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District Court of Appeal, Second District, Division 1, California.


Civ. 13777.

Decided: April 12, 1943

Ben Gould, of Los Angeles, for appellant. J. F. Rosen and H. Wolpin, both of Los Angeles, for respondent.

The defendant Fred P. Glick herein appeals from a judgment rendered against him in the sum of $3,036 and interest in an action in the nature of a creditor's suit, as provided by Section 720 of the Code of Civil Procedure. Appellant has also attempted to appeal from an order denying his motion for leave to file an amended answer and cross–complaint and from an order denying his motion for a continuance. Such orders are not appealable and may be reached only through an appeal from the final judgment. (See sec. 963, Code Civ.Proc.) A motion made by appellant for a new trial was denied by the court below.

The complaint herein is in two counts, the first based upon the assignment of a chose in action, and the second upon appellant's denial of a debt allegedly due defendant R. L. McKinney, a judgment debtor of plaintiff and respondent. The assignment set up in the first count of the complaint was of the chose in action on which the judgment set up in the second count was allegedly obtained. On the trial of the action herein plaintiff and respondent failed to offer any proof as to either the assignment or the judgment in question. Allegations in the complaint as to the same were denied in appellant's answer and the existence of neither assignment nor judgment was stipulated at the trial. The trial court, however, made affirmative findings as to both the assignment and judgment; and appellant contends that such findings are not supported by the evidence.

After appellant had taken this appeal the respondent made an application to this court for leave to take additional evidence here for the purpose of supplying the defect in proof. Respondent's application was denied; and, as an examination of the record reveals that other findings made by the trial court were based upon insufficient evidence, as hereinafter noted, formal proof of the assignment and judgment sought by respondent would not result in an affirmance of the judgment from which this appeal is taken, and the cause must be remanded for a new trial.

Sometime prior to the present controversy, Welded Products Company, Inc., a California corporation, had manufactured, sold and delivered to defendant R. L. McKinney a certain number of cleaning machines. These machines were in turn sold by McKinney to various purchasers under conditional sales contracts, which contracts were then assigned by McKinney to the Welded Products Company, Inc., as collateral security for the amounts due that corporation from McKinney for the machines in question. Appellant Glick, doing business under the firm name and style of Fabriform Steel Products Company, is the successor to Welded Products Company, Inc.; and on May 1, 1938, appellant and defendant McKinney entered into a written agreement whereby the total amount of McKinney's indebtedness to the company as of May 1, 1938, was established and settled at the sum of $4,600. This agreement also set the total of conditional sales contracts held as security for payments due the company at $13,762.89, which sum under the terms of the agreement was to be held as security for the payment of the $4,600 due the company from McKinney; and on payment thereof the company was to release and pay over the balance of the said collateral security. The company was given the right to repossess any of the cleaning machines upon the default of any purchaser under any of the conditional sales contracts. The agreement mentioned was entered into for the purpose of settling various disputes between McKinney and the company over the computation by the company of the amount owing from McKinney.

Prior to the making of this last agreement between McKinney and appellant, and on September 11, 1937, defendant McKinney had assigned to one George Karp, respondent's alleged assignor, the sum of $3,036 out of moneys due McKinney from the conditional sales contracts held as security by Welded Products Company, Inc. The company was given notice of this assignment. McKinney had entered into this transaction with Karp for the purpose of effecting the purchase by McKinney of a machine shop owned by Karp. In addition, McKinney gave Karp a note and chattel mortgage for the machine shop. The note being unpaid at maturity, respondent, as assignee of the note and mortgage in question, instituted an action against McKinney in the Superior Court of Los Angeles County and recovered judgment. Thereafter execution was issued and the writ served upon appellant as an alleged debtor of McKinney, to which writ appellant replied that he was not indebted. Whereupon the present action was instituted, after supplementary proceedings.

There was no reference of the matter in the court below for determination of the facts by a referee nor was there any accounting. Evidence as to the existence of a balance in favor of McKinney in the hands of appellant was adduced largely, if not wholly by the oral testimony of defendant McKinney, who, it appears from his testimony, kept no records of the transactions and never at any time had any accurate knowledge of the amounts that may have been due him from time to time. The following excerpt from the record reveals McKinney's testimony as to a balance due him.

“Q. In other words, Mr. McKinney, by May 1, 1938, by the agreement of May 1, 1938, you and Fabriform Steel had come to a definite understanding wherein they had set aside $4,600 for two assignors, to whom you had made assignments theretofore? A. That is correct.

“Q. And admitting a further sum of thirteen thousand some odd held in reserve for you as of that date; is that correct? A. No, sir; that is not correct.

“Q. You mean the $4,600–– A. Is a part of the $13,000; not $4,600 and then $13,000.

“Q. In other words, then, after Karp and the State Board of Equalization had been paid the $4,600, they then would be holding for you a sum in excess of $9,000? A. That is correct.

“Q. Mr. McKinney, at the time that this contract of May 1, 1938, was entered into had Fabriform Steel already received their moneys in connection with the contracts? A. Yes, they received practically every dollar owing them January 1, 1937, by selling the contracts to the C. I. T.

