Title: ADMANCO, Inc. v. 700 STANTON DRIVE, LLC
Citation: 2010 WI 76
Docket Number: 2007AP002791
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: July 13, 2010

2010 WI 76 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2007AP2791 
COMPLETE TITLE: 
 
 
ADMANCO, Inc. by Michael S. Polsky, Receiver,, 
          Plaintiff-Respondent, 
     v. 
700 STANTON DRIVE, LLC, 
          Defendant-Appellant-Petitioner, 
M&I Marshall & Ilsley Bank, EBSCO Industries, 
Inc. and Alliance Laundry Systems, Inc., 
          Garnishees. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2009 WI App 57 
Reported at: 318 Wis. 2d 232, 768 N.W.2d 32 
(Ct. App 2009-Published) 
 
 
OPINION FILED: 
July 13, 2010   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
January 5, 2010   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Fond du Lac   
 
JUDGE: 
Peter L. Grimm   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
CROOKS, J., dissents (opinion filed). 
BRADLEY, J., joins dissent.   
 
NOT PARTICIPATING: ABRAHAMSON, C.J. and ZIEGLER, J., did not 
participate.   
 
 
 
ATTORNEYS: 
 
For the defendant-appellant-petitioner there were briefs by 
Valerie L. Bailey-Rihn, Jeffrey O. Davis, Matthew D. Fortney, 
and Quarles & Brady LLP, Madison, and oral argument by Valerie 
L. Bailey-Rihn. 
 
For the plaintiff-respondent there was a brief by Kevin L. 
Keeler, Matthew S. Vignali, and Beck, Chaet, Bamberger & Polsky, 
S.C., Milwaukee, and oral argument by Kevin L. Keeler. 
 
An amicus curiae brief was filed by Erin O’Connor and the 
O’Connor Law Offices, Fox Point, on behalf of the NAIOP 
Wisconsin 
Chapter, 
Inc., 
Building 
Owners 
and 
Managers 
Association and Commercial Association of Realtors Wisconsin, 
Inc. 
 
 
2010 WI 76
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2007AP2791  
(L.C. No. 
2006CV840) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
ADMANCO, Inc. by Michael S. Polsky, Receiver, 
 
          Plaintiff-Respondent, 
 
     v. 
 
700 STANTON DRIVE, LLC, 
 
          Defendant-Appellant-Petitioner, 
 
M&I Marshall & Ilsley Bank, EBSCO Industries, 
Inc. and Alliance Laundry Systems, Inc., 
 
          Garnishees. 
 
FILED 
 
JUL 13, 2010 
 
A. John Voelker 
Acting Clerk of 
Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
remanded to the circuit court. 
 
¶1 
PATIENCE DRAKE ROGGENSACK, J.   This review arises in 
the context of a Wis. Stat. ch. 128 insolvency proceeding, which 
proceeding applies to property of the debtor.  Wis. Stat. 
No. 
2007AP2791   
 
2 
 
§ 128.08 (2007-08).1  The receiver, Michael S. Polsky (Polsky), 
was appointed to administer property of the debtor, Admanco, 
Inc. (Admanco).  In that capacity, Polsky demanded return of 
proceeds from two standby letters of credit issued by M&I 
Marshall and Ilsley Bank (M&I Bank) that 700 Stanton Drive, LLC 
(Stanton) drew down, as well as the cash security deposit made 
by Admanco that Stanton retained.  The circuit court awarded2 the 
receiver judgment in the amount of $513,292.66 plus statutory 
costs and fees.  The court of appeals affirmed the circuit 
court.3 
¶2 
Because we conclude that the proceeds of the standby 
letters of credit were not property of Admanco, they are not 
property of the debtor's estate subject to the receiver's 
administration under ch. 128.  We also conclude that the "claim" 
of Wis. Stat. § 128.17(2) is a claim against property of the 
debtor's estate, not a claim against property of the issuer of 
the standby letters of credit.  And finally, we conclude that 
the circuit court should have ordered summary judgment denying 
Polsky's breach of contract claim and granting Stanton's breach 
                                                 
1 All further references to the Wisconsin Statutes are to 
the 2007-08 version unless otherwise indicated.  Even though 
Admanco, Inc. filed for receivership in 2004 and the receiver 
filed this action in 2006, we employ the 2007-08 version of the 
statutes because there has been no intervening statutory change 
that affects this decision.  
2 The Honorable Peter L. Grimm of Fond du Lac County 
presided. 
3 Admanco, Inc. v. 700 Stanton Drive, LLC, 2009 WI App 57, 
318 Wis. 2d 232, 768 N.W.2d 32. 
No. 
2007AP2791   
 
3 
 
of contract claim.  Accordingly, we reverse the decision of the 
court of appeals and remand to the circuit court to dismiss 
Polsky's suit against Stanton, as it relates to the proceeds of 
the standby letters of credit, and for further proceedings 
consistent with this decision.4    
I.  BACKGROUND 
¶3 
The relevant facts of the underlying transactions are 
straightforward and not in dispute.  On March 31, 2004, Stanton 
and Admanco entered into a sale-leaseback arrangement, wherein 
Stanton paid Admanco $2.8 million for a building Admanco owned 
and entered into a 15-year leaseback of the building to Admanco.  
¶4 
The written lease required Admanco to provide Stanton 
a security deposit of $61,313.66 and to obtain for Stanton's 
benefit two letters of credit, each in the amount of $375,000.  
Admanco applied for one of the letters of credit, and Admanco's 
major shareholders, Edward Bumby and Cristopher Bumby (the 
Bumbys), applied for the other letter of credit.  Both letters 
of credit, in the combined amount of $750,000, were issued by 
M&I Bank. 
¶5 
The 
letters of credit were "irrevocable standby 
letters of credit" that were payable upon presentation of 
documents listed on the face of the letters of credit.  M&I Bank 
                                                 
4 The record reflects that Polsky has instituted various 
garnishment actions against Stanton to satisfy the judgment of 
the circuit court.  Therefore, to the extent that those 
garnishment proceedings have been successful, we require the 
garnishment proceeds, statutory costs and statutory interest be 
paid to Stanton. 
No. 
2007AP2791   
 
4 
 
was fully secured by Admanco's property in the event there was a 
drawdown on the letters of credit.  
¶6 
Admanco encountered financial difficulties, and on 
December 30, 2004, Admanco assigned its assets to Polsky for the 
benefit of creditors pursuant to Wis. Stat. § 128.05.  Also on 
December 30, 2004, Polsky was appointed as the receiver for 
Admanco's property pursuant to Wis. Stat. § 128.08.   
¶7 
Admanco failed to make its January 1, 2005 rent 
payment, and Stanton gave notice of default and the opportunity 
to cure according to the parties' lease.5  On January 10, 2005, 
after Admanco failed to cure, Stanton gave notice that it was 
accelerating the full amount due under the lease without 
terminating the lease, citing section 22.2 of the lease.  
Stanton then drew down the full $750,000 from both letters of 
credit.6  Stanton also gave notice that it was retaining 
Admanco's $61,313.66 security deposit.   
¶8 
As part of the ch. 128 proceedings, and with M&I 
Bank's approval, Polsky applied for and was given permission 
from the court to sell Admanco's assets.  From the sale of those 
assets to EBSCO Industries, Inc. (EBSCO Industries),7 M&I Bank 
                                                 
5 Admanco-Stanton lease, § 21.2. 
6 Because the letters of credit were secured on March 31, 
2004, contemporaneous with Stanton's payment of $2.8 million to 
Admanco, and the petition that commenced the ch. 128 proceeding 
was not filed until December 30, 2004, no argument can be made 
that the letters of credit constituted a preference under Wis. 
Stat. § 128.07.  
7 Admanco is a division of EBSCO Industries, Inc. 
No. 
2007AP2791   
 
5 
 
was paid more than $3 million, which included full reimbursement 
for the $750,000 payment M&I Bank made to Stanton.   
¶9 
Polsky brought suit against Stanton on behalf of the 
debtor's estate, claiming the estate had the right to recoup 
$811,313.66.  This amount included the $750,000 drawdown on the 
letters of credit and Stanton's retention of the $61,313.66 cash 
security deposit.8   
¶10 Polsky also sued the Bumbys, seeking $375,000 to 
reimburse the debtor's estate for the second letter of credit of 
which the Bumbys were the applicants.  The Bumbys reached an 
agreement 
with 
Polsky 
by 
paying 
$267,374.17, 
and 
Polsky 
dismissed 
them 
from 
further 
collection 
actions. 
 
Polsky 
continued to proceed against Stanton for the balance on the 
Bumbys' letter of credit, as well as the full amount on the 
letter of credit for which Admanco applied.   
¶11 Both parties moved for summary judgment.  The circuit 
court granted judgment in favor of the debtor's estate and 
determined that $513,292.66 was due from Stanton.  The circuit 
court's decision turned in large part on Wis. Stat. § 128.17(2), 
which it concluded limited the amount of rent that Stanton could 
assess as damages under the Admanco-Stanton lease.  The circuit 
court did not analyze whether the proceeds of the letters of 
                                                 
8 We agree with the receiver's determination that the 
$61,313.66 cash security deposit is part of the debtor's estate 
because it was Admanco's property prior to the commencement of 
the debtor's ch. 128 proceeding.  Accordingly, our discussion 
relative to the ownership of the proceeds of the letters of 
credit does not apply to the cash security deposit. 
No. 
2007AP2791   
 
6 
 
credit were property of the debtor's estate, but simply assumed 
they were. 
¶12 Stanton appealed, arguing that the proceeds from the 
letters of credit were not property of the debtor's estate; that 
Wis. Stat. § 128.17(2) does not apply to the drawdown of the 
letters 
of 
credit; 
and 
that 
Stanton 
is 
a 
Wis. 
Stat. 
§ 128.25(1)(e) secured creditor, in regard to the proceeds from 
the letters of credit.  The court of appeals affirmed the 
circuit court, concluding that § 128.17(2) limited Stanton's 
claim to one month's rent and that Stanton was not a secured 
creditor under § 128.25(1)(e).  Admanco, Inc. v. 700 Stanton 
Drive, LLC, 2009 WI App 57, ¶¶1, 22, 318 Wis. 2d 232, 768 N.W.2d 
32.  The court of appeals did not analyze Stanton's rights under 
the Stanton-Admanco lease to determine whether Stanton had a 
contractual right to draw down the entire $750,000 from the 
letters of credit.   
¶13 Stanton petitioned for review, which we granted.  We 
now reverse. 
II.  DISCUSSION 
A.  Standard of Review 
¶14 This case presents upon cross-motions for summary 
judgment, wherein the circuit court granted Admanco's motion and 
denied that of Stanton, which the court of appeals affirmed 
albeit on a somewhat different basis.  We review decisions on 
summary judgment independently, applying the same standards of 
review as did the circuit court and the court of appeals.  
No. 
2007AP2791   
 
