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Harlem Corporation v. Eadie

Supreme Court of South Carolina
Aug 28, 1929
152 S.C. 242 (S.C. 1929)

Opinion

12727

August 28, 1929.

Before TOWNSEND, J., Charleston, March, 1928. Reversed and rendered by adoption of master's report.

Action by the Harlem Corporation, as trustee, and others, against Mary E. Eadie and others, for the foreclosure of a mortgage: The master's report recommended foreclosure, and exceptions thereto were sustained by the circuit Judge, and from the decree plaintiffs appeal.

The master's report and decree of Judge Townsend were as follows:

MASTER'S REPORT

"To the Honorable, the Court of Common Pleas:

"This is an action for foreclosure of mortgage of real estate, referred to me by order dated the 5th day of May, 1927, in which the defendants Mary E. Eadie, Ruth F. Conway, and the Mortgage Loan Company are adjudged in default. Perry S. Sanford was not served and no personal judgment can be rendered against him. The Mortgage Loan Company answered May 6, 1927, setting up its interest in the mortgaged premises as alleged in the complaint, and service was accepted by plaintiff's attorney.

"I have held reference, the minutes of which, together with the exhibits offered, are herewith filed.

"I find that on the 24th day of April, 1920, the defendant Perry S. Sanford executed and delivered to Henry Rutledge Buist his bond conditioned for the payment of the principal sum of $3,000 three years from date, with interest at the rate of 8 per cent per annum, payable semi-annually; and that on said 24th day of April, 1920, reciting said bond and the intention to secure the same, the said Perry S. Sanford executed and delivered to the said Henry Rutledge Buist his mortgage of the premises at the northwest corner of Blake and Drake streets, in the city of Charleston, as described in the complaint, which said mortgage contained the usual provisions for the payment of taxes, insurance, and attorneys' fees, and was fully recorded in the R.M. C.O. for Charleston County in Book Q-29, p. 179.

"I find that reciting the said bond, and in order to further secure the same, the said Perry S. Sanford, on the 21st day of June, 1920, executed and delivered to the said Henry Rutledge Buist his mortgage of the lot known as No. 8, on the west side of Drake street, in the city of Charleston, as described in the complaint, which mortgage contained the usual provisions for the payment of taxes, insurance, and attorneys' fees, and was duly recorded in the R.M.C.O. for Charleston County, in book Q-29, p. 318.

"I find that thereafter the said bond and mortgage were assigned by Henry Rutledge Buist to Dariel Corporation, and that thereafter the said Dariel Corporation assigned the same to South Carolina Loan Trust Company, that the said South Carolina Loan Trust Company thereafter duly recorded in the R.M.C.O. for Charleston County its declaration that the said bond and mortgages were held in trust for the bearer of the said bond, and further to dispose of said mortgages as might be directed in writing, or to foreclose the said mortgages by proper proceedings upon default.

"I find that on the 13th day of December, 1926, the said bond was delivered by said South Carolina Loan Trust Company to the plaintiff Gladys St. C. Hibbett. That said South Carolina Loan Trust Company closed its doors on the 16th day of December, 1926, and by decree of the Court of Common Pleas for Charleston County, dated the 13th day of March, 1927, in the case entitled `In the Matter of South Carolina Loan Trust Company, et al.,' resignation of the said South Carolina Loan Trust Company as trustee of all mortgages and deeds of trust securing bonds payable to bearer was accepted, and said South Carolina Loan Trust Company removed as such trustee. That by instrument dated the 4th day of April, 1927, the said Gladys St. C. Hibbett duly appointed the plaintiff Harlem Corporation as trustee under the terms of the said mortgage.

"I find that said premises were conveyed by the said Perry S. Sanford to Francis A. Conway and by Francis A. Conway to Ruth F. Conway, by deed dated March 3, 1921, recorded in R.M.C.O. for Charleston County, in book W-31, p. 59.

"I find that the said Ruth F. Conway, on the 30th day of June, 1921, executed and delivered to South Carolina Loan Trust Company her bond conditioned for the payment of the principal sum of $4,000 one year from date, with interest at the rate of 8 per cent per annum; and that on said date, reciting said bond and the intention to secure the same, the said Ruth F. Conway executed and delivered to the said South Carolina Loan Trust Company her mortgage of the premises in suit, which mortgage contained the usual provisions for the payment of taxes, insurance, and attorneys' fees, and was duly recorded in the office of the R.M.C.O. for Charleston County in book 0-30, p. 93.

"I find that said South Carolina Loan Trust Company is now in liquidation, and that by proper orders of the Court all of its assets are held and vested in the defendant Mortgage Loan Company.

