Spitzer v. Barnhill, 237 Ark. 525

George Bose Smith, J. In this case the question which has given us the greatest concern is whether a chancery court, after having taken jurisdiction of a suit to restrain a tort defendant from denuding himself of Ms property, must then, as a matter of giving complete relief, retain jurisdiction and hear the common-law tort action on its merits. On April 29, 1963, a collision occurred near Corning, assertedly as a result of drunken driving on the part of the appellee Boy C. Barnhill. The appellant was seriously injured, her husband was killed, and others in the car were also injured.

As a result of the accident civil actions for damages totaling $217,000 were later filed against Barnhill. He was also charged with manslaughter and other criminal offenses. At the time of the collision either Barnhill alone or he and his wife owned a combined restaurant and service station north of Corning. Within a few days Barnhill, while still in the hospital, sent for Clifford Cole, a gasoline and oil dealer, and began negotiating a sale of the property. On May 10, eleven days after the collision, the Barnhills and the Coles entered into a contract by which the Coles bought the property for $30,000.

When the appellant learned that Barnhill ivas apparently disposing of his assets she filed the present suit to enjoin him from transferring his property except in the normal course of business. At the inception of the case the chancellor issued a temporary restraining order in accordance with the prayer of the complaint. Later on the appellant ammended her complaint to assert also her cause of action in tort for her husband’s death and for her own injuries. A preliminary hearing ivas held on the question-whether the restraining order should be continued in force.

The chancellor decided that the order ought to be dissolved, though he permitted it to remain in effect pending this appeal under Ark. Stat. Ann. 27-2102 (Repl. 1962). The first issue is whether the chancellor ivas right in holding that the proof failed to show that Barnhill ivas insolvent and had made conveyances in fraud of his creditors. We think the chancellor abused his discretion in directing that the restraining order be dissolved. It appears that of the original $30,000 purchase price Barnhill at fix’st received $18,000 in cash and a note and mortgage for $10,500.

The other $1,500, which was to be payment for the personal property and fixtures, was put in escrow in a bank pending compliance with the Bulk Sales Law. On May 25, the same day that Barnhill ivas served with a summons in the present case, he converted the $10,500 note into cash by means of a $2,000 discount agreement with the Coles. Barnhill at once denuded himself of all the proceeds of sale. He paid a number of outstanding debts. He used $2,400 in prepaying for several years the premiums upon a life insurance policy in which, his wife was named as beneficiary. He paid off a $6,000 mortgage to his father.

He made prepayments totaling $860 upon the mortgage on his house. He spent more than $1,500 upon hospital and medical bills owed by his mother-in-law. When, after all his disbursements, he still had some $12,000 in cash, he gave it to his wife. He admits that since then he has obtained money from her when he needs it. In our opinion the decided weight of the proof shows that, at the time of the hearing upon the matter of continuing the restraining order in force, Barnhill’s financial condition had already deteriorated beyond the point of insolvency.

The chancellor’s decision to dissolve the restraining order was an abuse of discretion that must be set aside. The remaining issue is the serious one in the case. Upon terminating the preliminary restraining order the chancellor directed that the cause be transferred to the circuit court for trial of the tort action. The appellant, citing Horstmann v. LaFargue, 140 Ark. 558, 215 S. W. 729, maintains that we should now require the chancellor to retain jurisdiction of the tort claim and hear the case upon its merits in equity. The opinion in the Horstmann case undeniably supports the appellant’s position.

There the plaintiff brought suit in the chancery court to set aside fraudulent conveyances and to recover damages for personal injuries. The defendants challenged the jurisdiction of equity.

In upholding the chancellor’s action in hearing and determining the tort claim we relied upon this statute: “In suits to set aside fraudulent conveyances and to obtain equitable garnishments, it shall not be necessary for the plaintiff to obtain judgment at law in order to prove insolvency, but in such cases insolvency may be proved by any competent testimony, so that only one suit shall be necessary in order to obtain the proper relief.” Ark. Stat. Ann. § 68-1308 (Repl. 1957).

We reasoned that under this statute it was the duty of the chancellor to hear the tort action in order to afford complete relief in one proceeding. Upon reconsidering the matter we are convinced that our conclusion in the Horstmcmn case was wrong. Before the adoption of the statute in question it was necessary for a plaintiff to obtain a judgment at law before he could bring suit in equity to avoid a fraudulent conveyance.

We think it clear that the statute was concerned only with the avoidance of fraudulent conveyances and was intended only to permit the plaintiff to obtain that relief (described in the act as “the proper relief”) in a single suit. If the legislature had intended to bring about such a drastic change in our law as that of permitting personal injury actions to be tried in equity as a matter of right, we think that intention would have been stated in language too plain to be misunderstood. It certainly was not so stated. This question was considered in Jones v. Jones, 79 Miss. 261, 30 So. 651.

There the plaintiff attempted to maintain in equity a suit for personal injuries, relying upon statutes that permitted a creditor to attack a fraudulent conveyance without having first obtained a judgment at law. In summarily rejecting this novel contention the court said: “It was never the contemplation of the statutes invoked by appellant to authorize chancery courts to take cognizance of a suit for unliquidated damages arising out of a tort before there has been any judgment at law ascertaining the damages, the defendant being within the jurisdiction of the court.” See also Dowling v.

Garner, 195 Ala. 493, 70 So. 150. It is our conclusion that upon this point the holding in the Horstmann case must be disapproved. The decree is reversed and the cause remanded with directions that the restraining order be reinstated and that the tort action be transferred to law. McFaddin, J., dissents.