Illi, Inc. v. Margolis

Digges, J., delivered the opinion of the Court. The circumstances of this case, though complex, are not in dispute since all the parties have accepted the factual findings of the master in chancery. The essence of this appeal revolves around the propriety of the trial court’s denial of priority of payment of claims to seven judgment creditors of Stan Martin, Limited, a corporation that has transferred its assets to a trustee, Aaron Margolis, appellee, under a deed of trust for the benefit of creditors. The appellants, lili, Inc., Rucker Industries, Inc., Brookfield Furniture Co., Modeline Company, Youngs, Inc., Gerdau Company, and Katzenback and Warren, Inc., which are all represented by the same counsel, at different times prior to July 1970 and in vary ³³ ing amounts, each obtained judgment against Stan Martin.

These corporations, with the single exception of Brookfield, obtained judgment in The People’s Court of Baltimore City; Brookfield obtained its judgment in the Court of Common Pleas. All of the appellants attempted to receive satisfaction of their judgments by use of a writ of fieri facias. Brookfield and Youngs each directed issuance of a fi fa on their judgments in the spring of 1970. Pursuant to the authority of the writs, a levy was made before their respective return dates; but no sale was ever conducted.

Rather than pursue execution to sale, these two appellants accepted an alternative method of reducing the indebtedness. When the president of Stan Martin visited the appellants’ attorney, he produced a balance sheet indicating solvency and asked that the goods levied upon not be sold as it might frustrate attempts at refinancing which were then under way. Instead, he offered to pay $50 a week to each of these creditors until the refinancing was accomplished, at which time the balance would be paid in full. This plan was acceded to and in fact regular payments were made for a number of weeks thereby reducing the debt of each creditor by $700.

Unfortunately, no further financing was obtained and the weekly payments ceased. But, before a sale could be conducted, the assignment to Margolis, trustee, for the benefit of creditors was made. The writs of the five remaining appellants were not delivered into the hands of the constable until November 2, 1970. However, before any levy was actually made under these writs, the Circuit Court of Baltimore City, on November 4 of that year, in an equity proceeding, assumed jurisdiction of the estate created by the deed of trust.

Two days after its filing, counsel for the appellants became aware of this assignment and court order and wrote to the constable advising him that, “The property cannot be levied on under this set of circumstances because the goods are in the custodia legis of the trustee. I would appreciate very much if you would return the ³⁴ fi-fa in custodia legis, and I refer you to the case of Harris v. Max Kohner, Inc., 187 A. 2d 97 , 230 Md. 349 .” The constable returned each writ “nulla bona”, 1 to which no protest was made. About one week later these five appellants, as did Brookfield and Youngs, filed petitions in the equity case seeking priority of payment of claims ahead of general creditors. The matter of priority was referred by the court to a master.

His recommendation was to deny priority status to all the petitioners. The master based this suggestion as to the group of five appellants on the grounds that “the inchoate lien of the executing creditors never became consummate and any priority that may have been realized by execution failed to come into being by failure of the happening of the condition subsequent, to wit, an actual levy upon the goods.” As to the other two, Brookfield and Youngs, priority was denied because the master concluded that “the liens of the two creditors never became consummate because execution, which must, when it can, include sale, was never completed; or, in the alternative that the liens were waived to the prejudice of other creditors by permitting the property to remain in the hands of the judgment debtor.” Exceptions were filed to these recommendations but Judge Cardin overruled them and adopted the master’s report. This appeal follows. As to the group of five appellants whose writs were returned nulla bona we will affirm the denial of priority but as to the other two creditors we shall reverse.

While we reach a different result concerning the claims of the two groups of appellants, the starting point and reasoning used to arrive at that end are identical. The principal contention of all appellants is that upon delivery of the writ of fi fa to the constable they each obtained a lien against the personal property of the debtor; ³⁵ this lien continued even after the trustee took possession of the property, and therefore, each is entitled to a priority. It is clear that the mere obtention of a judgment, unlike its effect on realty, creates no lien upon a debtor’s personal property. Harris, Tr. v. Max Kohner, Inc., 230 Md. 349 , 187 A. 2d 97 (1963).

The writ of ft fa is an early common law means of enforcing payment on a judgment. The annals and effect of a fi fa are well chronicled in this State in Harris, Tr. v. Max Kohner, Inc., supra and it is unnecessary to repeat here all that was so aptly stated there. See also In Re Continental Midway Corporation, 185 F. Supp. 867 (D. Md. 1960) ; 2 Poe, Practice § 666 (Tiffany ed. 1925) ; 33 C.J.S. Executions § 124 (1942). Here it will suffice only to summarize what was stated by those authorities.

