BANK OF OKLAHOMA, NA v. KROWN SYSTEMS

• Decision Date: 12 March 2002
• Docket Number: No. 95,746.,95,746.
• Citation: 53 P.3d 924,2002 OK CIV APP 82
• Parties: BANK OF OKLAHOMA, N.A., Plaintiff/Appellant, v. KROWN SYSTEMS and James Krone, Defendant, and Convenient Fuel Group, L.L.C., Garnishee/Appellee.
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

53 P.3d 924

2002 OK CIV APP 82

BANK OF OKLAHOMA, N.A., Plaintiff/Appellant, v. KROWN SYSTEMS and James Krone, Defendant, and Convenient Fuel Group, L.L.C., Garnishee/Appellee.

No. 95,746.

Court of Civil Appeals of Oklahoma, Division No. 2.

March 12, 2002.

Publication Ordered June 7, 2002.

Stephen L. Bruce, Oklahoma City, OK, for Plaintiff/Appellant.

James E. Dunn, Oklahoma City, OK, for Garnishee/Appellee.

Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No. 2. Opinion By TOM COLBERT, Presiding Judge.

¶ 1 Bank of Oklahoma, N.A. (Bank), acting as trustee, appeals a judgment in favor of Convenient Fuel Group, L.L.C. (Garnishee) on its garnishment action. The issue on appeal is whether the trial court erred in exercising its equity power to hold that Garnishee was not liable for funds it erroneously paid to Krown Systems (Debtor) before its new owners received actual notice of the garnishment. We conclude that the trial court did err, reverse its judgment, and remand for the entry of judgment in accordance with this opinion.

¶ 2 Bank is the trust company administering the estate of M.B. Galloway, deceased. Acting as trustee, it obtained a judgment for approximately $30,000 against Debtor on a promissory note. Bank determined that Debtor had a contractual relationship with Garnishee, a foreign corporation doing business in Oklahoma, and filed a continuing garnishment against Garnishee to attach any funds that were due or to become due within 180 days from Garnishee to Debtor.

¶ 3 Bank served Garnishee on January 6, 2000, by serving its registered Oklahoma service agent. Garnishee did not answer. Thereafter, Bank obtained an order from the trial court for Garnishee to answer and served the order on Garnishee's registered service agent. Garnishee failed to respond to the order and, on March 22, 2000, the trial court entered a default judgment against it for $32,459.57.

¶ 4 Garnishee filed a motion to vacate the judgment on April 18, 2000, arguing that its owners had only recently received actual notice of Bank's garnishment action. The trial court granted Garnishee's motion and vacated the default judgment. It ordered Garnishee to file an answer, provide Bank copies of checks issued to Debtor, and forward to Bank funds currently owed to Debtor in satisfaction of the garnishment.

¶ 5 In its initial answer, Garnishee admitted paying Debtor $15,904.66 after the garnishment was originally served on the service agent but before the new owners received actual knowledge of the garnishment.¹ In response, Bank filed an amended notice of election to take issue with Garnishee's answer and a motion for summary judgment against Garnishee for $15,904.66. Following a hearing, the trial court concluded that it would not be equitable to hold Garnishee liable for the funds, denied Bank's election to take issue with Garnishee's answer, and granted judgment in favor of Garnishee. Bank appeals.

STANDARD OF REVIEW

¶ 6 There being no dispute as to the material facts, we are presented first with a question of law: whether the trial court had the equitable power to waive the effect of the garnishment. Questions of law are reviewed de novo. Clayton v. Fleming Cos., 2000 OK 20, ¶ 11, 1 P.3d 981, 984. If we determine the court had equitable power, then we "must examine the entire record and weigh the evidence to determine whether the judgment is against the clear weight of evidence, or contrary to law or established principles of equity." Union Oil Co. of Cal. v. Jackson, 1971 OK 128, ¶ 6, 489 P.2d 1073, 1074. If we determine that the trial court's judgment in an equity case was in error, we may "render or cause to be rendered the judgment that should have been rendered by the trial court." Sinclair Oil & Gas Co. v. Bishop, 1967 OK 167, ¶ 0, 441 P.2d 436, 439 (syl. no. 9 by the court).

DISCUSSION

¶ 7 There is no dispute that Bank, acting as trustee, had a judgment against Debtor for approximately $30,000; that Garnishee, a foreign corporation doing business in Oklahoma, had a contractual relationship with Debtor wherein it paid Debtor a $5,000-per-month retainer; and that any funds Garnishee owed Debtor could be garnished to satisfy Bank's judgment. There is also no dispute that Bank properly filed a continuing garnishment action against Garnishee and, on January 6, 2000, obtained service of process on Garnishee's registered Oklahoma service agent as provided by law.

