All v. All

• Decision Date: 30 March 1918
• Citation: 250 F. 120
• Parties: ALL v. ALL et al.
• Court: U.S. Court of Appeals — Fourth Circuit

250 F. 120

ALL v. ALL et al.

United States District Court, E.D. South Carolina.

March 30, 1918

On Petition for Rehearing, May 27, 1918.

On Petition for Rehearing.

James A. Willis, of Barnwell, S.C., John W. Vincent, of Hampton S.C., and C. Carroll Simms, of Barnwell, S.C., for plaintiff.

McCullough Martin & Blythe, of Greenville, S.C., and Garrard & Gazan, of Savannah, Ga., for defendants.

SMITH District Judge.

This is a proceeding of an equitable character, originally instituted in the court of common pleas for Barnwell county on January 4, 1917, and removed from that court to this court by the defendant, on the ground that there was a separable controversy between the complainant, T. Gertrude All, a citizen of South Carolina, and the defendant the National Bank of Savannah, a citizen of Georgia. The defendant the National Bank of Savannah has duly answered in this court, the testimony has all been taken upon the issues in the cause, and the cause, being ripe for a hearing, has been heard; counsel for both sides having appeared and been heard. The facts are as follows:

One John E. All, the son of the plaintiff, T. Gertrude All, who had been carrying on business in the city of Savannah, was in August, 1910, very heavily indebted to the defendant the National Bank of Savannah. This indebtedness had been contracted by John E. All, who was carrying on business, together with his father, J. H. C. All, under the firm name and style of J. H. C. All & Son. A large part of the indebtedness due by the firm of J. H. C. All & Son or John E. All to the National Bank of Savannah had been contracted under circumstances which were stated to involve the element of criminal liability on the part of John E. All. According to the testimony John E. All had procured from the bank a large loan on the faith of the pledge of bills of lading covering what purported to be a large number of bales of cotton, but which were in fact bales of what are commonly known as linters; that is, a cotton product of a very inferior and cheap sort, which is distinguished by the word 'linters,' as against cotton, and the loss of the bank by reason of this alleged fraudulent misrepresentation was very large. The action of John E. All in this matter seems to have been considered by John E. All himself, and by his father, mother, and brothers, and also by the bank officials and the bank counsel, as being one which subjected him to criminal prosecution and conviction.

Under these circumstances suggestion seems to have been made to the complainant herein, T. Gertrude All, through her husband or sons, brothers of John E. All, to give some security out of her own separate property to the bank in order to stop all criminal prosecution. At any rate, at conferences held by the bank officers and Mr. Gazan, the bank's counsel, with John E. All, and his brother, Percy All, the suggestion was made by one of the latter that some money or security for the bank might be obtained through the mother of John E. All. Thereupon Mr. Jacob Gazan, one of the attorneys for the defendant the National Bank of Savannah, went to Allendale, the residence of Mrs. All, and had an interview with J. H. C. All, the father, and his wife, the present complainant, T. Gertrude All. There is a conflict of testimony as to what passed at that interview, but the result was that Mr. Gazan understood that Mrs. All agreed to execute a mortgage on the property to secure $15,000 of John E. All's indebtedness to the bank, and returned to Savannah and prepared notes to the extent of $15,000 to be signed by Mrs. T. Gertrude All, together with her mortgage on the premises referred to in the bill of complaint, taken to secure those notes. Mr. Gazan then sent those papers back to the Falls, at Allendale, for execution; but the Falls declined to execute them until the papers were submitted to Mr. J. O. Patterson, a lawyer in Barnwell, and thereupon Mr. Gazan again left Savannah and went to Barnwell, where he met Mr. All in the office of Mr. Patterson.

