Court Opinion

ID: 3876757
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:09:31.180724+00
Date Added: 2024-06-11T07:41:47.043058
License: Public Domain

This is an appeal from the decree of his Honor, Judge Dennis. His decree sets forth the issues involved, and will be reported for an understanding of the case. The appeal from the decision of Judge Dennis challenges all the material findings of fact and rulings on points of law contained in the decree. We think that an action to set aside an alleged preference must fall within the terms of the Statute. We do not think such preferences are valid as expressly authorized, but, the true view is, are invalid as expressly prohibited under the Act. *Page 545 
Section 5511 of the Assignment Act, Chapter 82, has rendered void any general assignment by an insolvent debtor for the benefit of creditors in which any preference has been given to creditors, except as to debts due to the public. 3 Code 1922, § 5511.
We do not think the evidence in the case was sufficient to warrant his Honor's finding that the appellants come within the provision of Section 5218 of Code of 1922 (known as the Statute of Elizabeth). In order that this statute may be applicable, it is necessary either (1) that the transfer be voluntary, in which case it is constructively fraudulent, or (2) if there be a consideration, that there be mala fides, that is, an active intent participated in by both the transferrer and the transferee thereby to hinder and delay the other creditors of such debtor.
None of these Statutes were intended to prohibit or affect the right of a debtor in embarrassed financial circumstances to give, or of a creditor to receive, in good faith security for a debt, which right is recognized and approved in law and in equity.
The precise questions on this appeal, aside from the matter of election, are, therefore, whether the pledge is avoided under Section 5512 of the Assignment Acts, and whether the knowledge of the city was sufficient to constitute malafides under the Statute of Elizabeth, which we shall now proceed to discuss. Mala fides consists of actual fraud or active intent to hinder and delay other creditors. The authorities generally, and particularly the cases in this State, show that mala fides can only be established by a showing of actual fraud — that is, an active intent to hinder and delay other creditors. The purpose and intent within the contemplation of the act must be a positive intent, not merely to secure the creditor to whom the transfer is made, but thereby to hinder and delay other creditors. The intent to hinder and delay other creditors must enter into, and form part of, *Page 546 
the motive for making the transfer. In other words, there must be something in the nature of a conspiracy to defraud other creditors. We submit that this is clearly the law in South Carolina as established and uniformly applied by a long line of cases.
In the very strong and well-considered case of Magovernv. Richard, 27 S.C. 272; 3 S.E., 340, the Court (per Mr. Chief Justice Simpson) says:
"Now, there can hardly be a doubt, in fact, it is not denied, that Bollmann Brothers held a large claim on Richard, which this mortgage was intended to secure, so that one of the elements necessary to sustain it is present. Was it bona fide?
or was it mala fide as to both parties to the instrument? because this is necessary to avoid it. What is mala fides? It must be an intent, not simply to assert one's own rights, but, in addition thereto, to defeat the right of another, participated in, as we have said, by both parties to the instrument. A good illustration is found in the old case of Lowryv. Pinson [2 Bailey, 324; 23 Am. Dec., 140], where Pinson bought a tract of land paying full value for it, but one of the objects of the purchase was to enable his vendor to leave the country so as to escape the consequences of an action for damages against him by Miss Lowry for breach of marriage contract. Here Pinson was exercising a right of purchase, a right which belongs to every one. He paid full value for the land, but yet one object he had in buying it was to enable his vendor to defeat the action of Miss Lowry. The Court very properly held that here was mala fides. Now, is there any testimony in the case before us that Bollman Brothers, while asserting their right to obtain a security for their claim on Richard, intended also to enable Richard to defeat, delay, and hinder his other creditors? The mortgage may have that effect, to the extent of the property mortgaged, but was this one of the intended effects? Did Bollmann Brothers conspire with Richard to use their claim for the fraudulent *Page 547 
purpose of defeating the other creditors? Was there any secret trust, benefit, or advantage secured to Richard in consideration of the mortgage? We see nothing in the case but that Richard was insolvent, and that he embraced in his mortgage his entire visible goods and chattels in his store, and that it was the understanding that the mortgage was not to be recorded for forty days."