In Maryland a lien on personalty is created when a fi fa is issued and delivered into the hands of the sheriff or constable. This then bestows authority on him to levy against and sell the property of a judgment debtor to satisfy the obligation owed. This is different from the common law which recognized a lien being in effect as of the teste of the writ. 2 The Statute of Frauds, 29 Charles II, Ch. 3, § 16, was in effect in this State at all times pertinent to this case, and that statute modified the common law and made the effective date for the creation of a lien on personalty the date of delivery of the writ to the sheriff to be executed. 3 Upon delivery of the writ into the hands of the sheriff, an inchoate lien is created and if a proper levy is made on goods by the writ’s return date a consummate lien is established which relates back to and is effective as of the date of receipt of the writ by the sheriff. Harris, Tr. v. Max Kohner, Inc., supra at 354; Fur ³⁶ long v. Edwards, 3 Md. 99 (1852).

The validity of a writ continues no longer than its return date if it is not executed upon and it may expire sooner if the writ is returned without a levy. In other words, if no levy has been made by the writ’s return date or a return is made nulla bona, as in this case, no levy can be made as the writ is functus officio and a new writ is necessary to effectuate a levy on the debtor’s goods. Gaither v. Martin, 3 Md. 146 (1852) ; Coombs v. Jordan, 3 Bland 284 (1831) ; In Re Continental Midway Corporation, supra at 870-71; 2 Freeman, Executions § 202 (3d ed. 1900) ; 33 C.J.S. Executions § 131 (1942). In levying on goods, the officer is required to go to the place where they are located and with the property in view and under his control profess to levy upon the goods and assume control of them by virtue of his execution with the avowed purpose of holding them for sale to satisfy the judgment for which the writ was issued.

Horsey v. Knowles, 74 Md. 602 , 22 A. 1104 (1891). This places the goods in custodia legis as of the date the writ was delivered to the sheriff and the lien’s effectiveness is not destroyed by leaving the goods seized with the judgment debtor. Harris, Tr. v. Max Kohner, Inc., supra; First Nat’l Bk. v. Corp. Comm., 161 Md. 508 , 157 A. 748 (1932) ; Horsey v. Knowles, supra; Harris v. Alcock, 10 G.&J. 226 (1838). Once a proper levy has been made before the return date of the writ, a sale of the goods may be made after that date.

Busey v. Tuck, 47 Md. 171 (1877) ; Gaither v. Martin, supra. With this law in mind, we now examine its effect on the facts of the case here. Our holding in Harris, Tr. v. Max Kohner, Inc., 230 Md. 349 , 187 A. 2d 97 (1963) is particularly illuminating in ascertaining the priority rights of the group of five appellants whose writs were returned nulla bona. It should be remembered that these writs were delivered to the constable on November 2, 1970 and after the trustee had been appointed were returned nulla bona, although appellants’ attorney, in his letter, had asked that they be returned “in custodia legis.” ³⁷ Even if the writs had been so returned, appellants’ position would not be improved unless a levy had been made.

While in his epistle counsel stated that he relies on Harris , which is similar in many respeets to the case here, he has apparently misconstrued the holding of that case. There, when the sheriff, armed with a fi fa delivered to him on November 28, 1961, went to make a levy on December 1, 1961, he was met at the door of the debtor’s house by a trustee appointed under a deed of trust for the benefit of creditors. The trustee objected to the levy being made, claiming custodia legis of the goods. Despite these remonstrations, the constable levied on the goods.

The parties then entered into an agreement that permitted the trustee to sell the property and hold the proceeds for a determination by the court of the judgment creditor’s claim for priority. In Harris , it is recognized that goods in custodia legis are not usually subject to levy. But that issue was not before the Court since the trial judge held that “if a valid lien were created on November 28, when Kohner delivered the writ to the Constable, or if an ‘inchoate lien’ were then created which later became consummate as of that date (by relating back to the date of delivery to the sheriff), then the custodia legis was that of the People’s Court and the appellant ‘took title subject to it.’ ” This Court in Harris was only called upon to determine a priority for payment and because it concluded that the inchoate lien, which was created on November 28, the date of deliverance of the writ to the sheriff, was later consummated by a levy, which related back to the November date, that claim took priority over the later assumption of possession by the trustee. No decision was reached in Harris as to which court had legal custody of the goods, or who should sell the goods since the parties resolved these questions by stipulation.

All the Court decided was that since the constable’s levy on the goods related back to a time earlier than when the trustee took possession of the goods, that claim had priority. Here, with the group of five creditors, the same nar ³⁸ row issue of priorities confronts us. As in Harris the issue of who has authority to sell need not detain us since here no consummate lien was created because no levy was made. The constable, therefore, possessed no goods to sell.

Once the writ was returned nulla bona, the inchoate lien was extinguished and there could be no relation back to any earlier date so as