Austin-Nichols & Co., Inc. v. Union Trust Co., Garnishee

• Citation: 137 A. 461,289 Pa. 341
• Decision Date: 11 April 1927
• Docket Number: 53
• Parties: Austin-Nichols & Co., Inc., Appellant, v. Union Trust Co., Garnishee et al
• Court: United States State Supreme Court of Pennsylvania

137 A. 461

289 Pa. 341

Austin-Nichols & Co., Inc., Appellant, v. Union Trust Co., Garnishee et al

No. 53

Supreme Court of Pennsylvania

April 11, 1927

Argued March 16, 1927

Appeal, No. 53, March T., 1927, by plaintiff, from order of C.P. Allegheny Co., Oct. T., 1926, No. 1565, discharging rule for judgment in part, in case of Austin-Nichols & Co., Inc. v. The Union Trust Co. Affirmed.

Foreign attachment in assumpsit.

Rule for judgment against garnishee on answers for the sum of $28,511.80. Before FORD, J.

The opinion of the Supreme Court states the facts.

Rule absolute as to the sum of $3,790.02, and discharged as to plaintiff's claim in excess of that amount. Plaintiff appealed.

Error assigned was order, quoting record.

The order of the court below is affirmed at the cost of appellant.

Elverton H. Wicks, with him Morris, Walker & Boyle, for appellant. -- Although denominated a "trust fund" in the agreement creating it, this $51,000 fund is but a deposit by the coal company for a particular purpose: is in effect for the exclusive benefit of the depositor, and is to be paid back to depositor on its certain demand. It is therefore attachable in liquidation of a judgment against the depositor: Ashhurst's App., 60 Pa. 290; Erb v. Banco di Napoli, 243 N.Y. 45.

By the terms of this agreement the fund thus deposited is for the real benefit and use of the settlor and is, therefore, not beyond the reach of his creditors: Nolan v. Nolan, 218 Pa. 135; Keyser v. Mitchell, 67 Pa. 473; Brooks's Est., 140 Pa. 84; McAllister v Marshall, 6 Binn. 338; Johnston v. Harvy, 2 P. & W. 82.

Even admitting, for the sake of argument, that this agreement is in the nature of a trust, nevertheless, since it imposes no active duty on the trust company it resolves itself into a dry, passive or simple trust agreement which becomes executed by the statute of uses into the coal company and is, therefore, subject to this attachment: Vaux v. Parke, 7 W. & S. 19; Arnold v. Harper, 4 Sadler 126; Yarnall's App., 70 Pa. 335; Ogden's App., 70 Pa. 501; Enderiss v. Harkness, 3 W.N.C. 366; Harkinson v. Bacon, 3 W.N.C. 403; Kay v. Scates, 37 Pa. 31.

William F. Knox, of Moorhead & Knox, with him Reed, Smith, Shaw & McClay, for appellee. -- An attaching creditor stands in the shoes of the defendant in the attachment and cannot acquire any greater rights against the garnishee than was possessed by said defendant: Reed v. Penrose, 36 Pa. 214; Fessler v. Ellis, 40 Pa. 248; Lane's App., 105 Pa. 49; Jarecki Mfg. Co. v. Hart Bros., 5 Pa. Superior Ct. 422; Willis v. Curtze, 203 Pa. 111; Reichner v. Reichner, 237 Pa. 540; Benedict & Eberle v. Hollman, 68, Pa.Super. 155.

The fund, so long as any of the taxes remained unpaid, was not subject to the attachment, because the Sullivan Pocahontas Coal Company had no beneficial interest therein, as any money that might be received by it would be held in a trust capacity: Ashhurst v. Given, 5 W. & S. 323; Holdship v. Patterson, 7 Watts 547; Brown v. Williamson's Exrs., 36 Pa. 338; DeRoy v. Richards, 8 Pa. Superior Ct. 119; B. & O.R.R. v. Land Co., 175 Pa. 95.

The trusts declared in the agreement of August 18, 1924, were valid: DeRoy v. Richards, 8 Pa. Superior Ct. 119.

Before MOSCHZISKER, C.J., FRAZER, WALLING, KEPHART and SADLER, JJ.

OPINION

MR. JUSTICE SADLER:

The Sullivan Pocahontas Coal Company was the holder of more than sixty per cent of the stock of seven mining concerns located in West Virginia. To carry out its operation large financial resources were required, and to raise the necessary funds a mortgage was executed with bonds to the amount of $1,200,000, in which the Union Trust Company of Pittsburgh was named as trustee, the stock of the subsidiary companies and other assets being deposited as security. The mortgagor covenanted that it would keep in good repair the various properties, and provide for the payment of all labor claims, taxes, insurance and other charges. A brokerage firm purchased one-half of the bonds, and agreed to take the remaining portion on condition that $60,000 be sold at 85% of the face value, the proceeds, amounting to $51,000 to be placed in trust to insure the payment of federal taxes covering the years 1917 to 1921, which had been assessed, or which the government might find to be due for the period mentioned.

