Union State Bank of Lancaster v. People's State Bank of Lancaster

• Decision Date: 13 January 1927
• Citation: 211 N.W. 931,192 Wis. 28
• Parties: UNION STATE BANK OF LANCASTER ET AL. v. PEOPLE'S STATE BANK OF LANCASTER ET AL.
• Court: Wisconsin Supreme Court

192 Wis. 28

211 N.W. 931

UNION STATE BANK OF LANCASTER ET AL.

v.PEOPLE'S STATE BANK OF LANCASTER ET AL.

Supreme Court of Wisconsin.

Jan. 13, 1927.

Appeal from Circuit Court, Grant County; S. E. Smalley, Judge.

Separate actions between the Union State Bank of Lancaster and by the Lancaster State Bank against the People's State Bank of Lancaster and another, tried together. From judgments of dismissal, plaintiffs appeal. Judgment modified as to plaintiff last named, and otherwise affirmed.--[By Editorial Staff.]

The two plaintiffs, after the disallowance by the defendant commissioner of banking as preferences of their respective claims in the insolvency proceedings of the defendant bank, commenced separate actions, which for convenience were tried as one, and one judgment entered. The three banks were located at Lancaster, Wis., and will hereinafter be referred to as the Union, Lancaster, and People's. For some time prior to May 31, 1923, the People's was insolvent, and so known to be to the principal officers in charge of the same and responsible for such condition.

There is no substantial dispute as to the facts concerning the material parts of the transactions here involved, and which are as follows:

On Thursday, May 31st, in the forenoon, the Union, at the request of the People's, gave to the latter $1,000 cash and took in lieu thereof a draft for that amount by the People's on the First Wisconsin National Bank of Milwaukee, hereinafter referred to as the Milwaukee bank.

At the close of banking hours Thursday, and in accordance with the established custom, the Union presents to the People's checks aggregating $2,422.11 drawn on the People's, and cashed by the Union, and to that amount in excess of any checks on that day drawn on the Union and paid by the People's, receiving a draft for that sum by the People's on the National City Bank of Chicago, hereinafter called the Chicago bank. The Lancaster similarly presented checks aggregating $153.85, and received the People's draft on the Milwaukee bank for such sum.

On Friday, June 1st, at about 3:45 p. m., the Lancaster advanced $1,000 cash to the People's at its request, and received a draft for that sum on the Milwaukee bank.

Similar clearance checks transactions as those of the preceding day were had by the Union and the Lancaster taking drafts on the Milwaukee bank for the respective amounts of $1,196.81 and $530.20. At 4 p. m. the People's closed its doors, and they were not reopened. The drafts above recited were forwarded in due course of mail to the Chicago and Milwaukee banks, and all received on or prior to June 2d.

On Saturday, June 2d, the affairs of the bank were taken over by the banking commissioner, who remained in charge thereafter, and who in the forenoon notified by telegrams the Milwaukee and Chicago banks of the situation. There came into the hands of the banking commissioner on Saturday morning cash aggregating over $2,400. On June 2d there was, according to the books of the Milwaukee bank, an aggregate of $3,153.33 in favor of the People's, and subject to its drafts, except as such deposit was, pursuant to the terms of a prior guarantee for some $35,000, subject to be applied by the Milwaukee bank on account of any outstanding indebtedness due or not due, and, pursuant to such express right and its conceded right, it did apply the said balance on account of the obligations of the People's to it. There was only $692.12 to the credit of the People's with the Chicago bank at the time of the drawing of the draft for $2,422.11, aforesaid, on May 31st, and such amount and no more was subsequently paid over by the Chicago bank to the commissioner of banking, and became a part of the funds in his hands.

The plaintiffs, with a number of others, filed claims under the statute with the commissionerof banking, and there were asserted as preferred claims, including those of the two plaintiffs, amounts of over $13,000. These were all disallowed as preferred claims, but allowed as general claims, which aggregate over $258,000. Some $30,000 cash was in the hands of the defendant commissioner at the time of the trial.

The plaintiffs were the only ones of the claimants asserting to be preferred creditors who, within the time limited, brought actions to establish theirs as preferred claims.

Findings were made of the facts as above recited and others, and the trial court held that as to all the transactions between the plaintiffs and People's there was but the relationship of debtor and creditor, and no trust relationship created, and for that reason granted judgment dismissing the respective complaints with costs.

From such judgment plaintiffs appeal.

Kopp & Brunckhorst, of Platteville, for appellants.

Harry E. Carthew, of Lancaster, for respondents.

ESCHWEILER, J.

[1] Respondents claim that the two plaintiffs cannot be heard to assert preferences for want of proper procedure. One such claim expressly recited that it was filed as a preferred claim in the proceedings before the commissioner of banking; the other did not so expressly recite. Both such, however, were evidently treated as preferred claims, and were rejected by the commissioner of banking expressly designating them as preferred claims. They were pleaded as such in the respective complaints, and recognized as such by the answers. This contention, therefore, cannot be upheld.

