Carw1le v. Metro. Life Ins. Co

• Decision Date: 27 July 1926
• Docket Number: (No. 11887.)
• Citation: 134 S.E. 285
• Parties: CARW1LE. v. METROPOLITAN LIFE INS. CO.
• Court: South Carolina Supreme Court

134 S.E. 285

CARW1LE.

v.METROPOLITAN LIFE INS. CO.

(No. 11887.)

Supreme Court of South Carolina.

July 27, 1926.

Appeal from Richland County Court; M. S. Whaley, Judge.

Action by R. E. Carwile, as receiver of the Carolina Bond & Mortgage Company against the Metropolitan Life Insurance Company. Judgment for plaintiff, and defendant appeals. Reversed and remanded.

The assignment mentioned in the opinion was as follows:

"The Metropolitan life Insurance Company hereby acknowledges receipt from Carolina Bond & Mortgage Company of Columbia, S. C, of the sum of two thousand ($2,000.00) dol lars, the terms and conditions of which payment and receipt are as follows:

"First. Such payment is made by said Carolina Bond & Mortgage Company as a purchase by it of an interest in the amount thereof in certain principal notes aggregating five thousand five hundred ($5,500.00) dollars (and proportionally in certain interest notes accompanying the same), which principal notes were executed by one John K. Goodyear, payable to the order of Carolina Bond & Mortgage Company, the due payment of which principal and interest notes is secured by a certain mortgage or trust deed made and executed by John K. Goodyear of Nichols, S. C, of even date with said notes which instrument was recorded in the office of the register of deeds of the county of Marion, state of South Carolina, on the 10th day of February, 1920, in Book 52 of Mortgages at page 378, which said notes and accompanying mortgage were subsequently assigned to said Metropolitan Life Insurance Company, and said company is now the owner and holder thereof.

"Second. The interest in said notes so purchased by said Carolina Bond & Mortgage Company is an interest junior, inferior, and subordinate in every respect to the balance of said principal notes retained by said Metropolitan Life Insurance Company (and, proportionally, with respect to said interest notes), which balance, so retained, has priority in all payments of principal and interest, and in the proceeds (after the payment of all proper costs and disbursements) of any proceedings to enforce payment, by foreclosure or otherwise, the said Carolina Bond & Mortgage Company obtaining under such purchase no right whatsoever to enforce payment of the amount of its said purchase, save and excepting a right to a proper accounting from said Metropolitan Life Insurance Company of the said sum of two thousand ($2,000.00) dollars and of its proportional share of all periodical interest payments received under said interest notes, to which accounting they are entitled, however, only after the prior payment in full of all principal and interest notes held by Metropolitan Life Insurance and of all Metropolitan Life Insurance Company's said costs and disbursements.

"Executed and delivered at the city of New York, N. Y., this 26th day of July, 1920.

"Metropolitan Life Insurance Company.

"By F. H. Allen, Vice President."

Elliott & McLain, of Columbia, for appellant.

Melton & Belser, of Columbia, for respondent.

PER CURIAM. It is ordered that the opinion heretofore filed in this case be withdrawn, and that the following be substituted therefor as the opinion of this court, that the order staying the remittitur be revoked, and that the same be immediately filed with the lower court:

This is an action for the recovery of $2,-000, with interest at 6 per cent. per annum from February 5, 1920, to November 1, 1923, and on that amount interest at 7 per cent. per annum from November 1, 1923, and forthe sum of $500 as punitive damages, alleged to be due to the plaintiff as receiver of the Carolina Bond & Mortgage Company (hereinafter referred to as the bond company), by reason of the conversion by the defendant (hereinafter referred to as the insurance company) of certain money belonging to said receiver officially.

