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answers as dictated by him, and signs the bank was insolvent or in contemplation of insame with his signature. And we can see solvency, and while so insolvent the bank, no reason for holding that this was not a in collusion with the defendant, delivered to sufficient compliance with the agreement that him, and he took therefrom, the sum of “the answers must be written by the witness $7,000 in cash, which amount was received personally.”
by him under the following circumstances : 3. Where a note is given in settlement of a On February 11th he became a stock holder in suit pending in court against the maker of the bank, having purchased 70 shares of its the note, said party is bound thereby; and capital stock of the par value of $100, and this is true whether the suit itself was in certificates of stock were duly issued and destituted upon a just and valid claim or not. livered to him. On February 13th, in colluCity Electric Ry. Co. v. Floyd County, 115 sion with Allen, who was his brother-in-law Ga. 655, 42 S. E. 45.
and president of the bank, defendant deliver4. No error appears to have been commit ed to Allen the 70 shares of stock, and Allen ted by the trial judge, except as indicated directed the cashier to pay to defendant above, and the judgment is reversed alone $7,000 of the cash of the bank, or to place the for the reason stated in the first division of same to the credit of the defendant as a dethe opinion.
positor, and on February 14th the defendant, Judgment reversed. All the Justices con with a full knowledge of the insolvency of cur.
the bank, drew said $7,000 in cash therefroin.
the bank; the liabilities of the bank being
at that time $60,000 while its assets did not (Supreme Court of Georgia. July 10, 1907.) exceed $10,000. At that time the bank was 1. BANKS AND BANKING DEPOSITS RELA absolutely insolvent and known to be so TION BETWEEN BANK AND DEPOSITOR.
by the defendant. Some of the depositors When money is placed in a bank on general deposit, the title to the money immediately pass
made inquiries with a view to withdrawing es to the bank, and the relation of debtor and their deposits, when the defendant, in colcreditor is created between the bank and the lusion with Allen, made a public display of depositor. The moment the deposit is made the credit of the banker is substituted for the
the $7,000 for the purpose of deceiving then, money.
and they, being so deceived, allowed their de [Ed. Note.--For cases in point, see Cent. Dig. posits to remain in the bank. The assets in vol. 6, Banks and Banking, $ 289.]
the hands of the plaintiff, as receiver, are 2. SAJE-PAYMENT OF CHECK BY INSOLVENT not suficient to satisfy all of the liabilities BANK-LIABILITY OF DEPOSITOR.
of the bank, and it is therefore necessary to If a bank, though insolvent, is still conducting its business and pays a check of a de
recover from the defendant the amount he positor in the usual course of business, and the fraudulently received. It is charged that the depositor has no notice of the insolvency of the payment to Battle by the bank was for the bank, the payment is good, and the depositor
purpose of giving Battle a preference over will be protected. If, however, the depositor is paid, not in the usual course of business, but at
the other creditors of the bank, and was à time when he has notice or knowledge that done with the intent to delay, hinder, and dethe bank is insolvent, and that the intent of fraud such other creditors, and that this inthe bank is to create a preference in his favor over other creditors, the payment is not good,
tent was known to Battle. The prayer was and such depositor is liable to repay to the bank. that Battle be required to receive the ceror its representative, such an amount as would tificates of stock, and that plaintiff have a be the difference between the amount received by him and his pro rata share of the assets of
judgment for the sum of $7,000, with interest the bank upon a final winding up of its affairs.
from February 14, 1902.
