Blankenship v. Zimmerman

• Decision Date: 19 February 1936
• Docket Number: 14235.
• Citation: 183 S.E. 760,179 S.C. 171
• Parties: BLANKENSHIP et al. v. ZIMMERMAN et al. ZIMMERMAN v. CENTRAL UNION BANK OF SOUTH CAROLINA et al.
• Court: South Carolina Supreme Court

183 S.E. 760

179 S.C. 171

BLANKENSHIP et al. v. ZIMMERMAN et al.

ZIMMERMAN v. CENTRAL UNION BANK OF SOUTH CAROLINA et al.

No. 14235.

Supreme Court of South Carolina

February 19, 1936

Appeal from Common Pleas Circuit Court of Richland County; G. Duncan Bellinger, Judge.

Action by J. S. Blankenship and others against Simpson J. Zimmerman and J. Roy Barron, conservators-receivers of the Central Union Bank. From an order of the common pleas circuit court overruling defendants' motion for an order abating and dismissing the complaint, defendants appeal.

Affirmed.

The complaint and the order of Judge Bellinger follow:

Complaint

The plaintiffs herein, complaining of the defendants respectfully show to the court:

1. That the plaintiffs are residents of the state of South Carolina and are the beneficiaries named in the will of J. B. Swann hereinafter referred to.

2. That Simpson J. Zimmerman, defendant, is the conservator-receiver duly appointed under the terms and conditions of law, and is acting under and by virtue of the authority conferred upon the board of bank control in the closing up and liquidating the assets of the Central Union Bank of South Carolina.

3. That under and by virtue of the terms of law the plaintiffs have duly applied to the Board of Bank Control for the privilege of bringing this action and that permission has been granted on May 28, 1934, by an order signed by I. C. Blackwood Governor, authorizing the plaintiffs herein to bring said action in the court of common pleas for York county, and that this action is being brought under the authority of said order and the authority of law.

4. That J. B. Swann departed this life on the ------ day of April 1932, leaving of force his last will and testament, wherein he named the Central Union Bank of South Carolina executor in which said will appears the following item, to wit: "Art. 9. All of the rest, residue and remainder of my estate, real, personal and mixed, of whatever nature wheresoever situate, to which I am entitled at the time of my death, either in law or in equity, I hereby give, devise and bequeath, share and share alike, to Mrs. R. F. Bankhead, Miss May Blankenship and John Swann Blankenship, Sr., the same to be theirs absolutely and forever."

5. That on the 25th day of April, 1932, the said will was duly proved and letters testamentary issued to the Central Union Bank of S. C., which immediately thereafter entered upon its duties as executor of said estate.

6. That included in the assets of said estate was a considerable amount of cash, and the executor on the ------ day of April, 1932, invested $10,000 thereof in a participation certificate in a pool of mortgages aggregating more than $68,000, and issued to the estate a participation certification for the said $10,000.

7. That the said Mrs. R. F. Bankhead, Miss May Blankenship, and John Swann Blankenship, Sr., the plaintiffs, are the sole beneficiaries under the residuary clause of said will; that the specific bequests have been paid almost in full, only a small proportion remaining unpaid, and that therefore under the terms of the will, and by law, the legal title to the $10,000 is vested in the above named plaintiffs, and that a naked trust was created by the will and the legal and equitable title to the residue of the estate vested in the beneficiaries named in article 9 thereof.

8. That the said investment was not made under authority of an order from the probate judge of York county authorizing same, neither was the money invested in first mortgage on real estate, but on the contrary these plaintiffs allege that said investment was made knowingly, willfully and intentionally in a participation certificate in a pool which was secured by mortgages for vastly larger sums than the value of the real estate would warrant as a fit, proper or conservative investment; and that the Central Union Bank, in direct violation of the statute law of South Carolina, invested the $10,000 belonging to the estate of J. B. Swann and these plaintiffs under article 9 of the will of the said J. B. Swann, in a participation certificate and that the said action on the part of the Central Union Bank was in violation of said trust and in violation of the law with reference thereto and is contrary not only to the terms of the trust imposed by the will of the said J. B. Swann, but is also contrary to sections 9051, 7908 and 7909.