The law in this State has never been more clearly stated than in Lenhardt v. Ponder, 64 S.C. 364-365; 42 S.E., 172, which quotes from many preceding cases, as follows:
"We will next consider whether the said deed was void under the Statute of Elizabeth. The rule is thus stated inMagovern v. Richard, 27 S.C. [272] 286; 3 S.E., 340. * * * The last-mentioned case is cited with approval in the recent case of McElwee v. Kennedy, 56 S.C. 154;34 S.E., 86, in which the Court also uses this language: `To annul for fraud a deed based upon a valuable consideration, it must not only be shown that the grantor intended thereby to hinder, delay or defraud creditors, but it must also appear that the grantee participated in such fraudulent purpose. Even if we were to assume that there is evidence of malafides in the grantor, yet if the sole purpose of the grantee was to secure her claims, having no intent to hinder, delay or defeat other creditors, her title cannot be affected by the malafides of the grantor. The evidence fails utterly to show any intent on the part of the grantee to defraud her husband's creditors, and merely shows a purpose to secure her ownbona fide claims. Conceding the insolvency of the firm of which the grantor was a member, it does not appear that the grantee was aware of it; and if she was aware of it, that would not show fraud in her, since a bona fide creditor has the right to obtain a transfer of property from an insolvent debtor at a fair price, for the sole purpose of securing or paying the debt.'" *Page 548 
These principles were applied and reaffirmed in the recent case of Bell v. Thompson, 122 S.C. 403; 115 S.E., 634:
"This action is based on fraud, and if the plaintiff is right, then Thompson never did intend to convey the Floyd tract. The plaintiff must rely on fraud. To set aside the deed to Mrs. Thompson for fraud, she must have participated in the fraud, and there is not the slightest evidence that she participated in the fraud, or knew of the fraudulent purpose. * * * Even if there was conclusive proof that M.B. Thompson knew it that is still not enough. In MonaghanCo. v. Dickson, 39 S.C. 149; 17 S.E., 698; 39 Am. St. Rep., 704, we find: `In order to make out a case of actual fraud so as to set aside a mortgage, it is necessary to show concurrence in the fraudulent acts by the mortgagees as well as the mortgagors. * * *'"
And also in Miller v. Erwin, 129 S.C. 425, 426; 125 S.E., 39:
"The complaint in this case does not ask to set aside the conveyances under the Statute of this State to prevent an insolvent debtor from transferring his property with intent to prefer and favor a particular creditor or creditors, but is for the purpose of declaring the conveyances void for actual fraud, under the Statute known as the Statute of Elizabeth. Under the Statute of Elizabeth both parties must participate in the fraud. * * * The mala fides must exist in the minds of the grantor and grantee to constitute the conveyance as fraudulent. Magovern v. Richard, 27 S.C. 286;3 S.E., 340; McElwee v. Kennedy, 56 S.C. 154;34 S.E., 86; Lenhardt v. Ponder, 64 S.C. 364; 42 S.E., 169; Bellv. Thompson, 122 S.C. 400; 115 S.E., 633."
The same principles are laid down by the general authorities. Ruling Case Law says:
"Under this Statute, therefore, and under those modeled after it, the rule is practically universal that in order to render a sale for valuable consideration void as to creditors *Page 549 
it is not only necessary that the vendor should have entertained a fraudulent design, but it is also necessary that the vendee should have participated in it. * * * 12 R.C.L., 533.
Corpus Juris says:
"The transaction cannot be avoided as to him by other creditors unless it is shown that he shared in and participated in the fraudulent design of the vendor and received the property or secured it for other purposes than protecting himself from loss by reason of his demand against the vendor. * * * The preferred creditor `participates' in the fraudulent intent of the debtor where his purpose is not to secure the payment of his own debt, but to aid the debtor in defeating other creditors, in covering up his property, in giving him a secret interest therein, or in locking it up in any way for the debtor's own use and benefit. * * *" 27 C.J., 631, 632.
"In the case now before the Court there seems to be no doubt that Bollmann Brothers held a valid claim on Richard. They had a right to sue and obtain judgment, or they had a right to procure a mortgage or any other security. The law encourages vigilance, and we know of no legal obligation resting upon a creditor to notify the world that he intends to make, or is making, an effort to secure his debt. It is true, it might be high morality and distinguished abstract fairness and justice for a creditor to give up this right and refuse to take any security for his debt, unless all creditors are brought within the same protection; but the law does not require this, and such unselfish and disinterested benevolence and fairness has seldom been practiced." Magovern v.Richard, 27 S.C. 286; 3 S.E., 340. Cf. also McElwee v.Kennedy, 56 S.C. 154; 34 S.E., 86; Pomeroy, Eq. Jr., 418, 419.
