Joseph G. Reed Company v. Watkins

Opinion of the Court by Creal, Commissioner Reversing. Prior to the 12th day of September, 1928, Bert Watkins and Paris Stambaugh were partners engaged in the mercantile business at West Van Lear, Johnson county, Ky., under the firm name of Bert Watkins & Co., but on that date Watkins sold his interest in the business to Stambaugh. The sale and transfer was evidenced by a written contract, under which Stambaugh assumed the payment of all outstanding liabilities of the firm. At the time of the dissolution of the partnership, the firm was indebted in the sum of $550.85 to the Joseph Gr. Reed Company, a corporation engaged in the wholesale mercantile business at Portsmouth, Ohio. For convenience, we shall hereinafter refer to Bert Watkins & Co. as the firm, and the Joseph G-. Reed Company as the company. On April 10, 1929, the company filed the account in suit in the Johnson circuit court against Watkins and Stambaugh, as former members of the firm, and caused summons to issue for each of them. Summons was immediately served upon Stambaugh, but as to Watkins, it was returned “not found.” The former made no defense, and on the 22nd day of June, 1929-, a default judgment was entered against him. Thereafter, on the 6th day of January, 1930, Bert Watkins was served with summons, and on the 22nd day of February, 1930, he filed his separate answer, which he made a cross-petition against his former partner. The first paragraph of the pleading is a traverse of the allegations of the petition. In a second paragraph, after setting up the dissolution agreement between the partners and its provision relieving Watkins from liability on all outstanding partnership debts, it is affirmatively alleged that, a short while after the dissolution of the partnership and the assumption of its obligations by Stambaugh, he entered into negotiations with plaintiff! for settlement of its debt sued on, and for extension of time for payment thereof, pending which, plaintiff *806 agreed to accept certain real estate in Ohio owned by Stambaugb as security or satisfaction for tbe payment of the account, and, without tbe consent of the defendant Watkins, extended tbe time for tbe payment of tbe debt and accepted partial payments thereon; that plaintiff thereby accepted Stambaugb for tbe payment and satisfaction of tbe debt and released Watkins from any further liability therefor; that these negotiations and extensions of time continued until Stambaugb became insolvent. Tbe affirmative allegations of tbe answer were controverted by reply, thus completing tbe issues. Defendant Watkins testified in bis own behalf and also introduced bis former partner as a witness. He testified that he notified plaintiff by a letter of tbe dissolution of tbe partnership and tbe agreement that Stambaugb was to assume and pay all partnership indebtedness, but it appears from tbe evidence that this letter was not written until after suit bad been instituted on tbe account. He further testified that be bad no talk, agreement, or understanding with tbe plaintiff relative to bis liability on tbe account, but stated that Stambaugb told him that be was trading a piece of land to plaintiff and making arrangements to take care of tbe account. Prom tbe evidence of Paris Stambaugb, it appears that, after execution bad been issued on tbe judgment against him, be went to Paintsville and secured tbe promise of tbe sheriff to withhold levy for two days, in order that be might attempt to reach an adjustment with plaintiff. He then went to Portsmouth, where be bad a talk with officers of tbe company, .and testified that they agreed to give him time to pay tbe indebtedness and to leave Bert Watkins out of it; that be agreed to pay $'50 each month and offered to convey to plaintiff some real estate which be owned in Ohio, and left bis deed with the officers of the- company, so they might look up tbe title and examine tbe real estate in order to determine what they would be willing to pay for it; that be later paid $50 on tbe judgment, but did not convey his real estate in Ohio to plaintiff, and tbe deed which be left with tbe officers of tbe company was returned to him. Mr. P. M. Shaw, credit man for tbe company, testified that when 'Stambaugb came to Portsmouth after tbe execution bad been issued he reported that be was successor of Bert Watkins & Co., and bad undertaken to pay off tbe indebtedness of the firm; that if tbe execution was *807 levied it would do him much damage, and that if given time he would pay $100 per month. He stated that his only purpose in granting an extension of time was to enable 'Stambaugh to work the account' out without any undue hardship or financial injury. He further testified that $50 had been paid on the account, and that Stambaugh left a deed with him and asked him to make an investigation >as to the value of the land in Ohio, and, in the event an agreement could be reached as to the price, to let it be credited on the account; that the first information the company had of the dissolution of the partnership was when Stambaugh -talked with representatives of the company in an attempt to secure a stay of the execution. Z. Wells, attorney