The opinion of the Court was delivered by
Mr. Justice StabeEr.
For the sake of brevity, in our discussion of the questions raised by this appeal, we shall refer to the American Bank & Trust Company of Columbia as the Columbia Bank, to the Loan & Savings Bank of Camden as the Camden Bank, and to the Merchants’ & Planters’ Bank of Plartsville as the Hartsville Bank.
On the afternoon of June 25, 1926, the directors of the Columbia Bank passed a resolution admitting its inability to meet its obligations, and placed its affairs in the hands of the State Bank Examiner for a period of 30 days. Subsequently thereto by order of Court in the case of
Rice et al. v. City of Columbia et al.,
James F. Peurifoy was appointed receiver.
For several months prior to the closing of the Columbia Bank, • it and the Camden Bank had maintained reciprocal accounts, transmission of items between the two banks being by mail.
Under the terms of the agreement between the two banks, all items received by the Columbia Bank from the Camden Bank for collection or credit were received subject to the actual receipt of the proceeds thereof by the Columbia Bank; the Columbia Bank was not responsible for losses in the mail and did not guarantee the banks to which the items were sent by it for collection; the Columbia Bank, in the collection of any item, remained the agent of the Camden
Bank until the Columbia Bank received “actual final payment” of the item handled by it for the Camden Bank. The proceeds of items received by the Columbia Bank for collection, as in the case of the draft in question, were not deposited by it to the account of the Camden Bank, nor subject to the checks or drafts of that bank, until, as has been said, the Columbia Bank received actual final payment of the items.
The Columbia Bank and the Hartsville Bank also maintained reciprocal accounts.
On June 21, 1926, one F. M. Wooten, of Camden, drew a draft on J. R. Young & Co., of Hartsville, in favor of the Camden Bank in the sum of $8,849.45. The Camden Bank sent this draft to the Columbia Bank for collection and credit. The Columbia Bank, in turn, in conformity with the arrangements between itself and the Camden Bank, forwarded the draft to the Hartsville Bank for collection. It appears that no acknowledgment of the receipt of this draft was received by the Camden Bank from the Columbia Bank.
The Columbia Bank received notice from the Hartsville Bank, in the regular course of business, on June 25, 1926, that the draft hád been collected and the proceeds placed to the credit of the Columbia Bank. Thereafter, between 12 and 1 o’clock of that day, the Columbia Bank advised the Camden Bank by telephone that the draft had been paid, and, before its closing hour, placed the amount thereof to the credit of the Camden Bank. On the morning of June 26, 1926, the Camden Bank received by mail from the Columbia Bank a memorandum of this item, bearing this stamp:
“We credit June 26, 1926. American Bank & Trust Company, Columbia, S. C.”
No actual cash or check was ever received by the Columbia Bank from the Hartsville Bank for the proceeds of the draft, payment being made through credit to the account of the Columbia Bank by the Hartsville Bank as above indicated.
Later, after the affairs of the Columbia Bank had been placed in the hands of the receiver, demand was made upon him by the Camden Bank for the full amount of the draft, which demand was refused. This proceeding was then begun by the Camden Bank in order to determine title to the proceeds of the draft.
The matter came.on to be heard before his Honor Judge Dennis, in the Court of Common Pleas for Richland County, and on November 17, 1926, Judge Dennis filed his decree denying the contentions of the Camden Bank and holding that the Camden Bank, as to the proceeds of the draft in question, was in the position only of an ordinary creditor and could only share ratably with other creditors of the Columbia Bank in such proceeds.
From this decree the Camden Bank appeals. The question raised by the exceptions is whether, after the Columbia Bank collected the draft through the Hartsville Bank and placed the proceeds of same to the credit of the Camden Bank on June 25, the relation between the Camden Bank and the Columbia Bank was that of principal and agent or
cestui que
trust and trustee,'or that of creditor and debtor, which question involves also the question of fraud on the part of the Columbia Bank in crediting the amount collected to the account of the Camden Bank while insolvent and on the eve of its final closing.
