Opinion
No. 76-105
Decided March 17, 1977.
Judgment creditor sought to garnishee title company for full amount of judgment. From adverse trial court judgment, the judgment creditor appealed.
Order Reversed
1. GUARANTY — Scope of Agreement — Ambiguous Terms — Recitals — Subject Matter — Surrounding Circumstances — Significant. In order to determine the scope of a surety agreement in which the terms are ambiguous, the recitals and subject matter of the instrument, and the circumstances surrounding the transactions when the parties entered into the contract must all be considered; accordingly, although letter establishing surety arrangement between title insurer and judgment debtor stated that the insurer was bound to the judgment debtor for the sum of $15,000, nevertheless, the letter also acknowledged receipt of $22,500, and the surrounding circumstances made it clear that the sum of $22,500 was intended as being the amount of the surety bond.
2. GARNISHMENT — Debt of Another — Assumed For Consideration — Surety — May Be Liable — Garnishee — Need Not — Physically Possess Property. Although the object of garnishment is to reach the assets or credits in the garnishee's hands, where for valuable consideration one has assumed the obligation of another, he may be liable as a garnishee, and it is not necessary that he physically possess the property of the debtor.
3. Assumption of Debt — Defined — Required to be Reported — Garnishment Proceedings. One assumes the debts of another if he promises to pay the debts in consideration of property or funds received from debtor for the express purpose of paying the debt, and such assumption of debts is an action required to be reported in garnishment proceedings.
4. Title Insurer — Issuance of Policy — On Condition — Judgment Debtor — Escrow Funds — Liable to Garnishor — Obligation — Required to be Reported — Garnishment Proceedings. Where, in garnishment proceedings, the evidence showed clearly that garnishee, a title insurer, had agreed to issue a title insurance policy to the purchasers of the judgment debtor's lot in return for the payment of a premium plus the condition that the judgment debtor would escrow $22,500 with the garnishee for the express purpose of protecting the garnishee from possible payment of the judgment debtor's judgment lien, that garnishee is liable to the garnishor for the uncollected remainder of the judgment debtor's judgment, and that obligation created a right, credit, or chose in action which was required to be reported in the answer to the garnishment interrogatories.
5. Funds Placed in Escrow — Protect Title Insurer — Payment of Judgment Lien — Immaterial — Funds Not in its Possession — Debtor Alienated Funds — Judgment Against Insurer — Should Have Been Entered. Where funds were placed in escrow for the express purpose of protecting title insurer from the possible payment of the judgment debtor's judgment lien, on the subsequent garnishment of the title insurer, it is immaterial whether the title insurer had the escrow funds in its control or possession, and even though the judgment debtor may have alienated these funds, they were, as far as the judgment creditor was concerned, subject to the exclusive control of the title insurer; thus, the trial court erred in not ordering entry of judgment against the garnishee and for the judgment creditor for the uncollected remainder of the judgment debtor's judgment.
Appeal from the District Court of the City and County of Denver, Honorable Mitchel B. Johns, Judge.
Samuel J. Eaton, for plaintiff-appellant.
Aldo G. Notarianni, for defendant-appellee and garnishee-defendant-appellee.
In the above entitled cause, Ransom Distributing Company, after judgment, caused a writ of garnishment with interrogatories to be served upon Stewart Title Company of Colorado Springs. Stewart answered and Ransom traversed the answer. From the trial court's adverse ruling on the traverse and its order interpreting the surety bond, Ransom appeals. We reverse both orders.
In July 1973, a judgment was entered against Frank Vale holding him liable to Ransom for $13,060.58 plus $1,950 in attorney's fees. Soon thereafter, Ransom recorded that judgment, thereby making the judgment a lien against a subdivision lot owned by Vale.
Then, at the hearing on Vale's motion for new trial, the trial court determined that if Vale would post a surety bond in the amount of $15,000 it would stay execution on the judgment. Approximately two weeks after the hearing, the president of Stewart Title, Mr. Willhite, wrote a letter to the trial court in which he acknowledged receipt of $22,500 from Vale, and advised that Stewart was bound to Ransom for $15,000, which amount would apply to the judgment which Vale had appealed. The trial court accepted this letter as the required surety bond, and the $22,500 was placed in escrow. Stewart Title, as surety, also filed a $250 cost bond executed by Vale.
At about this time Vale sold the subdivision lot, and, in connection with this sale, and upon payment of a premium by Vale, Stewart Title issued to the purchasers an owner's policy of title insurance in the face amount of $75,000. The insurance policy contained no exception relative to Ransom's recorded judgment.
Vale ultimately lost his appeal of the judgment, and in March 1975, Ransom demanded payment of the judgment by Vale and Stewart, and also filed a motion for attorney's fees incurred as a result of the appeal. The trial court awarded $2,250 attorney's fees in addition to the $1,950 which had been previously awarded to Ransom in 1973. The total amount of Ransom's judgment including costs, interest and attorney's fees was $20,181. Stewart Title refused to satisfy the judgment because the bank in which the escrowed funds had been deposited refused to release the $22,500. The bank refused because Vale had assigned the entire escrowed amount as collateral for a loan in the amount of $10,000.