"I find that on the 28th day of October, 1922, the said Ruth F. Conway conveyed the said premises to the defendant Mary Elizabeth Eadie, by deed reciting as part of the purchase price the indebtedness due on the mortgage of Perry S. Sanford to Henry Rutledge Buist, dated June 21, 1920, and upon the mortgage of Ruth F. Conway to South Carolina Loan Trust Company, dated June 30, 1921, above reported, and as the assumption of the payment of the mortgage debts by the said Mary Elizabeth Eadie.

"The case being before me under reference and in process of hearing, the defendant Mortgage Loan Company moves to amend its answer by further alleging:

"`Further answering the complaint herein, the defendant, the Mortgage Loan Company, alleges that Mrs. Gladys St. C. Hibbett, one of the plaintiffs herein, was a depositor in the South Carolina Loan Trust Company on the 13th day of December, 1926, and on said date had on deposit in said bank the sum of Nine Thousand Four Hundred Fifty Dollars and Eighty-three cents ($9,450.83). That the said Gladys St. C. Hibbett was then, and for a long time prior thereto, a client of Henry H. Ficken, President of the South Carolina Loan Trust Company, and that the said Henry H. Ficken was in charge of certain of the investments of the said plaintiff. That on the 13th day of December, 1926, check was drawn on said South Carolina Loan Trust Company to the order of the South Carolina Loan Trust Company in the sum of Three Thousand Six Hundred Forty-two Dollars and Twenty-four cents ($3,642.24), which check was signed by O.B. Chisolm, vice-president of the South Carolina Loan Trust Company, and a son-in-law of the said Henry H. Ficken, in the following form: "Charge Mrs. Gladys St. C. Hibbett, signed O.B. Chisolm, vice-president"; and that upon said check being presented to the said South Carolina Loan Trust Company, there was withdrawn therefrom the mortgage mentioned and described in the complaint herein and which from the basis of the plaintiff's claim. At the time said check was drawn and said bonds and mortgages were taken from the possession of the South Carolina Loan Trust Company, Henry H. Ficken, agent and attorney for the plaintiff, Mrs. Gladys St. C. Hibbett, and said O.B. Chisolm well knew that the South Carolina Loan Trust Company was insolvent and was on the verge of closing its doors, and that the conduct of the said Henry H. Ficken and O.B. Chisolm in procuring the withdrawal and attempted purchase of said bonds and mortgages was and is a fraud upon the other depositors of said banking institution, and was and is a fraudulent attempt on their part, acting in behalf of the plaintiff, Mrs. Gladys St. C. Hibbett, to obtain a fraudulent and unlawful preference for the said plaintiff.

"`The said Mortgage Loan Company hereby offers to restore the status quo by giving the said Mrs. Gladys St. C. Hibbett credit as a depositor of the South Carolina Loan Trust Company to the extent of the sum of Three Thousand Six Thousand Forty-two Dollars and Twenty-four cents ($3,642.24), and to pay, or cause to be paid, to the said Mrs. Gladys St. C. Hibbett certain amounts that have heretofore been paid to the other depositors of the said banking institution, to wit, the sum of twenty-five (25%) per cent thereof, and to issue to the said Mrs. Gladys St. C. Hibbett its certificate of beneficial interest for an amount equal to seventy-five (75%) per cent thereof.

"`Wherefore the defendant Mortgage Loan Company prays that all the said mortgages be foreclosed, and that the property be sold, and that the net proceeds of the entire sale be paid over to the defendant, and for such other and further relief as may be proper in the premises.'

"Plaintiff's attorney objected to the allowance of the amendment proposed, on the ground that the same constitutes a substantial change in the defense of the defendant Mortgage Loan Company, and is not permissible during the trial of the case, and that the master has no authority to allow such amendment during trial, relying upon the cases of Fanning v. Bogacki, 111 S.C. page 376, 98 S.E., 137; McDaniel v. Monroe, 63 S.C. page 311, 41 S.E., 456; Hall v. Woodward, 30 S.C. page 575, 9 S.E., 684; Kiddell v. Bristow, 67 S.C. page 188, 45 S.E., 174; Beall v. Weston, 83 S.C. page 491, 65 S.E., 823.

"There is no doubt that the amendment proposed by the defendant Mortgage Loan Company constitutes a vast change in its defense as set up in the original answer, and should not therefore be allowed under the decisions referred to. It is, however, proper that all proceedings before the master under an order of reference should be fully considered and reported upon by him. I shall therefore review and submit findings upon the testimony offered with relation to the proposed amendment.

