Opinion
14311
June 11, 1936.
Before BELLINGER, J., Kershaw, January, 1936. Affirmed.
Action by T.K. Trotter, Receiver of the Bank of Bethune, a banking corporation in liquidation, against the Merchants Farmers Bank. From a judgment for plaintiff, defendant appeals.
The Master's report and the confirming decree of Judge Bellinger, requested to be reported, follow:
FINDING OF FACT1. I find that for some time prior to the closing of the Bank of Bethune, that it and the Merchants Farmers Bank were the only two banks in that town and that they had a daily clearing and/or settlement at the end of each business day when the cashier of the Bank of Bethune would take all checks and drafts he had on the Merchants Farmers Bank and the cashier of the Merchants Farmers Bank would take all checks and drafts he had on the Bank of Bethune, that they would go through them and those checks or drafts which were good, or which each of them desired to accept, were added up and for the difference, the one having the lesser amount would give to the other for the difference a check drawn on some out of town bank where that bank kept funds on deposit.
2. I find that on the 29th day of January, 1930, Mr. G.E. Parrott, as cashier of the Bank of Bethune, delivered to J.D. Lafitte, cashier of the Merchants Farmers Bank, a check for $830.51, drawn on the National Loan Exchange Bank of Columbia, in settlement of the balance due on the daily clearing and/or settlement between them, and, on the 30th day of January, 1930, Mr. G.E. Parrott, as cashier of the Bank of Bethune, delivered to J.D. Lafitte, as cashier of the Merchants Farmers Bank, a check for $3,612.02, on the National Loan Exchange Bank of Columbia, in settlement of a balance due on the daily clearing and/or settlement between them, that when the check for $830.51 was given on the 29th day of January, 1930, the Bank of Bethune had on deposit in the National Loan Exchange Bank of Columbia the sum of $442.57, according to the ledger sheet offered in evidence, showing the account of the Bank of Bethune in the National Loan Exchange Bank of Columbia, and in addition to this cash balance, at the time the said National Loan Exchange Bank had a $900.00 school claim for collection, which was owned by the Bank of Bethune. This school claim was later turned over to G.E. Parrott, Receiver of the Bank of Bethune, together with the $442.57 which the Bank of Bethune had on deposit in the National Loan Exchange Bank of Columbia; that when the check for $3,612.02 was given on the 30th day of January, 1930, the cashier of the Bank of Bethune, on that same date, mailed to the National Loan Exchange Bank of Columbia a check for $700.00, drawn on the American Trust Company of Charlotte, N.C., which was to be placed to the credit of the account of the Bank of Bethune in the National Loan Exchange Bank of Columbia. On January 30, 1930, the Bank of Bethune failed to open for business and has remained closed ever since.
3. I find that on the 24th day of February, 1930, G.E. Parrott was appointed Receiver of the assets of the Bank of Bethune by an order of the Court of Common Pleas for Kershaw County, said order being on file in the office of the Clerk of Court for Kershaw County.
4. I find that on February 26, 1930, J.D. Lafitte, as cashier of the Merchants Farmers Bank, filed a verified proof of claim with G.E. Parrott, as Receiver of the Bank of Bethune for $4,445.53, being the total of the two checks hereinabove mentioned which were given by the cashier of the Bank of Bethune to the cashier of the Merchants Farmers Bank on the 29th and 30th days of January, 1930, in payment of balances due on the clearing and/or settlement for those two days, which checks were not paid by the National Loan Exchange Bank of Columbia but were returned to the Merchants Farmers Bank with the notation thereon "Bank of Bethune closed," and with a protest charge of $3.00 added thereto.
5. I find that on March 12, 1930, G.E. Parrott, as Receiver of the Bank of Bethune, paid to J.D. Lafitte, as cashier of the Merchants Farmers Bank, the sum of $4,445.53, payment in full of its claim hereinabove mentioned
6. I find that on August 22, 1933, T.K. Trotter was appointed Receiver of the Bank of Bethune to succeed G. E. Parrott; that on September 12, 1933, T.K. Trotter, as Receiver of the Bank of Bethune, made formal demand upon the Merchants Farmers Bank for the sum of $4,445.53, being the amount paid to the Merchants Farmers Bank by G.E. Parrott, former Receiver of the Bank of Bethune, which the Merchants Farmers Bank refused to do.
