Nandwani v. Queens Inn Motel (Lawyers Weekly No. 011-084-12, 28 pp.) (Per Curiam) Appealed from Horry County (Gene M. Connell Jr., Special Referee) S.C. App. Unpub. Click here for the full-text opinion.
Holding: Since mortgages are real property, after the beneficiary of promissory notes secured by mortgages died, his heirs could immediately assign the promissory notes. They did not have to wait until the estate was probated under the intestacy statute.
We modify and affirm the special referee’s decision.
Facts
A partnership was formed in 1989 to own and operate motels in Myrtle Beach. When a partner died, his heirs inherited his interest in the partnership.
The partnership made two promissory notes to partner Chanderlal Navlani, who died in 2004. Two other promissory notes were made payable to plaintiffs’ father, who died in 1991.
All four promissory notes were secured by the partnership’s interests in real property. The partnership had leasehold interests in two motels and owned the parking lot for one of the motels.
After plaintiffs’ father died, the partnership breached one lease by failing to pay property taxes. The landlords offered to sell the property to the partnership, but, for financial reasons, the partnership could not buy the property.
The landlords then offered to sell the property to plaintiffs. Plaintiffs bought the motel property through their limited liability company, J’s, LLC.
Rather than paying the back taxes or asking their partners to do so, plaintiffs evicted the partnership from the motel. Then they demolished the motel.
Plaintiffs filed suit to collect on their father’s promissory notes. Defendants counterclaimed for breach of fiduciary duty.
Promissory Notes
Where Navlani’s heirs were parties to the case and hold an interest in the partnership, the special referee correctly applied the Dead Man’s Statute to exclude plaintiffs’ testimony about conversations they had with Navlani.
Respondent Bhambhani did not open the door to this testimony by failing to object to other evidence. The open-door exception to the Dead Man’s Statute is triggered when a party admits evidence first, thereby allowing the subject matter into the trial. However, a party’s failure to make a Dead Man’s Statute objection to other evidence his opponent admits does not fall within that exception.
Because the members of the partnership signed the notes both as members and guarantors, the Nandwani notes include both partnership liability and guarantor liability. In regards to the $160,000 note, which the special referee determined to be properly payable, both plaintiffs and respondent have the right to pursue the claim for payment against the individuals who signed the promissory note as guarantors. Therefore, we modify the referee’s order and find the guarantors are liable for the $160,000 note.
Shortly after Nandwani died, his heirs assigned their interest in Nandwani’s promissory notes to respondent Bhambhani.
S.C. Code Ann. § 62-3-101 contemplates (1) real property passing to heirs at the time of a decedent’s death and (2) personal property passing by (a) the opening of an estate or (b) estate property being passed to heirs in the absence of a personal representative’s action after the accrual of a three-year period. In this case, the determination of whether Navlani’s heirs had a right to assign their interest in the notes is dependent on whether the promissory notes, secured by the partnership’s Bon Villa motel, were real or personal property for the purpose of probate.
The probate code does not define real property. However, S.C. Code Ann. § 12-37-10 defines real property for the purpose of assessment of property taxes to mean “not only land, city, town and village lots but also all structures and other things therein contained or annexed or attached thereto which pass to the vendee by the conveyance of the land or lot.” Furthermore, in S.C. Code Ann. § 31-3-20(14), the phrase real property for the housing authority includes “lands, lands under water, structures and any and all easements, franchises and incorporeal hereditaments and every estate and right therein, legal and equitable, including terms for years and liens by way of judgment, mortgage or otherwise.”
Black’s Law Dictionary defines “real property” as “either corporeal (soil and buildings) or incorporeal (easements).” Incorporeal property is an in rem proprietary right that includes encumbrances like leases, mortgages, and servitudes.
Because a mortgage is real property, the Navlani heirs had the right to assign the notes under § 62-3-101 prior to the estate being probated under the intestacy statute. Therefore, we affirm the special referee’s decision to uphold the assignment by the Navlani heirs to respondent.
Breach of Fiduciary Duty
Plaintiffs’ undisclosed purchase of the motel property was intimately connected with the partnership’s purpose and function. The landlord stated in her deposition that she knew plaintiffs because of their involvement with the payment of the partnership’s taxes in the past. The option to purchase was made through a partner relationship and is statutorily guarded under S.C. Code Ann. § 33-41-540. Furthermore, plaintiffs were aware that the partnership had been interested in purchasing the fee tail previously and owed a duty to inform all of the partners of the opportunity. Plaintiffs, as fiduciaries, violated their obligations of mutual loyalty, good faith, and fair dealing.
Even more troubling is plaintiffs’ inaction regarding the notification of the eviction process and the demolition of Bon Villa. Plaintiffs, as members of the partnership, are in a fiduciary relationship requiring that they disclose to each partner all information that is significant and material. J’s does not have this duty, but plaintiffs are held to a higher standard. Plaintiffs were informed of significant and substantial information affecting the interest of the partnership and failed to act with good faith and loyalty towards the other partners. Strong evidence of plaintiffs’ bad faith is plaintiffs’ decision not to pay the 1999 property taxes or seek payment of taxes by the partnership or its other members.
Affirmed as modified.