Hoffman Chev. v. Wash. Co. Nat'l Sav.

297 Md. 691 (1983) 467 A.2d 758 HOFFMAN CHEVROLET, INC. v. WASHINGTON COUNTY NATIONAL SAVINGS BANK [No. 13, September Term, 1982.] Court of Appeals of Maryland. Decided November 23, 1983. ⁶⁹⁴ The cause was argued before MURPHY, C.J., and SMITH, ELDRIDGE, COLE, DAVIDSON and RODOWSKY, JJ. Donald E. Beachley, with whom were Miller, Miller & Oliver on the brief, for appellant. David K. Poole, Jr., for appellee.

COLE, J., delivered the opinion of the Court. In this case, we must determine whether a check from a retirement trust payable to a debtor was properly garnished from the debtor's former employer to whom the check had been mailed. We also are called upon to determine whether the trial judge properly granted summary judgment in favor of the garnishor, attaching the check and funds the garnishee owed the debtor, despite claims that the garnishee was entitled to offset these funds against its obligation as surety for the debtor's obligation to another bank. Washington County National Savings Bank (Washington Bank) held two notes issued by Victor McSherry, formerly an employee of Hoffman Chevrolet, Inc. The notes being in default, Washington Bank entered two confessed judgments in the Circuit Court for Washington County against McSherry.

Washington Bank also requested that the clerk "issue an attachment by way of execution on the rights and credits of Victor H. McSherry, Jr., in the hands of Hoffman Chevrolet, Inc., 101 S. Edgewood Drive, Hagerstown, Maryland." On November 28, 1979, the clerk issued this writ commanding Hoffman Chevrolet "to attach, seize, take and safe keep, the lands, tenements, goods, chattels, and credits" of McSherry. An identical attachment was issued on February 7, 1980. Hoffman Chevrolet, as garnishee, filed answers to both attachments. In response to the first writ, it asserted that McSherry's last pay check had been applied to an outstanding indebtedness to the Hagerstown Trust Company on which Hoffman Chevrolet and McSherry were jointly and severally liable.

The answer to the second writ stated that Hoffman Chevrolet had applied all McSherry's funds to satisfy McSherry's debt to Hoffman. ⁶⁹⁵ Washington Bank served interrogatories on McSherry and took the deposition of John W. Martin, Hoffman Chevrolet's office manager. The deposition disclosed that Hoffman Chevrolet held $677.84 in McSherry's undrawn commissions and $206.70 in earmarked pension deductions not yet sent to the National Automobile Dealers Association (NADA) Retirement Trust. The deposition also revealed that after the termination of McSherry's employment at Hoffman Chevrolet, McSherry applied to the NADA Retirement Trust requesting payment of benefits to which he was entitled. [1] The NADA Retirement Trust mailed a check, payable to McSherry, in the amount of $8,736.63 to Hoffman Chevrolet. Martin also elaborated on the indebtedness to which Hoffman's answers to the writs of attachment referred.

On June 29, 1979, Hoffman Chevrolet apparently co-signed with Mr. and Mrs. McSherry a security agreement with the Hagerstown Trust Company in the original amount of $22,347.60, the stated collateral being a 1979 Winnebago Motor Home. Martin testified that when McSherry applied for the funds from the Retirement Trust, he stated that he would apply the money to this note. He agreed to meet Martin at the bank and sign over the check. Although McSherry missed this meeting, Hoffman Chevrolet turned the check over to the Hagerstown Trust representative who took it to McSherry's new place of employment and got him to sign it over to reduce the balance on the Hagerstown Trust loan.

Washington Bank filed a motion for summary judgment. Hoffman Chevrolet answered, alleging that McSherry was indebted to the garnishee in an amount exceeding the unpaid commissions and unremitted pension deductions and that McSherry's retirement plan benefits were not even attachable. The trial court granted summary judgment in ⁶⁹⁶ favor of Washington Bank for $9,621.17 (the sum of all disputed amounts). On appeal, the Court of Special Appeals rejected Hoffman Chevrolet's arguments that: (1) the spendthrift provisions of the NADA Retirement Trust protected the check issued to McSherry from attachment by ordinary creditors until actually received by McSherry, and (2) there was sufficient evidence in the record to create a genuine dispute as to Hoffman Chevrolet's setoff claim.

