Case Name: Summers v. Heard
Court: Arkansas Supreme Court
Jurisdiction: Arkansas
Decision Date: 1899-02-18
Citations: 66 Ark. 550
Docket Number: 
Parties: Summers v. Heard.
Judges: Hughes and Riddick, JJ., concur.
Reporter: Arkansas Reports
Volume: 66
Pages: 550–567

Head Matter:
Summers v. Heard.
Opinion delivered February 18, 1899.
1. Partnership—Rights op Partner.—One who enters into a partnership with another thereby acquires an equity to compel the application of the firm’s assets to the payment of debts of the firm, and to have the surplus thereafter remaining applied to a debt due to himself on partnership account and to an adjustment of balances and cross-demands between his co-partner and himself, and, upon a dissolution of the partnership, to have his proportionate share of the assets remaining on hand. (Page 559.)
2. Execution—Sale op Partner’s Interest.—Where the interest of a partner in the firm assets has been levied on under execution, and his co-partner has given the officer notice of his claim therein, the officer cannot sell such interest until it has been ascertained and set apart by equitable proceedings, in the manner provided by Sand. & H. Dig. § 3065. (Page 559.)
3. Damages—Sale of Partnership Assets.—By the unlawful sale of a firm’s assets under execution against a member thereof, the other member is damaged, not only by the loss of his individual interest in the surplus of the firm’s assets after its debts are paid, but also by the loss of his equity to have such assets applied to payment of the partnership debts, including any debts due himself on the partnership account. (Page 560.)
4. Parties—Waiver of Defect of.—While all the partners should be joined in an action for damages for taking partnership property on execution against one partner individually, a defect of parties in'this respect will be waived by failure of the defendant to take advantage of it by demurrer or answer. (Page 560.)
5. Contract—Consideration.—A verbal promise by one about to become a partner to pay individual debts of his co-partner, made without consideration, is not binding. (Page 560.)
6. Mortgage—Tender.—A creditor’s lien under a bill of sale intended as security cannot be enforced against the purchaser of a half interest in the property subject to the lien who tenders the amouht of the debt secured and keeps his tender good. (Page 561.)
7. Conversion—Damages.—In the absence of any allegation and proof of special damages, the measure of damages for the conversion of a stock of goods is the value of the goods at the time and place of the conversion, with six per cent, interest thereon from that time. (Page 562.)
Appeal from Monroe Circuit Court.
James S. Thomas, Judge.
J. 0. Hawthorne, J. N. Gypert and Grant Green, Jr., for appellants.
The appellants acted in good faith and without malice. Therefore the court’s instructions as to examplary damages were erroneous. 39 Ark. 387; 35 la. 306; 3 Suth. Dam. 472. The true measure of damages was the value of the property, with interest. 39 Ark. 387; 29 Ark. 448; 63 N. W. 737; 59 N. W. 387'; 49- Pac. 910; 3 Suth. Dam. 472-5, 491; 527-8, 572. The sixth instruction given for appellee was erroneous. Appellee’s knowledge put him on notice of the fraud of the transfer to him. 58 Ark. 446; 21 S. W. 1026; 50 Tex. 106; 42 Minn. 519; 39 Am. Rep. 481; 56 Mo. App. 541; 86 Mich. 556; 79 Wis. 1. The agreement to sell the goods, pay himself out of the proceeds, and return the balance, was fraudulent. 49 Cal. 620; 55 Wis. 181; 1 L. R. A. 336; 32 L. R. A. 33, 40, note, 41, note; 38 Atl. 991. Appellee’s attempt to buy an interest in the business, without having the proceeds paid on debts of the business, was fraud on the creditors. 58 Ark. 446; 50 Ark. 320; 55 Ark. 579; 11 Fed. 559; 52 Ark. 556; Big. Fraud, 288. If appellee mixed and confused the new goods which he bought with the stock, so that they were not distinguishable, the whole stock was subject to appellant’s claim. 52 Mass. 493; 3 N. Y. 379; 1 Am. & Eng. Enc. Law, 57, and note; 49 Ark. 457; 60 Ark. 425; 11 So. 946.
