Opinion
February 8, 1961 —
March 7, 1961.
APPEAL from a judgment of the circuit court for La Crosse county: LINCOLN NEPRUD Circuit Judge. Modified and, as modified, affirmed.
For the appellant there were briefs by Johns, Roraff, Pappas Flaherty of La Crosse, and oral argument by Leonard Roraff.
For the respondent there was a brief by Steele, Smyth, Klos, Thompson Flynn of La Crosse, and oral argument by Robert D. Smyth.
The judgment allows as a secured claim the claim of A.C. Klein founded on a promissory note secured by a chattel mortgage upon certain assets owned by La Crosse Sand Gravel Company, Inc., which is in process of liquidation. The note and mortgage were executed in the individual names of Edwin B. Meyer and his wife, not in the name of the corporation. Mr. and Mrs. Meyer were the sole stockholders and officers of the corporation. Among the trial court's findings of fact is the finding that the note and mortgage of Mr. and Mrs. Meyer individually were given and accepted as the result of a mutual mistake and the court's conclusion of law was that Klein is entitled to reformation of the note and mortgage so as to be the obligation of the corporation.
It appears from the evidence that Mr. Klein had agreed to lend Mr. Meyer $3,000 secured by a mortgage upon certain dredging equipment. Klein employed an attorney, Mr. Hafner, to arrange the details of the loan and Klein told Hafner that this equipment was presently mortgaged by Meyer to First Credit Corporation. Hafner was given a copy of the mortgage and he learned that there was a balance of $471.33 due on it. That note and mortgage were executed individually by Mr. and Mrs. Meyer. The mortgage pledged dredging equipment together with some household furniture. Hafner then prepared a $3,000 promissory note and a chattel mortgage describing the same property as that listed in First Credit Corporation's mortgage. There is no mention of the La Crosse Sand Gravel Company in the note and mortgage held by First Credit Corporation nor in the note and mortgage prepared by Mr. Hafner. Hafner presented the new note and mortgage to Mr. and Mrs. Meyer who executed them without comment. Hafner then gave to Meyer two checks signed by Klein, one of $2,263.67 and one of $471.33. Meyer indorsed the latter check, and Hafner used it to retire the First Credit Corporation's mortgage. The remainder of the $3,000 loan, $265, was retained by Hafner, or Klein, to pay insurance premiums due Klein from Meyer.
Thereafter Mr. and Mrs. Meyer died, and liquidation of their corporation, the La Crosse Sand Gravel Company, was proposed. It was uncertain whether the actual ownership of the dredging equipment described in the chattel mortgage was in Meyer personally or in the La Crosse Sand Gravel Company and, to permit a prompt sale of the equipment on favorable terms, Mr. Klein and Mr. Roraff, who was executor of Meyer's estate and who expected to be appointed receiver of the Sand Gravel Company, executed on May 7, 1956, an agreement to put in escrow $2,400 of the sale price in substitution for the mortgaged property while the ownership of it was undetermined.
On the day following this agreement, Mr. Roraff petitioned the court for a receivership of the La Crosse Sand Gravel Company for liquidation of the corporation. The petition prays that a receiver be appointed and to "provide by order that notice be published limiting the time to file claims pursuant to statute." On May 9, 1956, the circuit court made its order: "That notice be published in the manner and form of the notice attached hereto, . . . It is further ordered: That . . . the time limited for filing claims be October 3, 1956." (Emphasis supplied.) The notice "attached hereto" was signed by the court May 9, 1956, which notice states "that all persons having claims against said corporation file their claims on or before the 3d day of October, 1956, with the clerk of the circuit court of La Crosse county, Wisconsin. In the event of failure to file claims on or before such date, such claims will be barred."
On August 6, 1956, Klein filed a claim against the corporation in the receivership but filed it only on the note for its unpaid balance of $2,377.01 with interest, omitting any reference to security. Roraff, who had become receiver, objected to the claim on the ground that the obligation was that of Mr. and Mrs. Meyer personally and is not the obligation of the corporation. On October 29, 1956, Klein filed an answer to this objection, reciting his version of the facts which conforms pretty closely to the facts hereinbefore stated, and he alleges that the loan in equity was made to the La Crosse Sand Gravel Company and prays the court to reform the note and mortgage to make them the obligations of such corporation. Klein attached to his answer the chattel mortgage and he alleges that he has a prior claim to the receipts from the sale of the dredging and sand and gravel equipment. Klein died soon afterward and the executor of his will has taken his place in these proceedings.
After hearing the claimant and the objector and taking testimony, the court reformed the note and mortgage, as prayed for, and gave judgment for the claimant as a secured creditor. The receiver has appealed.
Further facts will be given in the opinion.
The evidence leaves no doubt but that Mr. and Mrs. Meyer intended to pledge the dredging equipment as security to the loan and Mr. Klein intended to receive that security and at the time of the transaction the parties believed that they were carrying out those intentions. As sole officers and shareholders of the corporation, Mr. and Mrs. Meyer had complete domination over the property, could pledge it for a loan if it belonged to the corporation as effectively as they could if they owned it as individuals. Wherever the technical ownership of the dredging equipment might lie, Meyer and his wife, in one capacity or another, could give the property as security for a loan. They expected to make an effective pledge of the property, as Klein expected to receive one. The chattels turn out to belong to the corporation, which corporation is solely owned by the individual Meyers. We concur in the trial court's determination that the note and mortgage can and should be reformed to carry out the pledge which the parties to the transaction intended to accomplish.
