Ex parte Hernlen

• Decision Date: 17 April 1930
• Docket Number: 12898.
• Citation: 153 S.E. 133,156 S.C. 181
• Parties: Ex parte HERNLEN. v. BROWNE. STATE ex rel. FANT, State Bank Examiner,
• Court: South Carolina Supreme Court

153 S.E. 133

156 S.C. 181

Ex parte HERNLEN.

STATE ex rel. FANT, State Bank Examiner, v. BROWNE.

No. 12898.

Supreme Court of South Carolina

April 17, 1930

On Petition for Rehearing May 1, 1930.

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

Proceeding by the State, on the relation of E. S. Fant, State Bank Examiner, for the liquidation of the People's Bank of Anderson, wherein Essie B. Hernlen filed a claim asserting priority. Judgment awarding claimant priority over all other general creditors, and D. O. Browne, as receiver, appeals.

Modified and affirmed.

The decree of Circuit Judge Dennis, affirmed on appeal as to points not discussed in opinion, was as follows:

This is a proceeding against the Receiver of The Peoples Bank of Anderson, S.C. It is founded upon an intervening petition with the authority of the Court first had and obtained.

The petitioner, Mrs. Essie B. Hernlen, was a depositor in The Peoples Bank of Anderson, S.C. To the extent of Eight Thousand ($8,000.00) Dollars she claims a right to payment in full out of the unpledged assets in the hands of the receiver at the time of the service of the petition. To this petition an answer was filed by the receiver, and the matter was heard by me in open court.

On most of the material issues of fact in the cause, the parties are in substantial agreement. I find the facts to be as follows:

The petitioner was a depositor in The Peoples Bank of Anderson S. C., for a number of years. On November 1st, 1921, she had on deposit the sum of Eight Thousand Ninety Eight and 28/100 ($8,098.28) Dollars. On January 3rd, 1922, she made a deposit of Eighteen Hundred Ninety One and 26/100 ($1,891.26) Dollars. Without making any additional deposits she made some withdrawals, which left a balance to her credit as of January 17, 1922, of Eight Thousand Four Hundred Fifty Nine and 54/100 ($8,459.54) Dollars.

During the summer of 1921, the President of the Peoples Bank of Anderson, S. C., committed suicide. Becoming uneasy about her deposit thereafter, the petitioner was considering withdrawing the same, and with that in mind she discussed the situation with the then president of the bank, and as a result of such discussion it was proposed that she leave her money on deposit, and that the president would negotiate a mortgage loan for the petitioner. The result of these discussions and proposals was an agreement on the part of the president of the bank to obtain for the petitioner a mortgage on the property of one L. P. McCarley, and to use the deposit of the petitioner for that purpose. There is some evidence that but for this arrangement the petitioner would have at this time withdrawn her deposit.

In December, 1921, Mrs. Hernlen, together with some of her relatives and a representative of the bank, inspected the McCarley property. The proposal was to make a loan of Ten Thousand ($10,000.00) Dollars on this property. The petitioner decided that she would lend only Eight Thousand ($8,000.00) Dollars on it, and authorized the president of the bank to apply that much of her deposit in making the loan. It appears, however, for reasons that will hereinafter appear, that the bank desired the loan to McCarley to be in the amount of Ten Thousand ($10,000.00) Dollars. To meet this situation, it was proposed that the petitioner lend Eight Thousand ($8,000.00) Dollars of her money on the property and that the bank lend Two Thousand ($2,000.00) Dollars additional. It was further proposed that the bank would take a mortgage for Ten Thousand ($10,000.00) Dollars, securing two notes, one for Eight Thousand ($8,000.00) Dollars to be turned over to the petitioner, and the other for Two Thousand ($2,000.00) Dollars, to be held by the bank, and the Two Thousand ($2,000.00) Dollar note was to be subordinated under the mortgage to the payment of the Eight Thousand ($8,000.00) Dollar note. These proposals were agreed to by the petitioner.

The deposit made by the petitioner on January 3rd, 1922, was acknowledged by the bank in a letter of that date addressed by the president to the petitioner, and a deposit slip was forwarded to the latter. In this letter the president said, among other things, referring to the McCarley note and mortgage: "You will hear from the other papers in a day or so, which we trust will be agreeable to you." This was apparently written to satisfy the anxiety of the petitioner, who had in the meanwhile indicated a purpose to withdraw her deposit unless the McCarley papers were completed.

