Caldwell Backing & T. Co. v. Porter , 52 Or. 318 ( 1908 )

Opinion by

Mr. Chief Justice Bean.

1. The defendant’s motion to dismiss the proceeding and discharge the garnishee from liability because of the failure of plaintiff to appear at the time and place mentioned in the order requiring the garnishee to appear and be examined on oath concerning the matters stated in its answer to the garnishee process, was waived by defendant. It subsequently answered, and proceeded to trial without objection, and without asking or requesting a ruling on the motion.

2. Nor is there ány merit in the objection made at the opening of the case to the admission of any testimony because plaintiff’s remedy is in equity and not at law. All the property of a defendant not exempt from execution is liable to attachment (Section 800, B. & C. Comp.), and this includes money and credits.

3. If the garnishee bank was indebted to the partnership of Porter, Jones & Test, or that firm had a balance to its credit on the books of the bank, at the time the garnishee process was served, it was liable to seizure under an attachment in the action brought by plaintiff against the firm, and, if the answer of the bank was not satisfactory to plaintiff, it had a right to proceed in the manner provided by statute. A proceeding against a garnishee on an attachment or execution issued in an action at law is in no sense equitable, but strictly at law, and the pleadings are framed and issues of fact arising thereon tried as in ordinary law actions. Case v. Noyes, 16 Or. 329 (19 Pac. 104) ; Smith v. Conrad, 23 Or. 206 (31 Pac. 398).

4. It is contended that defendant’s motion for a non-suit should have been sustained because plaintiff did not prove the commencement of an action by it against Porter, Jones & Test, or the issuance and service of an attachment therein, or the answer of the garnishee to such attachment, or that a judgment had been rendered in favor of plaintiff in such action. Plaintiff offered in evidence the pleadings and record in the action referred to, which would have furnished the proof suggested, but-they were ruled out by the court on an objection of defendant, and it would seem that it ought not be permitted to take advantage of a failure of proof in this respect. The ruling of the court was probably based on the theory, that proceedings against a garnishee are auxiliary to the action in which the attachment was issued, and therefore the court will take judicial knowledge of the proceeding in such action without proof, and there are many authorities which support this view. State v. Bates, 22 Utah, 65 (61 Pac. 905 :83 Am. St. Rep. 768) ; Kenosha Stove Co. v. Shedd, 82 Iowa, 540 (48 N. W. 933) ; Hollenbach v. Schnabel, 101 Cal. 312 (35 Pac. 872: 40 Am. Rep. 57) ; Flood v. Libby, 38 Wash. 366 (80 Pac. 533: 107 Am. St. Rep. 851) ; Farrar v. Bates, 55 Tex. 193; Farrington v. Sexton, 43 Mich. 454 (5 N. W. 654) ; S. E. Olson Co. v. Brady, 76 Minn. 8 (78 N. W. 864); Morrison v. Hilburn & Poole, 126 Ga. 114 (54 S. E. 938). But whatever the true rule may be in this regard, defendant specified particularly the grounds of its motion for a nonsuit', which do not include the point now made, and it is the law that the grounds stated in such a motion are conclusive upon the moving party, both at trial and in an appellate court, and that he cannot raise for the first time on appeal a ground of nonsuit not stated below. 6 Enc. Pleading & Practice, 879; Meier v. Northern Pac. R. R. Co., 51 Or. 69 (93 Pac. 691).

5.' It is also claimed that the court erred in directing a verdict in favor of plaintiff at the close of the testimony. This depends upon whether the garnishee bank had the right, as against the partnership of Porter, Jones & Test, to charge to the firm account the notes held by it against the individual members of the firm. Plaintiff, by virtue of the attachment, was subrogated to the rights of the firm against the bank, and is entitled to recover against it, if the firm could have done so at the time the attachment was served. Keene v. Smith, 44 Or. 525 (75 Pac. 1065).

