Temple v. McKay

• Decision Date: 28 March 1934
• Docket Number: 13814.
• Citation: 174 S.E. 23,172 S.C. 305
• Parties: TEMPLE et al. v. McKAY, County Treasurer, et al.
• Court: South Carolina Supreme Court

174 S.E. 23

172 S.C. 305

TEMPLE et al. v. McKAY, County Treasurer, et al.

No. 13814.

Supreme Court of South Carolina

March 28, 1934

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

Action by L. W. Temple, John Huggins, and L. M. Oliver, as receivers of the Bank of Lake View, against John W. McKay, as Treasurer of Dillon County, South Carolina, and Dillon County. From a judgment for defendants, plaintiffs appeal.

Affirmed.

N. B Hargrove, of Dillon, and L. D. Lide and A. F. Woods, both of Marion, for appellants.

W. C Moore and Gibson & Muller, all of Dillon, for respondents.

BLEASE Chief Justice.

The receivers of the Bank of Lake View, which closed its doors on January 6, 1931, in this action, sought to recover from Dillon county and its present county treasurer, certain collaterals, commonly called "bills receivable," assigned and delivered to the predecessor in office of the present treasurer, as security for moneys of the county, and some of its political subdivisions, deposited in the bank, and to recover, also, moneys collected on the collaterals. It was alleged that the purported transfers were unlawful and invalid, for the reasons that the same were made by certain active officers of the bank, without proper authority; that many of the bills receivable were assigned and delivered at a time when the bank was hopelessly insolvent, to the knowledge of its active officers, and when all of its assets constituted a trust fund for the payment of its creditors, ratably; and that thereby an unlawful preference was given the county and its subdivisions, to the detriment of the other depositors.

The answers of the defendants denied the right of the plaintiffs to recover, and alleged that the transfers attacked, and collections made thereon, were in all respects valid, and in compliance with legal requirements.

On testimony taken by the master, the case was heard by his honor, Judge Townsend. He held, in effect: (1) Since 1925, it has been the public policy in this state to permit, if not require, state banks to secure deposits of public funds by indemnity bonds, or pledge of securities; (2) that certain provisions of two acts, later discussed, that deposits of sinking funds of Dillon county be distributed amongst banks of the county, were directory and not mandatory; (3) that a bank receiving such deposits was estopped to plead a violation of the statutory provisions; and (4) that the securities in question were delivered when the bank was a going concern, in ordinary course of business, in good faith, before discovery of insolvency, pursuant to contracts made prior to the time of delivery. Accordingly, it was adjudged that the county treasurer was entitled to retain the securities, to enforce collection of the moneys due thereon, and apply the same, after paying the expenses of collection, to the payment of the deposits thereby secured, subject to account to the receivers for any surplus.

The first exception, in the appeal of the plaintiffs from the circuit decree, charges error in a finding to the effect that the securities, sought to be recovered, were delivered in part for the purpose of securing deposits of state funds, when the complaint and the testimony showed, without dispute, that the funds intended to be secured were general funds and sinking funds of Dillon county, and school districts thereof, and that the validity of the pledge of securities for state deposits was not involved in the case. At the beginning of his decree, Judge Townsend, in referring to the purpose of the action as being one "to recover certain bills receivable and securities," assigned by the bank to the county treasurer, "as collateral security for deposits of public funds," did inadvertently say, in effect, that the public funds included "state funds." But his error in that regard has no effect on his general conclusion. The exception, therefore, having no real bearing upon the questions for our determination, is dismissed.

Without referring to the ten other exceptions, separately, we shall pass upon the necessary questions they present, according to the contentions of the appellants, stated, however, in our own language:

1. Were the transfers of the collaterals invalid, for the reason they were made at times when the bank was insolvent, to the knowledge of its officers?

2. Even if the bank was not insolvent at the times of the transfers, were such transfers unlawful, in that: (a) There was no legislative authority, authorizing a state bank to pledge bills receivable for the payment of a deposit; (b) if there was such legislative authority, the provisions of the enactment, which were mandatory, were not observed; (c) that it is against the public policy of the state for a bank to secure deposits by the pledge of bills receivable?