7 
 
DeHart v. Wis. Mut. Ins. Co., 2007 WI 91, ¶7, 302 Wis. 2d 564, 
734 N.W.2d 394. 
¶15 In the course of reviewing these summary judgment 
motions, we are required to interpret and apply Wisconsin 
statutes.  The interpretation and application of statutes are 
questions of law that we decide independently of the decisions 
previously made by other courts, but benefitting from their 
discussions and analyses.  Richards v. Badger Mut. Ins. Co., 
2008 WI 52, ¶14, 309 Wis. 2d 541, 749 N.W.2d 581.  The summary 
judgment motions also require us to interpret a written 
contract, the Admanco-Stanton lease.  Interpretation of an 
unambiguous written contract presents a question of law for our 
independent review, as well.  See Prent Corp. v. Martek 
Holdings, Inc., 2000 WI App 194, ¶10, 238 Wis. 2d 777, 618 
N.W.2d 201. 
B.  Letter of Credit Principles 
¶16 Because this review arises from the drawdown of 
standby letters of credit, it is important to understand the 
nature of standby letters of credit and their use in commercial 
settings; 
the 
relative 
rights 
and 
obligations 
of 
the 
participants 
to 
standby 
letters 
of 
credit; 
and 
how 
the 
participants may relate to each other at various times. 
¶17 Letters of credit have been used in commercial 
transactions for a very long time.  John F. Dolan, The Law of 
Letters of Credit ¶1.01, 1-2 (rev. ed. 1999).  Initially, 
letters of credit were used to protect a seller in the sale of 
goods by assuring that the seller received the purchase price.  
No. 
2007AP2791   
 
8 
 
Id. at ¶1.01, 1-2 n.1.  That use has expanded dramatically such 
that merchants and bankers commonly use letters of credit in 
areas that were formerly "the domain of secondary guaranties."  
Id. 
¶18 There are two general types of letters of credit:  
those "that serve the sale of commodities and those that 
guarantee the performance of an obligation[.  We call] the 
former a 'commercial' [letter of] credit and the latter a 
'standby' [letter of] credit."  Id. 
¶19 Transactions involving letters of credit are governed 
by Article 5 of the Uniform Commercial Code (U.C.C.), and in 
Wisconsin by ch. 405 of the statutes, which is part of 
Wisconsin's enactment of the U.C.C.  Since the adoption of 
U.C.C. Article 5, governing letters of credit, there has been a 
significant expansion in the use of letters of credit in various 
commercial transactions "where they serve to reduce risk of 
nonperformance under a contract that calls for performance.  
Generally, [letters of] credit[] in the nonsale setting have 
come to be known as standby [letters of] credit[]" because they 
"standby" and perform only in the event that the person 
primarily liable to perform does not.  Id. at ¶1.04, 1-20, 21.  
A standby letter of credit is never drawn upon when a 
transaction proceeds smoothly, with each party performing 
according to their contractual agreement. 
¶20 "The linchpin of the letter-of-credit transaction is 
the unique legal relationship [among the parties]."  Douglas G. 
Baird, Standby Letters of Credit in Bankruptcy, 49 U. Chi. L. 
No. 
2007AP2791   
 
9 
 
Rev. 130, 134 (1982).  "Professors White and Summers note that a 
letter of credit is not like other devices creating legal 
obligations, but rather that a letter of credit is a letter of 
credit."  Id. at 134 n.16.  One scholar posits that the standby 
letter of credit arose out of a rule limiting banks from 
assuming guarantee obligations for third parties, but that the 
function of a standby letter of credit is essentially that of a 
guarantor secondarily liable.  Richard A. Lord, The No-Guaranty 
Rule and the Standby Letter of Credit Controversy, 96 Banking 
L.J. 46, 61-62 (1979). 
¶21 There are three parties to a standby letter of credit:  
(1) the applicant who requests the letter of credit; (2) the 
beneficiary to whom payment is due upon the presentation of 
documents required by the letter of credit; and (3) the issuer 
who obligates itself to honor the letter of credit by paying up 
to a stated amount of money when it is presented with documents 
the letter of credit requires.  Wis. Stat. § 405.102(1)(b), (c) 
& (i); Wis. Stat. § 405.108. 
¶22 The obligation of an issuer to pay upon presentation 
of proper documentation is an obligation independent of any 
other claim that may exist among the parties to the letter of 
credit contract.  Wis. Stat. § 405.103(4).  As Eakin explained, 
"Letters of credit are designed to avoid complex disputes about 
how much the beneficiaries 'really' [are] owe[d].  The promise 
and premise are 'pay now, argue later.'"  Eakin v. Cont'l Ill. 
Nat'l Bank & Trust Co. of Chicago, 875 F.2d 114, 116 (7th Cir. 
1989).  This principle of payment upon proper presentation is 
No. 
2007AP2791   
 
10 
 
known as the independence principle.  See Dolan, supra ¶17, at 
¶2.09, 2-46. 
¶23 Performance under a standby letter of credit amounts 
to payment and is often referred to as "honoring" the letter of 
credit.  See Eakin, 875 F.2d at 116; Wis. Stat. § 405.102(1)(h).  
Payment is due upon presentation of documents required by the 
letter of credit because presentation of those documents is a 
representation that the applicant has not performed on a 
contractual obligation that is independent of the contract that 
sets the terms of the letter of credit.  Dolan, supra ¶17, at 
¶1.04, 1-21; Wis. Stat. § 405.108. 
¶24 One of the primary purposes of standby letters of 
credit is to shift the risk of nonpayment and insolvency from 
the beneficiary of the letter of credit to the issuer of the 
letter of credit.  Eakin, 875 F.2d at 116-17 (explaining that 
"[i]ssuers of letters of credit take the risk of insolvency" and 
that "[s]tandby letters of credit are especially designed to 
deal with insolvency"); Musika v. Arbutus Shopping Ctr. Ltd. 
P'ship (In re Farm Fresh Supermarkets of Maryland, Inc.), 257 
B.R. 770, 772 (Bankr. D. Md. 2001) (noting that "a standby 
letter of credit [] is a distinct type of financing document 
that is more akin to a guarantee than to the usual letter of 
credit"); Duplitronics, Inc. v. Concept Design Elecs. & Mfg., 
Inc. (In re Duplitronics, Inc.), 183 B.R. 1010, 1015 (Bankr. 
N.D. Ill. 1995) (noting that by issuing a standby letter of 
credit the "risk of the customer's . . . insolvency or inability 
to promptly pay has been shifted from the beneficiary to the 
No. 
2007AP2791   
 
11 
 
bank, a party who can better assess that risk and protect 
itself"); Baird, supra ¶20, at 144-45. 
¶25 All parties to a letter of credit benefit from its 
use.  The applicant uses the letter of credit as a financial 
inducement to the beneficiary of the letter of credit to enter 
into a business arrangement, such as a long-term lease, that the 
beneficiary would not enter into without this inducement.9  The 
issuer receives a fee for the risk it takes, and usually, it 
also contracts for its security from the applicant or others, in 
the event the issuer is required to honor the letter of credit.10  
The beneficiary of a letter of credit obtains the gold standard 
of payment assurance for commercial transactions.  Alan N. 
Resnick, Letter of Credit as a Landlord's Protection Against a 
Tenant's Bankruptcy:  Assurance of Payment or False Sense of 
Security?, 82 Am. Bankr. L.J. 497 (2008). 
¶26 Letters of credit create a potential obligation for 
the issuer that is completely independent of the business 
arrangement for which it was an inducement.  Wis. Stat. 
§ 405.103(4); All Serv. Exportacao, Importacao Comercio, S.A., 
New York Branch v. Banco Bamerindus, Do Brazil, S.A., 921 F.2d 
32, 34 (2d Cir. 1990); Eakin, 875 F.2d at 116.  By shifting the 
                                                 
9 Letters of credit are generally more cost-effective and 
flexible than performance bonds or other types of financial 
guarantees.  Beat U. Steiner, A Letter of Credit Primer for Real 
Estate Lawyers, 28 Real Prop. Prob. & Tr. J. 125, 129 (1993). 
10 The letter of credit may be secured by cash deposits, 
personal guarantees, guarantees of one who is not a party to the 
letter of credit contract, real estate, personal property, etc. 
No. 
2007AP2791   
 
12 
 
risk of nonpayment in an underlying transaction to a commercial 
institution such as a bank that is better able to assess the 
risk of nonpayment, letters of credit serve to encourage and to 
facilitate commercial transactions.  N. Shore & Cent. Ill. 
Freight Co. v. Am. Nat'l Bank & Trust Co. of Chicago (In re N. 
Shore & Cent. Ill. Freight Co.), 30 B.R. 377, 378 (Bankr. N.D. 
Ill. 1983); Baird, supra ¶20, at 131.   
¶27 To properly protect the independence of a letter of 
credit, it is necessary to have a clear understanding of the 
rights of a trustee in bankruptcy or a receiver in insolvency 
vis-à-vis the beneficiary of a standby letter of credit once a 
drawdown has occurred.  Their rights must accommodate protection 
of the beneficiary from nonpayment and insolvency, which the 
independence principle provides.  However, the independence 
principle nevertheless permits a subsequent breach of contract 
claim by a bankruptcy trustee or receiver, if such claim lies 
against a beneficiary who draws down a letter of credit in 
excess of its right to do so.  It is with these foundational 
principles in mind that we proceed to the issues presented in 
this case.  
C.  Summary Judgment 
¶28 A decision on summary judgment begins with a review of 
the complaint to determine whether it states a claim; it 
proceeds to a review of the answer to determine whether issue 
has been joined; and finally to a review of the material 
submitted in support of and in opposition to the motion to 
determine whether material issues of fact are in dispute.  
No. 
2007AP2791   
 
13 
 
Jackson Cnty. v. DNR, 2006 WI 96, ¶11, 293 Wis. 2d 497, 717 
N.W.2d 713; Schuster v. Altenberg, 144 Wis. 2d 223, 228, 424 
N.W.2d 159 (1988).  Summary judgment may be granted only if no 
genuine issue of material fact is in dispute.  Jackson Cnty., 
293 Wis. 2d 497, ¶11.   
¶29 Polsky filed this action to recover what he alleged 
were excess lease payments to Stanton as evidenced by the 
proceeds from the letters of credit and the cash security 
deposit that Stanton held.  Specifically, Polsky alleged that 
"Stanton's drawing down on the letters of credit indicates that 
Stanton elected to terminate the Lease."11  According to Polsky, 
termination of the lease was a necessary precondition to 
Stanton's right to draw down the letters of credit.12  Polsky 
alleged Stanton's drawdown was a "Termination Default."13  Polsky 
alleged that as a result of Stanton's termination of the lease, 
it had no right to offset the proceeds of the letters of credit 
against damages occurring after the termination of the lease 
and, in so doing, Stanton breached the terms of the lease.14  
Additionally, Polsky alleged that as a result of Stanton's 
termination of the lease, Wis. Stat. § 128.17(2) limited 
Stanton's claim for "unpaid rent, if any, for the period up to 
                                                 