6. Simple contract partnership creditors have no lien in their own right upon partnership assets which will prevent the partners, while the property is under their control, from in good faith applying it to the payment of the individual debts of the members of the firm or otherwise disposing of it. Stahl v. Osmers, 31 Or. 199 (49 Pac. 958) ; First National Bank of Indianola v. Brubaker, 128 Iowa, 587 (105 N. W. 116: 2 L. R. A. (N. S.) 256: 111 Am. St. Rep. 209) ; Pepper v. Peek, 17 R. I. 55 (20 Atl. 16) ; Carver Gin & Machine Co. v. Bannon, 85 Tenn. 712 (4 S. W. 831: 4 Am. Rep. 803); Woodmansie v. Holcomb, 34 Kan. 35 (6 Pac. 603); National Bank of the Metropolis v. Sprague, 20 N. J. Eq. 13; Smith v. Smith, 43 Am. Rep. 359, 364, note. But the partners have a lien on such property for the payment of the partnership debts, or for the surplus due each partner, and therefore one partner cannot appropriate the property to the payment of his individual debts without the consent of all the other partners. Such a payment is regarded in law as a misapplication of the assets of the firm and a fraud upon the rights of co-partners, and, if the individual creditor has knowledge of the fact, the property may, according to the weight of authority, although there is some conflict in the decisions, . be recovered in an action at law in the name of the firm, or by a creditor succeeding to its rights by attachment or garnishment. Johnson v. Hersey, 70 Me. 74 (35 Am. Rep. 303) ; Coote & Jones v. Bank of United States, 3 Cranch, C. C. 95, Fed. Cas. No. 3,204; Davies v. Atkinson, 7 Am. Rep. 373, 377; note; Cannon v. Lindsey, 85 Ala. 198 (3 South. 676: 7 Am. Rep. 38); Rogers V. Batchelor, 12 Pet. (U. S.) 221 (9 L. Ed. 1063) ; Johnson & Pitt v. Crichton, 56 Md. 108; Davies v. Atkinson, 124 Ill. 474 (16 N. E. 899) ; Cotzhausen v. Judd, 43 Wis. 213 (28 Am. Rep. 539) ; Viles v. Bangs, 36 Wis. 131; Howell & Gibson V. Sewing Machine Co., 12 Neb. 177 (10 N. W. 700) ; Brickett v. Downs, 163 Mass. 70 (39 N. E. 776) ; Locke v. Lewis, 124 Mass. 1 (26 Am. Rep. 631).

7. It is undisputed that at the time the garnishee bank charged up to the firm account the notes of the individual members, it knew the character of the obligations. Its act was therefore prima facie invalid as against the partnership and its creditors, and the burden of proof was on the bank to show that it made such charge with the assent, express or implied, of all the partners. Coote & Jones v. Bank of United States, 3 Cranch, C. C. 95, Fed. Cas. No. 3,204; Willis V. Holmes, 28 Or. 265 (42 Pac. 989).