Reasonable cause to believe transfer would operate to hinder creditors is not sufficient to constitute mala fides. *Page 550 
The South Carolina cases uniformly hold that even knowledge, and much less reasonable cause to believe, that the transfer would operate to hinder other creditors, is not sufficient and this position is supported by the overwhelming weight of the general authorities.
This particular question was fully discussed in McElweev. Kennedy, 56 S.C. 154; 34 S.E., 86, in which a member of a partnership, while insolvent, had made a transfer of the larger part of his property to his wife in satisfaction of an antecedent debt. The Court held the transfer perfectly valid, even though the wife knew that the effect would be to delay other creditors, saying:
"To annul for fraud a deed based upon a valuable consideration, it must not only be shown that the grantor intended thereby to hinder, delay or defraud creditors, but it must also appear that the grantee participated in such fraudulent purpose. Even if we were to assume that there is evidence of mala fides in the grantor, yet if the sole purpose of the grantee was to secure her claims, having no intent to hinder, delay or defeat other creditors, her title cannot be affected by the mala fides of the grantor. The evidence fails utterly to show any intent on the part of the grantee to defraud her husband's creditors, and merely shows a purpose to secure her own bona fide claims.
"Conceding the insolvency of the firm of which the grantor was a member, it does not appear that the grantee was aware of it, and if she was aware of it, that would not show fraud in her, since a bona fide creditor has the right to obtain a transfer of property from an insolvent debtor at a fair price for the sole purpose of securing or paying a debt. * * * In view of this purpose, the fact that the transfers included practically all the individual property of the grantor, becomes of small importance (no question arising here under the Assignment Act), for the right to give and receive a *Page 551 
preference is not limited to any particular proportion of the debtor's property, but may extend to his whole property."
"We have been considering the case on the assumption of bad faith in the grantor, but we do not think the evidence warrants such a conclusion. We are convinced that the grantor intended only to satisfy the bona fide claims of his wife, and did not intend to hinder, delay or defraud his other creditors. A mere knowledge that the effect of the preference would be to hinder or delay other creditors, is not sufficient to taint the transaction, if there be no actual intent that the preference shall have such result." McElwee v.Kennedy, 56 S.C. 172; 34 S.E., 92.
This may now be taken as a leading case on this subject, but it merely affirms the doctrines uniformly applied in our cases both prior and subsequent (some of which have already been discussed, but are here cited to call attention to their bearing on this particular question).
In the most recent case on this question, Miller v. Erwin,129 S.C. 425; 125 S.E., 36, the Court approved the doctrines as laid down in all the previous cases, citing:
Magovern v. Richard, 27 S.C. 286; 3 S.E., 342 (saying):
"What is mala fides? It must be an intent, not simply to assert one's own rights, but in addition thereto, to defeat the rights of another, participated in, as we have said, by both parties to the instrument. * * *
"The mortgage may have that effect (to hinder other creditors), to the extent of the property mortgaged, but was this one of the intended effects?"
McElwee v. Kennedy, 56 S.C. 154; 34 S.E., 86 (holding):
"A mere knowledge that the effect of the preference would be to hinder or delay other creditors, is not sufficient to taint the transaction, if there be no actual intent that the preference shall have such result." *Page 552
Lenhardt v. Ponder, 64 S.C. 364; 42 S.E., 169, (in which the Court cited and relied upon the definitions hereinabove given).
Bell v. Thompson, 122 S.C. 403; 115 S.E., 634 (saying):
"This action is based on fraud * * * the plaintiff must rely on fraud. To set aside the deed to Mrs. Thompson for fraud, she must have participated in the fraud, and there is not the slightest evidence that she participated in the fraud, or knew of the fraudulent purpose. * * *"
Likewise in Thorpe v. Thorpe, 12 S.C. 154, the Court said (see page 167)
"Such measures as were pursued by J.G. Thorpe amount merely to a preference. It is entirely settled that such preference is lawful; and while, practically, it may hinder or delay some of the creditors, it does not hinder, delay or defraud creditors in the sense in which those words are used in the Statute. Maples v. Maples, Rice, Eq., 300. And while a preference to secure a valid debt may, under some circumstances, be impeached, one of the essential grounds is that the preferred creditor has conspired with the debtor at the expense of the other creditors. Bird v. Aitken, Rice. Eq., 73. We perceive no evidence of such fact in the preference now in question."
