The following is the Referee’s report and the Circuit Court’s judgment overruling exceptions thereto:
“Referee’s Report
“On-, 1920, the Bennettsville Warehouse Company issued unto itself a certain warehouse receipt for 195 bales of cotton. It thereupon borrowed from the Atlantic National Bank the sum of $10,500, for which it duly gave its note, due 12/3/20, attaching thereto, as security therefor, the warehouse certificate for the cotton aforesaid, which it indorsed, and by this means delivered'to the Atlantic National Bank. A dividend has heretofore been ordered, and has been paid, to the general list of creditors of the Bennettsville Warehouse Company, but the question of the dividend to be paid to the Atlantic National Bank has been left open, owing to the disagreement among counsel representative of the various parties as to the exact basis upon which the Atlantic National Bank is to receive a payment.
“It is needless to say that, subsequent to the transaction above outlined, the Bennettsville Warehouse Company became insolvent, and a receiver was appointed by this Court to take charge of and manage its affairs. The cotton represented by the warehouse receipt above described was fraudulently and feloniously disposed of, along with a great quantity of other cotton held by the Bennettsville Warehouse Company, by T. B. McEaurin, its president and the man in active charge and control of it's affairs, prior to the assumption of jurisdiction by this Court over the general assets of the company, through the appointment of a receiver to administer said assets.
“Those who had cotton on storage in the Bennettsville Warehouse' Company and who held receipts issued by this company, as custodian and bailee of such cotton, have received a dividend from the receiver, based upon a heretofore established valuation, but the plight of the Atlantic National Bank is different from those referred to, in that it had no cotton on storage with the Bennettsville Warehouse Company as its own property, but merely held an assignment of a warehouse receipt, representing the cotton alleged to be the property of the Bennettsville Warehouse Company, as collateral security for a certain indebtedness owing to it by the Bennettsville Warehouse Company.
“The Atlantic National Bank is filing and is demanding of this Court a dividend, not only upon the note of the Bennettsville Warehouse Company, which represents an indebtedness of approximately $10,000, but also1 upon the warehouse receipt held by it as security for this note and representing the cotton specified therein.
“There seem to be only two serious legal questions which arise in this matter. They are: . (a) Is or not the warehouse receipt issued by the Bennettsville Warehouse Company unto itself, and by it indorsed and transferred to the Atlantic National Bank, as security, a nullity? And (b) If not a nullity, may it be filed as against the receiver as a basis for a dividend in addition to the filing of the note itself? Or, to speak .in rough figures, may the Atlantic National Bank file a claim for approximately $10,000 on the original indebtedness and an additional claim for approximately the same amount on the security represented by the warehouse receipt?
“As to the first of the questions involved, it seems to be, undoubtedly, the common-law rule that a contract by one with himself, or with himself and another, is void. 13 C. J. 262; Canterberry v. Miller, 76 Ill., 355. Gorham v. Meacham, 63 Vt., 231; 22 A., 572; 13 L. R. A., 676. Debard v. Crowe, 7 J. J. Marsh. (Ky.), 7; 22 Am. Dec., 113. Griffith v. Chew, 8 Serg. & R. (Pa.), 17; 11 Am. Dec. 556. Eastman v. Wright, 6 Pick. (Mass.), 316. Livingston v. Livingston, 2 Mill, Const., 428; 12 Am. Dec., 684. Glenn v. Sims, 1 Rich., 34; 42 Am. Dec., 405. However, the last three cases cited seem to hold that, while such contracts are void and unenforceable at law, they may be proceeded upon and enforced in equity in proper cases for equitable jurisdiction. Not only does this.seem to be the case, but exceptions seem to have been generally made to this rule in favor of negotiable instruments, and, in fact, Section 8 of the present Negotiable Instruments Daw of South Carolina (Civ. Code, 1922, § 3652 et seq.), specifically authorizes the maker to denominate himself as payee of a note, which, upon indorsement by him and delivery to a third party, becomes a valid and binding instrument.
“For several reasons I am convinced that the warehouse receipt so made out, indorsed, and delivered is valid and not a nullity; the principal one of which is, in my opinion, that it is a negotiable instrument and entitled to the doctrine which has been laid down relative to negotiable instruments made payable to the maker. Secondly, I am convinced that ‘a controversy as to the basis on which a dividend should be declared by the receiver which involves the enforcement of the administration of the trust is within the jurisdiction of equity.’ See T. B. Merrill, Receiver, v. National Bank of Jacksonville, 173 U. S., 131; 19 S. Ct., 360; 43 L. Ed., 640. For these reasons I am satisfied that the Atlantic National Bank is the holder of a perfectly valid warehouse receipt, which it holds, and has for some time held, as security for its claim against the Bennettsville Warehouse Company.
