DENNIS TRACY V MORBARK INDUSTRIES INC
Annotate this Case
Download PDF
STATE OF MICHIGAN
COURT OF APPEALS
DENNIS TRACY,
UNPUBLISHED
March 4, 1997
Plaintiff-Appellant,
v
No. 188560
Isabella Circuit Court
LC No. 88-004375-CK
MORBARK INDUSTRIES, INC.,
Defendant,
and
FOREMOST FABRICATIONS, INC.,
Garnishee-Defendant,
and
ISABELLA INVESTMENT CORPORATION,
Intervening Defendant-Appellee.
Before: Reilly, P.J., and MacKenzie and B. K. Zahra*, JJ.
PER CURIAM.
Plaintiff appeals as of right from an order that dissolved his writ of garnishment against Foremost
Fabrications and released certain escrowed funds to Isabella Investment Corporation. We affirm.
The underlying action in this case began in 1988, when plaintiff filed a breach of contract action
against his employer, Morbark Industries. At roughly the same time, Morbark was pursuing a patent
infringement action against Foremost Fabrications. The patent case settled in 1991, with Foremost
agreeing to pay Morbark $430,000 in four annual installments ending in 1994. On August 3, 1993, the
* Circuit judge, sitting on the Court of Appeals by assignment.
-1
jury in plaintiff’s breach of contract case returned a verdict against Morbark in the amount of $76,316.
An order of judgment was entered on September 28, 1993. On September 2, 1993, between the time
of the jury verdict and the entry of judgment, Morbark assigned various receivables, including the
remainder of the Foremost settlement, to Isabella Investment Corporation as partial payment of a 1989
loan. This case involves plaintiff’s attempt to garnishee Foremost’s escrowed 1994 settlement payment
to Isabella Investment. The trial court rejected plaintiff’s claim that Morbark’s assignment of the
settlement proceeds was an invalid effort to place the proceeds out of reach of any judgment creditors
and ordered the funds released to Isabella Investment.
Only obligations owed o payable to a judgment debtor at the time a writ of garnishment is
r
served are subject to garnishment by a judgment creditor. Royal York of Plymouth Ass’n v Coldwell
Banker Schweitzer Real Estate Services, 201 Mich App 301, 304; 506 NW2d 279 (1993). See
also MCL 600.4011(1)(b); MSA 27A.4011(1)(b). When a judgment debtor assigns to a third party a
debt owed to it prior to commencement of the garnishment proceedings, a judgment creditor cannot
acquire rights to the debt unless the assignment was fraudulent. Mihajlovski v Elfakir, 135 Mich App
528, 534; 355 NW2d 264 (1984); Blumenthal v Simons, 110 Mich 42, 44-46; 67 NW 1102
(1896).
Plaintiff argues that the assignment of the proceeds from the Foremost settlement, which was
made after the verdict against Morbark had been rendered in plaintiff’s favor but before the judgment
against Morbark had been filed, was not an arm’s length transaction and was an attempt by Morbark to
defraud its creditors. Defendants counter that the assignment was made to satisfy a preexisting debt
between Morbark and Isabella Investment and was not done in an attempt to defraud any judgment
creditors. We find no error in the trial court’s conclusion that the assignment was made in satisfaction of
a preexisting debt and was thus valid.
As stated above, a judgment creditor cannot acquire rights to a debt that has previously been
assigned, unless the assignment was fraudulent. Mihajlovski, supra at 534. Pursuant to MCL 566.14;
MSA 26.884 through MCL 566.17; MSA 26.887, a fraudulent conveyance may be found if the
transfer is either intentionally or constructively fraudulent. In order for a conveyance to be intentionally
fraudulent, the transferor must have the actual intent to hinder, delay, or defraud creditors. MCL
566.17; MSA 26.887. The focus is on the intent of the transferor, not the transferee. In re Otis, 115
BR 900, 913 (Bankr ED Mich, 1990). A conveyance is constructively fraudulent if the transfer has not
been made for fair consideration and renders the transferor insolvent or in similar financial straits. MCL
566.14; MSA 26.884.
The transfer of the Foremost settlement proceeds from Morbark to Isabella Investment was not
a fraudulent conveyance. The evidence shows that Isabella Investment extended a substantial line of
credit to Morbark in 1989, several years prior to the resolution of plaintiff’s claim against Morbark. In
the intervening years, the line of credit fluctuated as Morbark paid back the debt and received other
advances. Furthermore, the loan to Morbark represented approximately five percent of the total credit
Isabella Investment had outstanding. In 1993, two judgments were entered against Morbark which
rendered it insolvent. Isabella Investment, concerned about the credit which had been extended to
-2
Morbark, requested additional security. Morbark, following the verdict in plaintiff’s favor, executed
several mortgages on its property in favor of Isabella Investment and also assigned the last two
payments from the Foremost settlement to Isabella Investment. At the time plaintiff’s writ of
garnishment was filed, Foremost was no longer obligated to pay Morbark, but instead owed the money
to Isabella Investment. Despite the close corporate structures of Morbark and Isabella Investment, the
evidence established that the assignment was an arm’s length transaction made to cover a preexisting
debt and thus fair consideration was given for the transfer. MCL 566.14; MSA 26.884. Although
somewhat suspect because of the close nature of their relationship, plaintiff has failed to show that
Morbark fraudulently conveyed the proceeds to Isabella Investment. Mihajlovski, supra at 534.
Plaintiff could not garnishee Foremost to satisfy his judgment against Morbark because Foremost no
longer owed the proceeds to Morbark. Royal York, supra. As such, the lower court properly
dismissed plaintiff’s writ of garnishment against Foremost and properly released the funds from escrow.
Affirmed.
/s/ Maureen P. Reilly
/s/ Barbara B. MacKenzie
/s/ Brian K. Zahra
-3
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.