8. We have read the entire testimony, and do not find any evidence that all the partners consented or agreed that the individual debts of'the members of the firm should be paid from the firm assets. There is testimony that each partner, when pressed for payment of his individual debt, stated that it would be paid when the sheep belonging to the partnership were sold. But there is no testimony that .any of the partners, except perhaps Test, agreed or consented to the payment of the individual notes of his co-partners out of such fund. Mr. Alexander, president of the bank, and Mr. Kenyon, cashier, were the two witnesses who testified in regard to the matter. Kenyon says that when the deposit was made by Porter, the bank held the partnership notes amounting to about $14,000, and the individual notes of the members of the firm amounting to $7,008.85, all of which were charged to the partnership account, leaving a balance of $2,035.02, and he (witness) charged off the individual notes because they were past due, and it was the understanding with the partners that the bank was to have its money when the sheep were sold; that the question of the payment of the individual notes had often come up for consideration, and Test had at all times assured the bank, that as soon as the sheep were sold it would get its money on them as well as those of the firm; that he had a conversation with Test in July, 1906, and told him the directors were dissatisfied with the amount of indebtedness and wanted security by mortgage on the sheep; that Test would not give the mortgage, but said, “We expect to sell this property in a short time, and when this property is sold, you shall have your money”; that the individual notes had always been regarded by the bank as partnership indebtedness, and interest thereon was from time to time charged to the partnership account, and a statement rendered to the firm; that at one time Test paid the interest on Jones’ note by a firm check; that at another time Test asked witness to request Porter to pay his note, as he seemed disinclined to sell the sheep, and that a short time after-wards, witness saw Porter and inquired when he would be able to pay his note, and he said he could not pay it then, but as soon “as we sell the sheep you shall get your money”; that the next day after the notes had been charged off, the president of the bank and witness had a conversation-with Test concerning the matter, and Mr. Alexander said to him, “You know that it was the understanding all the time that this indebtedness was to be paid when the sheep were sold,” and Test replied, “I have never denied that, but we cannot pay our individual notes until the company’s debts are paid,” and that he would not consent to paying the individual notes, because it might involve them in a lawsuit; that on the next day after the money had been deposited in the bank by Porter, Test came in and told witness he had better charge up the notes for he (Test) was about to be sued and attached, but no particular notes were mentioned at that time; that on the 1st or 2d of October Jones came into the bank and got his note, “I guess it is paid, and I am entitled to it”; that Porter came in and got his note after the garnishment had been served, and Test’s notes were mailed to him, and none of such notes have ever been returned. Mr. Alexander said that on one occasion he had a conversation with Mr. Test about the Porter notes, and Test told him that they were partners in the sheep business, and when the sheep were sold, the firm would pay the notes from the proceeds of the sale; that he had other conversations with Test about the individual notes, and it was understood that they would be taken care of by the firm and paid when the sheep were sold; that he had a conversation with Jones in May, 1906, in which he expressed a fear that enough would not be. realized from the sheep to pay the partnership and individual notes, and Jones assured him that there would be sufficient for that purpose, and he (witness) told Jones, that if he would get a letter from Test to that effect, the bank would wait, and the payment of Jones’ note was extended with that understanding; that it had been the custom of the bank to charge the interest due on the individual notes to the, firm account. This is all the testimony concerning the right of the bank to charge to the firm account the notes of the individual members, and it is clearly insufficient to show that such charge was made with the consent of all the members of the firm. There is no testimony whatever that Porter or Jones agreed or consented that the notes of Test should be paid from the partnership assets, or that either agreed that the note of the other should be so paid. All that can be reasonably claimed from the testimony is that each partner, when pressed for payment of his own note, stated to the bank that it would be paid as soon as the property belonging to the firm could be sold, but this amounts to nothing more than the assurance that each partner would pay his own indebtedness from the surplus due him after the partnership affairs were settled, and not that such assets should be used for the payment of the individual debts of the

[97 Pav. 541.]

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members of the firm. There is no testimony showing a direct promise by either one or more of the partners that the firm would pay or assume the individual debts. The tenor of the whole testimony is that each partner expected, when the sheep were sold, that there would be enough money to pay all the firm debts and leave a balance coming to the respective partners sufficient to pay their individual debts.

We conclude, therefore, that within the settled rule of law the defendant did not make out such a case as will entitle it to charge to the firm account, the individual notes of the members of the firm, and that the court below was right in directing a verdict in favor of the plaintiff. The verdict in this case was returned on the 1st day of May, 1907, but the judgment entry, which was made on the 4th, recites that it is based on a verdict returned on the 2d, but this was manifestly a clearly clerical error which could affect no substantial right of the defendant, or is no ground for a reversal of the judgment. Finding no error in the record, the judgment is affirmed. . Affirmed.

Mr. Commissioner King, having been of counsel in the court below, took no part in this decision.