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MERRIMON v. ASHEVILLE
Factual and Procedural Background
The plaintiffs (J. W. Merrimon, Mrs. J. W. Merrimon, and J. B. Merrimon) sued on behalf of themselves and others to recover assets hypothecated by the Central Bank and Trust Company to the City of Asheville. They alleged the bank owed them $1,818 evidenced by certificates of deposit dated December 6, 1929; February 8, 1930; and October 24, 1930. The bank was closed on November 20, 1930, and its assets were placed under the Corporation Commission, which appointed G. N. Henson as liquidating agent. Plaintiffs alleged the bank's officers had hypothecated collateral (notes, bonds, stocks) aggregating $6,000,000 to secure a city deposit of approximately $4,300,000, that the hypothecation was unlawful and created an unlawful preference, and that their written claim against the city was disallowed. They sought judgment against the bank and the liquidating agent, injunctive relief restraining the city from liquidating the collateral, and an order requiring the city to surrender the collateral to the liquidating agent. Defendants demurred, contending the Corporation Commission (and its agent) had exclusive authority to pursue recovery of the bank's assets and alleging misjoinder. The trial court sustained the demurrers, and plaintiffs appealed.
Legal Issues Presented
- Whether individual depositors may maintain an action to recover assets of a closed bank hypothecated to a depositor (the city) without alleging that the Corporation Commission or its liquidating agent was demanded to pursue recovery and had failed or refused to do so.
Arguments of the Parties
Plaintiffs' Position
- The bank had hypothecated collateral to the City of Asheville unlawfully, constituting a fraud and an unlawful preference affecting plaintiffs' rights as depositors.
- Plaintiffs filed a written claim against the city which was disallowed; they sought judgment against the bank and liquidating agent and injunctive relief to prevent the city from liquidating the collateral and to require surrender of the collateral to the liquidating agent.
Defendants' Position
- The Corporation Commission was in charge of the bank's assets, and only it (and its appointed liquidating agent) had the right to institute actions to recover the bank's assets.
- The complaint also presented misjoinder of parties and causes of action.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Trust Co. v. Rose, 192 N.C. 673 | Authority that individual depositors cannot maintain suit to recover bank assets when the Corporation Commission is in charge unless the commission/agent has been demanded and refused to act. | Applied as governing authority to sustain the demurrer for failure to allege demand and refusal by the Commission or its agent. |
| Richmond Co. v. Trust Co., 195 N.C. 545 | Same principle regarding the exclusive role of the supervisory authority in recovering bank assets and the necessity of alleging demand and refusal. | Applied as controlling authority supporting dismissal on demurrer for lack of such allegations. |
| Douglass v. Dawson, 190 N.C. 458 | Related authority cited in support of the rule regarding recovery of bank assets under supervisory control. | Cited as supporting precedent ("See, also") for the proposition relied upon to sustain the demurrer. |
| Wall v. Howard, 194 N.C. 311 | Related authority cited regarding rights and remedies involving bank assets under official control. | Cited as supporting precedent for the court's conclusion. |
| In re Trust Co., 198 N.C. 783 | Related authority cited concerning proceedings and rights when a bank is placed under the Corporation Commission. | Cited as additional supporting authority for sustaining the demurrer. |
| Roscower v. Bizzell, 199 N.C. 656 | Related authority cited in the same line of decisions regarding recovery of assets and the role of supervising authorities. | Included among the authorities relied upon to affirm the sustaining of the demurrer. |
Court's Reasoning and Analysis
The court treated the plaintiffs' cause of action as resting on the allegation that bank officers lacked authority to hypothecate assets and that such hypothecation created an unlawful preference benefiting the city. The court noted the complaint did not allege that a demand had been made upon the Corporation Commission (or that the Commission or its liquidating agent had failed or refused to institute suit or pursue other available remedies) to recover the assets. Relying on prior decisions, the court held that absent such an allegation the individual depositors could not maintain the action. Because the complaint lacked the required allegation of demand and refusal by the supervisory authority, the demurrers were properly sustained.
Holding and Implications
AFFIRMED
Direct effect: The trial court's order sustaining the defendants' demurrers was affirmed, precluding the plaintiffs from maintaining the suit on the pleaded grounds. The opinion relies on existing precedent and does not announce a new rule beyond the authorities cited.
Banks and Banking H c — Individual may not bring action to recover bank's assets hypothecated where liquidating agent has not refused to do so.
In order for individual depositors to maintain an action to recover the bank's assets hypothecated with a city to secure its deposit upon the theory that the officials of the bank were without authority to hypothecate its assets and that the city was given an unlawful preference, the individual depositors must allege and show the failure of the liquidating agent to make demand for the return of the assets or follow the appropriate remedy for their recovery, and in the absence of such allegation in the complaint a demurrer thereto is properly sustained.
The plaintiffs brought this suit in behalf of themselves and such other parties as might desire to interplead, alleging that the Central Bank and Trust Company was indebted to them in the sum of $1,818, evidenced by certain certificates of deposits issued to plaintiff on 6 December, 1929, 8 February, 1930, and 24 October, 1930. It was further alleged that the Central Bank and Trust Company was closed on 20 November, 1930, and all of its assets turned over to the Corporation Commission as provided by law, and that the defendant, G. N. Henson, one of the officers of the banking department, was duly appointed liquidating agent for said bank. It was further alleged that the defendant, city of Asheville, had on deposit in said bank, on the day it was closed, approximately $4,300,000. It was further alleged that the officers of the bank had turned over to the city of Asheville as security for said deposit certain collateral, consisting of notes, bonds, stocks, etc., aggregating $6,000,000.
It was alleged that the hypothecation of such collateral to secure the deposit of the city of Asheville was unlawful and wrongful and constituted a fraud on the rights of plaintiffs and other depositors of said bank. It was further alleged that said bank had hypothecated other assets with out of town banks to secure loans. The plaintiffs further allege that they duly filed a claim in writing against the city of Asheville, and that said claim has been disallowed. The relief prayed for, was that the plaintiffs have judgment against the bank and Henson, liquidating agent, for the amount of the certificates of deposit, and that the defendant, city of Asheville, be restrained from liquidating the collateral held by it, and further be required to surrender said collateral to the liquidating agent.
The defendants demurred to the complaint upon the ground that it appeared upon the face of the complaint that the Corporation Commission was in charge of the assets of said bank, and that it alone had the right to institute an action for the recovery of the assets of the bank.
The defendants demurred further upon the ground of misjoinder of parties and causes of action.
The cause was duly heard and the demurrers of the defendants were sustained.
From the foregoing judgment plaintiffs appealed.
BROGDEN, J.
This suit was instituted to recover certain collateral which the Central Bank and Trust Company had hypothecated with the defendant, city of Asheville, for the purpose of securing the deposit of the city in said bank. The cause of action rests upon the theory that the officials of the bank had no right to hypothecate the assets thereof for such purpose, and furthermore, that such hypothecation enabled the city to secure an unlawful and fraudulent preference. It is not alleged that demand had been made upon the Corporation Commission to recover the assets of the bank, and that it has failed and refused to institute a suit or to pursue any other available remedy. Therefore, the demurrers were properly sustained upon authority of Trust Co. v. Rose, 192 N.C. 673; Richmond Co. v. Trust Co., 195 N.C. 545. See, also, Douglass v. Dawson, 190 N.C. 458; Wall v. Howard, 194 N.C. 311; In re Trust Co., 198 N.C. 783; Roscower v. Bizzell, 199 N.C. 656.
Affirmed.
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