author: John A. Fogleman, Chief Justice.

text:
    SOUTHWESTERN BELL TELEPHONE COMPANY v. ARKANSAS PUBLIC SERVICE COMMISSION
    79-201
    593 S.W. 2d 434
    Opinion delivered January 28, 1980

      Wayne E. Babler, William C. Sullivan, D. D. Dupre; Hershel Friday and Hermann Ivester, of Friday, Eldredge & Clark, for appellant.

      Robert H. Wood, Jr., Steven K. Cuffman, and Steve Clark, Atty. Gen., by. Michael O’Malley, Asst. Atty. Gen., for appellee.
   John A. Fogleman, Chief Justice.

This appeal is the product of the inexorable march of inflation. Appellant, Southwestern Bell Telphone Company (hereafter referred to as Bell) seeks a reversal of the circuit court’s affirmance of the order of the appellee Arkansas Public Service Commission (hereafter called PSC) setting aside proposed new intrastate rate schedules filed by the telephone company on March 1, 1976, and allowing the company to file a new rate schedule designed to produce additional revenues amounting to slightly more than one-third of those anticipated from the schedule proposed by the company.

On March 1, 1976, the telephone company sought PSC approval of a new rate schedule pursuant to Ark. Stat. Ann. § 73-217 (Repl. 1957). It would have produced an increase of annual revenues to the company amounting to approximately $ 18,180,000. By an order entered March 29,1976, the commission suspended the proposed rates for six months, the maximum period of suspension allowed under Ark. Stat. Ann. § 73-217 (b), the applicable statute. Pursuant to the provisions of that statute, the telephone company, on August 1, 1976, made the proposed tariffs effective under an “Agreement & Undertaking” approved by PSC, and these rates were collected until June 20, 1978. The six months’ suspension expired on September 29, 1976, both by the terms of the order and by operation of law. Hearings on appellant’s application were not even commenced until November 15,1976. They were concluded on November 24, 1976. Briefing time was allowed thereafter and the last briefs were filed on January 3,1977. No order was entered by PSC until September 1, 1977. That order not only set aside the rates proposed by the telephone company, it also required the refund of all revenues collected by the company on the basis of its proposed rates in excess of those authorized in the order. On December 9, 1977, PSC entered an amended order authorizing an additional $26,120 in annual revenues.

The application filed by the telephone company was based upon a rate of return of 9.27 percent on the original cost of its property used in providing intrastate telecommunications service in Arkansas based on a test year ending December 31, 1976., This rate of return had been approved by PSC just six months prior to the filing of this application in the last previous rate proceeding involving appellant. Appellant asserted that the increase authorized by the earlier proceeding had proven insufficient to produce the rate of return allowed. The order entered September 1,1977, as amended, fixed the rate of return at 8.31 percent and allowed increased annual revenues based on that rate applied to a test year rate base valued as of June 30, 1976.

Appellant’s petition for review by the circuit court was filed November 11, 1977, after PSC had failed to act upon appellant’s petition for rehearing filed September 21, 1977. The circuit court affirmed the PSC order on March 22,1979.

Bell has presented its arguments in nine (stated) points for reversal. The arguments and contentions made under those points are to some extent overlapping and sometimes repetitive. Many of them would be more appropriately addressed to PSC than to the courts. We will endeavor to deal with Bell’s basic arguments without attempting to treat the individual points separately. We must, however, give due regard to the limitations on the scope of judicial review and to the expertise of the commission. The scope of judicial review is neither so narrow as PSC would have it nor so broad as Bell asks us to make it. It is fixed by Ark. Stat. Ann. § 73-229.1 (Repl. 1979). The courts can only determine whether: (1) the commission’s findings as to the facts are supported by substantial evidence; (2) the commission has regularly pursued its authority; and (2a) the order or decision under review violated any right of the petitioner under the laws or Constitution of the United States or the State of Arkansas. It is only the findings of fact that are tested by the standard of substantial evidence, which is a question of law. Arkansas Public Service Com’n. v. Continental Telephone Co., 262 Ark. 821, 561 S.W. 2d 645; State Highway Com’n. v. Byars, 221 Ark. 845, 256 S.W. 2d 738; J. L. Williams & Sons v. Smith, 205 Ark. 604, 170 S.W. 2d 82; St. Louis Southwestern Ry. Co. v. Braswell, 198 Ark. 143, 127 S.W. 2d 637. All of the questions to be determined, then, are questions of law. In answering these questions, the courts may not pass upon the wisdom of the commission’s actions or say whether the commission has appropriately exercised its discretion. City of Ft. Smith v. Southwestern Bell Telephone Co., 220 Ark. 70, 247 S.W. 2d 474; Allied Telephone Co. v. Arkansas Public Service Com’n., 239 Ark. 492, 393 S.W. 2d 206; Arkansas Power & Light Co. v. Arkansas Public Service Com’n., 226 Ark. 225, 289 S.W. 2d 688; Harding Glass Co. v. Arkansas Public Service Com’n., 229 Ark. 153, 313 S.W. 2d 812. The judicial branch of the government must defer to the expertise of the commission. Arkansas Power & Light Co. v. Arkansas Public Service Com’n., supra. See also, Fisher v. Branscum, 243 Ark. 516, 420 S.W. 2d 882. Judicial review is not reduced to a formality, however, and it is for the courts to say whether there has been an arbitrary or unwarranted abuse of the commission’s discretion, even though considerable judicial restraint should be observed in finding such an abuse. Incorporated Town of Emerson v. Arkansas Public Service Com’n., 227 Ark. 20, 295 S.W. 2d 778; Arkansas Public Service Com’n. v. Continental Telephone Co., supra. It is not for the courts to advise the commission how to discharge its functions in arriving at findings of fact or in exercising its discretion. Arkansas Power & Light Co. v. Arkansas Public Service Com’n, supra; Ohio Bell Telphone Co. v. Public Utilities Com’n., 301 U.S. 292, 57 S. Ct. 724, 81 L. Ed. 1093 (1937). On the other hand, it is clearly for the courts to decide the questions of law involved and to direct the commission where it has not “pursued” its authority in compliance with the statutes governing it or with the state and federal constitutions. In questions pertaining to the regular pursuit of its authority, the courts do have the power and duty to direct the commission in the performance of its functions insofar as it may be necessary to assure compliance by it with the statutes and constitutions. The question of reasonableness of the commission’s actions relates only to its findings of fact and to a determination of whether its action was arbitrary.

We must remember that the commission action has been reviewed in the circuit court and that the burden is on the appellant to demonstrate error in that court’s judgment. See Fisher v. Branscum, supra.

Appellant first contends that its proposed rates became effective upon the. expiration of the suspension and, as a result, none of the revenue collected prior to September 1, 1977, is subject to refund. The suspension order provided that the rates were suspended for six months, “or until such earlier time as the Commission may order.” Appellant argues that its proposed rates became effective on September 30,1976, and that PS C lost its power to act with regard to the rates and any revenues collected under them. The commission is authorized to suspend proposed rates pending its investigation and decision, but not for a period to exceed six months. There is no indication whatever of any legislative intent that PSC should entirely lose jurisdiction of the rate proceeding by its failure to reach a decision within the suspension period. By the same token, the time limitation is not meaningless, as it would be, if the refund order is held valid. It should be remembered that the hearings on the rate increase were not even commenced during the suspension period. The only purpose of the limitation on the suspension is to prevent the “regulatory lag” between the filing of an application for a rate increase and the commission’s decision from having a confiscatory tendency. If the commission’s decision can be delayed for 18 months after the filing of the application by the utility, it could be delayed for two or three times that long. In these days of galloping inflation, the passage of time can be crucial. Perhaps the delay was attributable to the heavy load falling upon PS C as a result of inflationary trends. If, however, the utility has no protection from a long delayed decision which requires a refund, repetitive applications for rate increases will be filed by it during the pendency of its initial application. This would only serve to increase the workload of the commission and produce additional delay. The time limitation must be given some meaning. We take it to mean that, in this case, the commission had no authority to order a refund of revenues collected on the basis of the proposed rates between the date of the expiration of the suspension order and the date of the order fixing the rates allowed. By the clear language of § 73-217, it is only the operation of the rates that may be suspended, but that suspension cannot exceed six months. See New England Telephone & Telegraph Co. v. Public Utilities Co., 362 A. 2d 741 (Me., 1976); State v. Montana-Dakota Utilities Co., 89 N.W. 2d 94 (N.D., 1958). On the other hand, we do not agree with appellant that refunds of collections made between August 1, 1976 and September 30, 1976, could not be ordered because no valid rate order was entered within the time limitation on the power of suspension in § 73-217. See Application of Montana-Dakota Utilities Co., 102 N.W. 2d 329 (N.D., 1960). Bell had no vested rights in collections under bond of the difference between the old rates and the new ones it proposed collected during the suspension period. Application of Montana-Dakota Utilities Co., 111 N.W. 2d 705 (N.D., 1961).

We reject PSC’s suggestion that a holding that it may not order a refund of revenues collected after the expiration of the suspension period would constitute a court-imposed time limit on the commission’s deliberations. The time limit was imposed by the General Assembly. It must be remembered that the PSC is a creature of the legislature and that, in rate-making, it is performing a legislative function, which has been delegated to it. City of Ft. Smith v. Department of Public Utilities, 195 Ark. 513, 113 S.W. 2d 100; Arkansas Power & Light Co. v. Arkansas Public Service Com’n., 226 Ark. 225, 289 S.W. 2d 668. The commission was created to act for the General Assembly and it has the same power that body would have when acting within the powers conferred upon it by legislative act. Department of Public Utilities v. Arkansas Louisiana Gas Co., 200 Ark. 983, 142 S.W 2d 213. The General Assembly certainly has not surrendered the power to fix time limitations on the actions of its own agency. PS C’s order of suspension clearly recognized that the limitation on its suspension of rates had some significance by suspending “new intrastate rates, tolls and charges . . . for a period of six (6) months, or until such earlier time as the Commission may order.” [Emphasis ours.]

