Valley Nat. Bank of Ariz. v. Hasper

• Decision Date: 30 October 1967
• Docket Number: No. 1,CA-CIV,1
• Citation: 6 Ariz.App. 376,432 P.2d 924
• Parties: The VALLEY NATIONAL BANK OF ARIZONA, Appellant, v. James C. HASPER, Appellee. 464.
• Court: Arizona Court of Appeals

Page 924

432 P.2d 924

6 Ariz.App. 376

The VALLEY NATIONAL BANK OF ARIZONA, Appellant, v. James C. HASPER, Appellee.

No. 1 CA-CIV 464.

Court of Appeals of Arizona.

Oct. 30, 1967.

Gust, Rosenfeld and Divelbess, by Fred H. Rosenfeld, Phoenix, for appellant.

Fenton J. McDonough, Scottsdale, for appellee.

HATHAWAY, Chief Judge.

A writ garnishment was filed against the Valley National Bank by James C. Hasper. The superior court granted Hasper's motion for judgment on the pleadings and denied the bank garnishee's motion for summary judgment and the bank appeals.

On November 15, 1965, James C. Hasper brought suit on a promissory note against Charles H. Morgan, and on the same day filed a writ of garnishment against the Valley National Bank. At the time of the filing of these pleadings the defendant, Morgan, was a nonresident of the state, as witnessed by the plaintiff's affidavit of nonresidency. The bank was served with the writ of garnishment on November 15, 1965.

In its answer to the writ of garnishment the garnishee stated:

'Garnishee states that at the time said Writ was served upon him, and at the time of answering said Writ, there name of Morgan Radiator Service with name of Morgan Radiator Servicd with Charles H. Morgan as sole owner in which there was a balance of Twenty-seven Hundred Forty-five and 72/100 Dollars ($2,745.72);

'Garnishee further states that said Morgan Radiator Service was indebted to garnishee on certain installment loans in the total sum of Twenty-two Hundred Forty-nine and 83/100 Dollars ($2,249.83); that said loans are past due and Garnishee believes these loans to be in jeopardy; that it has, therefore, exercised its right of set off and applied the sum of Two Thousand Two Hundred Forty-nine and 83/100 Dollars ($2,249.83) to the payment of said loans, and is withholding the sum of FOUR HUNDRED NINTY-FIVE and 89/100 Dollars ($495.89) subject to the orders of this court.'

The garnishee bank, in its answer to the plaintiff's Tender of Issues, stated that it held a promissory note from the defendant which was payable in monthly installments on the fifteenth day of each month up to and including April 15, 1966, and:

'That the installment due on the 15th day of November, 1965, in the amount of One Hundred Fifty-one and 39/100 Dollars ($151.39) was not paid on said day or thereafter by said defendant Charles H. Morgan and was in default and that garnishee defendant, having learned that said defendant had closed his business and moved to the State of Missouri, deemed itself insecure, and declared the entire balance of said indebtedness due and payable forthwith, and applied the sum of Eight Hundred Eighty-six and 14/100 Dollars ($886.14) from the bank account of said defendant to the satisfaction of said indebtedness by its right of setoff.'

The bank further answered that the defendant was also indebted to it in the sum of $1,363.69 on a conditional sales contract for a lathe. The monthly payments on this contract were due on the 20th day of each month but the bank admitted that the defendant was not in default on the conditional sales contract at the time of the service of the writ of garnishment.

The pertinent provisions of this conditional sales contract are as follows:

'The Buyer (defendant) accepts and acknowledges receiving the goods and agrees that until the full purchase price is paid he will not * * * remove or permit them to be removed from Morgan Radiator Shop, 29 South Brown, Scottsdale * * *.

'If Buyer * * * fails to perform any provision of this contract * * * or if Seller deems himself insecure then all amounts then owing hereon shall at Seller's option become immediately due and payable * * *.'

After service of the writ of garnishment, the garnishee went to the premises of Morgan Radiator Shop and discovered that Charles H. Morgan had taken the lathe to Missouri with him.

The plaintiff stipulates that the bank had a right of set-off as to the defendant's promissory note held by it. However, the plaintiff contends that after the service of the writ of garnishment, the bank could not thereafter set-off from the defendant's general deposit with the bank the amount owed the bank by the defendant on the conditional sales contract when the defendant was not in default of payment on said contract. The plaintiff argues that since the conditional sales contract gave the bank only an 'option' to accelerate the contract and demand payment, the indebtedness had not yet matured as the bank had not exercised that option. The bank, on the other hand, argues that the removal of the lathe from the state by the defendant were acts which gave rise to the bank's right to accelerate the contract under the option and, therefore, the subsequent service of the writ of garnishment should not prohibit the bank from exercising said option.

In American Surety Company v. De Escalada, 47 Ariz. 457, 461, 56 P.2d 665, 666 (1936) the court stated:

'* * * where one is indebted to a banking institution which also had in its possession assets of the debtor, the latter may apply these assets to the payment of a matured debt * * *.'

See also United Bank and Trust Company v. Washburn and Condon, 37 Ariz. 223, 226, 292 P. 1025 (1930); 6 Am.Jur.2d Attachment and Garnishment § 374, p. 822; and, 106 A.L.R. 62. Of course, application of the rule is dependent upon the facts of each case including the contracts involved.

The rule is limited in that a garnishor cannot obtain rights against a garnishee superior to the rights held by the judgment debtor against the garnishee at the time of garnishment. Ellery v. Cumming, 40 Ariz. 512, 14 P.2d 709, 83 A.L.R. 1081 (1932). In the Ellery case the bank was indebted to the defendant upon general deposits at the time the plaintiff filed and served its writ of garnishment upon the bank. Before disposition of the garnishment the bank became insolvent. The...