Loan & Sav. Bank Of Camden v. Peurifoy

• Citation: 139 S.E. 783
• Decision Date: 14 October 1927
• Docket Number: (No. 12288.)
• Court: United States State Supreme Court of South Carolina
• Parties: LOAN & SAVINGS BANK OF CAMDEN. v. PEURIFOY et al. RICE et al. v. CITY OF COLUMBIA et al.

139 S.E. 783

LOAN & SAVINGS BANK OF CAMDEN.

v.PEURIFOY et al.

RICE et al.

v.CITY OF COLUMBIA et al.

(No. 12288.)

Supreme Court of South Carolina.

Oct. 14, 1927.

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

Ex parte petition by the Loan & Savings Bank of Camden, S. C., in an action by John I. Rice and others against the City of Columbia and others, wherein petitioner sought to recover the proceeds of a draft from James E. Peurifoy, receiver of the American Bank & Trust Company, and the Merchants' & Planters' Bank of Hartsville. From a judgment denying the petitioner the relief sought, it appeals. Reversed, and cause remanded.

Kirkland & Kirkland and Mendel L. Smith, all of Camden, for appellant.

D. W. Robinson, of Columbia, for respondents.

STABLER, J. For the sake of brevity, in our discussion of the questions raised by this appeal, we shall refer to the American Bank & Trust Company of Columbia as the Columbia Bank, to the Loan & Savings Bank of Camden as the Camden Bank, and to the Merchants' & Planters' Bank of Hartsville as the Hartsville Bank.

On the afternoon of June 25, 1926, the directors of the Columbia Bank passed a resolution admitting its inability to meet its obligations, and placed its affairs in the hands of the state bank examiner for a period of 30 days. Subsequently thereto, by order of court in the case of Rice et al. v. City of Columbia et al., James E. Peurifoy was appointed receiver.

For several months prior to the closing of the Columbia Bank, it and the Camden Bank had maintained reciprocal accounts, transmission of items between the two banks being by mail.

Under the terms of the agreement between the two banks, all items received by the Columbia Bank from the Camden Bank for collection or credit were received subject to the actual receipt of the proceeds thereof by the Columbia Bank; the Columbia Bank was not responsible for losses in the mail and did not guarantee the banks to which the items were sent by it for collection; the Columbia Bank, in the collection of any item, remained the agent of the Camden Bank until the Columbia Bank received "actual final payment" of the item handled by it for the Camden Bank. The proceeds of items received by the Columbia Bank for collection, as in the case of the draft in question, were not deposited by it to the account of the Camden Bank, nor subject to the checks or drafts of that bank, until, as has been said, the Columbia Bank received actual final payment of the items.

The Columbia Bank and the Hartsville Bank also maintained reciprocal accounts.

On June 21, 1926, one F. M. Wooten, of Camden, drew a draft on J. R. Young & Co., of Hartsville, in favor of the Camden Bank in the sum of $8,849.45. The Camden Bank sent this draft to the Columbia Bank for collection and credit. The Columbia Bank, in turn, in conformity with the arrangements between itself and the Camden Bank, forwarded the draft to the Hartsville Bank for collection. It appears that no acknowledgment of the receipt of this draft was received by the Camden Bank from the Columbia Bank.

The Columbia Bank received notice from the Hartsville Bank, in the regular course of business, on June 25, 1926, that the draft had been collected and the proceeds placed to the credit of the Columbia Bank. Thereafter, between 12 and 1 o'clock of that day, the Columbia Bank advised the Camden Bank by telephone that the draft had been paid, and, before its closing hour, placed the amount thereof to the credit of the Camden Bank. On the morning of June 26, 1926, the Camden Bank received by mail from the Columbia Bank a memorandum of this item, bearing this stamp:

"We credit June 26, 1926. American Bank & Trust Company, Columbia, S. C."

No actual cash or check was ever received by the Columbia Bank from the Hartsville Bank for the proceeds of the draft, payment being made through credit to the account ofsent to it in cash, and received due notice of such credit, it would not be heard to deny that it had received actual final payment of the draft. If the Columbia Bank could, under these circumstances, deny that actual final payment had been made to it, then it might have deferred receipt of cash for an indefinite period and during all that time could have denied responsibility to the Camden Bank, although the funds had been deposited to its credit in the Hartsville Bank and it had the use and control of them as a depositor in that bank in the meantime. The Columbia Bank, therefore, when it received notice from the Hartsville Bank that the draft had been collected and the proceeds of same credited to its account at that bank, and charged the amount of the draft against the account of the Hartsville Bank, and credited the amount to the account of the Camden Bank, became liable to the Camden Bank as to any other depositor creditor.

