Opinion
12898
April 17, 1930.
Before DENNIS, J., Anderson, Spring Term, 1929, Modified and affirmed.
Proceeding by the State, on the relation of E.S. Fant, State Bank Examiner, for the liquidation of the People's Bank of Anderson, wherein Essie B. Hernlen filed a claim asserting priority. Judgment awarding claimant priority over all other general creditors, and D.O. Browne, as receiver, appeals.
The decree of Circuit Judge Dennis, affirmed on appeal as to points not discussed in opinion, was as follows:
This is a proceeding against the Receiver of the Peoples Bank of Anderson, S.C. It is founded upon an intervening petition, with the authority of the Court first had and obtained.
The petitioner, Mrs. Essie B. Hernlen, was a depositor in the Peoples Bank of Anderson, S.C. To the extent of Eight Thousand ($8,000.00) Dollars she claims a right to payment in full out of the unpledged assets in the hands of the receiver at the time of the service of the petition. To this petition an answer was filed by the receiver, and the matter was heard by me in open Court.
On most of the material issues of fact in the cause, the parties are in substantial agreement. I find the facts to be as follows:
The petitioner was a depositor in the Peoples Bank of Anderson, S.C. for a number of years. On November 1st, 1921, she had on deposit the sum of Eight Thousand Ninety-eight and 28/100 ($8,098.28) Dollars. On January 3rd, 1922, she made a deposit of Eighteen Hundred Ninety-one and 26/100 ($1,891.26) Dollars. Without making any additional deposits she made some withdrawals, which left a balance to her credit as of January 17, 1922, of Eight Thousand Four Hundred Fifty-nine and 54/100 ($8,459.54) Dollars.
During the summer of 1921, the President of the Peoples Bank of Anderson, S.C. committed suicide. Becoming uneasy about her deposit thereafter, the petitioner was considering withdrawing the same, and with that in mind she discussed the situation with the then president of the bank, and as a result of such discussion it was proposed that she leave her money on deposit, and that the president would negotiate a mortgage loan for the petitioner. The result of these discussions and proposals was an agreement on the part of the president of the bank to obtain for the petitioner a mortgage on the property of one L.P. McCarley, and to use the deposit of the petitioner for that purpose. There is some evidence that but for this arrangement the petitioner would have at this time withdrawn her deposit.
In December, 1921, Mrs. Hernlen, together with some of her relatives and a representative of the bank, inspected the McCarley property. The proposal was to make a loan of Ten Thousand ($10,000.00) Dollars on this property. The petitioner decided that she would lend only Eight Thousand ($8,000.00) Dollars on it, and authorized the president of the bank to apply that much of her deposit in making the loan. It appears, however, for reasons that will hereinafter appear, that the bank desired the loan to McCarley to be in the amount of Ten Thousand ($10,000.00) Dollars. To meet this situation, it was proposed that the petitioner, lend Eight Thousand ($8,000.00) Dollars of her money on the property, and that the bank lend Two Thousand ($2,000.00) Dollars additional. It was further proposed that the bank would take a mortgage for Ten Thousand ($10,000.00) Dollars, securing two notes, one for Eight Thousand ($8,000.00) Dollars to be turned over to the petitioner, and the other for Two Thousand ($2,000.00) Dollars, to be held by the bank and the Two Thousand ($2,000.00) Dollar note was to be subordinated under the mortgage to the payment of the Eight Thousand ($8,000.00) Dollar note. These proposals were agree to by the petitioner.
The deposit made by the petitioner on January 3rd, 1922, was acknowledged by the bank in a letter of that date addressed by the president to the petitioner, and a deposit slip was forwarded to the latter. In this letter the president said, among other things, referring to the McCarley note and mortgage: "You will hear from the other papers in a day or so, which we trust will be agreeable to you." This was apparently written to satisfy the anxiety of the petitioner, who had in the meantime indicated a purpose to withdraw her deposit unless the McCarley papers were completed.
The petitioner seems to have placed complete confidence in the president of the bank, and to have given him full power to handle her deposit for the purpose in question. It is apparent that she accepted his assurance that the papers were in preparation on her account, and would be delivered to her in due course.
The preparation of the mortgage and notes was committed by the president of the bank to the attorneys of the bank, Messrs. Bonham Allen. The mortgage and the notes were prepared by these attorneys in accordance with the agreement, and were signed by McCarley, on January 6th, 1922, and left by him in the hands of the attorneys named. The probate on the mortgage is dated January 6th, 1922, as is also the renunciation of dower. These several instruments were made payable to The Peoples Bank of Anderson, S.C., it having been the obvious intention of the parties that the bank would properly assign the mortgage and the Eight Thousand ($8,000.00) Dollar note to the petitioner, and would either hold the same for her account, or deliver the same to her.