"The position of the Mortgage Loan Company is that the use of Mrs. Hibbett's deposit fund for the purchase of an investment held by the bank is in effect to Mrs. Hibbett. That the bank was actually, though not avowedly, insolvent, and that such payment was not made in the ordinary course of business, but in contemplation of insolvency through collusion with the officers of the bank, the officers of the bank knowing of the actual insolvency of the bank, and the knowledge of the president, Mr. Ficken, as alleged, being knowledge of the plaintiff, for whom it is alleged Mr. Ficken was attorney and adviser in connection with her investments. As a general proposition, if the proof supports the allegations, this legal position is sound and amply supported by 2 Moss on Banks, § 265; Boone on Banks, § 301; Benedum v. First Citizens' Bank, 72 W. Va., 124, 78 S.E., page 656; Clarke v. Ingram, 107 Ga. 565, 33 S.E., page 802; and in the case of Ex parte Berger, 81 S.C. page 251, 62 S.E., 249, 22 L.R.A. (N.S.), 445, following the Georgia case of McGregor v. Battle, 128 Ga. 577, 58 S.E., page 28, 13 L.R.A. (N.S.), 185. In order to sustain its legal position, however, it is necessary for the defendant Mortgage Loan Company to prove that the bank was actually, though not avowedly, insolvent on the 13th day of December, 1926; that the officers of the bank who handled or directed the handling of the transaction were aware of the actual insolvency of the bank; that the officer so handling or directing the transaction and so charged with the knowledge of the bank's insolvency was the agent of the depositor through whom the knowledge to the depositor will be implied; and that the purpose and effect of the transaction was the creation of a preference in favor of the plaintiff.

"The testimony of Mr. J.C. Ball, trust officer of the South Carolina Loan and Trust Company, would tend to establish the fact that Mr. Ficken was the adviser and handled, through the bank, the affairs of Mrs. Kate L. McDow. The record fails to show any other connection between Mrs. McDow and the plaintiff, except that the deposit sheet of the plaintiff, offered in evidence, gives the address of the plaintiff as `Care Mrs. Kate L. McDow, Nashville, Tennessee.' Mr. Ball further testifies that through December 13th, 14th and 15th and the early morning of December 16th, the bank was doing business and paying checks drawn by depositors, but that on the 16th day of December, the bank was unable to meet its obligations.

"I find that on the said 13th day of December, 1926, the plaintiff Mrs. Gladys St. C. Hibbett, had a deposit in the said South Carolina Loan Trust Company, and that against this deposit a charge check was drawn, signed by O.B. Chisolm, as vice-president of the South Carolina Loan Trust Company, and delivered to the said South Carolina Loan Trust Company in exchange for the said bond, said check being in the sum of $3,642.24.

"I find from the testimony of Mr. Chisolm that this transaction was a result of repeated demands by Mrs. Hibbett, through correspondence, she being a resident of Nashville, Tenn., that her funds in the said bank should be invested by the said bank for her account.

"I find that said bank on said date was conducting its business, accepting deposits, and permitting withdrawals in the usual manner. Mr. Chisolm denies that he knew at the time of this transaction that the bank was insolvent, and further testified that the transaction was made on his responsibility under proper authority and directions from Mrs. Hibbett, and without any idea or intention of giving Mrs. Hibbett, as depositor in said bank, a preference over other depositors. Mr. Chisolm is very positive in his statement that Mrs. Hibbett had been for some time demanding the investment of the funds on deposit to her credit in the bank, and denies that he was acting under instructions of Mr. Henry H. Ficken, the president of the bank, and his father-in-law, who, by the proposed amendment, is alleged to have had knowledge on that date of the insolvency of the bank. The bank actually suspended payment and closed its doors on the 16th day of December, 1926.

"In order to find that Mr. Ficken directed the investment with knowledge of the bank's insolvency and as a preference to Mrs. Hibbett as his client, it would be necessary to discredit entirely the testimony of Mr. Chisolm, the witness offered by the defendant Mortgage Loan Company, and to sustain its contentions by inference, based upon the early subsequent closing of the bank, of its condition both on the 13th day of December and at this time, neither of which is disclosed by the record.

"In the case of Carwile, Receiver, v. Metropolitan Life Insurance Co., 136 S.C. page 179, 134 S.E., 285, it is held that the receiver of an insolvent bank has no greater power than that of the bank itself, and it is contended by the plaintiff's attorney that in no event could the bank itself have sustained an action against the plaintiff for a return of the bond and mortgage. This position appears to me to be sound. It should be borne in mind that Mr. Hibbett is a resident of the State of Tennessee, and, as shown by the testimony, had repeatedly demanded investment of her funds on deposit by the officers of the bank; and I am of the opinion that on the showing made, she is entitled to retain any advantage she may have by reason of this transaction, just as if it had been made immediately upon her written instructions; it being perfectly clear, from the testimony, that she was not in the position of a quiescent depositor suddenly advised personally or by implication, through her attorney and adviser, an officer of the bank, of the bank's precarious condition.

"I find that there is due upon the bond of Perry S. Sanford to Henry Rutledge Buist, now held and owned by the plaintiff Gladys St. C. Hibbett, and secured as reported by a first lien upon the premises in suit, the sum of $3,000, with interest at the rate of 8 per cent per annum, to be computed semi-annually from the 24th day of May, 1924, with the further sum of 10 per cent of the amount involved, as attorneys' fees, as provided in and by the mortgages securing the same.

