Barnes v. Pearson Termite and Pest Control, Inc.

• Decision Date: 08 October 1979
• Docket Number: No. 1,No. 79-82,79-82,1
• Citation: 587 S.W.2d 823,266 Ark. 635
• Parties: Gerald D. BARNES, Appellant, v. PEARSON TERMITE AND PEST CONTROL, INC. and Elmer T. Pearson, Appellees
• Court: Arkansas Supreme Court

Page 823

587 S.W.2d 823

266 Ark. 635

Gerald D. BARNES, Appellant, v. PEARSON TERMITE AND PEST CONTROL, INC. and Elmer T. Pearson,

Appellees.

No. 79-82.

Supreme Court of Arkansas, Division No. 1.

Oct. 8, 1979.

Rehearing Denied Nov. 13, 1979.

Herby Branscum, Jr., Perryville, for appellant.

George Joe Cambiano, Morrilton, for appellees.

FOGLEMAN, Justice.

Appellant Gerald D. Barnes filed a suit against Elmer T. Pearson, appellee herein, on December 13, 1976, seeking to recover one-half of the assets of Pearson Termite & Pest Control, Inc. and an accounting for profits subsequent to February, 1976. The corporation was formed on October 28, 1974, and Barnes and Pearson were the sole stockholders, each owning one-half of the capital stock of the corporation. Barnes alleged that Pearson had operated the business, without any accounting to Barnes, since February, 1976, when Barnes had become disabled, and that Pearson had converted the assets of the corporation to his own use under a new name. Pearson filed a general denial in answer to the original complaint, except that he admitted that the two parties were the sole stockholders of the corporation. By an amendment to the complaint, Barnes asked that Pearson be declared trustee of all funds earned by Pearson Termite & Pest Control, Inc. since October 1, 1976, and alleged that an accounting for, and division of, such funds should have been made. In his answer to the amendment to the complaint, Pearson alleged that Barnes had received funds for franchise sales for which he should be required to account and claimed the right to set off one-half of these receipts against any amount due Barnes.

On June 1, 1977, a decree was entered upon agreement by the parties. The decree contained the following findings: that Barnes and Pearson were each entitled to one-half of the corporation assets; that injunctive relief should be provided so that each could operate his respective business after division; that the corporate name and structure should become the property of appellant; that Pearson should pay appellant $1,700; that the physical assets of the corporation should be divided between the parties; that all accounts should be divided equally, but, if the parties were unable to agree upon a division, a commissioner would be appointed; that each party might maintain his franchise agents; and that each party would be enjoined from serving the accounts belonging to the other. On June 22, 1977, Pearson filed a notice of appeal from this decree, but the appeal was never perfected.

On June 28, 1977, Barnes filed a petition alleging that Pearson had violated the terms of the decree and asking that Pearson be held in contempt of court and that steps be taken to protect the rights of Barnes. After Pearson filed a motion to require Barnes to make his pleading more definite and certain as to matters alleged to be in violation of the decree, Barnes filed an amendment to his petition. In that pleading, he alleged that Pearson had failed to divide the assets of the corporation with him, had failed to bring the books and documents belonging to the corporation to him, had failed to pay the judgment for $1,700, was continuing to use the corporate telephone and telephone number and was contacting customers and accounts that were being serviced by Barnes. Pearson answered, denying these allegations.

Thereafter, on August 5, 1977, Barnes filed another petition alleging that Pearson had failed to comply with the decree of June 1, 1977, which ordered Pearson to divide the assets of the corporation with Barnes and that there were items of personal property in Pearson's custody and possession that should be sold at public auction and the proceeds divided equally between Barnes and Pearson. Then, on December 20, 1977, Barnes filed another petition, alleging that the cancelled checks and bank statement for May, 1977, on an account in the name of "Elmer Pearson Special Account No. 11-788-57," which had been furnished pursuant to an order of the chancery court upon appellant's motion, showed a balance of more than $18,000 when the case was tried in June, and that this balance was greater than the amount represented as the balance by Pearson at the trial in June, 1977.

