COPELAND v. Walter Neumeyer and Lawrence J. LaBarre, Interveners and Respondents.

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

Edith COPELAND, Plaintiff, Appellant and Respondent, v. A. Michael STEWART, Defendant, Appellant and Respondent, and H. John Thompson, Defendant and Respondent, Walter Neumeyer and Lawrence J. LaBarre, Interveners and Respondents.

Civ. 32808.

Decided: October 16, 1975

Elton F. Martin, Palo Alto, for plaintiff, appellant and respondent, Edith Copeland. N. Perry Moerdyke, Jr., Timothy A. Connelly, Palo Alto, for defendant, appellant and respondent, A. Michael Stewart. Hopkins & Carley, Palo Alto, for interveners, Neumeyer and LaBarre.

In this action, brought by plaintiff Copeland as assignee of the payee of promissory notes, the makers, Stewart and Thompson, appealed from a judgment in favor of interveners, Neumeyer and LaBarre, who claim to be entitled to the amount due on the notes as judgment creditors of the payee. Plaintiff Copeland appealed from the judgment insofar as it awarded recovery to the interveners rather than herself. The appeal of Thompson was dismissed, and we filed an opinion and decision affirming the judgment insofar as it established the liability of each of the makers on his note, and reversed the judgment insofar as it awarded the amounts due to the interveners rather than to the assignee of the notes.

Thereafter upon the representation of the interveners that we had failed to consider and abide by the theory on which the case was tried in the superior court and initially argued on this appeal, we granted their petition for a rehearing. Having now considered additional argument of the parties on that point, and on the merits of the respective claims of the plaintiff and of the interveners, we have concluded that our prior decision was correct and that the judgment of the superior court in favor of the interveners must be reversed and the case must be remanded with instructions to enter judgment in favor of the plaintiff against the makers of the notes.

Appeal of Defendant Stewart

The court found that defendant and appellant Stewart and codefendant Thompson, for cash received, each executed and delivered a promissory note to plaintiff's assignor on July 14, 1969; that thereafter, and before the maturity of the notes, the payee-assignor endorsed each of the notes as follows: “This note is hereby assigned as collateral to our note payable to Mrs. Edith M. Copeland. It is renewable for one year by payment of interest due on July 14, 1970. [[[¶] SCHMIDT & ASSOCIATES, INC. by s/ Bill W. Schmidt, President.” The payee-assignor advised each of the makers in April or May 1970 that the notes were assigned to plaintiff and that they were to pay her the interest due on July 14, 1970, and if they did the maturity of the one-year notes would be extended to July 14, 1971. As indicated by the record, he also delivered to each a Xerox copy of the note as endorsed. Each of the defendants did pay the interest on his respective note July 14, 1970. According to the record, that was the first notice that the plaintiff-assignee had of the assignment. The president and leading figure of the payee company disappeared sometime in 1970 and none of the parties have seen him since that time.

The record also reflects that about July 1, 1971 defendant Stewart communicated with the assignee and offered to pay the notes if she could surrender them. When a levy was made on Stewart on or about October 18, 1971 he did not deny liability on his note but made return that the funds owed to the payee had been assigned to Copeland, the assignee.

Stewart contends that the trial court erred “in holding that parol evidence was inadmissible to show a conditional delivery of a promissory note and a failure of consideration given for the note.”

The subject parol evidence was Stewart's wholly uncorroborated testimony that at the time of the execution and delivery of his promissory note to Schmidt, the latter had promised that if he failed to raise $200,000 cash for some venture in which he and Stewart were involved, “the note would be forgiven.”