In this situation, on January 17th, 1922, while the notes and the mortgage securing the same were still in the hands of Messrs. Bonham Allen, The Peoples Bank of Anderson, S.C. suspended business, and its affairs were taken over by the State Bank Examiner. On February 20th, 1922, as a result of negotiations on the part of the bank with the depositors thereof, the bank reopened for business, and remained open for approximately a year. The McCarley papers were delivered to the bank shortly after it reopened, but the president, stating that he acted under advice of counsel, failed to deliver the mortgage and the Eight Thousand ($8,000.00) Dollar note to the petitioner, nor was an assignment or endorsement to the petitioner written on either. The petitioner's deposit likewise remained intact.
While at this time the bank was apparently in an extremely unliquid condition, and its ability to work out under the circumstances then existing in the community may have been a matter of considerable doubt on the part of the management, it was believed by the management and by the State Bank Examiner, or at least as far as the petitioner is concerned the belief was held out, that the bank had reopened for business in the usual course.
It was part of the plan of reopening that the depositors should agree to leave their deposits in the bank for a given period. Not all of the depositors entered into this agreement, although the letter sent out by Vandiver indicates that all would have to agree, and by means of rediscounts or other forms of borrowing, the bank obtained funds — considerably in excess of the amount of petitioner's claim — on the receivables held by it, with which to pay off such non-assenting depositors, and for other purposes.
The bank suspended business for the second time in January, 1923, and never reopened.
In February, 1923, the McCarley indebtedness was paid in full. It is claimed by officers of the bank that under advice of counsel, on account of the fact that the McCarley mortgage and the notes secured by the same were not actually received by the bank until after the first closing and reopening of the same, the said notes and mortgage were held by the bank for the amount of the pledgees of the original McCarley papers. There is no testimony, however, showing that McCarley called for or received the original notes when he delivered the new papers assigned to the pledgees of the original notes. On the contrary, the new papers remaining in the possession of the Peoples Bank of Anderson, S.C. were paid by McCarley to that bank. The payment being made after the final closing of the bank, it necessarily follows that the amount of such payment augmented the assets that went into the hands of the receiver to that extent, and provided a fund out of which payment could have been made by the receiver to the petitioner of the proceeds of the mortgage note now set up by her. The receiver's cash receipt book shows the McCarley indebtedness to have been paid on February 20th, 1923. While the present receiver had not then been appointed, the bank was at that time in process of liquidation under the jurisdiction of the State Bank Examiner, and as far as the petitioner's rights are concerned, the situation is no different from what it would have been had the present receiver then been in charge.
The petitioner had no knowledge of the pledge of the original McCarley notes, or of the McCarley mortgage and the notes secured by it. She at all times relied upon the agreement made by her with the president of the bank, whereby the McCarley mortgage and the Eight Thousand Dollar note issued under it would be delivered to her in satisfaction of her deposit to that extent. It does not appear from the testimony what understanding was had by the petitioner, or what explanation was given to her by the officers of the bank as to the fact that although the McCarley mortgage and notes were presumptively taken and held by the bank for the petitioner, the same had never been delivered to her and no payment made to her on account thereof. It is clearly inferable, however, that the petitioner had such complete confidence in the officials of the bank, and relied upon them so exclusively, that she took it for granted that the arrangements with her had been fully carried out, and that the McCarley mortgage and the Eight Thousand ($8,000.00) Dollar note were in the hands of the bank for her account, in substitution of her deposit to that extent.
I will take up separately the various grounds relied upon by the receiver of the bank in opposition to the claim of the petitioner. In this connection it may be pointed out that aside from the issues of fact raised in the answer of the receiver, the sole defenses urged are: (1) that the petitioner received certain dividends out of collections from the stockholders on their statutory liability, and that by her receipt and acceptance of the same she is estopped to maintain the present action: (2) that by her receipt and acceptance of the said dividends, the petitioner has elected to rely upon her rights as a depositor; (3) more than six years have elapsed since the cause of action accrued to the petitioner, and that she is therefore barred by laches and limitations.
While the receiver might be limited technically to these grounds of defense, I will consider them in connection with additional grounds of defense urged in the argument of the case.
