Rice v. City of Columbia

• Decision Date: 04 February 1928
• Docket Number: 12369.
• Citation: 141 S.E. 705,143 S.C. 516
• Parties: RICE et al. v. CITY OF COLUMBIA et al.
• Court: South Carolina Supreme Court

141 S.E. 705

143 S.C. 516

RICE et al. v. CITY OF COLUMBIA et al.

No. 12369.

Supreme Court of South Carolina

February 4, 1928

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

Suit by John I. Rice and others against the City of Columbia and others. Decree for plaintiffs, and defendants appeal. Affirmed.

See also, 139 S.E. 783.

The following is the decree of the Circuit Court referred to in the opinion:

This cause, which was instituted in the court of common pleas for Richland county, S. C., grew out of the closing of the doors of the American Bank & Trust Company of Columbia, S. C., on the 25th day of June, 1926, at which time, under a resolution adopted by the board of directors of said bank, the affairs thereof were placed in the hands of the state bank examiner.

Numerous subsidiary questions which grew out of this, the main case have heretofore been decided by me without relating the circumstances out of which this cause originated, and without referring particularly to the nature of this action. It now seems proper to set forth these circumstances, the nature of the action, and the issues which have been made by the pleadings.

As above stated, the American Bank & Trust Company of Columbia S. C., ceased operations as a going concern on the 25th day of June, 1926. Prior to that time, and certainly for a number of days preceding its closing and the placing of its affairs in the hands of the state bank examiner, there had been a run on the bank of a more or less quiet nature. As is always the case under such circumstances, the matter became more or less public, and the defendants above named, all of whom were advised of the fact of such run, and the likelihood of the bank failing, after making effort to procure their deposits from the bank, arranged with the officers of said bank to surrender to them certain collaterals to secure the deposits which each of said defendants had with the bank all of which was done within from 12 to 72 hours at most preceding the closing.

The plaintiffs who brought this action on behalf of themselves and all others likewise situated, as depositors and creditors of the bank, sought to set aside the transfer of the securities so given to each of the defendants on the grounds that such transfers constituted preferential transfers in violation of the statute law of this state, and were in fraud of the statutes of Elizabeth. An injunction was sought pendente lite, and a rule to show cause was issued by Hon. Wm. H. Townsend, judge of the Fifth judicial circuit. Upon demurrers to the complaint and returns to the rules to show cause, it was adjudged among other things that the demurrers should be overruled, the returns to the rule to show cause be declared insufficient, and an injunction granted pending the final determination of the issues raised by the pleadings. Subsequently the defendants answered; the answer in each instance setting up the same defense and praying for a dismissal of the complaint.

Briefly summarized, the answers set forth that the defendants, "having heard rumors concerning the solvency" of said bank and having had on deposit with the bank large sums of money, "insisted that they desired to withdraw the funds, *** or that they be given security by way of surety bonds or otherwise for the protection of said deposit. Thereupon it was agreed between the aforesaid bank *** that the bank would furnish sufficient of its notes open and collateral, bills of exchange, and other evidences of debt ample to protect the funds *** on deposit in said bank."

The answers of the city of Columbia and county of Richland further set up that the deposits constituted debts due to the public, and were "entitled to be preferred in the settlement of insolvent estates, and have a right to demand and obtain security for such debts." The answers then set forth that the securities so obtained were not obtained with any purpose on the part of the defendants to hinder, delay, or defraud other creditors of the American Bank & Trust Company, but were taken solely for the purpose of protecting public funds on deposit in said bank, and that the defendants did not know, "and does not now know, that the American Bank & Trust Company was or is insolvent."