If PSC does not enter a suspenion order prior to the stated effective date of the proposed rates, those rates, by the clear language of Ark. Stat. Ann. § 73-217 (a) and (b), would “go into effect” or “become effective.” The suspension order simply suspends the proposed rates for six months “beyond the time when such rate or rates would otherwise go into effect.” Appellee has not suggested any other meaningful application of the six months’ limitation.

PSC does argue that its action was proper under Ark. Stat. Ann. § 73-217 (c) because it is directed to determine and fix the just and reasonable rate or rates to be charged or applied by the utility for service ‘ ‘from and after the time said new rate or rates took effect,” and in the same order fix the amount or amounts plus interest, if any, to be refunded to the consumer which were collected by the utility “during the time such new rate or rates were in effect.” When all the subsections of § 73-217 are read together, it is clear to us that it was contemplated by the General Assembly that the investigation and hearing should be completed and an order for a refund made during the suspension period. We agree that PSC had the power and authority to order the refund or any rates collected during the suspension period which it ultimately found to be excessive, in spite of the time limitations in § 73-217. We did not even approach the questions involved here in Department of Public Utilities v. McConnell, 198 Ark. 502, 130 S.W. 2d 9, relied upon by appellee.

PSC also argues that Bell’s “Agreement and Undertaking” guaranteed repayment of any amount which the commission found excessive. The particular language relied upon is:

Should any portion of such rates in excess of the rates in effect immediately prior to August 1, 1976, be finally determined to be excessive by the Commission, Southwestern Bell Telephone Company does hereby agree and undertake to insure the prompt payment of any refunds ordered by the Commission together with interest thereon not to exceed Ten Percent (10%) per annum.

Certainly this agreement is not to be taken as an open-ended commitment to pay a refund directed by an order that is made without authority. Furthermore, we take this agreement to be the “bond” or substitute therefor required by Ark. Stat. Ann. § 73-217 (b). Thus, the agreement was, in effect, a statutory bond. As such, the terms of the statute are considered as if they are written into the bond, and, in determining the extent of liability on the bond, the language of the statute is controlling over the language of the bond. Miller v. State, 262 Ark. 223, 555 S.W. 2d 563; Empire Life & Hospital Insurance Co. v. Armorel Planting Co., 247 Ark. 994, 449 S.W. 2d 200. When this agreement is read in the light of the statute, it does not require any refund that the commission could not order under the statute. In other words, the agreement could not bind Bell to do more than the commission could require under the statute and the agreement cannot have the effect of increasing PSC’s power or Bell’s obligation.

In ordering the refunds for rates collected after the expiration of the suspension order, PSC did not regularly pursue its authority, so that portion of its order must be set aside upon judicial review, and the judgment of the trial court reversed to that extent.

Appellant also contends that the PSC order of September 1,1977, is totally void, or, in the alternative, can only have prospective effect because the commission failed to enter its order within 60 days of the hearing as required by Ark. Stat. Ann. § 73-229 (Repl. 1979). This 60-day period expired on January 23, 1977, if it began to run when the hearing of evidence was concluded. If the filing of briefs is considered as a part of the hearing, the 60-day period expired on March 4, 1977, which was nearly six months prior to the date when the order was finally entered.

We have previously held that PSC was not deprived of jurisdiction after the expiration of the 60-day period to act on a petition to close a business office of a utility. City of DeWitt v. Public Service Com’n., 248 Ark. 285, 451 S.W. 2d 188. Appellant distinguishes that situation from this by saying that in DeWitt the limitation on time was “an immaterial matter of convenience,” while in a rate case time is an extremely critical matter, as shown by the intricate timing mechanisms established in Ark. Stat. Ann. § 73-217 and by the apparent discriminate use of the words “shall” and “may” in § 73-229. In DeWitt we held that the statute was directory and that non-compliance did not void the PSC order.

Appellant’s arguments are appealing, but we reject them largely because there would be gross inconsistency in saying that the same words in the same statute have the effect of voiding commission action in one type of case governed by the statute and not in another. It is hardly possible to say that the statutory provision is directory in one type of case and mandatory in another, and there is no language in DeWitt that admits that possibility.

To hold PSC action in this case void because it was robbed of jurisdiction and power on the basis of this statute would, in effect, overrule DeWitt. Since DeWitt itself involved a construction of the statute, we are reluctant to do this, particularly in view of the fact that the General Assembly made changes in the section involved after our decision in DeWitt without affecting our interpretation. Our statute is unlike the one considered in Mt. Konocti Light & Power Co. v. Thelen, 170 Cal. 468, 150 P. 359 (1915), relied upon by appellant. The statute there related to action upon petitions for rehearing and specifically provided that, upon failure of the commission to act within the time allowed by the statute, any party to the proceeding could take the commission’s order to be affirmed. Appellant advances the argument that DeWitt is distinguishable because the PSC order involved there had no retroactive effect. If, indeed, this part of the statute is directory but not mandatory, we cannot well hold that PSC’s failure to act deprived it of the power to order a refund of the additional revenues collected under bond, even though we do find that failure to render a decision within 60 days after the filing of the briefs in the case renders the final action of PSC prospective in all other respects. We had no occasion to consider this question in DeWitt. On this point, we find the holding in Fuller-Toponce Truck Co. v. Public Service Com’n., 99 Utah 28, 96 P. 2d 722 (1939) very persuasive. The Utah court held that the effect of delay in rendering a decision beyond a similar statutory limitation was to allow the parties to act in the interim without fear of penalty, but not to deprive the commission of jurisdiction and power to áct prospectively. See also, Hartman v. Glenwood Telephone Membership Corp., 197 Neb. 359, 249 N.W. 2d 468 (1977).

Bell contends that it was deprived of due process of law because the PSC, without notice to Bell until the PSC staff filed its testimony only 14 days before commencement of the hearing on Bell’s application, changed the methodology followed by the commission in its order of September 4, 1975, upon Bell’s application for a rate increase made in that year. As a result, PSC concluded that Bell was entitled to a rate of return of 8.31 percent rather than the 9.27 percent rate of return authorized by PSC in the 1975 order. Bell argues that, in filing the application involved here, it relied and had a right to rely, upon the rate then fixed. Bell emphasizes the fact that its application was in strict conformity with the previous order and the accounting procedures adopted in that proceeding by PSC as proposed by Touche Ross & Company, an independent accounting firm employed by the PSC staff. The staff conceded that this was true. Bell’s statement that the rates allowed in 1975 had failed to produce the rate of return allowed in the same order and that its application was based upon that failure is not seriously contested.

The differences in methodology and changes in procedure of which Bell complains relate to the end of test periods used in determining company expenses, revenues and investment in plant and to the approach to the rate of return necessary to enable the company to obtain capital necessary for its operations.

Bell’s proposed test year ended December 31, 1976, ten months after the date of the application. Bell calculated that, at the end of the test year, its capital structure would consist of 54.11 percent common equity, 39.79 percent debt and 6.10 percent cost-free capital, and its embedded cost of debt would be 7.11 percent. Applying 12 percent return on equity, as authorized by the 1975 rate order, would produce an overall rate of return of 9.32 percent, but Bell sought rates which would produce only an overall return of 9.27 percent on the December 31, 1976, rate base. Bell calculated that, based upon adjustments to the December 31,1976 test year, in conformity with methods approved by PSC, Bell’s return, based on the rates allowed in the 1975 order, would amount to only 6.85 percent. J. B. Nichols, Bell’s vice-president and general manager for Arkansas, testified that, in framing the application, the methodology employed by PSC in its last previous rate case, including all the disallowances to revenues, expenses and investments, was utilized. This was also conceded. This witness said that the test year was chosen because of the attrition that occurs over a period of time due to the addition of new plant investment at higher cost than previous plant investment and the effect of delay which would occur during the consideration of Bell’s request for rate relief. He stated that rate relief based solely upon the relationship among revenues, expenses, and investment that existed in the past would prevent a utility from realizing the allowed rate of return either at the time of the order or at any time in the future and that Bell never caught up with its growth when a truly historical test period was used. He said that, at the time he testified, he had found it necessary to change certain projections made in April for the end of 1976. At least one of the changes was based upon data from the first seven months of 1976. Nichols pointed out that a future test year, consisting of nine months of actual data and three months of projected data, had been used in its last previous rate case. He said that Bell had furnished monthly data to the commission staff on actual performance as compared to forecast performance which showed that revenues and expenses had been within one to one and one-half percent of the forecasts, and that Bell’s record for forecasting, which had been furnished to the commission staff, demonstrated a very high degree of accuracy over a period of ten years. W. W. Lampkin, Bell’s chief supervising accountant for Arkansas, testified that, during that period, Bell’s actual operating revenues had averaged 0.6 percent below that budgeted and its operating expenses, 1.1 percent above that budgeted. Bell’s witnesses pointed out that at the time of the hearings in the middle of November, 1976, the idea that their proposed test year was a future test year was virtually moot. They also testified that, in calendar year 1975, no commission in the country had allowed the Bell system a rate of return on common equity as low as its actual return. According to them, this fact demonstrated that future test years had become necessary for utilities because the expense of future growth was greater than the growth in revenue produced. Bell’s chief supervising accountant said that a future test year required certain forecasts of changes in the economy that might occur and that projections were made from historical trends.

Jerrell Clark, Chief of Accounting & Finance with PSC, chose the test year ending June 30, 1976, because it was based upon actual audited results of operations for that 12-month period. He said that it had been adjusted to year end level and for known changes in revenue and expenses for one year, assuming no growth. Clark said that Bell’s future test year required projections with projections.

Lampkin elaborated on the reasons for the test year selection made by Bell, saying that there were three reasons: first, an attempt to reflect the condition which could reasonably be expected to exist at the time of the hearing, recognizing that rates are made for the future; secondly, the company’s historically good job of estimating future levels of revenues, expenses and investment, and, lastly, counteraction of the regulatory lag. He said that, at the time of the hearing, the staffs test period did not give an accurate picture of Bell’s financial picture, and that the use of such a test period would require Bell to seek additional rate relief in a very short time, which he believed was not in the best interest of the public, the commission, or Bell.