1. It does not seem to me that the receipt and acceptance by the petitioner of the dividends obtained from the stockholders' liability fund either estop the petitioner, or constitute an election of remedies on her part, In the first place, although the usual order to prove claims was issued in the stockholders' liability suit, the petitioner did not prove her claim in the cause. Aside from this, she was a depositor of the bank irrespective of the Eight Thousand ($8,000.00) Dollar claim now in question, and on that ground would have been entitled to receive dividends from the stockholders' fund, even had she been paid the proceeds of the McCarley mortgage. The fact that she received and has retained dividends paid on the basis of a deposit including the Eight Thousand ($8,000.00) Dollars involved in the McCarley transaction may subject her to a claim of refund on the part of the other depositors, to the extent that she effects collection by way of a preference or otherwise on the Eight Thousand Dollar item, but that is not material to the present issue. As a claimant for funds which undoubtedly were on deposit in the bank, whether with or without her knowledge and consent she had and has the right to pursue every remedy open to her for the collection of the amount due her. As I see it, she could sue the stockholders, she could sue the directors, and she could file her claim as a depositor, and resort to any other means of reimbursing herself, subject only to an estoppel arising in the event that she did anything amounting to a waiver of her present claim, and to her discontinuing all other proceedings when in any one of such proceedings she obtains payment. The remedies invoked by her in the respects indicated would not be inconsistent In all of them, she would be merely seeking to recoup her loss against the various parties who under the law are responsible for the same. Of course, if in any of such proceedings she made allegations showing that she had no such preferential rights as are now asserted, she would be held estopped to change her position in other proceedings, but in none of the supposed instances would it be at all material whether her claim is preferential or not, for in each of such instances its preferential character would be wholly immaterial in fixing the amount of her recovery. For example, it could conceivably develop that though the petitioner is entitled to the relief prayed in the present action, she might through some cause be deprived of recovering the full amount due her. Certainly that could not destroy her rights as to the balance, whether against the stockholders, directors, or anybody else concerned in the damage and injury sustained by her.
2. The second ground of defense above referred to is covered by the statement already made as to the first defense.
3. I do not think that the equitable defense of laches enters into the case in any aspect of it. If there has been unnecessary delay, still the delay has not been such as to prejudice the rights of the receiver or of the persons represented by him. The prejudice, if any, is to the petitioner herself. Nor is the defense of limitations available to the receiver. The fair inference from all of the testimony is that it was not until some time in 1924, when the dividends arising out of the stockholders' liability fund were paid that it definitely dawned upon the petitioner that the agreements made with her in relation to the McCarley mortgage had apparently not been carried out, and it was around that time that she made her first real investigations, and obtained such of the facts hereinabove set out as were finally disclosed to and ascertainable by her. The present proceeding was instituted in the latter part of 1928. The bank finally closed its doors in the early part of 1923. Certainly, so long as the bank remained open, and the petitioner was relying, with ample cause, upon the good faith and diligence of the bank management, and upon the belief that the agreements made with her had been carried out, it cannot be said that her present cause of action accrued, and if the second closing of the bank is to be taken as fixing the time when the petitioner should have inquired into the facts, less than six years have elapsed. I do not think that under the circumstances here disclosed the statute of limitations can be held to apply.
It was contended in the argument that an estopped or election resulted from the fact that Mrs. Hernlen's name is signed to one of the pledges which were solicited from the depositors when the bank first closed, in order to enable the bank to reopen under a plan of suspension of payments of the deposits. This pledge was introduced in evidence. The name of Mrs. Hernlen is signed on the typewriter, and under the same are her husband's initials, written by hand. If it be assumed that the petitioner's husband (now deceased) was authorized to sign the pledge, the fact remains that the instrument nowhere undertakes to set forth the amount of the petitioner's deposit. As previously pointed out, the petitioner was a substantial depositor, irrespective of the Eight Thousand Dollar item in question. so that it cannot be said that by the execution of this pledge any purpose was expressed by or on behalf of the petitioner as to the protection or disposition of the Eight Thousand ($8,000.00) Dollars of her deposit now in question.
Counsel for the respondent further argues that the petitioner is barred by reason of the fact that she was one of the plaintiff's in a suit brought by her and other depositors of the bank against the directors, charging various delicts in the management of the bank's affairs. See Hernlen v. People's Bank of Anderson, 135 S.C. 313, 133 S.E., 549; Hernlen v. Vandiver, 145 S.C. 412, 143 S.E., 222.
