Forrester v. Locke , 149 Ark. 225 ( 1921 )

Humphreys, J.

This is a suit by appellees against appellants, in the circuit court of Sebastian County, Port Smith District, for damages on an alleged implied warranty as to the quality of forty-four bales of cotton, in-eluded in a purchase and sale of 188 bales of cotton. It was alleged, in substance, that appellees, an Oklahoma partnership, maintained an office in Fort Smith, Arkansas, for the transaction of a general cotton business in Arkansas, and, during the cotton season of 1919', purchased. 188 bales of merchantable cotton, according to custom, for delivery at Fort Smith, at an agreed price of 36 cents per pound; that there were 44 bales of unmer-chantable or “bollie” cotton included in the shipments, which occasioned a total loss of $4,383.91 to appellees.

Appellants interposed two defenses — the first being that appellees were not a partnership, but a foreign corporation engaged in the business of buying and selling cotton in the State of Arkansas, in violation of act No. 313 of the Acts of 1907 of said State; and the second being that the cotton was sold and purchased without regard to grade, at an average price of 36 cents for the entire lot, including the “bollie” cotton.

The cause was submitted upon the pleadings, exhibits thereto, the evidence and instructions of the court, which resulted in a verdict and judgment against appellants in the sum of $3,846.53, from which an appeal has been duly prosecuted to this court.

The facts reveale by the record, in so far as necessary to determine the vital questions on this appeal, are, in substance, as follows: S. B. Locke & Company, an Oklahoma corporation composed of S. B. Locke, J. M. Locke and J. C. Fahnestock, was organized on May 29, 1913, for the purpose- of conducting a general cotton business, with its main office at Muskogee, Oklahoma, and a branch office at Fort Smith. W. B. Locke, an uncle of J. M. Locke, was manager of the organization, and H. B. Hunt, bookkeeper of the branch office -at Fort Smith, after 1917, and they had been retained in those positions and paid for their services from the Muskogee office with cheeks of S. B. Locke & Company. Neither W. B. Locke nor H. B. Hunt filed the articles of incorporation in the office of the Secretary of this State, as required by law before commencing business, or during the time the corporation continued business in Arkansas. J. M. Locke, the vice-president and secretary of the corporation, also testified that he did not file the articles of said incorporation' in this State. W. R. Locke testified that S. B. Locke was president, J. M. Locke, vice-president and treasurer, and W. P. Gowen, secretary of the corporation. When first asked whether S. B. Locke & Company was a corporation or partnership, he stated that it was a partnership for about two years before he bought the cotton in question from appellants. He was then shown the articles of incorporation, and stated that it was a corporation in Oklahoma, but a partnership in Arkansas. Being interrogated further upon this point, he made the .following answers:

Q. Then you do not know whether you were dealing as a corporation or a partnership?

A. I know what I have done.

Q. That is all you know about it?

A. That is all.

Q. Then you did not know of your own knowledge Whether you. were dealing as a partnership or as a corporation?

A. No, sir; I did not know. I just knew I was buying cotton.

Later, and on cross-examination, over the objection and exception of appellants, W. R. Locke stated that J. M. Locke told him S. B. Locke & Company became a partnership about two years before the cotton in question was bought.

J. M. Locke testified that, on October 10, 1918, the corporation became dormant, and the business was conducted by S. B. Locke & Company as a partnership, being composed of S. B. Locke, J. M. Locke and W. P. Cowen. He produced an authenticated certificate of the partnership, appearing on the register of the district clerk in Muskogee, which is a,s follows:

“This is to certify that the partnership of S. B. Locke & Company doing business in the-city of Muskogee, Muskogee County, Oklahoma, is composed of S. B. Locke, J. M. Locke, and W. P. Cowen, and that each of said partners’ postoffice and residence is Muskogee, Muskogee County, Oklahoma.

“Dated this 10th day of September, 1919.

“S. B. Locke & Company,

“By S. B. Locke,

J. M. Locke,

W. P. Cowen.”

The certificate was filed with the register October 16, 1919. He further testified that the cotton business in the branch office at Port Smith was conducted by the partnership of S. B. Locke & Company, and that the money invested was the money of said partnership, and ■that the drafts drawn for the cotton in question were paid by the partnership, and denied that any of the business conducted since the 10th day of October, 1918, in Arkansas, was conducted by the corporation of S. B. Locke & Company. Letter heads and other exhibits introduced each carried the name of S. B. Locke & Company, and also the individual names of S. B. Locke, J. M. Locke and W. P. Cowen.