“Q. So they had already received their money at the time the contract was entered into? A. Mr. Nichols told me there was between $4,000 and $5,000 cash there, which I testified to before, but that he couldn't give me any of it and wouldn't give me any of it unless I set it up to take care of any liability they had in these assignments I had made. They considered that something chargeable to me and I thought they were in their rights in doing that, and that is why I accepted it. According to the records there is $9,192 to account for instead of $50,000 or $60,000 or $70,000.

“Q. In other words, those are the reserves to the accounts? A. Reserves, contracts and everything.

“The Court: His point now is, instead of starting with the larger figure of $50,000 and disposing of all the items there involved, there was this admitted balance of nine thousand some odd dollars? A. There were repossessions, six or seven changes of ownership by repossession, by sales, and the amount of those balances changed. In one instance they would decrease and another increase. If we were going to try to check those up here it would take weeks.

“The Court: They are already included in the $9,000 figure? A. Yes. We finished it up in April of 1938, the end of April, 1938, but we had been trying to get together on that for three or four months. There were many pages of figures and many scratch pads used and everything else to arrive at that figure.

“The Court: And did any of that $9,000 plus ever come back to you? A. Yes, I received some of that $9,162, as I testified to here yesterday or the day before, on the Cabrillo Cleaners. I got $1,700. And I believe from the Fabriform Steel I got approximately $700 in cash and $651 in work they did for me, making approximately $3,000 of that money I received.

“Q. Now, as to the remaining $6,000, of course you haven't had that? A. I haven't had an accounting.”

It should also be pointed out that the terms of the agreement of May 1, 1938, do not indicate that the agreement was for the purpose of setting aside the sum of $4,600 for the claims of McKinney's assignees, as stated in the question put to McKinney by counsel, above quoted. As that agreement is drawn, it appears to be solely for the purpose of arriving at a settlement of McKinney's indebtedness to appellant. The terms of the agreement referred to above disclose that on May 1, 1938, defendant McKinney was still indebted to the company in the sum of $4,600 with several contracts still to be collected. At the time of the levy of execution appellant's books showed a debit balance against McKinney of approximately $700. The trial court found that at the time appellant was served with the writ of execution, on or about June 20, 1940, appellant was indebted to R. L. McKinney in a sum in excess of $3,036.

It appears from the remarks made by the court at the conclusion of the trial that the court took the position that after the assignment to Karp, appellant's predecessor and appellant were holding the fund in question to protect Karp and were not justified in paying it out or expending it otherwise; and that upon levy of execution appellant was therefore not justified in replying that he was not indebted, since he was under obligation to preserve the fund for Karp's protection. The court stated: “* * * one holding money that way isn't warranted in dealing with those trust funds to the disadvantage of the creditor who is secured. * * * All I know is there was a judgment and when he attempted to collect the judgment Fabriform said, ‘I am sorry; we haven't that which we were holding to protect Karp. We paid it out otherwise.’ ”

The trial court apparently overlooked the fact that the fund in question was being held by appellant as security for himself and not for the primary purpose of protecting Karp. Karp was only entitled to security from the fund after McKinney's debts to appellant had been satisfied. In other words, McKinney's assignment to Karp was in the nature of a second lien upon the security in question; and Karp could only have recourse thereto after appellant's claims had been fully satisfied. In order to hold appellant liable in the present action it was incumbent upon respondent to show that at the time of the levy there was money due McKinney from appellant over and above the claims against McKinney in connection with the transactions concerning the manufacture and sale of the cleaning machines. The testimony of McKinney quoted above appears to relate largely to May 1, 1938, and before; and since it appears from the terms of the agreement of May 1, 1938, that all the conditional sales contracts in question were not completed at that time and that the transactions between McKinney and appellant or appellant's predecessor were not then fully complete, McKinney's testimony could furnish little if any basis upon which to find that on June 20, 1940, appellant was indebted to McKinney in a sum in excess of $3,036. The status as between McKinney and appellant on May 1, 1938, is no indication of what it might have been on June 20, 1940. There was no evidence that appellant had wrongfully paid out funds to which respondent or respondent's assignor was entitled. The judgment of the trial court appears to have been based solely on a theory that the obligation to pay Karp or his assignee the sum of $3,036 accrued at the time of the assignment to Karp of an interest in the conditional sales contracts in this amount. Evidence of the status of the parties at the time of the levy of execution was lacking, except for some evidence that appellant's books showed at that time a debit balance against defendant McKinney. In the light of the nature of the transactions between McKinney and appellant as revealed by the evidence the court's finding of indebtedness on the part of appellant at the time of the levy of execution is not sufficiently sustained; and appellant's motion for a new trial should have been granted in order to afford an opportunity to present more fully the facts as to the status of the parties at the time of the levy.

For the foregoing reasons the judgment is reversed and the cause remanded for a new trial. The attempted appeals from the orders are dismissed.

DORAN, Justice.

YORK, P. J., and WHITE, J., concur.

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