Arkla Chemical Corp. v. Palmer

• Decision Date: 12 April 1971
• Docket Number: No. 5--5532,5--5532
• Citation: 465 S.W.2d 335,250 Ark. 405
• Parties: ARKLA CHEMICAL CORPORATION, Appellant, v. Harriet L. PALMER, Executrix, Appellee.
• Court: Arkansas Supreme Court

Page 335

465 S.W.2d 335

250 Ark. 405

ARKLA CHEMICAL CORPORATION, Appellant, v. Harriet L. PALMER, Executrix, Appellee.

No. 5--5532.

Supreme Court of Arkansas.

April 12, 1971.

Douglas Bradley, Jonesboro, for appellant

Tiner & Henry, Harrisburg, for appellee.

GEORGE ROSE SMITH, Justice.

This appeal is from the probate court's denial of a claim filed by the appellant, Arkla Chemical Corporation, against the estate of Harry C. Palmer, Jr., deceased. The principal contested issue in the probate court was whether Arkla's claim, which arose from the sale of fertilizer, was (a) against Palmer's estate or (b) against Palmer Aero Service, Inc., a domestic corporation in which Palmer and his family owned all the stock. The probate judge, in denying the claim, held that Arkla, after Palmer's death, had elected to do business with the corporation and accordingly had no claim against the decedent's estate. The correctness of that holding is the pivotal issue on appeal.

The facts, as reflected by a voluminous record containing much testimony and many exhibits, must be stated in some detail.

Palmer, during his lifetime, was the owner of an agricultural flying service, which sold seed and fertilizer and dispersed those commodities from airplanes. In 1962, Palmer organized the corporation, Palmer Aero Service, Inc. On the date of Palmer's accidental death in a plane accident, May 28, 1968, the corporation's outstanding 33 shares of stock were owned in the ratio of 30 by Palmer and one each by his former wife (the appellee) and their two children. (The Palmers had been divorced in February of 1968.)

It is shown without dispute that during Palmer's lifetime he was not careful to keep his own affairs separate from those of the corporation. In January of 1968, about four months before Palmer's death, he applied to Arkla for the privilege of purchasing fertilizer on credit. That application was made in the name of the corporation and was accompanied by a corporate financial statement listing assets such as airplanes, trucks, and real estate, that were actually owned by Palmer or by Palmer and his wife. At the same time Palmer Arkla approved the application for credit and began selling chemical fertilizers to Palmer or to the corporation--a point unquestionably open to some doubt. During the months preceding Palmer's death Arkla's monthly statements were paid with sufficient promptness to enable the purchaser to take the 2% discount allowed for payments within 30 days.

executed Arkla's standard form of guaranty, by which he individually guaranteed payment of the account. Counsel for Arkla correctly states in his brief that at the outset it made little difference to Arkla whether the business was corporate or individual, since Arkla had the personal guaranty.

Palmer was killed on May 28, 1968. Representatives of Arkla learned of the accident within a few hours. In a conversation some two weeks later between Arkla's salesman and Mrs. Palmer, who had been named as executrix of the will, it was stated by Mrs. Palmer that she intended to continue to operate the business in the same way as it had been run in the past. On September 5, 1968, Mrs. Palmer as executrix filed a petition in the probate court reciting that Palmer had been the majority stockholder in the corporation and asking for authority 'to exercise the controlling interest in Palmer Aero Service, Inc., and to continue the business of said corporation.' On the same day the probate court entered an order granting the petition and directing the executrix to exercise the controlling interest in Palmer Aero Service, Inc., and to continue the business of the corporation.

On the date of Palmer's death the business owed Arkla $22,971.86 for fertilizer bought on credit. Arkla's witnesses candidly admitted that the account was promptly paid by the company, in time to obtain the 2% discount. During June, July, and August the company continued to buy from Arkla. Those sales totaled $34,674.16. The company made payments amounting, according to Arkla's witness, to $33,354.76--a figure that includes the $22,971.86 owed at Palmer's death. Most of the checks for those payments are in the record. They were drawn on the corporate bank account, were signed by Mrs. Palmer in the corporate name, and usually contained notations showing that the discount for prompt payment was being taken.

Despite those prompt payments, the business was evidently losing money. (In fact, a trial balance later filed by the executrix showed an operating loss of $57,144.81 for the year 1968, most of which seems to have accumulated after Palmer's death.) On October 7, 1968, Arkla's attorney verified and filed Arkla's claim against Palmer's estate. The original claim was for $25,552.49, but Arkla now asserts that only $17,003.88, with interest, is still due. Attached to the claim as its only exhibit now in the record was a copy of Palmer's guaranty agreement, which seems to indicate that the claim against the estate was initially based upon that agreement.