It is too well established to need citation of authority that, when the Camden Bank sent the draft to' the Columbia Bank for “collection and credit,” the relation of principal and agent was created between them. Under the terms of the agreement between the Columbia Bank and the Camden Bank, until the Columbia Bank collected the draft, the sender of the draft, the Camden Bank, was the owner and principal, and the receiver, the Columbia Bank, was the agent. Who, after the collection was made, was the owner of the proceeds of the draft depends upon the intention of the parties,
which, in turn, is to be gathered from their agreement here-inbefore set forth and their custom of doing business.
The appellant contends that “actual final payment,” as these words are used in the agreement between the two banks, means the actual receipt
in cash
of the proceeds of the draft by the Columbia Bank.
We do not agree with this■ contention. As has-been pointed out, there was a mutual agreement between the two banks, whereby the Columbia Bank collected items sent to it by the Camden Bank and, after final payment, credited such items to the account of the Camden Bank. When the Columbia Bank elected to have the proceeds of the draft in question credited to its account at the Hartsville Bank, instead of having such proceeds sent to it in cash, and received due notice of such'credit, it would not be heard to deny that it had received
actual final payment
of the draft. If the Columbia Bank could, under these circumstances, deny that actual final payment had been made to it, then it might have deferred receipt of
cash
for an indefinite period and during all that time could have denied responsibility to the Camden Bank, although the funds had been deposited to its credit in the Hartsville Bank and it had the use and control of them as a depositor in that bank in the meantime. The Columbia Bank, therefore, when it received notice from the Hartsville Bank that the draft had been collected and the proceeds of same credited to its account at that bank, and charged the amount of the draft against the account of the Hartsville Bank, and credited the amount to the account of the Camden Bank, became liable to the Camden Bank as to any other depositor creditor.
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The opinion of the Court was delivered by
Mr. Justice StabeEr.
For the sake of brevity, in our discussion of the questions raised by this appeal, we shall refer to the American Bank & Trust Company of Columbia as the Columbia Bank, to the Loan & Savings Bank of Camden as the Camden Bank, and to the Merchants’ & Planters’ Bank of Plartsville as the Hartsville Bank.
On the afternoon of June 25, 1926, the directors of the Columbia Bank passed a resolution admitting its inability to meet its obligations, and placed its affairs in the hands of the State Bank Examiner for a period of 30 days. Subsequently thereto by order of Court in the case of
Rice et al. v. City of Columbia et al.,
James F. Peurifoy was appointed receiver.
For several months prior to the closing of the Columbia Bank, • it and the Camden Bank had maintained reciprocal accounts, transmission of items between the two banks being by mail.
Under the terms of the agreement between the two banks, all items received by the Columbia Bank from the Camden Bank for collection or credit were received subject to the actual receipt of the proceeds thereof by the Columbia Bank; the Columbia Bank was not responsible for losses in the mail and did not guarantee the banks to which the items were sent by it for collection; the Columbia Bank, in the collection of any item, remained the agent of the Camden
Bank until the Columbia Bank received “actual final payment” of the item handled by it for the Camden Bank. The proceeds of items received by the Columbia Bank for collection, as in the case of the draft in question, were not deposited by it to the account of the Camden Bank, nor subject to the checks or drafts of that bank, until, as has been said, the Columbia Bank received actual final payment of the items.
The Columbia Bank and the Hartsville Bank also maintained reciprocal accounts.
On June 21, 1926, one F. M. Wooten, of Camden, drew a draft on J. R. Young & Co., of Hartsville, in favor of the Camden Bank in the sum of $8,849.45. The Camden Bank sent this draft to the Columbia Bank for collection and credit. The Columbia Bank, in turn, in conformity with the arrangements between itself and the Camden Bank, forwarded the draft to the Hartsville Bank for collection. It appears that no acknowledgment of the receipt of this draft was received by the Camden Bank from the Columbia Bank.