It was after this testimony was conditionally allowed that the trial court, on motion, ordered that “the evidence of the oral agreement is stricken.” In so ruling the trial court relied upon Seth v. Lew Hing (1932) 125 Cal.App. 729, 737, 14 P.2d 537, 540, holding that “the maker of a promissory note cannot rely upon an oral promise not to be held in the absence of fraud, mistake or want of consideration,” and in similar holdings of Oakland Medical Bldg. Corp. v. Aureguy (1953) 41 Cal.2d 521, 524, 261 P.2d 249 and Security First Nat. Bank v. Rospaw (1951) 107 Cal.App.2d 220, 223, 237 P.2d 76. It is at least questionable whether those cases still state the applicable rule. (See Masterson v. Sine (1968) 68 Cal.2d 222, 227-228, 65 Cal.Rptr. 545, 436 P.2d 561; Brawthen v. H & R Block, Inc. (1972) 28 Cal.App.3d 131, 136-138, 104 Cal.Rptr. 486.) But we need not resolve this issue of law.

As noted, Stewart testified that Schmidt had promised that if he failed to raise $200,000 on a certain venture the promissory note would be forgiven. In contrast the following uncontradicted earlier declarations and conduct of Stewart appear in the evidence. Two months after Schmidt had disappeared Stewart paid the interest due on the note to Copeland. After the note's maturity date and sometime in October 1971, 17 months after Schmidt's disappearance, with certain knowledge that no part of the $200,000 had been raised, Stewart endeavored to pay Copeland the principal amount of the note. He did not do so, but only because she could not “produce the original.” Later that same month, on the occasion of the sheriff's levy of execution upon him, Stewart responded: “[D]enies he owes payment to anyone other than Edith M. Copeland unless the note is surrendered.”

In White v. State of California (1971) 21 Cal.App.3d 738, 759, 99 Cal.Rptr. 58, we discussed the quantum of evidence sufficient to support a trial court's finding. We said: “[T]he court in Herbert v. Lankershim, 9 Cal.2d 409, 471-472, 71 P.2d 220, 251, discussing the rule stated: ‘There must be more than a conflict of mere words to constitute a conflict of evidence. The contrary evidence must be of a substantial character, such as reasonably supports the judgment as applied to the peculiar facts of the case. The rule announced in Morton v. Mooney et al., 97 Mont. 1, 33 P.2d 262, correctly states the rule which has been approved by this court in a number of our decisions. It is thus stated: “While the jurors [here the trial court was the trier of fact] are the sole judges of the facts, the question as to whether or not there is substantial evidence in support of the plaintiff's case is always a question of law for the court (Grant v. Chicago etc. Ry. Co., 78 Mont. 97, 252 P. 382), and in determining this question ‘the credulity of courts is not to be deemed commensurate with the facility and vehemence with which a witness swears. “It is a wild conceit that any court of justice is bound by mere swearing. It is swearing creditably that is to conclude the judgment.”””

“And speaking of ‘substantial evidence’ the court in People v. Bassett, 69 Cal.2d 122, 138-139, 70 Cal.Rptr. 193, 443 P.2d 777, said: ‘[W]e emphasized in Estate of Bristol (1943) 23 Cal.2d 221, 223, 143 P.2d 689, that “The critical word in the definition is ‘substantial’; it is a door which can lead as readily to abuse as to practical or enlightened justice.” Seeking to determine the meaning of “substantial” in this connection, the court in Estate of Teed (1952) 112 Cal.App.2d 638, 644, 247 P.2d 54, 58, canvassed dictionary and judicial definitions and concluded that the term “clearly implies that such evidence must be of ponderable legal significance. Obviously the word cannot be deemed synonymous with ‘any’ evidence. It must be reasonable in nature, credible, and of solid value; it must actually be ‘substantial’ proof of the essentials which the law requires in a particular case.””'

Following these rules, we weigh the courtroom testimony of Stewart against his undenied admissions and conduct by which, with full knowledge of Schmidt's nonperformance of the promise to raise $200,000, he repeatedly recognized his liability to Copeland on the promissory note. We conclude, as a matter of law, that even were his parol evidence allowed in evidence, it would not be of sufficient substantiality to support a finding in his favor on the issue. It follows, assuming arguendo the claimed error, it was harmless under the standards of California's Constitution, article VI, section 13; we opine that it is not reasonably probable that a result more favorable to Stewart would have been reached in the absence of the error. (People v. Watson (1956) 46 Cal.2d 818, 834-837, 299 P.2d 243.)