The contract for the sale and purchase of the cotton in question w|as made on December 13, 1919', between W. R. Locke, representing S. B. Locke & Company, and Charles E. Forrester, representing himself and the- other appellants. The contract was oral.

W. R. Locke testified that, as the representative of S. B. Locke & Company, he purchased from Charles E. Forrester, representing himself and others, 188 bales of merchantable cotton, situated at Waldron, Arkansas, to be shipped and delivered to his company at Fort Smith, Arkansas; that it was agreed the cotton should contain no “hollies” or “dogs;” — “bullies” being descriptive of cotton taken by machinery from the bolls before they opened, and “dogs’ descriptive of cotton which had fallen on the ground and been damaged in the field.

Charles E. Forrester testified that, representing himself and others, he sold to W. R. Locke, as the representative of S. B. Locke & Company, the entire lot of 188 bales of cotton, “hog round,” delivery f. o. h. Wal-dron after it had been inspected by. Heard, the representative of S. B. Locke & Company.

The cotton was billed out in several shipments, and the bills of lading, bearing the word “hog,” were attached to drafts and mailed to S. B. Locke & Company at Fort Smith, Arkansas. The drafts were approved in the Fort Smith office and paid through the Fort Smith banks, and then sent through the Muskogee banks to S. B. Locke & Company at Muskogee, who made final payment. The entire 188 bales arrived in Fort Smith at the same time, early in January, 1920. The freight was paid, and, according to the evidence of appellees, upon examination it was discovered that there were forty four bales of “hollies” contained in the shipments. Ap-pellees disposed of 144- bales of the shipment, and, in the latter part of January, offered to return the forty-four bales of “hollies” to Charles E. Forrester, upon repayment of the purchase price of 36 cents per pound. For-rester refused to accept the “hollies” and return the purchase price. Appellees disposed of the “hollies” in June at 16 cents a pound, deducted all expenses for handling same from the amount and instituted this suit against appellants for the difference between the net amount received for the “hollies” and the contract price of 36 cents per pound paid for it.

In' the course of trial, appellants offered to prove that, during the cotton season of 1919, Charles E. For-rester’s custom was to sell his cotton in lots, “hog round” and the court, over the objection of appellants, refused to admit evidence of that character.

J. M. Locke was permitted to testify in relation to the damages, over the objection and exception of appellants, to the sale of the “hollies” by his office in his absence, and to the items of expense attached to the handling of same, from a statement made by him from the books of S. B. Locke & Company, in. tbe Muskogee office, without showing that the books were properly kept or that the books were kept by him.

Appellants’ first contention is that appellees' can not recover because the undisputed evidence shows that, after the cotton was examined in Fort Smith and the discovery made.that the shipments contained forty-four bales of “hollies,” it accepted 144 bales of the cotton, wlhich, on account of the indivisibility of the contract, ■constituted an acceptance of the entire lot of cotton. We can not agree with learned counsel for appellants in this contention, because, under appellees’ version of the contract, payment of freight and the contract price of the cotton was to be made before an opportunity was given to inspect it. After paying the freight and the purchase price of the cotton and receiving same, the only remedy available to appellees was to sue for damage on account of the inferiority of any or all the cotton upon the implied warranty that it all should be merchantable, and, under appellees’ version of the contract, no opportunity was given them to inspect and elect before receiving same. ■.