The defendant filed [Ed. Note.--I'or cases in point, see Cent. Dig. an answer, alleging as follows: He was never vol. 6, Banks and Banking, § 156.]
a stockholder in the bank. He had no knowl3. TRIAL -- INSTRUCTIONS - SUBMISSION OF edge whatever, until within a few days be MATTER NOT WITHIN THE ISSUES.
fore its failure, that it was insolvent or in There was no evidence authorizing the judge to charge the jury on the law of special de
an embarrassed condition. A week or 10 days posits; and the instruction on this subject was, before the failure, at the solicitation of the under the facts of the case, an error of such a cashier, who assured him that the bank was grave nature as to require a reversal of the judg
solvent and its stock was a good investment, ment.
he agreed to make some investigation as to (Syllabus by the Court.)
the bank's affairs with a view to taking stock Error from Superior Court, Warren Coun
therein, and, making a casual investigation, ty; B. T. Rawlings, Judge.
he ascertained that three named parties owed Action by C. E. McGregor, receiver, against
the bank large sums, but there was other B. L. Battle. Judgment for defendant, and
large indebtedness to the bank that he did plaintiff brings error. Reversed.
not know of. In ignorance of the indebtedMcGregor, as receiver of the Bank of ness, other than that of the three persons Warrenton, brought suit against Battle, al above referred to, he agreed to take $15,000 leging that on February 17, 1902, and prior of stock in the event that one of such persons thereto, and especially on February 14th the | paid the entire indebtedness and the others
reduced theirs to a safe amount. These nego money passed to the bank, and the relation tiations began about February 1st; and on of debtor and creditor was created between February 10th he agreed to take the stock on the parties. "The moment the deposit was the conditions referred to. He made arrange made the credit of the banker was substitutments by which he obtained the money, and ed for the money.” Ricks v. Broyles, 78 Ga. on February 12th deposited in the bank 614, 3 S. E. 773, 6 Am. St. Rep. 280; Scho$7,000 which he expected to use to pay for field Mfg. Co. v. Cochran, 119 Ga. 901, 17 the stock. On February 14th he happened to S. E. 208. The defendant admits in his anbe in the bank, when the cashier, who had swer and in his evidence that he deposited been very officious in endeavoring to induce the money in the bank. The question, therehim to take the stock, without any request fore, is whether it was general deposit or a from him, handed him through the window a special deposit. The money was turned over paper, which, to his surprise, he discovered to the officers of the bank. There was no was a certificate for $7,000 of stock. He request that the deposit should be kept septhen stated to the cashier that he was not to arate from the other funds of the bank. It take any of the stock except upon certain was entered upon the books as a general deconditions, and asked the cashier where was posit. A certificate of deposit was issued to Mr. Allen, the president. On being informed the defendant, which, so far as the evidence that Mr. Allen was in his office in the rear
discloses, had none of the indicia of a special of the bank, he immediately took the certif- | deposit. When the defendant sought to withicate to Allen, and asked him if the condi
draw his money, he signed a check upon the tions on which he was to take the stock had
bank- the usual manner in which general been complied with. On being informed that deposits are withdrawn. The transaction they had not, defendant at once told Allen
had all of the characteristics of a general that he could not take the stock until these
deposit, and was entirely lacking in any of conditions had been complied with, and left
the essential elements of a special deposit. the certificate of stock with Allen. It was
It true that on the day following the makimmediately after this that the defendant
ing of the deposit, when the check drawn by drew out his money which was on deposit in
the defendant was paid, he received in paythe bank. It was not placed there in pay
ment of his check a part of the identical ment for stock, and was not passed to the
money that he had deposited the day bestock account with the defendant's knowledge fore, but he received other money from the and consent. Allen agreed to release the
bank also; the amount of money put in by defendant from his contract for the stock,
him not being on that day sufficient to disand, in pursuance of this agreement, paid charge his check in full. What he received him the money wbich be had deposited. The
on the day following his deposit was the montrial resulted in a verdict for the defendant;
ey of the bank. It was true that it was his and the plaintiff made a motion for a new
money at one time on the preceding day, trial, which being overruled he excepted.
but, as a legal consequence resulting from
the deposit in the manner in which it was A. L. Miller, S. H. Sibley, L. D. McGregor, made, title to the money vested in the bank; and Davis & Miller, for plaintiff in error.
