Ex parte Bank of Aynor

Decision Date15 March 1928
Docket Number12399.
PartiesEx parte BANK OF AYNOR. v. CITY OF COLUMBIA et al. RICE et al.
CourtSouth Carolina Supreme Court

Appeal from Common Pleas Circuit Court of Richland County; E. C Dennis, Judge.

Action by John I. Rice and others against the City of Columbia and others, wherein James E. Peurifoy was appointed receiver of the assets of the American Bank & Trust Company, and wherein the Bank of Aynor intervened, claiming a preference in the administration of the assets of the defunct bank. From the decree, both the intervener and receiver appeal. Modified.

See also, 139 S.E. 783; 141 S.E. 705.

COTHRAN J.

This is one of the many controversies which have resulted from the "tangled web" of the affairs of the American Bank & Trust Company, an insolvent banking corporation now in the hands of a receiver.

Two main questions are involved in this appeal: (1) Whether the Bank of Aynor is entitled to a lien upon certain securities of the American Bank & Trust Company alleged to have been set apart by the officers of that bank to secure certain obligations, and, after the failure of the bank, delivered by the state bank examiner to the officers of the Bank of Aynor and (2) whether, regardless of this claimed lien, under the circumstances of the case, the Bank of Aynor, as the cestui que trust of a trust ex maleficio on the part of the American Bank & Trust Company, is entitled to a preferred claim upon the assets in the hands of the receiver of the American Bank & Trust Company.

The American Bank & Trust Company, pursuant to section 3981, vol 3, Code of Laws 1922, was taken over by the state bank examiner, on the morning of Saturday, June 26, 1926, not having opened for business after the usual closing hour the day before, Friday, June 25th; and, on July 19th, James Peurifoy was appointed receiver of its assets under an order of the court passed in the main cause above stated of Rice et al. against city of Columbia et al.

At the time of the failure of the American Bank & Trust Company, the Bank of Aynor had to the credit of its deposit account in that bank, the sum of $27,713.38, an open, unsecured checking account, and also had a claim against it for $44,189.38 on account of the appropriation of the proceeds of certain Horry county notes which had been left with the bank for sale under the circumstances which will be later detailed.

The issues in this particular matter arise out of a petition filed by the Bank of Aynor, on August 10, 1926, by way of intervention in the main cause, in which it claims a preference, in the administration of the assets of the defunct bank, to the extent of $44,189.38 and interest, and a lien upon certain securities alleged to have been assigned and delivered to it by the American Bank & Trust Company as collateral security to its obligation amounting to said sum.

The receiver contests both claims of the Bank of Aynor upon various grounds: That there was no assignment of the securities until after the bank examiner took charge of the bank; that the bank examiner was without authority to deliver the securities to the Bank of Aynor; that, at the time of the alleged assignment of securities, the American Bank & Trust Company was insolvent, and that the attempted assignment constituted an unlawful preference; that the Bank of Aynor is not entitled to a preference in the administration of the assets, and gave notice of a motion to have Holliday, president of the Bank of Aynor, made a party defendant. This motion was refused.

The matter came on to be heard before his honor Judge Dennis upon testimony and evidence taken before him in open Court at November term, 1926. Later (the order is not dated, but presumably was made shortly before the exceptions were filed in March, 1927), his honor Judge Dennis filed what is styled "Order for Judgment," in which he held that the assignment of the securities was intended as collateral security to both the amount received by the American Bank & Trust Company upon the Horry county notes and the amount of the deposit to the credit of the Bank of Aynor with the American Bank & Trust Company; that it was valid as to the proceeds of the notes, but not as to the deposit; and that, consequently, "the proceeds of these securities should be divided between the Bank of Aynor and the receiver of the American Bank & Trust Company in the proportion that the proceeds of the Horry county notes and the old deposit account bear to the total amount of securities. In other words, there was realized from the sale of the Horry county notes $44,189.38, and the total amount of securities is $73,241.23. The receiver should, out of the amount realized from these securities, share with the Bank of Aynor in the proportion that $44,189.38 is to $27,713.38." What he meant was that, out of the $73,000 of securities, the receiver should have (in round numbers) 27/71 and the Bank of Aynor 44/71; or, precisely in percentages, the receiver 38.55 per cent. and the Bank of Aynor 61.45 per cent.