"I find that there is due upon the bond of Ruth F. Conway to South Carolina Loan Trust Company, now owned and held by the defendant Mortgage Loan Company, and secured by a second lien upon the premises in suit, the full principal sum of $4,000, with interest at the rate of 8 per cent per annum from the 30th day of June, 1921, the sum of $148 advanced for taxes by the South Carolina Loan Trust Company, with interest from the 3d day of May, 1926, and the further sum of 10 per cent of the principal and interest due, as attorney's fees, as provided in and by said mortgage.

"I therefore respectfully recommend: That said mortgages be foreclosed and the equity of redemption barred. That the mortgaged premises be ordered sold by the master herein by public auction, after due advertisement, at Charleston Real Estate Exchange in the city of Charleston, upon such terms as the court shall direct. That the proceeds of sale, after payment of proper costs and expenses of this proceeding and of such sale, and of such liens for past due taxes and assessments as shall be called to the attention of the master before distribution, be applied to the payment first of the amount herein found to be due to the plaintiff trustee for Gladys St. C. Hibbett, next to the amount herein found to be due to the defendant Mortgage Loan company, and the balance, if any, be held subject to the further order of the Court.

"I further recommend that decree herein provide that plaintiffs have leave to enter judgment against the defendant Mary Elizabeth Eadie for such deficiency as may be shown in the payment of its mortgage debts from the proceeds of sale of said premises, if any, by master's report of sale and disbursements; and that the defendant the Mortgage Loan Company have leave to enter judgment against the defendants Ruth F. Conway and Mary Elizabeth Eadie for deficiency in payment of its mortgage debt, if any, as may be shown by said report of sale and disbursements.

"Respectfully submitted,

"F.K. MYERS, Master."

DECREE

"This cause arose out of the insolvency of the South Carolina Loan Trust Company, which closed its doors on the morning of the 16th of December, 1926, and thereafter A.S. Fant, state bank examiner, was duly appointed receiver of the defunct bank, and under orders of Court in said cause made, the receiver, in conformity with the plan approved by the Court for the liquidation of the said bank, for the consideration therein named, sold, assigned and transferred to the Mortgage Loan Company, a corporation organized by and for the depositors of said bank, all of the assets of said bank, save certain assets therein referred to and which are in no way connected with this suit.

"On the 13th day of December, 1926, three days before its closing, the said South Carolina Loan and Trust Company had among its assets a bond in the sum of $3,000 secured by a first mortgage of certain premises in the city of Charleston, and a bond in the sum of $4,000 secured by a second mortgage on the same premises, both of which bonds it had owned and held for over two years prior to said date.

"On the 13th of December, 1926, the plaintiff Gladys St. C. Hibbett had on deposit in said bank the sum of $9,453.83, and by the transactions hereinafter set out and referred to, she obtained from said bank the possession of the bond secured by said first mortgage, her account being charged therefor with $3,642.24, and likewise obtained from said bank a first mortgage bond held by an estate for which said bank was trustee, and for which her account was charged with $5,011.67, so that when the bank failed three days later, instead of having $9,453.83 on deposit, she only had the sum of $799.92.

"Thereafter suit was instituted by her as the holder of said bond and by the Harlem Corporation as trustee under the first mortgage securing the payment of said bond, which was payable to bearer against Mary E. Eadie and others to foreclose said mortgage so obtained from said bank, and the Mortgage Loan Company was made a party defendant as owning the bond for $4,000 secured by a second mortgage on the same premises.

"The defendant the Mortgage Loan Company answered setting up its mortgage, but thereafter having become cognizant of the facts, asked leave of the master to whom the case had been referred, to amend its answer as follows:

"`Further answering the complaint herein the defendant, the Mortgage Loan Company, alleges that Mrs. Gladys St. C. Hibbett, one of the plaintiffs herein, was a depositor in the South Carolina Loan Trust Company on the 13th day of December, 1926, and on said date had on deposit in said bank the sum of Nine Thousand, Four Hundred Fifty Dollars and Eighty-three cents ($9,450.83). That the said Mrs. Gladys St. C. Hibbett was then, and for a long time prior thereto, a client of Henry H. Ficken, president of the South Carolina Loan Trust Company, and that the said Henry H. Ficken was in charge of certain of the investments of the said plaintiff. That on the 13th day of December, 1926, check was drawn on said South Carolina Loan Trust Company to the order of the South Carolina Loan Trust Company in the sum of Three Thousand Six Hundred Forty-two Dollars and Twenty-four cents ($3,642.24), which check was signed by O.B. Chisolm, vice president of the South Carolina Loan Trust Company, and a son-in-law of the said Henry H. Ficken, in the following form: "Charge Mrs. Gladys St. C. Hibbett, signed O.B. Chisolm, vice-president"; and that upon said check being presented to the said South Carolina Loan Trust Company, there was withdrawn therefrom the mortgages mentioned and described in the complaint herein and which form the basis of the plaintiff's claim. At the time said check was drawn and said bonds and mortgages were taken from the possession of the South Carolina Loan Trust Company, Henry H. Ficken, agent and attorney for the plaintiff, Mrs. Gladys St. C. Hibbett, and said O.B. Chisolm well knew that said South Carolina Loan Trust Company was insolvent and was on the verge of closing its doors, and that the conduct of the said Henry H. Ficken and O.B. Chisolm in procuring the withdrawal and attempted purchase of said bonds and mortgages was and is a fraud upon the other depositors of said banking institution, and was and is a fraudulent attempt on their part, acting in behalf of the plaintiff, Mrs. Gladys St. C. Hibbett, to obtain a fraudulent and unlawful preference for the said plaintiff.