The facts are quite complicated and a solution of the questions of law involved requires a detailed statement of them, as follows:

Beginning in October, 1918, and continuing until November, 1922, a written contract was in force between the bond company and the insurance company, under which the bond company acted as "financial correspondent" of the insurance company in the states of North Carolina and South Carolina. The bond company, with headquarters at Columbia, S. C, was extensively engaged in making loans upon bonds secured by real estate mortgages. The contract with the insurance company enabled it to obtain large sums of money from that company in conducting that business, and it provided in detail the manner in which the contemplated transactions were to be conducted. In brief, the bonds and mortgages were to be taken in the name of the bond company, assigned and forwarded to the insurance company with formal applications, abstracts of titles, opinions, leases, etc. Upon approval of the loan, the insurance company was to deposit the amount of the loan to the credit of the bond company in a New York bank, with which resources the loan was consummated. Thereafter payments of installments of principal and interest were to be made by the mortgagors to the bond company, and by it remitted to the insurance company; the bond company being charged with the duty of collection and remittance.

The contract provided on the part of the insurance company:

"It further, agrees that, if the said correspondent shall pay the interest or any part thereof, or of the principal of any mortgage to the said company, before collecting the same from the borrower, it shall advise the company when making payment that the same has been advanced by it, and any and all right, title, and interest which the correspondent may have in and to said bond or note and mortgage or deed of trust, or in the proceeds thereof, by subrogation or otherwise, shall be subordinate in all respects to the interest therein of the company."

Under this contract the insurance company reserved the right to require the bond company to repurchase any of the loans, if at any time within one year the insurance company should consider such loan not satisfactory or otherwise not desirable.

In pursuance of this arrangement, the bond company in February, 1920, made a loan of $5,500 to John K. Goodyear of Nichols, S. C, the loan being evidenced by notes payable to the order of the Carolina Bond & Mortgage Company, installments from 1922 to 1925, and secured by mortgage of land in Marion county, S. C. This loan with the security was promptly assigned by the bond company to the insurance company. The insurance company, however, as authorized by its contract, required the bond company to repurchase an interest to the extent of $2,000 in this loan, which was accordingly done in July, 1920; and the insurance company at the same time delivered to the bond company a written assignment of an interest in the loan to the extent of the $2,000 paid, as provided in the assignment. Let the assignment be reported.

On November 14, 1922, the president of the bond company died; on the 23d, the insurance company gave formal notice of the termination of the contract of October, 1918; on the 27th, the plaintiff was appointed receiver of the bond company.

On November 1, 1923, the attorneys for the insurance company collected the full amount of the Goodyear loan including interest and attorney's fees. The collection included the amount of the partial assignment held by the bond company, $2,000, with interest at 6 per cent. from the date of the mortgage, and was effected by assigning the notes and mortgage to the Bank of Nichols, the attorneys receiving therefor the Slim of $7,006.50.

The receiver of the bond company thereafter made demand upon the insurance company for the part of this amount due to the bond company, and, upon refusal, this action was instituted in March, 1924.

At the time of the appointment of the receiver, the bond company was indebted to the insurance company in the sum of $16,488.12, on account of installments of principal and interest collected by it upon bonds and mortgages which had been assigned to the insurance company, the bulk of which had been collected in October and November, 1922.

The defense of the insurance company was that it had the right to set off its claim of $16,488.12 against the demand of the receiver.

The case was tried by his honor, Judge Whaley, county judge, without a jury, by consent. He filed a decree refusing to allow the set-off claimed by the defendant, and rendering judgment in favor of the receiver for the proportionate share of the $7,006.50 collection by the insurance company, to which the bond company was held entitled, $2,547.-82, with interest from the date of the collection, November 1, 1923, to July 1, 1924, at 7 per cent. per annum, making a total of $2,-666.72. From this judgment the insurance company has appealed.

It appears that the insurance company has in its hands about $40,000 of these advance payments made by the bond company, including that involved herein, and whether it shall be allowed to set off against this liability the amount due by the bond company to it, $16,- 488.12 is a matter of serious consequence to it, determinable by the result of this litigation. If it be not allowed to do so, the insurance company will be required to pay this $40,000 to the receiver and receive a dividend, estimated at 10 to 15 per cent. upon the amount concededly due by the bond company to it; a result which appears unjust and not to be tolerated unless irresistibly compelled by the principles of the law.

The availability of the defendant's asserted claim of set-off is determined by the character and extent of the interest or right which the bond company acquired in the Goodyear notes and mortgage by reason of its advance payment of $2,000 on July 26, 1920.

Under the original contract of October, 1918, it was entirely optional with the bond company whether it would make any advance payment; if it did so, the contract provided that whatever right it might...