No error, and certainly no prejudice to Stewart, is seen in the trial court's ruling permitting Neumeyer and LaBarre to intervene in the action.

Certain other contentions of Stewart having become moot, they need not be discussed.

Appeal of Plaintiff Copeland

In addition to the findings recited above concerning the endorsement of the assignment on the note, the notification to the makers of the notes, and their payment of interest to the assignee, the court further found: “Physical custody and control of the subject promissory notes were retained by Schmidt & Associates, Inc. and its agents. The notes were never delivered by Schmidt & Associates, Inc., to Edith Copeland or any persons other than the agents of Schmidt & Associates, Inc. The notes were produced at trial pursuant to a subpoena served upon the attorney for the accountant for Schmidt & Associates, Inc.”

Although no finding was made with respect to the matter, the record shows that plaintiff holds the payee-assignors' note for $12,000. There is a suggestion in the record that the sums advanced by plaintiff were used for the advances made to the defendants in this case.

The trial court further indicated that interveners as judgment creditors of the payee of this note, by virtue of service of a writ of execution on the makers of the note in October 1971, had rights superior to the assignee. In our original opinion and decision we explained how that attempted levy was ineffective to cut off the rights of the assignee who ultimately located and subpoenaed the notes into court. We now consider and overrule the interveners' contentions that that question should not have been reviewed on appeal, and that it was, in any event, erroneously determined.


It is asserted that in the proceedings below no issue was raised by plaintiff Copeland, or by any party, as to the validity of the interveners' levy of the execution. The record shows that the plaintiff and the defendants, by stipulation, entered a general denial to the “Complaint in Intervention”; no special defense or denial was entered as to its allegation that the interveners had garnished and levied upon each defendant “for all funds owing by said defendant[s] to the judgment debtor, SCHMIDT AND ASSOCIATES, INC.” Evidence of the levies of execution was admitted at the trial without objection to its relevance, or legal effect, or otherwise. At the trial's close a copy of the interveners' judgment against Schmidt was admitted in evidence on plaintiff Copeland's and defendants' stipulation, based on the interveners' statement that this “is our judgment on which we levy”; it was admitted without comment or contention of the levies' invalidity. The interveners' final argument that we “stand in the shoes of Schmidt and Associates as the judgment creditors who have made their levy” went unanswered and untraversed. And no objection was made to the trial court's findings that the interveners' writs of execution were “duly levied” upon defendants Stewart and Thompson.

We cannot conclude, as asserted, that an uncontested theory of the superior court trial was that interveners' levies of execution were legally sufficient to effect judgment liens on the promissory notes at issue, and the indebtedness of Stewart and Thompson thereon. The position of Copeland throughout was that although the levies were made, they could not reach the indebtedness of Stewart and Thompson to her assignor because the assignor had already parted with that interest. As will be demonstrated below there is some merit to that contention, but in any event the rule asserted by interveners should not be used to support a judgment which is erroneous on the record because it is not supported by the evidence or the findings. The interveners assume that acquiescence in the fact a levy was made, is acquiescence in the conclusion that the levy was effective to reach the assignor's interest in the obligations of the garnished debtors. The record fails to show such acquiescence. The fact that the assignee did not expound every theory that might be advanced to attack the priority claimed by the interveners cannot be considered as acquiescence in a contrary theory which it was not necessary to oppose under plaintiff's theory of the case.