From this decree both the Bank of Aynor and the receiver have appealed; the Bank of Aynor, upon the ground that the assignment of the securities should have been held as collateral to the obligation arising from the appropriation of the proceeds of the Horry county notes alone (it making no claim in reference to the deposit); and that the Bank of Aynor is entitled to a preference to the extent of the $44,189.38 in the administration of the assets of the bank; the receiver, upon the grounds of his contest above stated.

The facts bearing upon the interesting controversy appear as follows:

At the time of the closing of the bank, the petitioner, Bank of Aynor, had on deposit with it $27,713.38; it was an inactive account, having continued for quite a while, with very few deposits or withdrawals. This deposit does not constitute the main point of controversy between the receiver and the Bank of Aynor, as will be explained.

The main point of controversy grows out of a transaction between the Bank of Aynor and the American Bank & Trust Company, which occurred in this way: The Bank of Aynor held certain notes of Horry county, dated June 16, and June 21, 1926, in the aggregate sum of $45,000, which had been issued to fund other Horry county notes which were to mature on June 28th. It appears, although not distinctly stated, that the Bank of Aynor held the other notes referred to, and was anxious to have the new notes converted into cash that the other notes might be liquidated, and that some other creditor than itself should carry the burden.

On the morning of Monday, June 21st, Hagood, vice president of the Bank of Aynor, went to Columbia for the purpose of getting the American Bank & Trust Company, through Matthews, chairman of the board of directors, to negotiate a sale of the new notes, and make immediate remittance of the proceeds to the Bank of Aynor, so that the old notes might be liquidated on June 28th. Hagood found that Matthews was out of the city, and conferred with Mauldin, the president, who advised him to await the return of Matthews. Hagood left the notes with Mauldin for safe-keeping, and took from him a simple receipt, acknowledging the receipt of the notes, but making no statement in reference to the matter. On Tuesday morning, the 22d, Hagood returned to Columbia, and conferred with Matthews in regard to the sale of the notes, informing him that a prompt sale and remittance were necessary to meet the old notes maturing on the 28th. Hagood did not have with him the resolutions of the county board authorizing the issuance of the notes, referred to as "the supporting papers." Matthews told him that he would send the notes to New York for sale, but that it would probably be necessary to have the "supporting papers" before the sale could be consummated, and that he would notify the New York brokers that they would go forward promptly. It appears that at this time (Tuesday, the 22d), Matthews had already done what he then said he would do, forward the notes to New York. Mauldin had told Hagood upon his first visit on Monday, the 21st, that Matthews was out of the city, but would return that afternoon; and there was in evidence a letter from the American Bank & Trust Company to Curtis & Sanger (New York brokers), dated June 21st, inclosing the Horry county notes, with the request that the proceeds (the face less discount) be deposited with the National City Bank of New York to the credit of the South Carolina National Bank, against which the American Bank & Trust might draw in checks upon the South Carolina National Bank.

On June 22d Mauldin carried the Horry county notes over to the South Carolina National Bank, showed them a telegram from Curtis & Sanger, New York brokers, confirming the purchase by them of the notes, and requested the South Carolina National Bank, upon the faith of that telegram, to take over the notes, give the American Bank & Trust Company immediate credit for them, and forward the notes to Curtis & Sanger. The request was declined.

It is manifest that the American Bank & Trust Company, failing to get their eager hands, immediately, upon this fund, in which they had no earthly interest, then forwarded the notes to Curtis & Sanger under their letter of June 21st, which had not been mailed, with the instructions above stated.

On June 24th (Thursday), Holliday and Hagood returned to Columbia carrying with them the "supporting papers" to the Horry County notes, which they delivered to Matthews, who stated to them that no report had been received in reference to the notes, and that the sale had not been consummated, although two days prior thereto, on June 22d, a telegram had been received, as stated, from Curtis & Sanger confirming the...

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