Frederick v. Nuzum

160 N.W. 65, 38 S.D. 72, 1916 S.D. LEXIS 127

• Court: South Dakota Supreme Court
• Decided: November 21, 1916
• Docket: File No. 3944
• Status: Published

Opinion

McCOY, J.

Tihe defendants Nuzums, as mortgagors, in September, 1909, executed and delivered! to. one Robert Frederick, as mortgagee, .a mortgage upon certain lands in Beadle county, to secure the payment of a note for $2,319, ¡and interest. On the 16th day of October, 1911, it is alleged ¡that ¡said note and mortgage were assigned by ¡said Robert Frederick to his son, E. E. Frederick, die plaintiff in this action. Alleging- that default existed ini the payment of said ¡indebtedness iso secured by said mortgage, ¡the plaintiff instituted ¡this action to foreclose said mortgage against said mortgagors, also making Mary E. Nobles, C. O. Bailey, J. Hi. Voorhees, and H. A. Larsen, as sheriff, defendants as parties claiming some inferior lien or interest in and to said mortgaged real estate. Under issues properly raised 'by the pleadings as between plaintiff and said mortgagors, and upon the evidence submittedi, the trial court, in substance, made the following finding- of fact:

That the defendants. Niuzums 'have no interest in this litigation any further than to see that the note and mortgage are paid and satisfied; that they do not question the validity of said note and mortgage, and1 are ready 'and willing to pay the amount due thereon, and have deposited in good faith with the clerk of the circuit count of Beadle county the sum of $2.829 f'°'r ’that purpose; that said stun was so deposited for the reason that said defendants did not know to whom they should1 lawfully make payment of said sum, inasmuch as E. E. Frederick claims to ibe the owner of said moneys by reason of a pretended 'assignment of said note and mortgage; and! the defendant Mary E. Nobles; claims to be entitled ta said -moneys by reason of the garnishee proceedings ■and levy under execution against Robert Frederick, the original mortgagee.

[1] Judgment was entered, based on this finding, that said mortgage be canceled and satisfied of record. The appellant has assigned' as error the insufficiency of the evidence to sustain, said finding; as it appeared that said mortgagors were acting under, the advice of an attorney, ancl that said attempted levies, .unden garnishment and! execution did not furnish legal -cause for appointment of -a depository -by the court. We are of the opinion that the evidence was amply sufficient to sustain the finding and judgment; that the said mortgagors were .clearly within the provisions of section 98, 'Code of Civil Procedure, authorizing them .to make deposit with the clerk of the court in which action was pending relative to the rights of possession or payment of said moneys'. Under the circumstances disclosed- by this finding this statute itself made and appointed the clerk -of the court the proper 'depository for the moneys without an order of the court 'appointing such depository, and this regardless of whether or not said mortgagors were -acting under advice of counsel. The judgment in favor of said mortgagors decreeing the satisfaction of said note and' mortgage of record is therefore .affirmed.

.The main litigation in this case relates to who is entitled to. the proceeds of said note and mortgage on 'deposit with the cleric. Plaintiff claims the same as assignee of Robert Frederick. Defendant Nobles claims under a judgment against Robert Frederick and garnishment and execution levy upon said proceeds while the same were in the hands of the mortgagors. The count found that a purported1 assignment of said note and mortgage had been made by Robert Frederick to his- son, the plaintiff, on the 16th day of October, 191J, which assignment was 'withheld' from record until the 16IÍ1 day of May, 1914. The defendant Noble» contends, and the court so found, that .said assignment was merely colorable, and made without consideration, for the fraudulent purpose of 'hindering, delaying, and defrauding the creditors of Robert Frederick, and particularly the judgment creditor, the defendant Nobles. It appears from the record, and the court so found, that defendant Nlobles commenced an action against said Robert Fredrick in the circuit court of Minnehaha county on the 12th day of November, 1910; that on May 19, 1911, judgment was recovered in said action against Robert Fredrick in an amount which, with interest, exceeds the amount on deposit with the clerk as the proceeds of said note and mortgage; that shortly after the entry of said judgment said Robert Frederick transferred to his son, the plaintiff in this oase, without consideration, all his property that could have been successfully reached by execution, the said property consisting of cash, capital stock in corporations, and secured notes ánd mortgages, including' the Nuzum note and mortgage, and all amounting' to about $45,000. We are of the opinion that the evidence sustains these finding's.

[2] One of the maxims of equity is ¡that, “He who has fraudulently dispossessed himself of a thing may be treated as. if he still had possession.” Civ. Code, § 2417. If, as found ■b)'’ the learned trial court, the assignment from Robert Frederick to plaintiff was merely colorable, without consideration, and made for the purpose of hindering, delaying, and defrauding the defendant Nobles in- the collection of said judgment, -then such fraud rendered wholly void said assignment, and still left the debt evidenced by said Nuzum note and mortgage the subject of levy under the judgment against Robert Frederick.

