Opinion
14299
May 15, 1936.
Before BELLINGER, J., Kershaw, September, 1935. Affirmed.
Suit by John Wilson, as Receiver of the Northwestern Railroad of South Carolina, against the Bank of Camden and another. Judgment for plaintiff, and defendants appeal.
The order of Judge Bellinger is as follows:
This is a suit by John Wilson, as Receiver of Northwestern Railroad Company of South Carolina, against the Bank of Camden and D.A. Boykin, as conservator of said Bank of Camden, and comes before me on an agreed statement of fact, which is as follows:
"On March 4, 1933, during business hours, the Bank of Camden did business in the usual manner, including the receiving of deposits and the payment of checks. On that date the Northwestern Railroad Company of South Carolina had on deposit in its checking account in the Bank of Camden the sum of one thousand four hundred seventy-four and 48/100 ($1,474.48) Dollars. During the forenoon, John Wilson, who was president of the Northwestern Railroad Company of South Carolina, presented to the Bank of Camden, at its banking house, in the City of Camden, a check of Northwestern Railroad Company for one thousand ($1,000.00) Dollars and demanded payment thereof. The check in question was properly drawn and presented for payment and the Bank of Camden had in its possession sufficient funds in cash to make payment. When the said check was presented for payment, the bank declined to pay it. An officer of the bank told John Wilson that, owing to the continuous withdrawals from the bank, that the check could not be paid at that time, but that the bank was expecting a remittance of funds from Charlotte and would pay the check if presented again before the close of business.
"Approximately fifteen or twenty minutes prior to the bank's closing time, John Wilson again presented the check in question for payment and the bank again declined to pay it, urging as a reason therefor, the failure of the expected funds from Charlotte to arrive. At that time and until closing time, it continued to do business in the usual way, and had sufficient funds in cash to pay the check.
"Due to the president's proclamation, the bank did not reopen for business on Monday, March 6th. It thereafter remained closed during the moratorium and attempted to reorganize, and failing to do so, was declared insolvent on October 24, 1933, and thereafter it commenced liquidating its assets in which it is now engaged."
The issue for decision is whether the Receiver of Northwestern Railroad Company of South Carolina is entitled to a preference or not, in the circumstances disclosed by the above statement of fact.
Counsel have not been able to point out to the writer of this order any decision of our Supreme Court bearing upon the above issue, nor has the writer been able to find where the point has been decided by our Courts. Possibly this is due to the extraordinary situation arising from the refusal of a bank to pay the check of one of its depositors without excuse, while conducting business in the usual way, and while receiving deposits and paying checks of the other customers of the bank. However, this question has arisen and been passed upon by the Courts of the State of Missouri in a number of cases, many of which involve the same facts arising in the present case. Among the cases decided by the Missouri Courts are the following: Koehler v. Joplin State Bank (Mo.App.), 68 S.W.2d 728; Hiatt v. Miller Bank et al., 224 Mo. App., 1040, 34 S.W.2d 532; Claxton v. Cantley, Commissioner of Finance (Mo.App.), 297 S.W. 975.
Consequently, this Court must proceed to decide the issue in the light of what decisions it has found upon the subject and with what seems right and fair in the administration of justice.
It is true, since the passing of the Negotiable Instruments Act (Code 1932, § 6752 et seq.), the relation between a bank and a depositor is that of debtor and creditor, and the contract is that the bank will pay the check of a depositor on presentation. Consequently, if that were all that had occurred, and the bank had merely refused to pay a check on presentation, the result would be a simple breach of contract. But, when the Bank of Camden knowingly and deliberately refused to pay the check presented by Mr. Wilson, when it had funds to do so, and paid checks of other depositors, the breach of contract became willful and the bank became a trustee ex maleficio. Moreover, the paying of one depositor without paying another, and without any excuse at all, resulted in a legal fraud, which should not and could not have the sanction of the Court.
The nearest case in point, decided by our Court, is the case of Ex Parte Hernlen, 156 S.C. 181, 153 S.E., 133, 69 A.L.R., 443, and the case at bar would seem to present a stronger ground for preference. In the leading case of Ellerbe v. Studebaker Corporation (C.C.A.), 21 F.2d 993, the Court had under consideration the question of augmentation as a result of the collection of a draft. Taking as the criterion the fact that by reason of such collection the Receiver had just that much more for distribution among creditors, the Court held that a clear case of augmentation of assets was made out.
