The opinion of the court was delivered by: John E. Miller, District Judge.
On November 3, 1955, this case was tried to the Court, without
a jury, and at the conclusion of the trial the Court took the
case under advisement pending receipt of briefs from the
The briefs have been received, and now the Court, having
considered the ore tenus testimony of the witnesses,
stipulations, pleadings, exhibits and briefs of the parties,
makes and files herein its findings of fact and conclusions of
law, separately stated.
Plaintiff is a citizen of California, residing in the City of
Los Angeles. Defendant is a citizen of Arkansas, residing in Hot
Springs, Arkansas. The amount in controversy, exclusive of
interest and costs, exceeds the sum of $3,000.
In 1947 the defendant, Elie G. Mattar, hereinafter sometimes
referred to as Mattar, and Harry A. Davis, hereinafter called
Davis, formed a partnership in the City of Hot Springs, Arkansas,
which partnership operated under the name of Mattar's Art
Galleries. The partnership operated an "Auction House" and among
other items sold diamonds and jewelry.
Prior to the formation of the partnership, Davis at one time
had worked in Los Angeles, California, and had become acquainted
with the plaintiff, Joe Heller, who operated a wholesale diamond
and jewelry business. After the partnership was formed Davis made
a trip to Los Angeles and made arrangements with Heller for the
purchase of merchandise from Heller by the partnership. Before
shipping any merchandise to the partnership, Heller made
inquiries concerning the financial status of Mattar, and was told
that it was excellent. Heller was of the opinion that Davis was
a very good auctioneer, and therefore he decided to do business
with the partnership.
Some time after the partnership was formed, the partners, Davis
and Mattar, opened another place of business in Blowing Rock,
North Carolina. From May until the middle of September, 1950,
Mattar spent practically all of his time in Blowing Rock, and
Davis was actively in charge and operated the business in Hot
During the months of July and August, 1950, Davis, on behalf of
the partnership, executed four notes payable to Heller, said
notes being issued to cover amounts due Heller by the partnership
for merchandise purchased from Heller. The first note, dated July
29, 1950, was in the sum of $2,508.95 and was due January 20,
1951. On August 31, 1950, three notes were executed, one in the
sum of $1,000, payable December 20, 1950; one in the sum of
$1,425.87, payable February 20, 1951; and one in the sum of
$1,425.87, payable March 20, 1951. These are the four notes sued
upon in the instant case.
On September 20, 1950, upon the return of Mattar from Blowing
Rock to Hot Springs, Davis and Mattar dissolved the partnership.
Under the terms of the dissolution Mattar acquired the business
in Blowing Rock, which was a corporation, and Davis acquired the
business in Hot Springs. Davis and defendant agreed that Davis
would own all the assets and assume all the liabilities of the
Hot Springs business, which had been operated by the partners
under the name of Mattar's Art Galleries. It was also agreed that
Davis would not use the name "Mattar" in the business.
Within a few days after the dissolution Mrs. Catharine Mattar,
who had been the secretary and bookkeeper of the partnership and
who remained as Davis' employee, notified all creditors of the
partnership by mail that the partnership had been dissolved and
that Davis had assumed all liabilities of the partnership. Also,
shortly after the dissolution Davis talked to Heller by long
distance telephone and informed him of the dissolution of the
partnership and of the fact that he, Davis, had assumed all the
liabilities. Davis also told Heller that he was moving to a
larger building and would need additional merchandise.
After the dissolution Davis operated the business in his own
name and defendant had no further connection therewith.
Subsequent to the dissolution Davis' financial condition became
progressively worse, and he was unable to meet various notes as
they became due.
With particular reference to the four notes sued upon herein, the
$1,000 note due December 20, 1950, was not paid on the date due,
but on December 14, 1950, a new note in the same sum was executed
to be due February 20, 1951. The $2,508.98 note, which was due
January 20, 1951, was not paid on the date due. On the same date,
two other notes (not directly involved in this action) in the
respective sums of $1,000 and $1,425.86 became due. The latter
note was paid, but three new notes of $1,193.15, to become due
March 20, 1951, April 20, 1951, and May 20, 1951, were executed
in place of the $2,508.95 note (which is one sued upon) and the
$1,000 note (which is not one sued upon).
On January 19, 1951, apparently after receiving the new notes
above referred to, Heller wrote Davis as follows:
"I received your notes in place of those you
extended. I was very much surprised that you didn't
include the check for the 30th, as you promised when
I spoke to you on the phone.
"You must realize that I need some money, due to
the fact that you usually extend about half of what
is due, but now you extended about three-quarters,
and it put me short, as I figured you would extend
only half, same as usual.
"You promised me faithfully that you would take
care of the balance of the memorandum with a check
for the 30th of this month. I haven't received it.
"Enclosed is a bill. For the memo goods. Please
make out a check immediately and send same to me.
"Thanking you for your cooperation, I remain
On February 5, 1951, Davis executed a check in the sum of $870,
payable to Heller, with a notation on the check "open account in
full to date". Subsequently this check was presented for payment
by Heller and was returned marked "Insufficient Funds".
In the latter part of February, 1951, the remaining two notes
sued upon (each in the sum of $1,425.86, one payable February 20,
1951, and one payable March 20, 1951), together with the four new
notes that had been executed (three in the sum of $1,193.15 each,
and one in the sum of $1,000), made a total indebtedness due
Heller in the sum of $7,431.19 (not counting the $870 check
mentioned in the preceding paragraph).
It was apparent that Davis could not pay these large notes when
due, and in an effort to assist Davis in paying the indebtedness
Heller permitted him to execute 50 postdated checks, 49 in the
sum of $150 and one in the sum of $81.19. The checks were
numbered 795 to 801 and 803 to 845 and were dated at weekly
intervals from March, 1951, to February 8, 1952. Practically all
of the checks bore the notation "pt. pmt. of notes" or "pt. pmt.
of loan". The last check, dated February 8, 1952, bore the
notation "Full Pmt. of Notes Due to date". The total amount of
the checks was $7,431.19, which was the amount due on the
outstanding notes. The checks were given to Heller and kept in
Checks Nos. 795 to 799, inclusive, being in the total sum of
$750, were paid during the period from March 10, 1951, to March
31, 1951, and said amount was credited upon the payment of the
notes. Checks Nos. 800 and 801, dated April 4 and April 11, 1951,
each in the sum of $150, were presented for payment by Heller but
were returned marked "Insufficient Funds".
On April 11, 1951, Davis was adjudged a bankrupt, and
thereafter no further payments were made to Heller by Davis. On
May 17, 1951, Heller filed a proof of claim in the bankruptcy
proceeding, said claim being in the sum of $7,551.19 and being
based upon the unpaid checks executed by Davis payable to Heller.
In response to a request for further information about the
claim, on November 8, 1951, Heller wrote his then attorney, Mr.
Richard W. Hobbs of Hot Springs, as follows:
"In reply to your letter of November 5, I am sending you a
duplicate copy of ...