ROSEBURG LOGGERS, INC., etc., Plaintiff and Cross-Defendant, v. U. S. PLYWOOD-CHAMPION PAPERS, INC., etc., sued herein as United States Plywood Corporation, Defendant and Cross-Complainant, Foley Roads, Inc., Cross-Defendant.
DIRECTOR OF HUMAN RESOURCES DEVELOPMENT, Claimant and Respondent, v. J. R. STANDLEY & SONS LOGGING COMPANY, Claimant and Appellant.
The question presented on this appeal relates to the priority of a lien claimed by the state's Director of Human Resources Development (hereafter Director) upon his compliance with Unemployment Insurance Code section 1703, and one claimed by J. R. Standley & Sons Logging Company (hereafter Standley) under Code of Civil Procedure section 688.1.
On December 15, 1969, Roseburg Loggers, Inc. (hereafter Roseburg), filed an action for damages against United States Plywood Corporation in the Superior Court of Humboldt County.
Roseburg was indebted to the Director for unpaid contributions of $2,375.10 with accruing interest, owed by virtue of the provisions of the Unemployment Insurance Code. On February 27, 1970, the director filed for record in the office of the Humboldt County Recorder the certificate required by Unemployment Insurance Code section 1703,1 and thereby acquired ‘a lien upon all the property in the county’ of Roseburg for the amount due.
Standley was a judgment creditor of Roseburg. On June 19, 1970, after complying with Code of Civil Procedure section 688.1,2 Standley was ‘granted a lien’ upon Roseburg's cause of action by the superior court.
On March 10, 1971, the Director, having applied ‘for an order granting a lien with regard to the provisions of section 688.1, Code of Civil Procedure,’ was granted a lien on Roseburg's cause of action ‘effective February 27, 1970,’ the date of the filing of his certificate for record under unemployment Insurance Code section 1703, and in the amount specified by the certificate.
Thereafter, on or about August 1, 1972, Roseburg compromised and settled its cause of action against United States Plywood Corporation for $10,000.
On March 8, 1973, the superior court, after proceedings therefor, ordered that the lien of the Director, having become effective upon its recordation on February 27, 1970, held priority over Standley's lien which was granted by the court on June 19, 1970.
Standley has appealed from the order granting priority to the Director's lien.
A cause of action is ‘personal property.’ (Code Civ.Proc., § 17, subd. 3; Everts v. Will S. Fawcett Co., 24 Cal.App.2d 213, 215, 74 P.2d 815.)
The theory of the parties to the appeal, in the superior court and in this court, was and is that at the time of the filing for record of the Director's certificate on February 27, 1970 and thereafter, Roseburg's cause of action against United States Plywood Corporation was intangible personal property, the situs of which was Humboldt County. We accept this theory (see 6 Witkin, Cal. Procedure (2d ed.), Appeal, § 281 et seq.), without ourselves expressing any views on the subject.
We first consider a preliminary contention of Standley that Unemployment Insurance Code section 1703, purporting to grant ‘a lien upon all the property in the county owned by’ the lienee, covers only ‘real property,’ as does the ordinary judgment lien of Code of Civil Procedure section 674. (Emphasis added.)
It is noted that section 674 specifically states that the lien created thereby becomes a lien upon the ‘real property’ of the judgment debtor. Section 1703 at one time also related only to ‘real property.’ But in 1957 its language was amended to read as it does today, i. e., ‘all the property,’ indicating a legislative intent that the lien cover personal property also. This intent is made even more clear by language of the section's 1970 amendment, adding: ‘A lien imposed by this section shall not be valid insofar as personal property is concerned as against a purchaser for value without actual knowledge of the lien.’ (Emphasis added.)
We come now to the question whether the lien upon Roseburg's cause of action, resulting from the recordation of the Director's certificate under Unemployment Insurance Code section 1703, is entitled to priority over a subsequent lien granted by the superior court under Code of Civil Procedure section 688.1.
We observe that section 1703, by its terms, granted the Director a lien from ‘the time of the filing for record’ of his certificate. It had ‘the force, effect, and priority of a judgment lien.’ And it came into being by virtue of the statute; no court order was necessary. The lien of the Director accordingly attached on February 27, 1970. On the other hand, it was the superior court's order of June 19, 1970, which created Standley's lien on that day as provided by Code of Civil Procedure section 688.1. Under the terms of the respective statutes the Director's earlier lien was prior and superior to that of Standley.
