Marchant v. Wannamaker

• Citation: 180 S.E. 350,176 S.C. 369
• Decision Date: 29 March 1935
• Docket Number: 14032.
• Parties: MARCHANT v. WANNAMAKER et al.
• Court: United States State Supreme Court of South Carolina

180 S.E. 350

176 S.C. 369

MARCHANT v. WANNAMAKER et al.

No. 14032.

Supreme Court of South Carolina

March 29, 1935

Appeal from Common Pleas Circuit Court of Orangeburg County; M. M Mann, Judge.

Suit by T. E. Marchant, as receiver of the Edisto National Bank of Orangeburg, against W. J. Wannamaker and others, as executors of the last will and testament of Carrie Wannamaker deceased, who filed a counterclaim. Demurrer to defendants' answer was overruled, motion to strike out defendants' counterclaim was denied, order was entered directing defendants to amend answer, and injunction was granted restraining receiver and others from prosecuting suits in federal court, and plaintiff appeals.

Order in accordance with opinion, and cause remanded for further proceedings.

William C. Wolfe, of Orangeburg, for appellant.

A. H Moss, of Orangeburg, for respondents.

C. J. RAMAGE, Acting Associate Justice.

The facts underlying this appeal are that prior to the 9th day of January, 1931, the Edisto National Bank of Orangeburg had conducted under the national banking laws a bank at Orangeburg, S. C., and as a part of its operation had conducted a trust department. On that date, Mrs. Carrie E. Wannamaker, now deceased, entered into a written trust agreement with said bank, and by virtue of said agreement deposited the sum of $5,000 "to be held, managed, controlled, and invested through its trust department." The bank accepted said fund and administered the same until the closing of its doors, and paid to Mrs. Wannamaker from time to time various sums of money as interest payments on said fund.

On the 5th day of March, 1933, the Edisto National Bank of Orangeburg was closed by Presidential proclamation, and was later declared insolvent, and was never reopened. Later, the plaintiff, T. E. Marchant, was appointed receiver of said bank, and is now acting in said capacity.

During 1934, said receiver, being desirous of terminating the trust, and acting under the directions of the comptroller of the currency, prepared and submitted to Mrs. Wannamaker, who was then living, a full and complete accounting in respect to the trust involved; and said receiver took other necessary steps to terminate said trust; it seeming that the same was desired by Mrs. Wannamaker as well as by the receiver. On the 21st day of April, 1934, Mrs. Wannamaker actually signed a written approval of the action of the bank and of its receiver. It was evidently the intention at that time, both of the receiver and of Mrs. Wannamaker, that she should receive physical possession of the assets in which the bank had invested her trust fund of $5,000. Before these assets were actually turned over to Mrs. Wannamaker, she died; and the respondents qualified as executor and executrices, respectively, of her will, and refused to accept the funds and assets which the receiver had designated as being those in which Mrs. Wannamaker's money had been invested.

The receiver's report to Mrs. Wannamaker, and later to her representatives, was to the effect that he held as the investment of said trust fund $389.63 in cash; note and mortgage executed by J. L. Brailsford on certain real estate; and two "participation certificates," one amounting to $325 and the other to $3,250.

As to the "participation certificates," which play an important part in this litigation, it appears from the record that the bank, during its operation by its officers, kept separate, as is required by the federal law (12 USCA § 248 (k), and also by the state law (Code 1932, § 7906), all of its trust funds segregated from its ordinary deposits; but the bank did not follow the provision of section 7909 of the Code of Laws of South Carolina of 1932, and keep "the investments of each individual trust * * * separate and distinct from all other trusts," but that to the contrary it formed a "participation pool" and invested the funds of practically all parties for whom it became trustee in securities, which securities were taken to and held generally by the trust department of the bank, without any separation as between the various trust beneficiaries being attempted. These securities, it appears, according to a statement filed by the bank in one of the litigations hereinafter referred to, amounted to a face value of $186,773.88 against this "participation pool," the bank issued in favor of each trust beneficiary what were called "participation certificates." It further appears, however, that these participation certificates were kept by the bank and were not delivered to the beneficiaries.