Bell produced evidence that a minimum return of 14 percent on equity capital was required by it in order to raise large amounts of equity capital, that Bell’s cost of long term debt was 8.42 percent and that its embedded cost of debt was 6.75 percent as of February, 1976. This testimony was given by Bell officers.

Basil L. Copeland, an economist on the staff of PSC since August, 1975, recommended a rate of return of 8.28 percent on the rate base, which he said would produce a return of 8.82 percent on investor supplied capital, including a return of 11.5 percent on American Telephone & Telegraph Company (hereafter referred to as A T & T) common equity. According to him, the 9.27 percent rate previously allowed did not take into consideration the effect of A T & T leverage on A T & T’s ability to earn a given return on equity. This was important because Bell is a wholly owned subsidiary of A T & T. In this situation, according to Copeland, there is a “double leverage” which exists in a holding company arrangement when leverage, i.e., debt, exists at the parent as well as the subsidiary level, and, unless this double leverage is given effect by a compensating adjustment in calculating the cost of capital, that cost will be incorrectly calculated and the subsidiary may earn more than its true cost of capital. Copeland explained two acceptable methods of calculating the cost of capital for a wholly owned subsidiary when double leverage exists. One of them used the subsidiary’s debt and equity ratios, but only permitted the subsidiary to earn its parent’s cost of capital on its equity. The other used a consolidated capital structure. He recommended that the commission use the first method, because there would likely be variations in capital structures and embedded debt costs among subsidiaries. Copeland said that the method he had used to calculate Bell’s cost of capital had been adopted by commissions in Iowa, Minnesota, New Jersey, New York and Wisconsin. He said that the methods universally employed by experts to estimate the cost of equity were subjective and amenable to any result desired. He explained a rather complicated mathematical formula which he said produced an objective result.

In rebuttal, Bell offered the testimony of William P. Dukes, Professor of Finance at the College of Business Administration of Texas Tech University. He pointed out that Copeland’s recommended rate of return was below the 8.31 percent reported in the Wall Street Journal on November 10,1976, as the AAA utility bond rate. He disagreed with Copeland’s approach and took the position taken by the Tennessee Public Service Commission, i.e., cost of equity is a subjective factor which cannot be determined by precise mathematical formula but requires the application of informed judgment. He and other witnesses stated that Copeland had misapplied the basic model from which he had derived his formula, and that the formula incorporated economic variables which were unlikely to be repeated and assumed market equilibrium during a period when the “swings” were the widest in market history. These witnesses pointed out other matters which they took to be flaws in Copeland’s approach and in his formula.

We have been troubled by the apparent inconsistency in PSC’s approval of different methods of accounting and different methods of computation of rates of return on different occasions, fully recognizing that it may be quite difficult to establish hard and fast rules to be utilized and followed in determining a fair rate of return but, at the same time, thinking that a more uniform application of established and predictable criteria would lead to fairer and more understandable results. Arkansas Power & Light Co. v. Arkansas Public Service Com’n., 261 Ark. 184, 546 S.W. 2d 720. While we understand appellant’s bewilderment, neither it, nor our concern, can be translated into a judicial mandate requiring the commission to take the same approach to every rate application, or even to consecutive applications by the same utility, when the commission, in its expertise, determines that its previous methods are unsound or inappropriate to the particular application.

In effect, Bell is asking us to apply the doctrine of res judicata to require PSC to apply the methodology used by it in entering the 1975 order. But res judicata has little application to regulatory action by an agency in fixing utility rates, because rate-making is a legislative, not a judicial function. Duquesne Light Co. v. Pennsylvania Public Utility Com’n., 176 Pa. Super. Ct. 568, 107 A. 2d 745 (1954); State v. Alabama Public Service Com’n., 293 Ala. 553, 307 So. 2d 521 (1975); General Telephone Co. of Southwest v. Robinson, 132 F. Supp. 39 (E. D. Ark. 1955). It has been held that every rate order may be superseded by another, not only when conditions change, but also when the administrative understanding of the same conditions changes. 2 Davis, Administrative Law Treatise 610, § 18.09. See also, Rockwell Lime Co. v. Illinois Commerce Com’n., 373 Ill. 309, 26 N.E. 2d 99 (1940); State Airlines, Inc. v. Civil Aeronautics Board, 174 F. 2d 510 (D.C. Cir., 1949), reversed on other grounds, 338 U.S. 572, 70 S. Ct. 379, 94 L. Ed. 353 (1950).

In Arkansas Power & Light Co. v. Arkansas Public Service Com’n., 226 Ark. 225, 289 S.W. 2d 668, we held that PSC was not bound by an earlier order authorizing the inclusion of construction work in progress in a utility’s rate base, and that the constitutional rights of the utility were not invaded by a change in that order, so long as proper notice was given to the utility. In that case, we relied heavily upon the holding of the Vermont Supreme Court that a commission such as PSC is not bound to the service of any formula or combination of formulas. The Vermont court had pointed out that, in Federal Power Com’n. v. Natural Gas Pipeline Co., 315 U.S. 575, 86 L. Ed. 1037, 62 S. Ct. 736 (1942), the United States Supreme Court had held that such agencies are free, within the ambit of their statutory authority, to make the pragmatic adjustments which may be called for by particular circumstances. We have also held that no public utility has a vested right to any particular method of valúation. City of Ft. Smith v. Southwestern Bell Telephone Co., 220 Ark. 70, 247 S.W. 2d 474. When we made that statement, we were considering rate base, but, of course, that is an important element in fixing rates. The principle is just as applicable to rate of return — and both factors are involved here. The commission has a wide discretion in choosing its approach to rate regulation. New England Telephone & Telegraph Co. v. Dept. of Public Utilities, 371 Mass. 67, 354 N.E. 2d 860 (1976). The differences involved here related to the fixing of rates on the application now under consideration and on previous applications. The rate of return was diminished by use of an approach involving a method which took into consideration the “leverage” attributable to the fact that Bell is a wholly owned subsidiary of American Telephone & Telegraph Company. It is the result reached, not the method employed, that is controlling, and it is not the theory, but the impact, of the rate order, that counts in determining whether rates are just, reasonable, lawful, and non-discriminatory under § 73-217. If the total effect of the rate order cannot be said to be unjust, unreasonable, unlawful or discriminatory, judicial inquiry is concluded, and infirmites in the method employed rendered unimportant. Federal Power Com’n. v. Hope Natural Gas Co., 320 U.S. 591, 64 S. Ct. 281, 88 L. Ed. 333 (1944).

We are not possessed of the expertise necessary to evaluate the testimony of the experts in the field of economics. Evaluation of the testimony was for the commission, not the courts. Arkansas Public Service Com’n. v. Continental Telephone Co., 262 Ark. 821, 561 S.W. 2d 645. We are in no position to say that the testimony of Copeland had no reasonable basis. This we would have to do, in order to hold that it did not constitute substantial evidence. Wallace v. Williams, 263 Ark. 702, 567 S.W. 2d 111; Arkansas State Highway Com’n. v. Geeslin, 247 Ark. 537, 446 S.W. 2d 245.

The test year to be used is a matter lying within the discretion of the commission, although the commission should consider complete and accurate information with respect to a later period of time, when available, as a check on the continuing validity of the test year experience in a period of rapid change. Matter of Wilmington Suburban Water Corp., 367 A. 2d 1338 (Del. Super., 1976). Both Clark for the PSC and Lampkin for Bell testified as to proper adjustments to be made on account of actual experience between June 30, 1976, made on account of actual experience between June 30,1976, and the date of the hearing. The commission, in its order, recognized the necessity for making these adjustments, and did so, following its staff recommendations to a great extent. The test year was a matter lying within the discretion of the commission and it preferred a historical test year because of the ability of its staff to audit the financial data presented by the utility, because some elements are eliminated, and because a future test year is not amenable to verification. We have held that the commission should not use a test year ending after the date of its hearing because promises and predictions are not a substitute for proof. City of Ft. Smith v. Southwestern Bell Telephone Co., 220 Ark. 70, 247 S.W. 2d 474. The only hesitation we have in holding that PSC did not abuse its discretion is the fact that the test year adopted ended some 15 months prior to the commission’s decision. We conclude, however, that we are in no position to hold that there was a clear abuse of discretion.

In further pursuing Bell’s argument that its constitutional rights were violated, we first point out that we do not consider the fact that Bell had no notice that the PSC staff would recommend a change in methodology and procedures followed in considering Bell’s last previous rate application until 14 days prior to the hearing, because Bell proceeded without asking that it be given additional time to rebut the testimony offered by the staff upon its assumption that PSC would reject the staffs approach, and because Bell did actually attack the staffs methods by rebuttal testimony, including that of an independent expert witness whose qualifications were impressive.

Since Bell had no vested right in the methodology or formulas previously used or the procedures followed by the commission and since it was afforded full opportunity to show that the changes made by the commission in the methods and procedures used in regard to Bell’s last previous rate application were improper, we find no denial of due process of law. The Fourteenth Amendment’s protection of property is a safeguard of the security of interests that one has already acquired in specific benefits, to which he has a legitimate claim of entitlement, rather than an abstract need or desire. Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972). Bell is in no position to say that it was denied due process of law.

In considering contentions that a PSC order prescribing rates is repugnant to the due process clause of the Furteenth Amendment and that it deprives a utility of its property without just compensation, the order must be viewed as having the same force as would a like enactment by the General Assembly. Bluefield Waterworks & Improvement Co. v. Public Service Com’n., 262 U.S. 679, 43 S. Ct. 675, 67 L. Ed. 1176 (1923). The question, according to Bluefield, is whether the rates fixed are confiscatory. A utility which would upset a rate order on the constitutional grounds asserted by Bell carries the heavy burden of showing that it is invalid because it is unjust and unreasonable in its consequences. If the total effect of the rate order cannot be said by the reviewing court to be unjust or unreasonable, the fact that the method used by the regulatory body to reach its result may contain infirmities is not important. Federal Power Com’n. v. Hope, 320 U.S. 591, 64 S. Ct. 281, 88 L. Ed. 333 (1944). When we give appropriate deference to the expertise of PSC, and view the PSC order as having the same force as a legislative enactment, we must say that Bell has failed to meet its heavy burden of showing that the rate order was confiscatory and Bell’s constitutional rights violated.