There appears to have been garnishee proceedings, under chapter 156, Laws of 1909, in aid of execution instituted soon after the entry of the judgment against Robert Frederick, and garnishee summons and notice served -upon said mortgagors, but we are of the view that, if the note sought to be reached was negotiable, then, under section 18 of diopter 156, Laws of 1909, this garnishment process was wholly ineffectual for any purpose and is a matter of surplusagé so far os the determination of the questions on this appeal are concerned. The said judgment was filed and docketed in the office of the clerk of the circuit court of Beadle county on the 24th 'day of January, 1912; and on the iSUh day of June, 1914, execution, was issued on said judgment, and on June 19th next following a purported levy was- made on the said indebtedness from said mortgagors Nuzums to Robert Frederick; and the following is the substance of the notice of levy served upion said mortgagors under said execution by the sheriff having such execution:

To Robert Frederick, the Defendant, and to M. L. Nuzum and Elizabeth Nuzum:

You are hereby notified that -under and by virtue of an execution issued in the above-entitled action and now in my hands I have levied upon all the property of every kind belonging- to Robert Frederick now in yioimr possession or under your control, including all chases in action or any debt or 'debts which may be due the said Robert Frederick from you, and particularly the sum of $2,729 due and owing by you to said Robert Frederick secured by a certain mortgage dated September 15, 1909. You are further notified that, while an assignment of said mortgage dated October 16, 1911, from Robert Frederick to E. E. Frederick, was recorded on the 14th day of May, 1914, in the office of register of deeds of Beadle county, that nevertheless the same is merely a pretended assignment made for the purpose of 'hindering-, delaying, and! defrauding the creditors of said Robert Frederick, and is null and! void as against the .plaintiff in said action. You are further notified that the plaintiff Mary Nobles claims that said mortgage and the indebtedness secured thereby is the property of Robert Frederick, land by virtue of said execution I hereby levy upon said indebtedhes so due from you to said Robert Frederick, and demand that you return over to me the said $2,729, and that you furnish me with a certificate stating the 'amount due and owing by you to-said Robert Frederick.

Thereafter the said mortgagors delivered to the said sheriff a certificate containing in substance the following:

To the Sheriff of Beadle County:

An execution - haying 'been issued1 and a levy having ‘been made .thereunder upon certain, moneys in our hands aggregating $2,319, and 'interest, due on a note and mortgage given by.us to Robert Frederick and 'claimed! to have been assigned to E. E. Frederick, anidi it being claimed by Mary Nobles that said assignment is fraudulent and: void, and that 'both said' E. E. Frederick and Mary Nobles are now claiming1 said indebtedness, and while wé are ready and wiiMing to ¡pay said sum, we do not know who is entitled 'thereto, and therefore 'do not know to whom to make payment, and we have deposited the amount of said indebtedness with the clerk of the circuit court for the benefit of the person who may be adjudged entitled thereto.

AH these matters relating to tire fraudulent character of the assignment of the note and mortgage, the recovery of the judgment by defendant Nobles against Robert Frederick, and the issuance of execution and levy thereunder were alleged1 in the answer of the defendants Nobles, Bailey, Voodiees, and Rarsen; the defendants Bailey and1 Voodiees having filed an attorney’s lien against the said judgment in favor of the defendant Nobles.

[3] The appellant contends that no legal levy was ever made upon the proceeds, of -said- note and mortgage; that a lien upon a note and) mortgage cannot be obtained b)r service of notice of levy under execution, iby serving Itfae notice upon the maker of the note, without the note itself being taken into possession by the sheriff. Strictly speaking, the levy in question was made upon the debt due from the makers to the payee, Robert Frederick, rather than on the note evidencing1 such debt. Section 336, Code Civ. Proc., authorizes a levy upon a debt as well as upon; a note or credit. The notice of levy under the execution, served upon the mortgagors, die makers, constituted sufficient and legal levy upon die debt, if the debt was one subject to levy. Black Hills Brewing Co., v. Insurance Co., 35 S. D. 130, 151 N. W. 44; Freeman on Executions, § 262 a. We are of die opinion that under statutes like that in diis state, and under the circumstances of die case, die debt may be levied upon, and held', although such debt may be evidenced by a negotiable note. True, the note may be levied: upon where die sheriff can get possession of it, but where he cannot obtain possession of the note, lie may levy upon the debt, and such levy will be sustained in cases, where, at the time of judgment under which such levy is1 sought to be enforced, it appears that there was no possibility of the note finding1 its way into the hands of an innocent purchaser. Hutcheson v. King, 37 Tex. Civ. App. 151, 83 S. W. 215. Under what seems to be die weight of authority a levy cannot be sustained, and the garnishee maker of ¡the moite cannot Ibe required to pay the debt where there is an outstanding negotiable note evidencing such debt that may find ¿its way into the hands of an innocent purchaser. Daniel, Neg. Inst. § 8ooa. Drake on Attachment, §§ 584 and 597. But ■where, as under the circumstances1 of this case, at the time of judgment it appears that the note was past due, and1 still the property of the original payee, and brought into court 'by the plaintiff, who is found to be the fraudulent possessor thereof, under circumstances . where the original payee will be treated as- still having possession thereof, the levy will1 be sustained. Under the circumstances of this case the possibility could not exist ioif said note being outstanding and in the hands of an innocent purchaser. At the .time findings were made and judgment rendered in this action sustaining said levies the court found circumstances showing that Robert Frederick had fraudulently dispossessed himself of said note by fraudulently assigning Itihe same to plaintiff with intent toi defraud the defendant Nobles; that the said Robert Frederick had been a resident of tíre state of Iowa, and the plaintiff had been, a resident of the state of California; that said note -had always ¡been either in the possession of said Robert Frederick or the plaintiff; that a vary short time prior h> the levy under execution the assignment of said note and mortgage to plaintiff was placed on record and plaintiff, as sudu assignee, caused to he commenced the foreclosure of. said mortgage, ¡by advertisement, as the owner of s'aid note, then claiming said note to be past due and unpaid, and on the trial the plaintiff brought said note into court. These facts conclusively show that at the time said levy was made the said note was not in the 'hands of an innocent purchaser. Under these circumstances we are of the view that the lev)' on the debt in question was legal and valid.

