Hutchison v. Rock Hill Real Estate & Loan Co.

• Decision Date: 13 December 1902
• Citation: 43 S.E. 295,65 S.C. 45
• Parties: HUTCHISON et al. v. ROCK HILL REAL ESTATE & LOAN CO. et al.
• Court: South Carolina Supreme Court

43 S.E. 295

65 S.C. 45

HUTCHISON et al. v. ROCK HILL REAL ESTATE & LOAN CO. et al.

Supreme Court of South Carolina

December 13, 1902

Appeal from common pleas circuit court of York county; Gary, Judge.

Action by Jennie E. Hutchison and B. P. Reid against the Rock Hill Real Estate & Loan Company and others. Judgment for plaintiffs, and defendants appeal. Reversed.

Special referee, J. S. Brice, filed the following report:

"By order of Mr. Justice Klugh, dated October 30, 1900 all of the issues of law and fact in the above-entitled cause were referred to me to take testimony and report my conclusions thereon, with leave to report special matter. Agreeable to the provisions of the above order, I have held numerous references, and taken a mass of oral and documentary testimony, which is herewith submitted. The plaintiff in her complaint, after alleging that the defendant the Rock Hill Real Estate & Loan Company is a corporation duly organized under the laws of this state, with its office and principal place of business in the city of Rock Hill, and that the defendants Frel Mobley, W. C. Hutchison, D. Hutchison, and R Lee Kerr constitute the board of directors thereof, and that the defendant the National Union Bank is a banking institution organized under the laws of the United States and that said bank does business in the said city of Rock Hill, and that the defendants Haines & Bishop are partners in business in the city of New York, under the firm name of Haines & Bishop, alleges that the defendants the National Union Bank of Rock Hill, S. C., and Haines & Bishop are in the possession of certain assets belonging to the Rock Hill Real Estate & Loan Company, for which an accounting is demanded in this action. The plaintiff also alleges that she is a stockholder in the real estate and loan company, and that she brings this action in her own interest and also in behalf of all other stockholders of said Rock Hill Real Estate & Loan Company who may become parties to the action and who may contribute to the expenses thereof. That prior to the 1st of November, 1899, the said Rock Hill Real Estate & Loan Company was a solvent corporation, and held bonds and notes well secured by mortgages on real estate of the value approximating $70,000, and that amount was sufficient to pay all indebtedness of said company, which was small, and to refund to the stockholders the amount paid in by them, with a premium thereon. The plaintiff also says that between the 1st day of November, 1899, and the 31st day of December, 1899, practically all of the assets of the Rock Hill Real Estate & Loan Company were illegally transferred and assigned to the defendant the National Union Bank of Rock Hill, S. C., by the defendant R. Lee Kerr, the secretary and treasurer of the said the Rock Hill Real Estate & Loan Company, and a director and stockholder therein. In that connection the plaintiff charged that said assignment and transfer was made in exchange for certain demands held by the defendant bank against the Rock Hill Cotton Factory Company which was then insolvent, and in the hands of R. Lee Kerr, its receiver; that, of the said insolvent demands so taken in charge, there was one note payable by the said cotton factory company to W. L. Roddey in the sum of $2,500, and held by the said bank, and known by the said R. Lee Kerr to be worthless, and the payment of which he had been previously instructed by the court to resist, and which note on said resistance had been disallowed as a claim against the cotton factory company. That the other claims the said R. Lee Kerr received from said bank, in exchange for the solvent assets of the said real estate and loan company, were claims of such a character that it was well known that not more than 25 per cent. of their face value would ever be realized thereon. And plaintiff also submitted, as Exhibit A to her complaint, a partial list of the assets and securities transferred by R. Lee Kerr to the National Union Bank, and alleged that he had transferred other securities, not included in said list, aggregating a further large amount, and that the said bank was collecting and using said securities as its own property; and the plaintiff asked that said bank be required to account fully for all the assets of the real estate and loan company so transferred and assigned. And plaintiff still further alleged that one of the conditions or agreements of the transfer of said securities between R. Lee Kerr and the said bank was that any surplus of these securities so transferred, after paying for the insolvent demands taken in exchange, should be held by said bank to indemnify it against loss in a suit which the said R. Lee Kerr, as receiver, had been instructed by the court to bring against W. L. Roddey and the said bank for an amount