Opinion
Opinion delivered March 10, 1930.
1. GARNISHMENT — IMPROVEMENT DISTRICT. — An improvement district or governmental agency is not subject to garnishment prior to completion of the improvement for construction of which it was created. 2. GARNISHMENT — IMPROVEMENT DISTRICT. — Before funds due from an improvement district are subject to garnishment, the insolvency of the debtor must be shown. 3. APPEAL AND ERROR — HARMLESS ERROR. — Though the original complaint, in an action to subject an improvement district to liability on equitable garnishment to pay a balance due to insolvent contractors did not allege the insolvency of the debtors and that the contemplated improvement was completed, overruling a demurrer to such complaint was harmless where it was shown on the hearing that the improvement was substantially completed, and the insolvency of the debtors was alleged by way of amendment to the complaint. 4. APPEAL AND ERROR — FINAL DECREE. — A decree determining the right of a creditor to receive the amount of its claim against insolvent contractors and to have the balance remaining due to such contractors from an improvement district impounded and paid on such claim held final, from which an appeal should have been taken within 6 months, as required by Crawford Moses' Dig., 2140. 5. BANKRUPTCY — DEFENSE TO GARNISHMENT PROCEEDING. — Where an improvement district sued as equitable garnishee to subject money it owed to bankrupt contractors neglected to make the trustee of such bankrupts a party to the proceeding and did not ask any relief against the contingency of liability to payment of the money due such contractors to the estates of the contractors' for the benefit of their estates, it cannot avoid a decree subjecting it to garnishment as being contrary to Bankruptcy Act, 67f (11 U.S.C.A., 107f).
Appeal from Phillips Chancery Court; A. L. Hutchins, Chancellor; affirmed.
Bevens Mundt and J. G. Burke, for appellant.
A. D. Whitehead, W. G. Dinning, amici curiae.
STATEMENT BY THE COURT.
This appeal comes from a decree holding appellant improvement district liable on an equitable garnishment to pay the balance due the insolvent contractors in settlement of appellee's claim, as a furnisher of materials for making the improvement.
On the 21st day of November, 1927, appellee filed it's complaint in the Phillips Chancery Court against George C. Kaucher and Elmer C. Hodges, partners under the name of Kaucher-Hodges Company, contractors, the appellant district and the American Surety Company. It alleged that it had furnished certain materials under a written contract to the contractors, which were used in the construction of the improvement for the district, the amount due thereon, the making of the bond by the surety company, the insolvency of the contractors and abandonment of the construction, the amount it claimed to be due from the district to the contractors, and prayed that it be impounded in the hands of the district and subjected to the payment of its debts against the district, and a judgment for the balance due against the bonding company. The complaint stated that the building or improvement was never completed and remained uncompleted at the present time. Later, about two months, appellee filed an amendment to its complaint, alleging that the building contractors had filed a petition in bankruptcy in Tennessee, that the contract with the appellant district was abandoned before the completion of the work of construction on the building, that the amount due the contractors had not been forfeited under the terms of the contract, and that they were insolvent and later adjudged bankrupts, etc.
On the 21st day of December, 1927, appellant filed an answer and demurrer to the complaint setting out several grounds, first, generally that it was insufficient, that it showed the improvement was not completed, and the district not liable to garnishment until after its completion, that no final settlement had been made between the contractors and the improvement district, and it did not know the amount due the contractors. It alleged that the contractors took the position that the improvement had been completed while the district denied that such was the case, that the contractors were bound to complete the improvement, and upon their default the district had reserved the right to do so and charge the expense thereof to the contractors, that it was unwilling to estimate the amount necessary to complete the building and could not determine the amount due the contractors. Appellants demurrer was overruled on March 27, 1928, and no exceptions were saved to the ruling by the defendant.
The contractors filed no answer.
The surety company alleged in substance that the improvement was completed and taken over, the construction contract fully performed more than six months before the filing of appellee's complaint, the failure of appellee to bring the suit within the time allowed by the statute for recovering on bonds given for public improvements. In its amendment it alleged the suit was not brought within three months after the materials had been furnished or delivered, nor within three months after the completion of the improvement, and pleaded the three months' delay as a defense. A demurrer was filed to the amended answer and overruled and exceptions saved.
It appears from the testimony that the improvements were substantially completed on February 19, 1927, the architect and engineer in charge of the construction of the building so testified, the final estimate had been made and the district had been in possession of the improvement for more than eight months, but still claimed there were defects in the roof which should be repaired by the contractors. Under date of May 18, 1927, the architect and engineer, Mr. Shultz, in charge of the construction, wrote the American Surety Company, answering its inquiry of May 17, 1927, that the Wharf Improvement contract had been completed with the exception of one or two minor details, that the contracting company had a great many accounts outstanding at the time. The contractors were shown to reside in Memphis, Tennessee.
