McKinney v. Flato Brothers, Inc., 175

• Decision Date: 16 December 1965
• Docket Number: No. 175,175
• Citation: 397 S.W.2d 525
• Parties: James A. McKINNEY, Appellant, v. FLATO BROTHERS, INC., Appellee.
• Court: Texas Court of Appeals

Page 525

397 S.W.2d 525

James A. McKINNEY, Appellant, v. FLATO BROTHERS, INC., Appellee.

No. 175.

Court of Civil Appeals of Texas, Corpus Christi.

Dec. 16, 1965.

John A. Waller, Corpus Christi, for appellant on appeal only.

Charles A. Bonniwell of Auforth & Bonniwell, Corpus Christi, for appellee.

GREEN, Chief Justice.

Appellee Flato Bros., Inc., filed suit against Merle Clapp and appellant James A. McKinney on the balance alleged to be owing on a promissory note executed by them on December 19, 1960. Service of citation was not had on Clapp, who did not appear or file any pleadings, and after a trial before the court without a jury, judgment was rendered for appellee against appellant in the sum of $3,194.30, plus attorney fees of $319.43, or a total of $3,513.73.

(1) There is no order in the record disposing of the defendant Clapp. On the authority of Youngstown Sheet & Tube Co. v. Penn, Tex.Sup.Ct., 363 S.W.2d 230, and Mabry v. Lee, Tex.Civ.App., 319 S.W.2d 125, writ ref., the case stands as if there had been a discontinuance as to Clapp, and the judgment is to be regarded as final for the purposes of appeal.

By written agreement entered into December 19, 1960, Flato Brothers, Inc., sold to Merle L. Clapp and James A. McKinney, as partners, a business theretofore conducted by Flato in Corpus Christi under the name of Central Appliance Service Company for the consideration of $1,680.00 cash, and a promissory note signed by Clapp and McKinney in the sum of $4,820.00, payable, interest included, in 24 monthly installments of $224.93 each. Payment of the note was secured by a chattel mortgage executed by Clapp and McKinney on automotive equipment, office equipment and shop and warehouse equipment set out in detail in the mortgage as Exhibit A.

Appellant's first three points are all directed at the alleged error of the trial court in failing to give credit on the note of an amount of $1,242.00 admittedly received by appellee as proceeds under a policy insuring the personalty covered by the chattel mortgage against theft; and the further amount of $851.00 admittedly received by appellee from the sale of personalty described in the mortgage as security for the note. It is further appellant's contention, in its third point, that there is no evidence to sustain a judgment for the amount of $3,513.73, since the evidence of appellee's witness was inconclusive, obscure and uncertain as to the exact amount of money obtained by appellee from the sale of personalty securing the note which should have been but was not credited on the note indebtedness.

Appellee replies that the $1,242.00 theft insurance proceeds and the sums received for the sales of the mortgaged personalty were properly applied to other indebtedness owing appellee by appellant, or the partnership of appellant and Clapp, also secured by this same mortgaged property, and that the evidence was sufficient to justify the judgment of the court.

Included in the provisions of the mortgage is the following:

'6. This chattel mortgage is to fulfill the conditions and obligations of an agreement entered into on even date hereof with Flato Brothers, Inc., for the purchase of Central Appliance Service Company and attached hereto as Exhibit B, and made a part hereof for all purposes.'

The written sales agreement attached to the mortgage contains among other provisions the following:

'2. Buyers have assumed the payment of and hereby agree to pay all sums due or to become due upon those certain notes, obligations and accounts of Flato Brothers, Inc. heretofore incurred by or in the name of Central Appliance Service Company which are listed and described in Exhibit A attached hereto.

3. Buyers hereby assume all of the obligations and duties of the lessee or tenant and agree to pay all sums due of to become due under that certain lease from Guaranty Title and Trust Company as lessor to Flato Brothers, Inc., as lessee, or tenant, dated 31, July 1959 and covering the premises occupied as the place of business of Central Appliance Service Company at 3919 S. Port, Corpus Christi, Texas.

4. Buyers will hold Seller wholly harmless from any and all liability upon all obligations, liabilities and contracts expressly assumed by Buyers as well as all liabilities hereinafter incurred by Buyers in the operation of Central Appliance Service Company.

5. The obligations of Buyers pursuant to this Agreement are secured by a chattel mortgage in favor of Seller of even date herewith upon the property listed in Exhibit B attached hereto.'

Shortly after the contract of sale, note and mortgage were executed, appellee assigned the note, with recourse, to Mercantile National Bank, receiving $4,820.00 therefor. Payments made to the bank by the makers of the note reduced the amount due thereon, by April, 1962, to $3,194.30, at which time, due to default in payments by Clapp and appellant, the bank called upon appellee to make good on its endorsement. From April 1, 1962, to January, 1964, appellee made payments to the bank, paying altogether $3,194.30, in full payment of its obligation to the bank.

In the meantime, Clapp and McKinney had dissolved the partnership, and notified appellee. They stopped making the rent payments, liability for which they assumed as stated in paragraph 3 of the sales contract, quoted above, and beginning with December, 1961, appellee commenced making such payments.

In April, 1962, a theft of a portion of the mortgaged property occurred, for which appellee collected as insurance $1, 242.00. Appellee took over the business after it found the building abandoned in April, 1962, and as a result of sales of the mortgaged personalty, received the sums of $851.00, $525.00, $20.00, and $20.00. These sales, plus the insurance money, totaled $2,658.00 received by appellee from the mortgaged chattels, which appellee was required to apply on the indebtedness of Clapp and McKinney accruing as a result of the note, mortgage and sales contract.

The witness Schmidt, appellees secretary-treasurer, testified that his company had only one account on its books with Central Appliance Service Company. When payments were made by appellee to the bank on the note, or the Guaranty Title and Trust Company on the rent contract, these sums were charged against the appliance company on this account. When credits were received, as the $1,242.00 insurance money, and the amounts received from the sales of the mortgaged property, they were credited to the same account.

In this connection, Schmidt testified on cross-examination as follows:

'Q * * * Besides the $1,242.00 Flato Brothers got out of the theft insurance, how much other money have they received as a result of the sale of the assets of the business?

A I notice on the ledger account we credited $850.00.

Q You credited the rent account, is that correct?

A No, I credited Central Appliance Service Company account. We had only one account when we were making payments to the bank or Guaranty Title, they were credited all to one account, central appliance Service Company. And we received $851.00 one time, $525.00 another time, $20.00 once, $20.00 again.

Q How did you determine what portion of those credits should have been credited to the note, or should have been credited to the open account?

A I didn't credit them to anything but their account. When I made a payment to the bank, I charged that to...