Chandler v. Abney

• Decision Date: 15 August 1932
• Docket Number: 13471.
• Parties: CHANDLER v. ABNEY et al.
• Court: South Carolina Supreme Court

165 S.E. 190

166 S.C. 523

CHANDLER v. ABNEY et al.

No. 13471.

Supreme Court of South Carolina

August 15, 1932

Appeal from Common Pleas Circuit Court of Laurens County; C. C Featherstone, Judge.

Action by W. Rex Chandler, suing on behalf of himself and all other depositors in the Bank of Cross Hill, of Cross Hill, South Carolina, against J. P. Abney and others. From an adverse judgment plaintiff appeals, with defendants C. D. Nance and another as administrators of the estate of J. H. Miller deceased, and Lidie E. Miller, as executrix of the estate of W. M. Miller, deceased, as respondents.

Affirmed.

The decree of Judge Featherstone was as follows:

Action by plaintiff, as the representative of a class, i. e., a depositor of Bank of Cross Hill, against the stockholders, to require them to respond to their statutory liability.

To begin with, there were involved J. H. Nance, the estate of Dr. J. H. Miller, and the estate of W. M. Miller.

The referee, by his report, has absolved J. H. Nance, to which there are no exceptions.

The referee, in an able, well-considered report, has held the estates of the two Millers, and the case comes before me upon exceptions to that report.

I do not regard it as essential to make a lengthy statement of the facts, for they are set out in the report of the referee.

The bank was closed January 10, 1929. On October 18 and November 3, 1928, the personal representatives of the two estates, being desirous of winding them up, and acting under the advice of their attorney, the late lamented Hon. Frank P McGowan, procured orders from the probate judge, authorizing a sale of the stocks at private sale.

Proceeding under said orders, the stocks in this and other banks were sold at $1 for each batch to persons who were not financially responsible. The stocks were immediately transferred, on the books of the bank, to the purchasers and new certificates issued to them.

Among the stocks were several shares of Farmers' & Merchants' Bank of Greenwood, which were sold at the same price.

It is a fact worthy of note that the stocks of this bank had been appraised as worthless and that of Bank of Cross Hill at one-half of its par value.

The Bank of Cross Hill failed, whereas Farmers' & Merchants' Bank did not, though it afterwards went into voluntary liquidation, and will pay its debts in full, with probably, something left over for stockholders.

This is mentioned, in passing, to show how easy it is for the ordinary person to be fooled with reference to the status of banks.

After the transfer of the stock, the Bank of Cross Hill went on in the usual course of business, making new loans and receiving deposits--and this up almost to the moment that it was closed.

The bank examiner thought the bank was solvent at the time the stock was transferred. Indeed, only a few months previous to that (in August, as I recall), he thought it was in better shape than it was upon his previous examination, which was made in March of the same year.

The officers of the bank all thought it was solvent. Pinson, one of the administrators of the Dr. Miller estate, continued to do business there and had money there on deposit when it closed. The defendants, the administrators, had a part of the estate's money there at the time the transfers were made.

It is rather remarkable that practically all the witnesses who testified regarded the bank, then, as solvent--and this included those on the inside, the officers and employees, and those on the outside who had dealings with it.

Practically all that the plaintiff relies on to show insolvency, knowledge thereof by the administrators, and a sale to avoid stockholders' liability, are the admitted facts that the stock sold for $1 and was bought by persons who were not financially responsible.

If these facts show what plaintiff claims, then, insolvency, knowledge thereof, and a fraudulent sale can be shown in most any case.

It is a fact, of which the court is bound to take notice, that, at the time these stocks were sold, very little, if any, bank stocks could be sold at all, for any price.

Multitudes of banks had gone under; only a few of the stronger ones had survived.

The only sane persons who would buy bank stocks at all were those who, because of their irresponsibility, were in a position to take chances; those who had all to gain and nothing to lose.

What about the fact that the administrators were willing to sell at that price?

It is easy to see that they had to sell for what they could get, and to whom they could sell. The estates had to be wound up; the probate court had ordered the sale, upon motion of their able and zealous attorney. And, by the way, the probate court, in effect, confirmed the sale; for the administrators were only charged with what they got for the stocks, all persons in interest were satisfied, and the estate would have been fully wound up and settled, as advertised, but for the pendency of this action.

Fortunately, the Supreme Court, in the recent case of Loomis v. Verenes et al., 141 S.C. 145, 139 S.E. 393, 55 A. L. R. 677, has laid down the rule governing these cases, in such plain terms that "He who runs may read."

The requisites for setting aside a sale of stock, after due transfer on the books, and holding the original stockholders on their statutory liability, are:

1. Insolvency of the bank, at the time of the transfer;

2. Knowledge of insolvency on the part of the transferer;

3. That the transfer was made with the intent to evade liability.

And, the burden is on the plaintiff to show these three.

When is a bank insolvent?

Ex parte Berger, 81 S.C. 244, 62 S.E. 249, 252, 22 L. R. A. (N. S.) 445, answers the question: "A bank is insolvent when, from the uncertainty of being able to realize on its assets, in a reasonable time, a sufficient amount to meet its liabilities, it becomes necessary for the control of its affairs to pass out of its hands."

Again, the following definition is given in 7 C.J. p. 727: A bank "Is insolvent when unable to meet its liabilities as they become due in the ordinary course of business."

Tested by these rules, was the bank insolvent when the transfers were made?

The bank examiner didn't think so, according to his testimony. The bank officials didn't think so, so they say, under oath. The bank was running right on, receiving deposits and making loans. The cashier of the Bank of Greenwood didn't think so--his bank was doing business with Bank of Cross Hill, one of its correspondents, upon the basis of solvency. The administrators of the Dr. Miller estate didn't think so; for they had a part of the estate's money there, on deposit, notwithstanding a different bank had been designated, by the court, as their depository. Pinson, one of the administrators, didn't think so; for he was doing his business there, and had money there, when the bank closed.

Who did think so?

Nobody, so far as the sworn testimony shows.

Who has known, anyhow, for the past several years, when a bank was solvent or insolvent?

Most of us have even quit guessing. A bank may be solvent to-day and insolvent tomorrow. Not only a few days, but a few hours, may spell the difference between solvency and insolvency. We may suspect insolvency, but we dare not tell our suspicions to our friends, for fear of landing in jail. We may think that we have our money in a safe bank, and, then, have it to "bust right in our face." Many a bank that, in ordinary times, could pay all it owes, because of unforeseen events, over which it has no control, is forced to give up the ghost. All that we can do is to trust to luck and try to go on sleeping!

I am unable to find, from the evidence, that the Bank of Cross Hill was insolvent at the time the transfers were made, and the law says I must not look elsewhere. Neither can I find, from the evidence, that the personal representatives knew that the bank was insolvent. If they even thought so at the time of the transfers, they acted to the contrary.

Lastly, can I find, from the evidence, that the sale and transfers were fraudulent in law, and made for the purpose of evading stockholders' liability?

I cannot assume that such was the fact because they only got a dollar for it; for most bank stock, at that time, could hardly be given away. I cannot assume that such was the fact, for the reason that the sale was made to irresponsible persons; for, at that time, they were the only ones who could afford to take a shot at it.

From whence, then, am I to get my information?

Fraud whether in law,...