Bell also contends that the commission abused its discretion and denied Bell due process of law by failing to grant its petition for rehearing. This petition was filed on September 20, 1977. In that petition, Bell alleged that the delay in acting upon its rate application, coupled with the use of a rate base which represented values 14 months prior to the PSC order, resulted in a confiscation of Bell’s property in violation of the state and federal constitutions. It also incorporated many of its contentions previously set out in this opinion. The basis of Bell’s argument that the rates fixed by the PSC order were confiscatory was its contention that the PSC finding that Bell’s cost of equity was 10.2 percent was unreasonably low and not based upon substantial evidence, and that the adoption of the test period ending June 30,1976, was inconsistent with inflationary economic development during the period intervening between the end of that period and the date of the order. Most of the petition was devoted to arguments and contentions made in the trial court and in this court as to limitations on the commission’s powers by time schedules set out in the governing statutes. Bell asked that the PSC order of September 1, 1977, be abrogated or modified to approve the rates as filed and to eliminate or modify the obligation to make refunds and for all other relief to which it might be entitled. The petition was supported by affidavits of James B. Nichols, Vice-President and General Manager for Arkansas, and W. W. Lampkin, an accountant who had testified on behalf of Bell. By his affidavit, Nichols undertook to demonstrate that between June 30, 1976, the end of the test year adopted by the commission, and September 1, 1977, the date of the PSC order, Bell had invested $139,000,000 in Arkansas, only part of which was assigned to interstate operations. In his affidavit, Lampkin stated that Bell had an annual revenue deficiency of $16,885,000, even at the 8.31 percent rate of return authorized by PS C and that, as of June 30, 1977, appellant would earn no more than 7.2 percent on its investment.

We agree with appellee that the granting or denial of a petition for a rehearing is a matter resting largely within the discretion of a regulatory agency in rate cases. The real question before us is whether the denial of the petition for rehearing was an abuse of the commission’s discretion. Bell’s arguments that it is not receiving any return on approximately $62,000,000 invested in its plant between the end of the test year and the PSC order, and the obvious fact that a regulated business cannot adjust its prices to meet inflationary increases in its costs, as an unregulated business can, are very appealing. They emphasize the necessity for more prompt action on a rate application than was taken here. After deliberate consideration of these arguments, we have finally concluded that we should not say that there was an abuse of discretion in this case. It seems to be the general rule that the denial of a petition for rehearing by an agency such ás PSC should be set aside on judicial review only for the clearest abuse of discretion. See United States v. Pierce Auto Freight Lines, 327 U.S. 515, 66 S. Ct. 687, 90 L. Ed. 821 (1946); Northeast Broadcasting, Inc. v. Federal Communications Com’n., 400 F. 2d 749 (D.C. Cir., 1968); Reese Sales Co. v. Hardin, 458 F. 2d 183 (9 Cir., 1972).

In view of the limited scope of judicial review of the action of an agency performing a legislative function, we deem this rule to be appropriate and conclude that appellant has not shown such a clear abuse of discretion that overturning the commission’s action is warranted in this case, in spite of the fact that we feel that PSC approached the outer limits of its latitude of discretion. It was pointed out in Interstate Commerce Com’n. v. Jersey City, 322 U.S. 503, 64 S.Ct. 1129, 88 L. Ed. 1420 (1944), that there is always a gap between the time the record is closed and the time the administrative decision is promulgated, particularly when (as here) the issues are difficult, the evidence intricate and the consideration of the case careful and deliberate. The court also referred to Atchison, Topeka & Santa Fe Ry. Co. v. United States, 284 U.S. 248, 52 S. Ct. 146, 76 L. Ed. 273 (1932), upon which Bell relies, and pointed out that its effect had been promptly restricted to the special and exceptional facts there involved and that it stood virtually alone, as an isolated instance of that court’s interference with the exercise of the discretion of the Interstate Commerce Commission’s granting or refusing to reopen a hearing. The exceptional facts there involved were the closing of the record in September, 1928, the entry of an order to be effective on June 1, 1931, without reopening the proceeding and taking further evidence, and the drastic reduction in the operating income of the carriers involved in the depression year of 1930, which results in impairment of their credit. We have concluded that the facts in this case approach, but do not reach, the exceptional situation there involved. The time lapse is great, but not as long, even if the effects of inflation are taken to be as great as those of the Great Depression, and there is no showing that Bell’s income has been so drastically affected that its credit is impaired. In arriving at our decision, we have considered the fact that Bell was not totally without any other remedy. Bell relied upon a test period ending December 31, 1976. It certainly had no basis for assuming that PSC would act on a test period other than the one suggested by Bell or that proposed by the staff. There is nothing in the laws governing utility rate-fixing that would have prevented Bell from filing proposed rate changes based upon a test period that would include the new investment while PSC deliberated upon the previous application. We also conclude that Bell has not clearly shown that the rate of return upon its investment is confiscatory. If it was, Bell could have asked for emergency relief on the ground of immediate and impelling necessity under Ark. Stat. Ann. § 73-216 (b).

Bell has also failed to show that the fact that the commission’s order did not consider Bell’s investment between June 30, 1976 and September 1, 1977, even though it was in use on the date of the order was, in this case, a violation of either the due process clauses of the Arkansas and United States Constitutions or of the prohibition against the taking of private property for public use without compensation. If Bell had shown that the rates allowed were confiscatory, then its contention would be sustained. The affidavit of Tompkin, and its supporting exhibits, showed that the rate base actually grew from $350,585,089 on June 30, 1976, to $390,877,000 on December 31, 1976, and to $412,827,000 on June 30,1977. The parties agree that if Lampkin’s unaudited valuations are used, there would be an earnings deficiency of $10,000,000. On the record before us, we are unable to say that these rates were confiscatory, as a matter of law. Bell’s proposed test period was December 30,1976, and was based largely on projections. The determination of the appropriate test period is to a great extent a matter addressing itself to the expertise of the commission. It is extremely difficult for the courts to say that the commission’s determination is erroneous, unless it is confiscatory. No problem would have presented itself to us had PSC acted within the statutory time frames.

In arriving at the conclusion that the belated action was not confiscatory, we take into consideration the fact that Bell will not be required to make refunds for collections on its proposed rates between September 29, 1976, and the date of the commission order and the fact that PSC fixed the rate of return at 8.31 percent, the rate Bell witnesses indicated would be essential to retention of its AAA bond rating.

Bell contends that, according to the holding in Bluefield Waterworks & Improvement Co. v. Public Service Com’n., 262 U.S. 679, 43 S. Ct. 675, 67 L. Ed. 1176 (1923), the failure of PSC to consider the value of its plant at the time it made the order deprived it of due process of law. Bell quotes language from the opinion in Bluefield that rates which are not sufficient to yield a reasonable return on the value of the property at the time it is being used to render the service are unjust, unreasonable and confiscatory and their enforcement deprives a public utility of its property in violation of the Fourteenth Amendment. There was a different problem in Bluefield, however. There the commission had fixed the value of the utility’s property, without giving any weight to the greatly enhanced cost of construction after World War I. The valuation used ignored the cost of reproduction of the property, basing its valuation upon the pre-war cost of construction. No new or added construction was involved in the court’s decision. The court actually quoted from and relied upon its earlier opinion in Willcox v. Consolidated Gas Co., 212 U.S. 19, 29 S. Ct. 192, 53 L. Ed. 382, 48 LRA (n.s.) 1134, Ann. Cas. 1916 A 18 (1909). In that case it had been held that if the property of a utility has increased in value since it was acquired, the utility was entitled to that increase. But the court there held that the value of the property is to be determined “as of the time when the inquiry is made regarding the rates.” The language quoted from Bluefield by Bell must be viewed in the light of the fact that Willcox was cited, and quoted in support of that language.

Bell also says that PSC’s requirement that it pay interest at the rate of 10 percent per annum upon the refunds to be made by it is unreasonable, arbitrary and not supported by substantial evidence. Bell points out that PSC allowed the maximum interest rate permissible under Ark. Stat. Ann. § 73-217 (d), and that no evidence was introduced or offered as to the appropriate rate of interest. Bell contends that it is patently unreasonable to allow this rate of interest when, in the same order, it was held that Bell was entitled to only 8.31 percent return on its investment. The statute leaves the rate of interest to the discretion of the commission. Even though there was no evidence on the question, we may take judicial notice of the fact that interest rates are presently very high, and also were high at the time of the commission’s decision. We agree with Bell that it did not have the burden of showing the interest rate appropriate to the case, or even to offer evidence on the question. We also agree that any evidence on this particular point given at a hearing would, in these times, have been rendered insubstantial by lapse of time between the hearing and the entry of the PSC order because of the steady increase in interest rates during that period. We do not think that the interest rate was dictated by Ark. Stat. Ann. § 73-214 (Repl. 1979), fixing the rate of interest to be paid upon customer deposits, although that provision might be worthy of consideration by the commission. We are unable to say, however, that there was an abuse of the commission’ s discretion in view of the statute allowing interest at the rate of 10 percent per annum on judgments in favor of creditors, unless the court rendering the judgment, in his discretion, reduces the rate. See Ark. Stat. Ann. § 29-124 (Repl. 1979).

The judgment of the trial court is reversed insofar as the refunds ordered by the Public Service Commission are concerned, but otherwise it is affirmed. The cause is remanded to the trial court for the entry of a judgment directing the commission to enter an order setting aside its order for a refund of refunds collected between September 29,1976 and September 1, 1977 by Southwestern Bell Telephone Company on the basis of its proposed rates and otherwise consistent with this opinion.

Stroud and Mays, JJ., not participating.