The first of these two cases was dismissed on demurrer. The second was finally settled, and in connection with the settlement an express stipulation was entered into, setting forth that "Nothing herein is intended to affect the right of Mrs. E.B. Hernlen to claim a preference in the assets of Peoples Bank of Anderson, S.C. as indicated in her two suits now pending." And the evidences show that the petitioner did not receive any of the proceeds of the settlement made in that litigation. As I have previously indicated, even if this stipulation had not been entered into, and the petitioner had shared in the settlement of the litigation in question, she would not have been barred from maintaining the present action as to any balance still due her on the Eight Thousand ($8,000.00) Dollar item. The remedies available to the creditors are cumulative, unless in their nature they are so inconsistent as to indicate that the adoption of one is an intentional relinquishment of the other. Aside from these considerations, however, the Supreme Court expressly held that the suit against the directors is to be taken as a suit on behalf of the bank itself, and not against it. Hence, a recovery in that suit could have had no other effect than to augment the resources in the hands of the bank available for the claim of the petitioner.
Coming down to the merits of the claim of the petitioner on the facts above set forth, from the standpoint of her right to payment in full out of any unpledged assets in the hands of the receiver, it is unfortunate that the testimony of McCarley was not taken and put into the record. It appears that his whereabouts was known to the respondent, and that his deposition, if not his personal presence, was obtainable. McCarley's testimony might have been very material to the disposition of the issue herein. As the record now stands, the only reasonable inference is that the McCarley mortgage was obtained for the specific purpose of carrying out the agreement with the petitioner. Presumably, the reason given him for requesting the mortgage was consistent with the arrangement made with the petitioner. If the facts are otherwise, his testimony would be extremely material to the respondent, and authority is not wanting for the proposition that where a party fails to produce the testimony of an available witness on a material issue in the cause, it may be inferred that the testimony of such witness, if presented, would be adverse. I Wig. on Evid., § 285.
At all events, the record as it stands raises the specific issue whether, assuming the facts to be as above set forth, the petitioner is entitled to payment in full out of the unpledged assets in the hands of the receiver.
Bearing in mind that but for the arrangement in question the petitioner would have withdrawn her deposit, and that this arrangement was fully carried out except as to the purely clerical and physical act of delivering the papers to the petitioner, it would seem that to deprive the petitioner of the fruits of the transaction would be to sanction a legal fraud. The reliance of the petitioner on the officials of the bank, the fact that no information or advice was given to the petitioner that would have put her on inquiry or enabled her to assert her rights in the premises while the bank remained open, either before or after the first suspension, creates an equity in the petitioner's favor that is peculiarly cognizable and remediable in a Court of Chancery.
Some question arises under the testimony as to actual date of delivery of the McCarley papers to the bank, the suggestion being made that although they are dated prior to the first closing of the bank, they were not in fact delivered to the bank until it had reopened. I am strongly inclined to the view that under all the circumstances of the case, having regard especially to the high character and ability of Judge Bonham, who probated the mortgage and took the renunciation of dower, that these papers were completed on their date, and between the time of the completion of the papers and their delivery to the bank, it seems to me that it must be held that the possession of the papers by the attorneys was equivalent to their possession by the bank for whom they were acting, and that possession by the bank must be taken to have been on behalf and for the benefit of the petitioner.
It does not seem to me that in order to sustain the petitioner's claim, the strict doctrine relating to trusts must be applied, so as to require the tracing of funds into the possession of the receiver as a prerequisite to the maintenance of the petitioner's claim. It is certain, on the assumptions which I am obliged to make on the record as it stands, that McCarley executed and delivered the papers, and that there were received by the bank for the benefit of the petitioner, and that by reason of the non-compliance by the bank with the arrangement made with the petitioner, the general assets of the bank were increased to the extent of the proceeds of the mortgage. I cannot assume that the debt would have been paid by McCarley had the mortgage not been given, or that the financial condition of McCarley is such that without the mortgage security the indebtedness due by McCarley to the bank could or would have been collected. I must take the record as I find it, and I feel impelled to hold that at the time of the final closing of the bank, the assets which passed into the hands of the receiver were chargeable with the amount of the petitioner's claim, the McCarley mortgage having at that time been fully paid.
I do not feel called upon at this time to deal with the question as to how the petitioner is to effect collection of the claim thus allowed. It is to be assumed that since the institution of these proceedings, with the notice given by them to the receiver of the claim in question, the receivership estate has been so handled as to fully protect the petitioner out of the assets in hand when proceedings were commenced, in the event that she should prevail. The petitioner will have leave to apply for any additional orders that may be requisite in the premises in order to enable her to obtain satisfaction of her claim.