11 Complaint, ¶13. 
12 Id. 
13 Id. 
14 Id., ¶¶13, 19. 
No. 
2007AP2791   
 
14 
 
April 1, 2005, when the new lease with EBSCO Industries 
commenced."15 
¶30 Stanton answered, alleging the lease terms permitted 
Stanton to draw down on the letters of credit without 
terminating the lease, which Stanton affirmatively alleged it 
did not terminate.16  Because it did not terminate the lease, 
Stanton alleged that it was entitled to offset the proceeds of 
the cash security deposit and the letters of credit against its 
future actual damages under the lease.17  Stanton also alleged 
that limits imposed under Wis. Stat. § 128.17(2) do not apply to 
its rights under the lease.18 
¶31 We conclude that the complaint and answer join issue, 
and the documents submitted with the affidavits do not raise 
issues of material fact.  Accordingly, summary judgment is 
appropriate for Polsky's statutory claim for return of the 
proceeds paid from the standby letters of credit, his claim for 
breach of contract and Stanton's defense to his claims, as well 
as Stanton's claim for damages arising from Admanco's breach of 
the lease.  See Jackson Cnty., 293 Wis. 2d 497, ¶11.  
                                                 
15 Id., ¶15. 
16 Answer 2, ¶13. 
17 Id. at 3, ¶8 (setting forth "Offset Rights"). 
18 Id. at 2, ¶16. 
No. 
2007AP2791   
 
15 
 
D.  Property and Claims under Ch. 128 
1.  Property of the debtor's estate 
¶32 Polsky 
was 
appointed 
as 
receiver 
of 
Admanco's 
property.  As Wis. Stat. § 128.08 provides, "[t]he court within 
the proper county may sequestrate the property of a debtor and 
appoint a receiver therefor."  It has long been the law in 
Wisconsin that § 128.08 "provides for the sequestration of the 
property of the debtor."  Indus. Comm'n v. Sanitary Baking Co., 
242 Wis. 115, 118, 7 N.W.2d 603 (1943) (emphasis added).  Stated 
otherwise, it is only the property of the debtor (Admanco) that 
is administered by the receiver (Polsky) in this ch. 128 
proceeding.  The property of others lies outside the debtor's 
estate. 
¶33 Polsky contends, and the court of appeals agreed, that 
the proceeds of the standby letters of credit became subject to 
administration of the debtor's estate through the application of 
Wis. Stat. § 128.17(2), when M&I Bank was reimbursed from the 
estate's property.  Admanco, 318 Wis. 2d 232, ¶29.  M&I Bank's 
reimbursement occurred because M&I Bank had a security interest 
in the estate's property sufficient to cover Stanton's $750,000 
drawdown.  Stanton did point out that the actual proceeds from 
the letters of credit were not Admanco's property, and the court 
of appeals recognized this principle as well, id., ¶34 n.17.   
¶34 However, rather than analyzing whether the standby 
letters of credit were improperly drawn down, which could then 
give rise to a claim for breach of contract against Stanton, the 
court of appeals took a shortcut.  The court of appeals 
No. 
2007AP2791   
 
16 
 
concluded that because M&I Bank was fully secured by property of 
the debtor's estate, the drawdown on the standby letters of 
credit must be treated the same as would property of the debtor.  
Id., ¶35.   
¶35 This shortcut, if upheld, would do violence to what 
has been the gold standard for security in Wisconsin commercial 
transactions, which standby letters of credit have provided for 
many, many years.  As the cases that discuss the use of standby 
letters of credit in commercial transactions explain, standby 
letters of credit are employed because they shift the risk of 
nonpayment and insolvency from the beneficiary to the issuer of 
the letter of credit, who is better able to assess the risk of 
nonpayment and insolvency.  See Eakin, 875 F.2d at 116; In re 
Farm Fresh Supermarkets, 257 B.R. at 772; In re Duplitronics, 
183 B.R. at 1015.  
¶36 Under the court of appeals decision, standby letters 
of credit would no longer shift the risk of nonpayment and 
insolvency from the beneficiary to the issuer of the letter of 
credit because the beneficiary of the letter of credit would 
bear the ultimate loss.  Accordingly, the court of appeals 
decision contravenes the major function of letters of credit.  
Stated otherwise, under the court of appeals decision, those who 
entered into commercial transactions with persons of uncertain 
creditworthiness, assured by a bargained-for letter of credit, 
No. 
2007AP2791   
 
17 
 
would be deprived of the safety provided by the letter of credit 
that induced them to enter into the contract.19   
¶37 However, standby letters of credit are able to shift 
the risk of nonpayment and insolvency to the issuer of the 
letter of credit because the proceeds of letters of credit are 
not property of the debtor's estate in a bankruptcy or 
insolvency proceeding.  Willis v. Celotex Corp., 978 F.2d 146, 
148 n.3 (4th Cir. 1992) (explaining that the proceeds of an 
irrevocable letter of credit are not property of the bankruptcy 
estate); Kellogg v. Blue Quail Energy, Inc., 831 F.2d 586, 589 
(5th Cir. 1987) (concluding that "[i]t is well established that 
a letter of credit and the proceeds therefrom are not property 
of the debtor's estate"); Wetzel v. Lumbermans Mut. Cas. Co., 
324 B.R. 333, 340 n.18 (S.D. Ind. 2005) (same); OHC Liquidation 
Trust v. Discover Re (In re Oakwood Homes Corp.), 342 B.R. 59, 
66-67 (Bankr. D. Del. 2006) (same); Sabratek Corp. v. LaSalle 
Bank, N.A. (In re Sabratek Corp.), 257 B.R. 732, 735 (Bankr. D. 
Del. 2000) (same); Leisure Dynamics, Inc. v. Cont'l Ill. Nat'l 
                                                 
19 The dissent would have had the same result were it the 
law in Wisconsin.   
No. 
2007AP2791   
 
18 
 
Bank & Trust Co. of Chicago (In re Leisure Dynamics, Inc.), 33 
B.R. 171, 172-73 (Bankr. D. Minn. 1983) (same).20   
¶38 We agree that the proceeds of standby letters of 
credit are not property of the debtor's estate.  Rather, the 
proceeds are property of the issuer that are paid to the 
beneficiary upon a proper demand.  They never have been property 
of the debtor. 
¶39 Furthermore, some courts have opined that honoring a 
letter of credit has little effect on the unsecured creditors of 
the debtor's estate because any security the issuer takes in the 
applicant's property is reserved for the issuer when the letter 
of credit commences.  In re Sabratek, 257 B.R. at 735.  
Therefore, from that point forward, until the letter of credit 
has expired, the applicant has no right to dispose of that 
collateral without the permission of the issuer.  Id.; see also 
In re Leisure Dynamics, 33 B.R. at 172-73; Page v. First Nat'l 
                                                 
20 Many of the cases cited by the dissent, when properly 
understood, support our reasoning.  Dissent, ¶84 n.7.  See First 
Ave. W. Bldg. v. James (In re Onecast Media, Inc.), 439 F.3d 
558, 564 & n.5 (9th Cir. 2006) (explaining that cases such as 
Kellogg are "not apposite" because it was confronted with a 
claim for breach of contract underlying the letter of credit); 
Int'l Fin. Corp. v. Kaiser Grp. Int'l Inc. (In re Kaiser Grp. 
Int'l Inc.), 399 F.3d 558, 566–67 (3d Cir. 2005) (finding 
"compelling" the logic of Kellogg and concluding that the 
collateral securing the letters of credit, not the proceeds of 
the letter of credit, constituted property of the debtor's 
estate); Am. Bank of Martin Cnty. v. Leasing Serv. Corp. (In re 
Air Conditioning, Inc. of Stuart), 845 F.2d 293, 296 (11th Cir. 
1988) (explaining that "neither a letter of credit nor its 
proceeds 
are 
property 
of 
the 
debtor's 
estate"; 
however, 
"[c]ollateral which has been pledged by the debtor as security 
for a letter of credit [] is property of the debtor's estate"). 
No. 
2007AP2791   
 
19 
 
Bank of Maryland (In re Page), 18 B.R. 713, 715-16 (D.D.C. 
1982). 
¶40 The dissent contends that we misconstrue Kellogg and 
that it actually supports the dissent's position that "the 
proceeds at issue are property of the [debtor's] estate, by 
virtue of the estate collateral securing them."21  This assertion 
highlights the central flaw at the core of the dissent:  it 
mistakenly conflates the rights of a beneficiary of a letter of 
credit to the proceeds of the letter of credit with the rights 
of a secured creditor to an interest in the property of the 
debtor's estate. 
¶41 The 
dissent 
correctly 
points 
out 
that 
Kellogg 
concludes that "'the letter of credit itself and the payments 
thereunder may not be property of [the] debtor, but the 
collateral pledged as a security interest for the letter of 
credit is.'"22  We do not quarrel with this statement.  However, 
what the dissent mistakenly does next is to conflate the rights 
of a secured creditor (M&I Bank) to enforce its security 
interest in the property of the debtor (Admanco) with the rights 
of the beneficiary of the letter of credit (Stanton) to be paid 
by M&I Bank, independent of any contract between M&I Bank and 
Admanco.  
                                                 
21 Dissent, ¶¶86–87.   
22 Id., ¶86 (quoting Kellogg v. Blue Quail Energy, Inc., 831 
F.2d 586, 590–91 (5th Cir. 1987)). 
No. 
2007AP2791   
 
20 
 
¶42 An example may help to show why the dissent is 
conflating two separate and distinct property rights.  Suppose 
Admanco had given property of an unnamed third party, instead of 
its own property, as security for the letters of credit, 
breached its lease, and assigned its assets for the benefit of 
creditors; Stanton then drew down the $750,000.  Under that 
scenario, when M&I Bank realizes on its security underlying the 
letters of credit, there will be no effect on the debtor's 
estate because only the property of the unnamed third party will 
be affected.  However, in that hypothetical, M&I Bank would be 
enforcing the same right against collateral and fulfilling the 
same obligation to honor Stanton's rights to proceeds from the 
letters of credit as it has in the case now before us.   
¶43 The right to execute against collateral and the right 
to draw down proceeds from letters of credit are legally 
separate and independent of one another.  To conclude otherwise 
would defeat the rights of the beneficiary of a letter of 
credit, who is entitled to the same security of payment as it 
would have received if Admanco had not commenced an insolvency 
proceeding.  See Eakin, 875 F.2d at 117.  In this respect, the 
issuer of the letters of credit operates like a guarantor of 
Stanton's rights under the lease.  See In re Farm Fresh 
Supermarkets, 257 B.R. at 772.    
2.  Ch. 128 claims 
¶44 All property administered under ch. 128 was the 
debtor's property, which becomes the debtor's estate, that is 
then subject to administration by the receiver.  Wis. Stat. 
No. 
2007AP2791   
 
