On appeal from the Law Division of the Superior Court.
For affirmance -- Chief Justice Vanderbilt, and Justices Case, Heher, Oliphant, Wachenfeld, Burling and Ackerson. For reversal -- None. The opinion of the court was delivered by Heher, J.
[7 NJ Page 36] The essential question here is whether the respondent American Type Founders, Inc., is under a duty to satisfy plaintiffs' judgment by default in attachment, in these circumstances:
On March 15, 1946, a writ of attachment issued out of the former Supreme Court under R.S. 2:42-1, et seq., at the suit of the plaintiffs against the defendant Fred G. Pohl Company, to recover a debt of $5,938.90, with interest from October 2, 1945, ultimately established by a judgment in that sum, with interest amounting to $1,230.38, or a total of $7,169.28, entered on May 9, 1949, pursuant to the auditor's report. On March 20 ensuing, the Sheriff of Union County, acting under the writ, attached for the plaintiffs the "entire right, claim and credit of the Fred G. Pohl Company against" respondent American Type Founders, Inc., a New Jersey corporation, who concedes that it had been indebted to Fred G. Pohl and Werner Kullack, co-partners trading as Fred G. Pohl & Co., in the sum of $33,429.82 for certain services rendered in 1944 and 1945, but asserts that by two several assignments made on January 31, 1945, and September 27, 1945, the Fred G. Pohl partnership, for a valuable consideration, assigned to Title Guarantee and Trust Company, a New York corporation, "all the assignor's right, title and interest in and to all monies due and to become due" from it, and that pursuant to the assignments it paid $24,000 to the assignee on December 4, 1945, $7,000 on August 29, 1946, and $2,429.82 on March 3, 1947, and so no moneys were payable to the partnership by it from the time of the second assignment of September 27, 1945. Upon plaintiffs' petition, the supposed garnishee was ordered to show cause on September 7, 1950, why it should not be adjudged in contempt, and why execution should not issue against it for the amount due upon plaintiffs' judgment. The order to show cause was discharged. Plaintiffs' appeal to the Appellate Division of the Superior Court from this adverse action was certified here for decision on our own motion.
The contention is that where a garnishee in attachment "pays over funds of the defendant to a third party asserting a claim to said funds by virtue of assignments," the "payment being made after attachment and contrary to R.S. 2:42-27 and Rule 3:72-3," the garnishee is guilty of a contempt of court and is liable for the payment of plaintiff's judgment in
attachment, "irrespective of the merits of the claim of the third party."
The reasoning is that under R.S. 2:42-19, the writ of attachment here bound "the attached rights and credits of the defendant" from the time of the execution of the writ, and the garnishee was obliged to treat the assignments to the "third party as a claim of attached funds," and to "require establishment of such claim in the manner" provided by R.S. 2:42-27; that it was "not the function or within the right of the respondent garnishee to determine, or indeed to usurp the function of our Courts and adjudicate the priority of the third party claimant;" and that payment of the "attached funds" by the garnishee to the "third party claimant after due execution of the writ, without notice to plaintiff and without court order," constituted "a contempt of the courts of this State and a flagrant violation of their process."
But the fallacy of this argument lies in the unwarranted assumption that the assigned credits remained the property of the defendant in attachment. When the writ of attachment issued, there had been an absolute assignment of the rights and credits in question by the defendant in attachment to the Title Guarantee and Trust Company, and notice of the assignment to the debtor; and it is fundamental in the Attachment Act that the writ reaches only the property of the defendant in attachment. This was so under the Revision of 1937. R.S. 2:42-18; R.S. 2:42-19; R.S. 2:42-20. The term "garnishee" was there defined to mean "any person who has money or other property in his custody or possession belonging to a defendant in attachment," or "who is indebted to such defendant," which property or indebtedness was attached by virtue of a writ of attachment issued pursuant to the statute. R.S. 2:42-1. And, while this definition of "garnishee" is not included in the superseding act of 1948, the other provisions referred to are there in substance. P.L. p. 1432, N.J.S.A. 2:42-86, et seq.
By force of the assignments, the relation of debtor and creditor had ceased to exist between the respondent and the
defendant in attachment when the writ issued, and there was no property of the defendant in attachment in respondent's hands upon which the writ could operate, and so the respondent is not chargeable as garnishee. There was nothing in respondent's possession belonging to the principal debtor which was subject to garnishment.
It is elementary that funds in the hands of a third person in which the defendant in attachment has no interest are not liable to attachment or garnishment. Cole v. Berry, 42 N.J.L. 308 (Sup. Ct. 1880); Black v. Zacharie, 3 How. 483, 11 L. Ed. 690 (1845). The general rule is that priority in time determines priority between an attachment or garnishment and an assignment of a chose in action. Salem Trust Co. v. Manufacturers Finance Co., 264 U.S. 182, 44 S. Ct. 266, 68 L. Ed. 628 (1923); Van Buskirk v. Hartford Fire Insurance Co., 14 Conn. 141 (1841); Woodward v. Brooks, 128 Ill. 122, 20 N.E. 685 (1889); McAllister v. Brooks, 22 Me. 80 (1842); Martin v. Potter, 11 Gray 37 (1858); Muir v. Schenck, 3 Hill 228 (1842); Wolcott v. Mongeon, 88 Vt. 361, 92 A. 457 (1914); McDowell, Pyle & Co. v. Hopfield, 148 Md. 84, 128 A. 742 (1925). Where there has been a valid assignment of a right or credit, the garnishee may answer that he is not indebted to the defendant in attachment and has nothing of the defendant's in his possession. It is axiomatic that attachment or garnishment will not lie unless there is property of the principal debtor in the hands of the ...