Source: https://supreme.justia.com/cases/federal/us/156/218/
Timestamp: 2019-04-20 10:16:44+00:00

Document:
instance in this Court, when the issue is not made by the pleadings and was not otherwise raised in the court below.
Where a deed is executed on behalf of a firm by one partner, the other partner will be bound if there be either a previous parol authority or a subsequent parol adoption of the act.
In such case, ratification by the other partner may be inferred from his presence at the execution and delivery of the deed or from his acting under it or taking the benefits of it with knowledge.
In South Carolina, a tenant in common of real estate who takes sole possession of it, excluding his co-tenant, is chargeable with what he has received in excess of his just proportion, and is liable to account to him for the rents and profits of so much of the common property as he has occupied and used in excess of his share.
After the execution and delivery of a mortgage of real estate in South Carolina to a citizen of New York, the estate was sold under a judgment obtained subsequent to the mortgage, and the purchasers went into possession. The mortgagee filed a bill in equity against them in the Circuit Court of the United States for the District of South Carolina, asking an injunction against commission of waste, a discovery of the amount and value of trees cut by them since they came into possession, and an accounting to the court for the same, and for a sale of the mortgaged premises for the payment of the mortgage debt. The mortgagor had died before the commencement of the suit, and his heirs were not made parties, they being citizens of the same state as the plaintiff. No objection was made to proceeding in their absence, and a decree of foreclosure and sale was made as to them, and they were further ordered to account for the conversion of the property which they had taken.
(1) That as the decree was operative to the extent of the foreclosure and sale, it could be sustained in respect of the accounting.
(2) That the appellants could not insist in this Court, upon an objection which, if sustained, would curtail the relief to which the appellee was entitled or overthrow the jurisdiction of the circuit court.
This was a bill filed by the National Bank of Rondout, New York, in the Circuit Court of the United States for the District of South Carolina, September 26, 1890, against Thomas R. McGahan, D. R. Smith, and E. P. Smith, citizens of South Carolina.
"in order to secure the endorsement by said Walter B. Crane of four certain promissory notes, amounting in the aggregate to twelve thousand dollars, and every renewal and renewals thereof, said notes being made by David R. Smith and Walter B. Crane under the firm name of D. R. Smith & Company, and endorsed by Walter B. Crane,"
then held by the National Bank of Rondout, Crane and his wife executed a mortgage on the undivided three-fourths interest in and to said tracts of land, which mortgage was recorded in Georgetown County, February 27, and in Williamsburg County, March 6, 1885.
It was further averred that the debt became due in June and July, 1885; that Crane departed this life September 5, 1887, leaving the debt unpaid, and leaving his wife surviving him; that in December, 1887, the bank recovered judgment on the notes in the circuit court.
The bill then alleged that after the execution of the mortgage, and subsequent to the record thereof, the real estate included therein was sold by the United States Marshal for the district of South Carolina by virtue of certain executions in his hands, and conveyance made to Thomas R. McGahan of "all the right, title, and interest of said firm of D. R. Smith & Company, a firm composed of D. R. Smith and W. B. Crane, and of D. R. Smith individually;" that McGahan took possession and leased the property to Elizabeth P. Smith, the wife of D. R. Smith; that the lands were timber lands, of great value because of the timber thereon, and that McGahan and those under him were cutting down and removing the timber, thus committing waste and destroying the value of the security.
of them under his authority; that they account to the court for the said value; that they be permitted a reasonable time within which to redeem the said mortgage, if perchance it shall appear that they, or any of them, have the equity of redemption thereof, and that, failing so to do, on a day fixed by your honors, the equity of redemption be barred, and the said property by sold, and the proceeds of sale applied to the debt of the said bank, with all interest accrued and to accrue thereon, and for such other and further relief in the premises as to your honors may seem meet."
marshal to the defendant Thomas R. McGahan; that the defendant Elizabeth P. Smith is now in possession of said premises under a lease from said Thomas R. McGahan, and carrying on thereon the business of manufacturing lumber, and for that purpose has used such timber as was necessary for said purpose. . . . And the defendant Thomas R. McGahan, further answering, alleges that, by virtue of said sale and purchase as aforesaid, he became and is the owner of the premises described in said mortgage, and that the said premises, having by the terms of the articles of copartnership been held as and for copartnership property, were first liable to copartnership debts in priority to the individual interest of the copartners therein, and that, by virtue of the sale and his purchase as aforesaid, he is entitled to hold and enjoy the same free from the lien of said mortgage."
be advanced by Crane and Tompkins to Smith, should be a lien and charge upon the interest of Smith in the land and premises thereinafter mentioned and described, and the buildings and erections thereon, or which should be thereafter erected.
"The business of this firm to be conducted in the name and firm of David R. Smith & Company, and it is understood by the above parties named in this contract that the above agreement is to be in full force and virtue for the term of five years from the first day of May, A.D. 1869, unless otherwise ordered and determined by the mutual consent of the parties concerned."