No testimony except that of Barnes and Pearson at the original trial is included in the transcript. Barnes testified that when he commenced working for the corporation in December, 1974, it was servicing 320 accounts and, in addition, had franchise dealers who used the corporate name, license and insurance, and received 20 percent of the gross income on the accounts serviced by them. He also testified that when he had to quit working, on doctor's orders, in February, 1976, because of a back problem, the parties agreed that they would divide the profits as of June, 1976, and that the profits thereafter would be put back into the corporation for Pearson to use as he saw fit, but that Barnes was to get the income from one-half of the franchise dealers. According to Barnes, he learned in November, 1976, that Pearson had started operating the business under a new name (Pearson Pest Control), and that Pearson had changed the bank account so it was carried under the title, "Elmer Pearson Special," without authorization from the board of directors. Barnes said that he could not tell anything about the financial picture of the corporation from the documents furnished by Pearson, and that, since November, 1976, Pearson had chosen the franchise checks he wanted to keep and had sent Barnes the ones that he wanted Barnes to have. Barnes stated that the value of a pest control business is determined by multiplying its annual income by a multiplier ranging from six to ten, depending upon the reputation of the company. He said that the value of this corporation was $30,000. Barnes testified that he never intended to give his half of the corporation to Pearson.

Pearson confirmed the agreement on division of the income from the franchise dealers made when Barnes became incapacitated. He said that there was no money in the corporation's bank account and that, when the company's accountant said that Barnes and Pearson were each entitled to $852, Barnes refused to accept that as his share of the corporation. Pearson testified that he had formed a new company named "Pearson Pest Control," had obtained a new license in October, 1976, and had, since that time, operated his pest control business under this name and license. He said that Barnes had to know that he was going to operate under a new name because he had told Barnes that if he didn't buy Barnes out, he was going to pull out of the corporation. Pearson recalled, upon cross-examination, that on March 15, 1977, he had testified in a deposition that there had been a balance of $6,124.23 in the Pearson Termite & Pest Control account, which was, at the time of the trial, in the "new" bank account. In his testimony at the trial, Pearson denied that this amount had been in the account at that time.

We have great difficulty in following Pearson's testimony about this account. He denied having transferred a balance of $6,124.23. The following question was asked and response given on cross-examination:

Q. Well, I asked you on March 15th if there was any money in the account when you pulled out and took all of the accounts with you on October 28th, 1976 and you said, "Yes, there is. It is $6,124.23 is what I got."

A. We took that off the check book cause I can't remember.

Pearson then testified that he wrote the last check on the corporate account on January 27, 1977 and that there was $6,124.43 in that account when he "pulled out of the corporation." Thereafter, the cross-examination went as follows:

Q. When did you close that account?

A. When I cashed Just a minute. I cashed it out when I closed this check that you had here. I had to put some money in there even to make enough to do it.

The Court: I don't understand what you are saying sir?

Mr. Branscum (Appellant's attorney): I don't understand either.

The Court: Did you write a check for $6,124.43?

Mr. Pearson: No.

The Court: What are you saying, Mr. Pearson; you've lost me ever since you've been up here?

Mr. Pearson: When I pulled before I pulled out when I went over there and tried to buy him out, I started a new account.

The Court: At that time there was $6,124.43 in the old account?

Mr. Pearson: No, Sir.

The Court: What was there in the corporation account, Mr. Pearson? Gentlemen, I'm serious, I have never seen a situation of trying to look at the financial structure of the corporation. We've had the accountant and we don't have the balance sheet or the profit and loss statement. These are absolutely necessary to make any determination of the structure of the corporation.

Mr. Cambiano (Appellee's attorney): The accountant has testified as to the assets of the corporation.

The Court: Without the benefit of the balance sheet of the profit and loss statement.

Mr. Cambiano: But he had the material that these came from.

The Court: I have examined these Mr. Cambiano. I can't tell what checks these were written on after he completed his testimony, I could not know. He said it was on Pearson Pest Control. I thought we were dealing with Pearson Pest Control, Inc. I have not seen anything on the corporation. And sometime gentlemen somebody is going to have to furnish me some information before I can make any kind of determination. I'm not trying to be facetious about this.

Pearson then testified that the accounts were "put together," without his consulting anyone, that he made an offer which Barnes would not accept, so he "pulled out," as he told Barnes he would, and took the money and started paying bills. This exchange took place between the chancellor and Pearson:

The Court: You put the income in one account and paid the expenses out of the other?

Mr. Pearson: Well, it was all mine anyway.

The Court: No, it wasn't sir....