This understanding was embodied in a letter addressed to the proposed purchaser of the securities, and made a part of the trust agreement in controversy. The contract was signed by the parties, approved by the buyer, and the fund contemplated was handed over. Under the terms of the trust, the money was to be appropriated solely for the payment of taxes as set forth, the amounts when fixed by the federal authorities to be paid to the coal company only on certificates, sworn to by its president and vice-president, showing that the amount asked to be withdrawn was necessary to pay the assessment made by the government, and to be used for no other purpose. The sum of $28,215.95 was so transferred and taxes satisfied pro tanto. A written request was made, after the present attachment was issued, asking the trustee to remit $21,819.81 directly to the internal revenue collector in West Virginia. There still remains due for the years 1917 to 1921 a sum greater than the balance in the hands of the trustee. The coal company had no interest in the fund until all taxes were satisfied, nor any right to receive any portion except in trust for transmission to the collecting agents. It did have the right to the interest, which might accrue before withdrawal, on the balance remaining in the hands of the trustee, and this amounted to $3,217.52 at the time when this proceeding was instituted.

The agreement provided for the termination of the trust on April 1, 1926, in case all taxes were at that time adjusted and paid. It also provided that if the exact amounts due had not then been ascertained, and waivers of objection had been filed by the subsidiary companies with the federal authorities, the time of its operation should be extended. This condition occurred, and by agreement, in which the purchasers of the bonds, Moore, Leonard & Lynch, were parties, setting forth that the unpaid taxes are greatly in excess of the balance in the trust fund, it was stipulated that the whole remaining sum be retained by the trustee for the purpose of liquidating, as far as possible, the amounts remaining unsatisfied.

Austin-Nichols & Co., the present plaintiff, and a creditor of the defendant, caused a writ of foreign attachment to issue, summoning the Union Trust Company as garnishee. Judgment was entered against the coal company for $28,511.80, and, after the issuance of a preliminary sci. fa., the trustee was called upon to answer the interrogatories propounded. In so doing, the facts as already detailed were narrated. It appeared that defendant had a checking account of $572.80 in the bank, and interest on the fund in question payable directly to the coal company of $3,217.52. As to the remaining portion of the $51,000, held for payment of taxes, any right of the defendant therein was denied.

The plaintiff entered a rule for judgment for the total of all three items, and as to the first two, amounting to $3,790.02, it was made absolute, but discharged as to the remainder of the claim. From this order, the plaintiff has appealed, insisting that the fund of $51,000 was really for the benefit of the coal company, which could have secured the balance and appropriated it to other uses than those named in the trust agreement, since it was in reality established for the benefit of the settlor. Further, it was urged that the trust was passive, and that no one had any interest therein except defendant, since the rights established thereunder could not be enforced by the purchaser of the bonds, though they were bought with the understanding that the specific money would be set aside to protect against possible prior claims of the government.

When a creditor makes use of attachment process, he thereby treats the contract by which the garnishee acquired possession of the fund in his hands as valid: Vincent v. Watson, 18 Pa. 96. He cannot seize the property of a third party though temporarily held by the debtor (DeRoy v. Richards, 8 Pa. Superior Ct. 119), or moneys held by him for another: 39 Cyc. 71; 28 C.J. 117. His rights cannot rise higher than those which defendant had against the garnishee, and the liability of the latter is measured by his responsibility in case the debtor himself had brought an action to recover: 28 C.J. 92; Reichner v. Reichner, 237 Pa. 540; Riddle v. Etting, 32 Pa. 412; Howard Co. v. Hughes, 12 Pa.Super. 311; Benedict & Eberle Co. v. Hollman, 68 Pa.Super. 155. If, therefore, the latter has no cause of action, the attachment must fall: Lane's App., 105 Pa. 49. Likewise, if there has been a prior valid, legal assignment of the amount due, judgment cannot be entered against the garnishee ( Hemphill v. Yerkes, 132 Pa. 545; Smith v. Keener, 270 Pa. 578; Sturgeon Bay Bank v. McLaughlin, 63 Pa.Super. 588), nor can there be where an equitable transfer of title appears ( Patten v. Wilson, 34 Pa. 299; Barnes v. Alexander, 232 U.S. 117), even though no notice of ownership was given to the holder of the fund: Jarecki Mfg. Co. v. Hart Bros., 5 Pa. Superior Ct. 422.

The same principle applies when funds are held on special deposit, or in trust for the benefit of third parties ( Burger v. Burger, 135 Pa. 499; Farmers &amp Mechanics Bank v. King, 57 Pa. 202; B. & O.R.R. Co. v. Kensington Land Co., 175 Pa. 95), though the settlor cannot put aside assets for his own use so as to deprive creditors of their rights therein: Nolan v. Nolan, 218 Pa. 135; Patrick v. Bingaman, 2 Pa. Superior Ct. 1...