Forst v. Intermountain Building and Loan Association

• Decision Date: 15 March 1937
• Docket Number: Civil 3780
• Citation: 49 Ariz. 246,65 P.2d 1379
• Parties: MATHILDA J. FORST, Appellant, v. INTERMOUNTAIN BUILDING AND LOAN ASSOCIATION, a Corporation, Insolvent, and H. S. McCLUSKEY, Receiver of INTERMOUNTAIN BUILDING AND LOAN ASSOCIATION, a Corporation, Insolvent, Appellee, and THE VALLEY NATIONAL BANK, a National Banking Association, Garnishee
• Court: Arizona Supreme Court

65 P.2d 1379

49 Ariz. 246

MATHILDA J. FORST, Appellant, v. INTERMOUNTAIN BUILDING AND LOAN ASSOCIATION, a Corporation, Insolvent, and H. S. McCLUSKEY, Receiver of INTERMOUNTAIN BUILDING AND LOAN ASSOCIATION, a Corporation, Insolvent, Appellee, and THE VALLEY NATIONAL BANK, a National Banking Association, Garnishee

Civil No. 3780

Supreme Court of Arizona

March 15, 1937

APPEAL from an order of the Superior Court of the County of Maricopa. M. T. Phelps, Judge. Order affirmed.

Mr. E O. Phlegar, for Appellant.

Mr Thomas W. Nealon, Mr. John L. Gust and Mrs. E. G. Monaghan for Receiver Appellee.

Messrs Kibbey, Bennett, Gust, Smith & Rosenfeld, for Garnishee.

OPINION

LOCKWOOD, J.

This is an appeal from an order of the superior court of Maricopa county granting the motion of H. S. McCluskey, as receiver of the Intermountain Building and Loan Association, an insolvent corporation, hereinafter called the company, to quash a writ of garnishment theretofore issued by said superior court on a judgment in favor of Mathilda J. Forst, hereinafter called plaintiff, and against the company. There is very little, if any, dispute in regard to the material facts of the case, and they may be stated as follows:

The company had for a number of years been doing business in the states of Arizona and Utah as a building and loan association, and had entered into contracts of many types with different parties. On April 18, 1933, Guadalupe R. Gallegos and others, in their own behalf and on behalf of others similarly situated, filed suit in the District Court of the United States for the District of Arizona against the company, alleging "That each of the plaintiffs herein is a contract creditor of the defendant, and each holds an express contract lien to secure the debt of said defendant corporation due to saad plaintiffs as hereinafter more fully appears." The complaint then alleged, in much detail, that the company was hopelessly insolvent and doing business at a loss, so that its assets were rapidly diminishing. The prayer of the complaint was, among other things, that an account be taken of all the affairs of the company, that its indebtedness to the plaintiffs and all those similarly situated be ascertained and that the assets of the company be properly applied to the debts of its various creditors, and, in order to accomplish this, that a temporary receiver be appointed, with all the usual powers of such receiver, to take possession of all the assets of the company of every nature, care for the same, and, in general, to obey the orders of the court necessary to carry out the purposes of the suit. Process was duly served, but for some reason a receiver was not appointed until April 20, 1934, when the court made an order the terms of which, so far as material to the issues of this case, read as follows:

"That Henry S. McCluskey, of Phoenix, County of Maricopa, State of Arizona, be and he is hereby appointed receiver pendente lite of all personal and real property of every kind and character of the said defendant, Intermountain Building and Loan Association, a corporation, situate in the state of Arizona or which was situated in the state of Arizona at the time of the filing of the bill of complaint in this suit....

"It is further ordered, adjudged and decreed that upon giving said bond, said receiver shall take possession of all the assets, files, papers, records, documents, moneys, securities, choices in action, books of account and all other property, real and personal or mixed, of the defendant now in the state and district of Arizona and the jurisdiction of this court, and all property in its custody and control pending the final determination of this suit, or until further orders of this court....

"And it is further ordered, adjudged and decreed that pending this receivership, the defendant, its employees, agents and attorneys, and all sheriffs, marshals, creditors and J. A. Malia, be and they are hereby enjoined from interfering with the possession of said receiver; and the said defendant and all persons holding in their possession or under their control, property, real, personal or mixed, belonging to the above named defendant or to the possession of which the receiver is entitled shall forthwith deliver said possession to the receiver....

