Schwemer v. Milwaukee Commercial Bank

• Decision Date: 09 December 1924
• Citation: 185 Wis. 243,201 N.W. 398
• Parties: SCHWEMER v. MILWAUKEE COMMERCIAL BANK.
• Court: Wisconsin Supreme Court

185 Wis. 243

201 N.W. 398

SCHWEMER

v.MILWAUKEE COMMERCIAL BANK.

Supreme Court of Wisconsin.

Dec. 9, 1924.

Appeal from Circuit Court, Milwaukee County; Gustav G. Gehrz, Judge.

Action by Oscar E. Schwemer, trustee in bankruptcy of the Aromatic Products Company, against the Milwaukee Commercial Bank. From a judgment for plaintiff, defendant appeals. Affirmed.

This action is brought by a trustee in bankruptcy for the recovery of money and the value of property delivered to the defendant by the bankrupt under circumstances which it is claimed make the payments preferential. The Aromatic Products Company was organized in 1919 with a capital of $5,000, for the manufacture of coumarin by special processes worked out by the employees of the company. The plant was located in Wauwatosa, Wis., and about 90 per cent. of its produce was sent to the Palmolive Company in Milwaukee, and was always paid for in cash, and the remaining portion of the produce of the factory was sold as a rule to a Chicago firm. In 1920 the company was reorganized with $50,000 in preferred stock, and some nonpar value common stock. The contracts and arrangements between the old and the new companies were not disclosed at the trial.

The Aromatic Products Company had a checking account with the First National Bank of Wauwatosa, and it was through the instrumentality of Mr. Gates, the cashier of this Wauwatosa bank, that the defendant bank was brought into business relations with the bankrupt company. In July, 1920, it seems that the Wauwatosa bank had reached the limit of the amount of indebtedness which they might carry for one customer, i. e. $13,000, and Mr. Gates requested the defendant bank to discount two notes for the Aromatic Products Company for $2,000 and $3,000, respectively. The credit of the Aromatic Products Company having been vouched for by Mr. Gates, the defendant bank discounted the two notes, and they were paid in July and August when due. In September, at the request of Mr. Gates, the defendant again discounted two notes for the bankrupt for $5,000 each, the notes being made out to the order of the defendant bank, though the negotiation was made through Mr. Gates. On October 13, 1920, the plant of the Aromatic Products Company was destroyed by fire, and the company ceased business, other than as to salvage what was possible out of the wreckage, and to collect the insurance which amounted to about $35,000, and which was deposited in the Wauwatosa bank.

On November 10, 1920, a cashier's check of the Wauwatosa bank was drawn for the amount of $2,000 to the defendant bank, though not paid over to them until the 7th of December, when it was received by them as a payment on one of the two notes. On the same day, December 7th, Mr. Gates informed the defendant that the Aromatic Products Company had some coumarin, which they had contracted to sell, and asked the defendant to take this for the remaining $3,000 due on the one note, as the Wauwatosa bank was short of cash. The defendant assented to this, and the coumarin was delivered on the 9th and 11th of December. On the 11th of December, the defendant received a cashier's check for $5,000 from the Wauwatosa bank, and applied this to the remaining note. On December 29, 1920, the defendant received from a third party a note for $3,000, which represented a sale of the coumarin by the defendant bank to the third party, and this amount was credited on the first note, on December 29, 1920. On December 30, 1920, an involuntary petition in bankruptcy was filed against the Aromatic Products Company.

The issues involved are whether the company was insolvent at the time the payments took place, and whether the defendant bank had had notice or had reasonable cause to have known of the insolvent condition. An inventory of the company subsequent to the fire, established by the testimony of various witnesses, was offered in evidence. The defendant objected to this as it did not, he claimed, satisfactorily explain certain deposits subsequently made, and the books of the company were not available for the purpose of checking the items. Numerous witnesses testified to the fact that their bills had not been paid for some time, and there was evidence that the trade paper of the company had been frequently dishonored, and that payments of negotiable paper were made by renewals in a large number of cases.

On the issue as to the defendant's knowledge or reasonable grounds for belief as to the insolvent condition of the company, the president of the defendant bank testified that his dealings were upon the request of Mr. Gates, of the Wauwatosa, who vouched for the credit of the company at that time; that he heard of the fire, but that Mr. Gates told him, and a circular from the Dun commercial agency stated, that the insurance covered the loss, and that the company would pay out all right; that he supposed that the company was solvent, and accepted the cashier's checks in good faith; that, although it was not customary to take merchandise for money claims, that it had been done on several occasions; that on this occasion it had been done at the request of Mr. Gates, who stated that there was a contract for the sale of the coumarin, and that the cash would be forthcoming in a few days, but that his bank was short of cash at the time, and did not wish to forward the money; that he took the coumarin under the belief that this was true, but that he was later informed that the sale had fallen through, and also learned that the value of the coumarin was less than the amount for which it had been received; that he sold it to a third person who gave the defendant bank his note for $3,000, although it was understood that the bank should stand the loss occasioned by the inferior quality of the coumarin. The plaintiff introduced in evidence, over the objection of the defendant, a statement of the condition of the Aromatic Products Company on April 30, 1920, made by a certified public accountant, and furnished the defendant bank's president in an entirely different transaction, but the contents of which the defendant bank's president admitted he knew. This statement showed that the company had a capital of only $5,000, and liabilities of $55,000; that the cash of the company was only $1,700, and that included...