The Columbia Bank received notice from the Hartsville Bank, in the regular course of business, on June 25, 1926, that the draft hád been collected and the proceeds placed to the credit of the Columbia Bank. Thereafter, between 12 and 1 o’clock of that day, the Columbia Bank advised the Camden Bank by telephone that the draft had been paid, and, before its closing hour, placed the amount thereof to the credit of the Camden Bank. On the morning of June 26, 1926, the Camden Bank received by mail from the Columbia Bank a memorandum of this item, bearing this stamp:
“We credit June 26, 1926. American Bank & Trust Company, Columbia, S. C.”
No actual cash or check was ever received by the Columbia Bank from the Hartsville Bank for the proceeds of the draft, payment being made through credit to the account of the Columbia Bank by the Hartsville Bank as above indicated.
Later, after the affairs of the Columbia Bank had been placed in the hands of the receiver, demand was made upon him by the Camden Bank for the full amount of the draft, which demand was refused. This proceeding was then begun by the Camden Bank in order to determine title to the proceeds of the draft.
The matter came.on to be heard before his Honor Judge Dennis, in the Court of Common Pleas for Richland County, and on November 17, 1926, Judge Dennis filed his decree denying the contentions of the Camden Bank and holding that the Camden Bank, as to the proceeds of the draft in question, was in the position only of an ordinary creditor and could only share ratably with other creditors of the Columbia Bank in such proceeds.
From this decree the Camden Bank appeals. The question raised by the exceptions is whether, after the Columbia Bank collected the draft through the Hartsville Bank and placed the proceeds of same to the credit of the Camden Bank on June 25, the relation between the Camden Bank and the Columbia Bank was that of principal and agent or
cestui que
trust and trustee,'or that of creditor and debtor, which question involves also the question of fraud on the part of the Columbia Bank in crediting the amount collected to the account of the Camden Bank while insolvent and on the eve of its final closing.
It is too well established to need citation of authority that, when the Camden Bank sent the draft to' the Columbia Bank for “collection and credit,” the relation of principal and agent was created between them. Under the terms of the agreement between the Columbia Bank and the Camden Bank, until the Columbia Bank collected the draft, the sender of the draft, the Camden Bank, was the owner and principal, and the receiver, the Columbia Bank, was the agent. Who, after the collection was made, was the owner of the proceeds of the draft depends upon the intention of the parties,
which, in turn, is to be gathered from their agreement here-inbefore set forth and their custom of doing business.
The appellant contends that “actual final payment,” as these words are used in the agreement between the two banks, means the actual receipt
in cash
of the proceeds of the draft by the Columbia Bank.
We do not agree with this■ contention. As has-been pointed out, there was a mutual agreement between the two banks, whereby the Columbia Bank collected items sent to it by the Camden Bank and, after final payment, credited such items to the account of the Camden Bank. When the Columbia Bank elected to have the proceeds of the draft in question credited to its account at the Hartsville Bank, instead of having such proceeds sent to it in cash, and received due notice of such'credit, it would not be heard to deny that it had received
actual final payment
of the draft. If the Columbia Bank could, under these circumstances, deny that actual final payment had been made to it, then it might have deferred receipt of
cash
for an indefinite period and during all that time could have denied responsibility to the Camden Bank, although the funds had been deposited to its credit in the Hartsville Bank and it had the use and control of them as a depositor in that bank in the meantime. The Columbia Bank, therefore, when it received notice from the Hartsville Bank that the draft had been collected and the proceeds of same credited to its account at that bank, and charged the amount of the draft against the account of the Hartsville Bank, and credited the amount to the account of the Camden Bank, became liable to the Camden Bank as to any other depositor creditor.
So we are led to conclude that when the various steps had been taken, as indicated above, in the collection of the draft, culminating in the Columbia Bank’s giving credit to the Camden Bank for the amount so collected, against which credit the Camden Bank could then issue its checks, the relation of principal and agent, existing up to that time
between the Columbia Bank and the Camden Bank, ceased, and that of creditor and debtor arose, subject, of course, to any intervening cause, such as fraud on the part of the Columbia Bank, from which a trust in such fund might be created in favor of the Camden Bank.