The Director's proceedings for, and the trial court's order of March 10, 1971 granting him, ‘a lien with regard to the provisions of Section 688.1, Code of Civil Procedure,’ did not have the effect of creating the lien on that date. As indicated by the order, it simply established the earlier lien of record in Roseburg's action, a necessary preliminary to the lien's enforcement.
No merit is seen in the contention that section 688.1 is the exclusive method, to the exclusion of section 1703, of obtaining a lien upon a cause of action. The language of section 688.1 requires no such result, while section 1703 states that all property of the Director's debtor is subject to the lien there provided for. Contrary to Standley's contention, McClearen v. Superior Court, 45 Cal.2d 852, 291 P.2d 449, does not hold that section 688.1 is the exclusive means of obtaining such a lien. In that case, where a certificate under Revenue and Taxation Code section 6757 (analogous to Unemployment Insurance Code section 1703) had been recorded, the state agency acquired no lien on a cause of action until its compliance with Code of Civil Procedure section 688,1. But Revenue and Taxation Code section 6757 then provided, as did section 1703 until 1957, that its recorded lien attached only to real property.
Code of Civil Procedure section 688 states that ‘no cause of action nor judgment as such, . . . shall be subject to levy or sale on execution. . . .’ This statute, we are told, exempts Roseburg's cause of action from execution and therefore to that extent nullified the Director's recorded lien of February 27, 1970. Section 1703, it is urged, must be read as imposing a lien on Roseburg's Humboldt County property not exempt from execution.
We are unpersuaded. Exemption of property from execution, by operation of law ordinarily places that property beyond the reach of its owner's judgment creditors. No similar intent of exemption of one's cause of action is shown by section 688 and its companion statute, section 688.1. These statutes simply recognize that the nature of a cause of action renders it inconvenient, and perhaps procedurally disruptive, to subject it to ‘levy or sale on execution.’ Section 688.1 instead provides for a more orderly and convenient method for one in the position of a judgment creditor to reach his debtor's cause of action in satisfaction of the judgment. Roseburg's cause of action was not exempted from the effect of the Director's lien.
Nothing is seen in Takehara v. H. C. Muddox Co., 8 Cal.3d 168, 104 Cal.Rptr. 345, 501 P.2d 913, relied upon by Standley, which is of and aid on its appeal. Citing Civil Code section 2897, that case holds that (p. 171, 104 Cal.Rptr. p. 346, 501 P.2d p. 914): “Other things being equal, different liens upon the same property have priority according to the time of their creation, . . .” As we have pointed out, since the Director's lien was first created, it had priority over Standley's.
We are not called upon to consider the right of the state to give preference over earlier liens to its own liens for taxes (see People v. Warfel, 162 Cal.App.2d 400, 403, 328 P.2d 456), or whether such was the legislative intent here. (Cf., Unemp.Ins. Code, §§ 1701, 1702, 1703.)
For the reasons stated the superior court's order granting priority to the Director's lien will be affirmed.
I respectfully dissent.
The result reached by the lower court and approved by the majority does violence to the general rules which apply to the transfer of rights in a chose in action. These rules are set forth in Smitton v. McCullough (1920), 182 Cal. 530, 189 P. 686, as follows: ‘Where . . . a person entitled thereto assigns a fund in the hands of a third person, the rule is established in this state that notice to the holder of the fund is necessary to render the assignment valid and effectual as against subsequent assignees without notice and for a valuable consideration. [Citations.] Such notice may be either written or oral.’ (182 Cal. at p. 535, 189 P. at p. 688.) ‘Notice to be effectual must be given to the person responsible to the assignor . . .. The evidence shows that . . . the holder of the fund, had notice of intervener's claim and does not show any notice to him of plaintiff's claim of lien. The preference, therefore, which the priority of creation might otherwise have given plaintiff's claim of lien is overcome by the fact that the intervener, even though a subsequent assignee, was the first to assert her right to possession, as far as was within power, by giving notice . . . of the assignment . . ..’ (Id., p. 536, 189 P. p. 689.) ‘The efficacy of this notice for the purpose of perfecting a priority of claim is, of course, dependent upon whether or not the intervener was an assignee for a valuable consideration without notice of the prior equities of the plaintiff . . . The rule that a transfer as security for a pre-existing debt is a transfer for value, not only as between the parties, but as to third persons as well, is too well settled in this state to be questioned.’ (Id., pp. 536–537 and 538, 189 P. p. 689.) ‘The policy of the law is against upholding secret liens and charges to the injury of innocent subsequent purchasers and encumbrancers.’ (Id., p. 538, 189 P. p. 690. Cf. Uniform Commercial Code, § 9301, subds. (1)(b) and (3); and § 9312, subd. (5).)