“Having arrived at this conclusion, it becomes necessary to pursue the investigation a step further and to determine whether or not this valid security may be used as the basis of a claim against the insolvent estate in addition to the indebtedness itself, as represented by the note. I freely concede that under the decisions, both of the Supreme Courts of the United States and of South Carolina, which have been cited to me during the course of the arguments in this matter, that the bankruptcy rule relative to the filing of claims by secured creditors does not apply in this case. It seems apparent that under the law applicable to distribution of the estates of insolvents through the medium of State Courts, a'secured creditor may prove for the entire amount of his claim, which includes principal and interest to the date of insolvency, and may, in addition thereto, rely on his security, providing, always and only, his total receipts on his claim and on the security do not exceed the amount of his debt. This rule, however, does seem to have been modified in South Carolina to the extent that where the security consists of insolvent debtors’ own property, the creditor holding the security must either realize it or value it and prove his claim for the balance of the debt; but, under my view of this case, neither of these rules, or doctrines, has any particular significance, as both seem inapplicable as I regard the facts. I do not think that the cases cited by counsel for the Atlantic National Bank go quite as far as is contended by them. It is certainly true that, had the warehouse receipt represented cotton actually owned by the Atlantic National Bank and deposited with the Bennettsville Warehouse Company for storage, it could and would, along with others in the same plight, been compensated therefor, so far as it was possible to do so, on a dividend basis, and, of course, in addition thereto it could and would have been so compensated in reference to indebtedness owing it by the Bennettsville Warehouse Company, but, as stated above, the Atlantic National Bank seems to be in different plight from others who have received dividends based on warehouse receipts, in that the others owned the cotton and placed it with the company for storage, whereas this bank merely held the receipt as collateral to an indebtedness.
“I think there can be no question that the Atlantic National Bank is entitled to a dividend on the indebtedness represented by the note, computed as above outlined, and, in addition thereto', might recover what it could upon its collateral and apply it to the indebtedness, providing such recovery plus the dividend did not exceed the indebtedness; but, according to the evidence, the cotton is not in the receiver’s hands, and has been dissipated and forever lost, both to the estate and to the bank. It would seem that by the dissipation and loss of the cotton the bank must be the sufferer, as it has lost the security upon which it relied for the collection of its debt. In other words, at the time the receiver was appointed the bank was in the position of holding an indebtedness against the warehouse company for a security which was valueless and destroyed to all practical intentions, and to allow it to participate in a dividend based on the security as well as on the debt would, in my opinion, be to allow it to better its status because of the intervening receivership. If no receiver had been appointed and if the Bennettsville Warehouse Company were still operating independently of thq Courts, the Atlantic National Bank would be in the position above indicated, to wit, it would hold the note (the debt) and a warehouse certificate representing cotton feloniously removed and disposed of; and, so far as I am able to see, if unable to locate the actual cotton represented by the receipt, it would have no redress other than a straight suit upon the note and such criminal action as might mure to its benefit. If this be the case, its right would seem to be enlarged by the receivership if its contention were sustained. Of course, if the cotton were in the receiver’s hands and the general estate were swelled by its value, an entirely different situation would arise. But this is not the case, and I am unable to see why the Court should order the receiver to pay to the bank a dividend on its worthless receipt. Why should the holder of a security be entitled to priority over others except as to the particular property of the estate affected by the lien of the security? And if that property which is affected by the lien of the security is not a part of the estate at all, why should the mere lien on dissipated property entitle it to a double dividend? I must confess that I am unable to see any reason for so declaring, and in this conclusion, after carefully considering the cases of Wheat v. Dingle, 32 S. C., 473; 11 S. E., 394; 8 L. R. A., 375. Ragsdale v. Bank, 45 S. C., 575; 23 S. E., 947. Piester v. Piester, 22 S. C., 139; 53 Am. Rep., 711, 1 am unable to discover any inconsistency therewith or departure therefrom. Certainly, my conclusion is not inconsistent with the following language from Piester v. Piester, supra, p. 143: ‘As we understand it, a mortgage is a pledge, a mere security quoad the property mortgaged, and takes rank only by virtue of its lien on the specific property embraced in it. As soon as the property pledged is exhausted or destroyed, the lien ceases to exist. With its subject-matter expunged and its lien gone, a mortgage cannot possibly be more than the sealed covenant of the party. There is noth- • ing in principle or in the nature or terms of the instrument itself, which authorizes the mortgagee to foreclose it upon any other property of the mortgagor, while living; and why should it be otherwise after his death ?’
“And again, at page 145: ‘In the assets of an insolvent testator or intestate, mortgages, as mortgages, are not entitled to priority over rent, specialities, and simple contract debts, except so far as they are liens on any particular part of the estate. After the lien is exhausted the grade of the demand must be determined by the nature of the instrument which the mortgage was given to secure.’
“Of course, the case above cited differs from the case at bar in that (a) it is the administration of the estate of a deceased, and (b) it involves a mortgage rather than a warehouse receipt held as collateral security; but I believe the situations to be analogous and the doctrines of law controlling them to be the same. I cannot see how the Court can permit a bank to double its claim and thereby secure an advantage over other creditors, simply because it holds a warehouse receipt for cotton which, for the purposes of this case and of the receiver of this estate, is nonexistent.
Messrs. Mitchell & Horlbeck and McCall & Stevenson, for appellant,
Messrs. Tison & Miller, for respondent.
August 24, 1926.
“I therefore conclude and recommend that the claim of the Atlantic National Bank should be allowed for the amount of. the principal of the note with interest thereon to the date of the receivership, to wit, December 10, 1920.”
“Judge Dennis' Decree
“This matter comes before me upon exceptions to the report of the Special Referee, Hon. C. L. Prince. After hearing argument of counsel, I have concluded that the exceptions should be overruled. It seems to me • that Mr. Prince has given this matter most careful attention and consideration, and his report is entirely satisfactory to me.
“It is therefore ordered and adjudged that all exceptions to the report of the Referee be overruled and said report be approved in all particulars.”
The opinion of the Court was delivered by
Mr. Justice Watts.
For the reasons assigned by C. B. Prince, Special Referee, confirmed by Judge Dennis, it is the judgment of this Court that the judgment of the Circuit Court be affirmed.
Messrs. Justices BeeasE and StabeER concur.
Mr. Justice Cothran and Mr. Acting Associate Justice R. O. Purdy dissent.
Mr. Chiee Justice Gary did not participate.