New York, and Smith as of Longwood, South Carolina. This agreement recited that the parties had agreed to become partners together in the cultivation of two plantations on the Great Pedee River, in the Counties of Williamsburg and Georgetown, known as "Longwood" and "Britton's Ferry," and also in the manufacture and sale of lumber and timber then growing upon said plantations or otherwise purchased or obtained. It was stated, among other things, that Smith, as the active and resident partner, was authorized "to use and sign the name of the firm in all transactions necessary to conduct the business of said copartnership," that the copartnership was to continue for five years from the 1st day of May, 1869, and reference was made to an agreement with D. R. Smith bearing date May 1, 1869.
On November 28, 1871, North, in consideration of $4,000, conveyed to Tompkins an undivided one-eighth interest in said lands, and on the same day and for the same consideration conveyed an undivided one-eighth to Crane. On December 29, 1871, North, Crane, and Tompkins executed an agreement to the effect that North thereby sold to Crane and Tompkins all his right, title, claim, and interest in the copartnership rights or property for the sum of $8,000, North being indemnified as against the liabilities of the firm.
and Crane thereby released Tompkins from all debts, dues, and demands owed by D. R. Smith & Company, except seven notes in the National Bank of Rondout, which it was agreed should be continued from one to two years, if required, Tompkins and Crane holding themselves responsible for the notes, but Crane agreeing to pay the notes and indemnify Tompkins from all loss incurred from their extension. Crane and Tompkins also agreed to the dissolution of the firm from date. On April 24, 1877, Tompkins, in consideration of $1,322 paid to him by Crane, assigned to Crane the mortgage made by Smith to Tompkins, August 28, 1869.
"This grant is intended as a security for the payment of the four certain promissory notes, amounting in the aggregate to twelve thousand dollars, or the renewal or renewals of them, or either or any of them, together with the lawful discount or interest thereon, said notes being made by David R. Smith and Walter B. Crane, under their firm name of D. R. Smith & Company, and endorsed by Walter B. Crane and Henry M. Crane, and payable at the National Bank of Rondout."
In case of default in payment, it was provided that the property might be sold by the parties, and that after payment, from the proceeds, of the indebtedness and costs, the overplus, if any, should be paid, on demand, to Crane, his heirs or assigns. The evidence tended to establish other facts referred to by the circuit court.
using the said mill property for their own purposes, and has been carrying on an extensive business in cutting and shipping lumber; that the title to the three undivided one-fourths in the fee of said real estate was conveyed by regular deed to Walter B. Crane, the mortgagor, who, with his wife concurring, conveyed them to the National Bank of Rondout to secure the copartnership debt of D. R. Smith & Company; that the title deeds to Crane show no trust of any kind qualifying Crane's title; that there was no evidence to show any special trust which would restrict or qualify Crane's right to make an absolute conveyance of his undivided three-fourths interest in said real estate and the improvements thereon, of the nature of fixtures or appurtenances thereto belonging; that there was satisfying evidence that D. R. Smith knew that the mortgage had been given as security for the debt of D. R. Smith & Company; that he knew that the notes were renewed, and that he by his silence entirely acquiesced in the act of Crane in giving the mortgage to the bank."
"It is unnecessary to consider the question whether three-fourths in the land and fixtures appurtenant to the land were or were not partnership property, and whether, as such, were first liable to copartnership debts in priority to the individual interests of the copartners therein, because, assuming this to have been the nature of the property, the mortgage of the partnership assets by one copartner for the benefit of the partnership without the assent of the other partner would, in the absence of fraud (which is not here suggested), be undoubtedly valid as a security to a particular creditor to whom it was mortgaged; a fortiori if made with the assent, express or implied, of the other partner, who, as in the case of D. R. Smith, knew of the mortgage, did not object, and who participated in the benefit of the extension of the debt which the firm of D. R. Smith & Company obtained from the bank."
could be no better or higher than that which the firm had or could have claimed in the property so sold and conveyed. As D. R. Smith & Company and D. R. Smith could not have claimed to hold the property in derogation of the right to the three-fourths interest therein of the National Bank of Rondout under the mortgage given to it in 1883 to secure the debt of D. R. Smith & Company, so the defendant Thomas R. McGahan cannot claim against the right of the bank to three undivided fourths in said land and improvements and fixtures."
The court entered a decree annulling the lease made by McGahan to E. P. Smith, and directing an account for three-fourths of the rents and profits from September 7, 1885, when McGahan assumed the ownership and possession of the whole property, and for any waste which might have been permitted between that date and the date of the accounting, foreclosing the equity of redemption of Walter B. Crane, and directing a sale of the property, the proceeds after payment of costs to be paid to complainant, to be credited on the debt secured by the mortgage.
It is argued that the circuit court should have held that the withholding of the mortgage from record invalidated it as against the creditors of the firm, but no such defense to the mortgage was set up in the answer, and, there having been no issue thereon below, it cannot be made in the first instance on appeal. The decree of the circuit court refers to no such defense, and it is now too late to raise it. Nor do we find anything from which to conclude that the firm was given a fictitious credit by the conduct of Crane in this particular, or that the withholding of the mortgage from record amounted to a fraud upon creditors of which these defendants could complain. McGahan was not a creditor, but claimed to have been a purchaser after the mortgage had been recorded. D. R. Smith was not a creditor, and was not misled, and there is no evidence in the record that any creditor dealt with D. R. Smith & Company on the faith that the three-fourths interest in the lands standing in Crane's name was partnership real estate. The error assigned in this regard is untenable.
