Stuart v. Farmers' Bank of Cuba City

• Decision Date: 30 September 1908
• Citation: 137 Wis. 66,117 N.W. 820
• Parties: STUART v. FARMERS' BANK OF CUBA CITY.
• Court: Wisconsin Supreme Court

137 Wis. 66

117 N.W. 820

STUART

v.FARMERS' BANK OF CUBA CITY.

Supreme Court of Wisconsin.

Sept. 29, 1908.

Dissenting Opinion, Sept. 30, 1908.

Appeal from Circuit Court, La Crosse County; J. J. Fruit, Judge.

Action by Sidney H. Stuart, trustee in bankruptcy of Ralph B. Luckey, against the Farmers' Bank of Cuba City. From a judgment for plaintiff, defendant appeals. Reversed and remanded for new trial.

One Ralph B. Luckey was on the 5th day of February, 1907, adjudged bankrupt upon an involuntary petition filed January 18, 1907. For years he had been a general merchant at Cuba City, doing his banking business with the defendant, and for some time had also been treasurer of the school district. Early in 1895 Luckey was indebted to the bank in the sum of about $4,000. He also was in arrears to the school district; he having shortly before received $10,000 of school district money, deposited the same in his general bank account, and so checked against that account that only some $4,000 remained to his credit therein. The cashier of the bank was one of the sureties on his bond, and besame disturbed at the condition, and urged that he at least make good the school moneys. After some negotiation, the two sureties upon his school treasurer bond and the two other members of the board undertook to sign notes for $7,750, which, with the moneys to his credit at the bank, would make good that fund. It is claimed by the plaintiff that the bank refused to lend this $7,750 to Luckey, but merely consented to loan it to the persons who signed the note. The loan was in fact made, however, on the note of the parties other than Luckey, and the money placed to the credit of the school district in the name of Luckey as treasurer. At the same time his own notes for $4,000 to the bank were taken up, thereby discharging certain indorsers, and his new notes to the amount of $4,000 given in lieu thereof, which were secured by a written guaranty of the same persons who signed the $7,750 notes. A transfer from his general bank account to the bank account of the school district was made, so as to make that account equal the school moneys in his hands. He continued to do business, paying in one way and another nearly $4,000, which were applied upon the $7,750 notes, until October or November, 1906, when the bank, and perhaps his sureties, became impatient, the indebtedness not having been reduced as promised. After considerable urgency and efforts on his part to reduce his stock and make payments, he finally, early in November, sold out his business at the full amount of the inventory of the stock and nearly $1,000 bonus. At that time $1,000 was paid by the purchasers and placed by him in his general bank account. The balance was to be paid when the inventory of the stock was to be completed. This was accomplished December 5, 1906, at which time he received checks for $7,300 from those purchasers, which he handed to the bank officers for application upon the claims which the bank held. The officers of the bank credited this $7,300 into his general account already containing $600 or $700, and then made applications by debit charges against that account sufficient to satisfy all his notes, and delivered up his notes, including the $7,500 note not signed by him. How far such applications were authorized by him so as to constitute voluntary payments was a matter of contention between the parties. After the trustee in bankruptcy had been appointed, suit was brought in the circuit court for Dane county (venue being afterwards changed to La Crosse county) to recover the amounts of such payments from the defendant bank as unlawful preferences under the bankruptcy law. Upon the trial the parties stipulated that the court might find that Luckey was insolvent December 5, 1906, as a part of the special verdict, and that the payments by Luckey would enable such bank to obtain a greater percentage of its debts and claims than would be obtained by other creditors having claims of the same class, and that, after special verdict had been returned, the court should find the amount paid by Luckey to the bank in December, 1906, and a finding of Luckey's intent in making the payments in case he should determine it to be necessary, and also to find whether the sums of money received by the bank were offsets or not. Thereupon the court submitted two questions to the jury: First. “Were the loans of April 11, 1905, made by the defendant bank of $7,750 loans to Ralph B. Luckey?” This was answered “Yes.” Second. “Did the bank officers on December 5, 1906, have reasonable cause to believe that by the payments made by Luckey to said bank on said day it was intended thereby to give the bank a preference?” This was answered “Yes.” No findings were made by the court, but, after due motions to raise all questions present on this appeal, judgment was entered in favor of the plaintiff for $7,915.12, with interest thereon from the commencement of the suit, from which judgment defendant appeals.

