Spartan Mills v. Law

Decision Date07 January 1938
Docket Number14597.
PartiesSPARTAN MILLS et al. v. LAW.
CourtSouth Carolina Supreme Court

Appeal from Common Pleas Circuit Court of Spartanburg County; T. S Sease, Judge.

Suit by Spartan Mills and another against John A. Law, Jr., as receiver of the Merchants & Farmers Bank of Spartanburg, S C., on claims against an insolvent bank. From an adverse decree, the defendant appeals.

Affirmed in part, and reversed in part.

Donald Russell, of Spartanburg, for appellant.

L. W Perrin, of Spartanburg, for respondents.

BAKER Justice.

This appeal involves two distinct claims by Spartan Mills and by W. B. Lawson, both respondents, against John A. Law, Jr., as receiver of the Merchants & Farmers Bank of Spartanburg, S. C., appellant. As the two claimants and their claims are unconnected, each will be construed separately.

The Farmers & Merchants Bank of Spartanburg, S. C., was a banking institution organized under the laws of this state, and engaged in a general banking business in Spartanburg, S. C., until October 3, 1931, when it suspended business, and liquidation of its affairs was taken over by the court of common pleas of Spartanburg county. A general order of reference was obtained, under the terms of which order the adjudication of all claims against the insolvent bank, hereinafter referred to as appellant, were referred to the master of Spartanburg county.

The respondents filed their claims as preferred claims, and, after the introduction of evidence, the master filed his report, recommending that said claims be allowed as such, and that the respondents be allowed interest thereon from the date of the suspension of the insolvent bank. The receiver excepted to the report, upon the same exceptions as raised herein, and, upon the hearing of such exceptions, Hon. T. S. Sease, Judge, affirmed the recommendations of the master by his decree. From this decree or order sustaining such claims as preferred and ordering judgment therefor, including interest, due notice of intention to appeal was given by the receiver. Respondents have conceded, and properly so, that their claims against the insolvent bank are not entitled to draw interest, so this issue goes out of the case.

Before entering into a discussion of the salient features of the appeal, a question raised by respondents will be considered.

The transcript of record fails to show that the judgment granted in Judge Sease's order has ever been entered. Because no judgment has been entered, and this appeal is from the order of Judge Sease, the respondents contend that this appeal is not properly before the court, and should be dismissed.

In support of this conclusion, respondents cite the cases of Hanner v. Hillcrest Land Co., 165 S.C. 297, 298, 163 S.E. 727, and Sherbert v. School District, 169 S.C. 191, 168 S.E. 391. Neither of these cases are applicable, as both appeals arose from the verdict of a jury, an action at law, and the effect of both cases has been destroyed by the passage of the Act of 1934, 38 Statutes, p. 1214, which permits an appeal from a verdict.

This appeal is from a decree in equity and is a final determination of the rights of the parties. The decree of Judge Sease orders judgment for the respondents, which decree is a judgment. "The judgment issues from the court not from the attorneys or the clerk." Clark v. Melton, 19 S.C. 498. As stated in the Sherbert Case, supra, respondent's point is more technical than substantial. Supreme Court rule 4, par. 3, provides that the "nature of the order of judgment appealed from" should be set forth, but the rule does not provide that the entry of the judgment is required. Nor does section 781, Code of Laws of 1932, require the entry of the judgment, but only refers to "an order, decree or judgment granted or rendered." The entry of a judgment is merely a ministerial act and for the purposes of notice, lien, and enforcement. The "Statement" of the transcript of record gives the date and nature of the judgment granted or rendered. The failure to show entry of the judgment is not so essential as to dismiss the appeal.

Spartan Mills, for at least twenty-eight years, was a depositor in the Farmers & Merchants Bank. At the close of every business day Spartan Mills would send to the Farmers & Merchants Bank a voucher or check payable to the order of the bank to cover purchases of cotton made the date of the voucher or check, or the day before. Each voucher contained thereon an itemized account, directing the bank to pay to the named parties the designated sums of moneys, the total being charged by the bank to the account of Spartan Mills.