N. W. Norton, Parker & Parker, for appellees.
The officer, after being notified that the property was that of the partnership, had no right to do more than take an inventory. Sand. & H. Dig. § 3062. Appellant’s statement of the rule as to measure of damages only applies to cases where the business is not broken up. 59 Miss. 430; 23 O. St. 358; 1 Suth. Dam. 98-99, 121-2; 3 Suth. Dam. 153, 475-6; 80 N. Y. 614; 11 Mich. 542; 14 ib. 34; 32 ib. 77; 82 Am. Dec. 679; 23 S. W. 474; 16 S. W. 1101; 46 Fed. 927; 52 N. W. 609. Exemplary damages proper. 44 Ark. 486; 1 Suth. Dam. 720, 723, 724, 725, 729.
J. 0. Hawthorne, for appellants, on motion for rehearing.
The instruction of the court as to “actual damages,” in which the court directed the jury that, in addition to the value of the property at time of seizure and interest thereon, they might assess “such further sum as you will find from the proof that the plaintiff had sustained from being deprived of his business,” is abstract and erroneous.
Parker & Parker and Norton & Prewett, for appellee, on motion for rehearing.
Appellee was entitled to compensation for the injury done his business. 72 N. W. 553; 49 Pac. 911; 2 N. W. 847. Where one is engaged in a prosperous business, the damage occasioned him by seizing his goods is not measured simply by the value of the goods. 14 Mo. 104; 61 N. Y. 245; 60 N. Y. 448.

Opinion:
Battle, J.
This action was instituted by S. F. Heard against Summers & Watson and others to recover damages caused by a constable, W. M. Graham, one of the defendants, levying on and selling a stock of drugs and other goods belonging to a partnership, composed of himself and O. F. Jenkins, or Jenkins' wife, to satisfy an execution in favor of the defendants, Summers & Watson, and against O. F. Jenkins, as well as executions in favor of others and against the same person. Plaintiff alleged in his complaint that, on or about the 13th day of April, 1895, he was in possession of a stock of drugs and other goods in the town of Clarendon, in this state; that he was the owner of one-half of such stock, and the other half was pledged to him as security for money loaned; that O. F. Jenkins, or his wife, owned the latter half, subject to the pledge; that, on the day before stated, the defendant, W. M. Graham, as constable of Cache township, in Monroe county, had in his hands sundry executions issued by a justice of the peace against OI. F. Jenkins, and in favor of different persons, the defendants Summers & Watson being of the number; that Graham undertook to levy the executions upon the stock in his possession, when he asserted his right thereto, and the defendants Summers & Watson, Parker C. Ewan, J. P. Lee and M. J. Manning, executed and delivered to the constable a bond, whereby they agreed to indemnify him against all damages which he might sustain in consequence of the seizure and sale of the goods, and to pay to any claimant of the stock any damages he should sustain by reason of such seizure and sale under execútions; that the constable seized the goods; that, within fifteen days thereafter, the plaintiff gave him notice that the goods so seized were partnership property, and in part belonged to the plaintiff; and that the constable, disregarding his claim and rights, sold the stock under the executions. Plaintiff further alleged that the goods so sold were worth the sum of $1,500, and that he was damaged by reason of such seizure and sale in the same amount; and he asked for judgment for $3,000.
The defendants; answering, denied that plaintiff was in possession, or the owner, of the stock o'f goods, and admitted the issue of the executions, the levy thereof, the claim by plaintiff, the execution of the bond to indemnify, the notice to the constable by plaintiff, and the sale, and denied that the goods were of the value of $1,500. Answering further, they alleged: "That O. F. Jenkins was indebted to the defendants, Summers & Watson, W. N. Wilkerson & Co., and other creditors, and that claims amounting to five hundred dollars were in the hands of Ewan, Manning & Lee for the purpose of collection, and that in October, 1894, the said O'. F. Jenkins, for the purpose of securing the payment of said sums, pledged all of said goods to the defendants; that the plaintiff's agent soon thereafter came to Clarendon, and was advised of the financial condition of Jenkins, and also that the goods were in the possession of Ewan, Manning & Lee as collateral security for the payment of the claims held by them; that he thereupon agreed to pay the claims held by Ewan, Manning & Lee, and also all other indebtedness of said O. F. Jenkins, and to become the owner of one half interest in the stock of goods in consideration therefor; that, notwithstanding this agreement, he disregarded it, and pretended to purchase one half interest in said stock of goods for the sum of five hundred dollars, but only paid two hundred and fifty dollars thereon; that he knew, at the time of the purchase, that the goods were pledged to the defendants, and that Jenkins held the property as their agent; that, for the purpose of further complicating the affairs of the said Jenkins, and aiding him to defraud 'his creditors, he induced said Jenkins to make and deliver to his wife, Mrs. C. W. Jenkins, a bill of sale of the other half interest in the stock of goods, and then induced the wife to pledge the said goods to him as security for money that he had originally agreed to pay for the one half interest to which he claimed title; that the pledge was made without consideration, and that the consideration for the purchase of the goods was made for the purpose of defrauding the creditors of Jenkins; that there was no consideration moved from Mrs. O. W. Jenkins to her husband for the transfer of the portion of the goods; that the defendant O. F. Jenkins and his wife were insolvent. The' plaintiff knew these facts, and entered into the transaction with them for the purpose of, and with a view to, defeating the claims of the creditors."
