Opinion
13471
August 15, 1932.
Before FEATHERSTONE, J., Laurens, January, 1929. Affirmed.
Action by W. Rex Chandler, suing on behalf of himself and all other depositors in the Bank of Cross Hill, South Carolina, against J.P. Abney and others. From an adverse judgment plaintiff appeals, with defendants C.D. Nance and another as administrators of the estate of J.H. Miller, deceased, and Lidie E. Miller as executrix of the estate of W. M. Miller, deceased, as respondents.
The decree of Judge Featherstone was as follows:
Action by plaintiff, as the representative of a class, i. e., a depositor of Bank of Cross Hill, against the stockholders, to require them to respond to their statutory liability.
To begin with, there were involved J.H. Nance, the estate of Dr. J.H. Miller, and the estate of W.M. Miller.
The referee, by his report, has absolved J.H. Nance, to which there are no exceptions.
The referee, in an able, well-considered report, has held the estates of the two Millers, and the case comes before me upon exceptions to that report.
I do not regard it as essential to make a lengthy statement of the facts, for they are set out in the report of the referee.
The bank was closed January 10, 1929. On October 18 and November 3, 1928, the personal representatives of the two estates, being desirous of winding them up, and acting under the advice of their attorney, the late lamented Hon. Frank P. McGowan, procured orders from the Probate Judge, authorizing a sale of the stocks at private sale.
Proceeding under said orders, the stocks in this and other banks were sold at $1.00 for each batch to persons who were not financially responsible. The stocks were immediately transferred, on the books of the bank, to the purchasers and new certificates issued to them.
Among the stocks were several shares of Farmers' Merchants' Bank of Greenwood, which were sold at the same price.
It is fact worthy of note that the stocks of this bank had been appraised as worthless and that of Bank of Cross Hill at one-half of its par value.
The Bank of Cross Hill failed, whereas Farmers' Merchants' did not, though it afterwards went into voluntary liquidation, and will pay its debts in full, with, probably, something left over for stockholders.
This is mentioned, in passing, to show how easy it is for the ordinary person to be fooled with reference to the status of banks.
After the transfer of the stock, the Bank of Cross Hill went on in the usual course of business, making new loans and receiving deposits — and this up almost to the moment that it was closed.
The bank examiner thought the bank was solvent at the time the stock was transferred. Indeed, only a few months previous to that (in August, as I recall), he thought it was in better shape than it was upon his previous examination, which was made in March of the same year.
The officers of the bank all thought it was solvent. Pinson, one of the administrators of the Dr. Miller estate, continued to do business there and had money there on deposit when it closed. The defendants, the administrators, had a part of the estate's money there at the time the transfers were made.
It is rather remarkable that practically all the witnesses who testified regarded the bank, then, as solvent — and this included those on the inside, the officers and employees, and those on the outside who had dealings with it.
Practically all that the plaintiff relies on to show insolvency, knowledge thereof by the administrators, and a sale to avoid stockholders' liability, are the admitted facts that the stock sold for $1.00 and was bought by persons who were not financially responsible.
If these facts show what plaintiff claims, then, insolvency, knowledge thereof, and a fraudulent sale can be shown in most any case.
It is a fact, of which the Court is bound to take notice, that, at the time these stocks were sold, very little, if any, bank stocks could be sold at all, for any price.
Multitudes of banks had gone under; only a few of the stronger ones had survived.
The only sane persons who would buy bank stocks at all were those who, because of their irresponsibility, were in a position to take chances; those who had all to gain and nothing to lose.
What about the fact that the administrators were willing to sell at that price?
It is easy to see that they had to sell for what they could get, and to whom they could sell. The estates had to be wound up; the Probate Court had ordered the sale, upon motion of their able and zealous attorney. And, by the way, the Probate Court, in effect confirmed the sale; for the administrators were only charged with what they got for the stocks, all persons in interest were satisfied, and the estate would have been fully wound up and settled, as advertised, but for the pendency of this action.
