Manhattan Factoring Corp. v. Orsburn

• Citation: 238 Ark. 947,385 S.W.2d 785
• Decision Date: 18 January 1965
• Docket Number: No. 5-3391,5-3391
• Parties: MANHATTAN FACTORING CORP., Appellant, v. H. M. ORSBURN et al., Appellees.
• Court: Supreme Court of Arkansas

Page 785

385 S.W.2d 785

238 Ark. 947

MANHATTAN FACTORING CORP., Appellant, v. H. M. ORSBURN et al., Appellees.

No. 5-3391.

Supreme Court of Arkansas.

Jan. 18, 1965.

Moses, McClellan, Arnold, Owen & McDermott, by Wayne W. Owen, Little Rock, for appellant.

Dale L. Bumpers, Charleston, Smith, Williams, Friday & Bowen, by W. A. Eldredge, Jr., Little Rock, for appellee.

HOLT, Justice.

This appeal results from a business transaction between appellant and appellees. The appellees are in the poultry processing business. For several years they had borrowed their necessary capital from a bank where their line of credit was $100,000.00. Two of appellees' customers became questionable credit risks. Upon advice of the bank, the appellees responded to appellant's advertisement offering to guaranteed or purchase accounts receivable. After several conferences, the appellant and appellees entered into an 'Accounts Receivable Agreement', also known as a factoring agreement.

Briefly, by the terms of this contract the appellant agreed to purchase without recourse from appellees their customer Hall's accounts not to exceed the credit limit of $50,000.00 provided Hall's failure to pay was due to his financial inability. As shipments were made by the appellees to their customer, Hall, copies of the invoices were mailed to the appellant. Upon receipt of such evidence of shipment the appellant deducted its factoring charge, or fee, of .85 of 1%. Also, 10% of the net amount of the invoice was deducted as a reserve fund to cover any refusal of Hall to pay an invoice because of reasons other than financial inability. The balance then was remitted to the appellees. A settlement of this temporary reserve fund account was required on or about the 1st or 15th of each month by an addendum to the contract.

After a duration of this agreement for about six months it became necessary for the appellees to discontinue shipment of its products to the customer, Hall, because of his delinquent payments. During this time appellant had purchased the Hall accounts to the total extent of approximately $250,000.00. Hall owed a balance of $39,356.72 when this litigation ensued. The appellees brought an action to recover from appellant the balance of the reserve fund totaling $20,128.68. Appellant admitted holding the reserve fund. By cross complaint the appellant alleged that the appellees owed appellant the $39,356.72 on six invoices which Hall had not paid. Appellant asserted that it had accepted and paid each of these six invoices at a time when the Hall guaranteed account exceeded the credit limitation of $50,000.00 and, therefore, the invoices were purchased with recourse or at the client's risk. The appellant sought to retain and apply the reserve fund of $20,128.68 as a credit on the alleged indebtedness of $39,356.72 and then recover the balance from the appellees. A jury resolved the issues in favor of the appellees by awarding them the full amount of the accumulated reserve fund.

For reversal appellant first contends that the court erred in giving appellees' Instruction No. A. This instruction told the jury that since it was undisputed the contract between the parties was prepared by the appellant, if the jury found any portion of the contract equally susceptible of different interpretations, then the interpretation most favorable to the appellees should be adopted. This is a correct pronouncement of the law. Where a written contract is ambiguous in any respect, it is construed most strongly against the party preparing it and its meaning becomes a question of fact for the jury. Travelers Indemnity Co. v. Hyde, 232 Ark. 1020, 342 S.W.2d 295; Bailey v. Sutton, 208 Ark. 184, 185 S.W.2d 276; Swift v. Lovegrove, 237 Ark. 43, 371 S.W.2d 129; Pate v. Goyne, 212 Ark. 51, 204 S.W.2d 900; Triska v. Savage, 219 Ark. 80, 239 S.W.2d 1018.

The appellant argues that the terms of the contract are plain and unambiguous and, therefore, it is not susceptible to different interpretations. We cannot agree. For example, in paragraph two of the disputed agreement the appellant agreed to bear the credit loss on an uncollected invoice if the customer [Hall] 'fails to pay in part or full because of financial inability'. In paragraph five, however, the contract provides that the appellant must make remittances on the appellees' reserve account on the first and fifteenth of each month 'on all accounts receivable that have been completely collected'. Thus, the ambiguity is obvious. The account might never be 'completely collected' because of the debtor's 'financial inability'.

The guarantee of Hall's 'accounts receivable' under certain conditions also results in the opposing theories of the appellant and the appellees. The appellant's interpretation of the contract is that cash invoice of the 'accounts receivable' guaranteed must be treated separately and as each individual invoice was accepted it was or was not without recourse depending upon whether the $50,000.00 credit limit of the Hall account was exceeded at the time of its purchase by appellant. If in excess of the credit limit when the invoice was accepted, then that individual invoice was with recourse and remained so even though the Hall account was thereafter reduced below the $50,000.00 credit limit. There is language in the contract to this effect. On the contrary, the theory of the appellees is that under the contract the invoices were to be treated as 'accounts receivable', or a running total of the invoices purchased by appellant and that the appellant is required to pay for all credit losses 'on approved shipments' up to and including the $50,000.00 credit limit. In other words, appellees contend that they were responsible for the accounts receivable purchased by appellant only to the extent that the remaining unpaid balance was in excess of the credit limit. Appellees argue that the guarantee of 'accounts' requires such interpretation. We think the trial court was correct in submitting to the jury the issue of ambiguity.

The appellant next asserts that the court erred in giving appellees' Instructions B and C. Instruction B constitutes appellees' interpretation or theory of the contract. It was, in effect, a statement of how the jury might construe the contract if it believed appellees' version that Manhattan was to guarantee the Hall accounts up to and including the $50,000.00 credit limit. Appellees' Instruction C fully and fairly covered the appellant's theory or interpretation of the agreement. Thus, by these two instructions the two opposing theories were fairly presented to the jury. Further, since the trial court held the contract ambiguous, it was the court's duty to submit to the jury these alternative instructions. Agey v. Pederson, 191 Ark. 497, 86 S.W.2d 930; Paepcke-Leicht Lumber Co., v. Talley, 106 Ark. 400, 153 S.W. 833. The court was correct in giving Instructions B and C.

We now consider appellant's points numbers 4, 5, 6, and 8A together. Appellant contends the court erred in refusing these instructions. The court properly rejected these instructions since, as stated by appellant, they were in effect requests for instructed verdicts. As stated previously, the court was correct in submitting to the jury the issue of ambiguity.

The appellant also argues in points 7 and 8 that the court erred in refusing appellant's requested Instructions 7 and 7 as amended. Appellant states in his brief that:

'* * * The instruction, as submitted before modification, was a request that the Court declare that Manhattan [appellant] was justified in holding this reserve and that the verdict should be for the defendant. As amended, the instruction merely recited that until there was a final accounting between Hall and plaintiffs [appellees] Orsburn, Manhattan would be justified in holding this reserve.'

Therefore, the first instruction would be, in effect, instructing a verdict for Manhattan insofar as this reserve fund was concerned; and the modified instruction was, in effect, telling the jury it should hold for appellant since Hall and appellees had not had a final accounting between them. This would be permitting appellant to retain the disputed reserve fund account because Hall's financial inability to pay the account prevented a final accounting. Appellant also argues that these two instructions...