E. and, when he drew his check as a general P. Daris, for defendant in error.
depositor, while he received back some of
the very money which he had himself deposCOBB, P. J. (after stating the facts). 1. ited, he did not receive it as his own money, The liability of the defendant to the plaintiff but as the money of the bank. Some of this depends upon the character of the deposit money, although the identical money that he made by bim when the $7,000 were turned had deposited on the day before, was over to the bank. If it was a special deposit much the property of the bank as the refor a particular purpose-that is, to be kept mainder of the amount paid to him which by the bank intact to be used to pay for the came from other funds of the bank. There stock if the conditions upon which he was are respectable authorities holding that if a to purchase were complied with he would bank receives a general deposit at a time not be liable to the plaintiff for withdrawing when it is insolvent, and its insolvency is the deposit at the time that he did. If the known to the officers of the bank, but unDoney was deposited with the bank for safe. known to the depositor, the depositor may keeping only, there to remain intact until reclaim his deposit; no title to the money called for, the defendant would have the passing on account of the fraud perpetrated right to call for the same at any time, and upon him. In some cases this doctrine seems have delivered to him the parcel containing
to have been recognized in the general terms his money, without reference to the financial above stated. In others it has been limited condition of the bank at the time that the to those cases where the money of the dedemand for the special deposit was made up
nday and da
The ai bare ! Entert
positor could be identified and separated on it. In either event, no title to the money
from the general funds of the bank. In othpassed to the bank. Zane on Banks & Bank er cases it has been held that the doctrine ing, $ 162 et seq. If the moner ras placed does not apply if the money of the depositor in the bank on general deposit, the moment has become mingled with the general funds the deposit became complete title to the
of the bank. 5 Cyc. 565; 2 Morse on Banks
(4th Ed.) $ 629; Boone on Banks, $ 295; Magee on Banks, $ 333; Zane on Banks, $ 344; 3 Am. & Eng. Enc. Law (2d Ed.) 847. The Code declares that if an insolvent bank or banker, with knowledge of such insolvency, shall receive money on general deposit, and fail to pay the depositor within three days after demand, such banker or officer in charge of the bank receiving the deposit shall be guilty of a felony. Civ. Code 1895, § 1982; Pen. Code 1895, § 207. The primary purpose of this provision is to punish the officers of a bank who receive on deposit money of others, knowing that the bank is in a condition where it cannot repay the same. It is contended that this is a recognition, by the General Assembly, of the fact that the receiving of the deposit under such circumstances is a fraud on the depositor who is ignorant of the condition of the bank, and therefore is in effect a recognition of the principle above alluded to, which authorizes a depositor to reclaim his deposit. It is to be noted, however, that the banker or officer of an incorporated bank may prevent a prosecution by repayment of the deposit within three days after demand. In the case of a private banker he may repay the same from any assets owned by him independently of those embarked in his banking business, or assets thus embarked so long as he is in a position where he can legally control the disbursement of such assets; but in the case of an officer of an incorporated bank, in order to prevent a prosecution, he must refund to the depositor the amount of his deposit out of his own assets, for the penalty of the law is placed upon him as an individual, and he has no authority, by virtue of his office in the bank, to use the assets of the bank for the purpose, unless it is done by the authority of those in control of the bank, and under the circumstances it is lawful for the bank to make such a disposition of its assets. The Code also declares that all conveyances, assignments, transfers of stock, or other contracts made by the bank in contemplation of insolvency, or after insolvency, except for the benefit of all creditors and stockholders, shall be fraudulent and void unless made to an innocent purchaser for value, without notice or knowledge of the condition of the bank, and the officers making or consenting to such conveyance or contract shall be punished as for a felony. Civ. Code 1895, § 1979; Pen. Code 1895, § 208. The purpose of this provision is to prevent the bank from preferring one of its creditors when the fact of insolvency is known to the creditor. A depositor by general deposit is a mere creditor, and if the bank makes to the depositor a conveyance, or assignment, or transfer of stock, or other contract the legal effect of which is to give to such depositor a preference over the other creditors, the transaction is void, and the officer conducting the same a felon. It is a well-settled principle that,
