Rocky Mountain Ass'n of Credit Management v. Hessler Mfg. Co.

• Decision Date: 06 May 1976
• Docket Number: No. 75--490,75--490
• Citation: 553 P.2d 840,37 Colo.App. 551
• Parties: , 20 UCC Rep.Serv. 521 ROCKY MOUNTAIN ASSOCIATION OF CREDIT MANAGEMENT, Plaintiff-Appellee, v. HESSLER MANUFACTURING COMPANY, a Colorado Corporation, Defendant, Wood Bros. Homes, Garnishee, First Commercial Corporation, Intervenor-Appellant. . III
• Court: Colorado Court of Appeals

Page 840

553 P.2d 840

37 Colo.App. 551, 20 UCC Rep.Serv. 521

ROCKY MOUNTAIN ASSOCIATION OF CREDIT MANAGEMENT, Plaintiff-Appellee, v. HESSLER MANUFACTURING COMPANY, a Colorado Corporation, Defendant,

Wood Bros. Homes, Garnishee, First Commercial Corporation,

Intervenor-Appellant.

No. 75--490.

Colorado Court of Appeals, Div. III.

May 6, 1976.

Rehearing Denied May 27, 1976.

Certiorari Denied Aug. 30, 1976.

Sobol & Sobol, Harry Sobol, Denver, for plaintiff-appellee.

Berenbaum, Berenbaum, Weinberger & Susman, Michael L. Ehrlich, Denver, for intervenor-appellant.

SMITH, Judge.

Plaintiff Rocky Mountain Association of Credit Management (RMA) obtained a judgment in the amount of $6,741.24 against defendant Hessler Manufacturing Company on February 2, 1973. Hessler had a claim against Wood Bros. Homes for $48,022.61 that was based on a mechanic's lien. On September 18, 1974, Wood Bros. was garnished by RMA for the amount of its judgment against Hessler. Approximately one month later, on October 15, 1974, First Commercial Corporation sought permission to intervene in the garnishment proceeding, contending that the $6,741.24 which RMA sought was part of Hessler's accounts receivable in which it had a perfected security interest that gave it a claim to the garnished amount superior to the claim asserted by RMA.

First Commercial based its claim on the following facts. On May 10, 1972, First Commercial had filed with the Secretary of State a general financing statement covering, Inter alia, Hessler's accounts receivable. On May 22, 1972, Hessler had executed a security agreement pledging its accounts receivable to First Commercial as security for the payment of certain debts. Upon execution of the security agreement, First Commercial's security interest had become perfected. See § 4--9--303, C.R.S.1973.

Hessler's claim against Wood Bros. was negotiated and settled on December 3, 1974. As part of that settlement First Commercial released Wood Bros. from any claims First Commercial might have had against it arising from any of Wood Bros.' debts to Hessler. As part of the settlement with Hessler, Wood Bros. agreed Inter alia to pay $6,741.24 into court, pursuant to the garnishment by RMA. The balance of the settlement was either held in escrow, paid into court pursuant to other garnishment proceedings, or paid directly to Hessler.

In the garnishment proceeding, the trial court found that First Commercial's release of Wood Bros. also released any security interest the intervenor might have had to the $6,741.24 on deposit with the court. It also concluded that RMA's lien arising from the garnishment gave it a claim to the money superior to the general unsecured interest of First Commercial. While the latter might be true as an abstract proposition, we do not agree that First Commercial relinquished its secured claim to the accounts receivable by releasing Hessler's debtor.

I.

A release is an agreement to which the general contract rules of interpretation and construction apply. Little Rock Packing Co. v. Massachusetts Bonding & Insurance Co., 262 F.2d 327 (8th Cir.); Jordan v. Brady Transfer & Storage Co., 226 Iowa 137, 284 N.W. 73. Thus, the release involved here must be construed in light of the manner in which its terms relate to all of the circumstances surrounding the transaction. Leach v. La Guardia, 163 Colo. 225, 429 P.2d 623; Dickson v. Dick, 59 Colo. 583, 151 P. 441. We are convinced that the release executed by First Commercial in favor of Wood Bros. was not intended to, and did not, constitute a relinquishment of its security interest and thus its secured claim to the disputed $6,741.24.

The purposes of garnishment are to reach supposed assets of the judgment debtor in the hands of third parties, to determine the ownership of that property, and to provide for its equitable distribution. Worchester v. State Farm Mutual Automobile Insurance Co., 172 Colo. 352, 473 P.2d 711. See Bradgon v. Bradt, 16 Colo.App. 65, 64 P. 248. A creditor may successfully garnish only that property that is admitted by a garnishee to belong to the judgment debtor, Kinzie v. Alexander, 108 Colo. 534, 120 P.2d 194; Denver Joint Stock Land Bank v. Moore, 93 Colo. 151, 25 P.2d 180, or that is determined by the court to belong to him. Bragdon v. Bradt, supra. See Union Deposit Co. v. Driscoll, 95 Colo. 140, 33 P.2d 251. The garnishment in this case was essentially a mechanism by which the judgment debtor, Hessler, collected from the garnishee, Wood Bros., for the benefit of his creditor, R.M.A. C.R.C.P. 103(j) & (z).

If a garnishee admits that he has property of the debtor in his possession or under his control, he then is ordered by the court to surrender that property. C.R.C.P. 103(j). If, instead, the garnishee delivers the property at issue to the judgment debtor, he may become personally liable to the creditor for the lesser of the value of the property or the value of the debtor's obligations. Great...