21 
 
§ 128.08.  The "claims" that are filed in a ch. 128 proceeding 
are claims to receive a distribution from the debtor's estate.  
Indus. Comm'n, 242 Wis. at 118.  For example, Wis. Stat. 
§ 128.14(1) requires creditors "to file their verified claims 
within 3 months from the date of the filing of an assignment or 
the appointment of a receiver."  (Emphasis added.)  Such claims 
seek payment from the property that comprises the debtor's 
estate.  See Nickel v. Stoltz (In re Davis Bros. Stone Co.), 245 
Wis. 130, 13 N.W.2d 512 (1944); Pobreslo v. Guar. Mortg. Corp., 
210 Wis. 20, 242 N.W. 725 (1932).   
¶45 Wisconsin 
Stat. 
§ 128.14(2) 
raises 
concerns 
for 
creditors "not filing claims within the time limited [because 
they] may be precluded from participation in any dividend which 
may be declared."  (Emphasis added.)  The "claim" referenced in 
§ 128.14(2) is a claim against the debtor's estate, and the 
"dividend" that is referenced in § 128.14(2) is a payment from 
the debtor's estate.  See Calumet Cnty. v. Baumann (In re 
Calumet Brewing Co.), 243 Wis. 317, 321, 10 N.W.2d 190 (1943).  
Wisconsin Stat. § 128.15 addresses "[o]bjections to claims."  
(Emphasis added.)  Again, the "claims" referenced are claims to 
a distribution from the debtor's estate.  Gelatt v. DeDakis, 77 
Wis. 2d 578, 600-01, 254 N.W.2d 171 (1977).   
¶46 "Claims" also are addressed in Wis. Stat. § 128.17(2), 
the statute upon which the circuit court and the court of 
appeals relied to preclude Stanton's retention of the proceeds 
of the letters of credit.  Admanco, 318 Wis. 2d 232, ¶36.  
No. 
2007AP2791   
 
22 
 
Section 128.17 is entitled "[o]rder of distribution," and it 
provides in relevant part: 
(1) The 
order 
of 
distribution 
out 
of 
the 
debtor's estate shall be as follows: 
. . .  
(g) 
Debts 
due 
to 
creditors 
generally, 
in 
proportion to the amount of their claims, as allowed. 
. . .  
(2) Debts to become due as well as debts due may 
be proved, but a lessor's claim shall be limited to 
past due rent, and to any actual damage caused the 
lessor by a rejection of the lease on the part of the 
debtor 
or 
by 
its 
termination 
by 
force 
of 
its 
provisions.  The lessor shall be entitled to payment 
in full, at the rate specified in the lease, for the 
period of any actual occupancy by the receiver or 
assignee. 
(Emphasis added.) 
¶47 Wisconsin Stat. § 128.17(2) limits a lessor's claims 
against property of the debtor's estate.  However, it says 
nothing about a lessor's claims against property that is not 
property of the debtor's estate.  Stated otherwise, ch. 128 
applies to claims against the debtor's estate, not to claims 
against the property of another. 
¶48 Recognizing that ch. 128 claims are claims to share in 
the debtor's estate is important because the proceeds of the 
letters of credit are not property of the debtor's estate.   
Kellogg, 831 F.2d at 589; supra ¶¶32-37.  Therefore, Wis. Stat. 
§ 128.17(2) says nothing about proceeds from letters of credit, 
which are property of the issuers.  The court of appeals did not 
consider from what property a "claim" under § 128.17(2) was 
No. 
2007AP2791   
 
23 
 
requesting payment.  However, the only property in a ch. 128 
proceeding is the property of the debtor's estate.  Wis. Stat. 
§ 128.08; Indus. Comm'n, 242 Wis. at 118.  Because the 
restriction of § 128.17(2) applies only to distributions from 
the debtor's estate, it is not applicable here. 
¶49 The court of appeals concluded that Wis. Stat. 
§ 128.17(2) capped Stanton's claim for rent, relying in part on 
cases such as Oldden v. Tonto Realty Corp., 143 F.2d 916 (2d 
Cir. 1944) and Redback Networks, Inc. v. Mayan Networks Corp. 
(In re Mayan Networks Corp.), 306 B.R. 295 (B.A.P. 9th Cir. 
2004), construing 11 U.S.C. § 502(b)(6)(A) (2006) of the revised 
federal bankruptcy code.  Admanco, 318 Wis. 2d 232, ¶¶11-13, 24–
25, 31–34.  However, this provision of the federal bankruptcy 
code 
is 
unlike 
Wis. 
Stat. 
§ 128.17(2) 
and 
therefore, 
interpretations of it cannot be used to support applying 
§ 128.17(2) to cap contract damages that are not claims against 
the debtor's estate. 
¶50 The revised federal bankruptcy act caps "rent reserved 
by such lease, without acceleration, for the greater of one 
year, or 15 percent, not to exceed three years, of the remaining 
term of such lease."  11 U.S.C. § 502(b)(6)(A).  It was this 
No. 
2007AP2791   
 
24 
 
provision that Oldden23 and In re Mayan Networks interpreted in 
the context of a federal bankruptcy proceeding, not a state 
insolvency proceeding as we have here.  Oldden, 143 F.2d at 917; 
In re Mayan Networks, 306 B.R. at 297–98.  While it may be that 
ch. 128 was modeled on the federal bankruptcy act, it is beyond 
dispute that when the federal act was revised to include this 
cap, ch. 128 was not similarly revised.  Therefore, the case law 
interpreting the cap on rent from § 502(b)(6)(A) does not inform 
our interpretation of Wis. Stat. § 128.17(2).24   
3.  Breach of contract 
¶51 Even though the proceeds of a letter of credit are not 
the property of the debtor's estate and the drawdowns on the 
letters of credit are not claims against the debtor's estate, it 
does not follow that a receiver can make no claim that the 
beneficiary drew down more proceeds than it was contractually 
entitled. 
                                                 
23 Oldden v. Tonto Realty Corp., 143 F.2d 916 (2d Cir. 
1944), interpreted 11 U.S.C. § 502(b)(6)(A)'s predecessor, § 63 
sub. a(9), which established a cap of "'rent reserved by the 
lease, without acceleration, for the year next succeeding the 
date of the surrender of the premises to the landlord or the 
date of reentry of the landlord, whichever first occurs, . . . 
plus an amount equal to the unpaid rent accrued.'"  Id. at 917 
(quoting § 63 sub. a(9)). 
24 Several other cases cited by the dissent interpret 11 
U.S.C. § 502(b)(6)(A), and for the reasons just explained, do 
not inform our interpretation of Wis. Stat. § 128.17(2).  See 
dissent, ¶84 n.7 (citing AMB Prop., L.P. v. Official Creditors 
for the Estate of AB Liquidating Corp. (In re AB Liquidating 
Corp.), 416 F.3d 961, 965 & n.3 (9th Cir. 2005); In re Connectix 
Corp., 372 B.R. 488 (Bankr. N.D. Cal. 2007)). 
No. 
2007AP2791   
 
25 
 
¶52 Payment from a standby letter of credit does not 
negate any suit for breach of contract against the beneficiary 
of a letter of credit, if such a claim exists.  See First Ave. 
W. Bldg. v. James (In re Onecast Media, Inc.), 439 F.3d 558, 564 
(9th Cir. 2006) (explaining that a trustee may maintain a claim 
for breach of contract if the beneficiary breached the contract 
underlying the letter of credit by a drawdown that exceeded the 
beneficiary's damages).   
¶53 A breach of contract claim is a chose in action under 
Wisconsin law and a property right of the person who holds it.  
Burmeister v. Schultz, 37 Wis. 2d 254, 259, 154 N.W.2d 770 
(1967).  Accordingly, here, if there were a breach of contract 
action that would lie against Stanton, that property right would 
belong to the debtor's estate.  In re Onecast Media, 439 F.3d at 
564.  Polsky sought to proceed on such a claim because he sued 
Stanton for breach of contract.25  However, neither the circuit 
court nor the court of appeals ruled on that claim. 
¶54 Recognizing that the proceeds of a standby letter of 
credit is not part of the debtor's estate, while permitting a 
suit on the debtor's behalf against the beneficiary of a standby 
letter of credit for breach of contract is an important 
distinction to maintain.  That distinction preserves the ability 
of a standby letter of credit to shift the risk of nonpayment 
and insolvency to the issuer of the letter of credit, thereby 
facilitating commercial transactions.  However, it also permits 
                                                 
25 Complaint, ¶¶13, 19; see supra ¶29. 
No. 
2007AP2791   
 
26 
 
a debtor's receiver to collect all of the property of the 
debtor, including damages arising from breach of contract 
actions. 
¶55 Therefore, while the amount of money sought by a 
receiver subsequent to a drawdown on a standby letter of credit 
may be the same amount that is proved as damages for breach of 
contract against a beneficiary, they are not the same property 
interest and they do not arise in the same way.  The proceeds of 
a letter of credit is property of the issuer of the standby 
letter of credit.  Kellogg, 831 F.2d at 589.  The damages for 
breach of contract are property of the debtor because they are 
payment for the debtor's contract rights.  In re Onecast Media, 
439 F.3d at 564.   
¶56 Furthermore, distribution from a standby letter of 
credit arises upon the presentation of documents that the 
standby letter of credit requires for payment.  Nothing more is 
required.  By contrast, damages for breach of contract require 
the receiver to prove the contract, the breach and the amount of 
damages that resulted from the breach.  Arthur L. Corbin, Corbin 
on Contracts §§ 943-944, at 923-24 (1952).  Stated otherwise, a 
lawsuit for breach of contract in a ch. 128 proceeding requires 
the same proofs as does a lawsuit for breach of contract outside 
of such proceeding; payment of damages is not automatic upon a 
claim of breach of contract.  See Hayes v. Buda, 323 F.2d 748, 
750 (7th Cir. 1963). 
¶57 Here, Polsky did allege Stanton breached the letter of 
credit contract, claiming that Stanton collected more money in 
No. 
2007AP2791   
 
27 
 
the drawdown than it had a right to under the Admanco-Stanton 
lease.26  Stanton also alleged a claim for breach of contract, 
claiming that Admanco breached the lease, thereby giving rise to 
Stanton's contractual remedies under the lease.27 
¶58 Resolution of both Polsky's and Stanton's breach of 
contract claims depend on the terms of the written Admanco-
Stanton lease.  The lease was submitted to the circuit court 
during the motions for summary judgment, as well as being 
attached to the Complaint. 
¶59 There is no dispute that Admanco breached the lease by 
failing to pay the rent due January 1, 2005, and that Admanco 
did not timely cure that default of its obligations under the 
lease.28  Stanton also maintains that Admanco defaulted under the 
lease by assigning its assets for the benefit of creditors and 
having a receiver appointed pursuant to Wis. Stat. ch. 128.  In 
that regard, the lease provides in section 21: 
21. EVENTS OF DEFAULT 
21.1  Bankruptcy of Tenant or Guarantor.  It 
shall be a default by Tenant under this Lease if 
either or both of any Guarantor and Tenant makes an 
assignment for the benefit of creditors, or files a 
voluntary 
petition 
under 
any 
state 
or 
federal 
bankruptcy or insolvency law . . . that is not 
dismissed within 90 days, . . . or whenever a receiver 
of Tenant or any Guarantor, as the case may be, or of, 
                                                 