if one obtains the goods of another under a contract of sale as the result of a fraudulent misrepresentation as to his solvency, the seller, upon discovering the fraud, may rescind the sale and reclaim the goods in the event they are still in the possession of the buyer, and the rights of innocent parties are not affected by such reclamation. It may be therefore that where, by the fraudulent representation of the officer of a bank as to its solvency, one is induced to make a general deposit of his money, the depositor may, after the discovery of the fraud that has been perpetrated upon him, recover the money that he has deposited, provided the same can be identified and the actual money received by the bank returned to him; but, where one intending to become a depositor in a bank makes no inquiry as to its solvency, and is not induced to make the deposit as the result of any statement made by the officers of the bank, such depositor is in no better position than any other person who deals with an insolvent under the impression that he is solvent. One who sells goods to an insolvent, such sale not being brought about by any fraudulent misrepresentation, cannot, after the goods have been delivered, reclaim the same upon the ground that he has since discovered that his buyer is insolvent, even though the fact of insolvency were well known to every other person than the seller himself. Upon the same principle we think that where one deals with a bank upon the assumption that it is solvent, and intrusts his money to it as a general depositor, he has no superior claim over other creditors growing out of the fact that he was ignorant of the insolvency at the time of the deposit; there being no other fact amounting to an inducement to make the deposit other than the bank holding itself out to the world as a bank of deposit. We do not think that the mere silence of the officers of the bank as to its condition at the time of the deposit is sufficient either to authorize a depositor to reclaim his money on account of a fraud, or to give him any superior lien over other creditors in the distribution of the assets of the bank. As stated above, however, we are aware that there are respectable authorities which go to this extent. 2. If a bank is insolvent, but is still conducting its business, and pays the check of a depositor in the usual course of business, and the depositor has no notice of the insolvency, the payment is good, and the depositor is protected notwithstanding the bank is actually insolvent. In Hill v. W. & A. R. Co., 86 Ga. 284, 12 S. E. 635, it was held that a depositor who draws his check on a bank and receives effects therefrom, without notice of, or reason to suspect, its insolvency, will be treated as a bona fide purchaser under the act above referred to. See, also, Dutcher v. Importers' Bank, 59 N. Y. 5. There is no ruling in the case in 86 Ga. 284.
12 S. E. 635, as to what would be the effect
upon the transaction if the depositor knew of the insolvency, or bad reason to suspect it, at the time that he received payment of his check, when such payment was made while the bank was still in operation and the payment made in the usual course of business. It is a well-known fact that the suspicion that a bank is insolvent causes all depositors who are acquainted with the facts leading to the suspicion to rush at once and withdraw their deposits. A run on a bank is always produced by those who think they have reason to suspect that the bank is in a failing condition; and we are not prepared to hold if a bank is still in operation, open during the usual hours of business, paying its checks in the order in which they are presented, according to the custom of bankers, that a depositor who merely had reason to suspect the solvency of the bank, this being the motive for his drawing a check, would be required to repay to the bank the amount so withdrawn, less what would be bis pro rata share in the assets of the bank on the day that the amount was withdrawn, in the event that the