See Hoffman Chev. v. Wash. Co. Nat'l Sav., 50 Md. App. 594 , 439 A.2d 50 (1982). We granted certiorari to consider whether the check was attachable and whether summary judgment was properly granted as to any of the amounts attached. Because the amounts at issue raise different legal issues, we shall address them separately.

I The threshold question regarding the $8,736.63 NADA Retirement Trust check is whether this check was even attachable. The check did not represent any debt the garnishee owed McSherry, and Hoffman Chevrolet had no real interest in the check. Hoffman Chevrolet simply was acting as a mail drop for the convenience of its former employee and the Retirement Trust. On the surface, this is not the typical garnishment situation.

We look then to the relevant statutes and case law to determine whether the check was attachable under Maryland law. A garnishment proceeding is simply an attachment against defendant's property, or a right thereto, held by a third person — the garnishee. See Fico, Inc. v. Ghingher, 287 Md. 150, 159 , 411 A.2d 430 (1980); see generally 6 Am.Jur.2d Attachment and Garnishment §§ 2-3 (1963). The relevant Maryland statutes and rules state that a court may issue an attachment against a debtor's (1) property or (2) credit, matured or unmatured.

See Md. Code (1974, 1980 Repl. Vol.), §§ 3-301 and 3-305 of the Courts and Judicial Proceedings Article; Md. Rules 622 a and 623. Therefore, the check must qualify under one of these categories in order to be attachable. ⁶⁹⁷ The Court of Special Appeals concluded that "[t]he check in the instant case constituted a credit in the hands of the garnishee belonging to McSherry and was, therefore, subject to attachment." Hoffman Chev. v. Wash. Co. Nat'l Sav., supra, at 598.

However, our examination of the meaning of the term credit as used in this statute indicates that this conclusion was incorrect. Although this Court previously has not specifically defined a credit, we note that we have examined cases in which credits have been attached. For instance, in Northwestern N. Ins. v. Wetherall, 267 Md. 378 , 298 A.2d 1 (1972), Wetherall laid a writ of attachment in the hands of Northwestern. Subsequently, the debtor filed suit against Northwestern to obtain payment under a fire insurance policy.

The Court observed "there can be no doubt that monies owed by the garnishee on a judgment are subject to attachment as `credits....'" Id. at 385 . We believe that this language suggested the proper meaning of the term credit as it is used in the attachment statute — a monetary obligation that the garnishee owes the debtor. Other sources agree that "credits" is "[a] term of universal application to obligations due and to become due." Black's Law Dictionary 333 (5th ed. 1979) (citing Colbert v. Superior Confection Co., 154 Okla. 28 , 6 P.2d 791, 793 (1931)); see also State v. Woodman, 26 Mont. 348 , 67 P. 1118, 1120 (1902). In fact, "credits" and "debts" are correlative.

See McCollum v. Hamilton Nat. Bank, 303 U.S. 245 , 58 S.Ct. 568 , 82 L.Ed. 819 (1938); Libby v. Hopkins, 104 U.S. 303 , 26 L.Ed. 769 (1881); Kansas City Life Ins. Co. v. Hammett, 177 La. 930 , 149 So. 525 (1933); Wilde v. Mahaney, 183 Mass. 455 , 67 N.E. 337 (1903). Thus, an attachable "credit" is a monetary obligation that the garnishee owes the debtor.

For instance, in this case, Hoffman Chevrolet held $677.84 in McSherry's undrawn commissions — a debt the garnishee owed the underlying debtor. These funds were garnishable credits. However, the check was not a credit, because it did not represent an obligation that the garnishee owed the debtor. Rather the check was a representation of an obligation owed by the NADA Retirement ⁶⁹⁸ Trust to McSherry.

