Boundary Dam Constructors v. Lawco Contractors, Inc., 1345--I

Decision Date21 May 1973
Docket NumberNo. 1345--I,1345--I
Citation510 P.2d 1176,9 Wn.App. 21
PartiesBOUNDARY DAM CONSTRUCTORS et al., Plaintiffs, v. LAWCO CONTRACTORS, INC., et al., Defendants, Graybar Electric Co., Inc., Appellant, Seattle-First National Bank, Respondent.
CourtWashington Court of Appeals

Johnson, Quigley, Hatch & Loveridge, Willard Hatch, Thomas T. Glover, Seattle, for appellant Graybar Electric Co., Inc.

Davis, Wright, Todd, Riese & Jones, Nancy P. Gibbs, Edward N. Lange, Seattle, for respondent Seattle-First National Bank.

HOROWITZ, Judge.

This is an appeal from a summary judgment in interpleader proceedings awarding $119,221, the proceeds of a judgment, to respondent Seattle-First National Bank, as assignee of the judgment and of the cause of action on which the judgment was entered. The bank's right to the proceeds, in light of the contentions of the parties, turns on the validity of the garnisheeing creditor's August 1968 writ of garnishment of an unliquidated claim owed by the garnishee defendant to the debtor. The facts are these.

Boundary Dam Constructors, as general contractor for the construction of a dam, entered into a subcontract with Lawco Contractors, Inc. for performance of certain electrical work. Lawco substantially completed its subcontract, but made claims for damages greatly in excess of the compensation called for in its subcontract. The nature of these claims will later appear. On June 10, 1968, Lawco sued the general contractor and its sureties for over $970,000. On August 12, 1968, the general contractor answered denying liability and alleging a setoff and counterclaim for overpayment and damages for breach of the subcontract for sums exceeding $600,000.

In August 1968, Graybar Electric Co., Inc. commenced a separate action against Lawco to recover $36,178.80 for materials supplied to Lawco. Simultaneously, Graybar caused a writ of garnishment to be issued and served against Boundary Dam Constructors to sequester all funds due Lawco up to $36,178.80, plus interest and costs. On August 21, 1968, Boundary Dam Constructors answered denying any indebtedness owing to Lawco, and referred therein to the pendency of Lawco's June 10, 1968 contract action against Boundary Dam Constructors and the latter's setoff and counterclaim against Lawco. In September 1968, the respective attorneys for Graybar and Boundary Dam Constructors executed a stipulation in the Graybar action agreeing

that the Writ of Garnishment herein shall be deemed effective in the event any sums, whether by settlement or court adjudication, prove to be due and owing from Garnishee Defendant to Lawco Contractors, Inc., and said sums, if any, shall be subject to the garnishment proceedings herein.

The stipulation was filed on November 18, 1968, in the Graybar action, and on December 6, 1968, in Lawco's contract action. Lawco was not a party to the stipulation and there is no evidence that Lawco actually knew of, acquiesced in, or agreed thereto. When the stipulation was executed, Lawco's contract action against the general contractor was still pending.

On January 14, 1971, Lawco executed a security agreement assigning to the Seattle-First National Bank the proceeds owing to Lawco by Boundary Dam Constructors on the 'judgment entered' in the contract action. The assignment was then perfected by filing of a financing statement with the Secretary of State of Washington on January 21, 1971. On April 26, 1971, Lawco also executed and delivered to the bank an assignment of 'any judgment rendered in favor of' Lawco in the contract action. The assignment was filed in the contract action between Lawco and Boundary Dam Constructors on May 3, 1971. On May 17, 1971, Lawco recovered judgment for $119,221 in the contract action against Boundary Dam Constructors and its sureties. This sum represented the difference between a total recovery of $480,000 and a setoff of $360,779. Finding No. 70 characterizes the amount recovered as a 'net recovery of $119,221, which is an unliquidated amount.' On July 2, 1971, the garnishee defendant filed an amended answer admitting it owed Lawco the amount of the judgment entered in the contract action, setting forth the names of possible claimants, including the bank, to the sum owing. Boundary Dam Constructors subsequently paid the net sum awarded into court for disposition in the interpleader proceedings below.

Competing claims were then filed to the interpleaded fund. Graybar made a claim of $36,178.80, plus interest and costs. It claimed the right to prior payment by virtue of its August 1968 writ of garnishment, the amended answer to the writ, the September 1968 stipulation, and the default judgment obtained by Graybar against Boundary Dam Constructors for the funds garnished. The Seattle-First National Bank claimed the right to payment ahead of Graybar for the full sum of $119,221. The bank relied upon the January 14, 1971 assignment previously perfected through filing and the April 26, 1971 assignment of the judgment in favor of Lawco against Boundary Dam Constructors in the contract action, which assignment had been filed therein on May 3, 1971.

