Schroeder v. State

• Decision Date: 11 October 1932
• Citation: 210 Wis. 366,244 N.W. 599
• Parties: SCHROEDER v. STATE.
• Court: Wisconsin Supreme Court

210 Wis. 366

244 N.W. 599

SCHROEDER

v.STATE.

Supreme Court of Wisconsin.

Oct. 11, 1932.

Error to review a judgment of the Circuit Court for Milwaukee County; Gustave G. Gehrz, Circuit Judge.

Affirmed.

Prosecution and conviction of William A. Schroeder on the charge of having accepted, in violation of section 348.19, Stats., certain deposits in the Franklin State Bank, of which he was the president and a director, knowing, or having good reason to know, that said bank was then unsafe or insolvent.Swietlik & Burns, of Milwaukee, for plaintiff in error.

John W. Reynolds, Atty. Gen., and Geo. A. Bowman, Dist. Atty., Oliver L. O'Boyle, Corp. Counsel, Walter J. Hofer, First Deputy Dist. Atty., all of Milwaukee, for the State.

FRITZ, J.

On a trial by jury, the fact that the defendant was a director, the president, and virtually the managing officer of the Franklin State Bank since 1925 was established beyond room for dispute. Likewise, it was established that the deposits specified in the information were received and accepted on June 16, 1931. The major issues on the trial were whether the bank was then insolvent, and whether the defendant then knew, or had good reason to know, that the bank was then unsafe or insolvent.

[1][2] As to when a bank is insolvent within the meaning of that term as it is used in section 348.19, Stats., this court held in Ellis v. State, 138 Wis. 513, 119 N. W. 1110, 1111, 20 L. R. A. (N. S.) 444, 131 Am. St. Rep. 1022: “A bank is unsafe or insolvent * * * when the cash value of its assets, realizable in a reasonable time, in case of liquidation by its proprietors, as ordinarily prudent persons would ordinarily close up their business, is not equal to its liabilities, exclusive of stock liabilities.”

The opinion filed in that case demonstrates that the rule, as thus stated, was the result of careful consideration of the problems involved from the standpoint of the banker as well as of the depositors and the state at large. It has since been approved and followed, as in Sprague v. State, 188 Wis. 432, 206 N. W. 69, 72, without any modification by this court or the Legislature. Even in the present financial crisis, with the realizable values deflated to a most extraordinary extent, there has been no legislative action to change that rule, or otherwise amend section 348.19, Stats. On the contrary, when the Legislature last convened in a special session to deal with the difficult problems occasioned by the current financial depression, it substantially adopted that rule in defining in section 7 of chapter 10, Special Session Laws of 1931-32 (repealed by section 1, c. 15, Sp. Sess. Laws 1931-32) the realizable value to which the commissioner of banking may require a bank to reduce the book value of any asset carried on its books. In that connection, the Legislature somewhat enlarged upon the statement of the rule by expressly specifying certain elements which are to be taken into consideration in determining the realizable value, but those elements were all relevant, material, and consequential under the rule as stated in the Ellis Case; and, in that respect, the legislative enactment is rather declaratory and not in derogation, or even modification, of that rule.

After carefully reconsidering that rule and the problems that the entire subject-matter involves, particularly under such unanticipated and distressing circumstances as are affecting values in these times, we have concluded that the rule, as laid down in the Ellis Case, is as reasonable and fair to all concerned, and is as well and precisely stated as the circumstances permit. When the issue as to the solvency of a bank depends upon the realizable value of some of its assets, which are of such nature that it is uncertain, in point of fact, whether they can be converted, within the time and under the circumstances stated in the established rule, into the amount of money essential to avoid insolvency, then, in so far as solvency is dependent upon the realizable value of those assets, that issue is not merely a question of law. Under those circumstances, the determination as to whether a bank is insolvent, whenever that issue arises in a prosecution under section 348.19, Stats., involves questions of fact as to which there can be no definite or conclusive determination until that issue of fact is ultimately decided by a jury or an authorized trier of issues of fact.

Whether the evidence was sufficient to convince the jury, beyond a reasonable doubt, that the Franklin State Bank was insolvent on June 16, 1931, depends in the final analysis upon whether the amounts at which it carried on its books its loans and discounts, viz. $627,890, and its investments in bonds, viz. $258,503, in fact exceeded the realizable value of those assets to an extent that was in excess of its capital structure (including its capital stock, surplus, and undivided profits) which amounted to $136,908.41. The state contends that the evidence warranted the jury in finding that the amounts at which those assets were carried on the bank's books exceeded the realizable value of those assets to the extent of at least $195,804 on its loans and discounts, and $92,266 on its security investments. If that contention is correct, then the deductions necessary in relation to those assets exceeded its capital structure to such an extent that the bank was clearly insolvent.

[3] In regard to the loans and discounts, a review of the evidence discloses that there was ample proof to warrant the jury in finding that the losses on those assets were as follows:

$28,179.16 on loans which were not secured, and $39,392.30 on loans which were not well secured; and as to all of which interest was due and unpaid for at least twelve months, and there were no pending proceedings for collection. By reason of those facts alone, those debts were presumably bad, and should have been charged off as a loss under section 221.36, Stats. It was not incumbent upon the state to also prove that the debtors were insolvent. As was said in Sprague v. State, supra: “When the state upon the trial established that fact, it made a prima facie case of insolvency of the bank. The defendant was not concluded by such a showing and could have shown the true value of the items. * * * If in addition to proving that the bank could not realize upon the items classified as ‘bad debts' the state had to prove that the debtor was likewise insolvent, a burden would be cast upon the state which it could scarcely sustain.” However, in the case at bar, in addition to establishing the facts that rendered that statutory presumption applicable, there was sufficient evidence otherwise to establish that those loans were a total loss.

$108,232.99 additional losses will be sustained on certain secured and unsecured loans, aggregating $139,250.26, which, while they were not prima facie bad solely by virtue of section 221.36, Stats., were proven to be of such uncollectible character that a loss of at least $108,232 will be sustained thereon. Discussion here of the details as to each of those loans will serve no useful purpose.

After due consideration of the evidence in relation to those three classes of loans and discounts, we are convinced that the amount at which they were carried on the bank's books does exceed the realizable value thereof by at least $195,000. As that item alone is in excess of the bank's capital structure of $136,908 by more than $58,000, the bank was insolvent to at least that extent, without taking into consideration any deductions because of excessive valuations in its security investment account.

[4] As to the bank's investments in bonds, the state contends that $4,167 of the amount at which that account was carried on the bank's books should have been charged off as a write-up loss, upon the substitution of certain securities of lesser value and cost, for certain depreciated securities, which it had originally owned and carried in that account at $6,000. That contention is warranted by the evidence. However, of greater significance is the state's contention that on June 16, 1931, that account as to its investments in bonds was carried on the bank's books at an additional sum of $88,099, in excess of the value realizable upon those assets under the established rule. In support of that contention, the state relied primarily upon the...