The city of Columbia, in addition to answering, served a notice on the plaintiff of a motion to require the plaintiff to elect between the first and the second causes of action stated in the complaint; that is to say, to require the plaintiff to elect whether they would proceed under the first cause of action in which it sought to set aside the transfers as preferential transfers, or the second cause of action, as amended, seeking to set aside the transfers as in fraud of the statute of Elizabeth of this state. Without making a definite ruling, but indicating that such election could not be required, but that the plaintiff had a right to proceed under both causes of action, the court suggested that, after all of the testimony was in, the motion might be renewed, if counsel so desired, and with this suggestion the causes proceeded to trial, and were concluded without any further references to the motion requiring an election, but, on the other hand, were argued by all concerned both under the first and second causes of action; that is to say, the plaintiffs contending that they were entitled to recover under both causes of action and the defendants opposing this view.

It is well to state that each of the defendants took the position that entirely different circumstances surrounded the taking of securities by each of them, and that accordingly separate trials should be had. This was conceded and accordingly the plaintiff put in its testimony separately with regard to transfers to the city of Columbia, Richland county, and John L. Mimnaugh, administrator, and then each of the defendants offered their testimony under the defenses interposed .

I have given most careful consideration to the matter, and I desire first to briefly state the facts in regard to the transfer to each of the defendants before announcing my final conclusion.

As to the City of Columbia.

The testimony in the matter of the transfer to the city of Columbia showed that, on Tuesday of the week in which the bank ceased to operate (the closing taking place on Friday), Mr. D. W. Robinson, an attorney of the Columbia bar, having heard that a quiet run was in process on said bank, called to his office Mr. C. C. Stanley, one of the commissioners of the city of Columbia, and advised him of the fact, and further advised him that, if the city of Columbia had any funds on deposit, they had better withdraw the same at once. Following this conversation, Dr. L. B. Owens, mayor of the city, in company with the city treasurer, went to Mr. Robinson's office, having been advised by Mr. Stanley of his conversation with Mr. Robinson, and Mr. Robinson repeated what he had said to Mr. Stanley to the mayor and city clerk and treasurer. Following this, the mayor and the city clerk called at the American Bank & Trust Company, and, in conversation with J. P. Matthews, chairman of the board of directors of said bank, told him of the information which they had received, and made some demand for the money which the city had on deposit. Mr. Matthews assured the officials that the bank was entirely solvent; that it could not cash a check for the deposit at that time; but that, if given time, arrangement could be made. As set forth in the answer, the mayor of the city insisted either upon the payment of the deposit or the securing of the same, and it appears to have been agreed to give securities.

Following this conversation, Mayor Owens returned to the office of Mr. Robinson, and employed him to assist the city attorney in procuring securities to protect the deposit, and in accordance with this employment the bank was notified by letter signed by D. W. Robinson and C. S. Monteith, as attorneys for the city of Columbia, giving the bank until 1 o'clock Thursday, June 24th, to give collaterals as security for the deposit.

Dr. Owens, the mayor, stated on the stand that his purpose in obtaining the security was to protect against the failure of the bank (and the undisputed testimony establishes that at the time the bank was, and had been for some time prior thereto, insolvent). As a matter of fact, the report of the state bank examiner made in July, 1925, showed that the capital stock of the bank was impaired, and there was no showing that between that date and the date of the closing it had been solvent at any period.

It is true that the mayor stated that he felt reassured upon the assurance given him by Mr. Matthews that the bank was solvent, and that he took the securities because of the fact that he had decided upon a policy of securing all of the deposit of the city of Columbia. However, the mayor and the city clerk admitted that at no time prior thereto had the city of Columbia obtained any security at any time from any bank for its deposit, nor since said time had it so obtained securities, and this testimony of the mayor must be taken in connection with his further statement that his object in taking the securities was to protect against the failure of the bank.

Mr. Robinson testified that no examination or valuation of the securities offered was made, but that they took all that they could get and the best that could be obtained. This was done without indorsement of any of the notes, or other evidences of debt, and without any calculation or indorsement as to the amount or sufficiency of the same.

As to the County of Richland.

The testimony with regard to this transaction was given by Mr. H N. Edmunds, Mr. W. T. Aycock, and Mr. A. C. Tobias, Jr., all of whom are...