The result of the submission to Mr. Patterson and the discussion was that the method adopted to carry out the plan of giving to the bank the benefit of any property Mrs. All consented to give was that she should convey what was called the 'river plantation,' as described in the bill of complaint herein, to another son by the name of Harry W. All, and that Harry W. All should then execute the mortgage to the bank, thus avoiding any claim against Mrs. All over the value of the land mortgaged. This plan was carried out. Mrs. T. Gertrude All executed the deed of conveyance of the property to her son, Harry W. All, and Harry W. All, having that deed of conveyance made to him, then went to Savannah and executed notes to the National Bank of Savannah for $15,000, and gave a mortgage of the property conveyed to him by his mother to secure those notes, under an agreement that the bank would give him $15,000 for those notes, which he would immediately apply on account of the indebtedness of John E. All to the bank. This was all carried out. The notes and mortgage were executed and delivered in Savannah to the bank. The check for $15,000 was given to Harry W. All, which he immediately, in the presence of the counsel for the bank, indorsed back to the National Bank of Savannah. The result of all these papers was that the bank parted with no money at all, but that it obtained the benefit of the security to the extent of $15,000 on this property of Mrs. All to secure that much of the indebtedness of John E. All to the bank. In addition, the mortgage as executed was not only to secure this $15,000, but purported to secure also all other indebtedness of J. H. C. All & Son to the bank. The bank and its counsel had full knowledge of all these facts, that is, the method taken for making this mortgage, and that the money, when paid to Harry W. All, was in pursuance of a prior understood agreement that he would immediately deliver the check back to the bank to be credited on the indebtedness of John E. All.

Thereafter, Harry W. All having defaulted in payment of the notes, the bank instituted proceedings of foreclosure in this court for foreclosure and sale of the property. To these proceedings Harry W. All was the sole defendant; Mrs. T. Gertrude All not being made a defendant to those proceedings. Those proceedings went to decree of foreclosure and sale, and under the decree of foreclosure the property was put up for sale and bought in by the National Bank of Savannah. From all the testimony it appears as if the possession of the plaintiff, T. Gertrude All, to the land has never really been disturbed; that she has remained ever since, and now is, in the same possession of the property that she had at the time she executed the deed of conveyance to her son Harry W. All.

The complainant has now instituted these proceedings, alleging that the deed of conveyance executed by her to her son Harry W. All was illegal, null, and void, as having been made without consideration, or rather made for an illegal consideration, viz., in order to prevent the criminal prosecution of her son John E. All, and that the bank was fully aware of the circumstances, and took the mortgage and purchased at the foreclosure sale with full knowledge that the mortgage given to Harry W. All was given on land which had been conveyed to Harry W. All for an illegal consideration by the plaintiff; the conveyance to Harry W. All being only part of the plan to mortgage the land to the bank. The National Bank of Savannah, the defendant, denies that it ever made any threats or representations for the purpose of having the deed and mortgage executed, and alleges that the deed of the plaintiff and the mortgage of Harry W. All were made solely for the purpose of enabling John E. All to make a payment on his indebtedness to the defendant.

The defendant the National Bank of Savannah sets up further that the complainant, having failed to intervene in the foreclosure proceeding against the defendant Harry W. All, is now estopped from bringing a proceeding to annul the deed made by her for illegal purpose, and that the plaintiff is also barred by the statute of limitations (Code Civ. Proc. 1912, Sec. 137, subd. 6), inasmuch as this proceeding was not commenced within six years from the date of the deed. In the opinion of the court the defense of the statute of limitations and the defense of estoppel for failure of the complainant herein to intervene in the foreclosure suit are not well founded. The statutory period of six years prescribed by the Code of Procedure of South Carolina does not apply to equitable proceedings on a claim of the present character, and there was no obligation on the part of the complainant, T. Gertrude All, actively to intervene, and cause herself to be made a party to the foreclosure proceeding against Harry W. All, when the bank, fully aware of all the circumstances, had failed to make her party defendant.

The true issue is as to whether, under the circumstances of this case, the consideration operating to make Mrs. T. Gertrude All execute the deed to her son Harry W. All was an illegal consideration. As all the proceedings were inter partes, and the bank was aware of all that was done, it does not stand in any wise in the position of a third party claiming the benefit of having parted with value without notice. The question is whether or not the consideration was invalid because illegal, and then whether the bank is bound by any illegality existing in the present case. There is no doubt that at law a contract or payment made by a third party for the purpose of compounding a felony, or of stopping the criminal prosecution of another, constitutes a contract which is voidable. The ground upon which...