Hutzlek v. Phillips

• Decision Date: 19 February 1887
• Citation: 26 S.C. 136,1 S.E. 502
• Parties: Hutzlek and others v. Phillips, Survivor, and others.
• Court: South Carolina Supreme Court

1 S.E. 502

(26 S.C. 136)

Hutzlek and others

v.Phillips, Survivor, and others.

Supreme Court of South Carolina.

February 19, 1887

1. Mortgage—By Deposit of Title Deeds.

An equitable mortgage resulting from the deposit of title deeds can exist only where such deposit is the matter relied upon, without anything further being done; and. where the title deeds were deposited with an attorney for the purpose of having a mortgage drawn, and the mortgage was actually drawn, and sent with the title deeds to the intended mortgagor for formal execution, which was prevented by his sickness and death, no equitable mortgage is created. McIver, j., dissenting as to the creation of an equitable mortgage by deposit of title deeds.

2. "Witness—Competency—Deceased Copartner—Mortgage.

In an action by creditors of a partnership to subject the lands of a deceased partner to the firm debts, where the defendant claims an equitable mortgage upon said lands, said defendant is not prohibited by Code S. C. § 400, from testifying as to communications and transactions between himself and the deceased as to the land in question; the testimony not being against any one belonging to the classes mentioned in said section, but against creditors.¹8. Evidence—Competency—Declarations—Mortgage.

In an action by creditors of a partnership to subject the lands of a deceased copartner to the firm debts, where the defendant claims an equitable mortgage upon said lands, testimony as to statements made by the other copartners, that the lands in question were partnership property, is inadmissible against the defendant; the record showing that the lands belonged to the individual copartner, and there being no record of a transfer to the partnership, and there being nothing to show that such statements had been brought home to the defendant before his claim against the deceased copartner originated.

4. Partnership—Creditors—Individual and Partnership Creditors—Sharing pro Rata.

In the absence of a lien in favor of an individual creditor, partnership creditors, after exhausting partnership assets, may share pro rata in the individual property of the partners.²

Appeal from circuit court, Darlington county.

Boyd, Nettles dt Brunson, Ward & Nettles, Dargan dt McNeill, and Dargan dt Dargan, for appellants.

J. N. Nathans, for respondents.

Simpson, C. J. C. Phillips, Leonard Phillips, and Leopold Phillips, father and sons, were copartners, doing business as merchants in the town of Florence, in this state, under the name of C. Phillips & Sons. During the existence of this partnership, C. Phillips, the father, negotiated a loan of $5,000 from the defendants Louis Cohen & Co., of Charleston, with the understanding and agreement that said loan was to be secured by a mortgage of certain real estate situate in Florence, the titles to which were in the name of the said C. Phillips, except one portion to which he had a bond for titles fromone McRary, under a contract of purchase, upon which a part of the purchase money had been paid; in pursuance of which agreement, the title deeds, having been placed in the hands of the said Louis Cohen for examination, were turned over to their attorney, J. N. Nathans, Esq., who drew a bond and mortgage as agreed upon. These papers were at once forwarded to C. Phillips at Florence by express, but for some reason the package remained in the office for some days uncalled for. In the mean time, however, the $5,000 had been advanced by Cohen & Co. on drafts of C. Phillips & Sons, drawn, as stated, at the request of the said C. Phillips. When the package containing the bond and mortgage aforesaid was at length received, C. Phillips was quite ill, and he died within a few days, leaving the bond and mortgage unexecuted. Leonard Phillips also died within two or three months after the death of his father, leaving the defendant, Leopold, sole survivor of the firm. Shortly after the death of the said C. Phillips and Leonard Phillips, to-wit, on the sixth of March, 1884, the said C. Phillips having died in October previous, and Leonard Phillips in January, 1884, their heirs and distributees, in order to secure the payment of the said $5,000 to Cohen & Co., united in a mortgage of the real estate herein mentioned to the said Cohen & Co., which on the eighth of March was placed on record in the clerk's office for Darlington county. After the death of his copartners, Leopold was left in charge as survivor, and the plaintiffs, not being satisfied with his management, instituted the action below, in which they prayed, in their own behalf, and in behalf of the other creditors of C. Phillips & Sons, an injunction, the appointment of a receiver, an accounting from Leopold, and especially that the real estate described in the complaint, to-wit, the real estate embraced in the mortgage hereinabove mentioned, be adjudged to belong to the firm of C. Phillips & Sons, and therefore assets for the payment of their debts, and that the same be sold to that end; and also that McRary be required, upon payment made to him of the balance of the purchase money of the land under contract of sale to C. Phillips, to convey the same to the receiver as assets also of the said firm. The defendants denied that the real estate mentioned was the property of the firm, and claimed that it belonged entirely to C. Phillips, their father. They denied, also, the allegation of fraud in connection with the loan of $5,000 by Cohen & Co., and the execution of the papers intended to secure the same, and Cohen & Co. claimed the benefit of an-equitable mortgage growing out of the deposit of titles under the facts as stated above.