There is no invited error in this case in the sense that the plaintiff took any affirmative act such as offering inadmissible matter in evidence, offering an erroneous instruction, representing an instruction offered as correct, voluntarily submitting an issue, or proposing a finding. (Cf. 6 Witkin, Cal.Proc. (2d ed. 1971) Appeal, § 267, pp. 4257-4258.) Nor is plaintiff estopped by reason of having induced the court to make an erroneous ruling against respondents' proffered proof. (Cf. id., § 268, pp. 4258-4259.) Mere failure to object cannot give the evidence produced a greater legal effect than the law permits, or render findings, which are not supported by the evidence, sufficient. There must be some element of waiver or estoppel in the application of the foregoing principles, or in applying adherence to a theory of the case. (See id., §§ 266, 270-273, 281, pp. 4257, 4260-4261, 4269-4270.)

Acquiescence in the interveners' argument that they stood in the shoes of the original payee-assignor as judgment creditors who have made their levy is no more than acquiescence that the interveners took the rights of the payee-assignor subject to the prior assignment to plaintiff. No estoppel is involved. The interveners did not rely on their earlier levy. The record shows that they sought to seize the notes, which were in the custody of the court as exhibits, by a second levy. In connection with the rehearing the parties have had a full opportunity to expostulate the law applicable to the uncontradicted facts. It would be a miscarriage of justice to permit recovery on some theory of waiver or estoppel when there was no affirmative act by the plaintiff on which the interveners relied, and no prejudice to the interveners by considering the issue at this stage of the proceedings. (See Ward v. Taggart (1959) 51 Cal.2d 736, 742, 336 P.2d 534; Fawkes v. Reynolds (1922) 190 Cal. 204, 209; and 6 Witkin, op. cit., § 426, p. 4394.)

In Harriman v. Tetik (1961) 56 Cal.2d 805, 17 Cal.Rptr. 134, 366 P.2d 486, upon which interveners rely, it was recognized that under principles enunciated in Ward v. Taggart, supra, a party may advance on appeal a theory not advanced in the trial court when only a question of law is involved. (56 Cal.2d at p. 810, 17 Cal.Rptr. 134, 366 P.2d 486.) In Algeri v. Tonini (1958) 159 Cal.App.2d 828, 324 P.2d 724, also cited by interveners, this court pointed out, “If the issue had been presented in the trial court the plaintiff could have offered evidence on it, and the trial court could have made a finding on whether the deed of trust was or was not a purchase money deed of trust.” (159 Cal.App.2d at p. 832, 324 P.2d at p. 727.) In this case, however, the uncontradicted facts concerning the levies made by interveners are already in the record, and the sufficiency and effect of each levy is a matter of law.


The court found, “What was intended by the endorsement on the notes must be ascertained solely from the notes, and the court finds that Schmidt & Associates, Inc. intended to create a security interest in the subject notes in favor of Edith Copeland. No security interest was ever perfected in the subject notes as no delivery took place and no filing was made with the Secretary of State.”

We agree that the record sustains the finding that by the endorsement the payee intended to create a security interest in the notes in favor of the named assignee. We cannot accede to the finding that no security interest was ever perfected in the subject notes. The use of the word “collateral” indicates that the interest transferred to plaintiff was a security interest. (See Cal.U.Com.Code, § 1201, subd. (37), and § 9102, subd. (1) (a).)1 The second part of the finding is dependent on the provisions of section 9105, subdivision (1)(g), which defines a negotiable instrument as an “instrument”2 ; and sections 9302, 9303, 9304, 9305 and 9306 which refer to the perfection of a security interest.3

The official comment to the portion of the code dealing with secured transactions states in part: “The rules set out in this Article are principally concerned with the limits of the secured party's protection against purchasers from and creditors of the debtor. Except for procedure on default, freedom of contract prevails between the immediate parties to the security transaction.” (Deering, Cal.U.Com.Code (1970) following § 9101, p. 220; and see West, Cal.U.Com.Code (1968) following § 9101, p. 11 and supp. p. 201.) The code expressly provides, “Except as otherwise provided by this code a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors․” (§ 9201, portion.) The purpose is twofold, to protect the lender in his security and to protect general creditors from secret liens and encumbrances.

