Union Colony Bank v. United Bank of Greeley National Ass'n

832 P.2d 1112, 1992 Colo. LEXIS 440, 1992 WL 102405
CourtColorado Court of Appeals
DecidedMay 14, 1992
Docket91CA0434
StatusPublished
Cited by11 cases

This text of 832 P.2d 1112 (Union Colony Bank v. United Bank of Greeley National Ass'n) is published on Counsel Stack Legal Research, covering Colorado Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Union Colony Bank v. United Bank of Greeley National Ass'n, 832 P.2d 1112, 1992 Colo. LEXIS 440, 1992 WL 102405 (Colo. Ct. App. 1992).

Opinions

Opinion by

Judge SMITH.

Plaintiff, Union Colony Bank (Union Colony), appeals the trial court’s charging order apportioning the interest of judgment debtor, Stanley Davis (Davis), in a partnership known as Wilshire Land Company (Wilshire) between Union Colony and United Bank of Greeley (United Bank). We reverse.

Union Colony and United Bank are unsecured judgment creditors of Davis, and this appeal arises out of their conflicting claims of priority to Davis’ partnership interest in Wilshire. The facts are not in dispute.

United Bank and Union Colony sought judgments in separate lawsuits against Davis. On April 12, 1990, United Bank obtained a judgment for approximately $119,800. In an attempt to satisfy this judgment, in late April and, again, in early May, United Bank served a writ of garnishment on Wilshire. Wilshire answered both writs, denying that it held any funds which belonged to Davis. It further averred that [1114]*1114Davis held a 6.16% interest in the partnership.

On May 30, United Bank filed a motion, requesting that the court charge Davis’ partnership interest in Wilshire with the amount of the still unsatisfied judgment. United Bank further requested that the order be made effective as of April 30, 1990, the date the first writ of garnishment had been served on Wilshire.

In the meantime, Union Colony had obtained its judgment of $48,400 against Davis on May 22, 1990. And, simultaneously with the judgment, the bank sought, and upon waiver by debtor of the 15-day requirement, obtained a charging order against Davis’ partnership interest in Wilshire.

In June 1990, the trial court entered an order in response to United Bank’s motion, charging Davis’ partnership interest in Wil-shire. The court entered this order nunc pro tunc as of April 30, 1990.

Wilshire, because of the apparent inconsistencies between the two charging orders, filed a motion under C.R.C.P. 22 and 24 offering to deposit with the court any money it received attributable to Davis’ partnership interest and requesting the court for leave to intervene and to consolidate the two lawsuits.

The trial court granted Wilshire’s motion for intervention and consolidated the two lawsuits for the sole purpose of determining the priority of the charging orders. Ultimately, the trial court ruled that United Bank and Union Colony should share pro rata in each of Davis’ future partnership distributions in accordance with the respective amounts of their judgments until such judgments were satisfied.

I.

Union Colony contends that the trial court erred in pro-rating Davis’ partnership interests between the two judgment creditors. We agree.

The charging orders were issued pursuant to § 7-60-128, C.R.S. (1986 Repl.Vol. 3A) of the Uniform Partnership Act (UPA). This statute provides in relevant part:

On due application to a court of competent jurisdiction by any judgment creditor of a partner, the court which entered the judgment, order, or decree, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of the judgment with interest thereon; and may then or later appoint a receiver of his share of the profits and of any other money due or to fall due to him in respect of the partnership and make all other orders, directions, accounts, and inquiries which the debtor partner might have made, or which the circumstances of the case may require, (emphasis added)

The parties agree that neither this statute nor, indeed, any other provision of the UPA detail the priorities to be given to multiple judgment creditors who obtain charging orders directed to the same partnership interest. Union Colony asserts that the method of determining priority of charging orders should be consistent with the method of determining priority among judgment creditors who seek execution on other kinds of personal property. United Bank argues that equity supports the trial court’s decision to apportion any proceeds from Davis’ partnership interest between the two creditors.

The priority of competing charging orders is a question of first impression in Colorado. For the reasons stated below, we adopt the position asserted by Union Colony.

The charging order represents, essentially, an outgrowth of the more disruptive post-judgment remedy of execution against partnership assets to satisfy a personal debt of a partner. In short, the common law had no procedure to seize a partner’s interest in the partnership, that is, his intangible share in the business of the firm or, as later defined under the UPA, his distributive share of the partnership’s profits and surplus. See § 7-60-126, C.R.S. (1986 Repl.Vol. 3A). In order to reach this valuable interest, tangible partnership property was seized and sold, disrupting the partnership and forcing it into dissolution.

[1115]*1115These consequences were unfair to the non-debtor partners. And, because it impaired intangible aspects of the partnership such as good will, the consequences were, in addition, harmful to the value of the partnership interest which the creditor sought to reach. Thus, the charging order evolved as a way to divert the debtor partner’s share of the partnership profits and surplus to his creditor without disrupting the on-going partnership. Gose, The Charging Order Under the Uniform Partnership Act, 28 Wash.L.Rev. 1 (1953).

Accordingly, the charging order operates, in effect, as a substitute for execution. And, we conclude, as did the Florida Court of Appeals in Krauth v. First Continental Dev-Con, Inc., 351 So.2d 1106 (Fla.App.1977) that:

It ... seems logical that, in the absence of precedent or statute to the contrary, the method of apportioning payment to judgment creditors from a partnership interest should be parallel to the method of determining priority among judgment creditors seeking execution on other kinds of personal property.

In Colorado, as to personal property, a writ of execution constitutes a lien upon the property which attaches when the writ is delivered to the sheriff. Joslin v. Spangler, 13 Colo. 491, 22 P. 804 (1889). Moreover, this lien has priority over other liens subsequently delivered. Robinson v. Wright, 90 Colo. 417, 9 P.2d 618 (1932).

Applying the foregoing principles of execution to charging orders, we hold that each charging order creates a lien upon a debtor partner’s interest in the partnership, to wit, his distributive share of partnership’s profits and surplus. We further hold that the lien attaches at the time the order is served upon the partnership. And, upon attachment, the charging order has priority, for full satisfaction of the creditor’s judgment, over any other charging order subsequently served upon the partnership, regardless of the order in which the judgments were entered and the previous efforts, if any, made by the creditor to satisfy the judgment by other means. See Krauth, supra.

We disagree, moreover, that equity would favor the pro rata distribution imposed by the trial court here. The charging order is a post-judgment remedy. Hence, unlike pre-trial attachment, the rationale for which is preservation of property when pro rata distribution among creditors who intervene prior to final judgment is authorized, see C.R.C.P.

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Union Colony Bank v. United Bank of Greeley National Ass'n
832 P.2d 1112 (Colorado Court of Appeals, 1992)

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Bluebook (online)
832 P.2d 1112, 1992 Colo. LEXIS 440, 1992 WL 102405, Counsel Stack Legal Research, https://law.counselstack.com/opinion/union-colony-bank-v-united-bank-of-greeley-national-assn-coloctapp-1992.