Opinion
Hearing Granted May 23, 1972.
Opinion on pages 560 to 570 omitted.
HEARING GRANTED
Cotrell, Hofvendahl & Roessler, by Russell Roessler, San Jose, for petitioner-respondent, Mission Clay.
Brigance, Verzyl & Malone, Sacramento, Bagshaw, Martinelli, Weissich & Jordan, San Rafael, Arnold M. Greenberg, San Francisco, for appellants.
REGAN, Associate Justice.
This is a companion case to Takehara, et al. v. Sullivan, et al. (3 Civ. 12350), and concerns the $24,000 award made to H. C. Muddox Company (hereafter Muddox) in that action. Muddox is the judgment debtor of Mission Clay Products (respondent), John A. McGuinn, Tiburon National Bank, and R. J. Robideaux (appellants.)
The principal action (No 155302) was filed by plaintiffs Takehara and Jan on November 18, 1964, seeking inter alia a declaration of respective rights and obligations as between them and Muddox. On October 20, 1965, Mission Clay Products, a judgment creditor of Muddox, pursuant to a motion made under section 688.1 of the Code of Civil Provedure, caused an order granting lien to be entered on the Muddox cause of action in the principal action and any subsequent judgment in that action.
Thereafter the appellants herein, also judgment creditors of Muddox, pursuant to motions made under section 688.1 of the Code of Civil Procedure caused orders granting liens to be entered on the Muddox [101 Cal.Rptr. 163] cause of action and any subsequent judgment in that action on the following dates:
March 28, 1968, to R. J. Robideaux;
March 29, 1968, to Tiburon Mational Bank;
June 3, 1968, to John A. McGuinn.
On July 16, 1968, judgment was entered in the principal action in the sum of $24,000 in favor of Muddox together with costs and on July 29, 1968, Muddox noticed its motion for a declaration as to which of the aforesaid judgment lien creditors, if any, was entitled to priority, in payment of the funds due Muddox.
All judgment creditors herein accepted the priority and superiority of the fees of the attorneys who had proceeded under an attorney fee agreement in the principal action.
'A thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner. Upon the death of the owner it passes to his personal representatives, except where, in the cases proveded in the Code of Civil Procedure, it passes to his devisees or sucessor in office.' (Civ.Code § 954.)
On August 22, 1968, the court made the following order:
'1. That Buresh, Garety & Vallarino and Thomas W. Olson, Jr., attorneys for H. C. Muddox Company, are entitled to first recover for their services and costs in the sum of $12,970.98 out of the money to be paid by George Takehara, et al. to H. C. Muddox Company.
'2. Mission Clay Products Corporation, whose judgment lien was first in time in the amount of $13,743.27, which includes accrued interest and costs to August 8, 1968, is entitled to next recover its judgment out of the money to be paid by George Takehara, et al. to H. C. Muddox Company.
'3. R. J. Robideaux, Tiburon National Bank and John A. McGuinn have priority in the order in which the manes just appear, but are entitled to no part of the $24,000.00 judgment recovered by H. C. Muddox Company against George Takehara, et al., that sum being depleted by the sums allocated in paragraphs 1 and 2 above.'
Robideaux, Tiburon National Bank, and McGuinn appeal from this order granting judgment creditor Mission Clay Products a priority as to its judgment lien.
Initially, appellants argue that until funds become available the judgment liens are mere security interests, derived wholly from statute and not existion at common law. The creditor gets no financial benefit directly from the lien. (In general, see 4 Witkin, Cal.Procedure (2d ed. 1971) Judgment, §§ 139, 144, pp. 3286, 3290.) A lien transfers no title to the property subject to the lien. (Civ.Code, § 2888.)