The difficulties do not end when the reformation has been decreed. The agreement of May 7, 1956, put in escrow $2,400 pending the identity of the true owner of the dredging equipment and the determination of whether the chattel mortgage is a valid lien against the property. The reformation of the note and mortgage determined that the obligation is that of the corporation. That enabled Mr. Klein to proceed against the La Crosse Sand Gravel Company on the note and mortgage, and his procedure against that company was thus validated. What was his procedure? On August 6, 1956, he filed a claim on the note — simply on the note — with no mention of security. Time to file claims expired October 3, 1956. He did not proceed as on a secured claim until he filed his answer on October 29, 1956, above referred to.
Sec. 180.777, Stats., says:
"FILING OF CLAIMS IN LIQUIDATION PROCEEDINGS. In proceedings to liquidate the assets and business of a corporation the court shall require all creditors and claimants of the corporation to file with the clerk of the court or with the receiver, in such form as the court may prescribe, proofs under oath of their respective claims, and shall fix a date, which shall be not less than four months from the date of the order, as the last day for the filing of claims, and shall prescribe the notice that shall be given to creditors and claimants of the date so fixed. Prior to the date so fixed, the court may extend the time for the filing of claims. Creditors and claimants failing to file proofs of claim on or before the date so fixed shall be barred, by order of the court, from participating with other creditors and claimants in the distribution of the assets of the corporation in such proceedings." (Emphasis supplied.)
By amendment of the statute in 1953, "shall be barred" superseded "may be barred," as the statute formerly read.
Appellant considers this statute governs the present situation and the claim, as a secured claim, has not been filed in time.
The 1953 revision committee's published note to sec. 180.777, Stats., is instructive and is as follows:
"Establishing a time for filing claims serves little purpose if failure to file within the period does not bar the claim. Efficient liquidation practice requires that a cutoff date for claims be established — the law permits ample time for creditors to file; changing `may' to `shall' should expedite liquidations and promote uniformity of administration."
Respondent relies on sec. 180.787, Stats., interpreting that section as permitting the claimant two and one-half years after the corporation has been dissolved. If the revision-committee note, supra, can be taken as the intention of the legislature, as we believe, sec. 180.777 should control. Also, if the two sections conflict, the later statute should govern. Sec. 180.777, as amended, was enacted in 1953, whereas sec. 180.787 dates from 1951.
In support of appellant's contention that the claim as a secured one was filed too late, he draws an analogy between the disallowance of claims filed too late in probate matters and in receivership proceedings. The probate statute is sec. 313.08, Stats., which states flatly that claims not filed within the time limited shall be barred. Sec. 180.777 does not use the same language. It says that failure to file proofs of claims on or before the date so fixed shall be barred by order of the court but we consider that, when there is an order barring claims after a certain date, we have the equivalent of sec. 313.08. Presently the record shows that the petition for receivership dated May 8, 1956, and for liquidation of the corporation prays the court to appoint a receiver and "to provide by order that notice be published limiting the time to file claims pursuant to statute." On that petition the court on May 9, 1956, ordered that notice be published "in the manner and form of the notice attached hereto." The attached form of notice was also signed by the court giving notice "that all persons having claims against said corporation file their claims on or before the 3d day of October, 1956. . . . In the event of failure to file claims on or before such date, such claims will be barred." The petition for the order, the order itself signed by the court, and the notice prescribed and signed by the court, constitute an order barring untimely claims meeting the requirement of sec. 180.777.
We see no reason to differentiate between the timely filing of claims in receivership and in probate proceedings or in the effect of late filing. Therefore adjudications concerning late filing of claims against the estates of deceased persons are applicable to late claims in receivership. In Estate of Von Nobel (1941), 239 Wis. 233, 235, 1 N.W.2d 76, a claim against a deceased person's estate was filed within the time limit as an unsecured claim. Judgment was allowed on that claim but thereafter, when the time had expired, the claimant attempted to amend his claim as a secured one. The amendment was denied by the probate court and was affirmed by this court. We said:
". . . when appellant petitioned for additional relief by an amendment of the judgment, all claims against the estate had become barred under sec. 313.08, Stats., for many months, excepting in so far as they had been filed by July 1, 1938, which was the time limited by an order duly entered for that purpose. Under the rule barring claims not filed within the time so limited, claims duly filed within that time cannot be amended after the expiration of such time so as to increase the amount or nature of the relief or materially change the basis therefor." (Our italics.)
Reformation of the note and mortgage did no more than enable Klein to proceed against the corporation. He still had to make his claim within the time limited for filing claims. He timely chose to file a claim on a note without security. After time had expired he has attempted to enlarge his claim so as to constitute it a preferred claim. He comes too late for this. The reformation is effective now only to allow against the La Crosse Sand Gravel Company the claim which he timely filed, that is, the claim on the note alone. The trial court did not expressly consider the question of a late filing of claim but, by the judgment giving Klein priority in the distribution of the proceeds of the mortgaged property, in effect the court rejected the receiver's argument that the claim is not a secured one. On this feature we must reverse and modify the judgment to strike out the provision that the claimant gets priority over the general creditors by virtue of his chattel mortgage, and substitute therefor a provision that claimant participates in the liquidation only as a general creditor.
By the Court. — Judgment modified by striking from the judgment the provision that claimant shall be paid out of the proceeds of the sale of the dredging equipment prior to the distribution to general creditors; and, as so modified, the judgment is affirmed. The parties shall pay their own costs in this court.