In Del Conte Masonry Co. v. Lewis (1971), 16 Cal.App.3d 678, 94 Cal.Rptr. 439, the dispute was between a judgment creditor who had taken proceedings under Code of Civil Procedure section 688.1 and parties who claimed consensual liens respectively for attorney's fees and materials furnished the judgment debtor who was the plaintiff in a second action. The court ruled as follows: ‘Appellant and respondent both rely on Civil Code, section 2897, which provides that, ‘Other things being equal, different liens upon the same property have priority according to the time of their creation, . . ..’ Appellant points out that the liens in favor of the attorney and the materialmen were created by agreement a few days before respondent's lien was created by the court's order granting respondent's motion under section 688.1. Thus, according to appellant, the consensual liens are prior by the terms of section 2897. [¶] Where one lien has been created by contract and another under a statute, ‘the wording of the statutes or codes determines the question of priority, . . ..’ (First Nat. Bank v. Silva (1927) 200 Cal. 494, 496, 254 P. 262, 262.). . . .. Arguing from the statutes, appellant claims that, ‘it should be noted that 688.1 states that there shall be endorsed upon the judgment ‘a statement of the existence of the lien, the date of entry of the order creating the lien . . .,’ thus indicating that the operative date is the date of the order creating the lien.' Code of Civil Procedure, section 688.1 contains no language explicitly regulating priority, but the provision that the judge ‘may, in his discretion, order that the judgment creditor be granted a lien’ suggests broadly that the lien might be subordinate to other claims and that questions of priority ought to be decoded by reference to general principles of equity. In Smitton v. McCullough (1920) 182 Cal. 530, 189 P. 686, the Supreme Court declared that, ‘where successive conflicting interests, purely equitable in nature, are in all other respects equal, the equity prior in time prevails. Civ.Code, § 2897. The time of creation, however, is the last element for consideration when determining the priority of equitable claims, and [a] claim can predominate by reason of antedating [another] equity only if the two interests are in all other respects equal. [¶] ‘Interests are equal in equity when each is entitled to the same recognition and protection by reason of possessing to an equal degree those elements of right and justice which are recognized and aided by courts of equity.’ (182 Cal. at p. 534, 189 P. 686, at 688.) Priority based on time of creation may therefore be subordinated to the equitable preference accorded to the party who is first to assert his claim. (182 Cal. at p. 536, 189 P. 686.) Under this reasoning respondent, as first to assert a claim, by notice of motion under section 688.1, was properly given first priority.' (16 Cal.App.3d at pp. 680–681, 94 Cal.Rptr. at p. 440.)
In Takehara v. H. C. Muddox Co. (1972), 8 Cal.3d 168, 104 Cal.Rptr. 345, 501 P.2d 913, where competing creditors claimed likens under section 688.1, the court ruled: ‘Under section 688.1 the liens in the instant case arose at the time the trial court entered its orders granting the liens. All of the liens are judgment liens, and there is no claim by appellants that other ‘things' are not equal. Accordingly, under section 2897, the first lien created takes priority. (Cf. Del Conte Masonry Co. v. Lewis, 16 Cal.App.3d 678, 681, 94 Cal.Rptr. 439.)’ (8 Cal.3d at p. 171, 104 Cal.Rptr. at p. 347, 501 P.2d at p. 915.) In so doing it referred to the case last cited by comparison as a situation where things were not equal. It is clear from Takehara that any rights the state might have acquired solely by the proceedings undertaken on December 21, 1970, which resulted in the order under section 688.1 entered on March 5, 1971, would be subject to the lien acquired by appellant under the prior order of June 19, 1970. The state's rights must depend on the provisions of section 1703 of the Unemployment Insurance Code.