Also in the case of Crosby v. Land Co., 96 S.C. 68, page 73, 79 S.E., 897, 899, the Court said:
"The purpose to defeat another is fraud. See Lowry v.Pinson, 2 Bailey, 324 [23 Am. Dec., 140], Magovern v.Richards, 27 S.C. 286, 287; 3 S.E., 340; Gerald v. Gerald,28 S.C. 444; 6 S.E., 290. The purpose to protect yourself is not."
The same test is stated in the general authorities:
Corpus Juris says:
"Knowledge and Intent of Parties. An honest preference being valid, it follows that when there is an actual debt *Page 553 
or liability to be discharged or secured, the act of preference cannot be held fraudulent on the ground that it tends to hinder, delay, or defeat creditors, and that no inference of a fraudulent intent can be drawn from the purpose to give or obtain the preference. The fact that the transfer of property to the preferred creditor has the effect of diminishing the debtor's assets and may thus actually obstruct or defeat the claims of other creditors is not sufficient to impeach the transaction, for this is only the necessary effect of giving a preference, and this is true, although all the debtor's property is applied to the claim preferred, since if necessary to secure or discharge the debt, a debtor may devote his entire estate to that purpose and thus defeat the claims of all his other creditors." 27 C.J., 627, citing Thorpe v. Thorpe,12 S.C. 154; Maples v. Maples, Rice, Eq., 300.
"Knowledge that other Creditors will be Defeated orDelayed. The fact that both parties to a transfer of property to pay or secure a debt know that as a result thereof the claims of other creditors will be delayed or defeated does not constitute a fraud." 27 C.J., 629.
See, also, R.C.L., 536, 537.
Indeed, it is obvious that, if this were the test — cause to believe that a transfer would operate "to hinder creditors" — practically every transfer or mortgage by a debtor in financial trouble would be void under the Statute. This, it seems to us, amounts to a reductio ad absurdum of the plaintiff's case based upon the "second cause of action." SeePorter v. Stricker, 44 S.C. at 192; 21 S.E., 635, infra.
            AUTHORITIES CITED BY COURT DISTINGUISHED
There are some cases which in reference to voluntary transfers apply the doctrine adopted by the Court in this case; but so far as we have been able to discover, this doctrine is limited to voluntary transfers. In voluntary transfers, the doctrine of the intent being presumed from the *Page 554 
effect is applied, and such transfers held to be constructively fraudulent. This is conceded to be the law in South Carolina (Jackson v. Lewis, 34 S.C. 1; 12 S.E., 560; Farr v. Sims, Rich. Eq. Cas., 122; 24 Am. Dec., 396; Betts v. Richardson,112 S.C. 279; 99 S.E., 815), and elsewhere, but where there is a consideration, as in the instant case, the doctrine is expressly rejected, and an active positive fraudulent intent is required. We have not found any case where the doctrine here advanced has been applied to transfers based on valuable consideration, and we presume there are none, since counsel did not cite any in the argument below, and the authorities cited by the Court (Freeman v. Pope, 5 Ch. App., 538; 12 R.C.L., 537-539) only serve to illustrate the distinction above pointed out.
The case of Freeman v. Pope (decided in 1870), relied upon by plaintiff's counsel below, and quoted at length by the Court in its decree, was a case by plaintiff, a creditor, to set aside a voluntary settlement by debtor Rev. J. Constance to Julia Pope of $1,000 policy of insurance, and the decision was placed expressly upon the ground "that persons must be just before they are generous, and that debts must be paid before gifts are made"; the result of the "voluntary assignment of the policy" being "that he had literally nothing wherewith to pay" his debts. "The case is therefore one of those where an intention to delay creditors is to be assumed from the act."
