author: Paul Ward, Associate Justice.

text:
    Vanoven v. Hardin.
    5-2322
    344 S. W. 2d 340
    Opinion delivered March 20, 1961.

      Yingling, Henry & Boyett and Victor Nutt, for appellant.

      Eldridge & Eldridge, for appellee.
   Paul Ward, Associate Justice.

This litigation was instituted by appellants to recover damages for having contracted dermatitis while chopping cotton which had been sprayed with an insecticide. At the close of the testimony by both sides the trial court instructed a verdict in favor of appellee on the ground that there was “no substantial evidence in the record upon which the jury could base a verdict, or finding of negligence, upon the part of the defendant . . . which was a proximate cause of the injuries complained of by plaintiffs.” Appellants now prosecute this appeal to reverse the trial court.

There is little if any dispute as to the essential facts involved, so this appeal presents primarily a question of law. The specific injury complained of was suffered only by Essie Vanoven and we shall hereafter refer to her as the plaintiff or the appellant.

Plaintiff (and her husband) were employed by appellee, Hardin, to chop cotton on his farm'. While so engaged on August 1-8, 1958, appellant had worked less than a half day when .she noticed a burning sensation on her hands. The field where she was working had recently been sprayed with an insecticide commonly referred to as 3-10-40. She worked about half of the following day when her hands became so sore that she had to quit work, and on the 20th she went to see a doctor. She returned to the doctor every other day for awhile until the condition was under control, but on January 1,1959, she entered the hospital for 7 days. She was examined by other doctors and skin specialists and all agreed that she was áfflicted with dermatitis. Some of their testimony was to the effect that the dermatitis was caused by coming-in contact with the insecticide. Appellant had been unable to do field labor since. Mrs. Vanoven admits that she knew the field had been sprayed with an insecticide, and that the substance had been used previously on appellee ’s property where she and her husband lived.

In determining whether, under the facts in this case, any actionable negligence on the part of appellee has been shown, two important facts have been clearly established and must be considered. One, there is substantial evidence to show appellant contracted dermatitis as a result of coming in contact with the insecticide which had been recently sprayed on the field in which she was working. The other is that she was allergic to the said insecticide. This latter fact was shown by the uncontradicted medical testimony, and it is admitted in appellants ’ brief.

The decisive question is whether there is any substantial evidence in the record to show negligence on the part of appellee. If there is, of course the case must be reversed, but otherwise it must be affirmed. Put another way: Was appellee, acting as a reasonable and prudent person, under any duty to warn appellant that she might contact dermatitis by chopping cotton on this particular occasion ?

In order to - show appellee knew, or should have known, that he was placing- appellant in a position of peril and that he had a duty to warn her of the peril, appellants must rely primarily on the following facts and circumstances disclosed by the record.

(a) The bag in which the insecticide was delivered to appellee had attached the following tag or label: ‘ ‘ CAUTION: Avoid breathing of dust. Avoid contact with skin and eyes. Wash thoroughly after handling. Avoid contamination of feed and foodstuffs. Avoid the use of this product on edible portions of food crops where there is a possibility of residue or flavor remaining at harvest. DDT insecticides may be injurious under certain conditions to Cucurbits, Tomatoes and Beans. Do not use on cucumbers. Do not use on forage crops to be fed to dairy animals or to animals being finished for slaughter. Do not apply where there may be root crops, including peanuts, in the rotation plan. Some fruits and other plants are susceptible to injury from sulfur under certain climatic conditions. The user is advised not to use sulfur on any crop unless local use has proved that sulfur is safe in that locality.”

(b) Dr. Calvin Dillaha who saw and examined appellant and whose qualifications were admitted testified, among other things, as follows: Q. “Is DDT a known irritant to a number of people?” A. “Sensitiveness in DDT does occur, but it is not common.” Q. “What about Benzene Hexachloride?” A. “I have no definite knowledge of this chemical except its chemical structure. It is, I am told, in the plant where they make this, sensitivity to it is very common.”

The chemical composition of 3-10-40, the insecticide used in this case is as follows:

Gammaisomer of Benzene Hexachloride 3%

Other isomers of Benzene Hexachloride 3%

Dichloro Diphenyl Triehloroethane 10%

Sulfur 40%

Inert ingredients 44%

Total 100%

Set out hereafter are the facts and circumstances, disclosed by the record, relied on by appellee to show that he was not negligent in failing to warn appellant she might be in danger of injury.

(a) The undisputed evidence is that 3-10-40 is commonly used as a commercial cotton poison. It is disclosed that 34,076,655 pounds were used in Arkansas during the year 1955 alone, and that it has been used as such since 1949 at least.

(b) There is no showing that any one has ever previously contracted dermatitis as a result of working in a field sprayed with 3-10-40. Dr. Fulmer stated he had never treated any patients who were injured by 3-10-40, and that he had never heard of such a case in a factory or otherwise. Dr. Lincoln stated that he had done experimental work with 3-10-40, that during one year he had it hand dusted with no protective clothing and no ill effects resulted. Thomas W. Clark, who is in the crop dusting business and dusted appellee’s farm, stated that he and his helpers had handled quite a bit of 3-10-40 without using gloves and none of them ever contracted dermatitis.

As pointed out previously there is hearsay testimony in the record that some people who worked in the plant where benzene was processed were sensitive to it, but, for several reasons, we do not think that fact (if it is a fact) is of such significance as to show negligence on the part of appellee in failing to warn appellant. First, working in a factory is not analogous to working in an open field. Secondly, in the factory the pure benzene was handled, but that element is only 6% of 3-10-40. Also, insofar as the record reveals, those who were affected may have been allergic to benzene.

In spite of the above record and notwithstanding appellant was allergic to 3-10-40, it is argued that appellee would be liable under the correct principle of law, applicable in such cases. To sustain that principle reliance is placed on the decisions presently mentioned.

Barber v. Parker, 190 Ark. 34, 76 S. W. 2d 973; Harmon v. Ward, 202 Ark. 54, 149 S. W. 2d 575; Sligo Iron Store Company v. Guist, 103 Ark. 618, 147 S. W. 78; Ward Furniture Mfg. Co. v. Mounce, 182 Ark. 380, 31 S. W. 2d 531; and Cockerham v. Barnes, 230 Ark. 197, 321 S. W. 2d 385, are cited for the rule that the employer has a duty to warn an employee of hidden danger to which he may be subjected. We have examined these cases and find that they are not helpful here, but merely sustain the familiar rule that the master has a duty to furnish his employees a safe place to work and to warn of hidden dangers of which he is, or should be, aware. In the first two cases it is stated that the employer knew of the danger but failed to warn thereof. In the Guist case the employer knew the guard had been removed from a ripsaw but failed to warn the employee, and in the Cockerham case the master’s negligence was held to be a contributing cause. None of the cases deal with what constitutes “foreseeability” of danger on the part of the master or employer.

Appellants cite authorities from other jurisdictions dealing principally with chemical compounds such as lotions to be applied to the face or body which they contend place a burden on the manufacturer to warn the user of any and all possibility of injury incidental to their use by the customer. One such authority is noted below.

Wright v. Carter Products, Inc., 244 F. 2d 53, is a case where appellants were injured by the application of a deodorant called “Arrid” and the trial court dismissed their complaint. The proof showed that “Arrid” contained aluminum sulphate which is an astringent which causes the pores of the skin to close for a period of time; that it was advertised as “safe” and “harmless” and “would not irritate the skin,” and that appellee knew it would irritate the skin, having had 373 complaints in 3 years, the appellate court remanded the cause for the trial court to “consider (1) whether, in the exercise of reasonable precaution, the defendant in 1951 could have foreseen that at least some of the potential users of Arrid would suffer serious injury from the use of the product.” (Emphasis supplied.) We have found numerous other decisions in harmony with the above and which, in effect, generally place upon the manufacturer of lotions and other similar products the duty to obtain the best medical and scientific information available in order to determine whether the products might be harmful to the ultimate user. The general rule announced in these cases appears to be that the manufacturer is liable if it could reasonably foresee injury might result from use of the product, even in a few instances, but fails to warn the users.

We are not convinced that the same rule of “foreseeability” applied to the manufacturer and seller of lotions which are to be applied regularly to the face or body should be applied in the case of insecticides where the injured party, as here, comes in contact with it only in an open field. Eegardless, however, of how the rule of “foreseeability” and the duty to warn is applied in any case, the general rule seems to be that the manufacturer or employer is not required to foresee that someone might be affected because of his peculiar sensitivities to the substance causing the injury. In the case of Nina Merrill v. Beaute Vues Corporation, et al, 235 F. 2d 893, appellant was injured by using a permanent hair waving product manufactured and sold by the defendants. Prom an adverse judgment in the trial court an appeal was taken to the U. S. Circuit Court of Appeals. The court noted other cases in which it was held no liability existed “on the factual premise that the injury was due to the buyer’s individual idiosyncrasy.”

