Power Grocery Co. v. Hinton

• Citation: 187 Ky. 171,218 S.W. 1013
• Parties: POWER GROCERY CO. ET AL. v. HINTON ET AL. GEORGE ALEXANDER & CO. STATE BANK ET AL. v. POWER GROCERY CO. ET AL.
• Decision Date: 24 February 1920
• Court: Kentucky Court of Appeals

218 S.W. 1013

187 Ky. 171

POWER GROCERY CO. ET AL. v. HINTON ET AL.

GEORGE ALEXANDER & CO. STATE BANK ET AL. v. POWER GROCERY CO. ET AL.

Court of Appeals of Kentucky.

February 24, 1920

Appeals from Circuit Court, Bourbon County.

Actions between the Power Grocery Company and others and W. O Hinton, assignee of George Alexander and another, from judgment in which the former appeal, and between George Alexander & Co. State Bank against the Power Grocery Company and others, from judgment in which the former appeal; the appeals being taken upon the same record and heard and decided together. Reversed upon both appeals and remanded with instructions.

Cline &amp Hutchcraft, of Paris, E. L. Worthington, of Maysville, Denis Dundon, of Paris, Geo. C. Webb, of Lexington, J. J. Williams of Paris, and Worthington, Cochran & Browning, of Maysville, for George Alexander & Co. State Bank and Banking Commissioner.

Another Equally Blameless.

As between two innocent persons the one must suffer who by his acts or laches had made a loss possible.

E. C. O'Rear, of Frankfort, and Harmon Stitt, of Lexington, for Power Grocery Co.

Talbott & Whitley, of Paris, and Bradley & Bradley, of Georgetown, for George Alexander's assignee.

HURT J.

The above-stated appeals were taken upon the same record and are heard and decided together.

The Power Grocery Company on the 19th day of May, 1914, was a trading partnership, and had been such for several years theretofore. The members of the partnership were H. A. Power, J. H. Fuhrman, J. W. Bacon, Charles Stephens, and George Alexander, the latter of whom owned an interest equal to seven-twentieths of the property and business of the partnership. Several years theretofore there had been a corporation which bore the same name as the present partnership and was engaged in the same business as the partnership has engaged in since its creation. Previous to the 26th day of September, 1899, the parties who were the owners of the capital stock of the corporation by mutual consent dissolved it and created the partnership, and by the partnership contract each of them became the owner of such an interest in the partnership as he had theretofore held in the corporation. The members of the partnership, not being equal in interest, also agreed that each of the partners should continue to hold the stock certificate which had represented his interest in the dissolved corporation before its dissolution as the evidence of his interest in the partnership, and thereafter, when any change occurred in the membership of the partnership by which the interest of a persisting member was enlarged, a certificate similar to the certificates of stock which were used when the corporation existed to evidence the amount of his stock was issued to the member as evidence of his additional interest in the partnership, or a new certificate was granted covering the entire interest.

At the time the partnership was formed, or anyhow on the 26th day of September, 1899, the members of the partnership entered into a contract, which was reduced to writing and signed by each of them, touching their respective interests and for the purpose of providing for its continuance or dissolution in the event of the death of a member or the desire of a member to part with his interest. The contract was to the effect that the partnership property was divisible into 215 parts, of which George Alexander was the owner of 60 and H. A. Power, Charles Stephens, Fletcher Mann, Mann & Fuhrman, William Hinton, J. W. Bacon, and Bacon Bros. were the owners of 50, 30, 30, 15, 8, and 7 parts respectively. For the purpose, as expressed, of preventing the expenses and loss of a dissolution and settlement in the event of the death of any member of the partnership, or in the event of the desire of any member to dispose of his interest, the parties agreed with each other that the partnership should continue as long as the partners who owned the greater interest therein should desire to continue it, or such greater interest amounting to a majority in interest could dissolve the partnership when they desired, and, in the event of a dissolution, the business and property of the partnership should be settled in the usual way, each receiving his share of the net proceeds of the property. If any member of the partnership, or the personal representative of a deceased partner, desired to withdraw from the partnership and to dispose of his interest therein, the remaining partners were to have an option to purchase the interest which was desired to be disposed of at a price to be fixed as follows: Ten per cent. should be deducted from the total assets as shown by the last preceding inventory, and from the remainder the total liabilities of the partnership at the date of such preceding inventory should be deducted, and of the amount remaining the interest to be disposed of was to be fixed in accordance to the proportion of same owned by such member. If the persisting members of the partnership were not willing to purchase the interest at the price thus fixed, the one desiring to dispose of his interest, or his personal representative, if he was dead, might then sell the interest, but to a purchaser who was to become a member, instead of the retiring partner, and subject to the terms of the partnership contract then existing between the members. It was also agreed that the expenses and losses to the partnership incident to a sale of the property upon a dissolution and settlement would be at least 10 per cent. of the assets appearing from an inventory, and for that reason it was agreed that, in ascertaining the value of a retiring interest in the property for the purpose of the persisting members exercising their option to purchase it, the total assets at the preceding inventory should suffer a reduction of 10 per cent.

