Opinion
13548
January 4, 1933.
Before DENNIS, J., Darlington, July, 1931. Affirmed.
Proceedings by the Town of Darlington against A.M. Coker and others, receivers of the Bank of Darlington, Incorporated, to establish a claim against the bank, in possession of Albert S. Fant, State Bank Examiner. From an order dismissing the petition, the Town of Darlington appeals.
AGREED STATEMENT OF FACTSWhereas, the Town of Darlington, hereinafter called the Petitioner, has a claim against The Bank of Darlington, Incorporated, of which A.M. Coker, B.F. Williamson and D.D. Witcover, are Receivers, arising out of the transaction between the petitioner and the bank hereinafter described; and
Whereas, the petitioner and the receivers are unable to agree as to its right and their liability, the town contending that its claim should be paid in full as a preferred claim, while the receivers contend that it is not entitled to any preference or priority but should participate in the distribution of the bank's assets, pro rata, with other unsecured claims; now, therefore,
The petitioner and the receivers do hereby submit to this Court, for determination, without action or pleadings, the issue presented by their controversy; to wit:
Is the petitioner entitled to the payment of its claim in full, as a preferred claim?
And the petitioner and the receivers do hereby agree that the following statement shall constitute the case, containing all the facts upon which their controversy depends:
1. The Town of Darlington is and was at all the times herein mentioned a municipal corporation created under the laws of South Carolina.
2. The Bank of Darlington, Incorporated, was, at the time of the transaction out of which this controversy arises, a banking corporation created under the laws of this State and engaged in the business of banking in the Town of Darlington.
3. On November 29th, 1930, the Town of Darlington had on deposit, to its credit, in the said bank, the sum of Twenty-eight Thousand Three Hundred Twenty-seven and 12/100 ($28,327.12) Dollars, in three separate accounts, to wit:
General checking account .................. $ 22,375.09 Paving account (Sinking Fund).............. 1,522.08 Savings account (Sinking Fund)............. 4,429.95 ___________ Total ................................ $ 28,327.12 — which said sum was derived solely from taxes, licenses and other sources of municipal revenue.4. During banking hours on that date and while the officials of the town and of the bank, respectively, believed that the bank was solvent, the town, by E.W. Fountain, its Clerk and Treasurer, issued its check upon the said bank for Twenty Thousand ($20,000.00) Dollars and therewith purchased and received from the said bank its check or draft to the order of E.W. Fountain, Treasurer, on The National City Bank, of New York, for Twenty Thousand ($20,000.00) Dollars, to be used for the payment of a note of the town soon thereafter to mature in New York City.
5. When the said draft or check for Twenty Thousand ($20,000.00) Dollars was issued and when it was presented to the drawee for payment, The Bank of Darlington, Incorporated, had sufficient funds on deposit to its credit in The National City Bank to pay the same, but it was not paid, when presented, or thereafter, for the reason that, after the close of business, on the 29th day of November, 1930, Albert S. Fant, as State Bank Examiner, took sole possession and control of the property and business of The Bank of Darlington, Incorporated, for not exceeding thirty (30) days, upon the request of a majority of the bank's directors and by virtue of the authority conferred upon him by Section 3981 of Volume 3 of the Code of Laws of South Carolina, 1922, and thereafter, A.M. Coker, B.F. Williamson, and D.D. Witcover were duly appointed Receivers of The Bank of Darlington, Incorporated, and have since qualified and are now engaged in the discharge of their duties.
6. The town has duly made and filed its claim for Twenty-eight Thousand Three Hundred Twenty-seven and 12/100 ($28,327.12) Dollars with the Receivers and has demanded payment thereof in full, but said demand has been refused and the town has accepted from the Receivers the sum of Five Hundred Eighty-six and 06/100 ($586.06) Dollars and dividends amounting to twenty per cent (20%) of its said claim and will receive other dividends, if and when paid, from time to time, under the terms of an agreement with the Receivers, whereby the said dividends may be accepted by the town without prejudice to any right that it may have to recover the said sum of Twenty-eight Thousand Three Hundred Twenty-seven and 12/100 ($28,327.12) Dollars, or the sum of Twenty Thousand ($20,000.00) Dollars in full.
7. The town contends and the Receivers deny that, in consequence of the transaction hereinbefore described, the Town of Darlington is entitled to the payment in full of its claim for Twenty-eight Thousand Three Hundred Twenty-seven and 12/100 ($28,327.12) Dollars, or the sum of Twenty Thousand ($20,000.00) Dollars as a preferred claim.
ORDER OF JUDGE DENNISThis matter is before me on a petition of the town of Darlington, as a depositor of the Bank of Darlington, Incorporated, to establish its claim against the Receivers as a preferred claim upon the assets of the bank.
The attorney for the town contends that its deposit is entitled to priority in payment because it constituted a public fund derived from taxes, licenses, and other sources of municipal revenue; and that if the town is not entitled to the payment of its deposit in full, then $20,000.00 thereof, represented by a draft on the bank of New York to the order of the treasurer of the town, issued on the last day that the bank was open, should be paid in full, for the reason that the draft operated as an equitable assignment, pro tanto, of the town's deposit.
It appears that the State of South Carolina has not, by its Constitution or statutes, asserted the prerogative right to such a preference. In the case of State v. J.N. Harris, 2 Bailey, 598, 18 S.C. Law, 275, S.C. Reports (Reprint), Book 8, the Court of Appeals of this State disallowed a preference once claimed in favor of the State. In this connection, see, also, the case of the State v. Cleary, Sheriff, 2 Hill, 600, 20 S.C. Law, 327, Book 9, S.C. Reports (Reprint) in which the Court held (quoting syllabus): "The State is not entitled to priority over other creditors, except in cases provided by statute."