Under the facts in this case, when the plaintiff herein presented his check for payment, he was entitled to be paid; and, when the bank refused to pay the plaintiff, the bank committed a wrong. The other creditors of the bank should not be permitted to profit by this wrong; nor should the plaintiff be permitted to suffer by the wrongful act of the bank. The funds of the bank were augmented to the extent of the plaintiff's $1,000.00, for had it paid the check when presented, the bank would have had $1,000.00 less when it closed its doors, and the plaintiff would have had $1,000.00 more. Therefore, by virtue of the wrongful acts of the bank in refusing to pay the plaintiff's check, the assets of the bank passing into the hands of the conservator were swelled by $1,000.00. There is, therefore, a strong case of augmentation made out here.
In reaching my conclusion, I am not unmindful of the rule so often quoted from Livingstain v. Columbian Banking Trust Company, 77 S.C. 305, 57 S.E., 182, 184, 22 L.R.A. (N.S.), 442, 122 Am. St. Rep., 568, that,
"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."
At the same time the funds must have become a part of assets of the corporation through clean methods, good conscience, and fair dealing, and must not be tainted with fraud. For the Court to sanction the retention of funds by the conservator, not obtained with clean hands, would be ratification by the Court of a legal fraud which is necessarily abhorrent to all sense of justice and the conscience of the Court. No interest, however, is payable. See opinion Hernlen case, supra.
It is, therefore, ordered, adjudged, and decreed that from the funds in his hands, D.A. Boykin, as conservator of the Bank of Camden, do pay to John Wilson, as Receiver of Northwestern Railroad Company of South Carolina, the sum of $1,000.00, without interest, and that John Wilson, as Receiver, have leave to enter judgment for that amount, together with the costs of this action.
Messrs. Kirkland DeLoach, for appellant, cite: Relationship between depositor and banker: 3 S.C. 124; 177 S.C. 105; 144 S.C. 147; 164 S.C. 63; 156 S.C. 181. Augmentation: 173 S.C. 496; 82 A.L.R., 46; 156 S.C. 181; 153 S.E., 133; 69 A.L.R., 443; 77 S.C. 305; 57 S.E., 182; 22 L.R.A. (N.S.), 442; 122 A.S.R., 568; 162 S.C. 107; 160 S.E., 156; 60 S.C. 122; 38 S.E., 453. Preference: 164 S.C. 261; 162 S.E., 458; 60 S.C. 122; 136 S.C. 511; 134 S.E., 510; 168 S.C. 242; 70 S.C. 288. Police powers: 219 U.S. 104; 55 L.Ed., 112; 113 U.S. 27; 28 L.Ed., 923; 6 R.C.L., 197; 171 S.C. 209.
Messrs. M.C. Woods and H.E. Davis, for respondents, cite: Relationship between the bank and depositor one of contract: 12 Rich. L., 518; 69 S.C. 374; 48 S.E., 293; 285 U.S. 434; 76 L.Ed., 866; 228 U.S. 148; 57 L.Ed., 773; 10 L.Ed., 776. Preference: 165 S.C. 230; 170 S.C. 388; 141 S.C. 318. As to identification of fund: 141 S.C. 318; 156 S.C. 181.
May 15, 1936. The opinion of the Court was delivered by
This suit by John Wilson, as Receiver of Northwestern Railroad of South Carolina, as plaintiff, against the defendants, the Bank of Camden and D.A. Boykin, as conservator of the Bank of Camden, commenced in the Court of Common Pleas for Kershaw County, is a suit for the purpose of recovering judgment against the defendants in the sum of $1,000.00, together with interest thereon from March 4, 1933. The defendants denied liability. Issues being joined, the case was tried in said Court before his Honor. Judge G. Duncan Bellinger, who rendered judgment for the plaintiff, from which judgment the defendants duly appealed to this Court.
The nature of the suit and the facts involved are fully set forth in the decree rendered by his Honor, Judge Bellinger, and for the reasons stated in his Honor's decree we think the judgment should be affirmed.
It is, therefore, the judgment of this Court that the exceptions be and are hereby overruled and the judgment of the lower Court affirmed.
NOTE: The order of his Honor, Judge G. Duncan Bellinger, will be incorporated in the report of the case.
MR. CHIEF JUSTICE STABLER and MESSRS. JUSTICES BONHAM, BAKER and FISHBURNE concur.