Parker v. Brumder

• Court: Wisconsin Supreme Court
• Writing for the Court: DOERFLER
• Citation: Parker v. Brumder, 187 Wis. 75, 203 N.W. 941 (Wis. 1925)
• Decision Date: 12 May 1925
• Parties: PARKER, STATE BANKING COMMISSIONER, v. BRUMDER.

187 Wis. 75

203 N.W. 941

PARKER, STATE BANKING COMMISSIONER,

v.BRUMDER.

Supreme Court of Wisconsin.

May 12, 1925.

Appeal from Circuit Court, Washington County; C. M. Davison, Judge.

Action by Dwight T. Parker, as Commissioner of Banking of the State of Wisconsin, against George F. Brumder. Judgment for plaintiff, and defendant appeals. Affirmed.

Appeal from an order of the circuit court for Washington county sustaining a demurrer to one of the defenses contained in the defendant's answer.

The complaint in substance alleges that on the 14th day of December, 1922, the Jackson State Bank, a state banking corporation of this state, was insolvent, and that the commissioner of banking thereupon took possession of the bank and its assets for liquidation purposes; that from the stock book and the records of the bank at that time, it appeared that the defendant was the owner and holder of three shares of its capital stock; that such ownership of such stock by the defendant had, pursuant to the provisions of section 2024--45 of the Statutes, been certified by the bank to the commissioner of banking, and that pursuant to an assessment in accordance with the Statutes, the defendant became liable on such stock in the sum of $300, for the benefit of creditors.

Among other things, the answer as a separate defense alleges that the defendant, on the 30th day of March, 1922, was the owner and holder of three shares of the capital stock of said bank, and that on said last-name date he transferred such stock to one Rittel for value by indorsing the certificates in blank; that no effort was made by the defendant to obtain a transfer of the stock upon the books of the bank, but he assumed that the purchaser thereof would secure such transfer.

To the defense so interposed, the plaintiff demurred generally, which demurrer was sustained by the court, and from the order sustaining such demurrer, defendant has prosecuted this appeal.Arthur A. Mueller, of Milwaukee, for appellant.

Hoyt, Bender, McIntyre & Hoyt, of Milwaukee (Ralph M. Hoyt, of Milwaukee, of counsel), for respondent.

DOERFLER, J. (after stating the facts as above).

The action was brought under section 221.42 (formerly section 2024--44) of the Statutes, which among other things provides:

“The stockholders of every bank shall be individually liable * * * for the benefit of creditors of said bank to the amount of their stock at the par value thereof, in addition to the amount invested in said stock. Such liability shall continue for six months after any transfer of stock, as to the affairs of the bank at the time and prior to the date of the transfer. * * * Such liability shall accrue and become due and payable as to the stockholders of any bank forthwith, upon the commissioner of banking taking possession of the property and business of such bank under the provisions of the statutes, and may be enforced by him, in an action brought in his name, in the circuit court of the county in which such bank is located. * * *”

More than six months had elapsed after the alleged transfer and before the bank was declared insolvent. The transfer had not been recorded upon the books of the bank, and at the time when the commissioner took possession, the stock still stood upon its records in the name of the defendant. The defendant contends that the transfer as made constituted a completed transfer, and that he was therefore not liable for the statutory assessment to recover which this action was brought. Plaintiff takes the position that whatever effect such transfer might have as between the parties, it did not become effectual so as to relieve the defendant from further liability to the plaintiff.

Section 221.43 of the Statutes (formerly section 2024--45) is as follows:

“Shares of stock of an incorporated bank shall be deemed personal property, and shall be transferred on the books of the bank in such manner as the by-laws thereof may direct, and no transfer of stock shall be valid while the bank is under notice to make good the impairment of its capital, as provided in section 220.07, nor until such impairment shall have been made good. All transfers of stock shall be certified to the commissioner of banking immediately.”