Appellants then turn to a discussion of the history in California of levies upon causes of action. In Sunset Realty Co. v. Dadmun (1939) 34 Cal.App.Supp.2d 733, 88 P.2d 947, the court held that the debtowed to the judgment debtor cannot be levied upon or sold. This case was disapproved in Lantin v. Biscailuz (1939) 35 Cal.App.2d 422, 95 P.2d 962, which permitted levy and sale on the 'debt' owed the judgment debtor. (See 5 Witkin, Cal. Procedure (2d ed. 1971) Enforcement of Judgment, § 132, pp. 3497-3498.) Appellants, however, rely upon certain language in Sunset Realty, supra, to bolster their argument:
'When a load of hay is levied upon, in order that the purpose of the levy may be accomplished, it has to be sold, for the judgment creditor acquires no title to it. Moreover, a load of hay, as such, cannot be credited on a money judgment; it has to be converted into money before satisfaction can be measured.' (34 Cal.App.Supp.2d at p. 736, 88 P.2d at p. 949.)
Relying upon this passage, appellants contend that the judgment debtor's judgment must be funded before a judgment lien can adhere.
In an attempt to remedy the confusion existing in the law with regard to levying on 'debt,' the Legislature in 1941 amended section 688 of the Code of Civil Procedure and added section 688.1 to the code. (See 15 So.Cal.L.Rev. 1, 17-18.) Section 688, which specifies what property is subject to execution, was amended by the insertion of the proviso 'that no cause of action nor judgment as such, [101 Cal.Rptr. 164] shall be subject to levy or sale on execution.' Section 688.1 was added to the Code of Civil Procedure at the same time, and presently reads, in pertinent part, as follows: '[U]pon 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 and upon any judgment subsequently procured in such action or proceeding, and, during the pendency of such action, may permit such 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 such debtor without the consent of such 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.'
In Turner v. Donovan (1944) 64 Cal.App.2d 375, 378, 148 P.2d 912, 914, the court states: 'Inherent in the sale of a claim whose validity is not admitted is the likelihood that its owner will be deprived of it at a figure far below its actual worth. Perhaps that is the reason for the amendment made to section 688, Code of Civil Procedure, in 1941 . . ..'
Appellants appear to argue that since the 1941 legislative changes, no property subject to lien materializes until entry of judgment ssince property must be 'owned' before any lien can attach. (Cf. Civ.Code, § 2882; Hertweck v. Fearon (1919) 180 Cal. 71, 73-74, 179 P. 190; Helvey v. Bank of America (1941) 43 Cal.App.2d 532, 535, 111 P.2d 390; 5 Witkin, supra, § 75, p. 3448.) Since there is nothing contained in the language of section 688.1 as regards preference or priority, it should be presumed that such idea was excluded from legislative intent. Therefore (according to appellants), all judgment lien creditors should be equally treated and share pro rata.
At the time of levy the attaching creditor stands in no better position than, and attains no greater right in the attached property than does, the debtor. (HiValley Dev. Corp. v. Walters (1963) 223 Cal.App.2d 778, 783, 36 Cal.Rptr. 140.)
Appellants admit, however, that they have been unable to find any precedent or authority which precisely answers the specific question raised on appeal with regard to the status of liens created pursuant to section 688.1 of the Code of Civil Procedure. Nor does respondent Mission Ciay direct our attention to any specific authority, and our research has disclosed none.
The statute is silent as regards any priority or lack thereof. Appellants rely upon Hertweck v. Fearon, supra, 180 Cal. at pages 73-74, 179 P. 190, wherein the court held that, absent an intention to create priority expressed in the statute, there can be no priority between judgment liens on after-acquired property, since the two liens were simultaneously created when the judgment dobtor acquired the property. (Cf. Crowell v. Gilmore (1861) 18 Cal. 370; see also, 17 Cal.L.Rev. 690.)
On the other hand, Mission Clay urges that section 2897 of the Civil Code should apply here. This section reads:
'Other things being equal, different liens upon the same property have priority according to the time of their creation . . .'
But as appellants point out, there are many situations involving competing liens in which this section does not apply. Further, the Hertweck case, which concerned priority of liens as to after-acqured property, [101 Cal.Rptr. 165] did not discuss the section. ( But see, First Nat. Bank v. Silva (1927) 200 Cal. 494, 495, 254 P. 262 ; Mortgage Securities Co. v. Pfaffmann (1917) 177 Cal. 109, 110, 112, 169 P. 1033; United States v. Record Pub. Co. (Cal., N.D.1945) 60 F.Supp. 194, 196.)