       It may be that the march of inflation will require different approaches in the future. We recognized in the cited case that rates fixed must be reasonable and just for a reasonable time in the future. There we approved consideration of anticipated future extensions by a utility. It may well be that a factor for anticipated inflation will become a necessary ingredient in rate determinations, if annual, or even more frequent rate applications are to be avoided, but we are in no position to say that there was proof in this case that would have required the incorporation of such a factor in the formula used by PSC.


source: Caselaw Access Project

author:
John A. Fogleman, Chief Justice.
      John A. Fogleman, Chief Justice.

license: Public Domain

text:
    Carl HERRICK v. Donald G. ROBINSON
    79-272
    595 S.W. 2d 637
    Opinion delivered January 28, 1980
    [Supplemental opinion on denial of rehearing March 31, 1980.]

      J. Harrod Berry, for appellant.

      Spitzberg, Mitchell & Gill, by: Christopher Barrier, for appellee.
   John A. Fogleman, Chief Justice.

Appellee Donald G. Robinson brought this action against appellant Carl Herrick and Herrick’s son and daughter-in-law, David and Beverly, seeking to recover $9,200, as the balance he alleged to be due him on the purchase price for the inventory and business name of Park Hill Custom Framing and Molding Company, which he had operated in North Little Rock. Appellant and the other defendants defended on the ground that their agreement to purchase was tentative and conditional, and that they had been induced to enter into the agreement by material misrepresentations and concealment of facts by Robinson. They alleged that they had rescinded the contract. Carl Herrick also counterclaimed seeking to recover the amounts he had paid to Robinson on the purchase price, and money he had put into the business operation, the dismissal of Robinson’s complaint and “all other equitable relief.” The allegations pertaining to the fraudulent representations were that Robinson had falsely represented that the business was in good financial condition, that not much was owed on it and the business obligations could and would easily be taken care of from the net proceeds of a pending sale of his home, that the average gross monthly income of the business was $3,500 to $4,000, that the stock and equipment were in good condition and saleable, that large orders could be expected, and that all accounts receivable were good. Appellant alleged that his defenses were equitable and that the case should be transferred to equity. The counterclaim contained allegations that, as an inducement to the Herricks to purchase the business, its assets, good will and trade name, Robinson misrepresented and exaggerated the amount and condition of the assets, sales volume, earning ability and financial condition of the business and concealed the actual condition of the business as to accounts payable, lienable obligations and certain accounts receivable. Appellant alleged that these misrepresentations and concealments were made with the intent that they be relied upon by the Herricks, and that they did so, to their detriment and damage. Appellant again alleged that he had no full, plain, adequate and complete remedy at law and that, his remedies being equitable, the case should be transferred to equity. Appellee denied appellant’s right to rescission and pleaded estoppel and laches as defenses to the counterclaim.

After having denied appellant’s motion to transfer the case to equity on September 25, 1978, the case was tried to the court without a jury and the circuit judge, after hearing the evidence, rendered a written opinion on December 7, 1978. In it he made many findings of fact, among which the following are significant on this appeal:

The Herricks and Robinson met on a Sunday afternoon at the place of business involved, discussed a purchase price of $35,000, and agreed upon a negotiated price of $25,000 and the purchaser, through David and Beverly Herrick, took possession on the following day, Monday, November 2, 1976.
Carl Herrick notified Robinson that the transaction was being terminated by a letter dated March 14, 1977.
The amount of the balance for which Robinson sued was arrived at by giving the Herricks credit for $3,500 Carl Herrick paid him and $12,452.69, as the net proceeds from the sale of the assets of the business at an auction.
In spite of alleged misrepresentations, the Herricks took an inventory and any shortcomings were readily available to the defendants.
Any and all liens, even if not disclosed to the defendants before the purchase, were known to appellant before the defendants quit the business and were in fact satisfied in either December, 1976 or January, 1977, and, as additional security to purchaser, Robinson caused a receiver to be appointed, whose duty it was to receive the balance of $21,500 on the purchase price from the defendants and immediately satisfy claims of creditors which would affect the business.
Appellant became discouraged and even frustrated, because of the inability of David and Beverly to settle differences with Robinson on such matters as the amount of the purchase price, and because of the belated feeling that the family business venture was not so good and a costly mistake had been made.
The case could have very easily been transferred to chancery court, but appellant’s motion to transfer was denied without objection, once it was agreed trial would be without a jury, the attorneys for both parties realizing that some equitable principles would necessarily be applied.
There was justification for allowing appellant an additional credit of $2,000 for bills paid, accounts receivable and personal property not in working order. After allowing this credit, Robinson was entitled to judgment for $7,113, but no interest, because the parties failed to fix a day certain for payment of the balance of the purchase price.

Before judgment was entered, appellant filed a motion for a new trial, on the ground that the judgment was not sustained by sufficient evidence and was contrary to the law and the evidence. Appellant pointed out the following examples:

1. The finding that any and all liens were satisfied by January, 1977, was erroneous because a valid lien of Twin City Bank, based upon a security agreement covering all the assets sold, was not satisfied until a balance of $ 10,500 was paid from the proceeds of an auction sale in a chancery court receivership held on August 10, 1977, after the Herricks had surrendered possession of the business.
2. Tax liens, especially one in favor of the federal internal revenue service, were still unpaid at the time of the trial and appellant did not know of the internal revenue service lien until long after the down payment on the purchase price was made and possession of the business taken.
3. The $21,500 balance on the purchase price would not have been sufficient to satisfy all business debts and liens.

Appellant also stated that both the above liens constituted a breach of the seller’s warranty under Ark. Stat. Ann. § 85-2-312 (Add. 1961) and constituted a ground for cancellation of the contract.

The judgment entered contained additional findings of fact. Among them were these:

1. The contract was between Robinson and appellant Carl Herrick and, in certain respects, David and Beverly acted in behalf of Carl.
2. The balance of the purchase price, remaining after down payments totalling $3,500 were made, was to be paid within a reasonable time.
3. By the terms of the contract, Robinson was not only to deliver the inventory and business premises, but also to assure the purchaser of clear title, in connection with which he was to compile a list of creditors of the business, and the purchaser was to make a complete inventory of the business.
4. Since the parties, by their actions, made the Bulk Sales Act inapplicable, the state court receivership was necessary to accomplish a conveyance free of claims of creditors.
5. An inventory was promptly taken in November, 1976, and defendants were aware they were purchasing the business at a “distress price” and that the inventory was not in first class condition.
6. By failing to act promptly, defendants waived the deficiency in the inventory and the attempt of appellant to rescind the contract was ineffective because it was not timely.
7. Appellant was entitled to credit for $508.74 for the proceeds of accounts payable [receivable] incorrectly credited to Robinson and to $1,491.26 credit for deficiencies in the equipment sold.

After the judgment was entered, appellant filed an amendment to his motion for a new trial. In it he alleged that the federal internal revenue service had on January 3, 1979, served a “Notice of Levy” on him for delinquent taxes amounting to $6,705.31. By this notice, he was notified that demand for payment had been made on Robinson, but that Robinson had neglected or refused to pay this amount. The levy was upon “all property and rights to property, monies, and credits” in appellant’s possession belonging to Robinson and all sums of money or other obligations owing by appellant to Robinson, or on which there was a lien under Chapter 64, Internal Revenue Code. It included a demand upon appellant for the amount necessary to satisfy this tax liability or for such lesser sum as appellant might be indebted to Robinson. The levy indicated that it was for the unpaid balance and statutory additions owed by Robinson for income taxes and social security taxes withheld for tax periods ending March 31, June 30, and September 30, 1976.

Appellant’s first point for reversal is stated thusly:

I
TRIAL COURT ERRED (A) IN DISMISSING COUNTERCLAIM OF CARL HERRICK AND GRANTING JUDGMENT TO PLAINTIFF, AND (B) IN FAILING TO ACT UPON AND GRANT MOTION FOR NEW TRIAL, BECAUSE OF EFFECT OF:
A & B.
1. THE UNDISPUTED EVIDENCE, WHICH SHOWS THE EVIDENCE INSUFFICIENT TO SUPPORT THE JUDGMENT.
2. APPELLEE-SELLER’S MISREPRESENTATIONS AND CONCEALMENTS RELIED AND ACTED ON, AND FAILURE TO COMPLY WITH UN DERST AN DIN G AN D MAKE B USINESS CONFORM, IN GENERAL.
3.THE UNDISCLOSED INTERNAL REVENUE AND SALES TAX LIENS.
4. THE UNDISCLOSED TWIN CITY BANK LIEN.
5. THE FAILURE OF SELLER TO COMPLY WITH BULK SALES PROVISIONS.
6. THE RECEIVERSHIP PROCEEDINGS TO SELL TO APPELLANT’S SON AND DAUGHTER-IN-LAW, AND INSOLVENCY OF THE BUSINESS.
7. LACK OF MEETING OF MINDS SUFFICIENT FOR CONTRACT.
ALSO
8. IF THERE WAS CONTRACT AS TO APPELLANT: (A) THERE WAS TOTAL FAILURE OF CONSIDERATION; (B) APPELLEE ABANDONED IT.
9.TRIAL COURT’S FAILURE TO TRANSFER TO EQUITY WAS ERROR.

Appellant argues I (A) and (B) jointly. We will treat the stated subheadings as noted.

1, 2, 3 and 4

Appellant argues that the undisputed documentary evidence and the undisputed unbiased testimony of the Twin City Bank loan officer negate the possibility of the evidence on behalf of appellee rising to the dignity of substantial evidence and show “overwhelmingly” that appellant was entitled to recover. Appellant points out that the inventory was to be according to that written on some yellow sheets of paper by Robinson, and that Robinson admitted that he had represented the value of inventory at $62,000 and that the Herricks were buying the business on the basis of this representation. The inventory sheets disappeared shortly after the Herricks took possession, probably while Robinson was still living in the building in which the business was conducted. The same inventory sheets, or most of them, were in Robinson’s possession and produced by him at the time of the trial. Robinson testified that this inventory was made about a month and a half prior to the sale. No list of creditors was delivered to the Herricks until February 8,1977, when it was delivered to appellant’s attorney after that attorney had written Robinson about the matter on February 3. A creditors’ list was not even prepared until the last part of December and it was used by Robinson in a receivership proceeding instituted by him on January 20, 1977.