26 Complaint, ¶¶13, 19. 
27 Answer 2, ¶13; Answer 3, ¶8 (setting forth "Offset 
Rights").   
28 Admanco-Stanton lease, § 21.2. 
No. 
2007AP2791   
 
28 
 
or for, the property of Tenant or any Guarantor, as 
the case may be, shall be appointed, or Tenant or 
Guarantor, as the case may be, admits it is insolvent 
or is not able to pay its debts as they mature.   
(Emphasis added.) 
¶60 Admanco assigned its assets to Polsky for the benefit 
of Admanco's creditors, and Polsky was appointed receiver for 
Admanco's property.  These facts are undisputed.  The terms of 
default under section 21.1 are clearly set out, and the 
undisputed facts establish that Admanco "ma[de] an assignment 
for the benefit of creditors" and "file[d] a voluntary petition 
under [] state . . . insolvency law."  As such, Admanco's 
conduct comes within its provisions.  Therefore, as a matter of 
law, Admanco committed a second event of default under the 
lease's terms by these actions.  See Prent Corp., 238 Wis. 2d 
777, ¶10. 
¶61 The Admanco-Stanton lease also provides remedy options 
for the landlord when the tenant defaults.  The remedies 
available to the landlord are set out in section 22.  Here, 
Stanton stated that it was proceeding under section 22.2(b) of 
the lease when it terminated Admanco's possession without 
terminating its lease.29  Section 22.2 provides in relevant part: 
22.2 Landlord's Remedies.  In the event of any 
default by Tenant under this Lease, Landlord, at its 
option, . . . may, in addition to all other rights and 
remedies provided in this Lease, or otherwise at law 
or in equity:  . . . (b) terminate Tenant's right of 
possession of the Premises without terminating this 
Lease, provided, however, that Landlord may, whether 
Landlord elects to proceed under Subsections (a) or 
                                                 
29 Affidavit of Scott Revolinski, Exhibit 8. 
No. 
2007AP2791   
 
29 
 
(b) above, relet the Premises, or any part thereof for 
the account of Tenant . . .  If Landlord elects to 
pursue its rights and remedies under Subsection (b) 
above, . . . and Landlord fails to relet the Premises, 
then Tenant shall pay to Landlord the sum of (x) the 
projected costs of Landlord's expenses of reletting 
. . . and (y) the accelerated amount of Base Rest and 
Additional Rent due under the Lease for the balance of 
the Term, discounted to present value at a rate of 6% 
per annum.   
(Emphasis added.)  Stanton gave affirmative written notice that 
it was not terminating the lease; it was merely terminating 
Admanco's right of possession.30  Stanton also gave notice that 
in an effort to mitigate its damages, it would be reletting part 
of the premises to EBSCO Industries.31   
¶62 When Stanton terminated Admanco's possession without 
terminating the lease,32 the payments for the full term of the 
lease came due at a discounted rate of 6% per annum.33  The Base 
Rent under the lease for the first 12 months was $367,882.00; 
the Base Rent for the next 12 months was $377,079.05; the Base 
Rent for the third 12 months was $386,506.03.34  The Base Rent 
continued to escalate annually, ending with $519,807.63 due 
during the final 12 months of the lease.35  The cumulative amount 
of the Base Rent payments due under the lease, discounted by 6% 
                                                 
30 Id. 
31 Id. 
32 See generally Admanco-Stanton lease, § 22.2. 
33 Id., § 22.2(b). 
34 Id., § 2.2. 
35 Id. 
No. 
2007AP2791   
 
30 
 
per annum, greatly exceeds Stanton's $750,000 draw down on the 
standby letters of credit.  Therefore, Stanton did not breach 
the Admanco-Stanton lease when it drew down $750,000 from the 
standby letters of credit.   
¶63 Polsky's breach of contract claim alleges that Stanton 
had no contractual right to $750,000 when it drew down the 
standby letters of credit because Stanton had terminated the 
lease.36  However, as we mentioned above, the documents that 
Stanton submitted in support of its motion for summary judgment 
show Stanton provided affirmative, written notice that it was 
not terminating the lease.  Stanton had the contractual right to 
select this remedy for Admanco's defaults.  Therefore, Polsky 
has not set out facts sufficient to show that Stanton exceeded 
its rights under the lease when it accelerated the rent due for 
the term of the lease pursuant to the Admanco-Stanton lease, 
section 22.2(b).  Accordingly, Polsky's breach of contract claim 
fails, and Stanton's breach of contract claim prevails. 
III.  CONCLUSION 
¶64 Because we conclude that the proceeds of the standby 
letters of credit were not property of Admanco, they are not 
property of the debtor's estate subject to the receiver's 
administration under ch. 128.  We also conclude that the "claim" 
of Wis. Stat. § 128.17(2) is a claim against property of the 
debtor's estate, not a claim against property of the issuer of 
the standby letters of credit.  And finally, we conclude that 
                                                 
36 Complaint, ¶13. 
No. 
2007AP2791   
 
31 
 
the circuit court should have ordered summary judgment denying 
Polsky's breach of contract claim and granting Stanton's breach 
of contract claim.   
¶65 Accordingly, we reverse the decision of the court of 
appeals and remand to the circuit court to dismiss Polsky's suit 
against Stanton, as it relates to the proceeds of the standby 
letters of credit, and for further proceedings consistent with 
this decision.37 
By the Court.—The decision of the court of appeals is 
reversed, and the cause is remanded to the circuit court for 
further proceedings consistent with this opinion. 
¶66 SHIRLEY S. ABRAHAMSON, C.J., and ANNETTE KINGSLAND 
ZIEGLER, J., did not participate. 
 
 
 
                                                 
37 We do not address whether Stanton is a secured creditor 
within the meaning of Wis. Stat. § 128.25(1)(e) because that 
issue has no bearing on our conclusion that the proceeds of the 
letters of credit are not property of the debtor's estate.   
No.  2007AP2791.npc 
 
1 
 
¶67 N. PATRICK CROOKS, J.   (dissenting).  Who needs the 
legislature when we have this majority?  Essentially, the 
majority does not appear to like the cap in Wis. Stat. 
§ 128.17(2) limiting landlord claims for rent in receivership 
proceedings, so it writes its way around it.  In so doing, the 
majority fails to honor the principles underlying receivership 
proceedings 
in 
Wisconsin 
and 
demolishes 
the 
utility 
of 
§ 128.17(2), which is designed to compensate a landlord for loss 
of rent while preventing a claim for prospective rent so large 
that it would deplete an estate in receivership to the detriment 
of unsecured creditors.   
¶68 The majority does that all in the name of protecting 
the integrity of all letters of credit.  However, the majority's 
fear that to rule otherwise will destroy the utility of letters 
of credit is unfounded.  The court of appeals' opinion in this 
matter was narrow and impacted only letters of credit between 
landlords and tenants, and only proceeds exceeding a landlord's 
allowable claims under chapter 128.  As a result of the majority 
opinion, receivership estates are more likely to be depleted by 
a landlord that had contracted for all of its future rent, and 
unsecured creditors in receivership proceedings are more likely 
to be left twisting in the wind. 
¶69 Accordingly, I dissent.  I agree with the parties, the 
circuit court, the court of appeals, and numerous federal courts1 
that, in the context of receivership and bankruptcy, the 
proceeds of the letter of credit here, are secured by property 
                                                 
1 See infra ¶84 n.7 (listing cases). 
No.  2007AP2791.npc 
 
2 
 
of the estate, and thus are within the receiver's (or bankruptcy 
trustee's) control.  Additionally, in response to the questions 
asked of this court by the parties, I would conclude, as did the 
court of appeals, that Stanton is not a secured creditor as 
defined by Wis. Stat. § 128.25(1)(e), that that conclusion does 
not offend the independence principle, and that Stanton's claim 
is limited by the landlord cap in Wis. Stat. § 128.17(2).  
Hence, I would affirm the court of appeals. 
¶70 To 
understand 
why 
the 
majority's 
approach 
is 
misguided, it is important to understand how receivership 
proceedings operate and the rationale behind the statutory 
scheme. Wisconsin Stat. ch. 128 governs assignments for the 
benefit of creditors.  "An assignment provides a means of 
liquidating the assets of a debtor in an orderly and controlled 
manner."  4 Charles G. Center et al., Wisconsin Business Advisor 
Series:  Collections & Bankruptcy § 4.2.16, at 2:21 (2006).  The 
Wisconsin legislature originally adopted chapter 128 in 1937, L. 
1937, ch. 431, and modeled it on particular provisions of the 
federal Bankruptcy Act of 1898 as it was amended through 1928.2  
See Capitol Indem. Corp. v. Hoppe (In re Bossell, Van Vechten & 
                                                 
2 Although the legislature adopted chapter 128 in 1937, 
there is little Wisconsin case law or legislative history 
interpreting chapter 128's provisions.  Because of that, courts 
have often looked to sources interpreting the Bankruptcy Act 
when interpreting parallel provisions in chapter 128.  See, 
e.g., In re Delta Group, 300 B.R. 918, 923-24 (Bankr. E.D. Wis. 
2003) (comparing Wis. Stat. ch. 128 provision with similar 
provision in bankruptcy code); Capitol Indem. Corp. v. Hoppe (In 
re Bossell, Van Vechten & Chapman), 30 Wis. 2d 20, 26-29, 139 
N.W.2d 639 (1966) (same). 
No.  2007AP2791.npc 
 
