Opinion
15150
October 30, 1940.
Before GRIMBALL, J., Charleston, June, 1940. Affirmed.
Suit by the Citizens Southern National Bank of South Carolina against James Conner seeking recognition of the continuance in plaintiff of the fiduciary powers of plaintiff's predecessor a state bank which had been converted into plaintiff national bank, and to require defendant to pay over to plaintiff money to which plaintiff is entitled as trustee under the will of Henry W. Conner. From a decree for plaintiff, defendant appeals.
The order of Judge Grimball follows:
The Citizens and Southern Bank of South Carolina and James Conner were appointed jointly as executors under the will of the late Henry W. Conner, Esquire, and qualified as executors. Mr. Conner, a prominent member of the Charleston bar, died on the 24th of November, 1938. On January 8, 1940, after both executors had qualified and were well along in administering the estate. The Citizens and Southern Bank of South Carolina was converted into The Citizens and Southern National Bank of South Carolina, a national banking association, with the right and power to act as executor and trustee.
The sole question presented in this case is, Did the conversion of the state bank into a national bank deprive the plaintiff bank in this case of the right to continue to act as executor and the right to act as trustee under the will?
The question was raised by James Conner, who has denied the right of the bank to continue to act as executor and the right of the bank to receive and handle the funds which the will provided should go to the trustee named in the will. The suit presents an issue that is purely an issue of law because there is no disagreement over the policy of handling the estate, and while substantial rights are involved no money has been lost. James Conner, the co-executor, is entitled to know the status of the South Carolina law so that he can act with safety with regard to this matter.
The question raised in this case has never been decided in South Carolina. There is no statute in South Carolina that specifically refers to the conversion of a State bank into a national bank. None is necessary because there is ample federal authority, in the absence of a State statute prohibiting such a conversion, to provide for the conversion. When a State bank is converted into a national bank the identity and corporate existence of, the State bank is not destroyed but continues. The national bank acquires both the assets and liabilities of the State bank Metropolitan Nat. Bank v. Claggett, 141 U.S. 520, 12 S. Ct., 60, 35 L.Ed., 841; Michigan Insurance Bank v. Eldred, 143 U.S. 293, 12 S.Ct., 450, 36 L.Ed., 162.
The Federal statute that provides for the conversion of a State bank into a national bank, Title 12, Section 35, U.S.C.A., makes no provision as to the trust powers.
An analogy to the conversion of a state bank to a national bank is the case of a merger or consolidation where two corporations unite and merge their assets.
Where two corporations are consolidated the old one is dissolved and a new corporation is created. Atlantic G. Railroad v. Georgia, 98 U.S. 359, 25 L.Ed., 185, 186; Keokuk Railroad v. Missouri, 152 U.S. 301, 14 S.Ct., 592, 38 L.Ed., 450.
It is significant to note that while the South Carolina law and the Federal law are silent as to what happens to trust powers where a bank is converted from a state bank to a national bank and the same corporation is continued, specific provision as to the continuance of trust powers has been made where two corporations are consolidated and a new corporation is formed. The reason for this is obvious, because there was no occasion for either the State of South Carolina or the United States Congress to make provision that the same corporation could continue to retain its fiduciary powers, while there was definite reason for statutory provision as to the continuance of fiduciary powers in a new corporation. We find the following statutory authority for the policy that fiduciary powers continue.
In 1925, Sections 7757 and 7758 of the Code of 1932 were passed providing machinery for the merger and consolidation of corporations and set forth in Section 7758 the following: "§ 7758. Powers of Consolidated Corporation — Property, Etc., Vested. — When the agreement is signed, acknowledged, filed and recorded, as in the preceding section is required, the separate existence of the constituent corporations shall cease, and the consolidating corporations shall become a single corporation in accordance with the said agreement, possessing all the rights, privileges, powers and franchises, as well of a public as of a private nature, and being subject to all the restrictions, disabilities and duties of each of such corporations so consolidated, and all and singular, the rights, privileges, powers and franchises of each of said corporations."
In 1930, the General Assembly passed Section 7876 providing for the merger of a State bank with a national bank and specifically provided that the new corporation should continue to have the fiduciary powers which the State bank had before the merger.
Title 12, Section 34a, U.S.C.A., providing for the consolidation of state and national banks, specifically provides that all of the rights, franchises, etc., shall vest in the consolidated corporation, and also provides that all other rights and interest as trustee, executor, administrator, etc., shall continue in the new corporation.
In 1926, the General Assembly passed Section 7834 of the Code of Laws of 1932, which provided that if a national bank was converted into a State bank that the fiduciary powers should continue.