Fortunately, the Supreme Court, in the recent case of Loomis v. Verenes et al., 141 S.C. 145, 139 S.E., 393, 55 A.L.R., 677, has laid down the rule governing these cases, in such plain terms that "He who runs may read."
The requisites for setting aside a sale of stock, after due transfer on the books, and holding the original stockholders on their statutory liability, are:
1. Insolvency of the bank, at the time of the transfer;
2. Knowledge of insolvency on the part of the transferer;
3. That the transfer was made with the intent to evade liability.
And, the burden is on the plaintiff to show these three.
When is a bank insolvent?
Ex parte Berger, 81 S.C. 244, 62 S.E., 249, 252, 22 L.R.A. (N.S.), 445, answers the question: "A bank is insolvent when, from the uncertainty of being able to realize on its assets, in a reasonable time, a sufficient amount to meet its liabilities, it becomes necessary for the control of its affairs to pass out of its hands."
Again, the following definition is given in 7 C.J., p. 727: A bank "is insolvent when unable to meet its liabilities as they become due in the ordinary course of business."
Tested by these rules, was the bank insolvent when the transfers were made?
The bank examiner didn't think so, according to his testimony. The bank officials didn't think so, so they say, under oath. The bank was running right on, receiving deposits and making loans. The cashier of the Bank of Greenwood didn't think so — his bank was doing business with Bank of Cross Hill, one of its correspondents, upon the basis of solvency. The administrators of the Dr. Miller estate didn't think so; for they had a part of the estate's money there, on deposit, notwithstanding a different bank had been designated, by the Court, as their depository. Pinson, one of the administrators, didn't think so; for he was doing his business there, and had money there, when the bank closed.
Who did think so?
Nobody, so far as the sworn testimony shows.
Who has known, anyhow, for the past several years, when a bank was solvent or insolvent?
Most of us have even quit guessing. A bank may be solvent today and insolvent tomorrow. Not only a few days, but a few hours, may spell the difference between solvency and insolvency. We may suspect insolvency, but we dare not tell our suspicions to our friends, for fear of landing in jail. We may think that we have our money in a safe bank, and, then, have it to "bust right in our face." Many a bank that, in ordinary times, could pay all it owes, because of unforeseen events, over which it has no control, is forced to give up the ghost. All that we can do is to trust to luck and try to go on sleeping!
I am unable to find, from the evidence, that the Bank of Cross Hill was insolvent at the time the transfers were made, and the law says I must not look elsewhere. Neither can I find, from the evidence, that the personal representatives knew that the bank was insolvent. If they even thought so at the time of the transfers, they acted to the contrary.
Lastly, can I find, from the evidence, that the sale and transfers were fraudulent in law, and made for the purpose of evading stockholders' liability?
I cannot assume that such was the fact because they only got a dollar for it; for most bank stock, at that time, could hardly be given away. I cannot assume that such was the fact, for the reason that the sale was made to irresponsible persons; for, at that time, they were the only ones who could afford to take a shot at it.
From whence, then, am I to get my information?
Fraud, whether in law, or in fact, is never to be presumed — it must be proved.
Again, I am unable to see how fraud can be predicated upon the action of the administrators, when they were proceeding to do their duty, as directed by the Court. The Court, having jurisdiction in such matters, authorized, directed and approved the sale. It had the right to direct a sale at auction. Suppose it had done so, and the stock had been knocked down to irresponsible bidders, who paid the dollar, could the plaintiff maintain the position that a wrong had been done to the depositors, and hold the persons interested in the estate liable therefor? To ask the question, it seems to me, is to answer it in the negative.
I venture to think that when the administrators went forward and made the sales, which were directed and approved by the Court of Probate, that this Court would be going far afield to hold that their acts were fraudulent in law or in fact.
It seems to me, also, though I do not so decide (for it is not necessary), that in such circumstances, a Court could hardly get its consent to prejudice the rights of those interested in the estates, even though the administrators had been actuated by a private intent to rid the estate of liability.