We think the rule above announced is sound and that its application calls for an affirmance of this case. It is conceded that appellant was allergic to 3-10-40. Neither she or the appellee was aware of her peculiar sensitiveness. There is nothing in the record to show or to lead appellee to believe she would have contracted dermatitis if she had not been allergic to the insecticide.

Although this particular kind of case is one of first impression in this state, our court, in the case of Franke’s, Incorporated v. Bennett, 201 Ark. 649, 146 S. W. 2d 163, has indicated its adherence to. the rule announced in the Merrill case, supra. There appellee became ill from eating scallops prepared by appellant, and recovered a judgment in the trial court. In reversing the case this court said:

“But, if we, assume she became ill from eating the scallops, still this does not prove that they were bad. She might be allergic or susceptible to them, so that they would make her ill, even though they were entirely wholesome.”

It is our conclusion therefore that the judgment of the trial court should be, and it is hereby, affirmed.

Affirmed.

McFaddin, J., concurs.


source: Caselaw Access Project

author: Sam Robinson, Associate Justice.

license: Public Domain

text:
    Town & Country Trailer Sales, Inc. v. Godwin.
    5-2335
    344 S. W. 2d 338
    Opinion delivered March 20, 1961.

      Nance <& Nance, for appellant.

      J. H. Spears, for appellee.
   Sam Robinson, Associate Justice.

This appeal arises out of transactions involving the organization and operation of the appellant corporation, Town & Country-Trailer Sales, Inc. Pending trial, appellant Harry F. Dodge intervened as receiver of the corporation and proceeded with the litigation in that manner.

Appellee, E. H. Godwin, filed suit against the appellant corporation to foreclose a deed of trust on which there was an alleged balance due of $1,106. It appears the original trust deed was in favor of the First National Bank of Memphis, Tennessee, but had been assigned to appellee together with the promissory notes evidencing the indebtedness.

Appellant answered and by way of counterclaim alleged that appellee was a subscriber to 180 shares of stock in said corporation at $100 per share, but had paid only $2,500, and there was, therefore, a balance due of $15,500, for which judgment was prayed. The counterclaim alleged another claim against appellee, which was disposed of in the trial court and is not an issue in this appeal.

In reply to the counterclaim appellee admitted subscribing to 180 shares of stock but alleged that he agreed to pay only $5,000 in cash and the balance of the consideration was to be paid by services performed in lending his credit to the corporation, which in fact he did. The evidence shows that Godwin paid $2,500 in cash and gave his note for $2,500, but the note is not mentioned in the pleadings. In asking for judgment in the sum of $15,500, it appears that the company has waived any rights which it has under the note and seeks to recover the entire amount of the subscription contract less the amount paid in cash by Godwin. Appellee further alleged that he later discovered the company was being mismanaged by one of its incorporators, H. H. Holland, Jr., and that upon this discovery he no longer wanted any interest in the business. He alleged that there was an agreement between Holland and himself whereby he assigned to Holland the said 180 shares in return for the $2,500 payment he had made on the stock and that this agreement was a settlement in full between the parties. At the time of this agreement all the books and records of the corporation in the possession of appellee were returned to Holland.

Upon the hearing, at which appellee’s allegations were supported by substantial testimony, the court decreed foreclosure of the trust deed and dismissed appellant’s counterclaim.

For reversal appellant urges that the court erred in allowing parol evidence to be introduced to vary the terms of the written subscription agreement. Testimony on behalf of appellee reflects that the minutes of the directors’ meetings support his contention as to the consideration for the stock, but that these minutes were missing from the corporate records. Mr. Graham Moore, an attorney, who organized the corporation and kept the minutes, testified that the minutes contained this information, but that those minutes were missing from the corporate records. Appellee testified that the minutes were all intact when he returned the books and records to Holland. The testimony of the contents of the minutes was also corroborated by R. N. Foster, the third original incorporator.

It appears that there was proper testimony to prove the contents of the missing minutes. After proof of the loss, the contents of such may be proved by secondary evidence, and the procedure in this regard has been approved heretofore by this Court. Commonwealth Farm Loan Co. v. Lester, 179 Ark. 293, 15 S. W. 2d 991.

Appellant next argues that the court erred in dismissing the counterclaim because appellee’s contention that he was to pay for the stock through services to be rendered is invalid. The testimony shows that appellee did obtain credit for the corporation with the Memphis bank and was in fact personally liable on the notes evidencing the debt. All three shareholders were parties to the subscription agreement, and the corporation and shareholders benefited thereby. The record further reflects that Holland’s wife is now the holder of the 180 shares originally issued to appellee.

Our Constitution authorizes the issuance of stock for labor done. Ark. Const., Art. 12, § 8. And it is settled that a party who has had the benefit of an agreement cannot be permitted in an action founded thereon to question its validity. Murray v. Murray Laboratories, Inc., 223 Ark. 907, 270 S. W. 2d 927. It would certainly be an injustice to allow Holland, who was a party to the entire transaction, to benefit by requiring appellee to pay into the corporation the balance alleged to be owed on his stock subscription. Certainly there is no fraud shown which would warrant such a decision.

Affirmed.


author: Jim Johnson, Associate Justice.

text:
    Gray v. Gray.
    5-2292
    344 S. W. 2d 329
    Opinion delivered March 20, 1961

      D. B. Bartlett and Mark E. Woolsey, for appellant.

      Edward H. Patterson and Robert J. White, for appellee.
   Jim Johnson, Associate Justice.

This appeal involves title to an undivided one-sixth interest in a farm of approximately 620 acres located mainly in the Arkansas River bottom near the town of Hartman in Johnson County. This farm was a part of the estate of W. R. Gray, deceased, and because of its location it was known as the Hartman Farm.

Appellants, as plaintiffs in the trial court, filed their complaint against appellee as defendant alleging that in 1918 William R. Gray died intestate a resident of Johnson County seized and possessed of this farm and was survived by his widow who died in 1942, and by six children: Arilla Gray, May Gray, Bentley Gray, Lawrence Gray, Charlie Gray and Howard Gray, who constituted his sole and only heirs at law; that on January 16, 1937, said Howard Gray sold and conveyed to said May and Arilla Gray in equal undivided interests his undivided one-sixth interest in and to said lands; that on February 3, 1937, said May Gray and Arilla Gray executed and delivered to appellant, Bentley Gray, and to appellee, Charlie Gray, a deed reciting conveyance in equal undivided interests of the undivided one-fourth interest each of said May Gray and said Arilla Gray in and to said lands, thereby making the appellant, Bentley Gray, and appellee, Charlie Gray, each the record owner of an undivided 5/12ths interest in and to said lands; that on September 12, 1938, the undivided l/6th interest of said Lawrence Gray, who was then deceased, was conveyed by Commissioner’s Deed to May and Arilla Gray; that on August 2, 1939, appellant, Bentley Gray, erroneously believing that he was the owner of an undivided 1/2 interest, rather than the record owner of an undivided 5/12ths interest, in and to said lands, conveyed to Ms son and daugMer, the appellants, Clyde Gray and Lillian McAllister, in equal undivided interests, all his undivided “1/2” interest in and to said lands, reserving unto himself a life estate therein that on July 5, 1957, said May Gray died leaving a last will and testament, giving and devising to her sister, Arilla Gray, her undivided interest in and to said lands, thereby making the said Arilla Gray the record owner of an undivided l/6th interest in and to said lands; that on September 8, 1957, said Arilla Gray executed and delivered to appellee, Charlie Gray, her deed purporting to sell and convey to said Charlie Gray an undivided one half interest in and to said lands, which deed was filed for record September 27, 1957, thereby constituting a cloud upon the record title of appellants, said complaint praying that title in and to an undivided 5/12ths interest in and to said lands be quieted, vested, and confirmed in appellant, Bentley Gray, for life and the remainder in fee be quieted, vested and confirmed in equal undivided interests in appellants, Clyde Gray and Lillian McAllister.

