Court Opinion

ID: 4010751
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:12:57.921103+00
Date Added: 2024-06-11T07:44:43.504363
License: Public Domain

Petition dated December 10, 1940, in liquidation proceedings of the Mount Horeb Bank in which the State Bank of Mount Horeb asked for an order directing the defendant Banking Commission of Wisconsin to pay petitioner certain moneys in its hands as liquidator of the Mount Horeb Bank. The commission interposed a counterclaim for an amount paid by the commission and then in the hands of the State Bank of Mount Horeb.  Judgment was for dismissal of the petition and granting the commission's counterclaim.  Petitioner appeals.
In January, 1932, the Mount Horeb Bank and the State Bank of Mount Horeb, hereinafter referred to as the "State Bank," were the only banks in Mount Horeb, Wisconsin. The Mount Horeb Bank encountered financial difficulties.  An agreement was entered into on January 16, 1932, between the two banks whereby Mount Horeb Bank assets equal to sixty per cent of its deposit liabilities were transferred to the State Bank in return for its assumption and agreement to pay sixty *Page 191 
per cent of the Mount Horeb Bank's deposit liabilities.  The remaining property and assets were segregated and put into a trust.  The State Bank agreed to assume and pay the depositors of the Mount Horeb Bank "an amount equivalent to a further 15 per cent of the deposit liability" in a sum not exceed $77,273.87, which was to be represented by certificates to be known as Series E, payable without interest, on or before one year from the date of the agreement.  Trustees were empowered to liquidate the trust and to pay fifteen per cent to the State Bank.  Incidental powers necessary for those purposes were expressly granted.
Subparagraph C of paragraph II of that agreement provided:
"The net proceeds of the liquidation of the assets so received by the trustees shall be by them paid from time to time to State Bank of Mount Horeb for the purpose of paying and discharging the certificates issued by it pursuant hereto and to be known as Series E certificates (representing the further 15 per cent on liability to depositors of Mount Horeb Bank). After payments shall have been so made to an amount sufficient to discharge such obligations, the net proceeds of such liquidation shall be by the trustees distributed ratably to the depositors of Mount Horeb Bank to apply on the remaining 25 per cent of their respective depositor's claims; and the excess, if any, not required for such purpose, together with any unliquidated assets remaining after such depositor's claims shall have been fully paid, shall be distributed among the stockholders of Mount Horeb Bank as of the date hereof in proportion to their respective stock holdings."
Subparagraph D of paragraph II provided:
"In the event that any recoveries from stockholders of Mount Horeb Bank, on account of the statutory stockholders liability or otherwise, shall be paid or made available to the trustees for the benefit of creditors of Mount Horeb Bank, the same shall be by said trustees first paid to State Bank of Mount Horeb, or otherwise applied or used, toward the payment *Page 192 
and discharge of any balance remaining unpaid on such certificates to be issued by State Bank of Mount Horeb pursuant hereto and known as Series E certificates."
Subparagraph E of paragraph II provided that the trustees shall issue to depositors who execute depositor's agreements "appropriate certificates evidencing their beneficial interests in the trusts."
Paragraph IV provides that no depositor's agreement taken pursuant thereto "shall have effect of releasing Mount Horeb Bank, . . . except only in respect to the 60 per cent of such liability to depositors assumed by State Bank of Mount Horeb hereunder."
By the depositor's agreement, depositors of Mount Horeb Bank agreed "to accept in lieu of the corresponding obligation of said bank, the obligation of State Bank of Mount Horeb . . . to pay 60 per cent of the amount of his deposit account in Mount Horeb Bank."  They were to be payable in four equal six-month instalments thereafter and to bear interest at the rate of three per cent.  Certificates of deposit, designated Series A, B, C, and D were issued to show a right to these four instalments.  The depositors further agreed to "accept payment of the further 15 per cent of such deposit account from State Bank of Mount Horeb," payable without interest, on or before one year from that date and to receive from the trustees of the segregated trust "for the balance (25 per cent) of such deposit account a participating trust certificate." Except as to the sixty per cent deposit claim for which the depositor agreed to take a corresponding obligation of the State Bank, no claims against the Mount Horeb Bank or its stockholders were then released.  But the depositors did agree that "any recoveries from the stockholders of Mount Horeb Bank on account of their statutory liability or otherwise may be applied first toward the discharge of the obligation of State Bank of Mount Horeb to pay to the undersigned the 15 per cent of his depositor's claim." *Page 193 
Each signer of a depositor's agreement received a set of certificates of deposit, above mentioned, called Series A, B, C, D, and E.  Between the date of the agreement and January, 1933, the State Bank paid the Series A certificates and the Mount Horeb Bank was taken over by the Banking Commission for liquidation.
