Gahan v. National Bank of Rondout, New York

• Decision Date: 04 February 1895
• Docket Number: No. 104,104
• Citation: 156 U.S. 218,15 S.Ct. 347,39 L.Ed. 403
• Parties: McGAHAN et al. v. NATIONAL BANK OF RONDOUT, NEW YORK
• Court: U.S. Supreme Court

156 U.S. 218

15 S.Ct. 347

39 L.Ed. 403

McGAHAN et al.

v NATIONAL BANK OF RONDOUT, NEW YORK.

No. 104.

February 4, 1895.

This was a bill filed by the National Bank of Rondout, N. Y., 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.

The bill alleged that on November 30, 1883, Walter B. Crane was seised and possessed in fee of all the undivided three-fourths of certain described parcels of land in Williamsburg and Georgetown counties, S. C., Known as the 'Longwood Plantation' and 'Britton's Ferry'; that on that day 'in order to secure the indorsement 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 & Co., and indorsed 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 & Co., 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.

The prayer of the bill was that the defendants 'may set forth and discover the claim under which they are in possession of said lands, and how the same was acquired, and upon what facts it is based; that they may be enjoined under the order of this court from committing further waste on said lands, and especially from cutting down and removing any timber from said lands; that they may set forth and discover the amount and number and value of the trees cut by them, or any of them, or by their authority, since the said Thomas R. McGahan came into control or possession thereof, or by any 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.'

The defense set up in the joint answer of Thomas R. McGahan, D. R. Smith, and E. P. Smith, his wife, was that the lands mentioned in the bill were agreed to be purchased and held as partnership property by D. R. Smith & Co., under articles of copartnership entered into August 30, 1869, by George North, Walter B. Crane, Edward Tompkins, and D. R. Smith, to be used for agricultural purposes, and for the manufacture of lumber; that machinery was purchased, and a large sawmill erected, and other improvements put upon the premises by the copartnership; that thereafter the interest of North and Tompkins in the copartnership was purchased by Crane, who, with the defendant D. R. Smith, continued the business under the firm name of D. R. Smith & Co.; that the premises were in the notorious possession of Smith, as resident copartner, as and for copartnership property, and that complainant knew or had means of knowledge that it was such; that the mortgage was executed without the knowledge or consent of Smith, and the property so mortgaged was subject to the rights of creditors of the copartnership. And the answer averred that under and by virtue of writs of execution, dated the 28th of April, 1885, on judgments recovered against D. R. Smith & Co. and D. R. Smith individually, the property described in the bill of complaint 'was levied upon and sold by said marshal at public outcry, on the 7th day of September, A. D. 1885, to the defendant Thomas R. McGahan, for the sum of $3,850, he being at that price the highest bidder for the same, and a deed of conveyance, dated the said 7th day of September, 1885, was thereafter duly executed by said 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.'

At the hearing, on pleadings and proofs, the following matters appeared:

On May 6, 1869, A. W. Dozier conveyed to George North three several tracts of contiguous land, containing in the aggregate 5,620 acres, situated in the county of Williamsburg, in the state of South Carolina, and known as the 'Longwood Plantation'; and on June 6, 1869, C. W. Martin conveyed to North a tract of land containing 500 acres, situated in Williamsburg and Georgetown counties, known as 'Britton's Ferry.' North, in consideration of $2,500, conveyed an undivided one-fourth part of the lands, on July 2, 1869, to Walter B. Crane, and on the same day and for the same consideration conveyed to Edward Tompkins and undivided one-fourth part thereof. Apparently, D. R. Smith became the purchaser also of an undivided one-fourth of the lands, and he executed a mortgage of all of his interest therein to Crane, and also a like mortgage to Tompkins, August 28, 1869. These mortgages recited that Crane and Tompkins had each lent to Smith the sum of $1,322, to enable him to purchase, take, and hold an undivided one-fourth part of the premises, and that it was agreed by and between the said parties that the money so loaned as aforesaid, and such as might thereafter 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 record disclosed an undated agreement, signed by North, Crane, Tompkins, and Smith, reciting that whereas the parties, described as all of Rondout, N. Y., had purchased in joint copartnership a plantation on the Great Pedee river, in Williamsburg county, state of South Carolina, known as 'Longwood,' and also another plantation, partly in said county and partly in Georgetown county, known as 'Britton's Ferry,' and whereas it was in contemplation to erect a saw mill or mills or other machinery for manufacturing, sawing, and preparing of timber for market now growing upon said plantations or otherwise obtained, and also to cultivate said plantations for the production of grain, cotton, etc., it was agreed that Smith was to take charge of the plantations, and superintend the erection of such saw-mills as might be necessary, and in accordance with the consent of the mutual partners, and that said Smith was to superintend the preparation of the lumber for market and its sale, and to conduct the plantations and lumber business, etc.; and, whereas Smith was unable to advance or pay his proportion of the capital to make the purchase and develop the same, Crane and Tompkins agreed to advance to Smith $5,000, in equal proportion, from time to time, and Smith agreed that he would devote his entire time and attention to the partnership, and to mortgage his undivided one-fourth interest to Crane and Tompkins for their security; and the agreement concluded: 'The business of this firm to be conducted in the name and firm of David R. Smith & Co., 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 1st day of May, A. D. 1869, unless otherwise ordered and determined by the mutual consent of the parties concerned.'

August 30, 1869, a copartnership agreement was entered into between North, Crane, Tompkins, and Smith, in which North, Crane, and Tompkins are described as of Roundout N. Y., and Smith as of Longwood, S. C. 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 'Longweed' 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...