The petitioner seems to have placed complete confidence in the president of the bank, and to have given him full power to handle her deposit for the purpose in question. It is apparent that she accepted his assurance that the papers were in preparation on her account, and would be delivered to her in due course.

The preparation of the mortgage and notes was committed by the president of the bank to the attorneys of the bank, Messrs. Bonham & Allen. The mortgage and the notes were prepared by these attorneys in accordance with the agreement, and were signed by McCarley, on January 6th, 1922, and left by him in the hands of the attorneys named. The probate on the mortgage is dated January 6th, 1922, as is also the renunciation of dower. These several instruments were made payable to The Peoples Bank of Anderson, S. C., it having been the obvious intention of the parties that the bank would properly assign the mortgage and the Eight Thousand ($8,000.00) Dollar note to the petitioner, and would either hold the same for her account, or deliver the same to her.

In this situation, on January 17th, 1922, while the notes and the mortgage securing the same were still in the hands of Messrs. Bonham & Allen, The Peoples Bank of Anderson, S. C., suspended business, and its affairs were taken over by the State Bank Examiner. On February 20th, 1922, as a result of negotiations on the part of the bank with the depositors thereof, the bank reopened for business, and remained open for approximately a year. The McCarley papers were delivered to the bank shortly after it reopened, but the president, stating that he acted under advice of counsel, failed to deliver the mortgage and the Eight Thousand ($8,000.00) Dollar note to the petitioner, nor was an assignment or endorsement to the petitioner written on either. The petitioner's deposit likewise remained intact.

While at this time the bank was apparently in an extremely unliquid condition, and its ability to work out under the circumstances then existing in the community may have been a matter of considerable doubt on the part of the management, it was believed by the management and by the State Bank Examiner, or at least as far as the petitioner is concerned the belief was held out, that the bank had reopened for business in the usual course.

It was part of the plan of reopening that the depositors should agree to leave their deposits in the bank for a given period. Not all of the depositors entered into this agreement, although the letter sent out by Vandiver indicates that all would have to agree, and by means of rediscounts or other forms of borrowing, the bank obtained funds--considerably in excess of the amount of petitioner's claim--on the receivables held by it, with which to pay off such non-assenting depositors, and for other purposes.

The bank suspended business for the second time in January, 1923, and never reopened.

In February, 1923, the McCarley indebtedness was paid in full. It is claimed by the officers of the bank that under advice of counsel, on account of the fact that the McCarley mortgage and the notes secured by the same were not actually received by the bank until after the first closing and the reopening of the same, the said notes and mortgage were held by the bank for the account of the pledgees of the original McCarley papers. There is no testimony, however, showing that McCarley called for or received the original notes when he delivered the new papers assigned to the pledgees of the original notes. On the contrary, the new papers remaining in the possession of The Peoples Bank of Anderson, S. C., were paid by McCarley to that bank. The payment being made after the final closing of the bank, it necessarily follows that the amount of such payment augmented the assets that went into the hands of the receiver to that extent, and provided a fund out of which payment could have been made by the receiver to the petitioner of the proceeds of the mortgage note now set up by her. The receiver's cash receipt book shows the McCarley indebtedness to have been paid on February 20th, 1923. While the present receiver had not been then appointed, the bank was at that time in process of liquidation under the jurisdiction of the State Bank Examiner, and as far as the petitioner's rights are concerned, the situation is no different from what it would have been had the present receiver then been in charge.

The petitioner had no knowledge of the pledge of the original McCarley notes, or of the McCarley mortgage and the notes secured by it. She at all times relied upon the agreement made by her with the president of the bank, whereby the McCarley mortgage and the Eight Thousand Dollar note issued under it would be delivered to her in satisfaction of her deposit to that extent. It does not appear from the testimony what understanding was had by the petitioner, or what explanation was given to her by the officers of the bank as to the fact that although the McCarley mortgage and notes were presumptively taken and held by the bank for the petitioner, the same had never been delivered to her, and no payment made to her on account thereof. It is clearly inferable, however, that the petitioner had such...