Bass v. Adams

• Decision Date: 21 December 1931
• Docket Number: 13298.
• Citation: 161 S.E. 697,163 S.C. 381
• Parties: BASS et al. v. ADAMS et al. (two cases). WALKER et al. v. PEAKE et al.
• Court: South Carolina Supreme Court

161 S.E. 697

163 S.C. 381

BASS et al. v. ADAMS et al. (two cases).

WALKER et al. v. PEAKE et al.

No. 13298.

Supreme Court of South Carolina

December 21, 1931

Appeal from Common Pleas Circuit Court of Union County; T. S. Sease Judge.

Actions by A. S. Bass and others, on behalf of himself and all other depositors of the Citizens' Bank & Trust Company, and J F. Walker and others, receivers of the Citizens' Bank & Trust Company, against L. T. Adams and others, alleged stockholders of the Citizens' Bank & Trust Company, and Union Insurance & Trust Company, as trustee for Mrs. Julia R. Farr, and James R. Farr, as executor of the last will and testament of F. M. Farr deceased, and C. H. Peake and others, comprising the copartnership of the Mutual Holding Company. From a judgment for plaintiffs, defendants separately appeal. Modified, and as modified, affirmed.

The master's report and the circuit decree, directed to be reported, were as follows:

Supplemental Report of Master.

The above-entitled case by an order of this Court was referred to A. G. Kennedy, Probate Judge, ex-officio Master for Union County, S. C., directing him to take testimony and pass upon all issues of law and facts, and to report his findings to the said Court.

This is an action on behalf of the depositors of the defunct Citizens Bank & Trust Company of Union, S. C., against the stockholders of said bank upon their liability as stockholders of said defunct bank to the depositors therein as provided under the Constitution and Statute of the State. Said section was commenced by the filing of a Summons and Complaint on or about the -- day of February, 1928. The alleged stockholders, the estate of F. M. Farr and the trustee of Mrs. Julia R. Farr, the Mutual Holding Company, an alleged partnership composed of Messrs. E. L. Littlejohn, B B. Going, C. K. Morgan and C. H. Peake, answered the complaint herein and denied that they were stockholders in the said defunct Citizens Bank & Trust Company, also any liability as such alleged stockholders to the depositors therein.

The question to be determined by the Court is, whether said above-named defendants were stockholders of said defunct Citizens Bank & Trust Company at the time same was closed and placed in the hands of receivers for liquidation. If said defendants or any of them are stockholders in said defunct bank, then their liability as such to the depositors, must necessarily follow The insolvency of the said Citizens Bank & Trust Company is not disputed, the appointment of Jas. M. Farr, executor of the estate of F. M. Farr, deceased, is also unquestioned; that Union Insurance & Trust Company is now the trustee of Mrs. Julia R. Farr, by an order or appointment of the Court of Common Pleas is not disputed.

Second. The Master will now consider the case of the Mutual Holding Company. The Mutual Holding Company is alleged to be a partnership and as such the owner of 500 shares of the capital stock of the defunct Citizens Bank & Trust Company of the par value of $25.00, making an aggregate of its holdings to be $12,500.00.

The Mutual Holding Company, an alleged partnership composed of Messrs. E. L. Littlejohn, B. B. Going, C. H. Peake and C. K. Morgan, by its amended answer denied being stockholders and thereby put in issue the question of ownership of said 500 shares of capital stock of Citizens Bank & Trust Company by the said partnership.

The plaintiffs' attorneys introduced in evidence a written instrument designated as an "Agreement" which is marked Exhibit 3, a copy of which is attached as a part of this report. Plaintiff also offered in evidence the stock books, and numerous other books and records of said defunct bank.

It is undisputed that the Citizens Bank & Trust Company obtained a charter as a State bank capitalized at $100,000.00, composed of 4,000 shares of the par value of $25.00 each, and that the Mutual Holding Company was carried on the books of said bank as the owner of 500 of said shares of capital stock. It is the Master's duty to construe the agreement marked Exhibit 3, heretofore referred to. The defendants, especially Mr. C. H. Peake by his extensive and carefully-prepared brief and also in his argument, contends that said agreement constitutes the Mutual Holding Company, a limited partnership, the said C. K. Morgan, a special agent with special and definite instructions and limitations; and that any failure upon the part of the said agent to strictly comply with the terms of said written agreement renders said agent's acts void and not binding on the partnership.

