as a setoff in order to escape payment of his own debt.

3. Under the facts recited in the opinion, the doctrine of a constructive trust may not be invoked where there is a complete absence of the elements of mutuality and unjust enrichment.

Reversed and judgment ordered for defendant.

Leslie H. Morse, Blethen, Ogle, Gage & Krause, Mankato, for appellant.

McLean, Peterson, Sullivan & Etzell, Mankato, for respondents.

OPINION

MURPHY, Justice.

This is an appeal from an order of the district court denying a motion for a new trial. The issue presented is whether a fiduciary relationship between the parties entitles respondents to set off against their indebtedness to an insolvent decedent's estate the amount of decedent's indebtedness to a third party which was assigned to respondents after death.

Appellant, Ben J. Jones, is the representative of the estate of H. E. Glaeser who, for many years prior to his death on May 29, 1962, was president and principal managing officer of the First National Bank of Good Thunder, Minnesota. Respondents, Raymond J. H. Koberg and Irene H. Koberg, his wife, owned and operated a farm near Good Thunder. For many years the Kobergs did their banking at the First National Bank and sought Glaeser's business advice. During much of the same time one Otto Bergemann, a brother of Mrs. Koberg, also did his banking with the Good Thunder Bank and dealt with Glaeser both individually and in his capacity as an officer of the bank. It appears that Bergemann had confidence in the judgment of Glaeser since the record indicates that at one time he gave him a power of attorney.

For the same period of time, in addition to his work as president of the bank, Glaeser carried on a private lending business of his own, personally borrowing money from individuals and lending it to persons who normally would be poor risks for the bank. He cleared most of these transactions through a so-called 'management account' which he maintained in the bank or, as in the Bergemann case, through his own personal account, keeping a personal record of the transactions separate and apart from the bank records. Glaeser's method of operation was described by a knowledgeable witness as follows:

'Now, in this particular instance, Mr. Glaeser borrowed money from (about 10) creditors who have claims in here and put it into this deposit account known as the management account which was a checking account.

'At one time the First National Bank had a $6,000 limit and during this time any one individual's line could only go to $6,000.

'Now, there were various borrowers that crowded that and Mr. Glaeser, in my opinion, started a separate little bank, so to speak, in this management account. He supplied the money for that by borrowing it from other people and paying them four, five, or six per cent interest, whichever he could get for it and it went into this management account. When a loan or a borrower became heavy, he would take out of that account--he would write a check on that account and buy the note from the bank and carry it as an asset of this checking account.'

While this procedure does not appear to be an approved practice, it is not seriously suggested that it has affected the legality of the undertakings with which we are here concerned. The bank records show that, on August 21, 1953, Bergemann withdrew $6,000 from his savings account in the bank which, apparently, was loaned to Glaeser. A note from Glaeser to Bergemann in the amount of $6,000, dated August 21, 1957, appears to be a renewal of that obligation. Bergemann loaned this money to Glaeser in order to get a higher interest rate than he could secure on his savings account in the bank.

Among the persons to whom Glaeser advanced money as part of his private operations were the Kobergs. It appears that the Kobergs' credit needs were in excess of the legal lending limit of the bank and that they had trouble meeting their obligations. On February 26, 1960, the Kobergs executed a promissory note to Glaeser in the amount of $5,400 secured by a second mortgage on their farm. While it was Glaeser's custom to use bank forms in these personal dealings, it is conceded that Koberg knew that he was dealing with Glaeser personally and not with the bank.

The following is from his testimony:

'Q. Did you know, Mr. Koberg, that when this note was assigned to Glaeser by the First National Bank that your line of credit with the First National Bank was in excess of their legal limit and that the bank examiners would object to that line of credit if it wasn't taken out of the bank by Mr. Glaeser, did you know that?

'A. Yes, I did.

'Q. Mr. Glaeser told you that, didn't he?

'A. Yes, he did.'

On redirect examination, there is the following testimony:

'Q. * * * In your dealings with Mr. Glaeser at that time (when the note and mortgage were executed in 1960), was it your understanding that you were dealing with Mr. Glaeser personally or the bank?

'A. It was personally understood that I was dealing with Mr. Glaeser, that's right.'

At another point, he testified:

'It was understood that way that Mr. Glaeser was giving me a personal note. I didn't understand that it was going through the bank.'

He again said:

'Yes, as I stated to Mr. Morse that my bank account was such that it was in danger and so Mr. Glaeser--on the bank examiners--so Mr. Glaeser gave me a personal note.'

The record is clear that the Koberg note and mortgage were not carried as an asset on the books of the bank nor is it suggested that the bank makes a claim to it.

Following Glaeser's death in May 1962, Bergemann filed a formal claim against the estate based upon Glaeser's indebtedness to him, as represented by the $6,000 note. It appears that the estate is insolvent and claims have not yet been paid. About a year after Bergemann filed his claim, on September 6, 1963, he purported to assign the note to the Kobergs. Thereafter, the Kobergs commenced this action against the representative of the estate, claiming the note from Glaeser to Bergemann as a setoff against their indebtedness to Glaeser on the note given by them.

There was considerable testimony as to the nature of the relationship between the bank, Glaeser, Bergemann, and the Kobergs and about the details of the financial dealings between them. As bearing upon their relationship, the record would indicate that Bergemann is a half brother of Mrs. Koberg, a 71-year-old man of limited education who has worked all his life as a farmhand. For 7 or 8 years preceding the trial, he had lived on the Koberg farm as a member of their family. Both Koberg and Bergemann had done business at the Good Thunder Bank for many years. It also appears from the record that by a long series of notes and renewals extending back to 1953 or earlier the bank had held notes evidencing Koberg's indebtedness and that when Koberg's credit deteriorated Glaeser provided financial assistance to him through the use of the so-called 'management account.'

After Glaeser's death in 1962, the Kobergs were pressed by the estate to pay off the 1960 note. It was then that the Kobergs and Bergemann determined that they would attempt to salvage from the insolvent estate the $6,000 obligation of Glaeser to Bergemann by having Bergemann assign it to them so that they could set if off against their debt to the estate. The Kobergs accordingly brought this action to restrain the representative of the estate from foreclosing the second mortgage and for an order requiring that the note assigned to them by Bergemann be set off against the Kobergs' indebtedness to Glaeser's estate. The trial court made findings and an order granting the setoff in favor of the Kobergs against the Glaeser estate and holding that the estate was indebted to the Kobergs in the sum of $471.28, the difference between the Bergemann note and accrued interest, totaling $6,843.28, and the amount of the Koberg note and accrued interest, totaling $6,372.

The basis for the trial court's determination was that Glaeser breached a fiduciary relationship existing between the Kobergs and himself and one existing between Bergemann and Glaeser. We gather from the trial court's findings that the parties were misled and deceived by Glaeser's conduct. The findings stress that Glaeser borrowed from Bergemann at 4 percent interest and loaned to the Kobergs at 7 percent, and that it was Glaeser's plan to repay the $6,000 note with proceeds from the collection of the Koberg note and mortgage. The court found:

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