Smith v. National Cashflow Systems, Inc.

Decision Date06 April 1992
Docket NumberNo. 91-313,91-313
Citation309 Ark. 101,827 S.W.2d 146
PartiesZenas Lyn SMITH, Appellant, v. NATIONAL CASHFLOW SYSTEMS, INC., Appellee.
CourtArkansas Supreme Court

Dale W. Finley, Russellville, for appellant.

James S. Dunham, Russellville, for appellee.

HOLT, Chief Justice.

In this case, we are requested to determine whether a licensed collection agency can obtain assignments of debts and then bring an action on the debts in its own name, as "the real party in interest," pursuant to Ark.R.Civ.P. 17(a).

The appellee, National CashFlow Systems, Inc. (CashFlow) is a duly licensed collection agency in the state of Arkansas. Under a written assignment form, which recited a payment of $10, CashFlow purchased assignments of two separate debts, totalling $196.84 and which were owed by appellant, Zenas Lyn Smith, to the Millard-Henry Clinic and the Peoples Bank and Trust Company. The debts are not in dispute.

CashFlow, through its attorneys, Peel and Eddy, filed a complaint in the Pope County Municipal Court requesting judgment in the amount of the total debt owed to both creditors, prejudgment interest of $15.67, and for interest on the judgment at the rate of 10% annum. CashFlow also requested attorney's fees and costs. In his answer, Mr. Smith averred that CashFlow was not the real party in interest as required by Ark.R.Civ.P. 17(a) and that CashFlow's actions constituted the unauthorized practice of law. He requested dismissal of the complaint. The municipal court awarded CashFlow $212.51, with interest at 10% annum, and $100 in attorney's fees, following which CashFlow appealed to the Pope County Circuit Court.

After an evidentiary hearing and the submission of briefs, the circuit court found that an assignee for collection of an account is the real party in interest and that the actions of CashFlow did not constitute the unauthorized practice of law. The court awarded the agency the amount of the debt with interest, minus what had already been collected through writs of garnishment, and attorney's fees.

The issues in this case are so intertwined that we discuss them together.

Lisa Teaf, head of CashFlow's legal services department, testified at trial that it was CashFlow's practice to send out an assignment form to the client creditor in which the creditor verifies, by affidavit, the name of the debtor and the amount owed. The assignment recites that "for ten dollars and other good and valuable consideration," the undersigned assigns its claim against the debtor to CashFlow and grants CashFlow "full power to collect, sue for, or settle said claim, and endorse remittances, as CashFlow Collections; to retain interest if collected." Ms. Teaf testified that when the affidavit and assignment is returned, the department "works up" a complaint and summons which are signed by Mr. Peel, with the private law firm of Peel and Eddy. If collection efforts are successful, CashFlow pays its legal expenses and then remits 50% of the remainder to the client. Ms. Teaf stated once the client assigns the account, it belongs solely to CashFlow to handle as it chooses.

Mr. Smith argues the assignment of the accounts from his creditors to CashFlow was a mere "subterfuge to gain admission to the courts." He points to the fact that the recited ten dollar payment in the assignment form was never actually paid to CashFlow's clients and to Cashflow's practice of reimbursing the creditors for half of any monies collected. In essence, Mr. Smith argues the assignment is a sham transaction which should preclude CashFlow from bringing an action on the debts, thereby warranting dismissal of the lawsuit.

Rule 17(a) provides "every action shall be prosecuted in the name of the real party in interest." The real party in interest is generally considered to be the person or corporation who can discharge the claim upon which the allegation is based and is not necessarily the person ultimately entitled to the benefit of any recovery. Gladden v. Bucy, 299 Ark. 523, 772 S.W.2d 612 (1989); Childs v. Philpot, 253 Ark. 589, 487 S.W.2d 637 (1972).

Ark.Code Ann. § 4-58-105(a) (1987) states, in relevant part, that "every written assignment made in good faith ... on account receivable or...

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5 cases
  • American Abstract and Title Co. v. Rice
    • United States
    • Arkansas Supreme Court
    • June 17, 2004
    ...to forward a copy of this opinion" to the CUPL. Knight, 343 Ark. at 408, 36 S.W.3d 300. Similarly, in Smith v. National Cashflow Systems, Inc., 309 Ark. 101, 827 S.W.2d 146 (1992), this court reviewed and affirmed a determination by the trial court that the actions of appellee National Cash......
  • Forrest Const. v. Milam, 99-1335
    • United States
    • Arkansas Court of Appeals
    • June 28, 2000
    ...the allegation is based, not necessarily the person ultimately entitled to the benefit of any recovery. Smith v. National Cashflow Systems, Inc., 309 Ark. 101, 827 S.W.2d 146 (1992). Here, appellant was actually a party to the easement agreement, although the easement ran in favor of the ci......
  • Forrest Construction v. Milam, et al, 00-830
    • United States
    • Arkansas Supreme Court
    • May 17, 2001
    ...the allegation is based, not necessarily the person ultimately entitled to the benefit of any recovery. Smith v. National Cashflow Systems, Inc., 309 Ark. 101, 827 S.W.2d 146 (1992). Here, although appellant was a party to the easement agreement, the easement ran in favor of the Further, al......
  • Watkins v. Hadamek, CA
    • United States
    • Arkansas Court of Appeals
    • December 21, 1994
    ...to challenge the writs and cannot assert the Bank's rights. In support of this argument appellants cite Smith v. National Cashflow Systems, Inc., 309 Ark. 101, 827 S.W.2d 146 (1992). But that case, which involved an original action, did not involve garnishment. There the appellee, a license......
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