. The issues in the action were tried by a jury. Evidence was adduced at the trial tending to prove substantially the following facts: In October, 1894, O. F. Jenkins was doing a mercantile business in Clarendon, in this state, selling drugs and other goods. He was much in debt. Ewan, Manning & Lee, a firm of lawyers, held for their clients claims against him amounting to $295.12. To secure these claims, he executed to them a bill of sale, whereby he bargained and sold to them his stock of goods. This was on the 30th of October, 1894. In December following, S. F. Heard, through his agent, Cicero Heard, entered into negotiations with Jenkins for the purchase of one-half interest in his stock of goods and a partnership in his business. On the 19th of the same month, he promised Ewan, Manning & Lee that he would form no partnership with Jenkins until Jenkins' debts were paid. On the 19th of December, 1894, Heard purchased of Jenkins one-half of his stock of goods, and formed a partnership with him in the business in which Jenkins was at the time engaged. On the 20th of the same month, he paid to Ewan, Manning & Lee $200 on the bill of sale, in part payment of the claims held by them, and at other times paid ninety-five dollars to. other creditors. About the last of February, 1895, Ewan, Manning & Lee received the claim of W. N. Wilkerson & Co. against Jenkins for $224.53, and Heard promised to pay it. In the meantime, Heard, having ascertained that the stock of goods purchased was not as large or valuable as represented, and that Jenkins' indebtedness was much larger than he said it was, offered to rescind their contract; and Jenkins refused, but in lieu thereof agreed with Heard to take, and did accept, the $295 paid to his creditors in full payment of the amount to be paid for one-half of the goods and for the partnership business. Afterwards Jenkins sold, or pretended to sell, the other half interest in the goods and partnership to his wife for $100, taking her note for the purchase money. On the 4th of March, 1895, Jenkins and his wife mortgaged his or her half interest in the goods to Heard, to secure him in any advances he might make in carrying on their business. In the course of time, the new firm, of which Heard was a member, added to their stock new goods of the value of about $800, and owed for them about the same amount, including $157.40 advanced by Heard. Finally, after some delay, Heard refused to pay the claim of W. N. Wilkerson & Co., or any other claims against Jenkins. Summers & Watson and other creditors thereupon obtained judgments by confession against Jenkins before a justice of the peace, and caused executions to be issued upon the same, and placed them in the hands of W. M. Graham, a constable, to serve. To induce the constable to seize the goods of Jenkins & Heard to satisfy the executions, Summers & Watson, Parker C. Ewan, J. P. Lee and M. J. Manning executed to him a bond of indemnity in the manner and to the effect stated in the complaint. Graham, the constable, then seized the goods of Jenkins & Heard. Within fifteen days after this, Heard notified the constable that he had seized the partnership property of Jenkins & Heard, and that one-half belonged to him, and that the other half was held by him in trust; and he tendered to Ewan, Manning & Lee the balance of ninety-five dollars due on the claims which the bill of sale was executed to secure, and they refused to accept it. The constable disregarded his notice, and refused to surrender the possession of the property seized, but sold it under the executions. The value of the goods sold were variously estimated at $400 and $1,400.
Evidence was adduced at the trial tending to prove that the puréhase by Heard from Jenkins was made in good faith, and was also adduced tending to prove that it was fraudulent and void. One witness testified that Jenkins & Heard were doing a profitable business at the time their property was seized, but the evidence does not show the damage suffered, further than the value of the goods sold.
The court instructed the jury, in part, as follows: "The court instructs the jury that a partner has no such beneficial interest in the chattels of the firm as will be bound by a general lien of an execution against him individually. His • interest is subject to the paramount claims of the creditors of the firm, and a surplus only would be subject to individual debts, and then only by following statutes providing for such cases, and not by sale under execution."