On January 23, 1933, the State Bank itself was in difficulty and an effort was made to stabilize it.  A stabilization agreement was entered into by all the interested parties which provided that each depositor should receive seventy-five per cent of his deposit in instalments over a period of five years, the right to which payments were to be represented by certificates of deposit called Series A to J.  The remaining twenty-five per cent of assets were placed in a trust and each depositor was given a participating trust certificate showing his interest in those assets.  Depositors signed the necessary waivers.  So did seven hundred six out of the seven hundred fifteen holders of Series E certificates who had been depositors of Mount Horeb Bank.  (The nine Series E holders who did not sign had claims totaling only $133.)  The Series B, C, D, and E certificates were surrendered and depositor's agreements accepting the terms of the State Bank stabilization agreement were signed.  The new Series A to J certificates which were issued to represent seventy-five per cent of the State Bank's deposit liabilities, have been paid in full as have two dividends on the remaining twenty-five per cent of claims.
Depositors of the Mount Horeb Bank of January 16, 1932, who owed that bank money, were allowed under the agreement with the State Bank to set off those debts against their deposits. Those setoffs amounted to about $12,000.  The trustees of Mount Horeb Bank have paid a total of $63,871.45 to the State Bank.  That bank in return has paid $62,450.19 to those who held Series E certificates, leaving $1,421.26 in its possession.  The Banking Commission counterclaimed for that *Page 194 
amount.  Since the last payment by the trustees of the Mount Horeb Bank to the State Bank the trustees have collected $11,296.89 from the assets transferred to them.  This proceeding was commenced by the State Bank to collect that sum.
The lower court held that the agreement between the banks on January 16, 1932, created a trust for the benefit of the Mount Horeb Bank so that anything received by the trustees of the Mount Horeb Bank from the remaining forty per cent of the assets should be paid directly to the Mount Horeb Bank's depositors and that the subsequent surrender of E certificates did not terminate the trust.
The question upon this appeal relates solely to the legal effect of the agreement by the State Bank to pay depositors of the Mount Horeb Bank an amount equivalent to a further fifteen per cent of the deposit liability.  We consider that by this agreement the State Bank became a surety for the agreed portion of the debt of the Mount Horeb Bank. It is evident that this promise is set in quite a different background and is of a purport different from the agreement to assume sixty per cent of the Mount Horeb Bank's deposit liabilities.  As to the latter, the Mount Horeb bank was fully discharged of its debt to depositors in consideration of the transfer of certain of its assets to the State Bank.  The legal effect of the promise to pay a further fifteen per cent becomes quite clear when the disposition of the remaining property and assets is considered.  The assets taken by the State Bank in return for a sixty per cent absolute liability and involving discharge *Page 195 
of the Mount Horeb Bank were those desirable assets whose liquidation upon a favorable basis could be predicted with sufficient certainty to warrant such an undertaking.  The remaining assets were of less certain value and greater difficulty of liquidation.  These were segregated into a trust for the benefit of depositors.  As to fifteen per cent of the remaining forty per cent of deposit liability the State Bank was willing to assume an absolute obligation to pay, and this willingness was expressed in the agreement.  Neither the willingness nor the agreement, however, involved discharge of the liability of the Mount Horeb Bank, and the trusteed assets were not purchased by the State Bank.
In Restatement of Security, § 82, suretyship is thus defined:
"Suretyship is the relation which exists where one person has undertaken an obligation and another person is also under an obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, one rather than the other should perform."
The promise of the State Bank has the following characteristics of suretyship:
(1) A pre-existing obligation of the Mount Horeb Bank in respect of which there has been no discharge or novation.
(2) The undertaking of this obligation by the State Bank.
(3) The fact that both obligations run to depositors who are entitled to a single performance.
(4) The fact that as between the two obligors, the Mount Horeb Bank, rather than the State Bank, should perform.
The fact that in terms the State Bank undertook absolutely to pay in no way impairs the conclusion that it assumed the obligation of a surety.  As pointed out in comment f to § 82, Restatement of Security:
"When the statement is made that the principal should perform, or that the principal has the principal or primary duty and the surety an accessorial or a secondary duty, it does not *Page 196 
mean that the creditor's assertion of his right against the surety must be postponed until some action is taken against the principal. So far as the creditor is concerned, the surety may be the primary obligor.  Where principal and surety are bound jointly, from the standpoint of the creditor there is no secondary liability."
The agreement of the trustees to pay over to the State Bank the net proceeds of the liquidation of the trusteed assets to the amount of the latter's liability was obviously a provision for the security or indemnification of the State Bank, and the fact that a surety has security or that the source of his reimbursement or indemnification is disclosed by the contract does not prevent the relation being one of suretyship.
The foregoing completely disposes of this case.  It is wholly immaterial that in connection with a reorganization of the State Bank its liability as surety upon the "E certificates" was scaled down or deferred.  These negotiations and agreements affect its liability but have no effect whatever upon its right to proceeds of the trust.  Since the latter are at most simply to secure the surety's right to indemnity the State Bank can claim only such sums as it may from time to time pay in discharge of its obligation as surety.  Had the holders of the Class E certificates, within a week of the agreement, and before any payments by the State Bank, surrendered them and forgiven the debt, the situation would not be different.  The liability of the surety would be gone but so also would its right to indemnity and with it the right to any funds standing as its security.
For the foregoing reasons we conclude that the judgment must be affirmed.
By the Court. — Judgment affirmed.