Mission Clay makes the following argument with regard to the effect of the 1941 legislative changes:
'The obvious purpose of the amendments and addition was twofold: 1) to protect the debtor from possibly losing a valuable cause of action upon a levy and sale at a substantial loss; and 2) to protect the judgment creditor by giving him a present lien upon the cause of action and judgment up to the amount of his judgment, as well as the assurance of satisfaction of his lien or his approval before the cause of action could be compromised or satisfied, in exchange for denying him the right to sell the cause of action. The Legislature must have intended to give a judgment creditor priority on his lien over any subsequently obtained 688.1 liens. Otherwise, the creditor would have received nothing by the exchange.'
The question of the priority of liens is one of legislative intent. (Mortgage Securities Co. v. Pfaffmann, supra, 177 Cal. at pp. 112-113, 169 P. 1033; Bolton v. Terra Bella Irr. Dist. (1930) 106 Cal.App. 313, 319, 289 P. 678.) However, the language of section 688.1 of the Code of Civil Procedure gives no clue as to the legialative intent with regard to priority. Mission Clay urges that the historical background provides the key. But the probable cause for the 1941 legislation was to rectify an unjust result, i. e., the levying on a cause of action thereby diminishing its value. There is really nothing in that legislation to indicate that the first judgment debtor to perfect a lien was to have any preference.
We think the appellants' analogy to the after-acquired property cases are more in point here and should prevail. A judgment debtor's cause of action which has not ripened into a judgment is a mere inchoate right. It is incomplete until judgment is entered. It would appear to us then, and only then, could the liens attach to the judgment or 'property.' Since the liens would simultaneously attach, there could be no priority or 'first in time, first in right.' We can think of no prevailing reason why a judgment creditor who first obtains a lien on a cause of action should have priority over subsequent judgment creditors who later obtain liens prior to the time the cause of action matures into a judgment. In other words, we do not consider that all things are equal in a situation of this type, for it would unduly reward the extremely diligent at the expense of other judgment lien creditors even though the litigation may last for months or years. Under the circumstances present here, we hold that no preference was created and that all the judgment creditors should share in the award on a pro rata basis as determined by the amount of their respective claims.
Our decision in this regard is reinforced by the the specific provisions of section 2882 of the Civil Code considered in the light of the circumstances presented herein. That section provides: 'No lien arises by mere operation of law until the time at which the act to be secured therby ought to be performed.' In our opinion, this section requires rejection to the concept of first in time, first in right, embodied in section 2897 of the Civil Code.
In this connection we note that section 2881 of the Civil Code creates a dual classification of liens, i. e., those created by contract and those created by operation of law. Since the lien of a judgment creditor established under Code of Civil Procedure section 688.1 is not a product of agreement, if falls into the classification of those created by operation of law. Thus it is specifically governed by section 2882, which fixes the time at which the lien arises.
When we analyze the language of section 6881.1, certain internal ambiguities appear. The statute provides that the judge may grant 'a lien upon the cause of action, and upon any judgment subsequently procured . . ..' Then it says that the judgment creditor 'shall have a lien to the extent of [101 Cal.Rptr. 166] the judgment upon all moneys recovered . . ..' With respect to the time the lien is created, this language has two ambiguities: first, it is susceptible to several conflicting interpretations, i. e., that the lien arises when the court orders it (which is to say, the lien attaches to the cause of action and continues to apply when the cause of action is merged in the judgment), or alternatively, that the lien is inchoate (if only because the cause of action may have no merit) and arises only when a judgment is entered. Second, it is ambiguous because it omits any provision for priorities versus ratable sharing.
The separate codes blend into one another for the purpose of statutory construction. (Pesce v. Dept. of Alcoholic Bev. Control (1958) 51 Cal.2d 310, 312, 333 P.2d 15.) In order to resolve this ambiguity, we turn to Civil Code section 2882 to tell us when the lien arises. Under its provisions 'the act to be secured thereby' is the payment of money by the party ultimately found liable in the lawsuit in which the lien attaches. The time at which this act 'ought to be performed' is the time at which the judgment is entered, i. e., when the newly-made judgment debtor 'ought' to pay the money. Such a construction of section 688.1 bars application of Civil Code section 2897.