"Under the law, partnership property cannot be sold under execution against individual members of the firm if the other members of the firm notify the officer in writing of his claims and interests. All an officer can do in such a case is to take an inventox-y of the property, and have it appraised, and then return, the inventory and appraisement with the execution. If, instead of so doing, he proceeds to advertise and sell the property, he is a trespasser, and is liable for actual damages, or actual and exemplary damages.
"If, in this ease, you find from the proof, by a preponderance, that Heard and Jenkins were partners, or that Heard and Jenkins' wife were partners, in the property seized, and that, within fifteen days after the seizure, Heard, in writing, notified the defendant, Graham, or his deputy making the levy, that such goods were partnership property, and that he (Heard) was a joint owner and partner therein, and that defendant, Graham, or his deputy, after such notice, proceeded to advertise and sell the property, the plaintiff is entitled to receive both actual and exemplary damages.
"Fraud is never presumed, but must be proved by the party alleging it. One engaged in business, though insolvent, has the right, like any other person, to dispose of the whole or any part of the business, and the purchaser will have a good title, unless the sale was made with the intent on the part of the seller to defraud his creditors., and the fraudulent purpose was participated in by the purchaser; and Heard's purchase of the half interest must be upheld, unless by preponderance of proof you find that Jenkins, in selling to Heard the half interest, intended to defraud his creditors, and that Heard participated in the fraud."
In this connection the court further instructed the jury "that every sale and conveyance made by the parties with the intent to hinder, delay or defraud creditors in the. collection of their debts is fraudulent and void as to such creditors, whether such sale or conveyance is made with or without a valuable consideration therefor."
Many other instructions were given, but it is not necessary to set them out in this opinion.
The defendants asked, and the court refused to give, the following instructions: "If the jury find from the' evidence that the plaintiff, Heard, undertook to purchase the stock of drugs in controversy, or an interest therein, subject to the bill of sale held by the defendants to secure the payment of certain debts due from O. F. Jenkins to his creditors, which debts plaintiff agreed to pay, and with the understanding between him and the defendants that he should acquire no interest therein until said debts were paid, and further find that, before the debts secured by the bill of sale were paid, other claims of 0. F. Jenkins came into the hands of the defendants for collection, and that the plaintiff agreed to pay said claims upon the same terms that he bad agreed to pay the claims mentioned in the bill of-sale, he could not afterwards acquire a title from Jenkins to said property superior to that of the defendants until the claims which he had assumed to pay where satisfied."
"If the jury find from the evidence that Jenkins had pledged the stock of drugs for the payment of said debts held by the defendants, Ewan, Manning & Lee, against said Jenkins, and that the plaintiff, Heard, was fully advised of the same, and then said Heard purchased said drugs or an interest in the same, he bought subject to the prior rights of the pledgees, Ewan, Manning & Lee, and the drugs were still liable to seizure under execution; and, if fso seized and sold, your findings should be for the defendants."
"The jury are instructed that, although they may find from the evidence that the plaintiff paid the sum of $200 to certain of the creditors of Jenkins, still, if they further believe from the evidence that at the time of said payment the plaintiff knew of the existence of other and further debts from the said Jenkins due to other creditors, and the payment of said sum was received by said creditors or the attorneys thereof, who are the defendants herein, with the understanding that plaintiff should not acquire any interest in said stock of drugs as a partner of said Jenkins until after all the debts of the said Jenkins were paid, and that the money received by the defendants, Ewan, Manning & Lee, was so received with that understanding, and that afterwards the plaintiff procured or induced the said Jenkins to convey a half interest in said stock of drugs, upon the consideration of the said wife's executing her note to her said husband for $100, and afterwards the plaintiff prepared and had Jenkins' wife to convey to him the half interest so sought to be acquired by her, such conveyance or attempted conveyance would be a fraud upon the rights of the creditors of Jenkins, and the plaintiff acquired no title to said property, as against said creditors of Jenkins, and you will find for the defendants."
The defendants asked, and the court refused, other instructions; but, as they were inapplicable to the facts in this case, it is unnecessary to consider them.