In the concurring opinion of Sir G.M. Giffard, J., the point of the decision and the distinction are clearly emphasized:
"Of course, the irresistible conclusion from that case that the voluntary settlement was intended to defeat the subsequent creditors. * * * There is one class of cases, no doubt, in which an actual and express intent is necessary to be proved — that is in such cases as Holmes v. Penny, 3 K. J., 90, and Lloyd v. Attwood, 3 DeG.  J., 614, where the *Page 555 
instruments sought to be set aside were founded on valuable consideration; but, where the settlement is voluntary, then the intent may be inferred in a variety of ways."
This distinction is likewise made in the passage from Ruling Case Law cited by the Court:
"It is well to bear in mind, however, that under such circumstances, the invalidity of the conveyance arises purely from the presumed intent with which it was executed, although such intent is determined by the attending circumstances, rather than from the actual intention of the parties." 12 R.C.L., 539.
And in the South Carolina cases referred to in this Section of R.C.L. (Miller v. Tollison, Harp. Eq. [S.C.], 145; 14 Am. Dec., 712; Niolon v. Douglas, 2 Hill, Eq. [S.C. ], 443; 30 Am. Dec., 368; Gadsden v. Carson, 9 Rich. Eq., [S.C.], 252; 70 Am. Dec., 207; Farr v. Sims, Rich. Eq. Cas. [S.C.], 122; 24 Am. Dec., 396), the distinction as applied to the South Carolina cases is particularly emphasized:
In Miller v. Tollison, supra, a deed from one Tollison to one Holder was set aside specifically on the ground of conspiracy to defraud:
"* * * Because the deed, making an absolute conveyance of the land by Tollison, for a large nominal price, was intended as a fraud, to cover his property from his creditors, and as Holder lent his name to this fraud, he ought not to derive any benefit from it." Harp., Eq. (S.C.), 145; 14 Am. Dec., 712.
In Niolon v. Douglas, supra, in which an assignment giving preferences was sustained in the absence of real fraud, the Court said:
"The plain truth seems to be, that it is impracticable as to the mass of men, to put all creditors on a perfect equality; and if it was practicable, injustice would often follow [10 Mod., 459]. Undoubtedly the power to prefer may be perverted *Page 556 
and abused, even when the abuse discloses no fraud upon which a Court can seize; but `the power, as it may be abused, so, on the other hand, may be very properly exercised.' The discretion must be left to the debtor, within the limits of fraud." 2 Hill. Eq. (S.C.), 443, page 451; 30 Am. Dec., 368.
In Gadsden v. Carson, supra, in which it was held a debtor could not exact a full release from all debts in an assignment of only a portion of his property, but the right to prefer in the absence of fraud was recognized, the Court used the language herein above quoted.
Farr v. Sims, Rich. Eq. Cas. (S.C.), 122; 24 Am. Dec., 396, was a case of a voluntary gift of slaves from father to son, where the father apparently retained possession of the slaves, and the gift was avoided specifically on the ground that it was voluntary and unrecorded.
Also the case of Mann v. Poole, 40 S.C. 1;18 S.E., 145, 889, cited by the Court, illustrates the same distinction, the decision being based specifically upon the existence in fact of an actual intention to prefer; the debtor being "consciously insolvent," and having "systematically contrived" to prefer his wife and grandchildren, as part of a "design" to defeat an "assignment." Moreover, it is important to note that the construction which the Court has here placed upon that case was sought to be given to it by counsel for the respondent in the subsequent case of Porter v. Stricker,44 S.C. 189; 21 S.E., 635 — that intent to prefer one creditor or to defraud another, may be inferred from knowledge of the effect — but such construction was emphatically rejected in the opinion of Mr. Justice McIver:
"The case of Mann v. Poole, 18 S.E., 145, reported, also, in 40 S.C. p. 1, comes next in order. That case seems to be relied on by counsel for respondents, as shaking, or at least qualifying, the doctrine uniformly recognized in the series of cases above cited, by laying down as the true test *Page 557 
in all such cases as the present, the result of an inquiry whether it was the intention of the insolvent debtor, in giving the mortgage assailed, honestly to secure one or more of his creditors, or was it his purpose thereby to give one or more of his creditors a preference over other creditors." 44 S.C. 191;21 S.E., 639.