More specifically the official comment of section 9304 points out, “With respect to instruments subsection (1) provides that, except for the cases of ‘temporary perfection’ covered in subsections (4) and (5), taking possession is the only available method; … The rule is based on the thought that where the collateral consists of instruments, it is universal practice for the secured party to take possession of them in pledge; any surrender of possession to the debtor is for a short time; therefore it would be unwise to provide the alternative of perfection for a long period by filing which, since it in no way corresponds with commercial practice, would serve no useful purpose.” (Deering, op. cit., following § 9304, p. 333; and see West, op. cit., following § 9304, p. 167 and supp., p. 247.)

The transaction should be reviewed in the light of the foregoing purposes and practices. When the payee-assignor endorsed the notes as outlined above he in effect made a declaration of trust that the proceeds of these notes would be applied to the payment of plaintiff's note. It is unnecessary to determine whether or not that endorsement alone could be revoked or would be effective as against creditors. The record reflects that before any other interests intervened the endorsement was publicized by sending copies to the respective makers with instructions to pay the assignee, and the plaintiff-assignee was made cognizant of the assignment for her benefit.

If the note had been delivered to plaintiff as further security for the obligation due her from the payee, she, as the holder of an antecedent claim against the payee, would have become a holder for value. (§ 3303, subd. (b). See former Civ.Code, § 3106; Adolph Ramish, Inc. v. Woodruff (1934) 2 Cal.2d 190, 203, 40 P.2d 509; Smitton v. McCullough (1920) 182 Cal. 530, 537-538, 189 P. 686; Pezzoni v. Greenwell (1918) 178 Cal. 649, 652, 174 P. 60; Exchange Bank v. Scholz (1942) 49 Cal.App.2d 232, 238, 121 P.2d 61; Robb v. Cardoza (1932) 127 Cal.App. 588, 592-593, 16 P.2d 325; and Schumann-Heink & Co. v. U. S. Nat. Bank (1930) 108 Cal.App. 223, 233-236, 291 P. 684.) Even without delivery of the notes the assignment was valid between the parties. (See Cal.U.Com.Code, § 9201;4 Burkett v. Doty (1917) 176 Cal. 89, 92-93, 167 P. 518; Tregear v. Etiwanda Water Co. (1888) 76 Cal. 537, 539-541, 18 P. 658; Estate of Hinds (1970) 10 Cal.App.3d 1021, 1024-1026, 89 Cal.Rptr. 341; Kent v. Kent (1935) 6 Cal.App.2d 488, 490-491, 44 P.2d 445; and Burkett v. Doty (1916) 32 Cal.App. 337, 344, 162 P. 1042.) The assignment was supported by consideration in that it was to secure an antecedent debt. (See Smitton v. McCullough, supra, 182 Cal. 530, 537, 189 P. 686; and Schumann-Heink & Co. v. U. S. Nat. Bank, supra, 108 Cal.App. 223, 236, 291 P. 684.)

Generally an assignment unaccompanied by delivery of possession of the property or instrument assigned is ineffective as to creditors of the assignor acquiring a lien upon the property by virtue of an attachment or levy of a writ of execution. (See Cal.U.Com.Code, § 9301, subds. (1)(b) and (3);5 and Burkett v. Doty, supra, 176 Cal. 89, 93, 167 P. 518; Tregear v. Etiwanda Water Co., supra, 76 Cal. 537, 541, 18 P. 658; and In re Joseph Kanner Hat Co., Inc. (2d Cir. 1973) 482 F.2d 937, 941.) Nevertheless, under the circumstances of this case anyone attempting to take the note from the possession of the payee or its agent whether by way of further endorsement or assignment, as purchaser or other transferee, or as a levying creditor would be put on notice by the restrictive endorsement that the note could not be transferred without concerted action by the payee and its assignee. (See Cal.U.Com.Code §§ 3205, subd. (d) and 3206, subd. (4);6 Nordin v. First Trust etc. Bank (1931) 118 Cal.App. 697, 703, 6 P.2d 92; and note D'Orazi v. Bank of Canton (1967) 254 Cal.App.2d 901, 907, 62 Cal.Rptr. 704.) Having received such notice, upon inquiry, such transferee from or successor to the interest of the payee would ascertain that the maker would not make payment without the concerted action of the assignee and the successor to the payee's rights as holder of the original instruments. There was therefore no secret lien involved.