Both the South Carolina law and the Federal law recognize the reasonableness of the continuance of fiduciary powers. This Court can see no good reason why such powers should be lost simply because an institution changed its supervision from State supervision to federal supervision, or from federal supervision to State supervision. The policy of having these powers continue is plainly set forth in the statutes in analogous cases and I find that the General Assembly has acted to establish the policy of the continuance of fiduciary powers in the case of a conversion of a State bank into a national bank, although there has been no specific enactment of legislation on this point. Counsel for defendant has presented an argument which is the best argument that can be presented for his side of the case, to the effect that the failure of the Legislature to act in the case of a conversion from a State bank to a national bank shows that the policy of the State is against the continuance of fiduciary powers and that the fiduciary powers therefore do not continue. This argument does not appear to the Court to be sound. On the contrary, all of the decided cases that have been brought to the attention of the Courts where states had statutes similar to the South Carolina statutes with regard to consolidations, have held that when the continuance of the trust powers is provided for by the merger statutes in the case of a consolidation, that the trust powers continue after a conversion from a State bank to a national bank.
In the case of In re Barreiro's Estate, 125 Cal.App., 153, 13 P.2d 1017, a state bank was consolidated with other state banks and the resulting consolidated bank was later converted into and became a national bank. The California Legislature had passed laws providing for the continuance of trust powers in the event of a consolidation or merger, but like the South Carolina Legislature had not specifically provided for the continuance of trust powers in the case of a conversion where the converted bank was the same corporation and not a new corporation as in the case of a merger. The Court held that although there was no specific statute authorizing the converted bank to continue the fiduciary powers that had formerly belonged to the corporation when it was a state bank, that the California Legislature had acted in laying down the policy of continuance of fiduciary powers and that the converted bank had continued to have the fiduciary powers which the state bank had.
In the case of Alt v. Liberty National Bank Trust Company, 260 Ky., 87, 83 S.W.2d 866, the Liberty Bank and Trust Company was converted pursuant to the provisions of Section 35, Title 12, U.S.C.A., and became a national bank under the name of Liberty National Bank and Trust Company of Louisville. Shortly after its conversion its right to continue to act as fiduciary under the original appointment of the State bank was questioned. Suit was filed to determine the rights of the bank. The Court held, first that the question of the right of a State bank to continue to act in a fiduciary capacity after its conversion was a matter of state and not of federal law. Exparte Worcester County National Bank of Worcester, 279 U.S. 347, 49 S.Ct., 368, 73 L.Ed., 733, 61 A.L.R., 987.
The Court then said that the next questions presented were whether the Legislature had the power to permit the continuance of trust powers in a converted bank and if it had the power had it exercised it. The Court held, first, that the Legislature had the power and that although there was no specific statute authorizing the continuance of the power in the case of a conversion that the statutes which authorized the continuance of fiduciary powers in the case of consolidations where a new corporation was formed constituted an exercise of legislative power and that the converted bank continued to have the fiduciary powers. This case cited with approval the California cases of In re Barnett's Estate, 97 Cal.App., 138, 275 P., 453, and In re Barreiro's Estate, 125 Cal.App., 153, 13 P.2d 1017.
In the case of Chicago Title Trust Co. v. Zinser, 264 Ill., 31, 105 N.E., 718, Ann. Cas., 1915-D, 931, two corporations, each of which had fiduciary powers, were consolidated. The Illinois statutes provided for the consolidation of corporations. The Court held that there was a difference between an individual trustee and a corporate trustee; that no personal, individual confidence was imposed in a corporate trustee and that a testator, who had selected a corporate trustee, was presumed to have taken notice of the existing law and the existing legislative policy and that the consolidated corporation retained the right to continue to act as executor and trustee.
Counsel have brought to the attention of the Court decisions from Massachusetts and Virginia in cases in which state banks converted into national banks were not permitted to continue their fiduciary powers.
A leading case in Massachusetts is the Petition of Commonwealth Atlantic National Bank of Boston, 249 Mass. 440, 144 N.E., 443. The Massachusetts Trust Company was named executor under the will and afterwards became converted into a national bank and thereafter consolidated with another national bank. Under the Massachusetts law an executor takes his appointment from the Probate Court in very much the same way that an administrator is appointed in South Carolina and the Court held that the converted bank which had consolidated with another national bank could not act as executor. There is no statute in Massachusetts similar to the South Carolina, California and Kentucky statutes which permit the continuance of fiduciary powers in the event of a consolidation. The decision in the above case was reviewed and confirmed in the case of Commonwealth Atlantic National Bank of Boston, Petitioner, 261 Mass. 217, 158 N.E., 780. In this case the same State Trust Company had been appointed by the Probate Court as trustee under two wills and as conservator of a third estate and was then converted into a national bank and this national bank was consolidated with another national bank under the name The Commonwealth Atlantic National Bank of Boston as in the above case, and the Court again held that the bank could not continue to exercise the fiduciary powers.
Both of those cases are different from the case at bar because in both cases the Court was dealing with a consolidated corporation which was a different corporation from the corporation appointed in the first instance. The Massachusetts law is different from the South Carolina law in that there are no statutes setting out a state policy of the continuance of trust powers and on the contrary the policy is held to be against the continuance of fiduciary powers. These cases can be distinguished from the case at bar because of the difference between the South Carolina statutes and the Massachusetts statutes.