The appellant contends that the Columbia Bank became a trustee
ex maleficio,
by its action in crediting appellant’s account with the proceeds of the draft during the closing hours of the Columbia Bank, when the bank was hopelessly insolvent and such fact known to its officers; that such action on the part of the officers of the Columbia Bank constituted such a palpable fraud upon the appellant as entitles it to a preferential claim; and that this fund, paid into the hands of the receiver as a special fund, augmenting the assets of the Columbia Bank, may be identified in the hands of the receiver, and is impressed with a trust in favor of the Camden Bank.
We think that there is merit in this contention of the appellant. The trial Judge found, from which there is no appeal, that the Columbia Bank was insolvent on June 25, 1926, at the time that the proceeds of this draft were credited to the account of the appellant, and had been insolvent for some time prior thereto.
In
Ex parte Berger,
81 S. C.,
244;
62 S. E., 249; 22 L. R. A. (N. S.), 445, this Court quotes with approval the following from
Wasson v. Hawkins
(C. C.), 59 F., 233:
“The keeping of the bank open, and the conducting of its business in the usual manner, constituted a representation to its customers of the solvency of the bank, upon which they had a right to rely; and if the bank was known to be insolvent by the officers who> were charged with its management, the concealment of that fact from a person about to make a deposit would constitute a fraud upon him. The title acquired by the bank to the money and checks, deposited under such circumstances, would be voidable at the election of the depositor, who could bring suit to recover his deposit
without any previous demand. The bank would become a trustee
ex maleficio,
and would hold the deposit for the use of the depositor and subject to' his right of reclamation.”
See, also,
Steele v. Allen,
240 Mass., 394; 134 N. E., 401; 20 A. L. R., 1203;
St. Louis & S. F. R. Co. v. Johnson,
133 U. S., 566; 10 S. Ct., 390; 33 L. Ed., 683.
The respondent admits by its answer that the bank was insolvent, but contends that there is no evidence in the case to show that the officers of the bank knew of such insolvency. On this point the Circuit Judge in his decree says:
“I do not think that the cashier of the bank knew of this insolvency, but I believe that the president, Mr. Mauldin, and the chairman of the board, Mr. Matthews, had sufficient information to put them on notice or knowledge of its insolvent condition during the last few weeks prior to June 25, 1926.”
This conclusion by him was reached, presumably, upon the facts of the case before him. Furthermore, the Columbia Bank closed its doors at 2 o’clock on June 25, 1926, and thereafter, on the same day, the directors by resolution admitted its inability to meet its obligations and placed its affairs in the hands of the State Bank Examiner, and its doors were never reopened. In the face of these facts, the presumption arises that the officers of the bank knew of its insolvent condition, unless we attribute to them the grossest inattention, neglect, and indifference in the management of its affairs. See
Cragie v. Hadley, 99
N. Y., 131; 1 N. E., 537; 52 Am. Rep., 9.
We are satisfied from the findings of the Circuit Judge, and from all the facts and circumstances of the case, that the Columbia Bank knowingly practiced a gross fraud upon the Camden Bank. It is evident that the responsible officers of the Columbia Bank knew of its hopelessly insolvent condition at the time that bank credited the account of the Camden Bank with the proceeds of the draft; that they knew before such entry was made that these funds belonged to the Cam
den Bank] and that the Columbia Bank had no equity in same and had no right to transfer them to the general funds and mix them with the general assets of the bank for the benefit of its general creditors to the exclusion of the Camden Bank, for which they were collected.
We think that the fund in question in the hands of the receiver, by reason of the fraudulent acts of the Columbia Bank referred to, is impressed with a trust in favor of the appellant, and that the appellant is entitled to receive payment of same.
In support of their position, the respondents cite the recent case of
Bank v. Bradley,
reported in 136 S. C., 511; 134 S. E., 510. While we adhere to the principles so well stated by Mr. Justice Cothran in his opinion in that case, that decision does not govern here. The facts of this case completely differentiate it from the
Bradley case.
The judgment of this Court is that the judgment of the Circuit Court be reversed and the case remanded fi> that Court for further proceedings not inconsistent with the views herein expressed.
Mr. Chief Justice Watts concurs.
Messrs. Justices Cothran and Carter concur in result.
Mr. Justice BeeasE disqualified.