Appellants’ next contention is that the court erred in refusing to submit the question of whether S. B. Locke & Company was a foreign corporation at the time the contract was entered into for the purchase of the cotton with appellants, without first having filed its articles of incorporation in the office of the Secretary of State, in the manner required by act No. 313 of the Acts of 1907, of the General Assembly of the State of Arkansas. Appellants requested the court in two instructions, numbers 2 and 3, to submit this question to the jury. Appel-lees specifically objected to the instructions on the ground that the undisputed testimony showed that appellees ' were not a corporation, but were a partnership at the time they entered into the contract in question. The court refused to give either of these instructions, and, in effect, by so refusing, took that issue of fact from the jury. The evidence of appellants tended to show that, after the organization of the corporation in Oklahoma, it opened an office in Fort Smith and transacted a general cotton business for a number of years in violation of the Arkansas laws; that, up to and including the time the contract in question was made, there had been no change in the management of the business; that the manager and bookkeeper were paid in the same manner for théir services during the entire time with checks issued in the Oklahoma office by S. B. Locke & Company. The manager, "W. It. Locke1, first testified that S. B. Locke & Company were a partnership, and, afterward, that it was a corporation in Oklahoma and a partnership in Arkansas. Later, he testified that he did not know whether it was doing business in Arkansas as a corporation or as a partnership. No change was made after the organization of the corporation in Oklahoma in the letter heads. They did not indicate whether S. B. Locke & Company was a corporation or a partnership. The offices were ■ maintained throughout in the same place. J. M. Locke testified that the corporation became dormant and was supplanted by a partnership on the 10th day of October, 1918. The certificate evidencing the partnership was dated September 10, 1919, sworn to September 16, 1919, and filed in the office of the district clerk on October 16, 1919. The certificate on its face showed that S. B. Locke & Company were doing business as a partnership in the city of Muskogee. There is nothing in the face of it to indicate that the partnership assumed control of the ¡corporation’s business outside of that city. In fact, the only evidence in the record to the effect that S. B. Locke & Company at Fort Smith was conducting its business as a partnership was that of J. M. Locke, who is an appellee and a plaintiff in this action, and he did not make any explanation why the corporation became dormant, and, without dissolution, permitted its activities to be prosecuted by a partnership composed of practically the same parties composing the corporation. In addition, it appeared that the Lockes who composed the corporation were related. W. B. Locke was an uncle of J. M. Locke, and S. B. Locke, the latter’s son. It is true that J. M. Locke swore positively that the business at Fort Smith was a partnership business at the time the contract was made; but, not only was he an interested party, but his evidence is in effect disputed by that of W. E. Locke, as well as by other facts and 'circumstances heretofore referred to. In this state of the record, it can not be said that the undisputed evidence showed that S. B. Locke & Company was a partnership at the time it purchased the cotton in question. Skillern v. Baker, 82 Ark. 86; Briggs v. Collins, 113 Ark. 190; Poinsett Lbr. & Mfg. Co. v. Traxler, 118 Ark. 128; Yazoo & Miss. V. Rd. Co. v. Altman, 124 Ark. 490; Furst & Thomas v. Dewberry, 136 Ark. 135. Appellees insist, however, that, even though appellee was a foreign corporation when it entered into the contract in question, it pertained to an interstate transaction. If this contention be correct, then any foreign corporation may open an office in this State, purchase its goods out of the State for shipment into the State and sell its commodities for shipments to points out of the State, and in that way evade the statutes of the State, requiring foreign corporations doing business in this State to file their articles of incorporation w,ith the Secretary of State. We can not subscribe to that doctrine. Again, it is alleged in the complaint in this case that S. B. Locke & Company was doing business in this State. No issue was made in the trial court that this particular business was an interstate transaction. There is no evidence in the record changing the nature of that allegation in the complaint. We think appellees are hound by the allegations of the complaint •and the evidence adduced in support thereof. Moreover, a complete answer to appellees’ position is that this suit was brought by them as individuals composing a partnership, and the corporation was not made a party by them.

Appellants also insist that the court erred in permitting W. E. Locke to give hearsay testimony to the effect that S. B. Locke & Company was a partnership at the time the contract in question was entered into. He was permitted to say that J. M. Locke had so informed him. We think 'the evidence clearly hearsay and inadmissible.

Appellants also insist that the court erred in permitting J. M. Locke to testify to the sale of the “bollies,” when not present, from the records made on the books in the Muskogee office, and to testify what expenses were incurred in the sale thereof, from a statement he made up by reference to the books. The record does not show that the books were kept by J. M. Locke or that the book account related to transactions between J. M. Locke and appellants. The book entries from which the statement was made related to an account between S. 'B. Locke & Company and third parties to whom the “bollies” were sold. We think this evidence inadmissible.

Appellants also contend that the court erred in excluding evidence to the effect that Charles E. Forrester’s custom was to sell his cotton in lots “hog round.” It is admitted by both appellants and appellees that there was a contract with reference to the sale and purchase of this cotton. The contract, and not the custom, must control. The court did not err in excluding that character of evidence.

Appellants’ last insistence is that the measure of damages laid down by the court was incorrect. The measure of damages adopted by the court permitted the jury to deduct the net amount received by appellees for the forty-four bales of “bollies” from the contract price of 36 cents per pound. The evidence shows the “bollies” were received in the early part of January and not sold by appellees until the month of June following. The correct measure of damages was the difference between the market value of the “bollies” at the time it was discovered that the shipment contained this inferior cotton and the contract price. No evidence was introduced to meet this rule.

For the errors indicated, the judgment is reversed and the cause remanded for a new trial.