The Probate Court, by directing and approving the sales, took the title to the stock out of the estates, and it became vested in the purchasers; the stocks were duly transferred on the books of the bank, and all this was before the closing of the bank. Until the sales are set aside in a direct proceeding, the purchasers of the stock stand as the persons who are liable. This view finds support in the case of Williams, as Receiver, v. John P. Cobb, 242 U.S. 307, 37 S. Ct., 115, 61 L.Ed., 325.
But this view is unnecessary to the decision of the case; it is only thrown in in passing.
The learned referee, for whom I have the greatest respect, and in whose judgment I have the greatest confidence, as I view it, was induced to give overemphasis to the small price that the stocks brought, and to the fact that the purchasers were not financially responsible; and failed to give due weight to the positive testimony in the case, and to the lack of testimony required under the law, to show the three requisites to avoiding the sales, namely: Insolvency at the time of transfer, knowledge thereof by the administrators, and the intent to avoid the statutory liability.
I may state, in conclusion, that the referee found, as a fact, that there was no actual collusion or fraud on the part of the sellers and buyers of the stocks, but that the sales were open and aboveboard; but he finds insolvency of the bank, knowledge thereof by the transferers, and intent on their part to avoid liability.
It is therefore ordered that the exceptions be sustained, the report of the referee be reversed, as herein indicated, and that the complaint be dismissed as to the estates of Dr. J.H. Miller and W.M. Miller.
Messrs. Richey Richey and Haynsworth Haynsworth, for appellant, cite: Transfer for purpose of avoiding liability to creditors is fraudulent and void: 99 U.S. 628; 107 S.C. 251; 169 U.S. 1; 126 S.E., 242; 188 U.S. 442; 176 U.S. 521; 202 U.S. 510; 151 S.C. 145.
Messrs. W.L. Daniel and Blackwell, Sullivan Wilson, for respondents, cite: Bank is insolvent when unable to meet liabilities as they become due in course of business: 81 S.C. 244; 7 C.J., 727. In absence of fraud or lack of good faith transferee is responsible for stock liability if transfer made upon books of bank: 55 S.C. 87; 79 S.C. 7; 7 C.J., 771; Sec. 4320, Vol. 3, Code 1922; 61 L.Ed., 325.
August 15, 1932. The opinion of the Court was delivered by
This action by the plaintiff, W. Rex Chandler, suing on behalf of himself and all other depositors in the Bank of Cross Hill, of Cross Hill, S.C. was instituted in the Court of Common Pleas of Laurens County, January 12, 1929, against the defendants, J.P. Abney, J.H. Atchison et al., of whom C.D. Nance and T.M. Pinson, as administrators of the estate of J.H. Miller, deceased, and Lidie E. Miller, as executrix of the estate of W.M. Miller, deceased, are respondents before this Court. As indicated in the title, the suit is for the purpose of recovery of the stockholders' liability against the stockholders of said bank. The substantive allegations in the complaint necessary for an understanding of the questions involved, briefly stated, are as follows:
Dr. J.H. Miller, one of the stockholders of the Bank of Cross Hill, died intestate December 13, 1927, owning thirty shares of the capital stock of said bank at the par value of $100.00 per share; and on or about the 18th day of April, 1928, C.D. Nance and T.M. Pinson were appointed administrators of the estate of the said Dr. J.H. Miller. While acting as such administrators, on October 18, 1928, the said C.D. Nance and T.M. Pinson caused the said thirty shares of stock in the said bank to be transferred to one J.C. Suell, and that at the time the said stock was so transferred the said bank was insolvent, which alleged fact the said C.D. Nance and T.M. Pinson are alleged to have known, and, further, that the said J.C. Suell was not financially responsible. It is also alleged that the said T.M. Pinson was in addition to being one of the administrators of the said estate also a director of the said bank. The plaintiffs further allege that the transfer of the said stock was not made in good faith and was made for the purpose of evading the liability of the estate of the said Dr. J.H. Miller as a stockholder, and that the transfer of said stock, as aforesaid, was in violation of the statutory law of this State and was in violation of the Statute of Elizabeth, and, further, that the said transfer was fraudulent and made for the purpose of hindering and delaying the plaintiff and all other depositors of the said bank in the enforcement of their rights against the said estate. It is also alleged in the complaint that at the time of the death of the said J.H. Miller he had on deposit in said bank the sum of $9,814.07 and that the administrators of said estate drew out of said bank about half of that amount October 9, 1928, and the balance January 2, 1929. Judgment was asked against the estate of J.H. Miller in the sum of $3,000.00 and interest.