[4] Appellant further contends that 'defendant Nobles, not having a specific lien on the note and mortgage in question, was not in 'a .position to attack the transfer thereof 'from Robert Frederick to plaintiff. We are of the opinion that this contention is not tenable. We are of the view that the levy under the execution gave to said defendant sufficient interest in the debt or proceeds of said note and mortgage to maintain the defense interposed. A levy upon a debt, by serving notice upon the debtor, is a levy upon property incapable of manual delivery, and, whether the procedure be by attachment, garnishment, or under an execu-■tiicn, all are so 'analogous in nature iamd design that the principle or rule as1 to the effect of the levy is generally the same. It is the means by ■which a third person is warned not to pay the money or deliver the property of the defendant in his hands tO' the defendant. This procedure of warning- a-third’ party by notice not to 'deliver property or pay money to the defendant is called, and is, garnishment, whether made under execution, attachment, or garnishment process. Thompson, Pro. Rem. p>. 419; Drake, Attachment, § 451. Section 217, Code Civ. P'roc., authorizes such procedure under an execution. Such service of notice upon the third! party under an execution is an effectual attachment or garnishment of the property or 'debt in the hands of such third party, differing in no essential respect from any ordinary levy, except that the plaintiff on whose behalf such levy is made does not acquire a clear and full lien upon the specific property in the ■third party's possession, !but only such a lien as gives him the night to hold tíre garnishee personally liable therefor. Prom the time of such warning or garnishment the effects in the garnishee’s hands are considered in the custody of the law, and the garnishee is hound toi keep' them in safety. The defendant’s rights in the property is so far extinguished as to prevent his making any disposition of it which would interfere with its subjection to the payment of plaintiff’s demand, when that shall have been legally perfected. Thompson on Piro. Rem. pp. 419, 420; Drake on Attachment, § 453. Where the levy is made under an execution, as in this case, and the garnishment plaintiff has' already perfected and adjudicated his 'demands, such plaintiff, who has made a valid levy under execution upon a debt in the hands of a third party, stands in like position as one having levied upon tangible property which he has the right to subject toi the payment of his judgment. Now, the plaintiff in this case ’by foreclosure action is seeking- to subject the proceeds of the same debt, the same obligation, to the satisfaction of the note and mortgage under an alleged1 assignment thereof from the execution debtor. The defendant Nobles basi interposed the defense that she is entitled to’ subject the -said proceeds, by virtue of and under said levy, to the payment of her judgment against the said assignor of said note and mort- • gage, on the 'ground that said assignment i© void for the reason that the same was made to binder, delay, and1 defraud 'her in the collection of said judgment. The defendant Nobles was brought into this action at the instance of plaintiff and required to show her interest, if any she had, in the subject-matter of the action. Under these circumstances we are of the opinion that the defendant Nobles was in a position to attack the -said assignment of said n. te and1 mortgage. The said Robert Frederick is not a necessary party to this action. If the note and mortgage transfer to plaintiff was valid, he has no "interest in the subject-matter. The transfer being held void, the question of the subjection of the proceeds of the note and mortgage to the payment of the Nobles judgment is a -matter to be considered in that action. The defense interposed in this action does mot stand on the same footing in all respects as a creditors’ bill for discovery or subjection of property to the payment of judgment liens. Under the -creditors’ bill the plaintiff must make a certain showing in order to- invoke the aid of equity, in order to- get into the equity dourt; but in this case the defendant Nobles is brought into this equity -case by plaintiff, and attacks the assignment as a matter of -defense for the purpose o-f showing that said Robert Frederick fraudulently -dispossessed himself of his interest in said note and mortgage.

All assignments -o-f error have been carefully considered. Finding no error in the recioir-d, the judgment and -order appealed from -are affirmed.