Mortgage Loan Co. v. Townsend

Decision Date18 April 1930
Docket Number12899.
Citation152 S.E. 878,156 S.C. 203
CourtSouth Carolina Supreme Court

Appeal from Common Pleas Circuit Court of Charleston County; W. H Townsend, Judge.

Suit by the Mortgage Loan Company against John F. Townsend and another. From the decree, defendants appeal.

Decree modified, and cause remanded.

The order of Judge Townsend follows:

From the evidence in this case I find that on and between the eleventh and sixteenth days of December 1926 the South Carolina Loan & Trust Company was insolvent and still is. This finding is based upon evidence showing that when the trust company closed its doors on the 16th of December its assets at a liberal valuation were not worth more than ninety per cent. of its deposits, and when liquidated will probably not realize more than fifty per cent. for depositors, and that there was no substantial change in the financial condition of the company between those dates. State v. Caldwell, 79 Iowa, 432, 44 N.W. 700, 702; Campbell v. Park, 128 Iowa, 181, 101 N.W. 861, 104 N.W. 799. During this period the defendant Ficken was the president of the company, knew its financial condition and his duty to conserve its assets as a trust fund for the payment of its creditors. Rice v. City of Columbia, 143 S.C. 516, 540, 141 S.E. 705.

On the morning of the 11th apprehension of insolvency and threat of a run on the trust company arose as a result of an unusual presentation of a check for $5,000.00, or more, drawn by a depositor through the Atlantic National Bank, other than through the clearing house. The defendant Townsend then had and had kept for some years, a large deposit in the savings department of the trust company bearing quarterly interest on which a quarter's interest would mature on December 31st. During the afternoon of the 11th, Ficken who had been Townsend's lawyer for the past ten years, and whose wife is a sister of Townsend's wife, and on whose advice Townsend was accustomed to rely, suggested to Townsend that he ought to invest some of the money which he then had on deposit in the trust company. Acting on this suggestion Townsend then gave to Ficken two checks, the amounts being left blank--signed by Townsend to be filled out by Ficken as to the amount--against his deposit account in the trust company, to be used in purchasing some securities for him. Townsend knew nothing about the securities, and placed the selection and valuation of the securities in Ficken's hands, relying on his judgment. On Monday, the 13th of December, Townsend was told by Ficken that securities had been purchased for him; and on that day the check filled out for $15,981.46, and used in the purchase of the securities, was charged against Townsend's deposit account in the savings department of the trust company. Townsend did not then know what securities had been purchased for him, and did not personally receive them until the following March when Ficken delivered them to him. The securities so transferred from the trust company to Townsend were on 13th December 1926, of the aggregate value of $15,981.46, and Townsend has since then received a conveyance of the mortgaged property in satisfaction of the larger mortgage debt, on which $12,917.79 was due on the 13th of December; he still holds the smaller mortgage, given by Julia F. Huneken to the trust company on which $3,066.67 was then due. The transfer of these bonds and mortgages from the trust company to Townsend in exchange for checks on his deposit account was accomplished by a fraudulent violation by Ficken of his duty as president and director of the trust company, which he then knew to be insolvent, to see that the assets of the trust company were preserved for equal distribution amongst its creditors, and with intent to give a preference to Townsend over other creditors. The invalidity of the transaction does not depend upon Townsend's personal intent or knowledge of the situation; but upon the fact of the trust company's insolvency, and Ficken's fraudulent breach of trust toward the creditors of the company. Townsend cannot benefit by the fraudulent act of his agent in acquiring the securities for him, and is equally liable along with Ficken his agent, to the trust company, its receiver and his assigns, the plaintiff herein, for the value of the securities so transferred to him. Marston v. Rivers, 138 S.C. 301, 136 S.E. 222; See, also, Rice v. City of Columbia, 143 S.C. 516, 540, 141 S.E. 705; Stahn v. Catawaba Mills, 53 S.C. 519, 31 S.E. 498; Equitable Trust Co. v. Columbia Nat'l Bank, 145 S.C. 91, 142 S.E. 811, 820.