It is further alleged in the complaint that W.M. Miller died testate September 16, 1926, naming as his executrix his wife, Lidie E. Miller, who qualified as such executrix and entered upon the discharge of her duties; that at the time of the death of the said W.M. Miller he was the owner of six shares of the capital stock of the said Bank of Cross Hill, at the par value of $100.00 per share. In this connection it is alleged in the complaint that the said stock of six shares was transferred on the books of the bank to the estate of the said W.M. Miller, deceased, on or about November 3, 1928, and that later the executrix, the said Lidie E. Miller, caused the said six shares of stock to be transferred to one R.W. Griffin. It is further alleged in the complaint that the said Lidie E. Miller, at the time of the said transfer to R. W. Griffin, knew of the insolvent condition of the bank and also knew that R.W. Griffin was not financially responsible; and that the transfer was not made in good faith but that it was made for the purpose of evading the liability of the estate of the said W.M. Miller as a stockholder; and alleged that the transfer was in violation of the statutory law of this State and in violation of the Statute of Elizabeth; that the transaction was fraudulent and was made for the purpose of hindering and delaying the plaintiff, along with all of the other depositors of the said bank, in the enforcement of their rights as such depositors against the estate of the said W.M. Miller, and the plaintiff asked judgment against the estate of W.M. Miller in the sum of $600.00 and interest.
The defendants, C.D. Nance and T.M. Pinson, as administrators of the estate of J.H. Miller, in their answer to the allegations of the complaint, admitted the general allegations; but they specifically denied that they had any knowledge of the insolvency of the bank in question or that the transfers were made to avoid liability or in any way to hinder and delay the plaintiff in collecting the stockholders' liability, and further answering the complaint the defendants set up the defense that they were charged with liquidating all assets of the said estate of Dr. J.H. Miller, deceased, and, further, that they acted under the order of the Probate Court of the said County of Laurens, in which order they were directed to sell all of the stocks of the said estate, including the stock in question; that they endeavored in good faith to dispose of all property held by the Dr. Miller estate and to convert the same into cash, and in endeavoring to carry out said purpose and acting under the authority of the said order, they, as such administrators, proceeded to sell all of the stock of the said estate, including the stock of the said bank, and asked that the complaint be dismissed as to them.
The answer of the defendant Lidie E. Miller, as executrix of the last will and testament of W.M. Miller, deceased, was similar to that of the answer of the defendants C.D. Nance and T.M. Pinson, as administrators of estate of J.H. Miller, deceased.
By consent of the parties the cause was referred to R.W. Wade, Esq., as special referee, who held references in the cause and took the testimony offered. Thereafter, Mr. Wade, as special referee, filed his report, finding in favor of the plaintiff against C.D. Nance and T.M. Pinson, as administrators of the estate of Dr. J.H. Miller, deceased, and against Lidie E. Miller, as executrix of the estate of W.M. Miller, deceased, in accordance with the prayer of the complaint, but specifically held that there was no intentional wrong on their part. Exceptions to this report were filed and the matter was thereafter heard on the exceptions by his Honor, Judge C.C. Featherstone, who, after due consideration, reversed the finding and holding of the special referee and issued a decree to that effect, dismissing the complaint as to the estates of Dr. J.H. Miller and W.M. Miller, from which decree the plaintiff appealed to this Court.
After a careful study of the entire case, it is our opinion that Judge Featherstone reached the proper conclusion in the case, and for the reasons assigned by him in his decree the judgment of the lower Court is hereby affirmed.
MR. CHIEF JUSTICE BLEASE and MR. JUSTICE STABLER concur.
I concur in the result of the case. It is questionable whether when the order for the sale of the stock was obtained from the Judge of Probate, the bank was then insolvent and that the administrators knew it.