7. I find that no dividend has been paid to the general creditors; that a stock assessment has been levied resulting in some collections and that it appears that the creditors and depositors of the Bank of Bethune will only receive a part payment of their claims and deposits.
CONCLUSIONS OF LAW1. I conclude that the payment of $4,445.53 by G.E. Parrott, as Receiver of the Bank of Bethune, to the Merchants Farmers Bank on March 12, 1930, was made without any authority of the Court of Common Pleas and said payment has not been ratified. The order hereinabove referred to wherein G.E. Parrott was appointed Receiver of the Bank of Bethune is the only authority he had for taking charge of the assets of the said Bank of Bethune and the only authority he had was derived from said order.
2. I conclude that the claim of the Merchants Farmers Bank hereinabove referred to is not a preferred claim, but is an unsecured claim and should share equally with all other general and unsecured creditors of the Bank of Bethune.
3. I conclude that T.K. Trotter, as Receiver of the Bank of Bethune, is entitled to recover from the Merchants Farmers Bank the said sum of $4,445.53, with interest from September 12, 1933, being the date upon which demand was made upon the Merchants Farmers Bank for the return of said sum.
CONCLUSIONThe attorneys for the plaintiff filed with the Master numerous authorities defining the powers of a Receiver, and a number of South Carolina cases dealing with the restitution of funds paid by an official of the state or some subdivision thereof under a mistake of law. The attorneys for defendant filed a written argument with the Master and therein set forth that the payment of this money to the defendant was a voluntary payment made under a mistake of law, the former Receiver having testified that he considered the defendant's claim a preferred claim and that he had been instructed to pay same by one of the assistant state bank examiners, and that no question had been raised as to this payment being made under duress, nor was the transaction tainted with fraud or collusion, therefore, the payment to defendant could not be recovered, even though it was a preference, which the defendant's attorneys do not concede, as the doctrine of voluntary payment under a mistake of law in the absence of duress, fraud, or collusion should apply to a Receiver as well as to an individual; that a Receiver has the same rights in Court as an individual, and only those remedies and defenses which are available to individuals.
While the principles cited in the argument of the defendant's attorneys are good law as applied to individuals, but, I do not think that a Receiver can make a voluntary payment of money under a mistake of law when he had no title to the money and it is not his own and he has no beneficial interest in same. The Receiver paid the money to the defendant, but the title to same did not pass, and his successor is entitled to restitution of the amount so paid with interest from the date on which demand for return of same was made. The same situation would apply if the Receiver was to deliver personal or real property to a creditor under a mistake of law and thereby give said creditor a preference, without authority of the Court of Common Pleas to make said transfer or without a ratification of same. If the defendant was to bring a suit against the plaintiff upon its claim, there could be no recovery under any view of the case, as same is not a preferred claim; on the other hand, because this payment was made by a former Receiver of the Bank of Bethune under a mistake of law, the defendant contends that said Receiver's successors, the plaintiff herein, cannot recover said payment as it was voluntarily made, without duress, fraud, or collusion, and that the same rules of law that would prevent an individual from recovering a payment made under like circumstances, should likewise defeat plaintiff's action. In the case of an individual one necessary feature is that the payment be voluntary.
In the case of Porter v. Sabin, 149 U.S. 473, 13 S.Ct., 1008, 1010, 37 L.Ed., 815, the Court said: "When a Court exercising jurisdiction in equity appoints a receiver of all the property of a corporation, the Court assumes the administration of the estate. The possession of the receiver is the possession of the Court; and the Court itself holds and administers the estate through the receiver, as its officer, for the benefit of those whom the Court shall ultimately adjudge to be entitled to it."
RECOMMENDATIONSI, therefore, recommend that T.K. Trotter, as Receiver of the Bank of Bethune, be given judgment against the Merchants Farmers Bank of Bethune, S.C. for the sum of $4,445.53, with interest at the legal rate from September 12, 1933, together with the costs of this action.
All of which is respectfully submitted this 11th day of June, 1935.
After a careful study of the entire record in this cause, I am of the opinion, and so conclude, that the well-considered report of the Honorable W.L. De Pass, Jr., Master in equity for Kershaw County, should be confirmed in its entirety.
