Pallange v. Liberty State Bank

• Citation: 256 N.W. 708,216 Wis. 418
• Parties: PALLANGE v. LIBERTY STATE BANK ET AL.
• Decision Date: 09 October 1934
• Court: United States State Supreme Court of Wisconsin

216 Wis. 418

256 N.W. 708

PALLANGE

v.LIBERTY STATE BANK ET AL.^a1

Supreme Court of Wisconsin.

Oct. 9, 1934.

Appeal from an order of the Circuit Court for Milwaukee County; W. J. Schinz, Circuit Judge. Reversed.

Action by John G. Pallange, begun December 6, 1933, on his own behalf and on behalf of all others similarly situated as creditors of the Liberty State Bank to recover damages on an alleged cause of action against the First Wisconsin National Bank, individuals who were directors of the Liberty State Bank, and the commissioners of banking. The complaint, so far as material to the decision, alleges the appointment of the banking commissioners, their qualification; that on the 18th day of July, 1932, the Liberty State Bank placed its assets and property in the possession of such commissioners for the purpose of liquidation; that the plaintiff was a depositor in and is now a creditor of said bank; had a provable claim which has been allowed, and is still owner of said claim. The complaint further alleges the existence of a cause of action in favor of the bank against the defendants named and demands judgment against them with the exception of the commissioners of banking. In support of the plaintiff's right to bring the action, it is alleged as follows:

“The reason this action is brought by the plaintiff as a depositor and/or creditor in his own name is:

(a) The questions involved in this action are of common or general interest to approximately seven thousand depositors and/or creditors of said Liberty State Bank similarly situated to the plaintiff;

(b) That said Liberty Bank, a corporation, is in process of liquidation as above alleged, and that a demand upon the officers of said Liberty Bank to bring this action would be met with refusal;

(c) Prior to the commencement of this action plaintiff made due demand upon said Commissioners of Banking of the state of Wisconsin to commence this action, but said commissioners of banking refused to do so.”

The defendant First Wisconsin National Bank interposed its demurrer on the ground that it appears upon the face of the complaint that it does not state facts sufficient to constitute a cause of action. The demurrer was overruled and this appeal is from such order.

Miller, Mack & Fairchild and Paul R. Newcomb, all of Milwaukee, for appellant.

William E. Burke, of Milwaukee, for respondent.

FAIRCHILD, Justice.

This appeal presents a question as to the extent of the powers of the commissioners of banking over causes of action belonging to a bank in the process of liquidation. Some unusual features are present for the reason that the commissioners, under the banking act, are statutory receivers and not receivers appointed by the court. Subdivision (3) of section 220.08, Stats., reads:

“Upon taking possession of the property and business of such bank or banking corporation, the commissioner is authorized to collect moneys due to such bank or banking corporation, and do such other acts as are necessary to conserve its assets and business, and shall proceed to liquidate the affairs thereof, as hereinafter provided. The commissioner shall collect all debts due and claims belonging to it, and upon the order of the circuit court may sell or compound all bad or doubtful debts, and on like order may sell all the real and personal property of such bank or banking corporation on such terms as the court shall direct; and may, if necessary to pay the debts of such corporation, enforce individual liability of the stockholders.”

On the part of the appellant, it is contended that this section vests in the commissioners the title and possession of all property of the bank and vests in them all causes of action in its favor. It is urged that the commissioners have complete discretion as to bringing actions upon these causes of action and that neither the stockholder, creditor, nor the court may interfere with this discretion unless the court may direct the commissioners to sue upon the claim. The result of this would be that the court could not order or authorize a creditor to maintain any action upon a cause of action belonging to the bank in the face of a refusal by the commissioners to take appropriate action. On the other hand, respondent claims that upon a refusal to begin an action on a given claim, a creditor may institute one. We are of the opinion that neither contention can be wholly sustained.

The complaint, on its face, fails to show the presentation by respondent of his objection to the conduct of the commissioners to the circuit court for Milwaukee county, and fails to show that the action is begun pursuant to an order authorizing him to bring this action. Is a failure to follow that course and to plead the taking of such steps fatal to the sufficiency of the complaint? We hold that the provisions of the act creating the banking department and fixing the duties of the commissioners of banking require us to answer the question just stated in the affirmative. When the system as a whole is fully reviewed, this ruling does not result in a mere technical point, but goes to a substantial matter necessary to maintain the integrity of the discretion lodged in the commissioners by statute and results at the same time in a protection of rights of creditors which may be jeopardized by the negligence or fraud of the commissioners.

By virtue of section 220.08, Stats., the commissioners are intrusted, among other things, with the affairs of banks in liquidation. They are not receivers as that word is generally understood. Although they are properly described as statutory receivers, they are executive or administrative officers carrying out a legislative policy. Authority is conferred upon them by statute. It does not come as a result of any proceeding in court, although the law provides that in many respects their acts in winding up the affairs of an insolvent bank are subject to the supervision of the circuit court for the county in which the banking institution is located. The result sought under the method of appointing a receiver by the court is identical in the main with the ultimate accomplishment expected in the process of liquidation of a bank under the banking act. The commissioners stand in the place and stead of the bank with the power to take possession of its property and business, to collect moneys due, to perform such acts as are necessary to conserve assets and business, and to proceed with the liquidation. Upon the order of the circuit court, the commissioners may sell or compound all bad or doubtful debts and may sell real or personal property on such terms as the court shall direct. They are required to hold possession of the assets of the corporation and to proceed with the conduct of affairs until liquidation or reorganization has occurred. Authorized to act in relation to the affairs of the bank as they deem necessary to conserve the assets and business, they are also charged with the duty of husbanding the resources, including the collecting of debts and claims belonging to it and to compound doubtful debts upon such terms as the court shall direct. The right of a creditor to maintain an action independently of the...