Washington Bank could not reach this obligation by the writ of attachment laid in the hands of Hoffman Chevrolet. Cases from other jurisdictions support this conclusion. In Morse v. Stevens, 95 Vt. 465 , 115 A. 697 (1922), promissory notes payable to the defendant or bearer had been transferred by the defendant to a third person. The defendant's creditor laid a writ of attachment in that person's hands and asserted that the notes were attachable "goods, effects or credits." The court concluded that the notes were not attachable credits and that the garnishee would not be charged "on the ground of having in his hands mere securities for money belonging to the principal debtor." Id. at 697.

These notes represented the obligations of another — not the garnishee. See also Hancock v. Colyer, 99 Mass. 187 (1868). Although the check did not qualify as an attachable credit, we must, nevertheless, determine if the check was otherwise attachable. The Court of Special Appeals did not consider whether the check was the debtor's property and thus whether it qualified under that aspect of the attachment statute.

We pause then to examine the history of Maryland attachment law and the common understanding of certain terms in resolving this issue. In the Acts of Assembly, of the Province of Maryland for the year 1715 appears "An Act directing the Manner of Suing out Attachments in this Province, and limiting the Extent of them." This Act permitted attachment of the defendant's "Goods, Chattels, and Credits." This provision was expanded in 1732 when Parliament enacted the Statute of 5 Geo. 2 Ch. 7, "An Act for the more easy Recovery of Debts in his Majesty's Plantations and Colonies in America," which added the defendant's "Houses, lands,... and Real Estates towards the satisfaction of such Debts...." Therefore, real property was made "subject to the same remedies, proceedings and process in any Court of Law or Equity that personal estates are under the Act of 1715, Chapter 40." Gomborov, Attachment in Maryland 89 (1926). This expansion of the attachment law was retained in ⁶⁹⁹ Maryland after the Declaration of Independence, because in the 1778 Laws of Maryland, ch. IX, § VI "lands and tenements" were added to the list of things susceptible to attachment. By 1859, the attachment law had again been revised to provide that: "Any kind of property or credits belonging to the defendant, in the plaintiff's own hands, or in the hands of any one else, may be attached; and credits may be attached which shall not then be due." [2] See 1859 Revised Laws of Maryland, Article X, § 11.

In the Public General Laws of 1888, this provision was placed in Article 9, § 10, where it remained unchanged until 1962. Later, with the codification of the Courts Article, see 1973, 1st sp. sess. Md. Laws, ch. 2, § 1, the provision was amended to provide: "An attachment may be issued against any property or credit, matured or unmatured, which belong to a debtor." [3] This is the present form of this section. See Md. Code (1974, 1980 Repl.

Vol.), § 3-305 of the Courts and Judicial Proceedings Article. Despite our research, we have found no concrete indications of the intended meaning of this language. Nevertheless, we shall determine whether a check should be included under the general term "property" in this provision of the attachment law. Current commercial law defines the term "check" as "a draft [and order] drawn on a bank and payable on demand." Md. Code (1975), § 3-104 (2) (a) & (b) of the Commercial Law Article.

"A draft ... [is] an open letter of request from, and an order by, one person on another to pay a sum of money ⁷⁰⁰ therein mentioned to a third person on demand or at a future time therein specified." 11 Am.Jur.2d Bills & Notes § 14 (1963). The two distinguishing features of a check under the former Negotiable Instrument Law and the current Uniform Commercial Code "are that they are drawn on a bank and payable instantly on demand." Id. § 16. It is apparent from an examination of the definition of a "check" in Bouvier's Law Dictionary, that the meaning of this term has not changed substantially in the last century and a quarter: "A written order or request, addressed to a bank or persons carrying on the business of banking, by a party having money in their hands, desiring them to pay, on presentment, to a person therein named or bearer, or to such person or order, a named sum of money." Bouvier's Law Dictionary 475 (3rd ed. 1848). Furthermore, it is clear that a check is considered to be included within the general term "chose in action." See U.S. Industries, Inc. v. Anderson, 579 F.2d 1227 (10th Cir.1978); Shingleton v. Armour Boulevard Corporation, 96 F.2d 473 (8th Cir.1938); Dugan v. Missouri Neon & Plastic Advertising Co., 334 F. Supp. 1222 (W.D. Mo. 1971), rev'd on other grounds, 472 F.2d 944 (8th Cir.1973); Swann v. Morris, 212 Ga. 460 , 93 S.E.2d 673 (1956).

