CALDWELL BANKING & TRUST CO. v. PORTER et al.

(Supreme Court of Oregon. April 14, 1908.) 1. GARNISHMENT-PROCEEDINGS - WAIVER OF

OBJECTIONS.

The failure of plaintiff to appear at the time and place specified in the order requiring the garnishee to appear for examination is waived by the garnishee subsequently answering and proceeding to trial without objection, and without requesting a ruling on its motion to dismiss.

[Ed. Note. For cases in point, see Cent. Dig. vol. 24, Garnishment, § 272.]

2. SAME PROPERTY SUBJECT TO GARNISHMENT "PROPERTY."

Under B. & C. Comp. § 300, providing that all "property" of defendant not exempt from execution shall be liable to attachment, the balance a firm has to its credit in a bank is liable to seizure under an attachment in an action against the firm, the word "property" including money and credits.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 24, Garnishment, §§ 110, 111.

For other definitions, see Words and Phrases, vol. 6, pp. 5693-5728; vol. 8, pp. 7768–7770.] 3. SAME-NATURE OF PROCEEDING.

A proceeding against a garnishee on an attachment or execution issued in an action at law is strictly at law, and pleadings are framed and the issues of fact arising thereon are tried as in ordinary actions at law.

4. APPEAL-RULING ON MOTION FOR NONSUIT-REVIEW.

The grounds stated in a motion for a nonsuit are conclusive on the moving party, and he cannot raise for the first time on appeal a ground not stated in the trial court.

5. GARNISHMENT-EFFECT-RIGHTS OF ACTION.

A creditor of a firm who, in an action against the firm, attaches money and credits belonging to the firm in possession of another, succeeds to the rights of the firm against the latter.

6. PARTNERSHIP-DISPOSITION OF FIRM PROPERTY — RIGHTS OF CREDITORS — RIGHTS OF PARTNERS.

Simple contract creditors of a firm have no lien in their own right on firm assets which will prevent the partners from in good faith applying the same to the payment of the individual debts of the partners, but the partners have a lien on the property for the payment of partnership debts, and one partner cannot appropriate the property to the payment of his individual debts without the consent of the copartners, and such a payment without such consent is a misapplication of the assets of the firm, and a fraud on the rights of the copartners.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 38, 'Partnership, §§ 314, 316.]

95 P.-1

7. SAME.

A bank received deposits from a firm. It charged against the firm account the notes of partners, though it knew that the notes were the individual obligations of the partners. Held, that the act of the bank was prima facie invalid as against the partnership and its creditors, and the burden of proof was on it to show that it made such charge with the assent, express or implied, of all the partners.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 38, Partnership, § 316.]

8. SAME.

Evidence held not to show that a bank applied firm deposits to the individual obligations of partners with the assent, express or implied, of all the partners essential to make the transaction valid as against the firm and its creditors. [Ed. Note. For cases in point, see Cent. Dig. vol. 38, Partnership, § 316.]

Appeal from Circuit Court, Malheur County; George E. Davis, Judge.

Action by the Caldwell Banking & Trust Company against F. L. Porter and others, copartners under the firm name of Porter, Jones & Test, in which the First National Bank of Ontario was summoned as garnishee. From a judgment for plaintiff, the garnishee appeals. Affirmed.

On September 29, 1906, F. L. Porter, Thomas Jones, and E. H. Test, partners in the sheep business in Malheur county, sold their sheep for $22,594.50, and deposited the money in the First National Bank of Ontario to the credit of the firm, which, together with a previous balance of $458.26, made an aggregate credit of $23,052.76. At that time the partnership was indebted to the bank in the sum of $13,656.04, and it held the individual notes of each member of the firm, which were overdue and of about equal amounts, approximating-principal and interest-$7,008. 85, which the bank charged to the firm ac count. This left a balance of $2,035.02 to the credit of the firm. On October 3d plaintiff, Caldwell Banking & Trust Company, commenced an action at law against Porter, Jones & Test to recover on two promissory notes, amounting in the aggregate to $7,500 and accumulated interest, and caused a writ of attachment to be issued and served upon the bank, attaching any and all money or credits in its possession belonging to the partnership. The bank answered that its books showed a balance to the credit of the

