Pen Mar Co. v. Ashman

Parke, J., delivered the opinion of the Court. The Pen Mar Company, Incorporated, appellant, obtained a judgment against Emanuel J. Schlissler on May 1st, 1925, for the sum of one thousand, eight hundred and fifty-one dollars and ninety-two cents with interest and costs; and on June 21th, 1925, the appellant caused an attachment to be issued on this judgment, that was laid in the hands of Louis S. Ashman, trustee, garnishee and appellee, on June 21th, 1925. The garnishee appeared, and on his plea of nulla bona issue was joined and the case was submitted to and tried before the court, without a jury,, resulting in a verdict and judgment for the garnishee. It is from this judgment that this appeal is taken and, in order to understand the questions presented with respect to the conflicting rights of the attaching creditor and the purport ²⁷⁵ ing prior assignees to the fund of the debtor in the hands of the trustee and garnishee, it will be necessary to state the controlling facts.

Emanuel J. Schlissler was the owner of a parcel of land which he desired to improve by building six houses, and for this purpose he obtained a loan from the Sun Mortgage Company on the security of a mortgage which was made a lien on the premises. As the improvements were to be built with the proceeds of the loan, the mortgage stipulated that the mortgagor should enter into a contemporaneous agreement and declaration of trust so as to assure the complete construction of the proposed houses by securing, if necessary, the application of the mortgage loan exclusively for that purpose. The parties selected Louis S. Ashman, Esq., as their trustee, and he and the owner entered into the contemplated agreement and declaration of trust. The net proceeds of the mortgage loan to the owner was seventeen thousand, four hundred and eighty-nine dollars and ninety cents, and this amount was paid to the trustee for deposit in his name as trustee, and the owner agreed that the houses would be completed on or before the 27th day of October, 1924.

The sum so deposited was, on the order of the owner and a certain James W. Miller, to be paid to the owner and Miller, or to Miller or to any other party as the owner should direct, in nine installments of specified amounts. The first seven of these installments were thus payable at different progressive stages of the construction of the six houses according to the specifications, and the eighth installment was due when every one of the houses and lot were completed and improved in every detail and ready for occupancy; and thirty days thereafter and when all mechanic’s claims and liens had been met to the trustee’s satisfaction, the final or ninth installment was so payable by the trustee. These last mentioned terms of the trust were set forth in section 3, which was supplemented by sections 4 and 5, providing for arbitration in the event of a disagreement between the owner and the trustee upon ²⁷⁶ the question of whether the owner had “earned” the payment of any one of the successive installments by having carried the course of the construction of the houses to that stage upon which the payment of the respective installment depended; and, also, for various rights conferred upon the trustee and obligations imposed upon the owner, in order that the trustee might be able to ascertain and determine what claims had been incurred or paid for work, labor, and materials employed or used in the improvement of the premises. The owner carried on the improvements and the trustee paid the successive installments, in accordance with the agreement and the terms of the trust, until the seventh installment had been paid, but the owner failed to complete the improvements, and, therefore the trustee retained in his hands $3,208.02 of the whole amount ($3,306.00) of the eighth payment, and, also, the amount ($1,481.88) of the ninth or last installment, making the aggregate amount $4,689.90.

The improvements were not completed by October 27th, 1924, as the owner had agreed, and his default continued, so that on March 28th, 1925, the trustee notified him, that, under section 6 of the agreement and declaration of trust, it was the trustee’s dpty to exercise the power conferred to meet the contingency of the owner’s subsisting default. The power gave the trustee discretion to adopt either of two alternatives. The first was to pay over the residue of the trust fond to the mortgagee, which, after the application of this residue as a credit upon any moneys due or to become due by the owner under his mortgage indebtedness, should return any! surplus to the owner. The trustee rejected this alternative and adopted the second, which empowered him as such trustee to enter upon the premises, to take possession, and “to employ any moneys remaining in hand to protect and preserve any improvements already made, or proceed with the improvements required by this agreement, in the name of, at the risk of, and for the benefit of the owners; and ²⁷⁷ if the funds in hand he insufficient to protect or complete the said improvements, then the trustee may mortgage the said premises to raise such additional moneys.” These provisions were obviously for the benefit of both the mortgagee and the owner.