3 
 
Chapman), 30 Wis. 2d 20, 26, 139 N.W.2d 639 (1966); 4 Center et 
al., § 4.2.16, at 2:21. 
¶71 To initiate receivership proceedings under chapter 
128, a debtor voluntarily assigns its assets to an assignee who 
files the assignment and delivers the bond to the circuit court.  
Wis. Stat. § 128.02; see Linton v. Schmidt, 88 Wis. 2d 183, 189, 
277 N.W.2d 136 (1979).  Thereafter, as Wis. Stat. § 128.05(1) 
provides, 
"[t]he 
court 
shall . . . order 
the 
assignee 
to 
administer the debtor's estate pursuant to this chapter, and the 
assignee shall be vested with the powers of a receiver."    See 
also 4 Center et al., § 4.2.16, at 2:21. 
¶72 Once appointed, a receiver generally has a duty to 
"act[] for the benefit of the insolvent debtor and all of his 
creditors."  Candee v. Egan, 84 Wis. 2d 348, 361, 267 N.W.2d 890 
(1978) (citing Harrigan v. Gilchrist, 121 Wis. 127, 237, 99 N.W. 
909 (1904)).  However, given that "[t]he object and purpose of 
assignment law is to afford an equal distribution of the 
assignor's estate to all creditors in proportion to their 
claims," the receiver is "bound to look primarily to the 
interests of the creditors."  Linton, 88 Wis. 2d at 198. 
¶73 As for specific duties, the receiver inventories all 
assets of the estate and lists all of the debtor's creditors.  
Wis. Stat. § 128.13.  Moreover, the receiver is given the title 
of the debtor to the property and given the right to recover 
property that the debtor improperly transferred.  Wis. Stat. 
§ 128.19(1)-(2).  The debtor's creditors have three months from 
the filing or appointment of the receiver to file claims.  Wis. 
No.  2007AP2791.npc 
 
4 
 
Stat. § 128.14.  The receiver then, in accordance with Wis. 
Stat. § 128.17, distributes the estate assets.  The receiver 
first pays costs of preserving and administering the estate, 
wages, taxes, and other debts entitled to priority.  Wis. Stat. 
§ 128.17(1)(a)-(f).  The receiver then pays debts due to general 
unsecured creditors pro rata "in proportion to the amount of 
their claims, as allowed."  Wis. Stat. § 128.17(1)(g). 
¶74 In receivership proceedings, landlords' or lessors' 
claims receive treatment unique from claims of secured and 
general unsecured creditors.  Wis. Stat. § 128.17(2) provides:   
Debts to become due as well as debts due may be 
proved, but a lessor's claim shall be limited to past 
due rent, and to any actual damage caused the lessor 
by a rejection of the lease on the part of the debtor 
or by its termination by force of its provisions.  The 
lessor shall be entitled to payment in full, at the 
rate specified in the lease, for the period of any 
actual occupancy by the receiver or assignee. 
In other words, a landlord or lessor is limited to claims for 
"past due rent," including rent due for the period during which 
the receiver or assignee occupied the property, and any actual 
damage caused by the debtor's rejection of the lease or its 
termination.  Although the statute does not expressly state that 
a landlord or lessor has no claim for future rent, it can be 
reasonably inferred from the language "past due rent" and 
"actual damage" that the statute does not permit a claim for 
future rent.  The parties do not appear to dispute that the 
statute, if applicable, would limit Stanton's allowable claim.  
Additionally, 
the 
statutory 
history 
bears 
out 
that 
interpretation, as explained herein. 
No.  2007AP2791.npc 
 
5 
 
¶75 As an initial matter, courts have understood the 
original enactment of the federal Bankruptcy Act of 1898, after 
which the legislature modeled Wis. Stat. § 128.17(2), to 
preclude a landlord from recovering future rent because such a 
claim could not be proved.  See Oldden v. Tonto Realty Corp., 
143 F.2d 916, 918 (2d Cir. 1944) (listing cases so holding).  
Although the court in Oldden noted that the rule limiting a 
landlord to past due rent "was often harsh as to the 
landlord, . . . it 
did prevent the exhaustion of bankrupt 
estates for disproportionately large lease claims."  Id. at 919.   
¶76 In 1934, Congress amended federal bankruptcy law to 
permit a landlord to claim past due rent as well as a portion of 
future rent capped at "the greater of one year, or 15 percent, 
not to exceed three years, of the remaining term of such lease."3  
11 U.S.C. § 502(b)(6).  In other words, Congress permitted 
larger claims for future rent "to compensate the landlord for 
his loss," yet it still retained a cap under § 502(b)(6) to 
prevent "a claim so large (based on a long-term lease) as to 
prevent other general unsecured creditors from recovering a 
dividend of the estate."  Redback Networks, Inc. v. Mayan 
Networks Corp. (In re Mayan Networks Corp.), 306 B.R. 295, 298 
                                                 
3 However, 
it 
is 
worth 
noting 
that 
in 
Chapter 
11 
proceedings, "[t]o the extent that a landlord will have a 
security deposit in excess of the amount of the claim allowed 
under § 502(b)(6), the excess will be turned over to the 
[bankruptcy] trustee."  4 Collier on Bankruptcy, § 502.03[7][h] 
(15th ed. rev. 2002) (emphasis added); see also Oldden v. Tonto 
Realty Corp., 143 F.2d 916, 921 (2d Cir. 1944) (stating that any 
surplus of security deposit held by a landlord beyond its 
permitted claim "should go to the trustee for the general 
creditors"). 
No.  2007AP2791.npc 
 
6 
 
(B.A.P. 9th Cir. 2004) (quoting the legislative history of 
§ 502(b)(6) 
in 
S. 
Rep. 
No. 
95-989, 
reprinted 
in 
1978 
U.S.C.C.A.N. 5787, 5849; H.R. Rep. No. 95-595, reprinted in 1978 
U.S.C.C.A.N. 5963, 6309).  Notably, the Wisconsin legislature 
did not follow the lead of Congress and thus made no such change 
to Wis. Stat. § 128.17(2).  Rather, that statute maintains the 
Bankruptcy Act's pre-1934 limit to claims for past due rent and 
actual damages only.4 
                                                 
4  The majority fails to offer a persuasive explanation of 
why federal cases such as Oldden and Mayan Networks, which 
interpret the cap imposed on landlord claims for future rent in 
11 U.S.C. § 502(b)(6)(A), "do not inform" its interpretation of 
the cap imposed on landlord claims in receivership by Wis. Stat. 
§ 128.17(2).  Its reasoning seems to be based on the observation 
that the federal cap permits a larger landlord claim than does 
the state cap.  Therefore, in the majority's view, analogizing 
to federal case law interpreting 11 U.S.C. § 502(b)(6) is 
inappropriate here.  See majority op., ¶¶49-50 & n.24.   
The majority, however, stubbornly refuses to acknowledge 
that the principle present in the Bankruptcy Act of 1898——i.e., 
limiting a landlord's claim for future rent prevents depletion 
of an estate in insolvency proceedings——necessarily underlies 
both 11 U.S.C. § 502(b)(6) and Wis. Stat. § 128.17(2).  See 
Redback Networks, Inc. v. Mayan Networks Corp. (In re Mayan 
Networks Corp.), 306 B.R. 295, 298 (B.A.P. 9th Cir. 2004) 
(noting legislative history of stating that "the purpose of 
[§ 502(b)(6)] is to compensate the landlord for his loss while 
not permitting a claim so large (based on a long-term lease) as 
to prevent other general unsecured creditors from recovering a 
dividend of the estate") (internal quotation marks omitted).  In 
my view, and in the view of the many federal cases discussed 
herein, those cases cannot be dismissed as inapplicable.  The 
Wisconsin legislature modeled Wis. Stat. § 128.17(2) after the 
federal bankruptcy act and its purpose of limiting landlord 
claims for future rent; the later amendment in § 502(b)(6) that 
increased the amount a landlord may claim comports with that 
purpose.  Simply put, the majority's failure to apply those 
cases defies logic, reason, and common sense. 
No.  2007AP2791.npc 
 
7 
 
¶77 Hence, Wis. Stat. § 128.17(2) would limit Stanton to a 
claim for its past due rent and actual damages only.  Given 
that, the majority endorses an end run, taking the proceeds of 
the letter of credit out of the receivership based on its 
conclusion that the proceeds are not property of the estate.  
Although I agree with the majority's conclusion that chapter 128 
limits the receiver's control to property of the debtor's 
estate, I believe that the majority's conclusion that the 
proceeds here are not property of the estate is misguided, 
precisely because these proceeds were secured by property of the 
estate, as explained below.  
¶78 The lease between Stanton and Admanco contained a 
provision with the heading "Security Deposit," which stated that 
Admanco would provide Stanton with a $61,313.66 cash security 
deposit5 and two irrevocable standby letters of credit for 
$375,000 each "representing security for the performance by 
Tenant of its rental obligations and certain of Tenant's other 
obligations hereunder."  Both letters of credit were issued by 
M&I Bank (M&I), designated Stanton as the beneficiary, and 
stated that M&I would pay Stanton the proceeds from the letters 
"upon presentation of" documents stating that Stanton "is 
entitled to draw upon" the letters.  The first letter of credit 
                                                 
5 Along with its arguments that it was entitled to retain 
the proceeds from the letters of credit, Stanton also argued to 
the court of appeals that it was entitled to retain the cash 
security deposit.  The court of appeals rejected that argument 
to the extent that the security deposit exceeded Stanton's 
allowable claim for damages.  See Admanco, 318 Wis. 2d 232, 
¶¶24-26.  Stanton does not renew its argument regarding the 
security deposit here.   
No.  2007AP2791.npc 
 
8 
 
designated Admanco as the applicant (the Admanco letter) and the 
second letter 
designated Admanco's principals, Edward and 
Cristopher 
Bumby, 
as 
the 
applicants 
(the 
Bumby 
letter).  
Importantly, Admanco pledged its assets to M&I to secure 
Admanco's and the Bumbys' obligations under both letters of 
credit. 
¶79 The court of appeals' decision turns on the fact that 
the proceeds were secured by estate assets and that Stanton and 
Admanco considered the letters of credit to act as a security 
deposit on the lease.  Admanco, 318 Wis. 2d 232, ¶¶35-36.  The 
majority calls the court of appeals' reasoning——an approach that 
the circuit court in this case endorsed and that has support in 
numerous federal courts——a "shortcut."  Majority op., ¶¶34-35.  
In my view, the court of appeals got it right.  It followed an 
approach taken by numerous federal courts.  Moreover, that 
approach, which the Ninth Circuit Bankruptcy Appellate Panel set 
forth in the Mayan Networks case, comports with the principles 
underlying Wisconsin receivership law.  
¶80 Mayan Networks involved the sublease of a commercial 
building.  The tenant delivered to the landlord both a cash 
security deposit and a letter of credit secured by the tenant's 
cash, both of which the sublease referred to as "security" for 
the "faithful performance by [the tenant] of all of [the 
tenant's] obligations under this [s]ublease."  In re Mayan 
Networks, 306 B.R. at 297.  After the tenant filed for Chapter 
11 bankruptcy, the landlord drew down the full amount of the 
letter of credit proceeds and applied the cash security deposit 
No.  2007AP2791.npc 
 