The answer and counterclaim filed by appellee admits that on January 16, 1937, May and Arilla Gray acquired the interest of Howard Gray, each thereby becoming the owner of an undivided l/4th interest in and to said lands; but alleges that Lawrence Gray had died intestate prior to January 16, 1937, leaving surviving him a minor son, Lawrence C. Gray; that prior to January 16, 1937, said May Gray and Arilla Gray were attempting to acquire the undivided l/6th interest of Howard Gray and the undivided l/6th interest of the minor, Lawrence C. Gray, for the purpose of creating and vesting the lands in May Gray, Arilla Gray, Bentley Gray and Charlie Gray; that at the time of the execution of the deed in February 1937, from May Gray and Arilla Gray to Bentley Gray and Charlie Gray, said parties obtained the services of a law firm in Clarksville, explaining to said attorneys that May and Arilla Gray had acquired the interest of said Howard Gray and were desirous of conveying to Bentley Gray and Charlie Gray each a 1/2 interest in the interest so acquired from Howard Gray, or a l/12tli interest in the lands as a whole, thereby vesting in Bentley Gray and Charlie Gray an undivided l/4th interest each in and to said lands to the end that when the interest of Lawrence C. Gray, the minor, could be acquired, the said four named persons, May, Arilla, Bentley and Charlie Gray, would each own an undivided l/4th interest in and to said lands, and that through error the deed of February 3, 1937, to Bentley Gray and Charlie Gray attempted to convey an undivided l/4th interest each in said lands instead of an undivided l/12th interest each, as was the intention of the parties; that on May 31, 1938, May and Arilla Gray obtained a Commissioner’s Deed at a private sale of the undivided l/6th interest of the minor, Lawrence C. Gray, thereby making each of them the owner of an undivided l/4th interest in and to said lands; that May Gray died testate July 5, 1957, devising to Arilla Gray all her property (which included the l/4th interest appellee alleged she claimed in the land here in question) ; that on September 8, 1957, Arilla Gray conveyed to appellee, Charlie Gray, her undivided one-half interest in said lands, reserving to Arilla Gray, by oral agreement, the rents and profits as the owner of an undivided one-half interest in the lands for her lifetime, and alleging that appellee, Charlie Gray, thereby became the owner of an undivided 3/4ths interest in and to the lands.

Appellants filed a reply denying each and every material allegation of the counterclaim.

The learned Chancellor on Exchange found the issues in favor of appellee and entered a decree dismissing appellants’ complaint for want of equity, and finding and decreeing that appellee is the owner of an undivided 3/4ths interest; that appellant, Bentley Gray, is the owner of a life estate of an undivided l/4th interest; and that Clyde Gray and Lillian Gray McAllister, are the owners, as tenants in common, of an undivided l/4th interest, subject to the life estate of appellant, Bentley Gray.

This appeal followed.

Since the filing and docketing of the appeal in this Court, appellant, Bentley Gray, has died, and the present appeal is prosecuted by appellants, Clyde Gray and Lillian Gray McAllister.

For reversal, appellant masterfully argues seven points, all of which relate to the principal question presented for our consideration. That question is whether the court erred in reforming the deed of February 3, 1937, from May and Arilla Gray to Bentley and Charlie Gray.

After carefully examining all the other points and finding them to be without merit, we confine our discussion here to the above stated principal question.

It is undisputed that the February 3,1937, deed from May and Arilla Gray to Bentley and Charlie Gray was a gift from the two sisters to their two brothers. There is ample evidence in the record to support the conclusions that prior to the making of the deed here in question Charlie Gray had entered into an oral contract for the purchase of the Lawrence Gray interest from the surviving son and widow of Lawrence Gray. That the sisters, May and Arilla, had, at the time of Charlie’s negotiations with the son and widow of his brother, Lawrence, already purchased the interest of their brother Howard Gray. That May Gray, for herself and her sister, Arilla, was urging that Charlie Gray forego his right to purchase the Lawrence Gray interest and permit May Gray and Arilla Gray to purchase it in order for the property to be divided equally between May Gray, Arilla Gray, Bentley Gray and Charlie Gray. Apparently, these four brothers and sisters enjoyed an extremely close family relationship.

In consideration of the agreement to so create an equal ownership in the lands by those four persons, Charlie Gray relinquished his right to buy the Lawrence Gray property and while Lawrence Gray’s interest had not been bought by May and Arilla Gray, it was agreed that Charlie Gray would forego his right to purchase and that the same would be bought and subsequently such interest was bought by May Gray and Arilla Gray.

The real basis of this lawsuit occurred and grew out of the attempt of the parties to carry into effect the proposed agreement of ownership in the nature of a family settlement, setting up a gift of one-twelfth interest by May Gray and Arilla Gray to each of the brothers, Bentley Gray and Charles Gray, thereby vesting in Bentley Gray his one-sixth interest by inheritance from his father, and an additional one-twelfth interest by gift from May Gray and Arilla Gray, creating a one-fourth total interest in the lands in Bentley Gray and by the same method creating in Charles Gray a one-fourth undivided interest in the lands. The remain-one-half interest would be owned equally by May Gray and Arilla Gray in that each would own her one-sixth by inheritance and would own an additional one-twelfth by purchase from the Lawrence Gray Estate. Thus, in effect, when the purchase of the Lawrence Gray property interest had been made, an equal division between those four persons would occur. In order to carry out that determination, and subsequent to the purchase of the Howard Gray one-sixth, but prior to the purchase of the Lawrence Gray one-sixth, but while such last mentioned purchase was in contemplation, the parties went to the office of Reynolds and May, Attorneys in Clarksville, and explained to Mr. Reynolds that May Gray and Arilla Gray had purchased the Howard Gray interest and were contemplating and contracting to purchase the Lawrence Gray interest and wanted deeds executed in such a manner that when the plan had been accomplished, each of the four persons: May, Arilla, Bentley, and Charlie would own a one-fourth interest in the lands of their deceased father. That after said plan and interest had been figured out and determined and reduced to writing as to directions on a paper described by appellee as the “yellow paper”, this information was delivered to Mr. Charles Mays for appropriate preparation and execution of the deeds in compliance with this agreement. Actually, to effect that agreement, a conveyance of one-twelfth interest to the appellant, Bentley Gray, and a one-twelfth interest to the appellee, Charlie Gray, would have vested in each of said persons a one-fourth interest in the lands and when the acquisition of the Lawrence Gray property was completed by May and Arilla Gray, their share would have been one-fourth each. Apparently, through the error of the scrivener, Mr. Charles Mays, the deed was so prepared as to convey an undivided one-fourth interest each to Charles Gray and to Bentley Gray.

Unquestionably, the conveyance to Bentley Gray was voluntary, but insofar as it affects Charlie Gray, it was made in consideration, such as it was, of his relinquishing his right to the purchase of the Lawrence Gray property, which though doubtfully enforceable at law, was a moral obligatory agreement between the parties, sisters and brothers, from which there was no attempt to renege and was eventually accomplished as testified to by the appellee, Charlie Gray, and evidenced by the records of the Probate Court of Johnson County.

The deed from May Gray and Arilla Gray to these parties was made on February 3, 1937, and was immediately filed for record. There is a dispute as to what became of the Deed after its recordation, but there can be no serious dispute as to the acts of the parties in their then belief, and subsequently thereto, as to the interests that had been conveyed.

The record reflects that during all the period of time from February 3, 1937, until April 1959, the date of filing this action, the parties were in complete accord in that each owned a one-fourth undivided interest. They lived in harmony in the distribution of the rents, in the payment of taxes, and in the execution of leases, and in their intercourse with each other, all in the belief that May and Arilla Gray had given, and that Charlie Gray and Bentley Gray had received, without cost or money or effort to them, each an undivided one-twelfth interest in the lands by reason of the deed of February 3, 1937.

On trial de novo, we cannot escape the conclusion that the acts and conduct of the now appellant’s father, Bentley Gray, was such as to lead one to the conclusion that he understood and appreciated and agreed that he was receiving by that conveyance a one-twelfth interest, and owned no greater interest than that, and that inherited from his father. His acts and conduct from that time unitl the time of this lawsuit were such as to indicate, not only to the other members of the family agreement, but to strangers, lessees of oil and gas interest and others, that such was the interest he had and claimed and received from his sisters, one of whom is now deceased.

Long after this original transaction and for the subsequent years between the year 1938 and the date of the final purchase by May and Arilla Gray of the Lawrence Gray interest, these parties divided the rents, one-fourth each, paid the taxes, one-fourth each, leased their land by separate leases describing their interest at one-fourth each, and in a similar instance executed one lease wherein they received a payment to the four as such, which, for years, was divided one-fourth.

May Gray died in 1957 leaving a will by which she left her property to her sister, Arilla Gray. Later, Arilla Gray, believing herself to be the owner of an undivided one-half interest in the lands, that is the interest of one-fourth which she retained in the original 1937 family settlement, and an additional one-fourth which her sister, May, retained by reason of that family settlement, conveyed that interest to Charlie Gray for the sum of Fifteen Thousand Dollars. During all that time, there was no dispute as to the ownership. The parties were still dividing the rents; at that time, Arilla one-half, Charlie one-fourth, and Bentley one-fourth. As late as April 1959, just prior to the bringing of this action, a check for One Hundred Dollars, representing the proceeds of one of the oil leases, was delivered and Bentley accepted his one-fourth interest in that as he had in the years gone by in all other rentals that had been received.