9. Section 9051, Code of 1932, requires the investment of trust funds by executors in first mortgages on real estate.

10. Section 7908 provides that funds held in trust shall be invested as soon as practical in strict accordance with the will and shall be invested in accordance with the terms of law of the state of South Carolina relating to such investments; that the investments shall be made by an investment committee, approved by the board of directors, and that all such investments shall be first approved by said committee and then by the board of directors and these plaintiffs allege that the said sections were not complied with, that the said money was invested in a participation certificate in a pool of worthless securities and that said investment is and was null and void.

11. That the records of the Central Union Bank show that this money which was turned over to it in trust was, by it, commingled with other moneys, was not invested in first mortgages on real estate, nor was it kept separate and distinct from other trusts, nor was the investment plainly marked.

12. That said investment was contrary to good business management and practice, was in absolute violation of law; that the property upon which it is invested was grossly inadequate then and now to secure any participation certificates, and that such was known to the said executor, and that there is a large sum which will be lost by the estate and these plaintiffs if it is allowed to stand; and that the said investment trust is in such condition that it cannot be completed in a number of years and that the purpose and intent of the testator hereinabove referred to has been completely defeated.

13. That in the proper management of the estate, and in the execution of said will, it was not necessary or essential to make the said investment; but that the Central Union Bank, executor, willfully, deliberately and intentionally took advantage of its fiduciary capacity, as such executor and perpetrated on the estate and these defendants a legal fraud by investing the cash belonging to the estate in a group of long term worthless mortgages, and exceeded its authority in making such investment and was negligent in not holding the funds in the bank ready for distribution at the expiration of 12 months from the date of its appointment as executor.

14. That the plaintiffs did not consent to said investment, but on the contrary notified the bank that the funds would be needed at the end of the administration year, and were assured by the trust officer of the bank that the funds were on hand and would be so paid out.

15. That the Central Union Bank, in order to get title to, possession of and/or the use of the said sum of $10,000 in its own right took advantage of its position as executor of the estate of J. B. Swann and the privilege it had of handling the estate funds and knowingly, willfully, deliberately and intentionally invested the money in a group of mortgages which it held, thereby diverting into its own coffers and converting to its own use the said sum of $10,000, knowing that the security was inadequate, thereby breaching the trust reposed in it by the testator, and accompanied said breach with a legal fraud, and therefore, these plaintiffs allege that said transaction is illegal, is null and void as a matter of law, and that they are entitled to establish what in law is known as a trust ex maleficio and that these plaintiffs are entitled to have said amount above referred to set aside as a preferred claim.

Wherefore, plaintiffs pray:

1. That the amount herein referred to, to wit, the sum of ten thousand ($10,000) dollars, with interest thereon found to be due, be declared a preferred claim on the ground that a trust ex maleficio is shown.

2. That the plaintiffs herein be given judgment against the defendants on such preferred claim for the sum of ten thousand ($10,000) dollars and that the conservator- receiver be directed to pay over said amount to the plaintiffs under the terms and conditions of said trust and said will.

3. For such other and further relief as may be just and proper.

Order.

The above matter came before me at chambers, Columbia, S. C., on June 28, 1935, on the motion of the defendants asking for an order abating and discontinuing and dismissing the complaint heretofore filed and now pending in this suit, upon the ground that the plaintiffs have no right to maintain this suit while at the same time retaining and claiming the benefit of the participation certificate referred to in their complaint; the said motion being based upon the record in the proceeding, including the answer and return filed along with the notice of this motion.

The record in this proceeding shows that the defendants heretofore demurred to the complaint alleging that it failed to state facts sufficient to constitute a cause of action upon three grounds, one of which was that the complaint failed to state facts sufficient to show any breach of duty on the part of the bank as would entitle the plaintiffs herein to a preference as claimed in the complaint. This demurrer was overruled by the order of his honor, J. Henry Johnson, presiding judge, Fifth circuit, which was signed and filed on March 7, 1935, wherein the defendants were given 20 days in which to answer the complaint, and wherein it was...