Witt v. People's State Bank of South Carolina

• Decision Date: 14 May 1932
• Docket Number: 13411.
• Citation: 164 S.E. 306,166 S.C. 1
• Parties: WITT v. PEOPLE'S STATE BANK OF SOUTH CAROLINA et al. SAME v. BANK OF SWANSEA et al.
• Court: South Carolina Supreme Court

164 S.E. 306

166 S.C. 1

WITT v. PEOPLE'S STATE BANK OF SOUTH CAROLINA et al.

SAME v. BANK OF SWANSEA et al.

No. 13411.

Supreme Court of South Carolina

May 14, 1932

Appeal from Common Pleas Circuit Court of Lexington County; C.J Ramage, Judge.

Proceeding by W. H. Witt, as receiver of the Bank of Swansea, against the People's State Bank of South Carolina and others. From the decree, the receiver appeals.

Decree amended, and, as amended, affirmed.

Efird & Carroll, of Lexington, for appellant.

Mitchell & Horlbeck, of Charleston, for respondents.

BONHAM J.

This proceeding is brought by W. H. Witt as receiver of the closed Bank of Swansea to test the constitutionality of the Act of the General Assembly, approved March 28, 1930, found in 36 Statutes at Large, pages 1368-1374, relating to the collection and payment by banks of checks and other instruments for the payment of money. The matter came to the court in this wise: There were presented to the petitioner as receiver of the Bank of Swansea, by the respondents claims for which they demanded payment as of prior right under and by the provisions of the act above cited. Being advised that the claimants were not entitled to the priority of payment claimed by them, and being advised that the constitutionality of that act had not been passed upon by the Supreme Court, and was in doubt, he refused payment of the claims and brought his petition in the court of common pleas for Lexington county asking that the claimants be required to show cause why the said act should not be declared unconstitutional, and the claimants denied the priority of payment which they claimed.

Accordingly Hon. C.J. Ramage, judge of the Eleventh circuit, issued his rule requiring such creditors of the bank to show cause as prayed. The South Carolina National Bank of Charleston, one of the respondents, filed its return to the rule which was heard by Judge Ramage in open court. After consideration, he filed his decree sustaining the constitutionality of the act, dismissing the rule to show cause, and adjudging the respondents entitled to priority of payment. From this decree the receiver appeals upon the exceptions set out in the transcript of record.

The court is satisfied with the well-considered decree of Judge Ramage, and adopts it as the opinion of this court, with this exception; where his honor says: "I adopt Ex. A. C.J. R. by reference, as a part of this decree," this court inserts from that exhibit an excerpt and makes it a part of the opinion of the court:

"Decree of Judge Ramage.

"The question involved is whether, when items are sent for collection to the bank upon which they are drawn, and such items are charged to the drawers or depositors and paid by the drawee bank by its cashiers check on another bank, and the drawee bank became insolvent before the check on the other bank was paid, whereby payment of the last-mentioned check was refused, the owners of the items are entitled to priority of payment or only participate pro rata with other creditors.

"The petition upon which the rule was issued suggests doubt as to the act of 1930, 36 Stat. 1368, suggesting that it violates the state Constitution as depriving creditors and depositors of the insolvent bank of their property without due process of law, and impairs the obligations of contracts of depositors and stockholders of the insolvent bank.

"Section 13 of the act appears to be the portion bearing upon the present issues.

"This section provides as follows:

"'§ 13. (Insolvency and Preferences.)--1. When the drawee or payor, or any other agent collecting bank shall fail or be closed for business by the State Bank Examiner or by action of the Board of Directors or by other proper legal action, after an item shall be mailed or otherwise entrusted to it for collection or payment but before the actual collection or payment thereof, it shall be the duty of the receiver or other official in charge of its assets to return such item, if same is in his possession to the forwarding or presenting bank with reasonable diligence.