And then, after quoting from Mr. Justice Pope's decision in that case, saying:
"Thus the intention of the insolvent debtor must be ascertained, and this presents a question of fact."
Continued:
"Now, when it is remembered that whenever an insolvent debtor gives to one of his creditors a mortgage upon the whole, or even a part of his property, he necessarily gives such creditor a preference over his unsecured creditors; and as a man is always presumed to intend the necessary consequence of any act which he may do, it is very obvious that the question of fact mentioned in the foregoing quotation never could arise, if the language there found should be construed as counsel for respondent claim it should be; for as soon as it appeared that the insolvent debtor had made a mortgage to one of his creditors, it would at the same time appear that he had preferred one of his creditors; and hence, the question of fact, whether he had made the mortgage with intent to prefer a given creditor, never could arise. * * *" Page 192 (21 S.E., 639).
The appellants did nothing except to secure a just debt due them. They did not conspire with the bank to defraud any other creditor; did not participate in any fictitious debt that was not due them; and should not under the evidence in this case be branded as violating the Statute of Elizabeth and be stigmatized as acting in mala fides to defraud, hinder, and delay other creditors of the bank. The appellants were apprehensive from the rumors afloat, and, so far as being guilty of fraud to defraud, hinder, and delay other creditors of the *Page 558 
bank, attempted to protect the funds held by them as trustee, the action on the part of the appellants was commendable.
They got possession of the securities without a formal assignment which was sufficient to carry title. They could have drawn their deposits, and would have done so, no doubt, but for the assurance that the bank was solvent, by the officers of the bank. This is the best evidence, to my mind, that the appellants did not know that the bank was insolvent, and violated none of the provisions of the Statute commonly known as the Statute of Elizabeth and the Assignment Acts.
In Magovern v. Richard, 27 S.C. 284; 3 S.E., 341, the Court said:
"Now, applying our remarks to the first above-named case we are compelled to say that we do not find in the testimony anything more than an ordinary mortgage executed by a debtor — insolvent, no doubt, at the time — covering a large portion of his property in favor of one creditor over other creditors; this done in the exercise of a right which has been recognized almost time out of mind in this State and elsewhere in numerous cases still standing unoverruled, and which, until they are overruled, are authority upon this Court. See numerous cases in our own reports. The recent cases of Wilks v. Walker [22 S.C. 108], and Austin,Nichols  Co. v. Morris [23 S.C. 393], have not touched this principle. Nor did the Assignment Act intend to touch it; or, if such was the intention, it does not appear in the language used in said act."
In Marion, Rec'r, v. Weston et al., 126 S.C. 65;119 S.E., 582, the Court quotes with approval from Porter v.Stricker, 44 S.C. 190; 21 S.E., 635, which has always been a leading case on this subject in South Carolina, and which was relied upon in the last case of Allgood v. Allgood, 134 S.C. 233;132 S.E., 48, and lays down the following as a basic proposition: *Page 559 
"From this review of the cases upon the subject in this State, the following propositions, applicable to the case under consideration, are clearly deducible: (1) That an insolvent debtor may, by a bona fide mortgage, which is intended merely as a security for a just debt, prefer one of his creditors. * * *" Page 88 (119 S.E., 589).
Likewise, the rule prevailing at common law in this State prior to the passing of the Assignment Act was thus stated in Niolon v. Douglas, 2 Hill Eq., 443; 30 Am. Dec., 368:
"Whatever doubts may have been entertained or expressed, respecting the morality or the policy of permitting a failing debtor to prefer some of his creditors over others, his legal right to do so is too well settled to admit of discussion." Page 341 (30 Am. Dec., 368).
Also in Gadsden v. Carson, 9 Rich. Eq., 257; 70 Am. Dec., 207:
"* * * But the plaintiff contends further, that the deed itself should be set aside, and vacated in toto, as fraudulent, null, and void, upon the various grounds taken in the bill. Surely no one can doubt that a debtor, in paying his debts, may prefer one creditor to another. The right to do so results necessarily from the absolute dominion which the proprietor has over his estate."
We think that the preference of the city and treasurer deposits is not prohibited by any of the Statutes, and is perfectly valid, and his Honor was in error, and misconstrued the Statutes under the facts of the case.