The plaintiffs contend that C. K. Morgan substantially complied with the terms of the agreement, and that the members of the said Mutual Holding Company are bound by the acts of themselves and C. K. Morgan as agent of the Mutual Holding Company and were stockholders of the defunct Citizens Bank & Trust Company.

The Master construes the said agreement to be tantamount to a subscription to the capital stock of the Citizens Bank & Trust Company because it shows a clear intention on the part of the Mutual Holding Company, a limited partnership, to become stockholders of said Citizens Bank & Trust Company, and gave one member of the partnership, Mr. C. K. Morgan, power and authority to bind the partnership as stockholders. The facts as developed during the reference showed that in order to complete the $100,000.00 capitalization of the said Citizens Bank & Trust Company, it was necessary to have the amount of stock taken which was shown on the books of the bank in the name of the Mutual Holding Company. The officers and employees of the bank acted upon this agreement and acts of C. K. Morgan and treated it as a subscription to the capital stock of said bank, by carrying its name on the books and records of the bank as a stockholder, and by accepting a note of the Mutual Holding Company signed by C. K. Morgan, Secretary and Treasurer, in payment for said stock. The terms of said agreement directed C. K. Morgan to give its note for $12,500.00 due January 1st, 1927, with interest after date at the rate of six per cent. per annum, etc. (See terms of agreement). Mr. Morgan made the note for $13,000.00, payable January 1st, 1927, thereby including the interest. The Master is of the opinion that although said note differed in some particulars from the directions in said agreement, yet it was accepted by the said bank in payment of said stock mentioned therein and was a substantial compliance with the terms of said agreement.

Various statements, some of which were published in the newspapers showing the condition of the said bank, showed it was capitalized at $100,000.00. The note above mentioned marked Exhibit 5, and renewals thereof were shown in the assets of the bank in various statements furnished by the officials of the bank to the office of the State Bank Examiner from time to time. Some of the statements were signed by C. H. Peake, B. B. Going, who were directors of said bank.

C. K. Morgan was vice-president of the bank and was familiar with the entire transaction. The certified copy of the Declaration for Charter offered in evidence, marked Exhibit B-18, showed that the members of the Mutual Holding Company, E. L. Littlejohn, B. B. Going, C. K. Morgan and C. H. Peake, were elected directors of the said Citizens Bank & Trust Company. It was admitted that Mr. C. H. Peake was chairman of the board of directors and Mr. C. K. Morgan was vice-president of the board of directors of said Citizens Bank & Trust Company. That all were stockholders of the Farmers Bank & Trust Company which consolidated and merged with the Citizens National Bank to form the new defunct institution. The Citizens Bank & Trust Company is also admitted in evidence. These gentlemen knew or should have known about how C. K. Morgan, Secretary and Treasurer of the Mutual Holding Company handled this transaction, whether he complied with the directions contained in said agreement or not, certainly any intelligent investigation on the part of the members of the Mutual Holding Company would have shown exactly how Mr. Morgan handled the transaction. Their contention is that because of C. K. Morgan's failure to follow instructions explicitly, they are not bound and never were stockholders. It seems from the testimony that the entire consolidation of the two old banks and organization of the new institution was done in a lax, careless manner. No regular stock subscription list was made up. Mr. J. W. Wilbanks, cashier of the old Citizens National Bank and of the new institution, the Citizens Bank & Trust Company, testified that as the stockholders of the old bank would bring in and surrender their old stock certificates, certificates of stock in the new bank would then be issued them as per the terms of the consolidation agreement, entered into by and between the stockholders of the two old banks, the Citizens National Bank and the Farmers Bank & Trust Company, and that no demand has been made on him for the stock set aside and apportioned to the Mutual Holding Company, and that he would have written up and issued the 500 shares to the Mutual Holding Company if same had been asked for. He testified that the agreement of the Mutual Holding Company was held by the bank and also the note of the Mutual Holding Company before referred to was carried as an asset of the Citizens Bank & Trust Company.

Hon Macbeth Young, attorney for the Mutual Holding Company in his comprehensive legal brief in discussing the case takes the position that, the statute law of the State as found in the Merging Act of 1925, page 246, and the Organization Act of 1926, page 953, were not complied with and that the terms of the Organization Acts of 1926 were violated by C. K. Morgan,...