We would therefore conclude that by the restrictive endorsement, by the notice to the makers, including the delivery of copies of the note as so assigned, and by the advice to the assignee upon the payment of the interest, there was a constructive delivery which perfected the plaintiff's security interest as required by subsection (1) of section 9304. (Fn. 3 above. Cf. Greco v. Oregon Mut. Fire Ins. Co. (1961) 191 Cal.App.2d 674, 683-684, 12 Cal.Rptr. 802; and Oakland Bank of Commerce v. Hayes (1958) 159 Cal.App.2d 257, 262, 323 P.2d 509.) Moreover, insofar as the restrictive endorsement effected the negotiability of the note it may have become a “general intangible” for which no filing is necessary. Section 9106 states, “… ‘General intangibles' means any personal property (including things in action) other than goods, accounts, contract rights, chattel paper, documents, and instruments. Any interest or claim in or under any policy of insurance is a general intangible.” Section 9302 provides in pertinent part, “(1) A financing statement must be filed to perfect all security interests except the following: … [¶] (g) A security interest in general intangibles; provided, however, that as between bona fide assignees for value without notice of the same general intangible consisting of any right to payment, the assignee first giving notice thereof to the account debtor in writing shall have priority, but the assignment of such general intangible shall not be of itself notice to the account debtor so as to invalidate any payments made by him to the transferor; …”


Even if it may be said that there was a failure to perfect the assignee's security interest by transfer of possession or filing (§ 9304, subd. (1)), the interveners failed to show that they were lien creditors within the provisions of section 9301. As pointed out in the former opinion the levy on the makers of the notes was ineffective to reach the payee-assignor's interest in the notes. (See Hoxie v. Bryant (1900) 131 Cal. 85, 88-90, 63 P. 153; Phoenix v. Kovacevich (1966) 246 Cal.App.2d 774, 778, 55 Cal.Rptr. 135; Jubelt v. Sketers (1948) 84 Cal.App.2d 653, 655, 191 P.2d 460; and Haulman v. Crumal (1936) 13 Cal.App.2d 612, 615-617, 57 P.2d 179. Cf. Puissegur v. Yarbrough (1946) 29 Cal.2d 409, 412-413, 175 P.2d 830.) The conclusion that plaintiff should be able to assert this principle (see part I above) is buttressed by the fact that any levy on the payee-assignor or its agent in possession of the note would have secured an instrument which on its face indicated that the judgment debtor had parted with its interest (see part II above).

The parties have debated the issue as to whether the second levy could be effective to create a lien upon the notes in the custody of the court as exhibits, in the absence of the consent of the court. (See Phoenix v. Kovacevich, supra, 246 Cal.App.2d 774, 778-779, 55 Cal.Rptr. 135; and Lea v. Strebe (1962) 201 Cal.App.2d 227, 230, 20 Cal.Rptr. 20.) Interveners claim that even if the trial court erroneously gave the first levy an effect not warranted under the law, the judgment should be affirmed because the second levy established their rights as lien creditors and sustains the judgment. (See Davey v. Southern Pacific Co. (1897) 116 Cal. 325, 329, 48 P. 117.) This contention overlooks the fact that at the time of the levy the plaintiff had in effect reduced the note to possession by use of process of the court. (See Stewart v. Santa Rosa Mining Co. (1944) 62 Cal.App.2d 201, 205, 144 P.2d 31.)

