Livingstain v. Columbian Banking & Trust Co.

• Decision Date: 09 July 1907
• Parties: LIVINGSTAIN v. COLUMBIAN BANKING & TRUST CO.
• Court: South Carolina Supreme Court

57 S.E. 182

77 S.C. 305

LIVINGSTAIN v. COLUMBIAN BANKING & TRUST CO.

Supreme Court of South Carolina

July 9, 1907

Appeal from Common Pleas Circuit Court of Charleston County Aldrich, Judge.

Action by Harris Livingstain against the Columbian Banking & Trust Company. Petition of Berger and Livingstain to be subrogated to the rights of a certain creditor and the receivers. E. W Hughes and B. A. Hagood appeal. Reversed, and report of master affirmed.

Gary A. J., dissenting.

Benj. Rutledge, for appellants. W. A. Holman, for respondent.

WOODS J.

The Columbian Banking & Trust Company, of Charleston afterwards to be referred to in this opinion as the "Columbian Bank," on January 5, 1906, gave its promissory note to the National Bank of Commerce of New York, afterwards to be referred to as the "Bank of Commerce," for $5,000, due 90 days after date. Certain bills receivable were deposited as collateral, but no overdrafts were to be allowed, and the collateral was to secure the note only. The note provided that upon certain contingencies, such as failure of the Columbian Bank, the National Bank of Commerce should have the right immediately to declare the note due and to sell the collaterals and apply the net proceeds of the sale to the payment of the note, and that any money on deposit at the National Bank of Commerce belonging to the Columbian Bank might, at the option of the National Bank of Commerce, he held and treated as collateral security and set off against the said note. On February 8, 1906, the Columbian Bank had to the credit of its account in the Bank of Commerce $5,134.43. On the same day M. K. Berger and Harris Livingstain, having on deposit in the Columbian Bank $2,015.75 and $2,600, respectively, presented checks for the full amount of their deposits, and the bank, being without cash, gave them in payment checks or drafts on the Bank of Commerce. The Columbian Bank was, in fact, insolvent when these checks were given, and later in the day suspended payment. The checks were presented for payment on February 10, 1906, but were refused, because the Bank of Commerce, exercising the right contracted for in the note in case of insolvency of the Columbian Bank, had charged the whole of the $5,000 note to the account of the Columbian Bank, thus paying its note and reducing its credit balance to $314.43. E. W. Hughes and B. A. Hagood were appointed receivers of the Columbian Bank, and the Bank of Commerce turned over to them the cash balance of $314.43 and the collateral notes held to secure the $5,000 loan. Thereupon Berger and Livingstain filed their petition, claiming under the doctrine of subrogation the right to stand in the place of the Bank of Commerce, and be paid from the cash and collateral surrendered to the receivers. The master, Mr. Sass, reported the petitioners entitled to the cash balance of $314.43, but denied their right of subrogation as to the collateral. The circuit judge, Hon. James Aldrich, reached a different conclusion, and held the petitioners entitled in equity to the payment of the dishonored checks from both the cash and the collateral turned over by the Bank of Commerce to the receivers. We think, with the master, that subrogation should not be allowed, because it would be prejudicial to the other depositors of the Columbian Bank, whose equitable right to equal distribution of the assets among creditors is clearly superior to any claim set up by the petitioners to the collateral.

The checks given to the petitioners in payment of their deposits operated as assignments pro tanto of the balance to the credit of the Columbian Bank in the hands of the Bank of Commerce. Fogarties & Stillman v. State Bank, 12 Rich. Law. 518, 78 Am. Dec. 468; Simmons v. Bank, 41 S.C. 189, 19 S.E. 502, 44 Am. St. Rep. 700; Loan & Savings Bank v. Farmers' & Merchants' Bank, 74 S.C. 210, 54 S.E. 364.

But the legal assignment of the deposit to the petitioners, evidenced by the checks, was subject to the prior assignment of the deposit to the Bank of Commerce, which was conditional on the insolvency of the Columbian Bank. When the condition of the prior assignment was fulfilled by the insolvency of the Columbian Bank, and the deposit was rightfully appropriated by the prior assignee, any legal right of the petitioners under their assignment was as completely gone, except as to the balance of $314, as if the deposit had been paid out on another check presented at the counter of the Bank of Commerce.

This statement of the legal relation of the parties to the deposit is self-evident; for there is no basis in reason or authority for the position taken in argument, that the Columbian Bank could not contract with the Bank of Commerce that the money held by the Bank of Commerce to the credit of the Columbian Bank should be applied to its note. The cases in this State give no countenance to such a proposition. The extent to which the court has gone is thus correctly stated in the syllabus of Callahan v. The Bank, 69 S.C. 374, 48 S.E. 293: ""A depositor has a right of action against a bank for damages resulting from its refusal to pay his check in favor of a third party, in absence of notice to the depositor that the bank had applied his funds to his past-due obligations to the bank, when he had on deposit sufficient funds to pay the check." The decision in that case is rested on an implied contract that the bank will hold the deposit to be paid out on checks of the depositor. Mr. Justice Gary quotes with approval the language of Chief Justice McIver in Simmons v. Bank, 41 S.C. 177, saying: "The court in the case last cited, in speaking of the principles decided in Stillman v. Bank, uses this language: 'That case shows just what the circuit court held in this case, that the

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