There is very little that can be added to the Master's report, but I desire in connection therewith to add to certain cases decided by our Supreme Court, as well as certain other authorities touching upon the question involved. The writer of this decree has not found a case directly on all fours with the one under inquiry, but he realizes the great importance of the questions involved, and for that reason desires to add his observation to that already made by the Master.
As was said by that great jurist, Mr. Justice Woods, in Livingstain v. Columbia Banking Trust Co., 77 S.C. 305, at page 310, 57 S.E., 182, 184, 22 L.R.A. (N.S.), 442, 122 Am. St. Rep., 568: "No rule of equity appeals more to the judicial conscience than that which requires the assets of an insolvent corporation to be distributed ratably among creditors." This rule of equity has been more than once affirmed by our Court, one of the latest decisions being that of Peurifoy v. Gamble, 145 S.C. 1, 142 S.E., 788, 789, 71 A.L.R., 783. Another principle upon which the Master's finding should be affirmed is held down in Clark on Receivers, Second Ed., § 646, page 910, in which that authority says: "The appointment of a receiver over certain property places it in the custody of the Court. The receiver is but an officer of the Court, to care for the property according to the Court's orders. It, therefore, follows that the receiver has no authority to dispose of the property, or to pay out money without proper orders of the Court appointing him." (Italics added.) This doctrine was by our Court approved in the case of In re American Slicing Machine Co., 125 S.C. 214, 118 S.E., 303, in which the late lamented Mr. Justice Cothran delivering the opinion of the Court: "A receiver is the officer of the Court — as he has been termed, the arm of the Court — appointed by the Court to receive and preserve the property or fund in litigation, together with the rents, issues and profits, and to apply or dispose of them at the direction of the Court. The receiver of an insolvent corporation represents, not only the corporation, but also its stockholders and creditors and it is his duty to assert and protect the rights of each of these several classes of persons; he is regarded as a trustee for them. * * * The Court will see that, in the distribution of the assets of the corporation, it will be effected with proper consideration for the legal and equitable rights of all concerned. The property becomes a trust fund for the payment of debts, and the receiver simply holds it for the benefit of those ultimately entitled in law or equity, to it." (Italics added.)
In the instant case no order of Court was taken authorizing the payment to the defendant of the moneys in question. The payment was made against the interest of the other creditors and stockholders, for the reason that the remaining creditors, after this payment was made, could not be paid on an equal basis with the defendant. To allow the payment to the defendant to stand would, of necessity, increase the liability of the stockholders, inasmuch as a dividend to be paid to the remaining depositors would be proportionately decreased by such payment to the defendant.
If what has already been said is not sufficient to show that a Receiver of an insolvent corporation has not the right and power to act on his own initiative, and thereby bind the insolvent estate, without orders of Court, let us now turn to the grounds that the defendant greatly relies upon to prevent recovery in this action. The ground that the defendant stresses is that where one voluntarily pays cut money under a mistake of law, the sum cannot be recovered back. The evidence shows that the former Receiver of the Bank of Bethune paid to Merchants Farmers Bank, the defendant, in full its claim, believing that the claim of the Bank of Bethune was a preferred one. He had been instructed by one of the bank examiners to pay this claim in full. Whether or not the claim is preferred, is often a mixed question of law and fact. In Lawrence v. Beaubien, 2 Bailey, 623, 23 Am. Dec., 155, which was an action to enforce a contract founded upon a mistake of law, Mr. Justice Johnson said: "In general, the same principle which furnishes a protection from loss, supplies also the remedy for the wrong." For, as said by him, "in general, the same principle, which furnishes a protection from loss, supplies also the remedy for a wrong." In one of the numerous cases cited in the case just referred to, it will be found that before any steps were taken the parties thereto saw and obtained the advice of a schoolmaster who had often advised them in legal matters. It was upon the legal advice given by the schoolmaster upon which the parties acted. The conclusion reached by that great justice was, "that contracts, founded on a plain and palpable mistake of the law, from a known state of facts, and capable of proof, ought not to be enforced." In the case just referred to, the Court set forth the differentiation between ignorance of law and mistake of law. Ignorance of law will not excuse, but mistake of law will be corrected in equity. The same principle was adhered to in the cases of Lowndes v. Chisolm, 2 McCord, Eq., 455, 16 Am. Dec., 667; Hopkins' Ex'rs v. Mazyck, 1 Hill, Eq., 242, 250, and Turner v. Washington Realty Co. et al., 128 S.C. 271, 122 S.E., 768. In connection herewith, see, also, the cases of Northrop's Executors v. Graves, 19 Conn., 548, 50 Am. Dec., 264, and Culbreath v. Culbreath, 7 Ga. 64, 50 Am. Dec., 375, the latter case reviewing and being in harmony with the decisions of our Court.