From what we have said above, we agree with the Chancellor that all of the parties understood the original 1937 gift to be a gift to establish an equal interest among the four, and was not an attempt by May and Arilla to denude themselves of all the interest they then owned.

This is one of those rare cases that falls squarely within an exception to the general rule that ‘ ‘ a voluntary conveyance based on love and’ affection, and being without other consideration, is not subject to reformation. ’ ’

The reason for the rule originally. that equity will not reform a voluntary conveyance is as follows:

“The rule has its own limitations and exceptions. It was originally established in litigation between the donee and the donor; the universal rule being that the courts will not reform a voluntary deed in an action brought by the grantee against the grantor. The reason for the rule is that when one accepts the bounty of another he may not be heard to say, as against the donor, that something else should have been given. Robertson v. Melville, 60 Cal. App. 354, 212 Pac. 723. The grantor, not having received any consideration for the conveyance, is accorded the privilege of changing his mind and may not be compelled to make a gift previously intended and of which he has since repented, when no rights of others have intervened. ... 23 R.C.L. 345.” Also Launderville v. Mero, 86 Mont. 43, 281 p. 749, 69 A. L. R. 419.

This rule, however, as stated above, having such exceptions is further referred to in 45 Am. Jur. paragraph 29, page 599, where it is said:

“The rule against reformation of voluntary conveyances has its own limitations and exceptions. In a proper case, relief may be had as between parties claiming under the same instrument, the interests of the grantor not being at stake.”

And 45 Am. Jnr. paragraph. 31, page 599-600 states:

“The grantor in a voluntary conveyance will be aided by the court, as where, by mistake, a larger estate or more land has been granted than was intended to be conveyed, and such relief may be granted even as against judgment creditors of the grantee or beneficiary or the grantee’s or beneficiary’s spouse. It is immaterial that the grantee is not cognizant of the mistake. . .”

“So, also, a purchaser from the grantor is entitled to have a misdescription corrected in a voluntary deed given by his grantor prior to the purchase.” [Emphasis supplied.]

“So, also, according to some cases, the rule precluding reformation of voluntary conveyances is subject to an exception where the conveyance in question is executed as part of a family settlement.” 45 Am. Jur. page 599, paragraph 30.

In the case at bar the evidence is not only clear, cogent and convincing, but overwhelming that a mistake was made in the February 3, 1937, deed. In this type deed, mutuality of mistake need not be shown even though from the record here it appears that there was a mutual mistake at the time of making the deed. It is only necessary to show that the deed did not carry into effect the intent of the donors. As was stated in the extensively annotated ease of Margaret Launderville v. Nellie Mero, 86 Mont. 43, 281 Pac. 749, 69 A. L. R. 416:

“In so far as voluntary conveyances are concerned, the contracts are by their very nature unilateral. They are lacking in mutuality. But we think a court of equity has inherent power in a proper case to grant relief by reformation of a voluntary conveyance so as to . . . express the intention of the grantor, even though, strictly speaking, the mistake is not mutual.” [Emphasis supplied.]

"When Charlie Gray purchased for a valuable consideration the interest of his sister, Arilla Gray, he stepped into the shoes of the grantor in a voluntary conveyance. Therefore, under the aforesaid exception to the well settled rule that Equity will not reform a voluntary conveyance, he, upon such purchase, became “entitled to have a misdescription corrected in a voluntary deed given by his grantor prior to the purchase.”

Affirmed.


author: Carleton Harris, Chief Justice.

text:
    Dixie Life & Accident Ins. Co. v. Hamm.
    5-2323
    344 S. W. 2d 601
    Opinion delivered March 27, 1961.

      Yingling, Henry S Boyett; Moses, McClellan, Arnold, Oioen & McDermott; James R. Howard and E. M. Arnold, for appellant.

      Lightle & Tedder, for appellee.
   Carleton Harris, Chief Justice.

This is an appeal from a judgment entered in favor of Bobby L. Hamm against the Dixie Life and Accident Insurance Company. The judgment was for $2,997, together with statutory penalty and an attorney’s fee of $400. The company issued to appellee the following policies: on January 28, 1957, Policy No. D-02236, providing a daily room benefit of $10.00, together with certain other specified hospital expense benefits, and hereinafter referred to as the ‘ ‘ D ” policy; on February 15, 1957, Policy No. R-01677, providing a daily hospital room benefit in the amount of $10.00, and on February 26, 1958, policy No. R-02601, providing a daily room benefit of $5.00. The initial premium on these policies, and subsequent premiums up until December, 1958, were paid to the company by the parents of appellee.

On March 21, 1959, appellee was seriously injured in an automobile accident, and was confined to the Davis Hospital in Pine Bluff for 52 days. Subsequent hospitalization was required at the Davis Hospital, Arkansas Baptist Hospital in Little Rock, and Porter Rodgers Hospital in Searcy. When payment under the policies was demanded, the company denied liability on the ground that premiums due in December, 1958, had not been paid, and the policies had accordingly lapsed. Suit was instituted by Hamm, and the cause was tried on July 18, 1960. Appellee and his mother were the only witnesses. Hamm first testified about the accident, and his stay in the hospital. Belative to the policies, ho testified that he was a student in college at the time they were taken out, but was subsequently employed as a teacher at Arkansas A & M College in Monticello; that his parents had paid the initial premium on the policies, and that he left it to them to pay subsequent premiums : that he came home one weekend, early in January, and paid his mother something over $20 for the premium due in December, 1958. (All of the policies allowed a 3.1 day grace period for payment of premiums, which had the effect of prolonging the time until the latter part of January, 1959.) Mr. Hamm testified that ho did not know how the policy premiums had been paid prior to that time, nor did he, of his own knowledge, know whether the policies were in force at that time. The witness testified that the money was given to his mother in cash, but he did not recall the day of the week, day of the month, or denomination of the currency; nor did his mother give him a receipt.

Mrs. Elizabeth Branscum, mother of appellee, was employed as an insurance salesman by the defendant company. Her contract with the company simply provides that she is appointed “to sell Hospitalization: forms D and B.” The applications, according to her testimony, were written by her or her husband, signed by Mrs. Branscum for her son, and all premiums were paid by one of the parents. According to her evidence, her son paid her $24 in cash at her home, in January, 1959, the proper amount due for the quarterly premium on the policies, and which would have extended the coverage until the last of March, 1960. Admittedly, Mrs. Branscum never did send this money to the company. At the conclusion of appellee’s proof, appellant moved for an instructed verdict on all the policies. This motion was denied. Appellant then moved for an instructed verdict insofar as the “D” policy was concerned. This motion was likewise denied. The ' company ■ declined to offer testimony, and appellee moved for an instructed verdict. Both sides then joined in asking that the case be withdrawn from the jury and tried by the court. The jury was dismissed, and the court entered judgment as set out in paragraph one. For reversal, appellant urges first, that the trial court should have directed a verdict for it, and secondly, the court erred in allowing penalty and attorneys’ fees to appellee inasmuch as appellee did not recover the amount demanded in his Complaint or Amended Complaint. Under the view we take, the second point becomes moot.

Unquestionably, the policies had lapsed unless the payment of currency by the son to his mother prevented such lapse. Appellant contends that Mrs. Branscum was only a soliciting agent, and was without authority to accept the premium payment in January. 44 C. J. S., § 152, p. 824, states that:

“A soliciting agent is merely a special agent, and as a general rule, he has authority only to solicit insurance, submit applications therefor to the company, and perform such acts as are incident to that power.”

This last apparently refers to collecting the initial premium, and delivering the policy. Appellee argues there is no evidence in the record limiting Mrs. Branscum’s authority to that of a soliciting agent. We do not agree. Certainly she was not a general agent. 29 American Jurisprudence, § 151, p. 550, defines general agents as follows:

“A general agent is taken to be one who has authority to transact all the business of the company of a particular kind, or in a particular place, and whose powers are prima facie coextensive with the business entrusted to his care. Stated differently, a person who has charge of the company’s business in a state and who acts under general instructions, without special limitations upon his authority, is a general agent. Indeed, the view has been taken that whatever an insurance company may do can be done by its general agents. Broadly speaking, one must be regarded as the general agent of an insurance company if he is authorized to accept risks, to agree upon and settle the terms of insurance, and to carry them into effect by issuing and renewing policies. Accordingly, agents have been regarded as general agent of an insurance company if he is authorized to accept risks, to agree upon and settle the terms of insurance, and to carry them into effect by issuing and renewing policies. Accordingly, agents have been regarded as general agents where they fully represent the insurance company in a particular district and are authorized to solicit insurance, receive money and premiums, issue and renew policies, appoint subagents, and adjust losses.”