So we are led to conclude that when the various steps had been taken, as indicated above, in the collection of the draft, culminating in the Columbia Bank's giving credit to the Camden Bank for the amount so collected, against which credit the Camden Bank could then issue its checks, the relation of principal and agent, existing up to that time between the Columbia Bank and the Camden Bank, ceased, and that of creditor and debtor arose, subject, of course, to any intervening cause, such as fraud on the part of the Columbia Bank, from which a trust in such fund might be created in favor of the Camden Bank.

The appellant contends that the Columbia Bank became a trustee ex maleficio, by its action in crediting appellant's account with the proceeds of the draft during the closing hours of the Columbia Bank, when that bank was hopelessly insolvent and such fact known to its officers; that such action on the part of the officers of the Columbia Bank constituted such a palpable fraud upon the appellant as entitles it to a preferential claim; and that this fund, paid into the hands of the receiver as a special fund, augmenting the assets of the Columbia Bank, may be identified in the hands of the receiver, and is impressed with a trust in favor of the Camden Bank.

We think that there is merit in this contention of the appellant. The trial judge found, from which there is no appeal, that the Columbia Bank was insolvent on June 25, 1926, at the time that the proceeds of this draft were credited to the account of the appellant, and had been insolvent for some time prior thereto.

In Ex parte Berger, 81 S. C. 244, 62 S. E. 249, 22 L. R. A. (N. S.) 445, this court quotes with approval the following from Wasson v. Hawkins (C. C.) 59 F. 233:

"The keeping of the bank open, and the conducting of its business in the usual manner, constituted a representation to its customers of the solvency of the bank, upon which they had a right to rely; and if the bank was known to be insolvent by the officers who were charged with its management, the concealment of that tact from a person about to make a deposit would constitute a fraud upon him. The title acquired by the bank to the money and checks, deposited under such circumstances, would be voidable at the election of the depositor, who could bring suit to recover his deposit without any previous demand. The bank would become a trustee ex maleficio, and would hold the deposit for the use of the depositor and subject to his right of reclamation."

See, also, Steele v. Allen, 240 Mass. 394, 134 N. E. 401, 20 A. L. R. 1203; St. Louis & S. F. R. Co. v. Johnston, 133 U. S. 566, 10 S. Ct. 390, 33 L. Ed. 683.

The respondent admits by its anwser that the bank was insolvent, but contends that there is no evidence in the case to show that the officers of the bank knew of such Insolvency. On this point the circuit judge in his decree says:

"I do not think that the cashier of the bank knew of this insolvency, but I believe that the president, Mr. Mauldin, and the chairman of the board, Mr. Matthews, had sufficient information to put them on notice or knowledge of its insolvent condition during the last few weeks prior to June 25, 1926."

This conclusion by him was reached, presumably, upon the facts of the case before him. Furthermore, the Columbia Bank closed its doors at 2 o'clock on June 25, 1926, and thereafter, on the same day, the directors by resolution admitted its inability to meet its obligations and placed its affairs in the hands of the state bank examiner, and its doors were never reopened. In the face of these facts, the presumption arises that the officers of the bank knew of its insolvent condition, unless we attribute to them the grossest inattention, neglect, and indifference in the management of its affairs. See Cragie v. Hadley, 99 N. Y. 131, 1 N. E. 537, 52 Am. Rep. 9.

We are satisfied from the findings of the circuit judge, and from all the facts and circumstances of the case, that the Columbia Bank knowingly practiced a gross fraud upon the Camden Bank. It is evident that the responsible officers of the Columbia Bank knew of its hopelessly insolvent condition at the time that bank credited the account of the Camden Bank with the proceeds of the draft; that they knew before such entry was made that these funds belonged to the Camden Bank; and that the Columbia Bank had no equity in same and bad no right to transfer them to the general funds and mix them with the general assets of the bank for the benefit of its general creditors to the exclusion of the Camden Bank, for which they were collected.

We think that the fund in question in the hands of the receiver, by reason of the fraud ulent acts of the Columbia Bank referred to, is impressed with a trust in favor of the appellant, and that the appellant is entitled to receive payment of same.

In support of their position, the respondents cite the recent case of Bank v. Bradley, reported in 136 S. C. 511, 134 S. E. 510. While we adhere to the principles so well stated by Mr. Justice Cothran in his opinion in that case, that decision does not govern here. The facts of...