Mission Clay has referred us to the case of Del Conte Masonry Co. v. Lewis (1971) 16 Cal.App.3d 678, 94 Cal.Rptr. 439, for support of its position. However, the Del Conte case is distinguishable from the instant case in two respects. First, all of the liens in the instant case are the creature of statute. Second, we are not here concerned with 'equitable' liens as such. We see no reason to hold that the statutory liens be deemed created at the time of the occurrences which gave rise to the underlying substantive right. Rather we hold the time of the judgment to be the controlling date dispositive of the issue before us.
The order is reversed. The trial court is directed to enter its order consistent with this opinion. Each side shall bear its own costs on appeal.
FRIEDMAN, J., concurs.
RICHARDSON, Presiding Justice.
I respectfully dissent.
The issue herein, narrowly expressed, is whether priority exists among successive lien claimants to the cause of action of a debtor prior to the reduction of the cause of action to judgment. Resolution of this issue involves consideration of sections 688 and 688.1 of the Code of Civil Procedure.
Section 688.1 provides, in pertinent part, that a 'judgment creditor be granted a lien upon the cause of action, and upon any judgment subsequently procured in such action' etc., and '[s]uch judgment creditor shall have a lien to the extent of his judgment upon all moneys recovered,' etc.
The majority accepts appellants's reasoning that a judgment debtor's cause of action which has not ripened into a judgment is a mere inchoate right in the sense that it is incomplete until judgment is entered. Since it has not flowered into a liquidated and fixed claim, therefore, it is urged, it does not constitute 'property' to which a lien could attach. That contention, in my view, is erroneous for it fails to recognize the true nature of a 'cause of action.' It is not disputed that a lien can be fastened only on 'property.' The fact that a cause of action has not 'ripened' and may be 'incomplete' does not detract from its character as a thing of substance, nor does it denote any lack of the elements of 'property.'
An examination of companion Civil Code sections is revealing. Section 654 provides, 'The ownership of a thing is the right of one or more persons to possess and use it to the exclusion of others. In this Code, the thing of which there may be ownership is called property.' (Italics added.) Section 655 provides: 'There may be ownersip of all inanimate things which are capable of appropriation or of manual delivery; . . . of all obligations; [101 Cal.Rptr. 167] . . . and of rights created or granted by statute.' (Italics added.) The Civil Code definition of personal property includes 'things in action, and evidences of debt.' (Civ.Code § 14.) Our Supreme Court in interpreting the quiet title provisions of Code of Civil Procedure section 738 as they relate to real property, in Yuba River Power Co. v. Nevada Irrigation District, 207 Cal. 521, 523, 279 P. 128, 129, has used a sweeping definition in the following language: 'The term 'property' is sufficiently comprehensive to include every species of estate, real and personal, and everything which one person can own and transfer to another. It extends to every species of right and interest capable of being enjoyed as such upon which it is practicable to place a money value. As applied to lands the term comprehends every species of title, inchoate or complete. It is supposed to embrace those rights which lie in contract--those which are executory as well as those which are executed.' (See also Ponsonby v. Sacramento Suburban Fruit Lands Co. (1930) 210 Cal. 229, 232, 291 P. 167.) Furthermore, causes of action have been held to be property whether based on contract or tort. (Haro v. Southern Pac. R. R. Co. (1936) 17 Cal.App.2d 594, 597, 62 P.2d 441; Estate of Waits (1944) 23 Cal.2d 676, 678, P.2d 5; 1 Witkin, Summary of Cal.Law, Personal Property, p. 772.)
It would appear, accordingly, that under general law, both case and statutory, a cause of action before judgment is 'property' in the sense that it may be the subject of a lien claim. Section 688.1 contains the following language: '. . . 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 and upon any judgment subsequently procured in such action . . ..' (Italics added.) Such language suggests that what was intended by the Legislature was the creation of a lien on a cause of action, before judgment, and a lien on any subsequent judgment. In my view, the cause of action is property, and exists as property before judgment. This position is reinforced by the fact the statute speaks in the present tense in terms of creation of a lien on both the cause of action and the subsequent judgment.