"`The said Mortgage Loan Company hereby offers to restore the status quo by giving the said Mrs. Gladys St. C. Hibbett credit as a depositor of the said South Carolina Loan Trust Company to the extent of the sum of Three Thousand Six Hundred Forty-two Dollars and Twenty-four cents ($3,642.24), and to pay, or cause to be paid, to the said Mrs. Gladys St. C. Hibbett certain amounts that have heretofore been paid to the other depositors of the said banking institution, to wit, the sum of twenty-five (25%) per cent thereof, and to issue to the said Mrs. Gladys St. C. Hibbett its certificate of beneficial interest for an amount equal to seventy-five (75%) per cent thereof.

"`Wherefore the defendant, Mortgage Loan Company, prays that all the said mortgages be foreclosed, and that the property be sold, and that the net proceeds of the entire sale be paid over to this defendant, and for such other and further relief as may be proper in the premises.'

"The proposed amendment was objected to by counsel for plaintiff, and the master reserved his decision thereon, but permitted testimony to be introduced subject to his final ruling, and in his report the amendment was disallowed and the master refused to set aside the said transaction as prayed for in the amendment of the defendant the Mortgage Loan Company.

"The matter came on to be heard on the 1st day of March, 1928, upon the exceptions to the master's report filed by the defendant, the Mortgage Loan Company, and after hearing argument of counsel and considering all of the testimony and the master's report, I am of the opinion that the amendment should have been allowed by the master, and is allowed by this Court. The plaintiff has come into a Court of equity invoking the aid of that Court to foreclose her mortgage, and the defendant asked leave to amend its answer by attacking the title of the plaintiff to the mortgage which it is seeking the aid of this Court to foreclose, and such amendment could in no way take the plaintiff by surprise or in any way prejudice her rights. Such an amendment had the approval of our Supreme Court in the case of Hamer v. Davis, 124 S.C. 391, 117 S.E., 807.

"There can be no dispute that the result of the transaction attacked by the defendant was to enable Mrs. Hibbett to receive a great deal more than the other depositors in the bank by exchanging her deposit upon which a dividend of 25 per cent would have been paid, and obtaining in place thereof a bond secured by a first mortgage worth 100 cents on the dollar.

"Has she justified her acts and established her right to retain this advantage over all the other depositors in the bank?

"The master seems to have rested his findings of fact entirely upon the testimony of the witness O.B. Chisolm, a vice-president of the South Carolina Loan Trust Company and son-in-law of its president, and ignored the testimony of Miss Bull and J.C. Ball and all the attendant unusual and suspicious circumstances surrounding the transaction.

"The testimony shows clearly to my mind these facts: That either Mr. Ficken, as the attorney of Mrs. Hiblett, or the bank itself, was the agent and adviser of Mrs. Hibbett in making her investments, she living in the State of Tennessee, and that on the 13th day of December, 1926 (the bank closing its doors about 11 o'clock on the morning of the 16th), Mr. Chisolm took from the assets of the bank a bond and mortgage which it had held for over two years, paying therefor by charging Mrs. Hibbett's account by a check signed by Chisolm as vice-president. This certainly was not the presentation and payment of a check in the usual course of business, but is a transaction out of the usual course of business, and so unusual that, in view of the bank's failure 2 1/2 days later, requires the plaintiff to establish clearly her right to obtain and retain more than her ratable share in the distribution of the assets of the insolvent bank. Citizens' Bank v. Bradley, 136 S.C. 511, 134 S.E., 510.