The chancellor held on the 23d day of July, 1928, that the district was indebted to the contractors in the sum of $5,215.92, principal and interest, but was unable to determine the amount that the improvement district had in its possession of said sum of money, decreed that enough of any moneys in the hands of the district be paid to appellee to satisfy the contractor's indebtedness due it, ordered the money due from the district to be impounded for the purpose, and that, if the amount of money in the hands of the district was not enough to pay the plaintiff, all in its possession should be paid to it, and for the balance due it should have judgment against the surety company. In the event it was found there was no money in the hands of the district, appellee company should recover the whole amount of its debts, $5,215.92 from the surety company; found that the buildings of the improvement district were substantially completed, and that the suit was filed within the six months period. A master was appointed to ascertain the amount due from the improvement district to the contractors. Upon filing his report he was allowed a fee of $500, which was ordered to be paid by the improvement district and charged against the account of the contractors and deducted from the funds that the district might otherwise be required to pay into the registry of the court, etc. What is called a final decree was entered on the 23d day of May, 1929, wherein if was decreed that $5,872.87 due the contractors by the improvement district should be paid to the appellee company to satisfy its claim against the contractors in the sum of $5,476.60, less $500 ordered paid the master for stating the account of March 26, 1929, leaving the sum of $5,372.87, which it ordered paid to the appellee company by the improvement district. It further adjudged that the appellee recover from the improvement district $5,372.87, being the whole amount due the contractors after the payment of the $500 fee to the master. It was further decreed that, in case of default made by the improvement district in the payment of the amount due the contractors adjudged to be paid the appellee company, appellee recover from the surety company "the said sum of $5,372.87" in addition to the $103.83 heretofore decreed to be in favor of appellee company, etc. The defendants were required to pay the costs, and it was further decreed "that the decree entered herein on the 23d day of July, 1928, be made perpetual, and that plaintiff have execution and writ of garnishment in form as upon a judgment at law." From this decree the appeal is prosecuted by the improvement district.
(after stating the facts). Appellant insists for reversal that the court erred in overruling its demurrer to the complaint of appellee, and that the funds due from the appellant improvement district to the contractors were not subject to garnishment for debts due from the contractors to appellee company for materials furnished, and used in the construction of the improvement when the suit was brought, and the decree rendered. It has long been the established rule that an improvement district or governmental agency is not subject to garnishment prior to the completion of the improvement to construct which it is created. Newell Contracting Co. v. Elkins, 161 Ark. 625, 257 S.W. 54, and cases cited. It is likewise true that insolvency of the debtor must be alleged or shown before funds due from the improvement district to the debtor are subject to garnishment. Appellant's contention that the court erred in not sustaining its demurrer to the original complaint of appellee, which did not allege the insolvency of the debtors sued, and did allege that the buildings of the improvement district have never been completed and remain uncompleted at the present time, avails nothing here. A hearing was had wherein it was shown that the buildings the contractors were bound to construct, and for which materials were furnished them by appellee company, were substantially completed, as the chancellor found, and had long been in the possession of the district before the bringing of the suit. The insolvency of the contractors was also alleged by way of amendment to the complaint, which was not denied, before the hearing was had. Appellant's answer also disclosed that it would be the contention of the contractors that the improvement was completed, although it denied that such was the case. Conceding that the complaint as filed was demurrable, the facts themselves shown on the hearing supplied any defects of the complaint existing because of the allegations thereof not having been made therein.
In answer to the contention by the brief of amici curiae for the surety company, that the appeal should be dismissed, not having been taken in the time allowed by law, appellant insists that such brief cannot be considered, since no appeal was taken by the surety company, upon whose part the brief and motion was filed, and also that the contention is without merit. It is true that upon the first hearing the court decreed on the 23d day of July, 1928, that appellee company was entitled to recover the sum claimed from the insolvent contractors, and judgment against the garnishee district subjecting the amount due from it to the insolvent contractors to the payment of the judgment recovered by appellee against the contractors for materials furnished which was impounded and ordered paid to appellee in satisfaction of said indebtedness, and from which no appeal was taken. It also held that it was necessary to have an account stated in order to determine the amount due from the district to the contractors and appointed a master for the purpose. No appeal was taken from this decree by the appellant, but only from the one called a final decree entered the 23d day of May, 1929. An appeal must be taken from final judgments and decrees within the time prescribed by the statute for perfecting appeals, six months in this instance. Section 2140, C. M. Digest. This first decree determined the rights of the appellee to recover the amount of its claim against the insolvent contractors, and to have the balance remaining due such contractors from the improvement district ascertained, impounded and paid on the garnishment in settlement thereof. There was nothing further left for adjudication but only an ascertainment of the amount due, which was subjected to the payment of the judgment rendered, and the last decree appears to have recognized that such was the case in making the first decree perpetual. It was a final decree adjudicating the rights of the parties, and the appeal should have been taken therefrom. Flanagan v. Drainage District, 176 Ark. 31, 2 S.W.2d 70.
Appellant insists further that the decree sustaining the equitable garnishment and fixing a lien on the funds due from the district to the insolvent contractors is void under the provisions of the National Bankruptcy Act, 67, paragraph F (11 U.S.C.A., 107f). There is no evidence in the record of the time of the adjudication in bankruptcy of the insolvent contractors, or that there has been such adjudication, and there is no indication that any claims have been or will be made against the improvement district for collection for the bankrupt estates of the money that was due from it to the contractors under the contract for the construction of the improvement. If appellant feared that there was any liability on its part for the payment of the money due from it to the contractors upon a claim by the trustee for the benefit of the bankrupt estates, it should have made the trustee a party to the proceeding, that all the rights might be finally adjudicated. It neither did this nor made any allegation showing the condition or asking any relief against the contingency of a liability to payment of the money due the contractors to the estates of the bankrupts for the benefit of its creditors, and cannot, under this contention, avoid or evade the force and effect of appellee's judgment.
We find no error in the record, and the decree must be affirmed. It is so ordered.