We do not think that the debtor has to make a general assignment for the benefit of his creditors in order to secure a debt due to the public. The intent of the Legislature was evidently intended to secure as a preference any debt due the public, and a debtor could prefer any debt due the public without making a general assignment. The deposit by the city and treasurer was a debt due the public. Baxter v. *Page 560 Baxter, 23 S.C. 114; Lockwood v. Lockwood, 68 S.C. 328;47 S.E., 441.
It follows inevitably from a proper consideration of the two Sections of the Act in connection with the above-stated principles that preferences which are not prohibited under Section 5511 cannot be avoided under Section 5512 of the Act. The two Sections are part of one Act, were passed at the same time (1882), and must be construed together. Section 5512 was obviously passed as a companion measure to Section 5511, and intended merely to prevent a debtor from doing by piecemeal what he was prohibited from doing by Section 5511, and clearly should not be construed as prohibiting any preferences which were exempted and permitted under Section 5511.
This construction is apparent from the terms of the Act itself:
"All Transactions Within Ninety Days of InsolvencyVoid. — If any person, being insolvent, within 90 days before the making of any assignment by him or her of his or her property for the benefit of his or her creditors, with a view of giving a preference to any creditor or person having a claim against him or her, or who is under any liability for him or her, procures or suffers any part of his or her property to be attached, sequestered, or seized on execution, or makes any payment, pledge, assignment, transfer, or conveyance of any part of his or her property, either directly or indirectly, absolutely or conditionally, the person receiving such payment, pledge, assignment, transfer, or conveyance of any part of his or her property, or to be benefited thereby, or by such attachment, having reasonable cause to believe such person to be insolvent, and that such attachment, sequestration, seizure, payment, pledge, assignment or conveyance is made in fraud of the provisions of this chapter, the same shall be void, and the assignee may recover the property, or the value of it, from the person so receiving it, *Page 561 
or so to be benefited. Nothing, however, in this Section shall be construed to invalidate any loan of actual value, or the security therefor, made in good faith, upon a security taken in good faith, on the occasion of the making of such loan, or any security bona fide made for advances." 3 Civil Code of S.C. § 5512, pp. 1677, 1678.
Such pledges or payments are here avoided only if made "within 90 days before the making of any assignment * * * with a view of giving a preference * * * in fraud of the provisions of this chapter." Section 5511 of the Act, which is the only provision of the chapter (82) containing any prohibition against preferences, is thus clearly made the dominant Section, and Section 5512 intended to be subsidiary.
In Lenhardt v. Ponder, 64 S.C. 363; 42 S.E., 172, the Court, in speaking of the necessity of there being an intention to give an unlawful preference to avoid a pledge under Section 5512, said:
"It will also be observed that Section 2147 is not, in express terms, made applicable to cases in which the debtor did not make a formal assignment for the benefit of creditors within ninety days after the execution of the deed or other instrument intended to give the preference prohibited by that Section.
"The necessity for the party attacking the deed to show (1) that the grantor was insolvent at the time of the conveyance, and (2) that the conveyance was made with a view to give an unlawful preference, arises whether the case comes within the provisions of Section 2146 or Section 2147, by the terms of said Sections. While it is true that the requirements that the party attacking the deed must show (3) that the grantee had reasonable cause to believe that the grantor was insolvent at the time of the conveyance, and (4) that the grantee had reasonable cause to believe that the conveyance was made in fraud of the assignment law, are not applicable *Page 562 
in the absence of a formal assignment within ninety days after such deed, these requirements are, however, but the declaration of salutary rules which equity and good conscience demand should be enforced, whether the case arises under Section 2146 or Section 2147, * * *" — the Section 2147 mentioned in this quotation being now Section 5512.
We do not think, in addition to this, that under all the facts and circumstances the City of Columbia and the treasurer of Richland County had reasonable cause to believe the bank insolvent, or intended to give unlawful preference at the time they took the securities. The bank was not insolvent at the time the pledges were taken, but became so after rumors floated around and run was made.
In view of the number of bank failures in the last two years in this State, and especially in Columbia, a breath that a bank was shaky was enough to start a run. The officers of the bank did everything in their power to keep the bank out of the hands of a receiver, and did not themselves know they were insolvent when the transaction took place with the appellants.
We are of the opinion that the exceptions should be sustained and decree reversed.
MR. JUSTICE CARTER concurs.
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