"The explanation given by Chisolm is that prior to that date, and for some months before, `We had received numerous letters from Mrs. Hibbett in regard to investing her money, which was in the savings department, just prior to that date. I do not know exactly what date, but about the time we received a letter that practically made me feel that unless that money was invested, we would lose that account, and that was the reason for investing the money then.' If this was the true reason, the natural course would have been to have sent a check to Mrs. Hibbett to sign, informing her an investment had been found, or else to advise her to wait until the end of the quarter, when an investment would be found, and not lost her three months' interest, on her deposit in the savings department. The witness could not recall that he had ever before signed any checks in this manner for any one; he could not recall whether the letter from Mrs. Hibbett was written to Mr. Ficken or to the bank, nor when it was written. He could not show authority for any one to sign her name, she having filed only the usual signature card with the bank. It further appeared from his testimony that Mr. Johnston (senior vice-president) and himself had worked together in investing funds, and that while Mr. Johnston was absent on the 13th day of December, Chisolm transferred this bond from the bank to Mrs. Hibbett. He could not give any reason why Mrs. Hibbett's money was not invested sooner, in the face of his statement as to her repeated demands therefor, nor could he give any reason why it was invested on this particular day. His entire testimony was evasive, contradictory, unsatisfactory, and unworthy of credence. The conclusion drawn by me from his testimony is that Mr. Chisolm, knowing of the imminent failure of the bank, in order to protect a favored customer of the bank and a client of his father-in-law, the president, through this transaction, obtained for her a perfectly good bond and mortgage, and by an exactly similar transaction on the same day, by which a bond was taken for her from one of the trust estates in the bank, thus effected a withdrawal of almost her entire deposit, so that when the bank failed, three days later, she suffered practically no loss.

"The facts in this case seem almost exactly similar to a case quoted by the Supreme Court in the recent case of Rice v. City of Columbia, 143 S.C. 516, 141 S.E., 705, 713, in which the defendant was a depositor in a savings bank and purchased of the bank through its president a bond and mortgage, paying for said bond and mortgage, partly in cash and party being debited on the books with the amount of his deposit. At the time of the purchase and the transfer, the bank was insolvent, but the purchaser had no knowledge of the insolvency. Held that the defendant should assign the bond and mortgage to the receiver of the bank on having returned to him the amount of his cash payment with interest, and being reinstated as a creditor upon the books of the bank in the amount of his deposit.

"The present case is stronger, inasmuch as the agent of Mrs. Hibbett, acting for her in this transaction, was either her attorney, Ficken, a member of the firm of Ficken Erckmann, who was also president of the bank, or the bank itself (as is claimed by the plaintiff), and in either case she was chargeable with knowledge as to the insolvency of the bank; whereas, in the case just cited, the purchaser had no such knowledge.

"In the case of Rice v. City of Columbia, our Supreme Court says:

"`They solemnly assert their innocence of any intention to hinder, delay, or defraud the other creditors, as if their innocence can shield them from the presumption that they intended the natural consequences of their acts. The equity of the creditors generally to an equal distribution of the assets of the insolvent bank cannot be annihilated by such a quibble. It makes not a particle of difference that they intended simply to secure their deposit; the effect of their acts is all that needs to be considered.'

"There can be no question that the effect of the acts of the parties here, if allowed to stand, is to prefer Mrs. Hibbett over all the other depositors of the bank, and to prevent an equal distribution of the bank's assets among them; but in the case at bar, the testimony shows that Mrs. Hibbett, in obtaining this preference, acted either through Mr. Ficken, as her legal adviser, or through Mr. Chisolm, representing the bank, and their knowledge is imputable to her. Mr. J.C. Ball, trust officer of the South Carolina Loan Trust Company at the time the bank closed, testified that he did not know that the bank was the agent of Mrs. Hibbett in connection with her investments, because they got their instructions from Mr. Ficken, and upon cross-examination, when asked if he knew whether Mr. Ficken had given up the representation of Mr. Hibbett and the bank was acting as her agent and charging a commission of 5 per cent, the witness testified that he did not know such to be a fact, and at a subsequent reference, after investigating the books, testified he could not find where any commissions had been paid to the bank for handling Mrs. Hibbett's affairs.

"He further testified that Chisolm, a vice-president of the bank, and son-in-law of Henry H. Ficken, the president, came to him on the 13th day of December and presented a check payable to the order of the South Carolina Loan Trust Company, in the sum of $3,642.24, which was signed, `Charge Mrs. Gladys St. C. Hibbett. O.B. Chisolm, vice-president,' and that he either delivered the bond and mortgage to Chisolm or sent them up to Mr. Ficken's office. Mr. Ficken's law office, though in an adjoining building, had access to the bank by a private back stairs leading from his office into the bank.

"Miss Bull, who was the bookkeeper for Security Corporation, formerly Security Savings Bank, a subsidiary of South Carolina Loan Trust Company, and which failed at the same time as that company, testified that the trust estate of George W. Egan had held for over two years a bond for $5,000, secured by a first mortgage, and that on the 13th day of December, 1926, Mr. Ficken purchased the bond from the trust estate of Egan for $5,000 and interest, for which a check, signed similarly to the check above set out, was given.