I would construe section 1703 as ineffective to give the state prior rights to a chose of action or judgment running in favor of the taxpayer unless it takes steps to enforce the lien created by the recording of the certificate. In the first place, the section expressly provides, ‘A lien imposed by this section shall not be valid insofar as personal property is concerned as against a purchaser for value without actual knowledge of the lien.’ In other words, the lien gives no notice to anyone dealing with respect to the taxpayer's personal property, and such a person is not required to search the records. I would construe these provisions as follows: At any time after the taxpayer filed suit, December 15, 1969, up until the certificate was filed, its alleged debtor, United States Plywood Corporation, clearly could pay or compromise the claim. The filing of the certificate February 27, 1970, without actual notice to the taxpayer's debtor, did not affect its right to do so, nor did the fact that the appellant recovered a judgment against the taxpayer on March 10, 1970. After June 3, 1970, when appellant filed its notice of motion for a lien under section 688.1, the plywood company was on notice of the claim of appellant as a judgment creditor and appellant's rights could not be affected without its consent. (See Del Conte Masonry Co. v. Lewis, supra, 16 Cal.App.3d 678, 681, 94 Cal.Rptr. 439.) If the claim had been paid or compromised before December 21, 1970, without actual notice of the recording of the certificate, in my opinion the plywood company and appellant, would be free of all and any liability to the state to the same degree as a purchaser of personal property without actual notice of the lien. (See Highsmith v. Lair (1955), 44 Cal.2d 298, 304, 281 P.2d 865.) Since, as has been noted above, the tardy assertion of the lien claim through section 688.1 could itself give the state no equality, much less priority, over the diligent judgment creditor, the trial court erred in relating the state's lien back to the date it recorded the certificate.
This conclusion is fortified by analysis of the provisions of section 1703. Section 1703 expressly provides, ‘The lien has the force, effect, and priority of a judgment lien. . . .’ In Wayland v. State of California (1958), 161 Cal.App.2d 679, 326 P.2d 954, it was urged that the foregoing language should be narrowly construed, and that the provisions of the section as a whole were intended to give the state a lien which would necessitate judicial foreclosure, as distinguished from sale under a sale of a prior deed of trust, before the lien could be extinguished. The court stated, ‘While it is true, as defendants contend, that the Legislature could just as easily have declared such a lien to be a judgment lien for all purposes, the fact that it did not do so in this particular instance does not necessarily mean that the words used should be as strictly construed as do defendants. The term ‘force and effect’ is of common, everyday usage. Certainly, then, such words must be read in their common, accepted meaning; that is, by giving to something the force and effect of something else is to give equality to each.' (161 Cal.App.2d at p. 682, 326 P.2d at p. 956.)
Since the adoption of section 688.1 of the Code of Civil Procedure in 1941, section 688 has expressly provided, ‘. . . no cause of action nor judgment as such, shall be subject to levy or sale on execution.’ The Legislature apparently intended to make the provisions of section 688.1 the exclusive method of creating a lien upon a cause of action or judgment. (See 5 Witkin, Cal. Procedure (2d ed. 1971) Enforcement of Judgment, §§ 132 and 140, pp. 3497–3498 and 3503.)
Under the Unemployment Insurance Code the state is given special priorities and several alternative and cumulative methods of enforcing any claim against a delinquent taxpayer: priority in case of insolvency, etc. (§§ 1701–1702); the lien created by recording a certificate under section 1703; garnishment of the taxpayer's obligors (§§ 1755–1758); collection by warrant (§§ 1785–1788); summary judgment (§§ 1815–1818); and an action for collection (§§ 1852–1854). (See Tieberg v. Superior Court (1966), 243 Cal.App.2d 277, 281–282, 52 Cal.Rptr. 33; and People v. Biscailuz (1950), 95, cal.App.2d 635, 641–642, 213 P.2d 753.) In construing the state's rights against an insolvent it is established that a creditor who has perfected his rights will take priority over that conferred by provisions found in section 1701. In Durkin v. Durkin (1955), 133 Cal.App.2d 283, 284 P.2d 185, the court construed similar provisions found in section 6756 of the Revenue and Taxation Code for collection of sales and use taxes. It observed, ‘It gives the state, when it has failed to obtain a lien, first call over other creditors who likewise do not have liens of any kind. It leaves our lien laws unimpaired and undisturbed in their operation; indeed, it should require clear and unmistakable language to evince an intent to override those laws. It comports, also, with the common law concept of the sovereign's right of priority in the case of an insolvent debtor. Also, as pointed out by the court in that case, such an interpretation did not leave the state hampered or curtailed as to remedies. It had various procedures available, some quite expeditious, for exacting security or obtaining and perfecting liens.’ (133 Cal.App.2d at p. 286, 284 P.2d at p. 188. See also People v. Biscailuz (1951), 107 Cal.App.2d 71, 73–74, 236 P.2d 591, and People v. Biscailuz, supra, 95 Cal.App.2d 635, 642–643, 213 P.2d 753. Cf. Wright v. Standard Engineering Corp. (1972), 28 Cal.App.3d 244, 249–250, 104 Cal.Rptr. 539; and In re Trinity Tractor Co. (1970), 3 Cal.App.3d 428, 442–444, 83 Cal.Rptr. 783.) It is true that in the foregoing cases the state had not filed a certificate for a lien, but as pointed out in the second People v. Biscailuz, supra ‘Priorities given by the act to the state's claim for delinquent contributions do not give the department any priority or preference in the absence of compliance with the steps outlined by the act for the perfection of a lien upon the property of a debtor. [Citations.]’ (107 Cal.App.2d at p. 73, 236 P.2d at p. 592.)