The trial court held that the judgment proceeds should be paid over to the bank because the August 1968 writ of garnishment sought to reach an unliquidated claim and therefore created no lien in favor of Graybar. Graybar appeals. We agree with the judgment of the trial court and affirm.

The disposition of the contentions of the parties requires a brief description of certain rules applicable to garnishment proceedings in August 1968 when Graybar's writ of garnishment was issued.

In Sadler v. Wagner, 3 Wash.App. 353, 475 P.2d 901 (1970), the court states:

Garnishment is a statutory remedy which contemplates the existence of three distinct parties or entities. The writ of garnishment directs a third person, the garnishee, who holds money or property of the judgment debtor, not to deliver the money or property of the judgment debtor but to appear and answer the plaintiff's writ of garnishment.

3 Wash.App. at 355, 475 P.2d at 903. Garnishment being statutory, compliance with the applicable statutes is essential to the validity and preservation of the writ. Pacific Coast Paper Mills v. Pacific Mercantile Agency, 165 Wash. 62, 66, 4 P.2d 886 (1931); Mahomet v. Hartford Ins. Co., 3 Wash.App. 560, 564--565, 477 P.2d 191 (1970); Snyder v. Cox, 1 Wash.App. 457, 492 P.2d 573 (1969). If the writ lies, it is effective when served upon the garnishee, subject, however, to the subsequent entry of judgment. Bassett v. McCarty, 3 Wash.2d 488, 101 P.2d 575 (1940); Bair v. Wiese, 124 Wash. 691, 695, 215 P. 61 (1923); Hawley v. Isaacson, 117 Wash. 197, 202, 200 P. 1109 (1921).

RCW 7.32, now replaced by RCW 7.33 but in effect when the writ of garnishment was issued here, permits the writ to be issued on specified grounds only. RCW 7.32.010(2) permits the writ to be issued:

Where the plaintiff sues for a debt and makes affidavit that such debt is just, due and unpaid, and that the garnishment applied for is not sued out to injure either the defendant or the garnishee.

In Sundberg v. Boeing Airplane Co., 52 Wash.2d 734, 328 P.2d 692 (1958), the court pointed out, however:

To support garnishment, the garnishee defendant must be indebted to the principal debtor. . . . An unliquidated claim is not subject to garnishment. Bassett v. McCarty, 3 Wash.2d 488, 497, 101 P.2d 575 (1940).

52 Wash.2d 737, 328 P.2d at 694. See generalty 6 Am.Jur.2d Attachment and Garnishment § 127 (1963).

RCW 7.32.150 requires the garnishee defendant to answer the writ lest a default judgment be entered against him. RCW 7.32.170. If the plaintiff is not satisfied with the answer,

he may controvert the same by affidavit in writing signed by him, stating that he has good reason to believe and does believe that the answer of the garnishee is incorrect, stating in what particulars he believes the same is incorrect.

RCW 7.32.250. The plaintiff has 20 days within which to file the controverting affidavit. Snyder v. Cox, 1 Wash.App. 457, 462 P.2d 573 (1969). RCW 7.32.260 provides:

The defendant may also in like manner controvert the answer of the garnishee.

If the answer of the garnishee is controverted in the manner stated, the issue is tried on pleadings consisting only of

the affidavit of the plaintiff, the answer of the garnishee and the reply of the plaintiff or defendant controverting such answer, unless otherwise ordered by the court.

RCW 7.32.270.

RCW 7.32 did not preclude the debtor's right to be heard on whether a writ of garnishment would be, nor did it provide that a garnishee defendant, without the debtor's consent, could waive or modify the debtor's rights or agree to a setoff affecting him. Indeed, the general rule does not permit the garnishee defendant so to do. See Portland Ass'n of Credit Men, Inc. v. Earley, 42 Wash.2d 273, 254 P.2d 758 (1953); Annot., 64 A.L.R. 430 (1929); Annot., 45 A.L.R. 646 (1926); 6 Am.Jur.2d Attachment and Garnishment § 356 (1963).

The threshold question presented is whether Lawco's claim against Boundary Dam Constructors, which Graybar sought to sequester by its writ of garnishment to pay its claim against Lawco, is an unliquidated debt and, accordingly, not subject to the writ. The garnishee defendant's answer of August 20, 1968, filed in the Graybar case the next day, stated:

when the writ of garnishment was served on the garnishee there was due and owing from the garnishee to the above-named defendant $ None _ _.

The answer then referred to the pending contract action in which Lawco

is claiming an indebtedness due and owing from the Defendants and these Garnishee Defendants in the sum of $970,000.00 together with interest, costs and attorney's fees which indebtedness is denied by the Defendants therein and Garnishee Defendants herein and wherein the Defendants and these Garnishee Defendants are claiming an indebtedness due and owing...

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