Timlin and Kerwin, JJ., dissenting.S. E. Smalley and Morris, Riley & Dudgeon (Olin & Butler, of counsel), for appellant.

Richmond, Jackman & Swansen (Lacy, Brown & Lacy, of counsel), for respondent.

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

This case, as presented by the record, is involved in much confusion. Certain issues of fact were submitted to the jury and other controverted issues were withheld from it, some of them by consent of counsel that the court might find upon them, and others apparently without any consent at all of the attorneys. The issues other than those which were submitted to the jury were: First. Was Luckey insolvent? Second. Did the defendant have reasonable cause to believe so? Third. Did the transaction between the bankrupt and the defendant at the time of the alleged payment constitute a payment or transfer by the bankrupt, or merely an exercise by the creditor of its right in invitum to apply its indebtedness on open account to him upon his debts to it? This question was severable in its application to the whole transaction, and also to several individual items of so-called payment. Fourth. Was the defendant the real party benefited by the payment, or the so-called sureties? On all these questions there was at least claimed to be some evidence in favor of the defendant's contentions; on some of them that it clearly preponderated in defendant's favor. There is no indication in the record that any tribunal has passed upon these questions of fact specifically, unless we indulge in the presumption, because they were so plainly in issue that the court must be deemed to have passed upon them in rendering judgment against the defendant. In view, however, of the conclusion we have reached upon one of the assignments of error, which conclusion must necessitate a new trial, we forbear to express our opinion whether the evidence is sufficient to support either the verdict of the jury upon two questions submitted to them or the apparent conclusion of the court upon the questions of fact not so submitted.

Error is assigned upon the instruction under which the second question of the special verdict was submitted to the jury. A material and illustrative part of that instruction was as follows: “The jury are instructed that the words ‘reasonable cause to believe that it was intended to enable the bank to obtain a greater percentage of its debts than other creditors would be able to obtain’ does not mean reasonable cause to suspect such intention. It is not enough that the creditor had some cause to suspect that his debtor did not have sufficient property left to pay an equal percentage to other creditors of the same class, but he must have such knowledge of facts as to induce a reasonable belief thereof, or of circumstances to put him upon inquiry, in order to find that the creditor had reasonable cause to believe that a preference was intended.” It is contended that the last portion of this instruction is erroneous; that only when the facts known to the creditor are such as would induce a present belief in the ordinarily prudent and intelligent business man that his debtor is insolvent and intends a preference is he prohibited by the bankrupt act from collecting or securing his debt or a part thereof. The court has obviously by these words, and others to similar effect elsewhere in the charge, instructed the jury that, although the facts that the creditor then knows may not be sufficient to induce that belief, yet, if a reasonably prudent man would be put upon inquiry thereby, and if upon such inquiry he might learn other facts, then he is chargeable with notice of the insolvency and intent to prefer, if such facts, which he did not know but upon inquiry would be likely to ascertain, would warrant such belief. There is considerable variance in expressions of courts upon this subject. The Supreme Court of the United States has in several cases declared that the reasonable ground of belief intended by the bankruptcy act is the present knowledge of the creditor, that he may safely act upon what he knows, and that, if the reasonably prudent and intelligent man would not be led to a belief of insolvency or preferential intent by such facts, it is not the purpose of the bankruptcy act to prevent collection or securement of debts in the ordinary course of business, and there are many decisions to like effect by other courts. Merchants' National Bank v. Cook, 95 U. S. 343, 346, 24 L. Ed. 412;Grant v. National Bank, 97 U. S. 80, 82, 24 L. Ed. 971;Barbour v. Priest, 103 U. S. 293, 297, 26 L. Ed. 478;Stucky v. Masonic Savings Bank, 108 U. S. 74, 2 Sup. Ct. 219, 27 L. Ed. 640;In re Goodhile (D. C.) 12 Am. Bankr. Rep. 374, 130 Fed. 471;Sundheim v. Ridge Avenue Bank (D. C.) 15 Am. Bankr. Rep. 132, 138 Fed. 951;In re Hines (D. C.) 16 Am. Bankr. Rep. 495, 497, 144 Fed. 543;May v. Le Claire (C. C.) 18 Fed. 164;Blankenbaker v. Charleston State Bank, 111 Ill. App....