3. Were the acts of the officers of the bank, who made the transfers, ultra vires, that is, beyond the power of the officers, for failure to have proper authority from the directors?

As to the legal principles involved in the first and second questions, we may observe, at the outset, that the recognized doctrine of this jurisdiction, on the subject of "public policy," is that which was so clearly stated by Mr. Justice Marion, for this court, when he said: "* * * for purposes of juridical application it may be regarded as well settled that a state has no public policy, properly cognizable by the courts, which is not derived or derivable by clear implication from the established law of the state, as found in its Constitution, statutes, and judicial decisions." Weeks v. New York Life Ins. Co., 128 S.C. 223, 122 S.E. 586, 587, 35 A. L. R. 1482.

We have not been cited to any constitutional provision, nor do we, at this time, recall any, that necessarily must be considered. We inquire, then, as to any statutes shedding light upon the questions.

Counsel for the respondents have confined their discussion of ""legislative authority" to certain acts relating to funds of Dillon county, and its political subdivisions. Counsel for the appellants have referred only to those acts and to some provisions of section 7745 of the Code. Apparently, all of the counsel have overlooked one sentence in section 7862 of the Code, in the article on the subject of "Banks and Banking." The failure to take note of a provision in that section, applicable here, may be due to the rather confusing headnote of the section, "Banking and Other Powers of Corporation." The entire section refers only to powers of banking corporations. Therein, we find that a banking corporation "may receive on deposit moneys on such terms as may be agreed on with depositors, and issue certificates therefor, negotiable or assignable in such way as may be inserted in the same." (Italics ours.) That provision first appeared in an act approved December 24, 1885 (19 Stats. 212), and it has been carried in all the Revised Statutes and Codes to the present time. Obviously, there can be no question that, under the power and authority there conferred, a state banking institution may contract, certainly at some times, and in some circumstances, with a depositor to secure his deposit account by the pledge of collaterals. The language of the provision is very broad, and we know of no limitation thereon, or modification thereof, affecting this case, except possibly such provisions as are contained in the acts relating to Dillon county, which we discuss, after we have called attention to holdings in several decisions of this court.

We notice first the case of Livingstain v. Columbian Banking & Trust Co., 77 S.C. 305, 57 S.E. 182, 184, 22 L. R. A. (N. S.) 442, 122 Am. St. Rep. 568. In cases too numerous to be now cited, this Court quoted, with approval, the declaration of that great jurist, Mr. Justice Woods, when he said: "No rule of equity appeals more to the judicial conscience than that which requires the assets of an insolvent corporation to be distributed ratably among creditors."

In his opinion, however, Mr. Justice Woods clearly indicated that the court did not have in that case, or in any previous case discussed by him, "an intention to deny to a depositor the right to make an express contract with the bank that his deposit account shall be applied to his debts to the bank or to any other legitimate purpose," and he said: "Such a restriction upon the right of an individual to contract with respect to his property would hardly be attempted by any court." Further, he observed: "Had the checks (those the insolvent bank had given to its depositors) been issued for cash paid into the bank or before insolvency, the other depositors could have interposed no countervailing equity, and the petitioners (the holders of the checks) would have been entitled to subrogation."

In Fort v. Bank, 82 S.C. 427, 64 S.E. 405, 406, Mr. Justice Jones, for this court, speaking of the decision in the Livingstain Case, said that it affirmed "the right of a depositor to make an express contract with the bank that his deposit account shall be applied to his debts to the bank and to any other legitimate purpose."

The recent case of Ex parte District Grand Lodge (State ex rel. Bradley v. People's Federation Bank), 147 S.C. 103, 144 S.E. 841, has some bearing here. The named bank, being insolvent, closed its doors on September 7, 1926. On June 2d, prior thereto, the Grand Lodge had on deposit in the savings department of the bank the sum of $19,873, drawing 4 per cent. interest, under its contract with the bank; the deposit, with interest, on July 1st amounted to $20,071.73. On June 2d, the Grand Lodge and the bank entered into a written contract, whereby the Grand Lodge expressed its willingness to deposit in the bank an additional amount of...