Section 152 defines special agents:

“A special agent is one who is authorized to do one or more specific acts in pursuance of particular instructions, to act in a particular transaction, or in a particular way. The customary function of special agents is to induce third parties to make application for insurance, to forward such applications to the insurance company and to deliver the policy issued upon the receipt of the first premium in cash. ’ ’

We think it clear that under her contract with the company, Mrs. Branscum was no more than a soliciting agent, and as such, acted as a special agent with limited authority.

Appellee asserts that in the absence of notice to the contrary, one dealing with an admitted agent has the right to presume that he is a general agent, and acting within the scope of his authority. This assertion is erroneous. In National Life & Accident Insurance Co. v. Broyles, 197 Ark. 113, 122 S. W. 2d 603, this Court, in quoting from an earlier case, said:

“A principal is not bound by the acts and declarations of an agent beyond the scope of his authority. A person dealing with an agent is bound to ascertain the nature and extent of his authority. No one has the right to trust to the mere presumption of authority, nor to the mere assumption of authority by the agent.”

This holding has been reiterated several times. Couch on Insurance, 2d Edition, Vol. 3, § 26:70, p. 547, states:

“One who deals with soliciting and collecting agents of a life insurer must determine at his risk the extent of the agent’s authority, as for example, whether the soliciting agent has authority to receive premiums other than the first, especially where the policy itself gives notice of the limitations of his authority. ’ ’

The “D” policy, paragraph 5, provides:

“All premiums hereunder, except the initial premium herefor, shall be due and payable at the Home Office of the Company, but may be paid to any agent, cashier or collector duly authorized by the Company to accept premiums; provided, however, that if premiums be paid other than at the Home Office of the Company, they shall be paid only in exchange for the Company’s Official Receipt signed by the President, Yice President or Secretary of the Company and countersigned by the Company’s duly authorized agent, cashier or collector.”

The “R” policies provide, in part 6, section 3:

“This policy is issued in consideration of the application herefor, a copy of which is attached hereto and is hereby made a part hereof, and of the payment in advance of the premium for the initial term hereof. This policy shall take effect at 12 o’clock noon, Standard Time of the place where the Insured resides, and shall end at the same hour on the last day of grace following the last day of the initial term. The effective date of this policy, the initial premium herefor, and the initial term hereof, are shown on Page One hereof. This policy is renewable-at the option of the Company only by the payment in advance or within the grace period provided herein, of the appropriate premium according to the Company’s premium rates in effect at the time of such renewal. *. * *” ■

Accordingly, in the “ D ” policy, the insured had notice in the contract itself that the premiums were payable at the home office of the company, and he is precluded from recovery under our holding in Gordon v. New York Life Insurance Co., 187 Ark. 515, 60 S. W. 2d 907. In that case, Cordon purchased a policy from one Fiser, the local resident agent of the New York Life Insurance Company. Fiser solicited the application, obtained the policy, delivered same to Cordon, and collected the first premium. Within the 30 day period of grace, Cordon paid Fiser the next premium due, and received Fiser’s personal receipt for same. The policy contained a provision similar to that of the “D” policy here under discussion. The Opinion recites some of Fiser’s activities as an agent of the New York Life Insurance Company, and there was testimony that Fiser had been collecting premiums for the company. The money was not sent in to the company office. This Court sustained the action of the trial court in directing a verdict for the insurance company, stating:

“If it had been shown that the money was paid in fact to the insurance company, a different question would be presented; but there is no such question in this ease of ratification, or estoppel of the company to deny the payment.”

The principles of law cited in the Broyles case, and from Couch, equally apply to the “R” policies, though we thoroughly agree with the general comment in A. L. R., Yol. 85, p. 749, under the heading, “Person to Whom Payment of Insurance Premium May be Made So As To Charge Insurer.” Therein, it is stated:

“Any general rule covering the cases herein considered is difficult of statement, and almost useless, since each case is governed by its individual circumstances, but it may be said generally, that, where the insurer actually receives the amount of the premium and retains it as such, the payment is valid although the person collecting it was not authorized to do so; and that the insurer may estop itself by its actions to deny that payment has been made to the proper person, or it may waive contract provisions regarding the person to whom payment may be made.”

Likewise, in 14 Appleman Ins. L. & P., § 7984, p. 229:

“An agency to deliver policies does not necessarily imply power to collect premiums, and the extent of agency in that respect must be determined by the particular circumstances and relations between the parties. To establish that an agent outside the home office of an insurance company had authority to accept renewal premiums on behalf of the company, it has been stated that it must be proved either that -such agent had actual authority or apparent authority by the company representing and holding out such agent as having such authority, and. that the insured knew of and relied on the representations. The fact that the insured had been in the habit of making payment to another who turned them over to the proper person does not establish such authority in the first recipient. * * * ”

Let us proceed to apply these principles of law to the facts in the instant litigation. In the first place, it is at once obvious that appellee did not rely upon any apparent authority of his mother to collect premiums, since he had never paid a .premium prior to January, did not know how the policy premiums had been paid, and did not even know whether the policies were in effect at that time. It is equally evident that no attempt was made to ascertain the authority of his mother to accept premiums. As stated, the record shows that Mrs. Branscum had never before collected any premiums from her son, and there is nothing in the transcript to indicate that she ever collected premiums from anyone in behalf of the company. There is no evidence that the company had represented, or held out, to appellee, or anyone else, that she did have such authority. As indicated in the citations herein, an entirely different question would be presented had Mrs. Branscum sent the premium to the company.

Summarizing, we conclude that there was no substantial evidence that Mrs. Branscum had authority to collect premiums, and no substantial evidence of acts committee by appellant, upon which appellee could, or did, rely, that would justify a finding that the company was estopped to deny that payment had been made to the proper person.

Reversed and dismissed.

       The “D” policy room benefit is without limitation as to the number of days. The “R” policies provide reimbursement for room expense for a period not to exceed 100 days.

       Appellant company does not question the amount of the hospital bills; it simply denies liability in any respect.


author: J. Seaborn Holt, Associate Justice.

text:
    Fitzjarrald v. Fitzjarrald.
    5-2350
    344 S. W. 2d 584
    Opinion delivered March 27, 1961.

      Griffin Smith, for appellant.

      Elclridge <Sb Elclridge, for appellee.
   J. Seaborn Holt, Associate Justice.

This appeal challenges the chancellor’s power to amend a divorce decree rendered in 1944. Eugene C. Fitzjarrald and Mary Elizabeth Fitzjarrald were divorced in Pulaski County on February 11, 1944. The decree rendered in the case made no mention of alimony or child support, although there was a minor child living that was born of the union. On September 16, 1960, some 16 years after the decree was rendered, Mrs. Fitzjarrald filed a petition which, after amendment, alleged that at the time the decree was entered it was her understanding that a contract of support which the parties had entered into was incorporated in the decree. The contract was made an exhibit to the complaint. It was further alleged that the child had become an adnlt on April 2, 1960 and that appellant had not paid the child support agreed to in the property settlement. Judgment was sought for $2,750.00. The trial court modified the decree to include the child support agreement and the appeal here challenges the power of the court to do this.

It appears that there are two methods for amending or changing a final decree after the lapse of the court’s term. One is represented by the terms of Ark. Stats., § 29-506 which sets out grounds for vacating or modifying judgment of a trial court after the term of the decree has lapsed. These grounds do not appear to be relevant here since the proceedings were not under the statute. The second method, applicable here, is the inherent power of the trial court to enter an order correcting its judgments where necessary to make them speak the' truth and reflect its actions accurately. This inherent authority has been recognized and sustained by this court in a long line of decisions from King & Houston v. State Bank, 9 Ark. 185, to the present. This power is exercised by a nunc pro tunc order. It is confined to correction of record, to the extent of making it conform to the action which was in reality taken. It does not permit the change of a record to provide something that in retrospect should have been included. This court has no authority after lapse of the term time to revise a judgment, or to correct a judicial mistake, or to adjudicate a matter which might have been considered at the time of the trial, or to grant additional relief which was not in the contemplation of the court at the time the judgment or decree was rendered. In Liddell v. Landau, 87 Ark. 438, 112 S. W. 1085, we said: “The authority of a court to amend its record by nunc pro tunc order is to make it speak the truth, but not to make it speak what it did not speak but ought to have spoken”, and in the more recent case of Wright v. Ford, 216 Ark. 55, 224, S. W. 2d 50, this court held that the common-law rule that no judgment can be amended after the term at which it is rendered has been modified so that where the entry through some plain error fails to correspond with the judgment that was actually rendered, the court can at a later term correct the judgment, but there is no authority to revise a judgment, or to correct a judicial mistake, or to adjudicate a matter which might have been considered at the time of the trial, or to grant an additional relief which was not in the contemplation of the court at the time the judgment was rendered.