"'2. Except in cases where an item or items is treated as dishonored by non-payment as provided in Section 11, when a drawee or payor bank has presented to it for payment an item or items drawn upon or payable by or at such bank and at the time has on deposit to the credit of the maker or drawer an amount equal to such item or items and such drawee or payor shall fail or close for business as above, after having charged such item or items to the account of the maker or drawer thereof or otherwise discharged his liability thereon but without such item or items having been paid or settled for by the drawee or payor either in money or by an unconditional credit given on its books or on the books of any other bank, which has been requested or accepted so as to constitute such drawee or payor or other bank debted therefor, the assets of such drawee or payor shall be impressed with a trust in favor of the owner or owners of such item or items for the amount thereof, or for the balance payable upon a number of items which have been exchanged, and such owner or owners shall be entitled to a preferred claim upon such assets, irrespective of whether the fund representing such item or items can be traced and identified as part of such assets or has been intermingled

with or converted into other assets of such failed bank.

"'3. Where an agent collecting bank other than the drawee or payor shall fail or be closed for business as above, after having received in any form the proceeds of an item or items entrusted to it for collection, but without such item or items having been paid or remitted for by it either in money or by an unconditional credit given on its books or on the books of any other bank which has been requested or accepted so as to constitute such failed collecting or other bank debtor therefor, the assets of such agent collecting bank which has failed or been closed for business as above shall be impressed with a trust in favor of the owner or owners of such item or items for the amount of such proceeds and such owner or owners shall be entitled to a preferred claim upon such assets, irrespective of whether the fund representing such item or items can be traced and identified as part of such assets or has been intermingled with or converted into other assets of such failed bank."'

"In order to understand the questions involved, it is necessary to refer to the decision of the Supreme Court, filed April 6, 1931 in the cause entitled Ex parte Wachovia Bank & Trust Co. (J. L. Nettles et al. v. People's Bank of Darlington and G. B. Brasington, Receiver), 160 S.C. 104, 158 S.E. 214, 216. The unanimous opinion of the court by Mr. Justice Cothran, after first setting out the facts in that case, and deciding the questions as applying to domestic banks as well as foreign banks, and setting forth the former act of 1927, 35 Stat. 369, under which priority of payment was claimed in that case, holds in substance as follows:

"'The title of the Acts refers only to forwarding banks and limits its application to banks doing business in this State. Section 1 of the body of the Act refers only to forwarding banks, and likewise limits the application of the Section to banks organized under the laws of or doing business in this State, and is further limited to items drawn upon or payable at any other bank located in another City or Town, whether within or without the State.

"'This section confers upon such banks handling such paper the unusual privilege, without it being deemed negligence, of forwarding the instrument for collection directly to the bank upon which it was drawn, and to accept from the bank upon which such instrument was drawn its draft upon any other bank. That the Act of 1927 was intended to relieve the forwarding bank from negligence in those cases. ***'

"That section 1 of the act goes even further in protecting the forwarding bank from liability on account of the handling of the item by the collecting bank in that the collecting bank may accept from the drawee bank its draft upon any other bank, and, if such second drawee should prove insolvent, there would be no liability upon the forwarding bank--a most extraordinary position. *** The decision then holds in words as follows:

"'From the foregoing discussion of the principles applicable, it follows that the act in question is in violation of the due process clause of the Constitution, in that its enforcement would result in discrimination against: (a) Banks not incorporated or doing business in this state; (b) banks receiving for collection items drawn upon banks doing business in the same city or town; (c) corporations, partnerships, and individuals sending their drafts direct to a bank for collection.

"'The act is violative also of article 17, § 3, of the Constitution of South Carolina, in that it embraces subjects not referred to in the title and not germane to the purposes of the act as set forth in the title. (Attention is called to the Act of 1930, 36 Stat. 1368, which by its terms is nonretroactive.)'

"It will be observed that the court enters into no discussion of section 2 of the act, making such items a trust fund, and declaring them a prior lien on any unassigned assets of the collecting bank. The only reference to section 2 in the opinion of the court is where the whole act is set out in full. In other words, the whole act is knocked out as unconstitutional upon the provisions of section 1, and the court did not deem it necessary to consider section 2, evidently, upon the theory that it necessarily fell with section 1. In other words, when the foundation is knocked out, the superstructure must necessarily fall with

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