After the auction sale in the receivership proceeding, $10,500 of the net proceeds of $12,387 was applied to Robinson’s indebtedness to Twin City Bank. Robinson admitted that in a balance sheet he had prepared, he had included his dwelling house, with an accompanying statement that it had been sold for $68,500 and that the proceeds would be sufficient to pay all notes payable. The house was actually sold for the indicated purchase price, but the proceeds were not sufficient to pay Twin City Bank. This balance sheet showed fixed assets of $147,650.94 and liabilities of $78,078.50. Robinson admitted that he could have represented that his lease on the building in which the business was located was transferrable, but he would not have known that to be a fact. He also admitted that he could have told the Herricks that he would personally attend to having the lease transferred.

Robinson could not recall telling the Herricks the names of his creditors, but said that he told them that the proceeds of the sale of the business would go toward retirement of his debts, and he would receive nothing. He admitted having represented that the business was “an ongoing business concern’ ’ and that it was a good viable business that could be profitable if operated properly, but that he had later admitted that the business was, in truth and fact, a sick one. He did not tell the Herricks of his indebtedness to Twin City Bank secured by a lien on his dwelling house and the business inventory and fixtures. He did not advise the Herricks of the actual and potential tax liens.

Without detailing the testimony further, there is indeed overwhelming evidence that appellant was induced to enter into the agreement with Robinson by misrepresentation and concealment that constituted fraud, either actual or constructive. Parker v. Johnston, 244 Ark. 355, 426 S.W. 2d 155; Lane v. Rachel, 239 Ark. 400, 389 S.W. 2d 621. Cf. Fausett & Co. v. Bullard, 217 Ark. 176, 229 S.W. 2d 490; Farmers Cooperative Ass’n. v. Garrison, 248 Ark. 948, 454 S.W. 644. Appellant had the right to, and did, elect the remedy of rescission on the ground of fraud. Appellant’s defense and counterclaim were based upon the premise that he had rescinded the contract. For a rescission to be effective, however, it must be timely.

One who desires to rescind upon the ground of fraud or deceit must, as soon as he discovers the truth, announce his purpose at once, adhere to it, and act with reasonable diligence, so that all parties may be restored to their original position as nearly as possible; if he continues to treat the property involved in the transaction as his own or conducts himself with reference to the transaction as though it were still subsisting and binding, he will be held to have waived the objection and will be as conclusively bound by the contract as if the fraud had not occurred. First National Bank v. Coffin, 184 Ark. 396, 42 S.W. 2d 402; Ratliff v. Bank of New Orleans & Trust Co., 266 Ark. 492, 586 S.W. 2d 237 (1979); McCormick v. Daggett, 162 Ark. 16, 257 S.W. 358; 13 Am. Jur. 2d 530 (Cancellation of Instruments), § 44. Furthermore, as a condition precedent to an effective rescission, the party rescinding must restore, or offer to restore, the opposite party to his former position. Davis v. Tarwater, 15 Ark. 286; Bellows v. Cheek, 20 Ark. 424; Stanford v. Smith, 163 Ark. 583, 260 S.W. 435. See also, United States v. Arkansas Mills, 216 F. 2d 241 (8 Cir., 1954).

There is substantial evidence to support the trial court’s finding that appellant had failed to act promptly and that the attempt of appellant to rescind the contract in March, 1977, was ineffective because it was not timely. Robinson testified that the Herricks took a physical inventory of the business during the two week period following their taking possession. Although the Herricks testified that this inventory was not complete until the first week in December, it is clear that they were aware of substantial shortages even earlier, and certainly knew that the value was much less than $62,000. They had confronted Robinson with the fact that there was a great deficiency in late December or early January. The younger Herricks had some previous knowledge concerning the business. David Herrick had worked there for three years ending a year or year and a half prior to the sale, and had been familiar with all aspects of the business except for bookkeeping. Beverly Herrick also had worked for Robinson at one time and she knew, at the time of the transaction, that there had been some deterioration of the business and some of its inventory. Possession of the place of business and its physical inventory were not surrendered to Robinson until June or July, more than seven months after the Her-ricks took possession. Possession was surrendered to Robinson when the owner of the property asked Herrick to vacate the building. Robinson received notice of this from the landlord. At the time of the negotiations, which took place at the place of business, the electricity had been turned off. Robinson testified that he had then told the Herricks that he had been unable to pay the bill for electricity. Robinson never gave the Herricks a copy of his lease on the building. The Herricks did not actually demand the list of creditors until February, even though it appears that Robinson had promised to deliver a list of creditors and accounts receivable not later than the first week in January, 1977, three months after the Herricks had taken possession. It was more than one month thereafter that appellant attempted to rescind the contract.

Robinson testified that he told the Herricks when the down payment was made that he was using that money to pay electrical and telephone bills and other such bills in order that they could continue to operate the business. There was evidence that the Herricks were fully informed of the extent of the Twin City Bank debt during the month of November. It is clear that they knew of the balance due the bank in early December, after a part of the proceeds of the sale of Robinson’s house had been applied to that debt. It certainly was clear at that time that the proceeds of the sale of the house did not pay all of Robinson’s notes payable. By November 24, appellant knew that Robinson was delinquent in remitting sales taxes and furnished money for the payment of delinquencies in order to obtain the necessary sales tax permit, but the retailer’s permit was “put on hold” because of additional delinquencies. Beverly Herrick learned of the internal revenue service lien in November or December. When the Herricks sent payments to suppliers for items they had ordered, they were credited to Robinson’s past due accounts and some of these suppliers put limitations on purchases and others demanded cash payments. As a consequence, the Herricks had trouble obtaining supplies.

Appellant’s only excuse for waiting until March 14 to rescind was that for weeks and months the Herricks had repeatedly asked for and expected a list of creditors and that they felt that, if it was forthcoming, they could go ahead and had hoped the matter could be worked out. Since rescission requires prompt action after the discovery of fraud, the question of timeliness of the attempted rescission was one of fact. Kilgo v. Continental Casualty Co., 140 Ark. 336, 215 S.W. 689; Siegel, King & Co. v. Penny & Baldwin, 176 Ark. 336, 215 S.W. 2d 1082; Cross v. Rial, 227 Ark. 1124, 305 S.W. 2d 129; Newton National Bank v. Newbegin, 74 F. 135 (8 Cir., 1896); Annot. 72 ALR 726, 752. It was resolved against appellant on the basis of substantial evidence.

Appellant invokes authorities relating to actions for breach of warranty, but they are inapplicable because appellant elected to rescind rather than to seek to recover for breach of warranty. The remedies are not consistent, because rescission is based upon disaffirmance of the contract and recovery for breach requires its affirmance. Cleveland v. Biggers, 163 Ark. 377, 260 S.W. 432; Lane v. Rachel, 239 Ark. 400, 389 S.W. 2d 621; Kotz v. Rush, 218 Ark. 692, 238 S.W. 2d 634; Yeates v. Pryor, 11 Ark. 58.

Appellant also relies upon Ark. Stat. Ann. § 85-2-608 (Add. 1961) governing revocation of acceptance of goods. Even if applicable, the language of the statute itself requires that revocation occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in the condition of the goods which is not caused by their own defects. The reasonableness of the time is ordinarily a question of fact for the factfinder. Dopieralla v. Arkansas Louisiana Gas Co., 255 Ark. 150, 499 S.W. 2d 610; Gramling v. Baltz, 253 Ark. 361, 485 S.W. 2d 183. We do not reverse the factfinder’s answer to the question if, as here, substantial supporting evidence exists. Frontier Mobile Homes v. Trigleth, 256 Ark. 101, 505 S.W. 2d 516.

As appellee points out, there has never been an effective tender to Robinson of the assets purchased by appellant or an offer to restore Robinson to his position as it existed at the time of the agreement. But a restoration must be possible. Desha v. Robinson, 17 Ark. 228. A contract cannot be rescinded, except by mutual consent, where the circumstances have been so altered by part execution, that the parties cannot be put in statu quo. Bellows v. Cheek, 20 Ark. 424. Appellant relies on the statement in his letter of March 14, that he offered back, as far as he was concerned, the said business operation. Appellant put David and Beverly in possession of the business. Leaving them in possession was hardly a restoration to Robinson, particularly after they had operated the business from November 1 until May 31, selling from the inventory and purchasing supplies. The record, as abstracted, gave absolutely no basis for the court to restore Robinson to his former position. Appellant made no mention of restoration or offer of restoration in his answer or counterclaim, but sought to recover not only his down payment of $3,500 but also $2,500, which he advanced for the operation of the business. This relief was totally inconsistent with an action based on rescission, but was consistent with an action at law for damages.

5

Appellant is in no position to complain of appellee’s failure to comply with Ark. Stat. Ann. § 85-6-101 et seq (Add. 1961) commonly known as the Bulk Sales Act. These provisions are primarily for the protection of the creditors of the seller and compliance with the Act is not compulsory, insofar as the seller is concerned, unless compliance is required by the buyer. There is no evidence that appellant required compliance with this statute or that compliance by the seller was a term of the agreement. Non-compliance was not, in this case, a ground for rescission.

6

We have been unable to determine the materiality of the chancery court receivership to the present litigation. If it is relied upon as a ground for rescission, it is immaterial for we have concluded that the right to rescind was beyond question.

7

Appellant’s argument on this point is that the contract was conditional, that the conditions were a satisfactory inventory check, furnishing of credit information, and deciding how the purchase price was to be paid, and that, as a result, there was no meeting of the minds. It seems odd that one would seek to rescind a contract that did not exist. Although appellant alleged in his pleadings that the agreement was “a tentative and conditional oral understanding,” there was no allegation that there was no meeting of the minds. We do not agree with appellant that the purchase price remained unsettled or that subsequent agreements on the part of Robinson to make adjustments because of discrepancies discovered show that there was no meeting of the minds at the time the contract agreement was made.