firm of only $2,035.02. This being unsatisfactory to plaintiff, it obtained an order re quiring the bank to appear and answer on oath concerning the same. Written allegations and interrogatories were subsequently served and filed, in which, after alleging the incorporation of plaintiff and garnishee bank, the partnership of Porter, Jones & Test, the commencement of the action by plaintiff against the partnership, the issuance and service of the writ of attachment therein, the return of the garnishee bank, the deposit by Porter, Jones & Test of $22,594.50 with the garnishee bank on September 29, it is averred that after such deposit, and prior to the service of the writ of attachment on the garnishee bank, it had paid out on order of the partnership the sum of $14,008.89, and and no more, and that at the date of such service there was due and owing from such bank to the partnership the sum of $9,043.87. On the day the garnishee bank was requested to appear and answer it filed a motion to dismiss the proceeding for want of an appearance by plaintiff, but before such motion was disposed of it answered the allegations, denying the material averments thereof, and affirmatively set out the several notes due it from the partnership of Porter, Jones & Test, and from the individual members of such partnership, and averred that all such notes were given by the parties thereto and accepted by the bank, and the time of payment thereof extended from time to time, and particularly the notes of the individual members of the firm, upon the express agreement and understanding with the makers, individually and collectively, that the sheep and other partnership property of Porter, Jones & Test would be sold and the money received therefor deposited in the garnishee bank to be applied by the bank in payment thereof; that in accordance with such understanding and agreement, Porter, Jones & Test sold the sheep and deposited the proceeds of the sale with the garnishee bank, whereupon the bank duly applied such portion thereof as was necessary to the payment and discharge of all such notes, partnership and individual; that prior to the commencement of the action by plaintiff against Porter, Jones & Test the partnership and the individual members of such firm duly and fully ratified the action of the garnishee bank in applying the proceeds of the sale to the payment of the partnership and individual debts, and received and accepted their notes as paid and discharged in full. A reply put in issue the new matter alleged in the answer, and upon the issues thus joined the cause came on for trial before a jury. The defendant garnishee objected to the admission of any evidence on the ground that plaintiff's remedy is in equity and not at law. This objection was overruled, whereupon plaintiff, to sustain the issues on its part, offered in evidence severally the complaint, summons and proof of service thereof, a demurrer filed by defendants, the

But

affidavit and undertaking for writ of attachment, the writ of attachment and notice of garnishment, together with the sheriff's return thereon, the answer of the garnishee, and the judgment in the action brought by plaintiff against Porter, Jones & Test. all these papers were excluded by the court on objection of defendant, on the ground that they were immaterial, irrelevant, and incompetent. The plaintiff then called Mr. Test, one of the members of the firm of Porter, Jones & Test, who identified the two notes upon which the action was brought by plaintiff; but the court, on objection of defendant, refused to admit either of such notes in evidence, on the ground that they were immaterial, irrelevant, and incompetent, and also refused, for a like reason, to permit Test to testify that at the time of the commencement of such action there was due and owing thereon from the partnership of Porter, Jones and Test to the plaintiff the principal and interest of each of such notes. Plaintiff then proved by Test that the partnership of Porter, Jones & Test had on deposit with the garnishee bank on September 29th $23,052.76, and that between that date and the service of the garnishee process upon it there had been paid out by the bank on account of the partnership, and by its authority, $14,008.89, and no more, and then rested. Whereupon the defendant garnishee moved the court for a nonsuit, on the grounds (1) that plaintiff's remedy was in equity, and not at law; (2) that plaintiff had not proved a partnership of Porter, Jones & Test under the firm name of Porter, Jones & Test, but had shown the partnership to be Porter, Test & Jones. This motion was overruled, and defendant garnishee gave evidence which it claims tended to support its defense to the garnishee proceedings, but at the close of the testimony the court, on motion of plaintiff, directed a verdict in favor of plaintiff, from which defendant garnishee appeals.