Having defined "check," we proceed to determine whether it is encompassed within the definition of property under the statute. It seems clear that when the provision using the term property to describe that which one may attach was included in the Code, a check was considered property. For instance, an 1852 case, Newcomer v. Orem, 2 Md. 297 (1852), indicates that "property" included choses in action well before the legislature amended the attachment law to provide that property is attachable. In Newcomer , the Court was faced with determining what law should be applied in distributing property from a decedent's estate.

The law of the marital domicile applied to personalty and the law rei sitae to immovable property. However, the law of the place where the property was found had to be applied in determining whether it was movable or immovable property. Id. at 305 . At issue in that case were certain notes which represented ⁷⁰¹ proceeds of the sale of real estate.

The question was whether the law of Maryland or Louisiana applied. The Court struggled with the nature of the notes as movable or immovable; however, there was no question that the notes (choses in action) were considered by the Court to be property. See id. at 308 . Bouvier's Law Dictionary also indicated that the term property included choses in action when added to the Code: Personal property is further divided into property in possession, and property or choses in action.

See Chose in Action. Property is again divided into corporeal and incorporeal. The former comprehends such property as is perceptible to the senses, as lands, houses, goods, merchandise, and the like; the latter consists in legal rights, as choses in action, easements, and the like. [ Bouvier's Law Dictionary 2751-52 (3rd ed. 1848).] Choses in action seem to have been understood as property when this provision was drafted; [4] therefore, a check should be considered property under the attachment law. However, to be attachable the Code directs that the check must be the debtor's property.

As we see it, actual delivery to McSherry or such delivery as would indicate constructive possession and control by him was vital to the check's attachability because the check was worthless before reaching the hands of a person who could present it for ⁷⁰² payment ( i.e., McSherry or his authorized agent). See Morgenthau v. Fidelity & Deposit Co. of Maryland, 94 F.2d 632, 635 (D.C. App. 1937) (noting that "where private persons are concerned a check is not to be regarded as property until it is delivered"). Here, the retirement check was mailed to Hoffman Chevrolet, which as agent for NADA Retirement Trust, was to deliver the check to McSherry. Hoffman arranged a meeting with McSherry so as to procure McSherry's indorsement and then to present the check to Hagerstown Trust to reduce the balance of the loan.

However, McSherry did not keep this appointment and Hoffman left the check with Hagerstown Trust. Thereafter, a Hagerstown representative procured McSherry's indorsement and applied the proceeds against the trust loan. Thus, the check was not delivered to McSherry (and did not become his property) until after it had left Hoffman's possession. We conclude, therefore, that the check, while in Hoffman's possession, had not been actually or constructively delivered to McSherry and was not attachable as his property.

Consequently the trial court erred in ordering summary judgment for the amount of money represented by the check — $8,736.63. Although Maryland law is sparse in this area, we have found one analogous case; however, it is readily distinguishable from the case at bar. In de Bearn v. Prince de Bearn, 115 Md. 668 , 81 A. 223 , writ dism., 225 U.S. 695 , 32 S.Ct. 834 , 56 L.Ed. 1261 (1911), the appellants claiming to be creditors of Prince de Bearn, "sued out an attachment against him in the Superior Court of Baltimore City, as a non-resident of this State, by which they [sought] to subject the bonds [which were placed in a safe deposit box in the Safe Deposit & Trust Company, Baltimore and were subject to the joint control of the American Bonding Company and Alexander Brown & Sons] to condemnation and sale. The writ was laid in the hands of Alexander Brown & Sons and the American Bonding Company as garnishees." Id. at 671.