"Chisolm testified that he did not recall to whom he delivered the bond obtained from the Loan Trust Company, except that he turned it over to Mrs. Hibbett's attorneys. He did not recall that it was Mr. Ficken; he objected to the relevancy of the question as to what he did with the bond and mortgage obtained from the Egan estate, and while he testified that he recalled that he did not deliver them to Mr. Ficken, not to Mr. Ficken's stenographer, when he was asked the question — `or to anyone in his (Ficken's) office,' his answer was, `I don't recall.'

"`Q. You made the delivery to some one in his office?

"`A. I may have, but I don't recall.'

"Miss Bull testified that the bond obtained from the trust estate of Egan was given to Mr. Chisolm to deliver to Mr. Ficken.

"It was insistently urged at the hearing that there was no proof of the insolvency of the bank at the time of the transfer on December 13th. It is true there is no direct testimony to this effect. The bank closed its doors on the morning of the 16th, and thereafter the state bank examiner was appointed receiver; though there may be no legal presumption the bank was insolvent on the 13th, because it was insolvent on the 16th, nevertheless the very short lapse of time between the transaction complained of and the failure, coupled with the acts of the officers of the bank, which in my opinion showed their knowledge of the bank's then insolvent condition, is sufficient to find the bank insolvent on the day of the transfer. The transaction was not in the usual course of business; there was haste (no time to write Mrs. Hibbett to sign the check); the investment was made when Mr. Johnston was absent; no satisfactory reason or explanation being given therefor, and Mr. Ficken's failure to testify are convincing evidence of the bank's condition; and in the language of the Supreme Court, to sustain this transfer to Mrs. Hibbett would open the door for the most brazen acts of preference.

"It is therefore ordered that the exceptions to the report of the master be sustained, and that the plaintiffs assign and transfer said bond and mortgage to the defendant the Mortgage Loan Company, and that Mrs. Hibbett's deposit in the South Carolina Loan Trust Company be credited with the sum of $3,642.24, and that she be paid thereon the amount heretofore paid other depositors, to wit, 25 percent, and there be issued to her a certificate of beneficial interest in the Mortgage Loan Company for an amount equal to 75 per cent therefor.

"Further ordered that the other recommendations in said report not inconsistent with this order be, and the same are hereby, confirmed, and that the property be sold as recommended therein.

"Further ordered, adjudged, and decreed that the defendant the Mortgage Loan Company have judgment against the defendant Mary Elizabeth Eadie for the sum of $3,000, with interest at 8 per cent, from 24th of May, 1924, computed semi-annually, and 10 per cent of said sum as attorneys' fees, and that it likewise have judgment against Ruth F. Conway and Mary Elizabeth Eadie in the sum of $4,000, with interest at 8 per cent computed annually from 30th June, 1921, with 10 per cent of said sum as attorneys' fees, and also the sum of $148 taxes paid, with interest on said sum from 3d May, 1926.

"It is further ordered, adjudged, and decreed that the plaintiffs and the defendants and each of them, and all persons claiming by, through, or under the said plaintiffs and defendants or any of them, be debarred and forever foreclosed of all right, title, interest, and equity of redemption in and to the said mortgaged premises herein ordered to be sold, or any part thereof.

"Further ordered, adjudged, and decreed that all and singular the mortgaged premises described in the complaint in this action, and hereinafter more particularly described, be sold as a whole by order or under the direction of F.K. Myers, Esq., master, at public auction at the Charleston Real Estate Exchange, in the city of Charleston, S.C. after due advertising, the same to be sold for cash, the purchaser to pay all taxes which may become due and payable during the year 1928, and the master for papers.

"Further ordered that in the event the purchaser shall fail to comply with his bid within 30 days from sale, the master is hereby authorized to resell the property at the risk and expense of the defaulting purchaser.

"Further ordered that the plaintiff or any other party to this action may become the purchaser or purchasers of said premises at such sale upon the terms aforesaid, and that the master do make and execute good and sufficient deeds of the premises sold to the purchaser or purchasers upon compliance with the terms of sale, and that upon the delivery of such deed by the master, the sheriff of Charleston County be, and he hereby is, empowered and directed to place such purchaser in full and peaceable possession of said premises.

"Further ordered that the proceeds of sale be applied by the master as follows:

"First. To payment of the costs and expenses of such sale and any lien or liens existing at the time of such sale for taxes upon the said property prior to the year of 1928.

"Second. To the payment to the defendant the Mortgage Loan Company, or its attorneys of record of the amounts adjudged to be due it as hereinbefore set forth. The balance, if any, to be held subject to the further order of this Court.

"The property herein ordered to be sold is described as follows:

"`All that lot of land, with the buildings and improvements thereon, situate, lying and being on the northwest corner of Blake and Drake streets, in the city of Charleston, and State aforesaid, and known by the Number Nine (9), on a plat of twelve lots of land formerly of James Wiley, made by Simons Howe, Surveyors, dated December, 1878.