Even if it were the policy of the State to claim and assert such a preference, no municipality or other subdivision of the State would be entitled thereto in the absence of some provision in the Constitution or statutes delegating such right. Luther et al. v. Wheeler et al., 73 S.C. 83, 52 S.E., 874, 4 L.R.A. (N.S.), 746, 6 Ann. Cas., 754.
As to the other ground upon which a preference is claimed, I hold that the draft on the bank of New York did not operate as a legal assignment, pro tanto, of the town's deposit and that the contention that it was an equitable assignment is not sustained.
The attorney for the town relies strongly upon the case of Hampton Loan Exchange Bank v. Lightsey, 155 S.C. 222, 152 S.E., 425. I have considered that case very carefully and have reached the conclusion that the principle upon which it was decided is not applicable to the case at bar. In the case cited the Loan Exchange Bank received, for collection, certain checks drawn on deposits in the Hampton bank, and, when the same were presented, received therefor the Hampton bank's check on a Savannah bank where the drawer had on deposit more than enough money for the payment of its check. The Hampton bank marked the presented checks, "Paid," charged them to the several accounts of the drawers, and credited the Savannah bank with the amount of the check drawn upon it. At the time of the transaction described, the Hampton bank was indebted to the Savannah bank on certain promissory notes of the former secured by a pledge of customers' paper. After the Savannah bank received the check of the Hampton bank, it learned that the latter had closed and refused payment of the check and applied the deposit of the Hampton bank to the payment of its notes, although they were not then due. Subsequently, the receiver of the Hampton bank paid to the Savannah bank the amount owing but not due upon said notes and received from the Savannah bank the customers' notes pledged as security. In the meantime and before the check of the Hampton bank on the Savannah bank was rejected, the Loan Exchange Bank, assuming that the same was good, paid from its own funds the sum collected for the depositors of the Hampton bank. It should be observed that the check of the Hampton bank was not issued to the Loan Exchange Bank in payment of a debt owing by the former to the latter. On the contrary, the check was issued in payment of checks drawn on the Hampton bank by its depositors. The Hampton bank immediately received the benefit of the transaction, in that its depositors' checks were charged to them and the bank's liabilities were correspondingly reduced. The Loan Exchange Bank, having paid the amounts collected by it for the depositors of the Hampton bank, invoked the two-fund doctrine and claimed that it should be subrogated to the rights of the Savannah bank in the collateral pledged by the Hampton bank, and its claim was allowed.
The transaction between the Town of Darlington and the Bank of Darlington, Incorporated, was widely different from that involved in the Hampton Loan Exchange Bank v. Lightsey case. The town drew a check upon its deposit in the bank and received therefor the bank's draft to the order of the town's treasurer on the National City Bank in New York. The Darlington bank closed before the draft was paid. There was no change of status affecting the rights or liabilities of the parties, or either of them. The transaction resulted in no loss, gain, or benefit to either. The town parted with, and the bank received, nothing of value and the bank's indebtedness to the town is the same now that it was before the draft was issued.
For the reasons hereinbefore stated, I am of the opinion that the equitable right of the depositors of the bank to the equal distribution of its assets among its creditors is superior to the claim here asserted by the town and that, consequently, the town's claim to a preference in the distribution of the bank's assets should not be allowed, and I so hold.
It is, therefore, ordered that the petition of the Town of Darlington be, and hereby is, dismissed.
Mr. Jerome F. Pate, for appellant, cites: Where bank insolvent but still conducting business, paying check of depositor who had no notice, depositor protected: 59 F., 233; 128 Ga. 577; 62 S.E., 252; 77 S.C. 305; 57 S.E., 182; 155 S.C. 222; 152 S.E., 425; 204 P., 992; 21 A.L.R., 677. Check operates as an equitable assignment pro tanto as against drawer: 150 S.E., 137; 38 W. Va., 351; 18 S.E., 620; L.R.A. 1916-A, 711; 72 A.S.R., 259; 48 L.R.A., 565; 54 N.E., 946; 12 S.E., 245.
Messrs. Dargan Paulling, for respondent, cite: "Liquidate" defined. Sec. 6940, Code 1932; 133 S.C. 446; 131 S.E., 612; 2 L.R.A. (N.S.), 83; 82 P., 582; 186 Ill., 440; 57 N.E., 1061; 53 L.R.A., 232; 78 A.S.R., 294; 7 C.J., 751. One holding check or draft of bank which becomes insolvent before same is paid, not entitled to preference: 136 S.C. 511; 134 S.E., 510; 150 S.C. 25; 147 S.E., 653; 159 S.C. 374; 157 S.E., 78; 60 S.C. 122; 38 S.E., 453; 144 S.C. 147; 142 S.E., 239; 77 S.C. 305; 57 S.E., 182.
January 4, 1933. The opinion of the Court was delivered by
The agreed statement of facts, and the decree of his Honor, Circuit Judge Dennis, in this case will be reported. All the exceptions are overruled, and the decree is affirmed. See the decision of this Court in the recent case of Ex parte G.D. Sanders, petitioner, appellant ( In re South Carolina Savings Bank, petitioner, In re The Liquidation of the Affairs of the Bamberg Banking Company, The South Carolina Savings Bank as Receiver, respondent), 167 S.E., 154.
MESSRS. JUSTICES STABLER, CARTER and BONHAM concur.