involving about $3,000. The plaintiff also states in her complaint that between the 1st day of February and the 31st day of March, 1900, the defendant firm of Haines & Bishop, being creditors of the Rock Hill Factory Company in the sum of $8,000, and who were prosecuting a proceeding in this court against the said R. Lee Kerr for his removal as receiver of the said Rock Hill Cotton Factory Company, abandoned this proceeding for the removal of the said R. Lee Kerr, upon the said Kerr, as treasurer of the said Rock Hill Real Estate & Loan Company, transferring to said Haines & Bishop all the remaining equities in the assets of the said real estate and loan company held by the National Union Bank, and upon the said Kerr transferring, so plaintiff believed, sundry other assets and securities of the real estate and loan company, and receiving in exchange therefor Haines & Bishop's claim against the Rock Hill Cotton Factory Company, worth not exceeding 25 per cent. of its face value, if of any value whatever; and that said assets and securities were held by the said bank and by W. B. Wilson, Esq., the joint attorney of said bank and of Haines & Bishop. And plaintiff avers and charges that these defendants and W. B. Wilson, their agent and attorney, well knew that said transfer was without authority and without value at the time it was made. The plaintiff also alleges that, by reason of this transfer and disposal of the assets of the real estate and loan company, its stockholders had been defrauded and the company rendered insolvent, and that no property could be found out of which to pay the taxes assessed against the said company for the year 1899. The plaintiff also avers and charges that the board of directors of the loan company had no knowledge of said illegal transfer, and did not authorize the same, and that while the plaintiff, through her agent and attorney, had made urgent and persistent efforts to have said directors institute some proceedings to recover these assets, still the said directors had refused and neglected to take any steps whatever looking to the recovery of said assets; and plaintiff charged that the assets of the company were being disposed of and wasted to advance some personal interest of one or more of the directors, and of those holding and controlling a majority of the shares of stock therein, and in fraud of the rights of the minority stockholders, and that she could obtain no relief through a meeting of the stockholders, as that meeting would be controlled by the board of directors, who held a majority of the stock. Plaintiff then asks for the following relief. First, that the defendant the National Union Bank of Rock Hill, S. C., be required to account for, pay over, and deliver up all the bonds, notes, and mortgages, and all other securities transferred to it by R. Lee Kerr; and, second, that the defendants Haines & Bishop be likewise required to account for, pay over, and deliver up all securities and equities transferred to them by the said R. Lee Kerr, as secretary and treasurer of the said loan company. Plaintiff also asked for the appointment of a receiver and for other relief, which does not affect the issues involved before me. The defendants the National Union Bank of Rock Hill, S. C., Haines & Bishop, R. Lee Kerr, director and stockholder, and W. B. Wilson, attorney and agent, answered jointly, specifically denying the various allegations of the complaint inconsistent with their answer. They admitted that the Rock Hill Cotton Factory Company was insolvent, and then set up a defense that, some time prior to the 5th day of December, 1899, the Rock Hill Real Estate & Loan Company applied to the National Union Bank, through its president, W. J. Roddey, for a loan of about $20,000, and also proposed at the same time to purchase from the said bank: First, the judgment the said bank held against A. E. Hutchison and D. Hutchison in the sum of $7,364.25, together with three notes on which said judgment was based, each of said notes being also against the said Rock Hill Cotton Factory Company; second, the judgment held by said bank against A. E. Hutchison and D. Hutchison in the sum of about $3,237.49; third, the promissory note made by the Rock Hill Cotton Factory Company to the National Union Bank in the sum of $2,500, dated October 1, 1899; and that said note had been indorsed by W. L. Roddey, but he had been released from all liability thereon. These defendants alleged that the real estate and loan company offered and agreed to pay for the above-mentioned securities the sum of $9,826.33, and that the National Union Bank agreed to sell said securities for said sum; and that on or about the 5th day of December, 1899, after being furnished with a certified copy of the resolution of the board of directors of the Rock Hill Real Estate & Loan Company, a copy of which resolution was attached to their answer as Exhibit B, the said National Union Bank agreed to loan the said Rock

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