Actually appellant alleged that the balance of the purchase price was to be paid “later,” after Robinson had furnished information as to the indebtedness and financial condition of the business and a mutually acceptable written inventory and itemization of stock, supplies, furniture, fixtures, and equipment and other assets and personal property. Robinson testified that there was an agreement entered into between the parties, and that, while no specific time was fixed for payment of the balance of the purchase price, it was to be paid within a reasonable time after financing had been arranged by the buyers. Appellant testified that at the time of the meeting concerning the sale and purchase, there was an agreement that a week to ten days was reasonable to work out the balance of the financing.

To say the least, there was substantial evidence to justify the circuit court’s finding that there was a contract and that the balance of the purchase price was to be paid within a reasonable time.

8

Appellant contends that there was a total failure of consideration in this case, because the property was sold to him with a warranty against incumbrances but was later sold for debts which were liens against it at the time of the sale. Not all property involved here was sold to satisfy liens. Part of it was sold by the Herricks while they were operating the business. The receivership sale was made some five months after appellant gave notice of rescission, so that fact gave no grounds for rescission. Failure of consideration was not mentioned in appellant’s pleadings and is raised for the first time on appeal.

Appellant also says that Robinson abandoned the contract by dealing with David and Beverly Herrick in attempting to negotiate a sale to them. A part of the acts relied upon occurred after appellant’s notice of rescission, so they could hardly constitute an abandonment of the contract by Robinson. There was substantial evidence to justify the trial court’s finding that the contract was with appellant, but that David and Beverly acted in his behalf in some respects. Appellant alleged that the purchase of the business was to be primarily for the benefit of David and Beverly. Appellant testified that David and Beverly signed the checks on the money he put into the business, including the one for the $2,500 down payment. They operated the business after they took possession. They were responsible for checking the inventory. Appellant said he was not even present when the final price of $25,000 was agreed upon by David, Beverly and Robinson. Beverly talked to Robinson about inventory discrepancies. The dealings between Robinson and David and Beverly prior to appellant’s attempted rescission do not clearly show an abandonment of the contract by Robinson. Abandonment of the contract was not asserted as a defense in appellant’s answer. This issue also seems to have been raised for the first time on appeal.

9

The motion of appellant to transfer the cause to equity was denied on the basis of the pleadings. After having heard the evidence in the case, the circuit judge rendered a memorandum opinion stating that the case could very easily have been transferred to chancery, but that the motion to transfer was denied without objection, once it was agreed that the trial would be without a jury. The record does not reveal that the transfer to equity was waived, even though there must have been an agreement that the case be tried without a jury.

Rescission is a remedy cognizable both at law and in equity. Philpott v. Superior Court of Los Angeles County, 1 Cal. 2d 512, 36 P. 2d 635, 95 ALR 990; Annot. 95 ALR 1000. See also, 17 A CJS 504, Contracts, § 413. A suit for rescission can be brought in equity only if relief cannot be obtained in a court of law. Philpott v. Superior Court of Los Angeles County, supra; 17 Am. Jur. 2d 955, Contracts, § 485. If money alone has been paid by a rescinding party, the law implies a promise by the other party to repay it and this implied promise is the basis for the common law action for money had and received. Bellows v. Cheek, supra; Lafferty v. Day, 7 Ark. 258; Desha v. Robinson, supra; Philpott v. Superior Court of Los Angeles County, supra; 17 Am. Jur. 2d 955, Contracts, § 485.

It is error to deny a transfer to equity or the motion of a defendant raising an equitable defense only when that defense is exclusively cognizable in equity. Daniel v. Garner, 71 Ark. 484, 76 S.W. 1063; Childs v. Magnolia Petroleum Co., 191 Ark. 83, 83 S.W. 2d 547. On the face of the pleadings there was nothing to indicate that appellant’s defense was cognizable only in equity or that his remedy at law was not adequate. There was no instrument to be cancelled or any other basis for relief except for the question of appellant’s right to recover the part of the purchase price he paid. Consequently, there was no error in the denial of the motion to transfer.

I C
C. HONORABLE TRIAL COURT’S DECISION IS IN ERROR BASED ON CASE AS A WHOLE.

Appellant points out that there is clear factual error in the trial judge’s statement in his memorandum opinion that any and all liens were satisfied in December, 1976 or January, 1977. We agree that this is a statement which is not supported by the record. We also think that it is immaterial in the view we have taken of the case as to the right of rescission.

II
SUPREME COURT SHOULD REVERSE AND, THIS NOT HAVING BEEN JURY TRIAL, RENDER FINAL DECISIONS OR SEPARATE CAUSES FOR FINAL DECISION AND/OR REMAND.

We do not fully understand appellant’s argument. He contends that appellant was clearly entitled to recover and to have the claim against him dismissed, so he asks that we reverse the judgment against him and either render judgment for him or remand the case for the entry of such judgment in his favor as the evidence warrants; or, in the alternative, reverse, dismiss the judgment in favor of appellee and remand appellant’s counterclaim. Since there was substantial evidence that appellant’s attempted rescission was not timely, we need not consider this point.

The judgment is affirmed.

Hickman and Purtle, JJ., dissent.

Supplemental Opinion on Denial of Rehearing delivered March 31, 1980

John A. Fogleman, Chief Justice.

Some of the arguments advanced by appellant on his petition for rehearing are such that we deem it appropriate to issue this supplemental opinion in denying the petition. For the most part, we will not consider arguments which are mere repetition of those already considered by the court. Rule 20, Rules of Supreme Court and Court of Appeals, Ark. Stat. Ann., Vol. 3A (Repl. 1979).

In his petition for rehearing appellant asserts that there was error in the finding in the original opinion that his attempted rescission was not timely. We did not so find. We found that there was substantial evidence to support the trial court’s finding that it was not timely. Appellant argues, however, that, in making that finding, we should disregard the testimony of Robinson, because his conduct was fraudulent and because little weight should be given statements of a witness which are vague on details he should know and which are manifestly wrong on others. The credibility of Robinson, and the weight to be given his testimony, were matters for determination by the trial court. We are not at liberty to disregard any testimony to which the trial court has accorded some weight. Furthermore, our finding that there was substantial evidence to support the trial court’s finding in this respect was not based entirely on the testimony of Robinson.

As a part of his argument on rehearing, appellant again asserts that his son and daughter-in-law were in possession of the business by arrangement with appellee and not through appellant. The trial court specifically found that the purchaser, Carl Herrick, took possession through his children and that possession was retained until June 4,1977. The trial court also found that, in some respects, David and Beverly Herrick acted in behalf of Carl Herrick in taking possession. We fully understand that appellant took the position in the trial court that David and Beverly were put in possession by appellee and that appellant had nothing to do with their remaining in possession. But when the evidence is viewed, and all reasonable inferences drawn, most favorably to appellee, we certainly cannot say that there was no substantial evidence to support the trial court’s findings.

Appellant argues that he was relieved of tender of restoration because there was no evidence that appellee would accept the business back and the evidence indicates clearly that he would not have. He relies upon Adams v. Berg, 199 Ark. 1096, 137 S.W. 2d 912 and Galloway v. Russ, 175 Ark. 659, 300 S.W. 390. Neither case is applicable here. In Adams, the plaintiff sought cancellation of an oil and gas lease and the recovery of the purchase money paid by him. It was contended that the plaintiff had failed to offer to return the interest in the lease conveyed to him. We held that this was unnecessary since the cancellation would accomplish that very purpose and thus amounted to an offer to reconvey. In Galloway the property involved was a refrigerating machine. The buyers promptly informed the seller that they would not accept it, and were informed by the sellers that they thought they could hold the buyers under the contract. The machine was never installed, as the dispute arose before installation. There was no impediment to restoration in either case. The real problem here is not the question of tender, even though we did note that there had never been an effective tender of the assets purchased or an offer to restore Robinson to his position as it existed at the time of the agreement, and that appellant made no mention of restoration or offer of restoration in his answer or counterclaim. The important fact is that even though appellant offered to relinquish any interest he had in the business, he, through his son and daughter-in-law, had operated the business for more than four months prior to appellant’s attempted rescission, selling the assets in the regular course of business, and buying inventory for use therein, and continued in possession and operation of the business for an additional two or three months thereafter. Under any circumstances, appellee would have been entitled to some accounting for these assets and a restoration to that extent. See Parker v. Johnston, 244 Ark. 355, 426 S.W. 2d 155. But the record, as abstracted, does not indicate any basis on which that could be done.

Appellant asserts that what he received was worthless. He also contends that there was a failure of consideration and that this issue was raised in the trial court and not for the first time on appeal, as stated in the original opinion.

The only allegations in appellant’s pleadings that could be taken to raise the issue of failure of consideration in the trial court are statements from which appellant asserted that the “business indebtedness” was “large” and in excess of the value of the assets. In his brief here, appellant argued that there was a total failure of consideration. He placed specific reliance upon 77 CJS Sales, § 22b, par. 3, in which it is stated that there is an entire failure of consideration for property sold with a warranty against encumbrances if it is sold for debts which were liens against it at the time of the sale or if it did not have a value in excess of prior encumbrances existing at the time of sale, provided such encumbrances have prevented any substantial use or enjoyment of the property by the buyer. Although it is clearly established that the value of the business was misrepresented , to Carl Herrick, the trial court did not find that there was a failure of consideration, if the matter was actually in issue. Appellant filed a motion for new trial and an amended motion for new trial. In neither of them did appellant suggest that the trial court had overlooked this issue. More importantly, even though the burden was on appellant in the trial court to show that there was a total failure of consideration and to demonstrate that there was error on the part of the trial court in failing to hold for appellant on that issue, appellant has failed to show that the business purchased was worth less than the liens against it on the record before us, which is the record abstracted. Appellant’s house was covered by some of these liens and Twin City Bank was paid over $22,000 from the proceeds of the sale of the house. The balance of the Twin City Bank lien was extinguished when the physical assets of the business were sold in the receivership proceeding. At the time of the sale to appellant it appears that the federal tax lien was less than $5,000. Although it is clear that the inventory was of less value than represented, the inventory taken by Beverly Herrick is not abstracted. It was admitted that the values she placed on the items were a matter of her own opinion. There is simply no means by which we can determine the value of the items sold by the Herricks or the value of those items retained by Robinson which appellants contend were properly assets of the business they purchased, or for that matter of the inventory actually received by the Herricks. On this record, we cannot say that the trial court erred in not holding for appellant on the question of failure of consideration. Furthermore, we cannot say, on the record abstracted, that the assets purchased were worthless or that they were worth less than the liens against ihem at the time of the sale.