An inventory of the assets of the partnership was regularly made as of the 1st day of July in each year. Under the contract the partnership continued from 1899 to November 30, 1917, the date of the rendition of the judgment appealed from, and probably yet continues. During the continuance of the partnership Bacon Bros. disposed of their interest to J. W. Bacon and Fletcher Mann, and Mann & Fuhrman disposed of their interest to J. H. Fuhrman presumably in accordance with the terms of the above-stated contract.

The George Alexander & Co. State Bank was a corporation engaged in the business of banking, and authorized to conduct such business as other similar institutions are under the laws of Kentucky. George Alexander was president of its board of directors, and seems to have been permitted to have control of the conduct of its operations. The bank became largely involved, and on May 19, 1914, its affairs and property were placed in the hands of the banking commissioner. On the same day Alexander made a general assignment for the benefit of his creditors. On May 15, 1911, Alexander had procured from the bank the sum of $25,800, and on May 29, 1911, the further sum of $16,700, and, as the bank and banking commissioner now claim, he assigned to the bank absolutely his interest in the Power Grocery Company in payment of what he owed to the bank, and the bank now claims the interest of Alexander in the partnership property as against his assignee or any creditor.

On April 3, 1914, Alexander procured H. A. Power, the managing member of the Power Grocery Company, to execute the negotiable note of the partnership to the People's Bank of Paris for $10,000 for the accommodation of Alexander, and the proceeds of the note Alexander received and appropriated to his individual affairs other than his connection with the grocery company. On May 6, 1914, Alexander procured Power to execute two negotiable notes for $5,000 each as the notes of the grocery company and payable to it, and to indorse them to Alexander. Of these notes Alexander received the proceeds, and appropriated same to his individual purposes. The above three mentioned notes became due in six months after date respectively, and were paid by the grocery company. The members of the partnership, other than Alexander, claim that the amounts of the three notes, $20,300, represent an advancement by the firm to Alexander, and that his share in the partnership should be charged with same in a settlement of it, and that they have a prior lien upon the interest of Alexander to reimburse the losses sustained by them through the partnership paying the notes.

The assignee of Alexander denied the claim of the bank to the ownership of or a lien upon the interest of Alexander in the partnership as well as the claim of the partners of the grocery company to a lien upon Alexander's interest in the partnership, and set up a claim to the interest as an asset for the benefit of Alexander's general creditors.

The court by its decision denied the claim of the bank and the partnership, and adjudged that the assignee for general creditors was entitled to the interest of Alexander in the partnership, but, in accordance with the partnership contract, held that the other partners had an option to purchase the interest of Alexander, but, in fixing the value of the interest, the court refused to deduct 10 per cent. of the total assets as of the inventory last preceding, and from the judgment the bank and banking commissioner and Power Grocery Company have appealed.

(a) It is insisted that the bank is not the owner of the interest of Alexander in the partnership because: (1) The partnership contract forbids such a sale to be made by Alexander; (2) the bank had no authority under its charter to purchase or be partner in a grocery business, or to engage in such business (3) the state could object to such a transaction, and did so,...