The Prince filed a motion asking the court to release the ⁷⁰³ bonds from the operation of the attachments, because the bonds, which were merely evidences of indebtedness payable outside the State, were not attachable property. The lower court released the bonds, reasoning that the only thing upon which the writ can operate, "`the sole property liable, is property upon the sale of which title would vest in the purchaser, or the title to which the Court could under the proceedings vest in the purchaser.'" Id. at 672. The garnishees were powerless to sell or transfer title to the property involved ( registered coupon bonds). Therefore, the trial court concluded: "`If the custodian could not transfer, and there is no person before the court with power to transfer the title I do not see how the Court could render a judgment of condemnation under which the bonds could be sold on execution.'" Id.

The Court of Appeals reversed, focusing on the fact that in prior litigation these bonds had been found to be the Prince's property. Therefore, the requirements of the attachment statute were satisfied. Reasoning that this property could be condemned and a Court of Equity could enforce a judgment, the Court concluded that the bonds should not have been released. However, the Court expressly limited its holding to the facts presented, stating: "It is not necessary to determine in these appeals the general question as to whether or not registered coupon bonds of foreign corporations are in all cases liable to attachment when located in this State." Id. at 677.

This case differs from de Bearn in two essential respects. Most significantly, the bonds in that case previously had been conclusively determined to be the Prince's property, while the check at issue in this case was not the debtor's property while in the garnishee's possession. Because the statute only authorizes attachment of the debtor's property in the garnishee's possession, this distinction is of vital significance. The Court in de Bearn simply did not focus on this element of the statute because it already had considered the case in which the ownership of the property had been settled.

See Prince de Bearn v. Winans, 111 Md. 434 , 74 A. 626 (1909). ⁷⁰⁴ The instant action also differs in that it involves a check, while de Bearn involved attaching coupon bonds. These bonds were registered as to principal only. The bond itself could only be transferred by the owner's "indorsement and transfer on the books of the issuing organization." Munn, Encyclopedia of Banking and Finance 637 (Garcia 6th ed. 1962). However, interest could be received simply by detaching the coupons and presenting them for payment.

Id. In contrast, a check may only be paid after it has been negotiated. A coupon bond represents the issuer's obligation to pay an amount of principal on a stated future date plus periodic interest charges. Based upon these factors and the probability of payment, such bonds have a market price and are routinely purchased and sold.

However, a check represents money payable on demand at a bank. See Md. Code (1975), § 3-104 of the Commercial Law Article. There is no market for purchasing a check. If properly indorsed, it is simply presented for payment.

The Court in de Bearn expressly noted that the coupon bonds could be condemned and sold. See de Bearn v. Prince de Bearn, supra at 677. The bonds had a market and a value in that market. However, the check in this case is worthless without being negotiated by the payee.

Furthermore, it might not be paid if over six months old, see Md. Code (1975), § 4-404 of the Commercial Law Article, if a stop payment order is issued, see id. § 4-403, or if the account on which the check is drawn has insufficient funds. See Fairfield v. Sacco Stone & Asphalt Co., 91 R.I. 446 , 164 A.2d 853, 855 (1960) (noting that a check is not garnishable because it may never be paid). [5] Therefore, de Bearn also differs from the present case in this regard. ⁷⁰⁵ II However, even if we did not reach the result in Part I for the reasons there stated, we nevertheless could not accept the rationale of the Court of Special Appeals for holding that the check was attachable. That court concluded that "when the NADART trustees issued the refund check to McSherry and forwarded it to Hoffman, the trust terminated insofar as McSherry was concerned"; the trust having terminated, the check was subject to attachment. Hoffman Chev. v. Wash.

Co. Nat'l Sav., supra, at 597-98. As we see it, there are alternative grounds for concluding that the check was unattachable: under Maryland law the trust had not terminated and, in any event, the trust was not attachable under federal law. In this case the relevant provision of the NADA Retirement Trust plan states: Sec. 11.2 — NONALIENATION OF BENEFITS. Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any relative of the participant, prior to actually being received by the person entitled to the benefit under the terms of the Plan, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, or otherwise dispose of any right to benefits payable hereunder shall be void.

The Trust shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any person