for plaintiff, testified that in the handling of the account he had a discussion with Paris Stambaugh on several different occasions, and the latter agreed to pay the account, but only paid $50.80; that he talked with both the members of the firm and told them that one or both could pay the debt; that Watkins said he ought to be released, since he had sold out to Stambaugh, and the latter agreed to pay all the firm’s debts. He further testified that he did not recall that Watkins ever claimed to have been released from his obligations. The jury returned a verdict in favor of the defendant, and from the judgment entered in conformity therewith plaintiff has prosecuted this appeal. In seeking a reversal, counsel for appellant have argued a number of grounds involving the pleadings, evidence, and instructions, but the questions presented are so closely related and interwoven that a discussion of one in a larg’e measure involves all the others, and a consideration of them discloses that they all turn on the one point, as to whether there was a novation. That is, whether by contract, express or .implied, there was a valid agreement, understanding, and assent of all parties concerned whereby the indebtedness of the firm was discharged and a substituted and new obligation created involving the release of Watkins and a substitution of Stambaugh in his stead as the sole creditor. It is not specifically alleged in the answer that there was any such agreement or understanding, and neither are facts alleged from which a reasonable inference of such could be drawn. *808 In 46 O. J. 606, it is said: i ‘ The consent of a creditor to a novation may be a legal result of his acts and conduct, even though he has not either expressly or impliedly agreed thereto. Thus the laches of the creditor may be deemed equivalent to a direct assent, and where conduct is such as to amount to an estoppel he will not be permitted to claim that he did not assent to the novation. ’ ’ And in the case of Combs v. Jameson, 236 Ky. 733, 33 S. W. (2d) 686, 687, this court said: “The purpose to release the old debtor may be inferred from the circumstances attending the transaction, and the subsequent conduct of the parties thereto. ’ ’ It is alleged in the second paragraph of the 'answer that appellant, without the consent of appellee, granted indulgence by way of extension of time to Stambaugh and delayed the prosecution and collection of its claim until he had become insolvent, thereby accepting Stambaugh for the payment of the debt and releasing appellee from liability thereon. Thus, it will ibe seen, the answer attempts to bring this case within the rule announced in the authorities cited. But a careful consideration of the allegations of the answer and of the proof offered1 in support thereof reveals the fact that it does not come within the scope or purview of the announced rule. The evidence, in effect, merely indicates that the company agreed to release Watkins if and when Stambaugh had paid the debt. Included in the proposition made by Stambaugh to officers of the company was a proposal to convey real estate in Ohio, provided an agreement could be reached as to the purchase price, and this was to be applied in satisfaction of the indebtedness. Obviously, there was not a completed transaction, and a mere conditional agreement as to the discharge of the old indebtedness will not amount to a novation. In the absence of an allegation in the answer as to a mutual agreement or understanding that Watkins was to be released and Stambaugh substituted in his stead, it was improper to admit proof as to such an agreement or understanding, but, from what we have already said, it follows that even had there *809 been such an allegation, the proof is not sufficient to establish any such contract or agreement between the parties. The evidence fails to reveal such acts or conduct upon the part of officers of the company as to indicate that it assented to any discharge of Watkins, or that would estop it from denying that it had given such assent. Stamfbaugh was liable for the full amount of this indebtedness, and he promised to do no more than he was already legally bound to do, and the company simply consented that he might retire the indebtedness by the payment of monthly installments. In the proven circumstances, such a promise of extension of time for payment did not create a novation, or operate to relieve Watkins from his liability on the indebtedness. In the absence of an allegation that an agreement was entered into between the parties, whereby appellant released appellee from payment of the firm obligation and created a new obligation by which 'Stambaugh alone was bound, it was improper to give instruction No. 1, submitting such an issue to the jury, and what we have already said, with reference to the proof as to the acts and conduct of appellant, makes it apparent that instruction No. 2 was improper. The evidence is not sufficient to take the case to a jury, and the court erred in overruling appellant’s motion for a peremptory instruction in its favor; therefore, the judgment is reversed, and the cause remanded for a new trial in conformity with this opinion.