Mahan v. Herreid

• Decision Date: 07 March 1933
• Citation: 211 Wis. 79,247 N.W. 468
• Parties: MAHAN v. HERREID, ACTING COMMISSIONER OF BANKING ET AL.
• Court: Wisconsin Supreme Court

211 Wis. 79

247 N.W. 468

MAHAN

v.HERREID, ACTING COMMISSIONER OF BANKING ET AL.

Supreme Court of Wisconsin.

March 7, 1933.

Appeal from a judgment of the Circuit Court for Dane County; August C. Hoppmann, Circuit Judge.

Action by Flora Belle Mahan against Thomas Herreid, as Acting Commissioner of Banking, and another. From a judgment dismissing the complaint, plaintiff appeals.--[By Editorial Staff.]

Affirmed.

This action was commenced November 23, 1932. The complaint demands (1) that the sum of $2,000 be paid to the plaintiff out of certain moneys or securities theretofore deposited by the Capital City Bank of Madison with the state treasurer pursuant to the provisions of section 223.02, and, in the alternative, (2) that her claim for $2,000 and interest be adjudged to be a preferred claim upon and against the assets of said bank which are in the possession of the commissioner of banking. The facts which gave rise to this controversy were stipulated and may be summarized as follows:

Prior to June 8, 1931, the Capital City Bank of Madison, hereafter called the bank, was a duly organized and existing state bank. On June 14, 1926, the bank was authorized by the commissioner of banking to act as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates of lunatics, and in any fiduciary capacity in which trust company banks are permittedto act. On or about June 14, 1926, the bank deposited with the state treasurer securities in the amount of $100,000 pursuant to the provisions of section 223.02. On November 10, 1931, the bank became delinquent and was taken over for liquidation by the Commissioner of Banking. On June 8, 1931, the plaintiff turned over to the bank the sum of $2,000, for which it issued to her the following instrument:

“United States of America State of Wisconsin.

+------------+
                ¦198¦$2,000  ¦
                +---+--------¦
                ¦   ¦Dollars ¦
                +------------+
                

The Capital City Bank Madison, Wisconsin.

Trust Agreement

The Capital City Bank, hereinafter called the Trustee, has this day received Two Thousand and no-100 ($2,000.00) Dollars from Flora Belle H. Mahan, 2401 Center Ave., Madison, Wisconsin, hereinafter called the Beneficiary, to be held and invested by the Trustee in Trust, for the uses and purposes, and upon the terms hereinafter set forth, to-wit:

1. The Trustee shall invest and reinvest the principal fund only in such securities as are legal for the investment of trust funds under the laws of the State of Wisconsin; and the Trustee shall have full power and authority to invest said funds, together with other and similar trust funds, on a participating basis, in such securities.

2. The Trustee shall have full power and authority to collect by foreclosure or otherwise, all principal and interest due and payable on said securities, and shall pay to the Beneficiary out of the income of such securities, at the office of the Trustee, five and one-half (5 1/2) per cent annually on the principal fund in semi-annual installments of Fifty-Five Dollars each until the termination of the trust, the Trustee to retain annually the income from said securities over and above five and one-half (5 1/2) per cent of the principal fund for its services in managing said fund as Trustee.

3. The Trustee shall have the right in the event of the payment of said security or securities, in whole or in part, to substitute in lieu of the amount of such payment, security or securities of the kind and quality herein authorized equal in value to the payments so made.

4. Either the Trustee or Beneficiary, their heirs, assigns, personal representatives or successors, may terminate this agreement at any time after one year from date, upon giving Six months notice in writing at the respective addresses herein contained (and if by mail, to be by registered transmission).

5. Upon the termination of this agreement the trustee shall deliver to the beneficiary, his heirs, assigns, or personal representatives, the securities and shall pay to said beneficiary, his heirs or assigns or personal representatives, any part of the principal fund then uninvested, together with unpaid and accrued interest thereon at the rate of five and one-half (5 1/2%) per cent annually to date of termination; provided that the trustee, at its option, may purchase and retain such securities and pay to the beneficiary, his heirs, assigns or personal representatives, the amount of the trust fund invested therein, together with unpaid interest thereon at the rate of five and one-half (5 1/2) per cent annually to date of termination.

In witness whereof the parties have hereunto set their hands and seals this 8th day of June, 1931.

The Capital City Bank

By Paul Kney, Asst. to President.

R. W. Karberg, Cashier.

________, Beneficiary

Address: ______”

The bank invested the plaintiff's $2,000 in a one-fifth interest in a certain mortgage for $10,000, dated March 8, 1928, at that time owned by the bank. The said mortgage was a first mortgage lien on certain lands and a second mortgage lien on other lands. The $10,000 note secured by the mortgage was also further secured by 102 shares of the capital stock of the Capital City Lumber Company, a Wisconsin corporation. The lands upon which the mortgage was a first lien were not worth to exceed $10,000. The second mortgage lien and the shares of stock were not such securities as are proper for investment of trust funds under section 231.32, nor were they such securities as were mentioned and called for in the trust agreement itself. All of the property pledged, viz. the mortgage and stock certificates, did not satisfy the laws of this state relating to the investment of trust funds nor the provisions of the trust agreement itself, in that it was not of the fair and reasonable value of $20,000 on June 8, 1931. The plaintiff relied on the representation of the bank that the trust agreement was fully secured as required by the laws of this state as to the amount and kind of such securities. All of the securities are not now and were not, on June 8, 1931, of the fair and reasonable value of $10,000, and the plaintiff cannot realize the face value of her trust agreement in case she relies on the securities.

The issues litigated were (1) whether the securities deposited by the bank with the state treasurer are properly available to protect the plaintiff's trust agreement, and (2) whether the plaintiff, under the stipulated facts, is entitled to a preferred claim upon and against the assets of the bank. The trial court found the facts as stipulated, and concluded that the agreement entered into by the plaintiff and the bank was a trust agreement as between the parties thereto; that, if the bank had authority to enter into the trust agreement, any funds paid to the bank for investment pursuant to such agreement were not secured by, and had no claim upon, the securities deposited with the state treasurer; that such securities were deposited for the purpose of securing and indemnifying trust funds held by the bank in its capacity as fiduciary trustee in cases where it was exempt from the giving of bonds; that the Legislature did not intend by section 223.02 to provide that the indemnity fund to be deposited with the state treasurer should be security for general trust agreements entered into by any bank which had complied with the provisions of that section, and finally that the plaintiff was not entitled to a preferred claim upon the assets of the bank. From a judgment dismissing the complaint entered on December 31, 1932, the plaintiff appealed.

Warren H. Harris, of Madison (Frank R. Bentley, of Madison, of counsel), for appellant.

Vroman Mason and T. N. Burke, both of Madison, for respondents.

NELSON, Justice.

[1] The principal question presented on this appeal is whether the securities deposited by the bank with the state treasurer are properly available to secure or protect the plaintiff's trust agreement. This question, which is before us for the first time, depends for its solution upon the construction of certain applicable statutes. We must ascertain the legislative intent and construe the statutes accordingly. This may be done by construing the language of the statutes themselves, or, in case of any doubt or ambiguity, by looking to the legislative history of the several statutes and to the reasons for their enactment. Polzin v. Wachtl (Wis.) 245 N. W. 182.

Prior to the enactment of chapter 555, Laws of 1921, state banks had no authority to act in a fiduciary capacity.

On December 23, 1913 (38 Stat. 251), the Congress of the United States enacted the Federal Reserve Act. Section 11 (k) of that act authorized and empowered the Federal Reserve Board “to grant by special permit to national banks applying therefor, when not in contravention of...