To require the defendant to pay over to the Receiver the moneys paid it on its claim by the former Receiver will not put the defendant in any different position from that which it occupied at the time the Bank of Bethune closed its doors, but, on the other hand, would restore it to its original position and allow it to share ratably with the other creditors, instead of allowing a preference whereby it would share to a greater extent than that of the other creditors.
For the reasons set forth in the report of the Master, and those set forth herein, it is ordered, adjudged and decreed, that the exceptions of the plaintiff (defendant) be and the same are hereby overruled and dismissed, and that the plaintiff, T.K. Trotter, as Receiver of the Bank of Bethune, do have judgment against the defendant, Merchants Farmers Bank, for the sum of $4,445.53, with interest at the legal rate from September 12, 1933, together with the costs of this action.
Messrs. Wittkowsky Wittkowsky, C.J. Shannon, 4th, and Edgar A. Brown, for appellant, cite: Remedies of Receivers: 125 S.C. 214; 23 R.C.L., 7; 34 Cyc., 191; 125 S.C. 332; 118 S.E., 290; 167 S.C. 1; 165 S.E., 359; 34 N.J., 451; 11 Wn., 586; 40 P., 136; 24 A., 952. As to subrogation: 155 S.C. 222; 168 S.C. 323; 165 S.C. 230; 57 S.E., 182. Trust ex maleficio: 144 S.C. 147; 162 S.C. 107.
Messrs. I.C. Hough and T.K. Trotter, for respondent cite: Receiver: 71 A.L.R., 788; 145 S.C. 1; 142 S.E., 788; 32 S.C. 193; 31 S.E., 634; 13 Ann. Cas., 1155; 208 U.S. 360; 149 U.S. 476. Preference: 150 S.C. 25; 147 S.E., 653; 159 S.C. 372; 157 S.E., 78; 168 S.C. 323; 167 S.E., 154; 168 S.C. 242; 167 S.E., 412; 165 S.C. 161; 163 S.E., 466; 136 S.C. 511; 134 S.E., 510; 173 S.C. 496; 176 S.E., 346; 95 A.L.R., 667. Assets are trust fund for all creditors: 145 S.C. 1; 142 S.E., 788; 148 S.C. 159; 145 S.E., 927; 65 S.W. 154; 300 S.W. 1054; 53 C.J., 312; 23 R.C.L., 108.
June 11, 1936. The opinion of the Court was delivered by
This action was brought by T.K. Trotter, Receiver of the Bank of Bethune, against Merchants Farmers Bank of Bethune, to recover the sum of $4,445.53, which amount had been previously paid to the defendant bank by the former Receiver of the Bank of Bethune as a preferential claim.
The cause was referred to the Master for Kershaw County, who found all issues of law and fact against the defendant. Upon exceptions being taken to the Circuit Court, the Referee's report was confirmed in its entirety. The appeal to this Court involves and comprehends the same issues which were before the Master and the Circuit Court, except that it, for the first time, brings into the case the question as to whether the transaction in litigation constituted a trust ex maleficio. As this issue was not presented to nor passed upon by the Circuit Court, it may not be considered here.
Upon a careful consideration of the record and the issues made by the exceptions, this Court is satisfied with the findings of fact and conclusions of law reached by the Master and confirmed by the Circuit Court. As additional support to the Circuit decree, we cite the case of South Carolina State Bank v. Citizens' Bank, 173 S.C. 496, 176 S.E., 346, 95 A.L.R., 667, where similar and applicable principles of law are discussed.
Let the report of the Master, commencing at "Findings of Fact," be reported, together with the decree of the Circuit Court.
All exceptions are overruled.
It is the judgment of this Court that the judgment of the Circuit Court be affirmed.
MR. CHIEF JUSTICE STABLER and MESSRS. JUSTICES CARTER, BONHAM and BAKER concur.