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November 28, 1955


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 respective parties.

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.

Findings of Fact


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 Springs.


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.

On January 19, 1951, apparently after receiving the new notes above referred to, Heller wrote Davis as follows:

"Dear Harry:

    "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

"Sincerely yours,

"(Signed) Joe Heller"

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 his possession.

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:

"Dear Mr. Hobbs:

"Re: Harry A. Davis

"In reply to your letter of November 5, I am sending you a duplicate copy of ...

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