9 
 
to reduce its allowed claim under the 11 U.S.C. § 502(b)(6) 
statutory cap.  Id.  The issue was whether the landlord had to 
apply the letter of credit proceeds toward the remaining amount 
of its allowed claim under § 502(b)(6), thus reducing the amount 
of its unsecured claims.  Id. at 297-98.   
¶81 The Mayan Networks court first looked to the language 
and history of § 502(b)(6), noting that the intent behind the 
statute was that a security deposit must be applied toward a 
landlord's total claim, which left the question of whether it 
was to treat the letter of credit like a security deposit for 
purposes of determining the landlord's claim.  The court first 
invoked the general consensus among bankruptcy courts that 
letters of credit are not property of the estate.  However, it 
stated, 
[T]he fact that letters of credit themselves are not 
property of the estate is a red herring.  There is 
nothing in [§ 502(b)(6)] or in case law that suggests 
that the limitation in § 502(b)(6) applies only to 
amounts that are paid directly from property of the 
estate.  Rather, the appropriate analysis looks to the 
impact that the draw upon the letter of credit has on 
property of the estate. 
Id. at 299 (emphasis added). 
¶82 Looking to the impact that the landlord's draw on the 
proceeds had on the property of the estate, the court reasoned 
that the proceeds secured by property of the estate were 
essentially a security deposit.  Id. at 300-01.  It concluded 
that "[t]he draw upon the letter of credit had the same effect 
on the estate as the forfeiture of a cash security deposit."  
Id. at 301.  The court determined that there was further support 
No.  2007AP2791.npc 
 
10 
 
for that conclusion based on the facts that the sublease 
described the letter of credit as "security" for the sublease 
and that the letter of credit was to be returned to the tenant 
if the tenant had met all of its obligations under the sublease.  
Id. at 297, 301.  Accordingly, the proceeds of the letter of 
credit were to be applied to the landlord's allowable claim as 
limited by 11 U.S.C. § 502(b)(6).   
¶83 Following 
that 
reasoning, 
just 
as 
trustees 
in 
bankruptcy6 may seek the return of a security deposit to the 
extent 
that 
the 
amount 
exceeds 
the 
debtor's 
satisfied 
obligation, bankruptcy courts have held that a trustee in 
bankruptcy is entitled to seek proceeds from a letter of credit 
exceeding the debtor's obligation to the creditor, to the extent 
that those proceeds are secured by estate assets.  See, e.g., 
First Avenue West Building, LLC v. James (In re Onecast Media, 
Inc.), 439 F.3d 558, 564 (9th Cir. 2006); AMB Property L.P. v. 
Official Creditors (In re AB Liquidating Corp.), 416 F.3d 961, 
963 (9th Cir. 2005); S-Tran Holdings, Inc. v. Protective Ins. 
Co. (In re S-Tran Holdings, Inc.), 414 B.R. 28, 35 (Bankr. D. 
Del. 2009) (debtors may seek proceeds from letters of credit 
exceeding their obligation); see also Two Trees v. Builders 
Transport, Inc. (In re Builders Transport, Inc.), 471 F.3d 1178, 
                                                 
6 A 
receiver 
in 
a 
chapter 
128 
proceeding 
has 
responsibilities and obligations similar to those of a trustee 
in bankruptcy.  Compare Wis. Stat. §§ 128.13, 128.14, and 128.17 
(describing 
receiver's 
duties 
in 
state 
receivership 
proceedings), with 11 U.S.C. §§ 704, 1106 (listing duties of a 
trustee 
in 
federal 
Chapter 
7 
and 
Chapter 
11 
bankruptcy 
proceedings). 
No.  2007AP2791.npc 
 
11 
 
1187 (11th Cir. 2006) (a letter of credit beneficiary had a duty 
to return to the debtor excess proceeds not used to secure the 
debtor's obligation). 
¶84 I am persuaded that the approach taken by the court in 
Mayan Networks, and numerous other federal courts,7 supports the 
conclusion that letter of credit proceeds secured by estate 
collateral are property of the estate and thus are subject to 
the receiver's control in a chapter 128 proceeding.  The 
approach that a beneficiary may not retain standby letter of 
credit proceeds that are secured by estate assets, to the extent 
that those secured proceeds exceed the limit on a landlord's or 
                                                 
7 Before the Ninth Circuit Bankruptcy Appellate Panel issued 
Mayan 
Networks, 
several 
other 
courts 
had 
observed 
that 
collateral securing letter of credit proceeds are property of 
the estate. See Kellogg v. Blue Quail Energy, Inc. (In re 
Compton Corp.), 831 F.2d 586, 590-91 (5th Cir. 1987); see also 
American Bank v. Leasing Service Corp. (In re Air Conditioning, 
Inc.), 845 F.2d 293, 296 (11th Cir. 1988).  Others held that 
letter of credit proceeds acting as a security deposit are 
subject to the bankruptcy proceedings.  Solow v. PPI Enters., 
Inc. (In re PPI Enterprises (U.S.), Inc.), 324 F.3d 197, 210 (3d 
Cir. 2003).  Since Mayan Networks, multiple other courts have 
adopted its framework recognizing that proceeds of a letter of 
credit are property of the estate when they are secured by 
estate collateral.  See, e.g., AMB Prop., L.P. v. Official 
Creditors for the Estate of AB Liquidating (In re AB Liquidating 
Corp.), 416 F.3d 961, 965 & n.3 (9th Cir. 2005); Int'l Fin. 
Corp. v. Kaiser Group Int'l Inc. (In re Kaiser Group Int'l, 
Inc.), 399 F.3d 558, 566 (3d Cir. 2005); In re Connectix Corp, 
372 B.R. 488, 496 (Bankr. N.D. Cal. 2007); see also First Avenue 
West Building L.L.C. v. James (In re Onecast Media, Inc.), 439 
F.3d 558 (9th Cir. 2006) (holding that a trustee's interest in 
letter of credit proceeds acting as a security deposit is 
property of the estate); cf. S-Tran Holdings, Inc. v. Protective 
Ins. Co. (In re S-Tran Holdings, Inc.), 414 B.R. 28, 33-34 
(Bankr. D. Del. 2009) (holding that because proceeds of a letter 
of credit were not secured by estate collateral, the proceeds 
were not property of the estate). 
No.  2007AP2791.npc 
 
12 
 
lessor's claimed damages in chapter 128, comports with the clear 
legislative intent that a landlord is entitled to unpaid rent 
through the date of the receivership petition.  See Wis. Stat. 
§ 128.17(2).  It also comports with a receiver's duty to act for 
the benefit of the creditors and to collect and inventory the 
property of the estate.  See Wis. Stat. § 128.13 (the receiver 
has a duty to inventory the property of estate); § 128.19(2) 
(the receiver has authority to avoid wrongful transfers of 
property); Linton, 88 Wis. 2d at 198 (the receiver is "bound to 
look primarily to the interests of the creditors").  Moreover, 
that approach is consistent with the rationale that the limits 
in Wis. Stat. § 128.17(2) prevent a landlord or lessor from 
asserting a claim against the estate "so large as to prevent 
other general unsecured creditors from receiving a dividend."  
Waldschmidt v. Appleton Inv. Co. (In re Zienel Furniture, Inc.), 
13 B.R. 264, 266 (Bankr. E.D. Wis. 1981); cf. EOP v. Faulkner 
(In re Stonebridge Techs., Inc.), 430 F.3d 260, 268-69 (5th Cir. 
2005) (observing that the federal statutory cap on landlord 
claims "prevents a lessor who files a claim against the estate 
from reaping an unfair share of the bankruptcy estate over the 
remaining pool of unsecured creditors"). 
¶85 Yet the majority eats up the "red herring" discussed 
in Mayan Networks——hook, line, and sinker.  Rather than focus on 
the effect that the draw on the letter of credit has on the 
estate in receivership and its impact on the other creditors, 
the majority declares that the proceeds are not property of the 
No.  2007AP2791.npc 
 
13 
 
estate, 
period, 
on 
the 
basis 
of 
a 
handful 
of 
largely 
distinguishable cases. 
¶86 For example, the majority seizes upon language in 
Kellogg v. Blue Quail Energy, Inc. (In re Compton Corp.), 831 
F.2d 586, 589 (5th Cir. 1987), stating that a letter of credit 
and its proceeds are not property of the estate.  See majority 
op., ¶¶37, 48.  However, the court in that case goes on to 
state, "When a debtor pledges its assets to secure a letter of 
credit, a transfer of debtor's property has occurred under the 
provisions of 11 U.S.C. § 547. . . . Overall, the letter of 
credit itself and the payments thereunder may not be property of 
debtor, but the collateral pledged as a security interest for 
the letter of credit is."  In re Compton Corp., 831 F.2d at 590-
91 (emphasis added).  Other cases invoked by the majority, upon 
close examination, likewise do not clearly appear to support its 
proposition concerning the property of the estate.8 
                                                 
8 For example, the court in Willis v. Celotex Corp., 978 
F.2d 146 (4th Cir. 1992) addressed an issue concerning a 
bankruptcy court's authority to enjoin execution on supersedeas 
bonds.  Its discussion of proceeds of a letter of credit, which 
was not at issue in the case, appears to be dicta. Id. at 148 
n.3.  See also Wetzel v. Lumbermans Mut. Cas. Co., 324 B.R. 333, 
340 n.18 (S.D. Ind. 2005) (briefly discussing a letter of credit 
not at issue in a case concerned with insurance policy 
proceeds).  In addition, the parties in Leisure Dynamics, Inc. 
v. Continental Ill. Nat'l Bank & Trust Co., 33 B.R. 171, 172-73 
(Bankr. D. Minn. 1983), were seeking an injunction of the draw-
down of the letter of credit; moreover, whether that letter was 
secured by property of the estate is not clear.  See also 
Sabratek Corp. v. LaSalle Bank, N.A., 257 B.R. 732, 735 (Bankr. 
D. Del. 2000) (discussing issue of whether to uphold injunction 
on honoring letter of credit with no discussion of whether it 
was secured by estate collateral). 
No.  2007AP2791.npc 
 
14 
 
¶87 Despite the majority's claim that I am conflating the 
rights of a beneficiary of a letter of credit with the rights of 
a secured creditor to an interest in property of the debtor's 
estate, I do no such thing.  Rather, the majority uses such a 
claim to avoid the question of whether Stanton is a secured 
creditor.  Because the proceeds at issue are property of the 
estate, by virtue of the estate collateral securing them, 
Stanton's lease claim is within the receivership.  Which leads 
to the primary question presented to us by the parties 
themselves:  Is Stanton a secured creditor, as defined by Wis. 
Stat. § 128.25(1)(e), and therefore entitled to retain the 
letter of credit proceeds?  Because I would conclude——like the 
parties, the circuit court, the court of appeals, and numerous 
federal courts——that secured proceeds from a letter of credit 
are property of the estate, the issue of whether Stanton is a 
secured creditor is important. 
¶88 Secured creditors, as compared to unsecured creditors 
(and, for that matter, secured creditors under federal Chapter 
11 proceedings), have the ability to show some strength in 
receivership proceedings because secured creditors cannot be 
compelled to participate in receivership proceedings or have 
their security taken away without their consent.  Wis. Brick & 
Block Corp. v. Vogel, 54 Wis. 2d 321, 325-26, 195 N.W.2d 664 
(1972).  Wisconsin Stat. § 128.25(1)(e) defines a secured 
creditor, in pertinent part, as  
a creditor who has either legal or equitable security 
for his or her debt upon any property of the insolvent 
debtor of a nature to be liquidated and distributed in 
a liquidation proceeding, or a creditor to whom is 
No.  2007AP2791.npc 
 