W. F. Butcher and A. N. Soliss, for appellant. John C. Rice and W. H. Brooke, for respondent.

BEAN. C. J. (after stating the facts as above). The defendant's motion to dismiss the proceeding and discharge the garnishee from liability because of the failure of plaintiff to appear at the time and place mentioned in the order requiring the garnishee to appear and be examined on oath concerning the matters stated in its answer to the garnishee process was waived by defendant. It subsequently answered, and proceeded to trial without objection, and without asking or requesting a ruling on the motion. Nor is there any merit in the objection made at the opening of the case to the admission of any testimony because plaintiff's remedy is in equity and not at law. All the property of a defendant not exempt from execution is liable to attachment (section 300, B. & C. Comp.), and this includes

money and credits. If the garnishee bank was indebted to the partnership of Porter, Jones & Test, or that firm had a balance to its credit on the books of the bank, at the time the garnishee process was served, it was liable to seizure under an attachment in the action brought by plaintiff against the firm, and, if the answer of the bank was not satisfactory to plaintiff, it had a right to proceed in the manner provided by statute. A proceeding against a garnishee on an attachment or execution issued in an action at law is in no sense equitable, but strictly at law, and the pleadings are framed and issues of fact arising thereon tried as in ordinary law actions. Case v. Noyes, 16 Or. 329, 19 Pac. 104; Smith v. Conrad, 23 Or. 206. 31 Pac. 398.

It is contended that defendant's motion for a nonsuit should have been sustained because plaintiff did not prove the commencement of an action by it against Porter, Jones & Test, or the issuance and service of an attachment therein, or the answer of the garnishee to such attachment, or that a judgment had been rendered in favor of plaintiff in such action. Plaintiff offered in evidence the pleadings and record in the action referred to, which would have furnished the proof suggested, but they were ruled out by the court on an objection of defendant, and it would seem that it ought not be permitted to take advantage of a failure of proof in this respect. The ruling of the court was probably based on the theory that proceedings against a garnisbee are auxiliary to the action in which the attachment was issued, and therefore the court will take judicial knowledge of the proceeding in such action without proof, and there are many authorities which support this view. State v. Bates, 22 Utah, 65, 61 Pac. 905, 83 Am. St. Rep. 768; Kenosha Stove Co. v. Shedd, 82 Iowa, 540, 48 N. W. 933; Hollenbach v. Schnabel, 101 Cal. 312, 35 Pac. 872, 40 Am. St. Rep. 57; Flood v. Libby, 38 Wash. 366, 80 Pac. 533, 107 Am. St. Rep. 851; Farrar v. Bates, 55 Tex. 193; Farrington v. Sexton, 43 Mich. 454, 5 N. W. 654; S. E. Olson Co. v. Brady, 76 Minn. 8, 78 N. W. 864; Morrison v. Hilburn & Poole, 126 Ga. 114, 54 S. E. 938. But whatever the true rule may be in this regard, defendant specified particularly the grounds of its motion for a nonsuit, which do not include the point now made, and it is the law that the grounds stated in such a motion are conclusive upon the moving party, both at trial and in an appellate court, and that he cannot raise for the first time on appeal a ground of nonsuit not stated below. 6 Ency. Pl. & Pr. 879; Meier v. Northern Pacific R. Co. (Or.) 93 Pac. 691. It is also claimed that the court erred in directing a verdict in favor of plaintiff at the close of the testimony. This depends upon whether the garnishee bank had the right, as against the partnership of Porter, Jones & Test, to charge to the firm account the notes beld by it against the individual members of the firm. Plaintiff, by virtue of the attach

