Ross v. State Bank of Trego

• Decision Date: 05 March 1929
• Citation: 224 N.W. 114,198 Wis. 335
• Parties: ROSS v. STATE BANK OF TREGO ET AL.
• Court: Wisconsin Supreme Court

198 Wis. 335

224 N.W. 114

ROSS

v.STATE BANK OF TREGO ET AL.

Supreme Court of Wisconsin.

March 5, 1929.

Appeal from a judgment of the Circuit Court for Washburn County; W. R. Foley, Circuit Judge. Modified and affirmed.

Action by G. H. Ross, as trustee in bankruptcy of H. C. Furchtenicht, begun March 7, 1927, against the State Bank of Trego and C. F. Schwenker, as Commissioner of Banking, in charge of the liquidation of said bank, to recover sums paid to said bank by the bankrupt. From a judgment for $2,305.32 and costs, in favor of the plaintiff, entered July 5, 1928, plaintiff appealed, claiming the right to a larger recovery.

H. C. Furchtenicht gave a chattel mortgage to the State Bank of Trego to secure the payment of the sum of $4,600, which he owed the bank. The chattel mortgage covered the stock of goods and fixtures belonging to said Furchtenicht and “all increase of property conveyed and additions to a stock in trade.” The chattel mortgage was filed as required by law. The mortgagor remained in possession of the stock of goods and fixtures and continued to do business.

Just four months after the chattel mortgage was given, the fixtures and stock of goods was entirely destroyed by fire. The proceeds of the policies of insurance upon the fixtures and stock were paid into the Bank of Trego the day before it closed its doors. The draft for this insurance money was remitted to the First Wisconsin National Bank of Milwaukee the day before the bank closed. The officers of the bank knew that it was insolvent at the time this deposit was accepted.

The Bank of Trego credited itself, out of the amount of the insurance fund, with the full amount of principal and interest on the original obligations secured by the chattel mortgage, together with other items of indebtedness which it then held against Mr. Furchtenicht. Within four months from that date Mr. Furchtenicht was declared a bankrupt. The assets coming to the hands of the trustee in bankruptcy are insufficient to pay Mr. Furchtenicht's creditors in full.

The trial court held that the chattel mortgage to the bank was valid; that the insurance money in the First Wisconsin National Bank and in the Bank of Trego constituted a trust fund for the benefit of the creditors of Mr. Furchtenicht; that the bank was entitled to hold the amount of this insurance money, which it had applied to the payment of obligations to the bank, and gave the plaintiff judgment, to be paid out of the balance of the trust fund. The plaintiff appealed from this judgment, claiming that this payment to the bank created a preference, and that therefore the plaintiff is entitled to recover the full amount of the payments made to the bank, and that the bank must share ratably with the other creditors of Mr. Furchtenicht.A. C. Barrett, of Spooner, and Laurence S. Coe, of Rice Lake, for appellant.

W. T. Doar, of New Richmond, for respondents.

STEVENS, J.

[1] The first question presented is whether the chattel mortgage was a valid and subsisting lien on the fixtures and stock of goods at the time of the fire. It appears that Mr. Furchtenicht's store was directly across the street from the bank in the village of Trego, that the managing officers of the bank bought merchandise at this store and knew that others were doing the same, and that Mr. Furchtenicht continued to do business and use the proceeds of sales for his own personal use, exactly as he had done before the chattel mortgage was given, without making any payment upon the principal or the interest of his indebtedness to the bank. Under this state of the proof the finding of the court that the bank had no knowledge that the proceeds of sales of the stock of goods were being improperly diverted is so clearly contrary to the great weight and clear preponderance of the evidence that it cannot stand.

[2][3] The chattel mortgage did not provide what should be done with the proceeds of the sales. The conclusive inference, from the course of business pursued by Mr. Furchtenicht with knowledge of the officers of the bank, is “ ‘that there was an implied or tacit agreement or understanding that the mortgagor was to be at liberty to use, sell, and dispose of the mortgaged property, and apply the proceeds to his own use, in like manner as before and as if they had not been mortgaged to the bank.’ Such an implied agreement * * * is as effective for that purpose as if it were express.” Charles Baumbach Co. v. Hobkirk, 104 Wis. 488, 492, 80 N. W. 740, 742. “A mortgage which permits the mortgagor to remain in possession of the mortgaged property, and to sell it and apply the proceeds, partially or wholly, to his private use, is void as to creditors.” Durr v. Wildish, 108 Wis. 401, 404, 84 N. W. 437, 438. “When property is mortgaged to one creditor to secure his demand, good faith to other creditors of the mortgagor...