Finally, a question arises as to where a chose in action may have situs for the purpose of being subject to a lien. If a lien is filed in the county where the debtor resides or has its principal place of business under the majority's view, it may be effective against the creditor if he elects to sue there, and not, if he seeks out his debtor elsewhere. The transitory nature of the claim sustains the conclusion that the state, as well as a judgment creditor, should take the steps required by law to subject a chose in action or a judgment to a lien before it can claim priority. I would reverse the order appealed from with directions to award the fund received in compromise of the taxpayer/judgment debtor's claim to appellant.
1. Unemployment Insurance Code section 1703, as in effect at the pertinent times, provided:‘If an employing unit is delinquent in a payment of any contributions, penalties or interest provided for in this division, the director may, not later than three years after the payment became delinquent, or within 10 years after the last entry of a judgment under Section 1815, file for record in the office of any county recorder a certificate specifying the amount of contributions, interest and penalties due, the name and address as it appears on the records of the department of the employing unit liable for the same and the fact that the department has complied with all provisions of this division in the determination of the amount required to be paid. From the time of the filing for record, the amount required to be paid together with interest and penalty constitutes a lien upon all the property in the county owned by the person or acquired by him before the lien expires, except that with respect to personal property the lien shall not be valid against a purchaser for value without actual knowledge of the lien. The lien has the force, effect, and priority of a judgment lien and shall continue for 10 years from the time of the filing of the certificate unless sooner released or otherwise discharged. The lien may, within 10 years from the date of the filing of the certificate or within 10 years from the date of the last extension of the lien, be extended by filing for record a new certificate in the office of the county recorder of any county and from the time of such filing the lien shall be extended to all the property in such county for 10 years unless sooner released or otherwise discharged.’ (Stats.1957, ch. 1188, p. 2479, § 2.)
2. Code of Civil Procedure section 688.1, as in effect at the pertinent times, provided:‘Upon motion of a judgment creditor of any party in an action or special proceeding made in the court in which the action or proceeding is pending upon written notice to all parties, the court or judge thereof may, in his discretion, order that the judgment creditor be granted a lien upon the cause of action, or the right to relief, if the party or parties against whom the lien is sought are appearing in a capacity other than plaintiff and upon any judgment subsequently procured in such action or proceeding, and, during the pendency of such action, may permit said judgment creditor to intervene therein. Such judgment creditor shall have a lien to the extent of his judgment upon all moneys recovered by his judgment debtor in such action or proceeding and no compromise, settlement or satisfaction shall be entered into by or on behalf of said debtor without the consent of said judgment creditor, unless his lien is sooner satisfied or discharged. The clerk or judge of the court shall endorse upon the judgment recovered in such action or proceeding a statement of the existence of the lien, the date of the entry of the order creating the lien, and the place where entered, and any abstract issued upon the judgment shall contain, in addition to the matters set forth in Section 674 of the Code of Civil Procedure, a statement of the lien in favor of such judgment creditor.’ (Stats.1968, ch. 1036, p. 2002, § 1.)
ELKINGTON, Associate Justice.
MOLINARI, P. J., concurs.
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