My views being as above expressed, it is ordered and adjudged, that the petitioner is entitled to the payment of her claim of Eight Thousand ($8,000.00) Dollars, with interest to be computed thereon at seven per cent per annum from January 6th, 1922, and that the respondent, D.O. Browne, as Receiver of the Peoples Bank of Anderson, S.C. be and he hereby is ordered and directed to pay the said sum to the petitioner out of any unpledged assets, real or personal, now in his hands, or as soon as such unpledged assets can be liquidated and reduced to cash, the said payment to be made in preference to the claims of the unsecured depositors and other creditors of the bank.
Further ordered, that the petitioner may apply to the Court for such additional orders as she may be advised, if by reason of the depletion of the assets of the receivership, or for other cause, collection of the claim herein allowed cannot be effected.
This order shall not be taken to bar any rights or claims on the part of the petitioner with respect to the recovery of the amount of her claim, or of any part thereof, through any other channel, in the event that payment is not made as herein provided; but nothing is adjudicated herein on the question of the existence of such rights or claims.
Messrs. Allen Doyle for appellant, cite: Date of instrument may be shown by parol: 109 S.C. 29. Bank insolvent: 81 S.C. 250. Interest not allowable on preference: 37 U.S. L. Ed., 671; 65 N.E., 200; 24 C.J., 729; 22 S.C. Eq., 161; 19 S.C. 168; 24 S.C. 572; 6 S.C. 333; 32 S.C. 394; 48 S.E., 736; 19 L.R.A. (N.S.) 430. Delay of more than six years in asserting claim is laches: 62 S.C. 36. Dividends as general creditor should be returned before claiming preference: 149 S.E., 575. Assets of bank not augmented: 149 S.E., 599; 149 S.E., 401; 147 S.E., 659; 145 S.E., 706; 142 S.E., 239; 142 S.E., 788; 134 S.E., 510; 139 S.E., 793; 138 S.E., 815; 57 S.E., 182.
Mr. S.M. Wolfe, for respondent, cite: Special deposit created trust: 136 S.C. 511; 142 S.C. 140; 98 A.S.R., 365; 31 A.L.R., 466; 37 A.L.R., 611; 26 R.C.L., 1232; 124 Pac., 808; 148 S.C. 100; 144 S.C. 147; L.R.A., 1916-C 53. Interest should be allowed: 148 S.C. 100. Trust follows collateral taken: 148 S.C. 100; 26 R.C.L., 1232; 144 S.C. 147; 149 S.E., 401. Assignment: 3 Civil Code 1922, 3681, 3682, 3683, 3703; 125 S.C. 352. Assets bank increased: 96 N.Y., 32; 66 Wis. 401; 83 Mo., 210; 30 Kan., 156; 69 Wis. 115; 80 Iowa., 722. Trust relation would be presumed as if bank retained trust funds; 104 U.S. 54; 52 N.Y., 1; 69 Tex., 489; 67 Fed., 27; 62 Fed., 958; 103 Mich., 109; 10 L.R.A. (N.S.), 928; 47 L.R.A. (N.S.), 317; 211 N.W., 954; 55 N.W., 557; 219 Fed., 790. Acceptance of dividends no prejudice to the State: 122 S.C. 296. Plaintiff met burden of proof when assets traced to hands of receiver: 155 N.W., 1052; 31 A.L.R., 466; 36 Fed., 229; 133 U.S. 670; 118 S.C. 442. Rule as to tracing assets: 7 C.J., 751; 57 L.R.A., 85; 52 L.R.A., 67; 15 Fed; 2d 586; 25 A.L.R., 716; 141 S.C. 318; 15 L.R.A. (N.S.), 1100; 133 S.E., 570; 118 S.C. 446. Receiver stands in same position of bank: 295 Fed., 847; 140 S.C. 253; 47 L.R.A. (N.S.), 317; 136 S.C. 111. Statute of Limitations did not begin to run until cause of action accrued: Code Civil Proc., 1922, Sec. 313. Accrued when trustee refused to account: 15 S.C. 164; 37 C.J., 697, 699, 807, 831, 856, 911; 31 S.C. Eq., 226; 21 N.E., 714. Receipt of dividend no estoppel: 41 S.E., 501; 7 C.J., 751; 45 Fed., 588. Doctrine of election less rigid in equity: 50 S.C. 241; 108 S.C. 79. No estoppel: 102 S.C. 361; 138 S.C. 426; 90 S.C. 90; 122 S.C. 336.
April 17, 1930. The opinion of the Court was delivered by
This is an appeal from an order of his Honor, Judge Dennis, awarding the petitioner, Mrs. Hernlen, priority over all other general creditors of the defunct People's Bank of Anderson, in the distribution of its assets, under the circumstances which will be detailed.