On October 2, 1931, Spartan Mills, in its usual course of business, sent to the bank its check for $2,816.16, payable to the Farmers & Merchants Bank, upon which check the First National Bank had a memorandum of $1,483.15; the American National Bank, a memorandum of $351.36; and the Central National Bank, a memorandum of $981.65. The check was cashed by the bank and the account of Spartan Mills charged with the full amount of said voucher on October 3, 1931. The memoranda of the First National Bank and the American National Bank were paid, but the Central National Bank didn't draw that day, leaving a balance in cash in the hands of the bank under said voucher of $981.65. A credit or deposit slip was then drawn for $981.65, and put on the counter for the Central National Bank, but was turned over to the receiver of the Merchants & Farmers Bank. The Spartan Mills had on October 2 and October 3 ample funds in its account to pay the check for $2,816.16.

Is the respondent Spartan Mills a general creditor of the insolvent bank or a preferred claimant? There is no issue as to the facts, but the difficulty lies in the application of the law to the facts; and it must be admitted that there is apparent confusion of the law.

This court has, heretofore, in numerous decisions, defined the elements constituting a preferred claim and has forcibly declared that one who claims to be a preferred creditor "must establish his right clearly." Citizens' Bank v. Bradley, 136 S.C. 511, 515, 134 S.E. 510, 511; Rice et al. v. City of Columbia et al., 143 S.C. 516, 539, 141 S.E. 705; Bradley v. Guess, 165 S.C. 161, 163 S.E. 466. The clear establishment of the status of a preferred claimant is predicated upon the often repeated principle that, when a corporation, bank or otherwise, becomes insolvent, its assets are a trust fund for the benefit of all its creditors, and, if there is no lien on the fund passing into the hands of the receiver, the distribution of the assets among the creditors must be pari passu. Dabney v. Bank, 3 S.C. 124; Rice et al. v. City of Columbia et al., supra; Bradley, State Bank Examiner, v. Guess, supra.

The relationship existing between a bank and its depositors, when there are no elevating circumstances, is simply that of creditor and debtor (Southern Trust Co. v. Wilkins, 101 S.C. 457, 86 S.E. 26 ), which relationship fixes only a right of equality. The claimant, in order to establish his preferred status, must show the creation of a trust, prior to the receivership, and also prove a trust res which actually augmented the assets of the closed bank, which trust res can be traced into the hands of the receiver upon insolvency. Ex parte Michie, 167 S.C. 1, 165 S.E. 359; Ex parte Bank of Aynor, 144 S.C. 147, 164, 142 S.E. 239; Peurifoy, Receiver, v. Boswell, 162 S.C. 107, 124, 160 S.E. 156. Of course, a different rule applies as to a trust ex maleficio, with which we are not concerned in this case, as there are no charges of any fraud against the insolvent bank. In following the trust res, when the trust res consists of money, into the hands of a receiver, it is not necessary that the money be so segregated from other money in the coffers of the bank as to be susceptible of specific identification, but, as expressed in White v. Commercial & Farmers' Bank, 60 S.C. 122, 38 S.E. 453, 455, "that money, having no earmark, cannot be followed, has been practically repudiated in the more modern cases; the doctrine now held being that in following a trust fund it is not necessary to trace the identical coins or bills of which it is composed. Substantial identity is all that need be proved, and therefore a cestui que trust may pursue and recover a trust fund originally received by the trustee in the form of money, so long as its identity as a fund can be ascertained, although he may be unable to trace the identical coins or bank bills in which such money was originally paid to the trustees. As an illustration of this, it is said in some of the cases that if a trustee receives a sum of money impressed with a trust, and puts such money into a bag along with other money which belongs to the trustee in his own right, the cestui que trust has a right to take out of that bag the amount of the trust fund which the trustee had put in the bag; and this for the reason that so much of the money in the bag belongs to the cestui que trust, and not to the trustee, and the fact that in taking out the money he may get some of the coins or bills which belonged to the trustee in his own right cannot affect the question, as he gets no more than what belongs to him."

According to the undisputed evidence, Spartan Mills had for many years maintained a large deposit with the appellant bank. As to this deposit Spartan Mills was a creditor of the bank, the debtor. At various times, practically every business day, as this claimant purchased cotton, it issued a voucher to the bank, directing the latter to pay to the parties named in the voucher a specified sum of money. These vouchers were charged to respondent's account. Upon the receipt of the voucher and the cashing of the...

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