Hampton Loan & Exchange Bank v. Lightsey

Decision Date07 March 1930
Docket Number12849.
PartiesHAMPTON LOAN & EXCHANGE BANK v. LIGHTSEY.
CourtSouth Carolina Supreme Court

Appeal from Common Pleas Circuit Court of Hampton County; Wm. H Grimball, Judge.

Action by the Hampton Loan & Exchange Bank of Hampton against W. F Lightsey, as Receiver of the Bank of Hampton. From a decree for defendant, plaintiff appeals.

Reversed and remanded.

J. W Manuel, of Hampton, for appellant.

Randolph Murdaugh, of Hampton, for respondent.

COTHRAN J.

This is an action by the Hampton Loan & Exchange Bank of Hampton against the receiver of the Bank of Hampton, claiming to be subrogated to the rights of the Citizens' & Southern Bank of Savannah in certain collateral which had been held by the last-named bank to secure certain obligations of the Bank of Hampton, and which had been turned over to the receiver of the Bank of Hampton under the circumstances hereinafter detailed.

For convenience and to avoid confusion, the Hampton Loan & Exchange Bank will be referred to as the "Loan & Exchange Bank," the Bank of Hampton as the "Hampton Bank," and the Citizens' and Southern Bank as the "Savannah Bank."

The facts appear to be as follows:

In 1926 there were two banks in Hampton, the Loan & Exchange Bank and the Hampton Bank; in the spring of that year the Hampton Bank negotiated a loan with the Savannah Bank for $15,000, and gave its notes therefor, secured by a pledge of customers' notes amounting to $28,500.51. The notes of the Hampton Bank were due in the fall of 1926. They contained a provision allowing the Savannah Bank to apply as a credit upon them any balance that the Hampton Bank might have to its credit with the Savannah Bank, or to any other indebtedness that might be owing. The proceeds of the notes were passed to to credit of the Hampton Bank.

On July 9, 1926, the Loan & Exchange Bank (the plaintiff herein) presented to the Hampton Bank for payment certain checks drawn by depositors upon the Hampton Bank against their respective accounts, aggregating $1,698.58. At that time the Hampton Bank had ample funds with which to meet these checks, and, if the Loan & Exchange Bank had insisted upon the cash, they would have been paid. It, however, accepted in lieu of the cash the check of the Hampton Bank upon its account with the Savannah Bank, for the amount $1,698.58, which, if promptly presented, would have been paid, as the Savannah Bank had on deposit to the credit of the Hampton Bank on July 10th $5,613.77, and on July 12th (Monday), $7,746.98. The Hampton Bank marked the presented checks "paid," charged them to the several accounts of the drawers, and credited the Savannah Bank with the amount of the check drawn upon it. The Loan & Exchange Bank transmitted the check of the Hampton Bank upon the Savannah Bank for collection to the South Carolina National Bank of Columbia, which transmitted it directly to the Savannah Bank; the check reaching the Savannah Bank Monday morning July 12th.

The Hampton Bank was open for business on Friday the 9th and Saturday the 10th, but failed to open its doors on Monday the 12th.

Although the Savannah Bank received the check on Monday morning, it did not immediately remit to the Columbia Bank, although it then had upon deposit to the credit of the Hampton Bank more than $7,000. Later in the day the Savannah Bank learned of the closing of the Hampton Bank, refused payment of the check, and applied the credit balance of $7,746.98 to the notes of the Hampton Bank, although it appears that they were not then past due.

On August 6, 1926, the defendant, Lightsey, was appointed receiver of the Hampton Bank, and on August 10th he paid to the Savannah Bank the balance unpaid, but not due upon the notes, and received from the Savannah Bank the $28,000 of notes which had been pledged as security with that bank as stated.

The Loan & Exchange Bank now claims that it is entitled to be subrogated to the rights of the Savannah Bank in this collateral to the extent of the amount of the check which the Hampton Bank had drawn upon the Savannah Bank and delivered to it, upon the ground that, when the Savannah Bank applied the whole of the credit balance of $7,746.98 to the notes which it held against the Hampton Bank, it had recourse to two funds, the credit balance and the collateral, while the Loan & Exchange Bank had recourse only upon the credit balance, and that it had accounted to its customers for the checks which it had received for collection.

The case was tried by his honor, Judge Grimball, without a jury, upon testimony taken before him in open court, and on October 31, 1928, he filed a decree refusing the relief of subrogation. From it the plaintiff has appealed.

There can be no doubt, under the evidence, that for its debt of $15,000 against the Hampton Bank, evidenced by its notes, the Savannah Bank had recourse to two sources of reimbursement, the $28,000 of collateral, and, pro tanto, the balance upon deposit with it to the credit of the Hampton Bank, of $7,746.98. It is equally free from doubt that for its debt of $1,698.58 against the Hampton Bank, evidenced by the check upon the Savannah Bank which the Hampton Bank had given to it, the Loan & Exchange Bank had recourse to only one source of reimbursement, the balance upon deposit with the Savannah Bank to the credit of the Hampton Bank of $7,746.98. It is equally free from doubt that upon the check of $1,698.58 the Hampton Bank was the primary obligor and the Loan & Exchange Bank the secondary. It is equally free from doubt that the Loan & Exchange Bank has discharged its secondary obligation by accounting to its customers for the checks which it had received for collection and which it surrendered to the Hampton Bank in exchange for the check of $1,698.58 when it should have accepted money only. This was irregular, technically, but the irregularity served only to fix liability upon the Loan & Exchange Bank to its customers for the checks received by it for collection.

It would appear, therefore, that the Loan & Exchange Bank, upon the face of the transaction, has presented a perfect example of the right of subrogation. When the Loan & Exchange Bank accepted the check of the Hampton Bank upon the Savannah Bank, in payment of the checks of its customers surrendered by it to the Hampton Bank, the customers were the persons directly interested in the cashing of that check; they became practically the real debtors of the Hampton Bank, the Loan & Exchange Bank occupying the position of a trustee for them. The customers had the right to insist that the Savannah Bank should first exhaust the collateral before going upon the credit balance, which was their only protection, and the Loan & Exchange Bank, having paid off the obligation it had incurred to the customers, became the assignee of such right as the customers had. If there had been no receivership, the right of the Loan & Exchange Bank to force the Savannah Bank upon the collateral would have been unquestionable as against the Hampton Bank; the receiver can have no higher right than the Hampton Bank had, and takes over the assets of the bank with its concomitant burdens.

The elements of subrogation are thus defined in the case of Enterprise Bank v. Federal Land Bank, 139 S.C. 397, 138 S.E. 146: (1) That the party claiming it shall have paid the debt; (2) that he was not a volunteer, but had a direct interest in the discharge of the debt or lien; (3) that he was secondarily liable for the debt or the discharge of the lien; (4) that no injustice will be done to the other party by the allowance of the equity. All of them appear to be present in aid of the claim of the Loan & Exchange Bank.

It has been suggested that the paramount equity is in favor of the creditors of what has developed into an insolvent bank. The declaration of the court in the Livingstain Case, 77 S.C. 307, 57 S.E. 182, 184, 22 L. R. A. (N. S.) 442, 122 Am. St. Rep. 568, has received the repeated approval of this court: ""No rule of equity appeals more to the judicial conscience than that which requires the assets of an insolvent...

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6 cases
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