¶ 8 The present owners purchased Garnishee in October 1999. The former owners had previously chosen an Oklahoma agent, but the new owners assert they did not know about that choice or the need to register an Oklahoma agent. Whatever the reason, the new owners did not notify the Oklahoma agent of the change of ownership. When it received the garnishment summons, the agent forwarded the summons to an individual who was no longer an officer with Garnishee. Garnishee's current owners apparently did not receive the paperwork until after the entry of the default judgment.²

¶ 9 Bank does not assert on appeal that the trial court erred in vacating the default judgment, as it acknowledges that default judgments are disfavored. See Feely v. Davis, 1989 OK 163, ¶ 16, 784 P.2d 1066, 1070

. Bank argues, however, that the trial court erred in refusing to grant judgment against Garnishee for the $15,904.66 Garnishee paid to Debtor after the date of service on Garnishee's Oklahoma agent. Garnishee contends the trial court properly invoked its equity power to determine that it would not be equitable to hold Garnishee liable to Bank for the money it erroneously paid to Debtor after the date of the original service but before the new owners received actual notice.

¶ 10 Bank claims it was entitled to the funds because it had a valid lien that commenced January 2, 2000. A continuing garnishment summons becomes a lien on the debtor's property held by the garnishee upon the date of service and for 180 days thereafter or until the debt is paid. 12 O.S. Supp. 2000 § 1173.4(G); see also DPW Employees Credit Union v. Tinker Fed. Credit Union, 1996 OK CIV APP 106, ¶ 8, 925 P.2d 93, 95

. Garnishee contends the lien does not apply because it did not have actual notice until its new owners knew about the garnishment.

¶ 11 Bank contends Garnishee had actual notice of the garnishment on January 6, 2000, when its Oklahoma agent was served. Bank asserts that the fact that Garnishee's new owners did not know about the garnishment until later is not determinative because Garnishee, as a corporation, "is a legal entity separate and apart from its stockholders, individually or as a body." State ex rel. Okla. Employment Sec. Comm'n v. Tulsa Flower Exch., 1943 OK 109, ¶ 13, 135 P.2d 46, 48. Service is obtained on a corporation, foreign or domestic, by:

delivering a copy of the summons and of the petition to an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process....

12 O.S. Supp.2000 § 2004(C)(1)(c)(3). Before it may transact business in Oklahoma, a foreign corporation must submit an application with the Secretary of State containing, among other things, "the name and street address of a registered agent in this state... to accept service of process and otherwise perform the functions of a registered agent." 18 O.S. Supp.2000 § 2043(3)(c). A foreign corporation doing business in Oklahoma has a continuing obligation to inform the Secretary of State of any change in its registration or its withdrawal. 18 O.S. Supp. 2000 §§ 2046-47.

¶ 12 Garnishee contends it did not inform the Oklahoma agent of the change in ownership because it did not know it had or needed an Oklahoma agent. Oklahoma courts are generally unswayed by a corporation's claim that it did not fulfill a statutory duty because its officers did not know about it. The Court of Civil Appeals has explained:

[C]orporate directors and officers are presumed to know that which it is their duty to know and about which they have the means of knowing .... Or to state it another way the officials are bound to know what they ought to know and would have known by proper attention to their business.

Preston-Thomas Constr. Inc. v. Cent. Leasing Corp., 1973 OK CIV APP 10, ¶ 8, 518 P.2d 1125, 1127 (citation omitted); see also Bullard's Oil Field Serv., Inc. v. Williford Energy Co., 1989 OK 63, ¶ 8, 775 P.2d 802, 805

(explaining that a corporation may not "gain an undue benefit as a result of its avowed ignorance of Oklahoma law applicable to operations essential to its chosen field of business").

¶ 13 Garnishee relies on Shamblin v. Beasley, 1998 OK 88, ¶ 13, 967 P.2d 1200, 1210, which states, "It is the totality of circumstances — not the particular norms of statutory requirements — that dictates the quality of service necessary to safeguard an individual's property interest at stake." (Emphasis omitted.) We conclude that the totality of the circumstances is such that Garnishee did receive proper notice and that a lien did attach to the funds it owed Debtor on January 6, 2000, or came to owe Debtor in the ensuing 180 days.

¶ 14 Nevertheless, Garnishee contends equity requires that it not be held liable for the money it paid to Debtor after January 6, 2000, but before its new owners knew about the garnishment. Bank argues that, because the parties' rights were clearly defined by the garnishment laws, the trial court did not have the power to invoke equity to set aside Garnishee's liability. Sautbine v. Keller, 1966 OK 209, ¶ 13, 423 P.2d 447, 451 ("[E]quity follows the law."). We agree with Bank; the garnishment statutes are clear and Bank took all the required steps to invoke its lien on the funds in Garnishee's control. "[W]here the rights of parties are clearly defined by law equity has no power to change or unsettle such rights." Id. at ¶ 14, 423 P.2d at 451. Moreover, even if the trial court did properly invoke equity, we conclude that...