bank was afterwards forced to liquidation, and was, in fact, insolvent. Neither are we prepared to hold that one who actually knows that a bank is insolvent, but does nothing except to draw his check and present it and receive payment over the counter in the usual course of business, would be required to refund the amount so withdrawn, less bis pro rata share, upon a final winding up of the affairs of the bank. As we understand this record a decision of these questions is not necessary. But, when a depositor with notice, or knowledge, or reason to suspect that a bank is insolvent, by collusion with the officers of a bank, receives payment of his check not in the usual course of business, and under such circumstances that payment to him gives him a preference over the other creditors, the depositor is guilty of a fraud upon the other creditors, and will be required to refund all of the amount so withdrawn by him, except what would be his proportion of the assets upon the winding up of the affairs of the bank. And especially would this be true in a case where the doors of a bank were closed and other depositors were not being paid and the depositor receiving his money was singled out as the sole depositor, or one of a select few, who were being paid, when the depositors, as a class, were not being paid in the order in which their checks were presented. It has been held that if a payment was made not in the ordinary course of business, when the bank was actually, though not avowedly, insolvent, the payee cannot hold the amount paid to him, though he was ignorant of the bank's condition. 2 Morse on Banks (4th Ed.) $623. Payment made by an insolvent bank, or made in contemplation of insolvency, with the intent to give a preference to a particular creditor, is void, irrespective of
whether the insolvency was open and notorious, or whether the payee knew of the insolvency or motive of the bank in making the payment. Boone on Banks, & 301. Under our statutes, however, it would seem that if the depositor, although paid not in the usual course of business, was ignorant of the insolvency and of the intent of the bank to prefer him, he would be protected, and not required to refund. However, it would seem, under some circumstances, that payment out of the usual course of business would be a circumstance to be given great weight in determining whether there was notice, as a payment made with a view of giving a preference to a particular creditor is rarely, if ever, made in the usual course of business. See, in this connection, Clarke v. Ingram, 107 Ga. 565, 33 S. E. 802.
3. There was no evidence whatever authorizing the instruction of the judge on the subject of special deposits. The instruction of the judge, that if the defendant placed his money on deposit, and such action was induced by the officers of the bank, and if the insolvency of the bank was unknown to him, he would have a right to withdraw the money wben he learned of the insolvency, was also unauthorized by the evidence; there being no evidence whatever that there was any inducement held out to
thint tbemen ke the deposite which hela hautete
claims was a mere general deposit. The errors thus comunitted are of such grave nature, under the facts of the case, as to require a reversal of the judgment. The assignment made by the president and cashier of the bank, without the authority of the board of directors, was admissible simply as a circumstance showing the insolvency of the bank; it being, in effect, an admission of both the president and the cashier that the bank was insolvent on the day of the transaction in question, but the rejection of this evidence probably would not have been alone sufficient reason for reversing the judgment. Judgment reversed.
All the Justices con
RAGAN V. STANDARD SCALE CO. (Supreme Court of Georgia. June 15, 1907.) SUBROGATION-PURCHASERS OF INCUMBERED PROPERTY.
Where one purchases a certain piece of property against which there are two recorded mortgages, and pays off the senior mortgage out of the purchase money, and it is canceled, equity will not, in the absence of an agreement between the parties to that effect, subrogate him to the rights of the senior mortgagee, as against the other incumbrancer, whose lien was subject to the senior mortgage, but prior to the purchase.
[Ed. Note.--For cases in point, see Cent. Dig. vol. 44, Subrogation, $ 38.]
(Syllabus by the Court.)
Error from Superior Court, Floyd County; Moses Wright, Judge.
Action by the Standard Scale Company against R. J. Ragan. Judgment for plaintiff, and defendant brings error. Reversed.