In May 1975, Stewart Title filed a motion in the trial court in which it offered to deposit $15,000 into the registry of the court in complete fulfillment of its obligation on the bond. Ransom thereupon requested judgment against Stewart Title, as surety, in the sum of $20,181, plus interest. The court then entered its order from which this appeal is taken, determining Stewart Title's liability under the bond to be $15,000, and entered judgment thereon pursuant to that order. Stewart Title deposited $15,000 in the registry of the court which Ransom thereafter withdrew without prejudice to his motion for new trial. In subsequent garnishment proceedings, Stewart Title denied having under its control any further assets of Vale, and the trial court dismissed the writ.
As its first allegation of error, Ransom contends that the trial court erred in interpreting the amount of the bond to be $15,000. We agree.
This court is not bound by the trial court's interpretation of the contract. Sentinel Acceptance Corp. v. Colgate, 162 Colo. 64, 424 P.2d 380. In order to determine the scope of a surety agreement in which the terms are ambiguous, we must look to the recitals and subject matter of the instrument, and the circumstances surrounding the transaction when the parties entered into the contract. Bonney v. Robertson, 6 Colo. App. 485, 41 P. 842. And, it is well established that a contract will be most strictly construed against the party who drafted it, here Stewart Title. Beeson v. State Automobile Casualty Underwriters, 32 Colo. App. 62, 508 P.2d 402, aff'd, State Automobile Casualty Underwriters v. Beeson, 183 Colo. 284, 516 P.2d 623.
In the letter to the trial court, Mr. Willhite, on behalf of Stewart Title, acknowledged receipt of Vale's $22,500, these funds being proceeds from the sale of the lot which was subject to the judgment lien, and advised that this sum was received in "escrow" and was "being held pending disposition of an existing judgment in respect to Frank A. Vale, and Ransom Distributing Company . . . ." While the letter stated that Stewart Title was bound to Ransom for the sum of $15,000, Willhite concluded the letter with the statement that:
"Stewart Title Company of Colorado Springs, Inc., does further state that they except [sic] no liability for any cost, charges, or damages over and above those funds being held in escrow."
It seems clear that the sum of $22,500 was intended to protect Stewart Title from being exposed to any loss on the title policy which might result from Ransom's outstanding judgment lien. This conclusion is substantiated by statements made by Stewart Title's counsel at the hearing held to interpret the bond. He explained that it was customary for title companies to require an amount in escrow of one and one-half times the amount of the judgment because litigation might continue for years and interest on the judgment and costs of appeal might accumulate. This is precisely what happened here.
[1] Appellate procedures and directions on remand caused the judgment entered against Vale to be increased to $20,181. Accordingly, we conclude that the amount of the surety bond was intended to be the $22,500 received in escrow by Stewart Title pending final outcome of Vale's appeal of the judgment entered against him, and we therefore reverse the trial court's order of interpretation.
Ransom further contends that Stewart Title incorrectly answered the interrogatories attached to the writ of garnishment. He urges that it should have reported the $22,500 deposited in escrow in a bank as a credit of Vale's to which Stewart Title Company was entitled, even though it did not have the funds in its possession. We agree. Although Stewart Title has asserted that certain issues related hereto were not preserved in the motion for new trial, we have considered this argument and rejected it.
[2,3] C.R.C.P. 103(b) provides that a party who causes a writ of garnishment to issue may attach the credits, debts, or choses of action of the debtor which are in the garnishee's possession or control. The object of garnishment is to reach the assets or credits in the garnishee's hands. McPhee v. Gomer, 6 Colo. App. 461, 41 P. 836. Where, however, for valuable consideration one has assumed the obligation of another, he may be held liable as a garnishee, and it is not necessary that he physically possess the property of the debtor. The assumption of debts is action required to be reported in garnishment proceedings. Field Family Construction Co. v. Ryan, 145 Colo. 598, 360 P.2d 110. One assumes the debts of another person if he promises to pay the debts in consideration of property or funds received from the debtor for the express purpose of paying the debt. Burson v. Bogart, 49 Colo. 410, 113 P. 516.
[4] Such is the posture of the instant case. The evidence adduced at the hearing on Ransom's traverse of Stewart Title's answer shows clearly that Stewart Title agreed to issue a $75,000 title insurance policy to the purchasers of Vale's lot for a $280 premium plus the condition that Vale would escrow $22,500 with the garnishee for the express purpose of protecting the garnishee from possible payment of Vale's judgment lien. There being valuable consideration in exchange for its assumption of a judgment debt, Stewart Title is liable to Ransom for the uncollected remainder of Ransom's judgment. This obligation created a right, credit, or chose in action which was required to be reported in the answer to the interrogatories. Field Family Construction Co. v. Ryan, supra.
[5] It is immaterial whether Stewart Title had the escrowed funds in its control or possession, and even though Vale himself may have alienated these funds, they were, as far as Ransom was concerned, subject to the exclusion control of Stewart Title. While Stewart Title may have a remedy against Vale, or the bank, Ransom's rights against Stewart Title have not changed. The trial court therefore erred in not ordering entry of judgment for Ransom for uncollected remainder of the judgment.
As this error requires reversal, we do not reach appellant's other assertion of error.
Judgment and order reversed.
JUDGE RULAND and JUDGE BERMAN concur.