The petition alleges in substance:
That in June, 1921, Mrs. Hernlen had upon deposit with the bank approximately $8,000; that on June 21, 1921, Lee G. Holleman, president of the bank, committed suicide, a fact which caused her to become apprehensive of the safety of her deposit; that she immediately notified E.P. Vandiver, who had succeeded to the presidency, that she wished either to remove her deposit, or to have him invest it in a safe loan secured by a mortgage of real estate; that Vandiver agreed to so invest it, and she allowed the deposit to remain in the bank upon such assurance; that thereafter, and prior to January 6, 1922, Vandiver notified her that he had an application from one McCarley for a loan of $10,000.00, which she might obtain under the arrangement referred to; that she, with her brother and a representative of the bank, made an inspection of the real estate which McCarley proposed to mortgage as security for said loan; that she declined to make a loan in excess of $8,000 upon the security offered, but was willing to make it for that amount, which she agreed to do, " the same to be advanced from the deposit in said bank", that the agreement then with Vandiver was that he would negotiate the loan for her of $8,000 and take from McCarley an additional note to the bank for $2,000, all to be secured by the mortgage, but the $8,000 note to Mrs. Hernlen to have priority over the $2,000 not to the bank, in the mortgage; that hearing nothing from Vandiver as to the loan in the meantime, on January 6, 1922, she gave a check to her husband for the full amount of the deposit and directed him to withdraw it from the bank unless he found that the loan had been perfected; that he presented the check for payment to the bank, but upon the representation of Vandiver that the papers were being prepared, and would be completed that day, she allowed the deposit to remain in the bank to be drawn upon by Vandiver in perfecting the loan; that on January 17, 1922, the bank closed it doors and was taken over by the state bank examiner; that she then demanded of those in charge of the bank the papers in the McCarley loan, but "was advised that no loan had been made in her name, and that her money still remained a deposit;" that Vandiver had made a loan to McCarley for $10,000, in two notes of $8,000 and $2,000, executed on January 6, 1922, secured by the mortgage, referred to, duly recorded, "which papers remained in the hands of the People's Bank of Anderson, as unpledged assets; that subsequently the notes were paid in full to the liquidating agents of the bank on July 17, 1923, and the mortgage canceled of record; the petition further alleges:
"That although the Eight Thousand Dollar ($8,000,00)-note was made payable to said bank, it was taken pursuant to the agreement aforesaid to wit: that it was to be the property of the petitioner and it was held by the said bank as trustee for the petitioner, with the intention or obligation to transfer it to her in accordance with the agreement, and was at all times so held."
And further:
"Petitioner alleges that in law and equity the Eight Thousand Dollar ($8,000.00)-note given by the said L.P. McCarley, as aforesaid, and secured by the said mortgage, was her property and under the facts stated she was entitled, upon the payment of the said Eight Thousand Dollar ($8,000,00)-note, by L.P. McCarley to receive the proceeds thereof in preference to any claim of the said The Peoples Bank of Anderson, or any creditor thereof, and she alleges that the receiver of the said The Peoples Bank of Anderson has failed and refused to account to the petitioner for the proceeds of said payment, and that, instead, the proceeds of said payment went into the general corpus of the said bank's estate succeeded to by the receiver herein, the assets of the said corporation being increased to the extent of the amount of the proceeds of such payment. Petitioner alleges that there are assets of the said The Peoples Bank of Anderson in the hands of the receiver, out of which she can be reimbursed for the amount of the proceeds of the said note which was her property as aforesaid, and which assets she alleges are unpledged, and belong to her to said extent, and she alleges that a lien should be declared as against the proceeds of payment of said note by said McCarley, and that in equity she has a lien thereon, and that it is the duty of the receiver in this action to account to her out of the assets remaining in his hands for such sum of money."
The petition, in the main, is abundantly sustained by the evidence; in fact, as counsel for the appellant states in his printed argument: "There is little controversy as to the facts."
Upon learning of the suicide of the president of the bank, in June, 1921, Mrs. Hernlen, naturally, became apprehensive of the safety of her deposit, which at that time was over $7,000, and communicated to Vandiver who had succeeded Holleman as president, her purpose either to withdraw her deposit or to have him invest it in a note secured by a mortgage upon real estate.