The judgment in favor of interveners is reversed insofar as it grants recovery to them and denies recovery to plaintiff Copeland, and it is affirmed insofar as it imposes liability on defendants on their notes. The case is remanded with instructions to the trial court to determine the amount due to plaintiff on her note from Schmidt, to apply so much of the amounts due on the notes of defendants Stewart and Thompson7 as may be necessary to discharge the former obligation, and to order the surplus, if any, paid to interveners. Let plaintiff recover her costs on appeal from interveners, and let interveners recover so much of their costs on appeal as may be related to the appeal of defendant Stewart from that defendant.

I dissent.

California's Uniform Commercial Code carefully and repetitiously provides that an “instrument” such as those here at issue (see § 9105, former subd. (1)(g), now subd. (1)(i)), when pledged as security for payment of an obligation, is invalid as such security vis-à-vis a person who becomes a “lien creditor” i. e., one “who has acquired a lien on the property involved by attachment, levy or the like ․” (§ 9301, subd. (3)), unless the secured party shall take possession of the instrument (§§ 9205 (last sentence), 9302, subd. (1)(a), and 9305), or a “financing statement” is filed with the Secretary of State (§§ 9304, 9401-9408).

Neither of these validating steps was taken here. The trial court so found, on substantial evidence.

By our majority opinion we have created two additional nonstatutory methods of validating such a security transaction.

First, such a valid security interest may now be created where the pledgor (a) retains the pledged instrument, but makes “a declaration of trust that the proceeds … would be applied to the payment” of his obligation to the pledgee, and then (b) sends a copy of the declaration of trust to the instrument's maker, the obligor, and otherwise makes the pledgee cognizant of the declaration's existence.

Alternatively, the statutory methods of perfecting a security interest need not be followed if the instrument, although retained by the pledgor, shows on its face an intent to pledge, thus giving notice of such intent to “anyone attempting to take the note from the possession of the payee or its agent,” such as “a levying creditor” of the pledgor.

In this state, and throughout the numerous other jurisdictions which have also adopted the Uniform Commercial Code, no authority is found supporting these extensions of a basic tenet of that code.

“Underlying purposes and policies of this code are (a) To simplify, clarify and modernize the law governing commercial transactions; … (c) To make uniform the law among the various jurisdictions. …” (Cal.U.Com.Code, § 1102.) This purpose, I think, is defeated by the majority opinion.

It is noted also that the rationales relied upon by the majority are wholly unnecessary to their decisional result. Since, as they have found, the interveners' garnishment levy was legally ineffective, then the interveners were not “lien creditors” and plaintiff's otherwise defective “security agreement [was] effective according to its terms between the parties … and against creditors [such as interveners].” (§ 9201.)

Further, as is pointed out in the majority opinion, the theory found to be determinative of the appeal was not raised or considered in the superior court. It is my view that this theory does not concern a question of law alone. The record establishes not only the interveners' invalid garnishment against Stewart and Thompson, but also a levy upon the promissory notes themselves while they were in the custody of the court. This levy apparently would have been valid if it had been with consent of the court, and perhaps otherwise. Because of the erroneous acceptance, by all parties and the court, of the validity of the earlier garnishment, the parties offered no evidence, and the court made no findings of fact, relating to the validity of the in custodia legis levy. I would, in any event, remand the cause to the superior court for resolution of this, and perhaps other, factual issues not reached at the trial.