Appellant also contends that we erroneously stated that his action for rescission was inconsistent with recovery for breach of warranty, because we did not take into consideration the provisions of the Uniform Commercial Code. There is a problem in attempting to apply the Uniform Commercial Code Article on Sales, where, as here, there is a sale of a group of assets, some of which are goods, such as inventory and equipment, and others, e.g., the business name, goodwill, and accounts receivable, are not goods. See Ark. Stat. Ann. §§ 85-2-105, 85-2-107 (Add. 1961). It has been held that, in a sale such as this, the UCC provisions governing sales apply to the sale of goods, but not to the sale of that part of the assets which are non-goods. Foster v. Colorado Radio Corp., 381 F. 2d 222 (10 Cir., 1967). In a case in which the sale of a business involved goods only it was held that the Article applied but the rule of Foster was recognized. Miller v. Belk, 23 N.C. App. 1, 207 S.E. 2d 792 (1974). It has also been held that, when the physical assets are of little significance in a sale of both tangible and intangible assets (unlike the case before us), the contract should be viewed as one integrated contract, and Article 2 of the UCC is inapplicable. Field v. Golden Triangle Broadcasting, Inc., 451 Pa. 410, 305 A. 2d 689 (1973), cert. den. 414 U.S. 1158, 94 S. Ct. 916, 39 L. Ed. 2d 110 (1973). The Foster rule was recognized and applied in a case involving the sale of a cordwood business, where, unlike the case before us, the entire purchase price was allocated by its terms among the various items of tangible property which were transferred by the sale. Melms v. Mitchell, 266 Or. 208, 512 P. 2d 1336, 65 ALR 3d 376 (1973). The Oregon court later pointed out that in Melms, the entire contract and the conditions thereof had to do only with goods as defined by the Uniform Commercial Code. It also stated flatly that there was no precedent for treating a contract as completely under the UCC provisions where (as here) it covers both goods and non-goods. Meister v. Arden-Mayfair, Inc., 276 Or. 517, 555 P. 2d 923 (1976). The Foster rule, which seems to be generally accepted, would require that this contract be viewed in two parts, but this is not possible on the record before us.

If the UCC applies, it appears that appellant is correct in his contention that remedies for material misrepresentation or fraud include all remedies for non-fraudulent breach and that neither rescission, a claim for rescission of a contract for sale, nor rejection of the goods bars, or is inconsistent with, a claim for damages or other remedy. Ark. Stat. Ann. § 85-2-721 (Add. 1961). But appellant relies, in part, upon Ark. Stat. Ann. § 85-2-711 (Add. 1961) for recovery of damages in addition to the portion of the purchase price paid by him, pointing out that where the buyer rightfully rejects or justifiably revokes acceptance, he may cancel and may, in addition to recovery of the purchase price as has been paid, have “cover” and damages for non-delivery. There was no evidence of “cover” as defined in Ark. Stat. Ann. § 85-2-711 (Add. 1961). The measure of damages for non-delivery is the difference between the market price at the time the buyer learned of the breach and the contract price together with incidental and consequential damages but less expenses saved in consequence of the seller’s breach. Ark. Stat. Ann. § 85-2-713 (Add. 1961).

As heretofore pointed out, the record as abstracted, does not disclose evidence from which these damages could have been awarded, unless the $2,500 advanced for operation of the business is considered as an incidental or consequential damage. These expenses are not a consequential damage, as defined in Ark. Stat. Ann. § 85-2-715 (2) (Add. 1961). Nor can we say, as a matter of law, that it was an incidental damage as a reasonable expense incident to appellee’s breach under Ark. Stat. Ann. § 85-2-715 (1). Appellant also relies upon Ark. Stat. Ann. § 85-2-711 (3), giving a buyer a security interest in goods in his possession and control for any payments made on the purchase price and any expenses reasonably incurred in their inspection, receipt, transportation, care and custody. There is nothing in the record, as abstracted, to show that the $2,500 advanced by appellant was for any of these purposes. What is just as important, is that § 85-2-711 (3) does not apply unless there has been a rightful rejection or justifiable revocation of acceptance of the goods involved. As appellant points out, under the UCC there is no magic in the words “cancellation” or “rescission.” Ark. Stat. Ann. § 85-2-720 (Add. 1961). But rejection must be within a reasonable time after delivery of the goods and is ineffective unless the buyer seasonably notifies the seller. Ark. Stat. Ann. § 85-2-602 (Add. 1961). This is the same requirement as has always been made as to rescission and the trial court held that this was not timely done. Consequently, appellant must be taken to have accepted the goods unless, after reasonable opportunity to inspect them, he made an effective rejection. Ark. Stat. Ann. § 85-2-606 (1) (a) and (b) (Add. 1961). He also must be deemed to have accepted the goods if he did any act inconsistent with the seller’s ownership if that act was ratified by the seller. Ark. Stat. Ann. § 85-2-606 (1) (c) (Add. 1961).

For the reasons heretofore stated, there was an acceptance by appellant, unless that acceptance was revoked. Revocation must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller. Ark. Stat. Ann. § 85-2-608 (Add. 1961). The court’s finding as to timeliness of the “rescission” is a bar to an effective revocation, as is the retention of possession and selling of the goods after the ground for revocation should have been discovered. Appellant’s remedies, then are those available for breach of contract in regard to accepted goods. Ark. Stat. Ann. § 85-2-721 (Add. 1961). These remedies include damages as set out in Ark. Stat. Ann. § 85-2-714 (Add. 1961). Recovery is barred under the first subsection of that section, which allows recovery of loss resulting in the ordinary course of events from the seller’s breach as determined in any manner which is reasonable, in the absence of notice of the breach to the seller within a reasonable time after the buyer discovers or should have discovered the breach. The trial court’s finding on timeliness of “rescission” bars appellant’s recovery under that section. As we have previously pointed out, the record as abstracted does not show any basis for finding the difference between the value of the goods accepted and the value they would have had if they had been as warranted. Nor can we say that special circumstances show proximate damages of a different amount. Thus, we cannot say there was a basis for allowing additional damages under Ark. Stat. Ann. § 85-2-715 (2); or that additional damages should have been allowed as incidental and consequential damages under Ark. Stat. Ann. § 85-2-715 (Add. 1961).

The burden was on appellant to demonstrate error in the judgment of the trial court. Commercial Union Insurance Co. v. Henshall, 262 Ark. 117, 553 S.W. 2d 274. He has not sustained that burden so the petition for rehearing must be denied.

Hickman, J., dissents and would grant the rehearing.


author: George Rose Smith, Justice.

text:
    COMMISSIONER OF LABOR and ARKANSAS EMPLOYMENT SECURITY DIVISION v. Carl D. PURNELL and PURNELL PROPERTIES, INC.
    79-286
    593 S.W. 2d 157
    Opinion delivered January 28, 1980
    (In Banc)
    [Rehearing denied February 19, 1980.]

      Herrn Northcutt, for appellants.

      Terry F. Wynne, of Bridges, Young, Matthews, Holmes & Drake, for appellees.
   George Rose Smith, Justice.

Joan Johnson, an employee of the appellees, quit her job to move with her husband to another city. When Mrs. Johnson applied for unemployment compensation, the Employment Security Division mailed a Notice of Claim Filed to the employer on June 1, 1971. In accordance with the Division’s Regulation 10, the Notice required the employer to return the form to the Commissioner of Labor, with certain information, within seven days from the mailing date of the Notice.

Purnell, the employer, was out of the country on vacation and knew nothing about the notice until the seven-day period had expired. It was Mrs. Johnson’s responsibility to forward mail received at Hot Springs to the Purnell office in Pine Bluff, but her departure kept the notice from being forwarded .Asa result of the employer’s failure to respond to the notice within the seven days, the employer’s contributions under the Employment Security Act were ultimately increased by $1,392.71.

The employer’s protest against the increase was denied by the Employment Security Division. The chancellor, in this proceeding brought by the employer for a review of the Division’s decision, held that Regulation 10 was so arbitrary as to deny due process of law. The decree directed that the increase in contributions be refunded or credited against the employer’s future liability for contributions. This appeal is from that decree.

We emphasize at the outset that whether Mrs. Johnson was or was not disqualified from receiving benefits had no bearing upon the increase in the employer’s contribution rate. When the employer returned to the United States and responded to the Notice shortly after the expiration of the seven days, the Division informed him that “there is no provision in the Law for the late return of a claims notice regardless of the reason for such late return.” To the same effect is this paragraph in the stipulation of facts in the chancery court:

The Petitioner’s experience rating was increased, not because of the claim filed against it, but because he did not respond to the Notice of Claim within seven (7) days of its mailing.

The increased contribution rate would have been imposed under the regulation even if the postal service had delivered the Notice of Claim after the expiration of the seven days or had never delivered it.

We agree that the regulation is invalid, because due process requires at a minimum that a person be given notice and a reasonable opportunity for a hearing before he is deprived of his property by state action. Davis v. Schimmel, 252 Ark. 1201, 482 S.W. 2d 785 (1972). A somewhat similar regulation was held invalid in Smith v. Iowa Employment Security Commission, 212 N.W. 2d 471 (Iowa, 1973).

We cannot agree with the Commissioner’s argument that a 1971 act, reserving to the legislature the right to amend or repeal any part of the Employment Security Law, kept this employer from asserting the deprivation of a vested property right. Ark. Stat. Ann. § 81-1125 (Repl. 1976). Here the loss was not attributable to an amendment or repeal of any part of the act, and in any event a statute cannot withdraw the protection of the due process clause simply by a declaration that no vested right shall arise. Nor is the Commissioner’s position sustained by federal and state decisions broadly upholding the validity of employment security statutes. None of the cases cited considered the constitutionality of a regulation such as the one now in issue.

Affirmed.