Vandiver, the helmsman of the vessel in a storm, if not in an actually sinking condition, was naturally anxious to retain the deposit of such a considerable amount, to enable him, if possible, to weather the storm; he needed it also to avoid the effect upon other depositors, of a withdrawal by Mrs. Hernlen — the possibility of a banker's greatest dread — a "run" on the bank. He checked her impulse to withdraw the deposit, by agreeing to her alternative suggestion of investing that deposit in a loan for her, upon a note secured by a mortgage of real estate.
In the fall of 1921, Vandiver notified Mrs. Hernlen that he had an application from one McCarley, for a loan of $10,000.00, upon a real estate mortgage, which he recommended, and stated that, if she approved it, he would make the loan for her.
In response thereto, Mrs. Hernlen, who lived at McCormick, went to Anderson, and, in company with her brother and a representative of the bank, inspected the tract of land offered as security for the loan. As the result of such inspection, she told Vandiver that she would lend only $8,000,00 on the security offered. Vandiver explained that McCarley needed $10,000.00, and that the bank would lend him $2,000.00 and would lend him $8,000.00 for her, take one mortgage securing both notes, and assign the $8,000.00 note and the mortgage to her, giving her preference as to lien.
In this connection Vandiver testified: "I intended to lend eight thousand dollars for Mrs. Hernlen, and I promised her the note and mortgage for this amount. We (the bank) wanted to take a ten-thousand-dollar note because we thought then that the property would secure that much. And the agreement was that the bank would take an `eight' and a `two' and that they (the bank) would assign the `eight' to Mrs. Hernlen and make it a preference over the two thousand."
Mrs. Hernlen agreed to this arrangement which was to be consummated by recourse by Vandiver to her deposit. She did not have at that time sufficient funds on deposit with which to make the proposed loan of $8,000.00, and on January 3, 1921, she made a deposit of $1,891.26; her deposit thus supplemented then amounted to $8,989.54.
On January 6th, not having heard from Vandiver in reference to the proposed loan, Mrs. Hernlen gave a check to her husband for the full amount of her deposit and directed him to withdraw it from the bank in the event that the McCarley loan had not been consummated; he presented the check for payment to the bank, but upon the representation of Vandiver that the papers were being prepared and would be completed that day, he destroyed the check and left the deposit intact. Vandiver testified that the check would have been honored at that time but for his assurance.
The evidence conclusively shows that Mrs. Hernlen was induced to allow her deposit to remain in the bank upon the representations of Vandiver that he had received an application for a loan of $10,000.00 from McCarley to be secured by a mortgage upon real estate; that the loan would be evidenced by two notes of $8,000.00 and $2,000.00; that both would be secured by the same mortgage; that the $8,000.00 note would be assigned to Mrs. Hernlen and should have priority over the $2,000.00 note to the bank; that the $8,000.00 would be withdrawn from Mrs. Hernlen's deposit to complete the loan to McCarley.
The evidence further conclusively shows, we regret to have to say, that the representations were not true and were intend by Vandiver to induce Mrs. Hernlen to allow the deposit to remain in the bank, no part of which he intended to pay to McCarley.
We quote from the appellant's brief: "At some time early in January, 1922, prior to January 17th, McCarley and the bank had the agreement that his notes should be renewed, and that McCarley would secure the payment thereof to the extent of $10,000.00, with a real estate mortgage on his land." (Italics added.)
Instead of applying for a loan of $10,000.00, McCarley at that time was indebted to the bank on sundry notes, aggregating $11,561.80; there were seven of them, and all of them had been assigned by the bank to certain correspondent banks as collateral security to debts due them by the bank; all of them, with the exception of a small $100 note, were due on December 31, 1921. This list shows their several amounts and the banks to which they had been assigned as collateral:
National City Bank .......................... $ 3,000.00 ditto .................................... 2,221.00 Central National Bank ....................... 650.00 ditto .................................... 200.60 National State City Bank .................. 100.00 Bank of Anderson ............................ 1,040.20 ditto ................................... 3,000.00 ?____ ................................ 1,350.00 ------------ $ 11,561.80 It is manifest, then, that Vandiver never intended to make a loan to McCarley, but intended to consolidate the outstanding notes of McCarley into the new mortgage of $10,000.00, securing the notes of $8,000.00 and $2,000.00. The separation of the $10,000.00 mortgage which McCarley proposed to give, into two notes, one of which was to be assigned to Mrs. Hernlen, was calculated to assure her of the sincerity of Vandiver's promise.Accordingly on or about January 6, 1922, Vandiver directed his attorneys, Messrs. Bonham Allen, to prepare two notes of $8,000.00 and $2,000.00, respectively, payable, not to Mrs. Hernlen, but to the bank, and a mortgage securing the same. The instructions were carried out, and the papers were prepared. There is some question as to whether they were executed upon the day they bear date, January 6, 1922; it is certainly established that they were not delivered to the bank until after January 17th when the bank closed. We do not regard this issue as at all determinative of the rights of Mrs. Hernlen, as will later appear.