1.  “‘Security interest’ means an interest in personal property or fixtures which secures payment or performance of an obligation. …” (§ 1201, subd. (37).)“(1) Except as otherwise provided in Section 9103 on multiple state transactions and in Section 9104 on excluded transactions, this division applies so far as concerns any personal property and fixtures within the jurisdiction of this state. [¶] (a) To any transaction (regardless of its form) which is intended to create a security interest in personal property including goods, documents, instruments, general intangibles, chattel paper, accounts or contract rights; …” (§ 9102, subd. (1)(a).)[All references herein are to the Code as it reads before January 1, 1976, the effective date of amendments made by Statutes 1974, chapter 997. (See §§ 11101, 11103 and 11107 as so added.)]“(2) This division applies to security intertests created by contract including pledge, assignment, chattel mortgage, chattel trust, trust deed, inventory lien, equipment trust, conditional sale, trust receipt, other lien or title retention contract and lease or consignment intended as security ․” (§ 9102, subd. (2) emphasis added.)

2.  “(1) In this division unless the context otherwise requires: … (g) ‘Instrument’ means a negotiable instrument (defined in Section 3104), or a security (defined in Section 8102) or any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in ordinary course of business transferred by delivery with any necessary indorsement or assignment; …” (§ 9105, subd. (1)(g), emphasis added.)

3.  “(1) A security interest is perfected when it has attached and when all of the applicable steps required for perfection have been taken. Such steps are specified in Sections 9302, 9304, 9305 and 9306. If such steps are taken before the security interest attaches, it is perfected at the time when it attaches.” (§ 9303, subd. (1).)“(1) A financing statement must be filed to perfect all security interests except the following: [¶] (a) A security interest in collateral in possession of the second party under Section 9305; …” (§ 9302, subd. (1)(a).)“(1) A security interest in chattel paper or negotiable documents may be perfected by filing. A security interest in instruments (other than instruments which constitute part of chattel paper) can be perfected only by the secured party's taking possession, except as provided in subdivisions (4) and (5).” (§ 9304, subd. (1), emphasis added. Subdivisions (4) and (5) are not pertinent to this case.)“A security interest in … instruments … may be perfected by the secured party's taking possession of the collateral. If such collateral other than goods covered by a negotiable document is held by a bailee, the secured party is deemed to have possession from the time the bailee receives notification of the secured party's interest. A security interest is perfected by possession from the time possession is taken without relation back and continues only so long as possession is retained, unless otherwise specified in this division. The security interest may be otherwise perfected as provided in this division before or after the period of possession by the secured party.” (§ 9305.)

4.  “Except as otherwise provided by this code a security agreement is effective according to its terms between the parties, against purchasers of the collateral and against creditors. Nothing in this division validates any charge or practice illegal under any statute or regulation thereunder governing usury, small loans, retail installment sales, or the like or extends the application of any such statute or regulation to any transaction not otherwise subject thereto.” (§ 9201.)

5.  “(1) Except as otherwise provided in subdivision (2), an unperfected security interest is subordinate to the rights of [¶] … (b) A person who becomes a lien creditor after the security interest attaches and before it is perfected unless the security interest is perfected within 10 days after it attaches and a person who becomes a lien creditor before the security interest attaches; …“(3) A ‘lien creditor’ means a creditor who has acquired a lien on the property involved by attachment, levy or the like and includes an assignee for benefit of creditors from the time of assignment, and a trustee in bankruptcy from the date of the filing of the petition or a receiver in equity from the time of appointment.” (§ 9301, subds. (1)(b) and (3).)

6.  “An indorsement is restrictive which either [¶] … (d) Otherwise states that it is for the benefit or use of the indorser or of another person.” (§ 3205, subd. (d).)“(4) The first taker under an indorsement for the benefit of the indorser or another person (paragraph (d) of Section 3205) must pay or apply any value given by him for or on the security of the instrument consistently with the indorsement and to the extent that he does so he becomes a holder for value. …” (§ 3206, subd. (4), part.)

7.  It is asserted that Thompson has paid the interveners and dismissed his appeal. If he did so with knowledge of the appeal of plaintiff, he did so at his peril. He could not defeat plaintiff's rights on the note by so doing.

SIMS, Associate Justice.

MOLINARI, P. J., concurs.

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