Wisconsin Bankers Ass'n v. Mutual Sav. and Loan Ass'n of Wisconsin

• Decision Date: 29 December 1978
• Docket Number: No. 77-347,77-347
• Citation: 275 N.W.2d 130,87 Wis.2d 470
• Parties: WISCONSIN BANKERS ASSOCIATION (Incorporated), a Wisconsin nonstock corporation, on behalf of its members and Kilbourn State Bank, a Wisconsin banking association, and Grafton State Bank, a Wisconsin banking association, on behalf of all state or federally chartered banks in Wisconsin, Plaintiffs-Appellants, v. MUTUAL SAVINGS AND LOAN ASSOCIATION OF WISCONSIN, a Wisconsin savings and loan association, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

Page 130

275 N.W.2d 130

87 Wis.2d 470

WISCONSIN BANKERS ASSOCIATION (Incorporated), a Wisconsin nonstock corporation, on behalf of its members and Kilbourn State Bank, a Wisconsin banking association, and Grafton State Bank, a Wisconsin banking association, on behalf of all state or federally chartered banks in Wisconsin Plaintiffs-Appellants, v. MUTUAL SAVINGS AND LOAN ASSOCIATION OF WISCONSIN, a Wisconsin savings and loan association Defendant-Respondent.

No. 77-347.

Court of Appeals of Wisconsin.

Argued Oct. 25, 1978.

Opinion Released Dec. 29, 1978.

Opinion Filed Dec. 29, 1978.

James P. Brody, Milwaukee (argued), for plaintiff-appellants; Lawrence J. Bugge and Thomas L. Shriner, Jr. of Foley & Lardner, Milwaukee, on brief.

Edward A. Dudek, Milwaukee (argued), for defendant-respondent; James D. Friedman of Frisch, Dudek & Slattery, Ltd., Milwaukee, on brief.

William R. Hotz, Lowell E. Nass, Asst. Atty. Gen. and Bronson C. La Follette, Atty. Gen., for Wisconsin Commissioner of Savings & Loan amicus curiae.

John K. MacIver and W. Charles Jackson of Michael, Best & Friedrich, Milwaukee, for Savings League of Wisconsin amicus curiae.

Before DECKER, C. J., CANNON, P. J., and R. W. HANSEN, Reserve Judge.

DECKER, Chief Judge.

This appeal presents the issue of the legality of Mutual Savings and Loan Association's Supreme Account II, an account denominated by the respondent as the N.O.W. account. N.O.W. is an acronym for negotiable order of withdrawal. The challenged account is a service by which a savings and loan depositor can authorize payment from his savings account directly to a third party by issuing a negotiable sight draft drawn on his account and payable to the named payee. Mutual Savings and Loan is the first savings and loan association in Wisconsin to offer this service.

Mutual is a state-chartered savings and loan association, deriving its powers from ch. 215 of the Wisconsin Statutes. In September of 1974, Mutual wrote to the Wisconsin Commissioner of Savings and Loan advising him that it was considering offering Supreme Account II at some future date. In April, 1976, the Commissioner was notified that Mutual was proceeding to implement the account. The communication outlined the legal support for the activity, and requested an opinion of the Commissioner with regard to its legality. On April 16, 1976, the Commissioner responded by a letter in which he concluded that there was an "absence of any prohibition (in the governing statutes) against the form of withdrawal you have proposed" and that the account was therefore legal.

Supreme Account II functions in the following manner. Each Mutual customer intending to utilize the service makes an initial deposit of $100, executes a signature card and an account rules agreement, and receives a supply of sight drafts or payment orders which may be drawn on the Association and against the customer's funds. The sight drafts provide spaces for the date, name of the payee, amount of the draft, and the depositor's signature. Once the sight draft is issued, it is collected by presentation to Mutual indirectly through the Milwaukee office of the Federal Reserve Bank of Chicago, with the aid of First Bank-Midland and the use of its member reserve account. ¹ When the items are presented on a daily basis for payment, Mutual has until midnight of the day following presentment to advise the Federal Reserve of any item which is not properly payable.

Mutual's depositors who have opened such an account can fill in the drafts, sign and deliver them to the payee in return for goods, services, or to obtain cash. The payee can negotiate the item or deposit it with the financial institution that serves him for collection from Mutual. The Mutual depositor is provided with a monthly statement indicating the various account transactions.

No earnings are paid on the funds held in the Supreme Account II. The rate of earnings payable on funds held in such accounts was established by Mutual as zero percent. ² Mutual reserves the right to require thirty days' notice prior to payment of the sight draft, ³ but this requirement is universally waived.