On October 16, 1968, the corporation and the estate executed a written agreement with the principal unsecured creditors of the estate. The probate judge, in rejecting Arkla's claim against the Palmer estate, based his conclusion almost entirely upon the language of the agreement. In view of its controlling importance in the case we find it necessary to quote its pertinent language at length:

AGREEMENT

By this instrument executed * * * the 16th day of October, 1968, Palmer Aero Service, Inc., a corporation * * * and Harriet L. Palmer, Administratrix of the Estate of H. C. Palmer, Deceased, First Parties, and Planters of Pine Bluff, Inc., Arkla Chemical Corporation, Thompson-Hayward Chemical Company and Nipak, Inc., Second Parties, have contracted and agreed as follows:

1. Second Parties are the principal unsecured creditors of Palmer Aero Service, Inc., and, because of accounting practices

and intermingling of assets of Palmer Aero Service, Inc., and personal assets of H. C. Palmer in his lifetime, assert claims against the Estate of H. C. Palmer, Deceased, for the same amounts. The balances claimed by Second Parties are as follows:

                Planters of Pine Bluff, Inc.       $49,398.02
                Arkla Chemical Corporation          24,291.26
                Thompson-Hayward Chemical Company    7,320.03
                Nipak, Inc.                          5,868.68
                                                   ----------
                              Total                $86,877.99
                

These accounts have not been verified and are subject to correction for errors by either party.

2. It is recognized that Palmer Aero Service, Inc. and the Estate of H. C. Palmer, Deceased, either severally or jointly, have insufficient liquid assets to liquidate the said debts and that because of the security held by various secured creditors upon the principal assets of the corporation and the estate, any forced liquidation would result in substantial losses both to First Parties and Second Parties. For this reason it is to the mutual interest of First Parties and Second Parties to continue Palmer Aero Service, Inc. as an operating business with the purpose of attempting to recoup previous losses during the 1969 crop season and to place the business in such condition that it may ultimately be operated at a profit.

3. The principal asset of Palmer Aero Service, Inc. consists of certain accounts receivable aggregating, as of October 15, 1968, * * * $39,599.82. In addition, the Estate of H. C. Palmer, Deceased, is the owner of motor vehicles, airplanes and equipment used in the business of Palmer Aero Service, Inc. as set forth in the schedule hereto attached as Exhibit 'A' and made a part hereof; said personal property is encumbered in part by security agreements or liens in favor of First National Bank of Poinsett County, Mid-South Grain Company, Citizens Bank of Jonesboro, and Associate Financial Service, some of which liens may be second liens.

4. It is agreed that First Parties will cause an account to be opened in Mercantile Bank of Jonesboro, Arkansas, in the name of Palmer Aero Service, Inc., Trust Account, with signatures authorized by Mrs. Harriet L. Palmer and Erma Brady (a secretary in the office of Frierson, Walker & Snellgrove, Jonesboro, Arkansas), and that eighty per cent (80%) of all collections from the aforementioned accounts receivable aggregating * * * $39,599.82 will be deposited in that account as collected and that the said trust account shall be a trust find to be divided among the Second Parties pro rata according to the total amount of their respective accounts. The collections of said accounts receivable shall continue until the total collections deposited in said account aggregate thirty per cent (30%) of the total amount of accounts payable to the Second Parties or until all reasonable efforts to collect the said accounts have been exhausted; thereupon, the total amount deposited in the said account shall be distributed to the said Second Parties pro rata. The funds in the trust account shall be used for no other purpose.

5. The balance of the collections of said accounts receivable shall be deposited to the general account of Palmer Aero Service, Inc. from which the officers of the corporation shall pay the expenses of operating the business and any accounts payable to other creditors, according to their judgment.

6. Harriet L. Palmer, as Administratrix of the Estate of H. C. Palmer, Deceased, will apply to the Probate Court of Poinsett County, Arkansas, for approval of this agreement insofar as the said Estate is concerned and for authority to pledge and encumber all of the personal property of said Estate set forth in Exhibit 'A' attached hereto and to execute proper financing statements and security agreements to secure Second Parties, according to their respective interests. The said security agreements and financing statements * * * shall be subject to any existing liens.

7. In consideration of the...