Such an acceptance of the concept of a cause of action as 'property' or a 'thing of value' is not a recent innovation. It has long been established both by statutory and decisional expression that a cause of action, including one for breach of contract is assignable and survives death. (Civ.Code, § 954 1 and § 1458.) Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335, 339, 182 P.2d 182; see 1 Witkin, Summary of Cal.Law, Contracts, p. 355.) It is recognized as a contingent asset under the Federal Bankruptcy laws. It would be inventoried and subject to administration in a decedent's estate. Furthrmore its characterization as a thing of value and a property right is central to the body of law relating to limitations of action, and laches.
As to the priorities here to be accorded the parities it is noted that respondent filed his 688.1 motion for lien on the Muddox cause of action on October 20, 1965. Appellants filed their motions during the period March 28, 1968 to June 3, 1968. While the result should not depend upon a footrace to the courthouse any such race herein by appellants was slow and stately indeed. The clear winner was respondent by a margin of time approximating two and one-half years. The judtification of the majority view on the basis that the contrary position 'would unduly reward the extremely diligent at the expense of other [101 Cal.Rptr. 168] judgment lien creditors' is premised upon a concept which appears inappropriate and of doubtful validity.
Nor is support found for the majority opinion in the language of Civil Code sections 2881 and 2882. Both sections form a part of the law dealing with creation of liens. Section 2882 is one of general application dealing with liens arising 'by mere operation of law,' and is not dispositive. It is article 4 of this chapter which is of immediate application to the problem before us for it deals with 'priorities,' following, as it does, the sections dealing with both general and special liens, and liens created by agreement and by operation of law. Section 2897 therof expresses in unmistakable language this clear mandate: 'Other things being equal, different liens upon the same property have priority according to the time of their creation.' This statute speaks of priorities, not proration, and requires no 'blending' or separate codes but rather an acceptance of what section 688.1 suggests, namely the creation of a lien on the cause of action as ordered by the judge before judgment. This principle of priority of liens on the basis of their perfection by affirmative action of the lienholder, either by way of recordation or court order, is the basis of the mechanics lien laws and the real and personal property security laws. It is of such wide application and acceptance as to require no amplification.
The majority view presumably would recognize as to judgments once entered, a scheme of priorities of the liens theron, but ignores the possibility of similar ordering of pre-judgment liens, liens not on the judgment but on the cause of action itself. In view of the integral relationship between the cause of action and a subsequent judgment thereon, such divergent treatment seems illogical, and further seems to deprive section 688.1 (Code Civ.Proc.) of any effect as it relates to causes of action.
Finally, the majority in my view misapprehends the recent holding of Del Conte Masonry Co. v. Lewis (1971) 16 Cal.App.3d 678, 94 Cal.Rptr. 439, which is persuasive authority for the action of the trial court and for the views herein expressed. I find no meaningful distinction in terms of priority between liens created by statute or by agreement or 'equitable' liens. All would seem controlled by the same provisions specifically relating to 'priorities' and establishing the rule of 'first in time, first in right,' the first two by statute and the third by Smitton v. McCullough (1920) 182 Cal. 530, 189 P. 686. No reason of policy or of equity has been advanced to treat them differently once they have been validly established. The Legislature, given ample opportunity, has not elected to do so.
Del Conte, finding no priority established by section 688.1, cites Smitton for the proposition that 'where successive conflicting interests, purely equitable in nature, are in all respects equal, the equity prior in time prevails. (Civil 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. at p. 688.)
The majority opinion fails to indicate in what respect the lien interests of the parities herto, each created by statute, are in any respect other than equal, either within the meaning of Civil Code section 2897 or within the expression of the Supreme Court in Smitton as related to equitable liens. Accordingly, Civil Code section 2897 should be controlling.
For the foregoing reasons I would affirm the judgment of the trial court.
Hearing granted; SULLIVAN, J., did not participate.