It is very clear that the papers were prepared as renewals of the outstanding notes of McCarley to the bank, held by other banks as collateral, and not as a contemporaneous loan by the bank of Mrs. Hernlen's funds to McCarley.
The following appears in the testimony of Vandiver:
"Q. Mr. Vandiver, I believe you testified that all of the Pearce McCarley notes were held by corresponding banks as collateral at the time the Peoples Bank closed? A. I think so, yes, sir.
"Q. And that this ten thousand dollar note was given as a renewal of those notes to the extent of ten thousand dollars? A. Yes, sir, that's correct.
"Q. And as a matter of fact you could not have used this ten thousand dollar note for any other purpose without the consent of the people who held the original note? A. No. sir."
Vandiver was thus holding out to Mrs. Hernlen a promise that he knew that he could not fulfil in order to induce her not to withdraw her deposit; it is clear that she acted upon it.
It makes no difference whether the $10,000.00 mortgage was executed on January 6th or later; or whether it was delivered to the bank before or after the closing; the point is that, when Vandiver induced Mrs. Hernlen to allow her deposit to remain in the bank upon his promise to invest it in a real estate mortgage, it amounted to the same thing as if he had induced her to make a deposit upon such an engagement; under either condition the deposit would constitute the corpus of a trust fund and the bank a trustee of it for Mrs. Hernlen. It is also clear that the trust was created in bad faith upon the representation, which was not true, that McCarley had made application for a loan, and upon the false promise which Vandiver knew at the time he could not and did not intend to fulfil — a trust ex maleficio.
It is an established principle, under the case of Ex parte Bank of Aynor, 144 S.C. 147, 142 S.C. 239, that the beneficiary of such a trust as this is entitled to be preferred in the distribution of the assets of a failed bank, over the general creditors. The discussion at length of the subject in that case is referred to, without an apparently needless repetition here.
It appears that the McCarley notes and mortgage were not delivered to the bank until after it closed. After that event the bank transmitted to the National City Bank of New York the $8,000 note of McCarley as collateral to certain obligations; the $2,000 note was likewise assigned to the Bank of Anderson; this note was afterwards assigned to the Carolina National Bank of Anderson; later both notes came into the possession of the Carolina National Bank and were paid by McCarley to the liquidating agent and the proceeds paid to the Carolina National Bank.
In our view of the case Mrs. Hernlen is entitled to enforce her trust to the extent of $8,000.00, with interest from January 3, 1922, at 7 per cent. per annum out of the assets in the hands of the receiver in preference to the general creditors of the bank and to rank as a depositor to the extent of $989.94.
The payments which have been or may be made to her from the proceeds of the stockholder's liability will be applied to what she is entitled to as a depositor upon the basis of $989.94; the remainder, to the trust account; and the dividends which have been or may be made out of the liquidation will be applied to the balances upon the trust account and the deposit account combined.
The conclusions of the circuit Judge upon points not discussed in this opinion are satisfactory to the Court; as to them the decree is affirmed; in other respects it is modified as herein indicated.
MR. CHIEF JUSTICE WATTS and MESSRS. JUSTICES BLEASE, STABLER and CARTER concur.
On Petition for Rehearing.
Upon consideration of the petition for rehearing filed in the above-stated case, it appears that the Court was in error in allowing Mrs. Hernlen interest from January 3, 1922, at 7 per cent. per annum; the bank being an insolvent institution in the hands of a receiver, under administration of its assets, no interest should have been allowed upon the trust fund of $8,000.00. Hutchinson v. Bates, 1 Bailey, 111; Morton v. Caldwell, 3 Strob. Eq., 161; Williams v. Benedict, 8 How., 107, 12 L.Ed., 1007; People v. American Loan T. Co., 172 N.Y., 371, 65 N.E., 200.
There appears also in the opinion an error in the amount of the deposit balance account of Mrs. Hernlen; it should be $8,489.54, instead of $8,989.54.
It is therefore ordered that the opinion heretofore filed be modified in accordance herewith; it is further ordered that the remittitur be stayed for a period of ten days after the filing of this order that counsel for Mrs. Hernlen may have an opportunity to file a petition for a rehearing for the purpose of correcting what may be apprehended is an error herein.