ment, was subrogated to the rights of the firm against the bank, and is entitled to recover against it, if the firm could have done so at the time the attachment was served. Keene v. Smith, 44 Or. 525, 75 Pac. 1065. Simple contract partnership creditors have no lien in their own right upon partnership assets which will prevent the partners, while the property is under their control, from in good faith applying it to the payment of the individual debts of the members of the firm or otherwise disposing of it. Stahl v. Osmers, 31 Or. 199, 49 Pac. 958; First National Bank of Indianola v. Brubaker, 128 Iowa, 587, 105 N. W. 116, 2 L. R. A. (N. S.) 256, 111 Am. St. Rep. 209; Pepper v. Peck, 17 R. I. 55, 20 Atl. 16; Carver Gin & Machine Co. v. Bannon, 85 Tenn. 712, 4 S. W. 831, 4 Am. St. Rep. 803; Woodmansie v. Holcomb, 34 Kan. 35, 7 Pac. 603; National Bank of the Metropolis v. Sprague, 20 N. J. Eq. 13; Smith v. Smith, 43 Am. St. Rep. 359, 364, note. But the partners have a lien on such property for the payment of the partnership debts, or for the surplus due each partner, and therefore one partner cannot appropriate the property to the payment of his individual debts without the consent of all the other partners. Such a payment is regarded in law as a misapplication of the assets of the firm and a fraud upon the rights of copartners, and, if the individual creditor has knowledge of the fact, the property may, according to the weight of authority, although there is some conflict in the decisions, be recovered in an action at law in the name of the firm, or by a creditor succeeding to its rights by attachment or garnishment. Johnson v. Hersey, 70 Me. 74, 35 Am. Rep. 303; Coote & Jones v. Bank of United States, 3 Cranch, C. C. 95, Fed. Cas, No. 3.204; Davies v. Atkinson, 124 Ill. 474, 16 N. E. 899, 7 Am. St. Rep. 373, 377, note; Cannon v. Lindsey, 85 Ala. 198, 3 South. 676, 7 Am. St. Rep 38; Rogers v. Batchelor, 12 Pet. (U. S.) 221, 9 L. Ed. 1063; Johnson & Pitt v. Crichton, 56 Md. 108; Cotzhausen v. Judd, 43 Wis. 213, 28 Am. Rep. 539; Viles v. Bangs, 36 Wis. 131; Howell & Gibson v. Sewing Machine Co., 12 Neb. 177, 10 N. W. 700; Brickett v. Downs, 163 Mass. 70, 39 N. E. 776; Locke v. Lewis, 124 Mass. 1, 26 Am. Rep. 631.

It is undisputed that at the time the garnishee bank charged up to the firm account the notes of the individual members it knew the character of the obligations. Its act was therefore prima facie invalid as against the partnership and its creditors, and the burden of proof was on the bank to show that it made such charge with the assent, express or implied, of all the partners. Coote & Jones v. Bank of United States, supra; Willis v. Holmes, 28 Or. 265, 42 Pac. 989. We have read the entire testimony, and do not find any evidence that all the partners consented or agreed that the individual debts of the members of the firm should be paid from the firm assets. There is testimony that each partner,

when pressed for payment of his individual debt, stated that it would be paid when the sheep belonging to the partnership were sold. But there is no testimony that any of the partners, except perhaps Test, agreed or consented to the payment of the individual notes of his copartners out of such fund. Mr. Alexander, president of the bank, and Mr. Kenyon, cashier, were the two witnesses who testified in regard to the matter. Kenyon says that when the deposit was made by Porter the bank held the partnership notes amounting to about $14,000 and the individual notes of the members of the firm amounting to $7,008.85, all of which were charged to the partnership account, leaving a balance of $2,035.02, and he (witness) charged off the individual notes 'because they were past due, and it was the understanding with the partners that the bank was to have its money when the sheep were sold; that the question of the payment of the individual notes had often come up for consideration, and Test had at all times assured the bank that as soon as the sheep were sold it would get its money on them as well as those of the firm; that he had a conversation with Test in July, 1906, and told him the directors were dissatisfied with the amount of indebtedness and wanted security by mortgage on the sheep; that Test would not give the mortgage, but said, "We expect to sell this property in a short time, and when this property is sold, you shall have your money"; that the individual notes had always been regarded by the bank as partnership indebtedness, and interest thereon was from time to time charged to the partnership account, and a statement rendered to the firm; that at one time Test paid the interest on Jones' note by a firm check; that at another time Test asked witness to request Porter to pay his note, as he seemed disinclined to sell the sheep, and that a short time afterwards witness saw Porter and inquired when he would be able to pay his note, and he said he could not pay it then, but as soon "as we sell the sheep you shall get your money"; that the next day after the notes had been charged off the president of the bank and witness had a conversation with Test concerning the matter, and Mr. Alexander said to him, "You know that it was the understanding all the time that this indebtedness was to be paid when the sheep were sold," and Test replied, "I have never denied that, but we cannot pay our individual notes until the company's debts are paid," and that he would not consent to paying the individual notes, because it might involve them in a lawsuit; that on the next day after the money had been deposited in the bank by Porter Test came in and told witness he had better charge up the notes for he (Test) was about to be sued and attached, but no particular notes were mentioned at that time; that on the 1st or 2d of October Jones came into the bank and got his note, saying, "I guess it is paid, and I am entitled to it"; that Porter came in and got his note