The jury returned a verdict in favor of the plaintiff for $930, actual damages, and six per cent, interest thereon* from the 15th of April, 1895, the date of the levy of the executions, and $250, exemplary damages; and the court rendered judgment accordingly. The defendants filed a motion for a new trial, and the court directed that a new trial be granted, unless the plaintiff remitted the exemplary damages and $230 of the actual damages, which the plaintiff did, and the court thereupon set aside the judgment rendered, and directed another to be entered in favor of the plaintiff against the defendants for $770.85, the amount of $700 and six per cent, per annum interest thereon from the 15th of April, 1895, and overruled the motion for a new trial, and the defendants appealed.
The jury obviously found that the sale by Jenkins to Heard of one half interest in the stock of goods, and the partnership between them, were made in good faith. Their verdict in this respect was sufficiently sustained by evidence. In the further consideration of the case we therefore will assume this ;o be a fact.
When Heard purchased the one half interest, and entered into the partnership with Jenkins, he acquired an equity to compel the application of the assets belonging to the partnership to the payment of the joint debts of the firm, and to have the surplus thereafter remaining applied to the debt due to himself on partnership account, and to an adjustment of balances and cross-demands between Jenkins and himself. 2 Bates, Partnership, § 820. After this, and upon a dissolution of the partnership, he was or would be entitled to one half of the assets remaining on hand. In recognition and enforcement of such rights and equities, the statutes of this state provide that, when the property of a partnership is levied upon to satisfy an execution against one of the partners, the officer shall not, by virtue of his levy, deprive the partners of the possession of the property levied upon, except for the purpose of making an inventory thereof, and having the same appraised; and that, "upon the execution being returned by the officer that he had levied the same upon the property in which the debtor was partner, and that the same was claimed by the other partners, the execution creditor may proceed by equitable proceedings to subject to the satisfaction of his execution the interest of the debtor so levied upon." Sand. & H. Dig. § 3065. So, as Jenkins' interest in the assets of his firm was his proper proportion of the surplus of the whole after the payment of debts, including the amount due Heard, it is evident that this is all the officer holding the executions against him could levy upon, and that it could not be taken possession of and sold before it was ascertained and set apart by equitable proceedings in the manner provided by the statutes.
The loss of his individual interest in the assets of his firm was not the only damage suffered by Heard in the sale of the partnership property under the executions against Jenkins, but he was damaged by the loss of his equity to have the assets of his firm applied to the payment of the joint debts contracted by himself and Jenkins on account of their partnership, including the debt due to himself on the same account. The loss of this equity left Heard still individually liable for the joint debts, with less ability to pay. But this loss was suffered by both partners in common, and the action for damages incurred thereby should have been brought by both partners. This defect in parties to this action was, however, waived by the failure of the appellants to take advantage of it by demurrer or answer. Sandels & Hill's Digest, § 5718, 5720.
. The evidence was sufficient to sustain the judgment of the trial court as to the amount recovered by appellee. But appellants insist it should be reversed on account of the refusal- of the court to give the instructions asked for by them. We do not think so. The bill of sale executed by Jenkins to Ewan, Manning & Lee to secure certain debts held by them for collection made no debt liens on the property described therein, except those it was given to secure. The verbal promise of Heard to Ewan, Manning & Lee to pay any other debts of Jenkins was without consideration and void; and, being void, could not affect the sale by Jenkins to Heard or their partnership. The bill of sale did not affect the right of appellee to recover in this action. The evidence in this case does not show that any one of the execution creditors of Jenkins was secured thereby as to any debt he sought to collect by the seizure and sale of the property of Jenkins & Heard; and, if he was, he could not enforce the lien thereby acquired by execution. Then, again, Heard offered to pay Ewan, Manning & Lee the $95 remaining due on the debts secured by the bill of sale, and they refused to accept it unless he would pay other debts of Jenkins held by them for collection. He-had a right to redeem the property he had purchased; and as long as he was willing and offered to do so, and kept his tender good, the lien could not be enforced by seizure and sale of the property.
[The following opinions on a rehearing were delivered June 17, 1899.]
The sale by Jenkins of his half interest in the assets of Jenkins & Heard to his wife, and her pledge to Heard to secure advances to be made by him on partnership account, did not affect Heard's right to recover in this action. He acquired no rights by the pledge in addition to the partner's lien or equity which he already had.
Finding no prejudicial errors in the proceedings of the trial court, its judgment is affirmed.
Hughes and Riddick, JJ., concur.
Bunn, C. J., and Wood, J., dissent.