The legality of this participation pool is one of the important issues arising in this matter. The question being whether or not the section of the South Carolina Code referred to governs a national bank, or whether or not the provisions of the federal law (12 USCA § 248 (k) by going thoroughly into the question of the handling of trust funds by national banks and by omitting the requirement that each trust fund must be kept separately, thereby gives to a national bank, acting as trustee, the right to proceed in such a manner as not necessarily to keep each trust fund separate from all others.

After the representatives of the estate of Mrs. Wannamaker refused to accept the assets which the receiver desired to deliver to them as a full accounting of the dealings between Mrs. Wannamaker and the bank, the receiver on the 20th of June, 1934, brought the present action in the court of common pleas of Orangeburg county. This action will hereinafter be adverted to as "the Wannamaker case." In the complaint herein, the receiver sets out the facts above stated, including the fact that the assets, above referred to, were, in reality, those that Mrs. Wannamaker's estate were entitled to; that a full statement had been rendered to the representatives of Mrs. Wannamaker's estate; and that they had refused to receive the same, and that the same constituted a full and proper accounting; and the receiver prayed judgment "that the account as trustee be examined and approved; that the trust be terminated and the trustee discharged; and that the plaintiff as such Receiver be authorized, with the final approval of the Comptroller of the Currency, to pay over any available cash, less fees and expenses, to the defendants as executor and executrices, respectively, and to assign to them without recourse or warranty whatsoever any and all securities, choses in actions, and participating certificates."

No answer was filed by the defendants in the Wannamaker case until the 29th day of October, 1934, the defendants, presumably, having been allowed by the plaintiff an extension of time within which to plead.

In the meantime, to wit, on or about the 20th day of September, 1934, the receiver brought in the district court of the United States for the Eastern district of South Carolina an action against more than one hundred defendants, including amongst said number, W. J. Wannamaker, Carrie W. Dew, and Goldie W. Holman, as executor and executrices of the last will and testament of Mrs. Carrie Wannamaker, who were served with copies of said complaint in the United States court, presumably before they had answered the action brought in the state court. The action in the United States Court is entitled Marchant v. Barton, and is hereinafter adverted to as "the Barton case."

The complaint in the Barton case, brought, as has been stated, in the federal court, set out, in effect, the fact that each of the defendants, or those whom the defendants represented legally, had deposited in trust with the Edisto National Bank certain sums, which sums had been administered in the general manner hereinbefore referred to as to the Wannamaker fund; that the bank had failed, and that the receiver was desirous, under the directions of the comptroller of the currency, to rid himself of the trust, and to make full accounting for the action of the bank in the administration of its trust department; and the receiver prayed that the action of the bank, and of himself as receiver, should be fully examined and should be approved, and that a successor should be appointed as trustee for the fund in question, and that after said approval was given that he be permitted to turn over to his successor the whole of the fund, and to receive a full acquittance in so far as the trust department of said bank was concerned. The proceedings fully set out the investments that had been made, and the issuance, as in favor of each beneficiary, of such participation certificates as have been referred to.

After the bringing of the Barton case in the federal court, the defendants interposed an answer in the Wannamaker case in the state court. In this answer the defendants set up for a first defense the contention, in substance, that they were not bound by any statement that had been submitted to Mrs Wannamaker, she being an old lady, in feeble health, and unaccustomed to the transaction of business, and that said statement did not reveal to her any misconduct on the part of the bank. The answer further charged that it would be unjust and inequitable to force the Wannamaker estate to accept the assets proffered by the bank as in full of the $5,000 trust fund, for two reasons: (1) That the bank had invested the trust fund, or a part thereof, " in securities owned by said bank"; and (2) that the plan of pooling assets and issuing participation certificates against the assets so pooled was illegal. The defendants further interposed a so-called counterclaim, setting out the same facts, and claiming that as a result thereof they were entitled to have judgment against the plaintiff for the sum of $5,000, the full amount of the trust fund, plus interest from the creation of the trust, less such...