The trustee proceeded with the incomplete improvements and, at a cost of $1,292.93, finished the work in accordance with the specifications, so that, if this had been timely done by the owner, he would have been entitled to have been repaid the amount due on the eighth installment of $3,208.02, and the ninth installment of $1,481.88. The mortgagee foreclosed its mortgage and realized enough under these proceedings to discharge in, full the mortgage indebtedness: hence the trust fund remaining with the appellee was the property of the mortgagor and payable to him, unless the rights of others intervened. The owner and Miller had executed and delivered a number of assignments to various parties, who had done work and supplied material in the building of the houses, and three of these assignments are involved on this appeal. The first, in order of time, was delivered on September 6th, 1924, to the Arundel Shope Brick Company for $854.70; the second, although dated on August 14th, was not delivered until December 5th, 1924, to the Lafayette Mill and Lumber Company for $3,900, and the third was delivered on December 13th, 1924, to Scribner & Neuman for $1,833.

The first of these assigned the given sum to the assignee, and then authorized the trustee to pay the same “out of payment No. 9” as scheduled in section 3 of the agreement and declaration of trust. The second assignment provided that “as and when payments number 9, 7, and 8 are due and payable to me (the undersigned) under the terms of my trust agreement with you (meaning the trustee), I hereby authorize, assign and direct you to pay $1,500 of payment (7); $1,200 of payment (8); $3,200 of payment (9), figured on six houses on Spedden Street, to the Lafayette Mill and Lumber Company.” The third assignment was like to the second, except ²⁷⁸ that “$1,500 of payment (7)” and “$330 of payment (8)” were to be paid to Scribner & Neuman. These three assignments were not formally accepted by the trustee, but he was promptly notified of their execution, and placed the claims on his file for payment when the several installments became due; -and on February 15th, 1925, the Lafayette Mill and Lumber Company and Scribner & Neuman were each paid by the trustee the sum of fifteen hundred dollars, pursuant to the respective assignments of this portion of “installment (7)”. The payment of the respective sums thus allocated by similar assignments to the several installments was customarily made by the trustee drawing his check to the order of owner and Miller for the amount due the particular creditor, and then the payee endorsed the check to the creditor, who then received the check.

The testimony further showed that, after crediting the payments mentioned and correcting some errors in the accounts, the true amounts remaining due and intended to be secured by the second and third assignments were respectively $2,220.75, instead of $2,400, and $223.50 instead of $333. The question for solution is whethei’, under these facts, the subsequent attachment laid in the hands of the trustee by the appellant shall have priority over the three assignments mentioned. 1. These facts tend to establish that, in consideration of work and labor or materials furnished or to be supplied in the improvement of the land of the owner, and in the manner prescribed by the articles between the owner and the trustee, the owner and Miller assigned to three assignees a definite part of certain installments to fall due according to the terms of the instrument mentioned, and that, after the execution and delivery of these assignments and before the issuance of the writ of attachment by the appellant, the trustee was promptly notified of the several assignments, but did not technically accept the assignments, although the trustee filed the assignments for the purpose of paying the same, according to their tenor, when and as the indicated install ²⁷⁹ ments were available for that purpose. Although these were partial assignments of a fund in the hands of a trustee by its beneficial owner, they were effective at law, because they were a completed transaction between competent parties and intended to be an actual appropriation of the particular funds, conferring a present right on the assignees, although its immediate exercise was not possible under the circumstances; and because, finally, the trustee after notice could not disregard the assignment and discharge his trust by a payment to the original beneficiary, inasmuch as the assignments were made pursuant to the express terms of the