Supreme Account II was first offered by Mutual on May 14, 1976. On May 17, 1976, the Wisconsin Bankers Association (W.B.A.) and two of its members as representative plaintiffs, commenced this class action suit on behalf of its members, and obtained a temporary restraining order pending a hearing on the application for a temporary injunction. Following an evidentiary hearing, the circuit court denied the temporary injunction and dissolved the restraining order.

The action was then advanced for trial. After four days of testimony, the circuit court on August 17, 1977, filed a written opinion concluding that the Supreme Account II was legal and denying the requested permanent injunction. Judgment, dismissing the complaint on its merits, was entered on October 7, 1977, and this appeal followed.

The appellants attack the legality of Supreme Account II on the following bases:

1. Supreme Account II is not a "savings account" and Wisconsin savings and loan associations are not permitted to accept deposits to accounts other than "savings accounts."

2. Wisconsin savings and loan associations do not have an underlying statutory or common law power to pay withdrawals from depositors' accounts on negotiable sight drafts.

3. Wisconsin savings and loan associations are authorized to pay withdrawals only to the "saver" or "owner"; payment on sight drafts effectuates payments to third parties.

We will discuss each basis of attack separately.

Savings Account

In the trial court, the appellants presented extensive testimony by an expert witness regarding the meaning of the phrase "savings account." The primary thrust of the expert testimony was that unless an account is interest bearing it is not a savings account.

As we noted above, the Supreme Account II is presently a noninterest-bearing account. The rate of earnings on such accounts established by the board of directors of Mutual in compliance with sec. 215.16(2), Stats., is zero percent. We do not believe that this feature removes Supreme Account II from the realm of "savings accounts" as defined by Wisconsin statutes regulating savings and loan associations.

Wisconsin savings and loan associations are authorized to accept deposits to and pay withdrawals from savings accounts. Sec. 215.13(1) and (4), Stats. A savings account, for purposes of ch. 215, is defined as "the monetary interest of the owner thereof in the aggregate of savings accounts in the association and consists of the withdrawal value of such interest." Sec. 215.01(24), Stats. Although the board of directors of a savings and loan is required to determine a rate of earnings on the savings accounts held by that institution, and is required to pay those earnings at such times and in such manner as may be prescribed by the Commissioner of Savings and Loans, sec. 215.16(2), Stats., we find no provision prohibiting that rate of earnings being established as zero percent, resulting in a noninterest-bearing "savings account." As Mutual's brief notes, Supreme Account II is not the first noninterest-bearing savings account offered by various savings and loan associations in Wisconsin. It points out that many Christmas Club accounts pay no interest to the saver.

We note that the unique feature of accounts at savings and loan associations is that no account can be established which is not subject to a thirty-day notice requirement prior to withdrawal. Under sec. 215.17(4), Stats., upon presentment of a written withdrawal request, the savings and loan association may pay the requested amount of the withdrawal or may require thirty days' notice prior to payment of such request. ⁴

The thirty-day notice requirement is the distinctive feature of savings accounts at savings and loan associations in Wisconsin. ⁵ Withdrawals from the Supreme Account II, whether made by sight draft or other methods of withdrawal, are subject to this limitation. Although the withdrawal notice may regularly be waived, the requirement of notice is a distinguishing characteristic that differentiates a savings account from a demand deposit.

We hold that Supreme Account II is a savings account under the provisions of ch. 215, Stats., despite the fact that no interest is paid on the account, because withdrawal of funds from the account are subject to a thirty-day notice requirement. ⁶

Inherent Power

In its memorandum decision, the trial court found authority for the Supreme Account II in sec. 215.13(37), Stats., which provides that savings and loan associations may "(e)xercise all powers necessary and proper to carry out the purposes of the association." Mutual also asserts that there is a common law right of a person or corporate entity to pay drafts drawn upon that person or entity.

W.B.A. argues that payment of sight drafts drawn on savings and loan associations is neither necessary nor proper to promoting thrift or the ownership of homes. ⁷ It maintains that never in the history of savings and loan associations in this state has it been necessary for savings and loan associations to pay sight drafts drawn on them by their customers.

Acceptance of that argument would require this court to ignore the highly competitive atmosphere in which banks and savings and loan associations function. Extensive testimony appears in the record indicating the significant impact an innovative service can have in attracting savings dollars to a bank or a savings and loan association.

In a competitive atmosphere, if savings and loan associations are to attract savings dollars to high interest-bearing savings accounts available at their institution and thereby promote "thrift" and, by loaning the savings dollars placed in those accounts, "the ownership of homes," they must provide the innovative services which customers of financial institution have come to...