"It is further ordered, adjudged and decreed that said receiver shall retain possession of said property and continue to discharge the duties of his trust aforesaid until the further order of this court, and from time to time make reports of his doings in the premises, and may from time to time apply to this court for such other and further orders and directions as he may deem necessary andrequisite in the due administration of his trust...."

On April 21st an order was made allowing an appeal from said order appointing a receiver, with a supersedeas, to the Circuit Court of Appeals of the Ninth Circuit, in the following language:

"... 'The petition of the defendant, Intermountain Building & Loan Association, and J. A. Malia, as Bank Commissioner of the State of Utah, in the above entitled cause for an appeal from the decree or order appointing Henry S. McCluskey receiver pendente lite or temporary receiver of the property and assets of Intermountain Building & Loan Association in the State of Arizona, and not to remove the same until the further order of this court, is hereby granted, and said appeals are allowed and, upon petitioners filing a bond in the sum of $35,000.00 with sufficient sureties and conditioned as required by law, the same shall operate as a supersedeas of said decree and orders, and each of them, made and entered in the above cause, and shall suspend and stay all further operation thereof until the termination of said appeals by the Circuit Court of Appeals for the Ninth Circuit....'"

The receiver thus appointed did not take physical possession of any of the property of the company pending a decision of the appeal, the latter continuing in possession of its property and transacting business as usual until about the 2d of December, 1935, when, the circuit court of appeals having affirmed the order, Intermountain Building & Loan Assn. v. Gallegos, 78 F.2d 972, appointing the receiver, the latter, without further formality, took over the entire assets. In the meantime, and on the 26th of November, 1934, nearly eighteen months after the filing of the suit in the federal court and six months after the appointment of the receiver and the taking of the appeal to the circuit court, but prior to the affirmance of the order aforesaid by the circuit court, plaintiff brought suit in the superior court of Maricopa county against the company. The record does not show the precise nature of the suit, but, the company having answered, on the 8th day of July a personal judgment was rendered in favor of plaintiff in the sum of $2,000, with interest. The judgment, however, contained the following language:

"In the rendition of this judgment the court is not undertaking to determine any preference as between creditors of the defendant but it does hold that the plaintiff is a general creditor of the defendant association."

On the 10th day of July, 1935, an affidavit in garnishment was filed and a writ of garnishment issued by the clerk, directed to The Valley National Bank, as garnishee, which was duly served. The garnishee filed an answer in which it stated:

"Said The Valley National Bank, at the time said writ was served upon it, and at the time of answering said writ, had in its possession the sum of One Hundred Twenty Thousand Four Hundred Nineteen and 49/100 ($120,419.49) Dollars, which sum was on deposit with The Valley National Bank in the name of Intermountain Building & Loan Association, a Utah corporation;

"That on or about the 23d day of March, 1934, J. A. Malia, Banking Commissioner of the State of Utah, took over said banking account, and said Bank Commissioner is the authorized depositor and the authorized person to check on said account."

The answer of the garnishee was controverted by the plaintiff in so far as it dealt with the alleged action of Malia as banking commissioner, but apparently this issue was never tried out. On December 2d, the receiver having taken possession of all the physical assets of the company, the superior court ordered him substituted in the present action in place of the company, and on December 23d he filed a motion to quash the writ ofgarnishment. Plaintiff answered this motion, and on the 19th of February, 1936, the following order was made by the court:

"This matter having been heretofore taken under advisement by the court, it is ordered that motion to quash writ of garnishment is granted in this case."

This last is the order from which this appeal was taken.

The only assignment of error is that the court erred in quashing the writ of garnishment for five reasons set forth in the assignment. We think, however, the most logical way of considering the appeal is on the questions of law raised by the assignment. The first question is as to the effect of the filing of a suit and the appointment of a receiver in one court on the right of a different court to render a judgment in another suit against the defendant in the first one and to enforce it by seizing the property of the defendant. This involves a discussion of the application of the principles of comity. The question has generally arisen in this country in disputes over the relative jurisdiction of the federal and state courts, although occasionally conflicts between two state courts are involved, and the federal decisions are therefore very persuasive on this point. In the case of Covell v. Heyman, 111 U.S. 176, 4 S.Ct. 355, 358, 28 L.Ed. 390, the Supreme Court of the...