The Standard Scale Company filed an equitable petition against Ragan, and alleged the following facts: On May 26, 1902, one Corley executed and delivered to the Exchange Bank of Rome certain promissory notes for the principal sum of $240, and secured the notes by a mortgage on one “De Loach paragon" planer, and the mortgage was recorded on May 27, 1902. Subsequently Corley executed to Ragan a mortgage covering the same property, which was recorded on October 8, 1902, and “some time during the month of November, 1902, petitioner bought said property from said Corley for the sum of $200, and out of said purchase price it (plaintiff] paid the Exchange Bank of Rome the sum of $160; said amount being the balance due · said bank upon said note and mortgage held by it. Upon receipt of said sum, said bank canceled its said mortgage, and surrendered the same to Corley.” Ragan obtained judgment in the city court against Corley on Corley's note and mortgage to him, and the execution was levied on the property described in the mortgage; and to this levy the Standard Scale Company interposed a claim. Corley is insolvent and has left the state. It was prayed “that suid Ragan be enjoined from proceeding further with said case in the city court until this cause can be heard and disposed of; that petitioner be subrogated to the rights of said bank as against said property; that said Ragan be required to pay
petitioner the sum of $160, with 8 per cent. interest thereon from November 6, 1902; and that upon failure to pay said aniount, with interest, said property be found not subject to the mortgage fi. fa. held by said Ragan." The case was submitted to the presiding judge upon an agreed statement of facts, which accorded with the fore going statement, and the court rendered judgment as follows: "That the property levied upon and claimed in said cause be, and the same is hereby, found not subject to the lien of plaintiff's fi. fa. unless plaintiff in fi. fa. (Ragan) pay over to claimant (Standard Scale Company) within thirty days from the date hereof the sum of $160, with 8 per cent. interest thereon from November 6, 1902." Ragan excepted.
C. E. Davis and J. W. & G. E. Maddox, for plaintiff in error. Dean & Dean, for defendant in error.
cases where the party claining it advanced the money to pay a debt which, in the event of default by the debtor, he would be bound to pay, or where he has some interest to protect, or where he advanced the money under an agreement, expressed or implied, made either with the debtor or creditor, that he would be subrogated to the rights and remedies of the creditor." The case of Simpson v. Ennis, 114 Ga. 202, 39 S. E. 853, which is relied upon by the defendant in error to support the ruling of the court below, is not in point in the case at bar. In that case Simpson purchased certain lands from the heirs of a deceased person. At the time of the purchase it was represented to Simpson by the heirs and their attorney that there were no other debts against the estate, except one due the Georgia Loan & Trust Company and some state and county taxes, which it was agreed that the purchaser should pay out of the purchase money, and which he did so pay. There is nothing in the record to show that the purchaser bad either actual or constructive notice of any other debts due by the decedent. Subsequently to this conveyance the defendant qualified as administrator of the estate of said deceased, and brought an action of ejectment against the grantees of Simpson to recover, as the property of the decedent, the lands thus sold in order to subject them to judgments which had been obtained against him as administrator. Simpson filed an equitable petition to enjoin the administrator from prosecuting the ejectment suits until he should have reimbursed the petitioner for the amounts paid by him in extinguishing the debt to the Georgia Loan & Trust Company; and this court very properly held that the plaintiff was subrogated to the rights of the creditor whose debts he bad extinguished as against the plaintiff in the ejectment suits. In the present case, however, tue plaintiff purchased a piece of property against which there were two recorded mortgages. He paid off the senior mortgage, and “the bank (the holder thereof] canceled its said mortgage and surrendered the same to Corley," the plaintiff's vendor; and the plaintiff now seeks to be subrogated to the rights of the bank as against the holder of the junior incumbrance.
The rule in such cases is thus stated in Sheldon on Subrogation (2d Ed.) 48: "Where the purchaser from a mortgagor pays off the mortgage and bas It discharged without more, equity will not subrogate him to the rights of the mortgagee against an incum. brancer whose lien is subject to the mortgage, but prior to the purchase.” And in 27 Am. & Eng. Enc. of L. (2d Ed.) 238, it is said: “A purchaser of property who has discharged an incumbrance thereon will be subrogated to the lien of such incumbrance as against the holders of other incumbrances of which he had no notice, but not as against the holders of other incumbrances of which he had notice, either actual or constructive."
BECK, J. (after stating the facts). 1. The doctrine of subrogation was ably discussed by Justice Cobb in the case of Wilkins v. Gibson, 113 Ga. 31, 38 S. E. 374, 81 Am. St. Rep. 204, where the rule was announced (page 47 of 113 Ga., and page 381 of 38 S. E.) that "subrogation will arise only in those