The circuit judge, his honor, T. B. Fraser, found as matters of fact that the real estate mentioned belonged to C. Phillips individually, and was not partnership property, and that there was no fraud in the transaction with Cohen & Co. He also adjudged, as matter of law, that an equitable mortgage had arisen in favor of Cohen & Co., to the benefit of which they were entitled, in preference to plain-tiffs and other creditors. He further adjudged that, if there had been no transaction between C. Phillips and Cohen & Co. creating a lien on the real estate, then Cohen & Co. would stand as an individual creditor of C. Phillips, and in that event he would hold that, while the creditors of the firm were bound to exhaust the partnership assets, they would then have the right to share, pro rata with the individual creditors, the individual estate of the deceased partners. The plaintiffs' appeal questions the rulings of his honor as to the competency of certain testimony which will be noticed below; also the findings of fact of his honor as to the alleged fraud, as to the real estate not being partnership property, and as to the knowledge of Cohen & Co. that said real estate had been represented to the plaintiffs as partnership property; and also his holding in reference to the equitable mortgage by the deposit of the title deeds, and its application to this case. The defendants Cohen & Co. excepted on the ground that his honor "seemed to hold that the real estate of C. Phillips, though individual property, is not first applicable to the payment of the said Cohen & Co. as individual creditor, in priority to partnership creditors of C. Phillips & Sons."

We do not feel authorized to disturb the findings of fact by his honor. There is no patent error in these findings, nor is the weight of the testimony against them. As to the real estate being partnership property, the evidence is that the titles were certainly in C. Phillips when the copartnership was formed, and there was no express change subsequent thereto. Nor do we find any testimony that-it was the intention of the parties to embrace the real estate as a portion of the partnership property. The firm seems to have been an ordinary mercantile firm, having no connection with the purchase and sale of real estate. As to the alleged conspiracy and fraud between Cohen & Co. and C. Phillips & Sons, seeking to put the said real estate beyond the reach of the creditors of the firm, we see nothing to overthrow the findings of his honor thereon. Nor does it appear that Cohen & Co. had any information that the plaintiffs had been informed that said real estate belonged to the firm. Nor was there error in the rulings of his honor upon the competency of certain testimony offered; The testimony of Louis Cohen relating to conversations and transactions between himself and C. Phillips was objected to as obnoxious to section 400 of the Code. This testimony not being against any one belonging to the classes mentioned by this section, there was no error in admitting it. Cantey v. Whitaker, 17 S. C. 530.

Certain testimony as to statements made by the sons, copartners, that the real estate in question was partnership property, was excluded, as to Cohen & Co., on the ground that said statements had not been brought home to them before their claim originated; the court holding that they (Cohen & Co.) had the right to deal with C. Phillips in reference to property standing in his name as his own, therecord showing that this real estate belonged to C. Phillips, and there being no record of a transfer to the copartnership. The reasons given by his honor seem to be sufficient.

The main question in the case is one in reference to the equitable mortgage, and this involves the consideration of the three following points: (1) What is this doctrine of equitable mortgages created by the deposit of title deeds? (2) Does it exist in this state? And (3) if so, do the facts of this case entitle Cohen & Co. to its benefit?

The leading case upon this doctrine in England is the case of Rus-sel v. Russel, 1 Brown, Ch. Cas. 269. In fact it is from this case we first hear of it. It was followed by Birch v. Ellames, 2 Anstr. 429; and although it has been violently attacked and denounced as pernicious by eminent English judges, and especially by Lord Eldon and Sir ...