Sims v. McFadden

• Decision Date: 30 October 1950
• Docket Number: No. 4-9262,4-9262
• Citation: 217 Ark. 810,233 S.W.2d 375
• Parties: SIMS et al. v. McFADDEN et al.
• Court: Arkansas Supreme Court

Page 375

233 S.W.2d 375

217 Ark. 810

SIMS et al. v. McFADDEN et al.

No. 4-9262.

Supreme Court of Arkansas.

Oct. 30, 1950.

Harry Neelly, Searcy, for appellant.

C. E. Yingling, C. E. Yingling, Jr., and Wm. H. Roth, all of Searcy, for appellee.

GEORGE ROSE SMITH, Justice.

This is a proceeding brought by the appellee Malcolm McFadden to obtain the dissolution of an insolvent partnership in which he and the appellant A. O. Sims were partners. The questions presented by this appeal are whether the chancellor sufficiently protected Sims' homestead and whether the decree correctly adjudicated the priorities of the firm's various creditors.

On April 1, 1948, McFadden and Sims formed a partnership to operate an automobile agency in Searcy. At that time Sims and his wife jointly owned a parcel of urban property on which were situated their dwelling and also a business building in which Sims had been conducting a garage business. About a year earlier the couple had mortgaged this property to Mrs. Sims' brother, M. M. Garrison, to secure a debt of $5,500. In the court below Garrison asked that his mortgage be foreclosed, and the court granted that relief. No one now disputes the priority of Garrison's mortgage over the claims of other creditors.

McFadden testified that when the partnership was formed Sims agreed to contribute this real estate to the venture. Sims denies this, saying that the firm was merely to occupy the premises rent free. Every one agrees that the partnership did occupy the business building on the parcel of land and that the Sims family continued to make their home in the dwelling house. We think the preponderance of the testimony supports the chancellor's finding that Sims agreed to contribute to the business all the real estate except his dwelling house. On two occasions the firm gave financial statements listing the parcel of land as a partnership asset. In November of 1948 the partners signed a memorandum assuming the Garrison mortgage and reciting that title would vest in the partnership when the mortgage was paid. Thereafter a payment of $250 upon the mortgage was made with partnership funds. These facts leave us with no doubt that the commercial part of the real estate was contributed by Sims to the firm when it began business.

In spite of this evidence Sims insists that he could not validly turn his homestead over to the firm, since our statute provides that any conveyance of a homestead is void if the wife does not join in the deed. Ark.Stats.1947, § 50-415. Sims' theory is that since the area of this entire parcel is less than the constitutional minimum of a quarter of an acre for a homestead, he could not devote a part of it to commercial purposes without his wife's joinder. But the answer is that we are not dealing with a conveyance of a homestead. Instead, Sims' conduct amounted to an abandonment of his homestead right in the area devoted to commercial use, and we have often held that a husband may abandon his homestead without his wife's consent. Sidway v. Lawson, 58 Ark. 117, 23 S.W. 648; Stewart v. Pritchard, 101 Ark. 101, 141 S.W. 505, 37 L.R.A.,N.S., 807.

Thus Sims could and did contribute to the partnership all the tract of land except his dwelling and its curtilage. The entire tract was mortgaged to Garrison, who asks that his mortgage be foreclosed. It seems likely that the proceeds of sale will materially exceed the amount of the mortgage debt. The most serious question in the case concerns the proper disposition of the surplus after the mortgage debt has been paid.

It is shown by uncontradicted testimony that the dwelling house and its surrounding yard comprise 26.5% of the total value of the tract. The chancellor, taking the view that Garrison should be required to proceed first against the security which he alone could reach, directed that the first 26.5% of the proceeds of sale should be applied upon the mortgage debt. The decree provides that the remaining 73.5% of the proceeds shall be applied first to satisfy the rest of the mortgage debt, and any remaining balance shall be divided equally between Mrs. Sims (whose interest as a tenant by the entirety is not subject to her husband's debts) and the common creditors of the partnership.

This decree would ordinarily be a proper marshaling of the assets, since the general rule is to require a secured creditor to proceed first against that part of his security that the common creditors cannot reach. But when a homestead is involved there is a well recognized exception to this rule. One whose homestead is mortgaged along with other property is entitled to demand that the mortgagee proceed first against the other property. Bank of Hoxie v. Graham, 184 Ark. 1065, 44 S.W.2d 1099. In this situation a common creditor cannot invoke the ordinary rule that requires the secured creditor to look first to that part of his security that the other creditors cannot reach. Bank of Luverne v. Turk, 222 Ala. 549, 133 So. 52; Mounce v. Wightman, 29 Ariz. 567, 243 P. 415. The law is so solicitous of the homestead right that the secured creditor will be required to exhaust his non-exempt security first, even though this procedure entails a loss to the common creditors. Nolan v. Nolan, 155 Cal....