after the garnishment had been served, and Test's notes were mailed to him, and none of such notes have ever been returned. Mr. Alexander said that on one occasion he had a conversation with Mr. Test about the Porter notes, and Test told him that they were partners in the sheep business, and when the sheep were sold the firm would pay the notes from the proceeds of the sale; that he had other conversations with Test about the individual notes, and it was understood that they would be taken care of by the firm and paid when the sheep were sold; that he had a conversation with Jones in May, 1906, in which he expressed a fear that enough would not be realized from the sheep to pay the partnership and individual notes, and Jones assured him that there would be sufficient for that purpose, and he (witness) told Jones that if he would get a letter from Test to that effect the bank would wait, and the payment of Jones' note was extended with that understanding; that it had been the custom of the bank to charge the interest due on the individual notes to the firm account. This is all the testimony concerning the right of the bank to charge to the firm account the notes of the individual members, and it is clearly insufficient to show that such charge was made with the consent of all the members of the firm. There is no testimony whatever that Porter or Jones agreed or consented that the notes of Test should be paid from the partnership assets, or that either agreed that the note of the other should be so paid. All that can be reasonably claimed from the testimony is that each partner, when pressed for payment of his own note, stated to the bank that it would be paid as soon as the property belonging to the firm could be sold, but this amounts to nothing more than the assurance that each partner would pay his own indebtedness from the surplus due him after the partnership affairs were settled, and not that such assets should be used for the payment of the individual debts of the members of the firm. There is no testimony showing a direct promise by either one or more of the partners that the firm would pay or assume the individual debts. The tenor of the whole testimony is that each partner expected, when the sheep were sold, that there would be money enough to pay all the firm debts and leave a balance coming to the respective partners sufficient to pay their individual debts.

We conclude, therefore, that within the settled rule of law the defendant did not make out such a case as will entitle it to charge to the firm account the individual notes of the members of the firm, and that the court below was right in directing a verdict in favor of the plaintiff. The verdict in this case was returned on the 1st day of May, 1907, but the judgment entry, which was made on the 4th, recites that it is based on a verdict returned on the 2d, but this was manifestly a clearly clerical error which could affect no substantial

It is in general essential to the validity of acts done at a special or called meeting of a corporation that the call shall be made by the persons appointed by the governing statute to call such meetings, and notice must be given at the time and in the manner prescribed.

[Ed. Note. For cases in point, see Cent. Dig. vol. 12, Corporations, §§ 734-743.]

2. SCHOOLS AND SCHOOL DISTRICTS - PUBLIC SCHOOLS-DISTRICT BOARDS - MEETINGS PERSONS GIVING NOTICE.

B. & C. Comp. § 3385, vesting in school district meetings the power to levy taxes, expressly limits such power to "district meetings, legally called"; section 3389, subd. 1, empowers the district school board to call meetings generally; and subdivision 14 empowers it to call meetings to consider the question of erecting school buildings. Section 3380 provides that all regular and special school meetings must be convened by a call stating the objects of such meeting, signed by the chairman of the board and the district clerk, or a majority of the district school board. Held, that section 3380 was intended to designate the persons who should give notice of a called meeting ordered by the board, and not merely to give the officers therein named a discretionary power to call a meeting, and the existence of the same power in some other body was necessarily excluded. 3. STATUTES

CLAUSES.