Counsel have also cited to the Court a Virginia case of Hofheimer v. Seaboard Citizens' National Bank of Norfolk, 154 Va., 392, 153 S.E., 656. In this case a State Bank was named as co-executor under a will and thereafter prior to the death of testator it was consolidated with a national bank and the Court refused to allow the consolidated national bank to qualify as executor. On a rehearing in this case, 154 Va., 896, 156 S.E., 581, certiorari denied, 283 U.S. 855, 51 S.Ct., 648, 75 L.Ed., 1462, the Court adhered to its former judgment. If this case had come up today in South Carolina, Sec. 7876 of the Code of 1932, which specifically provides for the continuance of fiduciary powers in the consolidated corporation in South Carolina, would have made the decision opposite to the decision of the Virginia Court. This case can be distinguished and is not applicable and should not be followed for the reasons that it involves a consolidation and not a conversion; it involves a new corporation having the continuance of fiduciary powers and not the same corporation having a continuance of fiduciary powers, and the Virginia statutes are different from those of South Carolina. The Virginia Legislature has not in a case of either conversion or consolidation made provision for the continuance of fiduciary powers. In addition to the above, the Virginia Court makes a distinction between a situation where the executor has taken office prior to the time of the consolidation. In the Virginia case the consolidation happened during the lifetime of the testator before the executor qualified. But the fundamental and important difference is the difference between the action taken by the Legislature of South Carolina providing for the continuance of fiduciary powers and the Virginia statutes which do not make a similar provision.
This is a case of novel impression in South Carolina and a Court in South Carolina is at liberty to follow the authorities from other states that it finds persuasive because of similarity of these statutes to the South Carolina statutes, and because they lay down a policy that in the opinion of the Court is sound public policy and produces a just result. The reasoning in the Massachusetts and Virginia cases does not appeal to this Court as being sound and is not applicable to South Carolina, where the General Assembly has exercised its power to lay down a policy in the State for the continuance of trust powers.
The able and excellent argument made by the counsel for defendant is not supported by the decisions of the Courts in states that have statutes similar to the South Carolina statutes, and this Court feels that justice requires that it follow the reasoning in the California case and follow the Kentucky case which is directly in point.
It, is therefore,
Ordered, first, that the Citizens and Southern National Bank of South Carolina is the co-executor and the trustee under the will of Henry W. Conner.
Further ordered, that James Conner, as co-executor, be authorized and directed to recognize The Citizens and Southern National Bank of South Carolina as his co-executor and the powers which The Citizens and Southern Bank of South Carolina had prior to the conversion of the State bank into a national bank continue in the national bank.
Further ordered, that James Conner, as co-executor, be authorized and directed to deliver to The Citizens and Southern National Bank of South Carolina, as trustee, the cash and securities and other property which are to be delivered to the trustee named in the will and that the trust powers continue in the plaintiff bank.
While I believe that my conclusions are legally correct, I have the additional satisfaction of feeling and believing that had the testator any say in the matter, the result of this decree would most certainly express his wish.
Mr. S. Henry Edmunds, for appellant, cites: Construction of State statutes: 279 U.S. 347; 73 L.Ed., 733; 188 S.C. 39; 198 S.E., 419; 194 S.C. 115; 8 S.E.2d 351. Right of state bank to act in fiduciary capacity after conversion into national bank: 83 S.W.2d 866; 279 U.S. 347; 73 L.Ed., 733; 61 A.L.R., 987; 144 N.E., 443; 158 N.E., 780; 266 U.S. 617; 153 S.E., 656; 156 S.E., 581; 283 U.S. 75.
Messrs. Hagood, Rivers Young, for respondent, cite: Rights of converted state bank: 141 U.S. 520; 35 L.Ed., 841; 143 U.S. 293; 38 L.Ed., 162; 98 U.S. 359; 25 L.Ed., 186; 152 U.S. 301; 38 L.Ed., 450; 105 N.E., 718; 275 P., 453; 13 P.2d 1017.
October 30, 1940. The opinion of the Court was delivered by
The sole question raised by this appeal, as stated by appellant, is: "Where a state bank was named as a co-executor and trustee under a will, and duly qualified thereunder as such co-executor and entered upon the discharge of its duties as such, and subsequently was converted into a national bank, did the national bank continue as the co-executor and the trustee, with the right and power to continue so to act?"
The carefully prepared order of Honorable Wm. H. Grimball, Judge of the Ninth Circuit, correctly answers this question in the affirmative. Let said order be reported as the opinion of this Court.
MR. CHIEF JUSTICE BONHAM, MESSRS. JUSTICES FISHBURNE and STUKES and MR. ACTING ASSOCIATE JUSTICE L. D. LIDE concur.