[1] Plaintiff argues that this statute is mandatory, while the defendant takes the position that is is merely directory. A bank is a quasi public institution, and there are interested in it not merely the corporation and its stockholders, but also the public. Because of the great interest that the public has in a bank, the state, pursuant to the provisions of section 4, article 11 of the Constitution, and proper legislation enacted thereunder, has assumed the supervision and regulation of it. It has become the depository of a very large percentage of the funds, not only of the people, but of the state and its various political subdivisions. Failure of such an institution may result in ruin and disaster, not only to the stockholders, but to the entire community, and the disastrous effects of a failure may not only manifest themselves in the community where the bank exists, but may be imparted to adjoining communities, and may affect the welfare of the people of the entire state. Such a widespread influence arises from the business relations of banks with each other. Wisconsin has definitely learned its lesson from the baneful effects resulting from the panic of 1893, and it is due to the lesson then taught that most of our legislation upon the subject of banks has found its origin. In order to more effectually enforce a system of supervision and regulation, the Legislature has seen fit to prohibit the existence of private banks, and has confined the banking business to corporations expressly organized under the Banking Act. It has also created the office of commissioner of banking, who in the performance of his official duties is required to supervise the affairs of state banks generally.

In order that the general legislative scheme of regulation and supervision of banks might be made more effective, section 221.43 of the Statutes of 1923 (formerly section 2024--45) was enacted, and this statute in express language requires transfers of bank stock to be recorded on the books of the bank in such manner as the by-laws thereof may direct. It also provides for a certification by the bank of all transfers of stock, to the banking commissioner immediately. Subsection 6 of section 221.03, dealing with articles of incorporation, provides that:

“Within sixty days from the filing of the articles of incorporation, the corporators shall file with the commissioner of banking, in duplicate, a complete list of the stockholders of the proposed bank, showing the number of shares held by each, the postoffice address, and the approximate worth of each.”

Subdivision (b) of subsection 7 of section 221.03 provides for a declaration by the corporators, subscribed and sworn to by each of them, that all stockholders are possessed of a sufficient amount of property in this state, over lawful exemptions, to make the double liability imposed on stockholders of a bank by section 221.42, collectible.

So that it will appear that the Legislature has great concern to protect the public interest from the very inception of the corporation by requiring stockholders to be of sufficient financial ability to enable them to respond to the double liability of the stockholder when occasion might require. The double liability of stockholders is of no advantage or avail to the bank or to the commissioner of banking, if the stockholders are financially unable to respond to such liability.

When it shall appear from an examination of the affairs of any bank in this state that its capital has been impaired or that the bank is insolvent, the commissioner is empowered under the provisions of section 220.08, Statutes, to take possession of the property and business of such bank, and to liquidate its affairs. Such a drastic procedure can often times be averted by directing an assessment upon the stockholders, in order to make good the impairment; and this latter procedure is quite frequently resorted to. A bank may flourish and be blessed with a high degree of prosperity over a long period of time, but instances will arise, notwithstanding the exercise of a high degree of care on the part of the officers and directors, where one or more of its patrons indebted to it in large loans meets with disaster, so as to make such loans doubtful or uncollectible, and thereby impair the capital of the bank. The good will of the bank, which is valuable only to it as a going concern, is a valuable asset, and in order to preserve such good will and to further enable the bank to recoup its losses by a continuance of its business, the stockholders and the directors are frequently willing to pay an additional assessment, and thus avoid great losses which commonly follow the closing of a bank. Therefore the commissioner of banking is empowered, under the provisions of section 220.07, to direct and approve the levying of an assessment. These disasters often times overtake a bank when least expected, and in order to meet the situation, prompt action is not only desirable, but the only means by which a failure may be averted. The confidence of the public in a banking institution may be ever so strong, and the faith of the depositing public in its officers ever so great, yet often times a rumor, wholly or partially founded on fact, or one entirely unfounded, is sufficient to destroy such confidence and faith over night. For this reason, the banking commissioner and the officers and directors of the bank must at all times be in a position where they can take immediate and prompt action, and because of this sensitive nature of a bank's reputation, and the disastrous consequences which are liable to follow, the provisions have been inserted in section 221.43 of the Statutes requiring stock transfers to be recorded upon the...