This well established rule rests on the sound policy that matters once litigated should be at an end, otherwise, a court’s judgment or decree would be constantly open to attack. In the present case, the decree of the trial court below, from the language of the final order, attempted to adjudicate something which was not considered in the original decree.

Since this was not a nunc pro tunc order attempting to correct a clerical misprision or mistake, the judgment must be and is reversed and the cause remanded.


author: Ed F. McFaddin, Associate Justice.

text:
    Chambers v. Bigelow-Liptak Corp.
    5-2340
    344 S. W. 2d 588
    Opinion delivered March 27, 1961.

      Bernard Whetstone, for appellant.

      Ben D. Lindsey, for appellee.
   Ed F. McFaddin, Associate Justice.

This is a Workmen’s Compensation case. Appellant Chambers was employed by Appellee Bigelow-Liptak Corporation as a bricklayer from December 9, 1959 to December 17, 1959, inclusive. Three days later, Chambers developed pneumonia or pneumoconiosis, was hospitalized for fourteen days, and was unable to resume work until March 30, 1960. Chambers filed for compensation, claiming that he contracted the pneumonia or pneumoconiosis as a result of the conditions under which he worked. He also claimed permanent partial disability. The Referee denied Chambers ’ claim in foto; the Full Commission reached the same result; the Circuit Court affirmed the Commission; and Chambers brings this appeal.

I. The Claim For Temporary Total Disability. As aforesaid, Chambers was employed by appellees as a bricklayer to help reline with fire brick the inside of a circular tank at the American Oil Refinery Plant in El Dorado. The tank, referred to as a “nutcracker,” was approximately 167 feet high and 43 feet in circumference. The old brick were cracked and broken, and as one section was being torn out the bricklayers were laying new brick in another section. There was no cross-ventilation; the only opening to the tank was a hole at the side or bottom where the workmen entered; and the tearing out of the old brick and the use of acetylene torches made the air so heavy and dusty that one could hardly see. Chambers worked inside the tank eight hours a day until the work was completed. Three days later, Chambers became violently ill: he was nauseated and emitted a cuspidor of blood and “stuff just as black as tar.” On December 23rd he was examined and hospitalized by Dr. Grady Hill, Jr., and remained in the hospital for fourteen days. A fellow patient at the hospital testified as to the frequent spitting up of a heavy dark gray substance by Chambers.

Dr. Hill testified that Chambers had primary acute pneumoconiosis, with a secondary bacteria infection, which was “the result of exposure to the contaminating atmosphere.” Dr. Hill stated that Chambers’ pneumoconiosis “was definitely connected with his experience of being in that tank and breathing those dust particles. . . .” The only evidence offered to contradict the foregoing testimony was a report of an examination made by Dr. Joseph A. Buckman on April 5,1960. which related to conditions then existing and as to whether there was any permanent partial disability. There is absolutely nothing in the record to contradict the foregoing testimony on behalf of the claimant, so we must take as an undisputed fact that Mr. Chambers, while employed by appellee, inhaled foreign particles into his lungs which brought on the pneumoconiosis.

In Murch-Jarvis Co. v. Townsend, 209 Ark. 956, 193 S. W. 2d 310, the workman inhaled dust and fumes at his place of work and developed an irritation in his throat and bronchial tubes. He filed a claim for disability, which was allowed by the Commission and affirmed by us on appeal as a disability resulting from an accidental injury arising out of and in the course of his employment. In Batesville White Lime Co. v. Bell, 212 Ark. 23, 205 S. W. 2d 31, the workman inhaled dust particles in the course of his employment, and the claim was held to be compensable under the Workmen’s Compensation Act. In the case at bar, under the law and the evidence, the Referee, as well as the Full Commission, should have found that Chambers was temporarily totally disabled from the date of his illness on December 20. 1959 through March 30, 1960; and he should have been allowed proper medical and hospital expenses and compensation for snch period of time. To snch extent, the judgment of the Circuit Court is reversed and the cause remanded with directions to the'Circuit Court to enter a judgment and remand the case to the Commission for an award in accordance with this opinion.

II. The Claim For Permanent Partial Disability. Chambers also claimed that he had nineteen per cent, permanent partial disability because of fibrosis or scar tissue on the right lower lobe of his lung. The Commission disallowed any claim for permanent partial disability, and we find that there is substantial evidence in the record to support the Commission’s finding. Dr. Buchman, who examined Chambers on April 5th, stated: “I do not feel this man has any permanent partial disability. I believe that he had pneumonia in December, 1959, and now he is completely well.” In view of this statement, we affirm the award of the Commission denying permanent partial disability.

III. Procedural Matters. At the hearing before the Beferee, the employer offered the letter of Dr. Buchman detailing his examination of April 5, 1960 and his findings. The Beferee asked if there was any objection to Dr. Buchman’s report and the claimant’s attorney answered in the negative; so Dr. Buchman’s report went into the record at the hearing before the Beferee with no objection and no reservation as to the right to have cross-examination. After the Beferee ruled against the claimant, the case was taken to the Full Commission, and there Chambers’ attorney claimed the right to cross-examine Dr. Buchman. The Commission denied the right in the form requested; and the claimant insists that the Commission was in error. Under the state of the record before the Commission, the ruling was correct. When the Buchman letter was offered before the Beferee, the claimant could have agreed to its introduction and reserved the right to cross-examine. If such reservation had been made, then when the claimant wanted to cross-examine Dr. Buchman, the employer would have been obliged to produce him; but no such reservation was made. When the case reached the hearing before the Full .Commission, the claimant’s attorney could have called Dr. Buchman for cross-examination or had his deposition taken on cross-examination; but claimant could not require the employer to call Dr. Buchman for claimant’s cross-examination because his letter had been admitted without any reservation.

CONCLUSION. The judgment of the Circuit Court is affirmed in all respects except as stated in this opinion. To that extent, it is reversed and the cause remanded, with directions as herein stated.

       Dr. Hill defined “pneumoconiosis” as “an inflammation of the lung caused by inhalation of particles of foreign material.”


author: George Rose Smith, J.

text:
    Driver v. Producers Cooperative, Inc.
    5-2215
    345 S. W. 2d 16
    Opinion delivered March 27, 1961.
    [Rehearing denied May 1, 1961.]

      Oscar Fencller, for appellants.

      Henry J. Swift, for appellees.
   George Rose Smith, J.

Producers Cooperative, Inc., is a farmers ’ association engaged principally in the operation of a cotton gin at Osceola. The three appellants were formerly members of the association and are now inactive preferred stockholders having a total investment of $29,444.08 in the association. They brought this suit against the association and its directors to compel the association to comply with its charter and by-laws (a) by paying dividends upon its preferred stock and (b) by establishing a revolving fund to be used for the retirement of preferred stock. After a protracted hearing upon the merits the chancellor dismissed the complaint, finding that in both matters complained of there had been no abuse of discretion upon the part of the directors. The correctness of that ruling is essentially the only issue upon appeal.

The co-op was organized in 1941 under the authority •of Act 116 of 1921. Ark. Stats. 1947, Title 77, Ch. 9. The •charter provides that membership is limited to persons actively engaged in farming. An applicant for membership is required to purchase one share of common stock, which has a par value of $10 and does not bear dividends. Bach member is entitled to one vote at any meeting of the stockholders. If a member becomes ineligible to remain in the association, as by ceasing to farm, the association is entitled to redeem his common stock. The co-op is authorized to do business with non-members, who share in the annual distribution of net earnings.

The charter provides for the issuance of preferred stock, which ‘ ‘ shall bear non-cumulative dividends not to exceed 5 per cent per annum, if earned and when declared by the board of directors; and such dividends shall have preference over any and all other dividends or distributions declared in any year.” The preferred stock is without voting rights, is redeemable at par, and has priority over the common stock in the distribution of the .assets upon a dissolution of the association.

Article X of the by-laws provides that after the close of each ginning season the directors shall have the books audited by a public accountant, whose report shall show the net earnings after all operating expenses (including depreciation) have been paid or provided for. The net earnings so determined shall then be distributed as follows:

(a) Not less than 10 per cent of the earnings shall be put in a general reserve until this fund equals 25 per cent of the outstanding capital accounts; thereafter the fund is to be maintained at that level.

(b) An amount not exceeding 5 per cent (as limited by the charter) of the outstanding preferred stock shall be set aside for the payment of dividends upon that stock. In the discretion of the directors these dividends may be paid by the issuance of additional preferred stock instead of in cash.

(c) The remaining net earnings shall be distributed to the patrons of the co-op, including non-members, in proportion to the amount of business done by the various patrons with the co-op during the fiscal year in question. In making this patronage distribution the association is to retain an amount equal to one dollar for each bale of cotton ginned during the season, and preferred stock is to be issued to each member for that part of his patronage so retained.