The State Bank Examiner was appointed receiver for the trust company on 15th January 1927, and under authority given him by the court, has assigned and transferred to this plaintiff the Mortgage Loan Company, all choses in action and assets belonging to the South Carolina Loan & Trust Company, including this sued on, and excepting certain assets theretofore transferred to the South Carolina National Bank and certain bonds specified in an order dated 4th February 1927, with the intent that The Mortgage Loan Company might bring any action, necessary to realize upon them, which the receiver might have brought. See Bultmann v. A. C. L. R. R. Co., 103 S.C. 517, 88 S.E. 279. As Mr. Justice Gage there said: "It would be fruitless to discuss what was the rule of the Common Law in like cases. The Statutes do not in terms declare that such rights are assignable, but that they survive. *** if alive, then they are capable of assignment." See, also, Robinson v. Saxon Mills, 124 S.C. 422, 117 S.E. 424.

It is, therefore, ordered, adjudged and decreed that the plaintiff have judgment against the defendants jointly, for the sum of seventeen thousand six hundred and nineteen and 16/100 ($17,619.16) dollars, with leave to issue execution thereon. The amount due plaintiff being the value of the securities on December 13th 1926, with interest from that date.

It is further ordered that John F. Townsend be reinstated as a creditor and depositor upon the books of the trust company in the amount of fifteen thousand and nine hundred and eighty one and 46/100 dollars, used by him in the purchase of said securities, and that any dividends due him upon said deposit may be applied toward the payment of the judgment herein rendered against him for $17,619.16.

H. L. Erckmann, Logan & Grace, and John I. Cosgrove, all of Charleston, for appellants.

Julian Mitchell and E. L. Visanska, both of Charleston, for respondent.


South Carolina Loan & Trust Company, a banking corporation in the city of Charleston (hereinafter referred to as the trust company), on December 13, 1926, had among its assets a bond, the payment of which was secured by a real estate mortgage, executed by Thetis Realty Company, on which there was due, on the day named, as principal and interest, $12,914.79. On said day the trust company also owned and held a bond, the payment of which was secured by a mortgage of real estate, executed by Julia Huneken, and on which there was due that day, as principal and interest, the sum of $3,066.67. These papers are referred to later, respectively, as the Thetis and Huneken bonds. The total amount due on both bonds on December 13, 1926, was $15,981.46. On the day named, the appellant Dr. Townsend had on deposit with the trust company $16,426.69. On the same day, the appellant Ficken, the president of the trust company, for that corporation, assigned and transferred to Dr. Townsend the Thetis and Huneken bonds and mortgages, the consideration therefor being the check of Dr. Townsend on the trust company for the sum of $15,981.46, the amount then owing to the trust company on the bonds, and the deposit account of Dr. Townsend was charged with the amount of the check. On December 16, 1926, three days after the assignments to Dr. Townsend, the trust company, being insolvent, closed its doors, and thereafter A. S. Fant, the state bank examiner, was appointed its receiver by an order of the court of common pleas for Charleston county. A little later, the respondent here, the Mortgage Loan Company, a corporation organized for the special purpose of liquidating to some extent the affairs of the trust company, by an order of the same court was empowered to take over certain assets of the trust company and to administer and liquidate them for the benefit of the parties entitled thereto, including particularly the depositors of the institution.

In addition to reciting what now seems to be those undisputed facts, mentioned above, the respondent here, the Mortgage Loan Company, charged in the first cause of action of its complaint that the trust company was insolvent on December 13, 1926, and was then on the verge of closing its doors, and that the assignments of the Thetis and Huneken bonds and mortgages to the appellant Townsend by the appellant Ficken were fraudulent, wrongful, unlawful, and an attempt to prefer Dr. Townsend as a depositor of the trust company over the other depositors of that institution. That cause of action looked to a rescission or cancellation of the assignments of the bonds and mortgages to Dr. Townsend, and a restoration of them to the respondent for the benefit of the creditors and depositors of the trust company.

The second cause of action set up by the respondent alleged the facts disputed and undisputed, which we have referred to, and charged further certain damages sustained by the respondent on account of the alleged fraudulent conduct of the appellants, and sought a recovery on that account of the sum of $5,000.

The appellants filed separate answers, denying any wrongful or fraudulent conduct on their part, and alleged that the assignments of the securities were bona...

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