"`Measuring and containing Fifty-five (55) feet on Blake street, the same on the back line; Eighty-eight (88) feet on Drake street, and the same on the west line, be the same more or less.

"`Butting and bounding north on lot number eight, east on Drake street, south on Blake street, and west on lot number ten on plat aforesaid.

"`Being the same property conveyed to Perry S. Sanford by Walter A. Moore by deed dated ____ day of April, 1920, and duly recorded in R.M.C. Office for Charleston County in Book ___, page ____.'"

Mr. H.L. Erckmann, for appellants, cites: Master's report should be approved: 131 S.C. 105. As to contradiction of witness: Cheves, 44; 89 S.C. 234. "Insolvent bank": 81 S.C. 250; 143 S.C. 539; 141 S.E., 683; 265 U.S. 365; 141 S.C. 323; 136 S.C. 136. Constructive notice to agent cannot operate as notice to principal: 133 N.Y., 97; 33 S.C. 471; 74 S.C. 26; 40 S.C. 151; 132 S.C. 345; 119 S.C. 47; 22 F.2d 129. Cases distinguished: 143 S.C. 516. Amendments during trial must not substantially change the defense: 63 S.C. 311; 30 S.C. 575; 67 S.C. 178; 84 S.C. 267; 81 S.C. 268; 101 S.C. 475; 124 S.C. 395; 146 S.C. 207.

Messrs. Julian Mitchell, and E.L. Visanska, for respondent, cite: Amendment proper in equity case: 124 S.C. 391; 143 S.C. 325. Cases distinguished: 146 S.C. 203. Impeachment of witness: 89 S.C. 234; 92 S.C. 180. Testimony not reviewed on appeal: 44 S.C. 430. As to insolvency: 143 S.C. 516. Burden of proof: 94 S.C. 65; 52 S.C. 472. Agent's fraud imputable to principal: 82 S.C. 97; 75 N.E., 738.


August 28, 1929. The opinion of the Court was delivered by


A majority of the Court is satisfied that the master has arrived at the just conclusion of this case and that his report should have been confirmed by the circuit Judge.

In addition to what he has said, we observe: The funds which were upon deposit with the South Carolina Loan Trust Company to the credit of Mrs. Hibbett were deposited there for the purpose of investment, and prior to December 13, 1926, she was making insistent demands upon the bank that the fund be invested. The investment in the bond and mortgage in question was made by the officers of the bank on December 13, 1926 at a time when the bank was open and depositors who desired to do so were withdrawing their deposits by checks as their necessities required without suggestion of the insolvency of the bank. The transaction in question was as readily sustainable as were the transactions by depositors who drew checks upon their deposits. We do not suppose that it would be contended that the receiver of the bank, which was closed three days later on December 16th, could require a return of the funds withdrawn by depositors upon checks, unless it distinctly appeared that on December 13th the bank was in an insolvent condition and known so to be by its managing officers. In the circuit decree it is conceded that there was no evidence that the bank was insolvent on December 13th, and the conclusion that it was is drawn simply from the fact of the proximity of its failure to that date.

A reliable definition of the "insolvency" of a bank is found in Ex Parte Berger, 81 S.C. 250, 62 S.E., 249, 252, 22 L.R.A. (N.S.), 445: "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." We find no evidence of such condition from the testimony in this case. It is a matter of common knowledge that a bank may be theoretically entirely solvent and be subjected to a condition of panic among its depositors which brings about the condition referred to in the Berger case. We do not doubt that such was the fact with the bank in question on December 16, 1926, when it was forced to close its doors and be taken over by the bank examiner. There is no question in this case of the bona fides of the debt which the bank owed to Mrs. Hibbett; there is evidence tending to show that the bank in compliance with her urgent insistence made the investment of her funds in the bond and mortgage, and we can see no reason why she should suffer, and scores of others on December 13th, 14th, 15th, and the morning of the 16th who withdrew their funds are scatheless.

The judgment of this court is that the decree of the circuit Judge be reversed, and that the report of the master be made the judgment of this Court.

MESSRS. JUSTICES BLEASE and CARTER concur.


For the reasons stated by his Honor, Judge Townsend, in his decree, which will be reported, I think the judgment of the circuit Court should be affirmed.

MR. CHIEF JUSTICE WATTS concurs with MR. JUSTICE STABLER.


Summaries of

Harlem Corporation v. Eadie

Supreme Court of South Carolina
Aug 28, 1929
152 S.C. 242 (S.C. 1929)
Case details for

Harlem Corporation v. Eadie

Case Details

Full title:HARLEM CORPORATION ET AL. v. EADIE ET AL

Court:Supreme Court of South Carolina

Date published: Aug 28, 1929

Citations

152 S.C. 242 (S.C. 1929)
149 S.E. 401

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