Article XI of the by-laws directs that after adequate capital has been provided for the association through amounts paid in and amounts retained from the patronage distribution, an amount of the oldest outstanding-preferred stock equal to the amount of new preferred stock issued during the year shall be redeemed or retired. Thus the effect of Article XI is to create a revolving fund for the retirement of preferred stock.

When the cooperative association was organized in 1941 it raised about $14,000, mostly by borrowing money, with which to buy a gin and begin business. In the early years the annual patronage distribution was sometimes made at least partly in the form of preferred stock. Apparently this procedure was adopted so that the co-op would have cash for working capital and for the payments upon its long-term debt. The appellants, who were then active members of the co-op, acquired their preferred stock holdings entirely through such distributions of stock in lieu of cash. In 1950, a year or two before the appellants ceased to be active members of the association, the practice of issuing preferred stock was discontinued. No such stock has been issued since that year. Almost two-thirds of the outstanding preferred stock (including recorded credits for which stock certificates have never been issued) is held by the appellant and by the appellee directors of the co-op.

In 1947 the association expanded its activities by constructing an alfalfa dehydrator. This venture proved to be a failure, as a blight curtailed the local production of alfalfa. In 1953 the manager of the co-op obtained from an attorney, James E. Hyatt, Jr., a written opinion as to the proper method of writing off the dehydrator loss, which had been kept separate from the ginning operations. In that opinion Hyatt discussed Article X of the by-laws, summarized above, and recommended that the association comply with it by setting up the general reserve and paying a small dividend upon the preferred stock before making the annual patronage distribution. The minutes reflect that the director considered Hyatt’s letter at their July meeting in 1953.

The directors did not follow Hyatt’s suggestion that Article X be complied with. Instead, beginning with the fiscal year ending April 30, 1954, the directors put into effect a method of distributing the annual net earnings that is the point of controversy in this case. The appellants contend that the new system discriminates against the preferred stockholders, in that no provision is made either for the payment of dividends upon that class of stock or for its retirement.

The profit sharing procedure challenged by the appellants is the subject of much testimony in the record. This evidence shows that when a farmer brings his cotton in to be ginned he pays the co-op a fee for its services in ginning and baling the cotton. The patron retains his ownership of the cotton itself, bnt the co-op purchases the cotton seed — a valuable by-product of the ginning process. It is shown by the weight of the evidence that the co-op’s fees for ginning and its payments for seed are fixed competitively and are substantially in line with the fees and payments of other gins in the vicinity of Osceola.

Most, if not all, of the gin’s profits come from its disposition of the cotton seed rather than from its service charges for ginning. This particular cooperative gin disposes of its cotton seed through another cooperative association, Osceola Products Company, which operates a cottonseed oil mill. Membership in the oil mill co-op is limited to ginners, who are required to own stock therein. The oil mill processes and sells the seed brought in by its members. At the close of its fiscal year, which ends June 30, the oil mill distributes its net profits among its members.

Since 1953, when the challenged method of profit sharing was adopted, the directors of the appellee co-op have in effect voted to pay all its annual net earnings to the active patrons of the gin, the distribution being made in the form of a postseason payment upon the cotton seed that was brought in during the preceding year. Soon after June 30 in each year the co-op has received a substantial distribution of profits from the oil mill. The directors have been using these funds for the payment of what amounts to a bonus to the patrons of the gin. The amount of this bonus has varied from year to year, but it has always been high enough to result in the co-op’s books reflecting only a small profit or even a loss upon the year’s operations as a whole. In 1956, for example, the postseason payment was fixed at $6 a bale; a total of more than $16,000 was distributed. The books indicated a loss of about $8,000 for that year, but if the bonus had not been paid there would have been a profit about equal to the bookkeeping loss.

The appellants’ grievance is so plain that it does not call for an extended discussion. They were active members of the co-op during its lean years. Owing to the co-op’s pressing need for liquid capital the appellants and the other preferred stockholders received certificates of stock instead of cash as part of their return from the operation of the gin'. In this way those stockholders accumulated an investment that exceeded $100,-000 at the time of suit. The value of the co-op’s assets was not an issiie below, but one witness made an offhand estimate of $150,000, and the' substantial worth of the property is also confirmed by the fact that the accounting charge to depreciation exceeds $10,000 a year.

Despite the fact that the preferred stockholders’ interest in the co-op constitutes the major part of its capital, the method of allocating the profits that was adopted in 1953 excludes these stockholders from any return upon their holdings. The only dividend paid in recent years was a 3 per cent dividend declared in 1957, perhaps as a result of the institution of this suit. Article XI of the by-laws provides for the creation of a revolving fund for the retirement of preferred stock in the years after adequate capital has been accumulated. This revolving fund is to be used for the retirement of preferred stock in the order of its issuance, with new preferred stock being issued to current patrons of the gin as the old stock is redeemed. The co-op’s continued failure to establish the revolving fund deprives the appellants of any assurance that their stock will be retired within the foreseeable future. Thus the preferred stockholders’ investment is being used solely for the benefit of the active members, while the stockholders are denied dividends as well as redemption rights.

The chancellor was in error in finding no abuse of discretion on the part of the directors. The stockholders are plainly entitled to insist that the directors either comply with the provisions of the charter and by-laws or establish a valid reason for noncompliance. Here the appellees’ proof falls short of excusing their long-continued failure to pay dividends and to create the fund contemplated by Article XI of the by-laws.

The position taken by the directors, in their testimony and in their brief, is that the payment of the bonuses for cotton seed is necessary to enable the co-op to retain its patrons. But the proof does not support this argument. All that is actually shown by the evidence is that the policy of returning all the co-op’s profits to its members has been an effective method of retaining their patronage. This is readily understandable, for the members of the co-op have the advantage of receiving all the profits from the gin, with no payment being made to the preferred stockholders for the use of the property constituting their investment in the enterprise.

It is not shown, however, that the co-op’s present policy is essential to prevent the loss of its customers. There is no proof that any patron of the gin would take his cotton elsewhere if the annual bonus should be reduced by the amount needed for the revolving fund. The sole reason given for the directors’ liberal practice of returning all the profits to the patrons is the pressure of competition, but no attempt is made to explain how other cotton gins in the county are able to compete with this co-op despite the fact that they presumably provide some return upon invested capital.

As a matter of fact, more than 80 per cent of this co-op’s ginning business comes from its present directors, who have since 1953 paid to themselves more than 80 per cent of the bonuses. There is no suggestion of willful wrongdoing or of fraud. To the contrary, the directors have acted without concealment and in the evident belief that their policy was a proper one. But it must be observed that the ginning business which they are afraid of losing is largely their own patronage. This fact confirms our conclusion that the appellees’ evidence fails to overcome the convincing prima facie case made by the plaintiffs ’ proof.

The appellants insist that upon remand they are entitled to a personal judgment against the directors for the total amount of all bonuses paid to themselves within the period of limitations immediately before the institution of this suit. We think, however, that relief should be given only as to payments made after the suit was filed. The appellants repeatedly disclaim any charge of fraud; they merely insist that there has been an abuse of discretion. In the circumstances it would be inequitable to reopen past transactions over a period of years, in view of the likelihood that the practice would have been discontinued if the plaintiffs had made their objections known earlier. It was so held in Lillard v. Oil, Paint & Drug Co., 70 N. J. Eq. 197, 56 Atl. 254, 58 Atl. 188, where the stockholders’ relief for the directors’ payment of excessive salaries to themselves was limited to sums paid after the suit was brought. See also Fletcher, Cyclopedia of Corporations (Perm. Ed.), § 5874.

The appellants also take the position that the preferred stockholders are entitled to a full 5 per cent dividend in any year in which the co-op’s net earnings, as determined under Article N, are sufficient to pay that amount. We do not agree. The charter provides for a non-cumulative 5 per cent dividend “if earned and when declared by the board of directors.” Since the dividend must be earned and declared the directors unquestionably have some discretion in apportioning the net earnings between the preferred stockholders and the active members of the association. In such a situation it is not proper for the courts to usurp the directors’ function by attempting to declare in advance just what dividend should be paid. Instead, the matter should be decided in the first instance by the directors, subject to a judicial review to determine whether they have acted in good faith and without an abuse of discretion. Fletcher, § 5325; O’Neall Co. v. O’Neall, 108 Ind. App. 116, 25 N. E. 2d 656; Patton v. Nicholas, 154 Tex. 385, 279 S. W. 2d 848.