CONSTRUCTION

RELATED

To ascertain the intention of a statute it must be construed in connection with all other provisions of the act of which it forms a part.

[Ed. Note.-For cases in point, see Cent. Dig. vol. 44, Statutes, §§ 259-265, 302-306.] 4. SCHOOLS AND SCHOOL DISTRICTS-PUBLIC SCHOOLS-MEETINGS-PERSONS GIVING NOTICE "CHAIRMAN OF THE BOARD."

B. & C. Comp. § 3380, provides that all regular and special school meetings must be convened by a written call stating the objects of such meetings, signed by the chairman of the district board and district clerk, or a majority of the school board. Section 3388 provides that the director who has served the longest time shall act as chairman of the board meetings, and, in the absence of the chairman, the other members of the board in the order of their seniority may act as chairman. The statute does not expressly create the office of "chairman of the school board," but such office was impliedly recognized by section 3389, subd. 16, providing that school warrants must be drawn and signed by the chairman of the board, and subdivision 21 permitting the board to authorize the chairman to draw warrants for the payment of salaries, and subdivision 31 providing that all bonds issued shall be signed by the chairman of the board of directors, and section 3409 providing that meetings of the board may be convened by written notice issued on the order of the chairman. Held, that the various sections of the statute construed together recognized the permanent and separate existence of the office of "chairman of the board," and by section 3388

the oldest in service of the directors was chairman of the board, and hence a special meeting called under section 3380 signed by the next oldest member of the board was not signed by "the chairman of the board," as required thereby, and bonds issued at such a meeting were invalid. 5. SAME DISTRICT DEBTS-BONDS-REMEDIES OF TAXPAYER-PARTICIPATION IN MEETINGESTOPPEL TO OBJECT-PLEADING.

In a suit to enjoin the issue of bonds to build a district school building, on the ground that the meeting of the district board authorizing the issue of the bonds was not legally convened, even if plaintiff had knowledge of the meeting and participated therein, and was thereby estopped to question the validity of the proceedings in equity, such facts would be a matter of defense by way of estoppel.

Moore, J., dissenting.

Appeal from Circuit Court, Polk County; William Galloway, Judge.

Suit by Seth Riggs against the county of Polk and others. From a decree dismissing the complaint and dissolving a temporary injunction, plaintiff appeals. Decree reversed, with instructions to sustain demurrer to the answer, and for further proceedings.

Plaintiff, who is a resident of and owns property in school district No. 45 of Polk county, instituted this suit to enjoin the collection of a school tax attempted to be levied by that district. It is alleged, in substance, that at the time of the issuance of the call for the holding of the meeting at which the tax was levied A. M. Holmes, Finley M. Edgar, and Mason K. Crowley were the duly elected and qualified directors of the district; that of the three Holmes had served the longest time under an election. Edgar was next in seniority of service, and Crowley was the junior director; that on December 3, 1904, Edgar attempted to convene a special school meeting of the district to be held at the schoolhouse at the hour of 10 o'clock in the forenoon of December 17, 1904, by a written notice, which is pleaded hæc verba. It is signed by Edgar as chairman pro tem. of the board of directors, and by the clerk of the district, and sets forth the object and purpose of the meeting to be the levying of a tax for building a schoolhouse in said district. It is further alleged that at the time of the issuance of the notice Holmes was chairman of the board of directors, and that said notice was not signed by the chairman of the board of directors, nor by a majority of such board; that in pursuance of such notice a meeting was held at the time and place therein stated, which attempted to levy a tax of seven mills on the dollar upon the real and personal property in the district; that the amount of tax levied upon plaintiff's property was $82.28, which became delinquent, and, in pursuance of a warrant issued to the defendant by the county court, he is about to sell plaintiff's property for the collection thereof. A general demurrer to the complaint having been overruled, defendants answered, admitting the averments of the complaint, excepting that part which sets