The circuit judge was of opinion that Crane held the undivided three-fourths of the lands in question in individual ownership in fee, unaffected by any trust, and that it was competent for him to make an absolute conveyance thereof in virtue of such ownership. But although the deeds were made to North, Crane, Tompkins, and Smith as individuals, and the purchases were made in severalty, and they held, and Crane and Smith subsequently held, as tenants in common, yet if an equity resulted to firm creditors because the purchases were made in furtherance of the joint enterprise, and the lands were devoted to its use, it seems to us nevertheless quite clear that the mortgage by Crane of the three-fourths standing in his name to secure a partnership debt was valid, and could be enforced against these defendants.
at the execution and delivery, or from his acting under it or taking the benefits of it with knowledge. 3 Kent Com. 48; Cady v. Shepherd, 11 Pick. 405, 406; Peine v. Weber, 47 Ill. 41; Frost v. Wolf, 77 Tex. 455; Schmertz v. Shreeve, 62 Penn.St. 457; Wilson v. Hunter, 14 Wis. 683; Rumery v. McCulloch, 54 Wis. 565; Pike v. Bacon, 21 Me. 280; Russell v. Annable, 109 Mass. 72; Gunter v. Williams, 40 Ala. 561; Sullivan v. Smith, 15 Neb. 476, 19 N..
This is the accepted doctrine in New York, Smith v. Kerr, 3 N.Y. 144; Graser v. Stellwager, 25 N.Y. 315; Van Brunt v. Applegate, 44 N.Y. 544, and in South Carolina, Stroman v. Varn, 19 S.C. 307; Salinas v. Bennett, 33 S.C. 285.
In Stroman v. Varn, the Supreme Court of South Carolina laid down the general rule that one partner might bind his copartners by deed if the others were present and authorized it, or if authority to do so was fairly inferable from the evidence of their conduct and the course of business, and it was held, where there were four partners in a sawmill, two of whom owned the land, and one of the others mortgaged it in the name of the four and signed the firm name, that the mortgage was a valid lien on the land, the two owners having received the consideration, and in many ways acknowledged and ratified the mortgage, and that a purchaser of the interest of one of the owners in both land and partnership after record of the mortgage was bound by its lien.
was decided that a partner holding the legal title for the firm has the same power over it as over firm personalty, and that his conveyance for firm purposes passes the title free of the firm's equities; that if he were a trustee as to his copartner, the separate deeds of both partners would leave one-half the tract unconveyed, but that a joint deed was not necessary to convey the firm title.
Crane's title could under some circumstances have been subjected to an equity in favor of the firm.
The bank's rights could not be divested by sale under judgments against D. R. Smith or D. R. Smith & Company, whether the property was held in individual ownership or affected by an equity which passed to the bank in security of firm indebtedness.
Such being the situation, McGahan and his lessee could not claim to occupy under McGahan's purchase the position of a mortgagor in possession, and indeed that is not appellants' contention, which, on the contrary, denied the validity of the mortgage altogether. And since they proceeded to cut and sell the timber from the mortgaged premises from September 7, 1885, to the date of the decree, in derogation of the rights of both the bank and of Crane, the circuit court correctly held them to an accountability for three-fourths of the proceeds thus realized.
and converting the timber thereon entitled the bank to an account for three-fourths of the property so converted.
If McGahan was accorded the rights of a tenant in common, he could not complain at being subjected to the obligations of that relation. If one exclude his co-tenant under a claim of exclusive right or otherwise, the co-tenant is entitled to compensation to the extent of the use of which he has been improperly deprived, and it is settled law in South Carolina that the occupying tenant is chargeable with what he has received in excess of his just proportion, and is liable to account to his co-tenant for the rents and profits of so much of the common property as he has occupied and used in excess of his share. Thompson v. Bostick, 1 McMullan Eq. 78; Hancock v. Day, 1 McMullan Eq. 72; Holt v. Robertson, 1 McMullan Eq. 475; Jones v. Massey, 14 S.C. 292; Scaife v. Thomson, 15 S.C. 337; Pearson v. Carlton, 18 S.C. 47. The character of McGahan's possession was hostile, and in any view, on general principles of equity, the accounting was properly decreed.
which rendered the security valuable. It is admitted that Crane and his wife, who alone survives him, executed the mortgage, and that the indebtedness is unpaid, while it is evident upon this record that the firm is insolvent.
Under these circumstances, we are unable to conclude that appellants are entitled to insist upon an objection in this Court, to sustain which would curtail the relief to which appellee was entitled as against them, or overthrow the jurisdiction of the circuit court. Keller v. Ashford, 133 U. S. 610, 133 U. S. 626, and cases cited.

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