The decree is reversed and the cause remanded for further development ufith respect to the fiscal years ending after the institution of this suit, to the end that appropriate relief may be afforded to the plaintiffs with respect to the establishment of the revolving fund and the payment of dividends upon the preferred stock. The appellants are entitled to recover their costs, but their request for the allowance of attorneys’ fees is denied.


author: George Rose Smith, J. Carleton Harris, Chief Justice,

text:
    Big Rock Stone & Material Co. v. Hoffman.
    5-2338
    344 S. W. 2d 585
    Opinion delivered March 27, 1961.

      Wright, Lindsey, Jennings, Lester <& Shults, for appellant.

      Kenneth Coffelt, for appellee.
   George Rose Smith, J.

This action was filed by the appellees to recover property damages they had assertedly suffered from the appellant’s blasting operations. A trial by jury was completed on April 7, 1960, and ended in a unanimous verdict for the defendant. On May 3 the plaintiffs filed a motion for a new trial, alleging that they had learned that one of the jurors, Boy Bosson, had failed to disclose on voir dire that he was then being represented in a pending case by the defendant’s attorneys, the firm now styled Wright, Lindsey, Jennings, Lester & Shults. After a hearing upon the motion the trial judge concluded that a new trial had to he granted in view of our holding in Hot Springs St. Ry. Co. v. Adams, 216 Ark. 506, 226 S. W. 2d 354. The defendant has appealed from the order granting the new trial, having filed the assent required in such a case. Ark. Stats. 1947, § 27-2101.

There is no dispute about the facts. In July of 1959, which was nine months before the trial of this case, Bosson owned a car upon which he carried a collision insurance policy with a $100-deductible clause. Bosson’s son was involved in a collision in which the car -was damaged to the extent of $407.30. The insurer duly paid Bosson the sum of $307.30, and as a part of that settlement Bosson executed a release, which also contained an assignment of his cause of action against the other party to the collision and an authorization for the insurer to file suit, if necessary, in Bosson’s name.

The insurer was unable to collect its subrogation claim from the other motorist, and it referred the case to the Wright firm. The matter was handled by Winslow Drummond, a member of the firm, who filed suit in Bosson’s name pursuant to the authority contained in the release agreement he had executed. There was a slight error in the amount sued for, but it was Drummond’s intention to bring suit both for the $100 owned to Bosson and the $307.30 owed to the insurance company. Drummond had no communication of any kind with Bosson in connection with the filing of the suit in Bosson’s name. That case was pending when the case at bar was tried, but Bosson did not learn of its pendency until several days after he had joined in the verdict for the defendant in this case.

The present case was defended by two other members of the Wright firm, Bobert Lindsey and Bobert Shults. At the time of the trial neither of them knew anything whatever about the suit that Drummond had filed in Bosson’s name. During the voir dire examination of the jury Mr. Coffelt, the plaintiffs’ attorney, asked if any of the jurors had ever been represented in litigation or otherwise by the defendant’s attorneys. Bosson, being unaware of the pendency of the action in his name, made no response to counsel’s question, and Lindsey and Shults also remained silent, as they too knew nothing about the other case.

After hearing testimony upon the plaintiffs’ motion the trial court found specifically that Bosson had no knowledge that the claim had been referred to the Wright firm or that that firm had filed the suit in question. The court held, however, that there was a duty on Bosson’s part, “he having previously authorized the filing of a suit in his name, to call that to the attention of the court and the parties and to make inquiry at that time as to what, if anything, had occurred on the authorization which he had previously given and to investigate whether any of the attorneys in this action had filed a suit in his name.” The court concluded that under the ruling in the Adams case, supra, he had no alternative except to grant the motion for a new trial.

We think the court was in error. Under the governing statute a new trial is granted for causes “affecting materially the substantial rights” of the party aggrieved. Ark. Stats., § 27-1901. Here it is established by the undisputed proof as well as by the trial court’s finding of fact that the plaintiffs could not have been prejudiced by Bosson’s participation in the case. Bosson had no knowledge that a suit had been filed in his behalf by the Wright firm or by anyone else, and it was therefore impossible for the pendency of that case to have any effect whatever upon his deliberations and conclusions as a juror. The plaintiffs received everything to which they were entitled; their case was heard and decided by a completely impartial jury.

The facts in the Adams case, relied upon by the trial judge, were significantly different from the situation presented here. There the juror in question was in fact open to a charge of prejudice, as he was aware that he was being represented in a pending case by one of the trial attorneys. The juror acted at least with a culpable lack of candor, if not with actual bad faith, in failing to make a full disclosure upon voir dire. By contrast, Bosson is in no way subject to even a suspicion of bias, and his conduct in failing to respond to Coffelt’s inquiry can only be regarded as truthful and candid. The trial court’s suggestion that Bosson should have remembered the details of a release executed some nine months earlier and should have inquired about the matter overlooks the fact that Bosson could not have had any reason for prejudice until after the suggested inquiry had been fully pursued. Hence the plaintiffs could not possibly have been hurt by the fact that no such inquiry was undertaken.

Despite the demonstrable absence of any actual harm to the appellees in this case two reasons are nevertheless advanced for an affirmance of the trial court’s order. First, it is insisted that the failure to allow a new trial in this case will constitute a precedent opening the door to deliberate fraud in later cases. We do not find this argument convincing. Only in extremely rare instances will there arise a situation like this one, in which a juror is ignorant of the fact that a suit in his behalf is pending. Furthermore, the attorney representing the juror is plainly under a duty to make the facts known if he has any reason to believe that a full disclosure has not been made. Here the defendant’s trial counsel were not remiss in failing to announce their representation of Bosson, as they were unaware of it; but ordinarily this duty on the part of the attorney would provide an additional and effective safeguard against the possibility that intentional deceit might be practised successfully.

The second argument for an affirmance invokes the familiar rule that a court has unlimited control over its judgments during the same term of court and may set them aside without stating any cause. Union Sawmill Co. v. Langley, 188 Ark. 316, 66 S. W. 2d 300. This rule, however, does not empower a circuit court to set aside a jury verdict arbitrarily and without reasonable cause. The principle has been mentioned in only one Arkansas ~~se involving a jury verdict, Hill v. Wilson, 216 Ark. 179, 224 S. W. 2d 797, and there, unlike the present case, a m hd reason for setting aside the verdict was shown to exist

Tl at the circuit court’s control over its judgments during ,he term does not extend to the matter of setting aside a jury verdict is conclusively shown by the statute permitting an appeal from an order granting a new trial. That statute provides that the appellant must file his assent to judgment absolute against him if the order be affirmed. Ark. Stats., § 27-2101. Yet it is plain enough that every such order would be affirmed if the appellees ’ argument were sustained, for the court’s action would not be subject to review. Consequently the statute can be given meaning and effect only if the court’s broad power over its judgments during the term is held to bo inapplicable to judgments entered upon the verdict in jury cases.

The order is accordingly reversed and the cause remanded for the entry of a judgment upon the verdict.

Harris C. J., and Johnson, J., dissent.

Carleton Harris, Chief Justice,

dissenting. In dissenting, I wish to make clear that I find no fault with the result reached by the Majority, for I agree that in the instant case, neither Bosson nor his attorneys were aware of the fact that another member of the law firm had filed an action in Bosson’s behalf. My reason for dissenting is that I think this case will constitute a precedent, opening the door to possible fraud in subsequent cases. The majority state:

“Bosson had no knowledge that a suit had been filed in his behalf by the "Wright firm or by anyone else, and it was therefore impossible for the pendency of that case to have any effect whatever upon his deliberations and conclusions as a juror. The plaintiffs received everything to which they were entitled; their case was heard and decided by.a completely impartial jury.”

Suppose that a prospective juror genuinely had forgotten that one of the lawyers had filed a lawsuit in his behalf. This is not too far fetched, since, for example, a large real estate company, or hank, frequently “passes the business around” to various attorneys for foreclosures and other real estate litigation. Likewise, an attorney with considerable business could well forget a minor case that he had filed on behalf of the prospective juror. Under the logic of the Majority opinion, no ground for setting aside an adverse verdict would he established; the losing side would not he prejudiced, because representation of the juror by the opposing attorney had been completely forgotten. On the other hand, suppose that the juror had not actually forgotten that one of the lawyers represented him, but just said that he had forgotten. This, in my opinion, places an undue burden upon the Circuit Judge, who, under the Majority opinion, will be forced to find that the juror, in essence, prevaricated, before he can set the verdict aside. In fact, should a case again arise with a factual background identical to the one in issue, the court would he compelled to find that the juror and attorneys wilfully withheld pertinent information before it would he justified in setting aside the verdict. I do not feel that it is appropriate to place such a burden upon the trial judge. It seems to me that it would he far better to have a set, established rule, requiring the setting aside of a verdict under the circumstances herein involved.

I, therefore, respectfully dissent.

Mr. Justice Johnson joins in this dissent.