If the trial court was correct in holding that the transactions between the two plaintiffs and the defendant bank created merely the relationship of debtor and creditor, the judgment of course must be affirmed. Appellants assert that there was a trust relationship, and such a sufficient tracing of the funds to create a preference for some, if not all, of the transactions.

[2][3] That the relationship between a bank and its ordinary depositors is that of debtor and creditor is not questioned, but no such relationship was created here in any of the several matters. Neither plaintiff maintained, so far as the record shows, an account as a depositor with the People's. In none of the transactions did either take the promissory note of the People's, its check, cashier's check, or certificate of deposit, but took and relied only upon the respective drafts upon other banking institutions. The issuing of the several drafts by the People's was, in effect, a representation that it was then solvent, and had an account at each of the drawee banks sumcient to meet the same when presented within a proper business course of time as these were. To this may be cited Hyland v. Roe, 111 Wis. 361, 87 N. W. 252, 87 Am. St. Rep. 873;Whitcomb v. Carpenter, 134 Iowa, 227, 111 N. W. 825, 10 L. R. A. (N. S.) 928;St. Louis-San Francisco R. R. Co. v. Millspaugh (Mo. App.) 278 S. W. 786; L. R. A. 1916C, 21; Steele v. Commissioners, 240 Mass. 394, 134 N. E. 401, 20 A. L. R. 1203.

At the time of the issuing of these drafts, the People's was, as known to its officers personally conducting these transactions, completely and hopelessly insolvent as that term is recognized. See Ellis v. State, 138 Wis. 513, 534, 119 N. W. 1110, 20 L. R. A. (N. S.) 444, 131 Am. St. Rep. 1022. In so issuing the drafts, there was a violation of the statute (section 343.401) which prohibits, under penalty, the giving of a draft upon a bank with knowledge by the drawer that there are not sufficient funds in or credit with such bank for its payment. If, on the other hand, it were to be considered as in the nature of a deposit by the two plaintiffs with the People's, thereby creating the creditor and debtor relationship, then there was clearly a violation of the still more severe penal statute (section 348.19) against the officers, cashiers, or others of a bank fraudulently receiving deposits, knowing of the insolvency of such bank. This latter statute was passed upon in such cases as In re Koetting, 90 Wis. 167, 62 N. W. 622;State v. Shove, 96 Wis. 1, 70 N. W. 312, 37 L. R. A. 142, 65 Am. St. Rep. 17.

Under any view, therefore, of the situation there was a palpable violation by the officers of the bank of one or more provisions of the penal statutes, and it thereby necessarily follows that there was a fraud committed as against the plaintiffs. Hyland v. Roe, 111 Wis. 361, 365, 87 N. W. 252, 87 Am. St. Rep. 873, so holds, pointing out the clear and necessary distinction between transactions by an individual in his private business and those with banks subject to such rigid statutory conditions. Page 366 (87 N. W. 252). The other authorities cited with this case above are also here in point.

[4] This court has already adopted the doctrine that the deposit to the credit of the customer at the counter of the bank of one of its own checks is the exact equivalent, in legal view, to the bank passing to its customer the cash and the passing the cash back for deposit and credit. It was so held in Ellis v. State, 138 Wis. 513, 551, 119 N. W. 1110, 20 L. R. A. (N. S.) 444, 131 Am. St. Rep. 1022; and so held as to the bank's own certificate of deposit in State v. Shove, 96 Wis. 1, 9, 70 N. W. 312, 37 L. R. A. 142, 65 Am. St. Rep. 17. The Ellis Case, supra, is discussed and approved in State v. Ostby (Iowa) 210 N. W. 934. The same rule is recognized elsewhere. Hawaiian Pineapple Co. v. Browne, 69 Mont. 140, 220 P. 1114;Goodyear T. & R. Co. v. Hanover State Bank, 109 Kan. 772, 204 P. 992, 21 A. L. R. 677;Kesl v. Hanover State Bank, 109 Kan. 776, 204 P. 994; N. W. Lumber Co. v. Scand. Am. Bank, 130 Wash. 33, 225 P. 825, 39 A. L. R. 922;State Nat. Bank v. First Nat. Bank, 124 Ark. 531, 187 S. W. 673.

[5] The general rule is that one whose funds have been taken through such fraud or were received as a trust fund may have equitable relief to reclaim them where they can be sufficiently traced to, and identified in some other existing fund or property. Whalen and Schumacher v. Marling, 176 Wis. 441, 448, 187 N. W. 169;Brovan v. Kyle, 166 Wis. 347, 350, 165 N. W. 382;Lambert v....