15 
 
owed a debt for which such security is possessed by 
some endorser, surety, or other person secondarily 
liable. 
Accordingly, creditors who do not fit within that definition and 
who have timely filed claims that are not otherwise entitled to 
priority under § 128.17(1) are placed within the pool of general 
unsecured creditors. 
¶89 I am satisfied that Stanton is not a secured creditor 
under the circumstances presented in the case before us.  I 
strongly endorse the following conclusions made by the court of 
appeals, that, (1) "M&I, as the issuer of a standby letter of 
credit, was not 'secondarily liable' for Admanco's contractual 
obligations with Stanton," Admanco, 318 Wis. 2d 232, ¶19; (2) 
"the letter of credit gave rise to a primary independent 
obligation of M&I to Stanton, and not that of a guarantor or one 
who is secondarily liable for Admanco's obligations," id., ¶20; 
and 
(3) 
"M&I 
was 
not 
secondarily 
liable 
for 
Admanco's 
nonperformance under the lease——nor was it a surety.  We reject 
Stanton's contention that it meets the definition of a secured 
creditor under Wis. Stat. § 128.25(1)(e)."  Id., ¶22.  I also 
observe, as did the court of appeals, that Stanton has failed to 
identify a single case holding that a beneficiary of a letter of 
credit is a secured creditor.9  Id., ¶21 n.14.  Additionally, I, 
like the court of appeals, am satisfied that the independence 
                                                 
9 In 
contrast, 
in the context of federal bankruptcy 
proceedings, the Second Circuit Court of Appeals has held that a 
beneficiary of a letter of credit is not a secured creditor.  
See New England Dairies, Inc. v. Dairy Mart Convenience Stores, 
Inc. (In re Dairy Mart Convenience Stores, Inc.), 351 F.3d 86, 
91 (2d Cir. 2003). 
No.  2007AP2791.npc 
 
16 
 
principle is not compromised by the conclusion that Stanton is 
not a secured creditor.   
¶90 Because it is not a secured creditor, I would hold 
that Stanton is subject to the landlord cap in Wis. Stat. 
§ 128.17(2).  Here, looking at the "impact that the draw upon 
the letter of credit has on property of the estate," Mayan 
Networks, 306 B.R. at 299, I am satisfied that the proceeds of 
both the Admanco and Bumby letters of credit may be treated 
properly as a security deposit for purposes of the chapter 128 
proceeding.  Like the tenant and landlord in Mayan Networks, 
Admanco and Stanton appear to have agreed that the letters of 
credit functioned as a security deposit.  In the lease, 
provisions for delivery of those letters appeared in a section 
entitled "Security Deposit" and the lease designated the letters 
as "representing security for the performance by Tenant of its 
rental obligations and certain of Tenant's other obligations 
hereunder."  (Emphasis added.)  The proceeds were secured by 
assets of the estate.  Moreover, the lease provided that the 
letters of credit were to terminate upon Admanco's satisfactory 
completion of the lease.  Those factors lead me to the same 
conclusion reached by the court of appeals:  The proceeds of the 
letters 
of 
credit 
here 
operate 
as 
a 
security 
deposit.  
Accordingly, Stanton must return any proceeds in excess of its 
No.  2007AP2791.npc 
 
17 
 
allowable claim, which in this case is $30,656.83:  the past due 
rent for January 2005 at the rate specified in the lease.10 
¶91 In summary, I would affirm the court of appeals' well-
reasoned, narrow, and firmly supported opinion. As that court 
correctly stated: 
This approach recognizes the reality that a letter of 
credit with a related reimbursement agreement secured 
by the debtor's assets could overwhelm the estate to 
the 
detriment 
of other creditors and faithfully 
implements the limit on a landlord's claim set forth 
in ch. 128. 
Admanco, 318 Wis. 2d 232, ¶36. 
¶92 The 
majority's 
claim 
that 
this 
approach 
does 
"violence" to letters of credit is nothing more than a cry of 
wolf.  First, the court of appeals' approach has no impact on 
the many letters of credit that are not between a landlord or 
lessor and tenant.  The court of appeals' holding was limited to 
enabling a receiver to disgorge proceeds only to the extent that 
those proceeds operate like a security deposit and deplete the 
estate assets in excess of the beneficiary's allowed claim.  
Landlords or lessors comprise the only category of creditors 
whose claim has a statutory cap in chapter 128.  If a 
beneficiary of a letter of credit who is not a landlord or 
lessor draws on a letter of credit for its full, authorized 
                                                 
10 The receiver remained in possession of the leased 
premises for only the month of January 2005, at which point he 
sold Admanco's assets to another entity, EBSCO.  At that point, 
EBSCO occupied the premises and took over the lease obligations 
for February and March of that year.  On April 1, 2005, a new 
lease between EBSCO and Stanton went into effect.  Thus, under 
Wis. Stat. § 128.17(2), Stanton's allowable claim was limited to 
the past due rent for January 2005.   
No.  2007AP2791.npc 
 
18 
 
amount, there is no cap to apply to that amount under chapter 
128.   
¶93 Second, letters of credit under the court of appeals' 
approach will continue to effectuate their purpose of shifting 
the risk of nonpayment of the amount to which the beneficiary  
is entitled to the issuer.  The majority's arguments to the 
contrary are premised on the proposition that the beneficiary 
here, Stanton, is entitled to the full amount of the letter of 
credit proceeds.  For a beneficiary in Stanton's position and 
under the circumstances here, however, Wis. Stat. § 128.17(2) 
operates to limit the amount to which Stanton is entitled.  The 
court of appeals properly applied that statute and permitted 
Stanton to retain the full amount of rent due as proscribed by 
§ 128.17(2).  Thus, Stanton effectively shifted the risk of 
nonpayment of that amount to the issuer.  In short, all the 
court of appeals is doing here is applying the statute; it is 
not affecting the risk-shifting benefit that is central to 
letters of credit. 
¶94 Third, this approach honors the many other benefits 
that letters of credit convey.  Here, for example, the letters 
of credit provided Stanton with the benefit of being fully 
compensated for its past-due rent.  Had Stanton proved actual 
damages based on a rejection of the lease, it could have also 
retained, in full, those amounts.  By drawing down on the 
letters of credit, Stanton was reimbursed for its claim well 
before other creditors and, moreover, before the unsecured 
creditors, who will now, at best, receive only a pro rata 
No.  2007AP2791.npc 
 
19 
 
proportion of the liquidation proceeds.  Additionally, Stanton 
has had the benefit of holding the proceeds over the several 
years that this litigation took place.  See In re Builders 
Transport, Inc., 471 F.3d at 1186 ("'[T]he letter of credit 
serves, 
among 
other 
things, 
to 
shift 
the 
burden 
of 
litigation. . . . [The] beneficiary of the letter of credit 
holds the stake during the litigation.'") (quoting Resolution 
Trust Corp. v. United Trust Fund, Inc., 57 F.3d 1025, 1034-35 
(11th Cir. 1995)).   
¶95 Aside 
from 
retaining 
those 
benefits, 
Stanton's 
predicament coming out of these proceedings is not nearly as 
dire11 as it or the majority would have us believe.  As an 
initial matter, the court of appeals awarded Stanton its past 
due rent for January 2005.  Stanton indicated that it would 
realize income from the property based on the lease it 
negotiated with EBSCO, between $4,300 and $4,700 per month 
through July 2009.  Further, Stanton remains in possession of 
the rental property and can continue to realize an income stream 
from it.  In fact, Stanton projected that it would receive rent 
of approximately $19,400 per month from at least one other 
tenant from March 2006 through February 2013.  While I 
                                                 
11 For example, in an exhibit accompanying its motion for 
summary judgment, Stanton alleged that it stood to lose 
approximately 
$4,275,000 
in 
base 
rent. 
 
However, 
that 
calculation was based on the worst-case scenario that it would 
have at least one vacancy in the property through March 2019 and 
no tenants in the building from March 2013 through March 2019.  
Given that Stanton has been successful at finding other tenants 
for the property despite its difficulties with Admanco, that 
worst-case scenario seems improbable. 
No.  2007AP2791.npc 
 
20 
 
acknowledge that Stanton did not recover the full amount of its 
investment expectations out of its underlying contract with 
Admanco, I do not believe that the letters of credit under these 
circumstances operate to insulate Stanton from the risks 
inherent in such business transactions. 
¶96 As noted previously, indeed, it is the majority's 
approach that is likely to result in considerable mischief, 
since that approach ignores the framework that the legislature 
established in Wis. Stat. § 128.17(2) to protect and treat 
fairly unsecured creditors in receivership proceedings.  Rather, 
following the majority's reasoning, landlords or lessors could 
tiptoe around the protections in § 128.17(2) to deplete estate 
assets to the detriment of unsecured creditors. 
¶97 Is the landlord cap in Wis. Stat. § 128.17(2) fair?  
Several courts have observed that limiting a landlord to past 
due rent and actual damages in receivership proceedings might 
not provide them adequate compensation.  See Oldden, 143 F.2d at 
919; Admanco, 318 Wis. 2d 232, ¶36 n.20 ("We acknowledge 
Stanton's contention that this is a harsh result[.]"); see 
generally In re Bossell, Van Vechten & Chapman, 30 Wis. 2d at 29 
(observing "the inadequacy of [Wisconsin]'s insolvency law" 
compared to federal law).  But the question of whether the cap 
is fair is clearly a question for the legislature, and not in 
our province.  See Holtzman v. Knott, 193 Wis. 2d 649, 711, 533 
N.W.2d 419 
(1995) 
(Steinmetz, 
J., 
concurring 
in 
part 
& 
dissenting in part) ("A state court functions at its lowest ebb 
of legitimacy when it . . . legislates from the bench, usurping 
No.  2007AP2791.npc 
 
21 
 
power from the appropriate legislative body and forcing the 
moral views of a small, relatively unaccountable group of judges 
upon all those living in the state."); Wagner Mobil, Inc. v. 
City of Madison, 190 Wis. 2d 585, 594, 527 N.W.2d 301 (1995) 
("[I]t is not the function of this court to usurp the role of 
the legislature.").  Those courts criticizing the limits imposed 
on 
landlord 
claims 
appropriately 
resisted 
fashioning 
a 
convenient work-around of the law.  Here, I am disappointed in 
the majority's failure to exercise such restraint. 
¶98 For the foregoing reasons, I respectfully dissent. 
¶99 I am authorized to state that Justice ANN WALSH 
BRADLEY joins this dissent. 
 
No.  2007AP2791.npc 
 
1