Ainslie v. Inman, Record No. 020595.

• Decision Date: 28 February 2003
• Docket Number: Record No. 020595.
• Citation: 265 Va. 347,577 S.E.2d 246
• Parties: John W. AINSLIE, Sr., et al., v. Michael A. INMAN, Receiver, etc., et al.
• Court: Virginia Supreme Court

577 S.E.2d 246

265 Va. 347

John W. AINSLIE, Sr., et al., v. Michael A. INMAN, Receiver, etc., et al.

Record No. 020595.

Supreme Court of Virginia.

February 28, 2003.

Mark R. Baumgartner, Williamsburg (Douglas E. Kahle; Richard H. Matthews; Pender & Coward, Virginia Beach, on briefs), for appellants.

David M. Zobel (Huff, Poole & Mahoney, on brief), Virginia Beach, for appellees.

Present: HASSELL, C.J., LACY, KEENAN, KOONTZ, KINSER, and LEMONS, JJ., and CARRICO, S.J.¹

Opinion By Senior Justice HARRY L. CARRICO.

This is an appeal from a final order in a declaratory judgment proceeding involving the application of provisions of the Uniform Commercial Code (the UCC)² and the Uniform Partnership Act (the UPA).³ The proceeding began when John W. Ainslie, Sr., John W. Ainslie, Jr., and Jeffrey W. Ainslie (collectively, the Ainslies), filed a petition for declaratory judgment against Robert M. Buchanan, Jr. (Buchanan), and Robert L. Byrd (Byrd), equal owners of a Virginia general partnership known as B & B Partnership (the partnership). In the petition, the Ainslies sought a declaration that their security interest in the 50% interest of Buchanan in the partnership had priority over any other claim to Buchanan's interest.⁴ Also named as defendants were Michael A. Inman, Receiver for the interest of Buchanan in the partnership, and Kevin B. Rack, Trustee under the Will of Robert M. Buchanan, Sr. (Rack), the holder of a judgment against Buchanan.

The Ainslies and Rack both moved for summary judgment. The trial court denied the Ainslies' motion and granted Rack's, holding in a final order that Rack had first lien priority to any distributions of income and profits due to Buchanan from the partnership. We awarded the Ainslies this appeal.

The record, consisting mainly of stipulations of fact by the parties, shows that in addition to owning a 50% interest in the partnership, Buchanan was president of Festive Foods, Inc. In 1995, the Ainslies loaned Festive Foods $100,000.00, and on January 24, 1995, Festive Foods executed two promissory notes, each in the amount of $50,000.00, payable to the Ainslies. Buchanan personally guaranteed each note, and on January 24, 1995, signed a security agreement pledging his interest in the partnership as collateral for the notes. On January 26, 1995, the Ainslies duly filed financing statements listing the collateral with the clerks of the State Corporation Commission, the Circuit Court of the City of Chesapeake, and the Circuit Court of the City of Virginia Beach.⁵

On May 8, 1997, Rack obtained a judgment against Buchanan in the Circuit Court of the City of Chesapeake in the amount of $512,735.81. The judgment also allowed Rack interest and attorney's fees.

On June 3, 1997, Festive Foods executed a note payable to the Ainslies in the principal amount of $150,000.00, apparently replacing the two notes executed on January 24, 1995. Buchanan guaranteed payment of the new note, and it was secured pursuant to the security agreement he executed on January 24, 1995.

On April 15, 1998, Rack filed a petition in the trial court for the entry of an order pursuant to Code § 50-28,⁶ part of the UPA, charging Buchanan's interest in the partnership with the judgment Rack had obtained against Buchanan on May 8, 1997. At the time of the hearing on the petition, payment of the $150,000.00 note executed by Festive Foods on June 3, 1997, was not in default. The Ainslies moved to intervene in the proceeding, but the trial court denied their motion, holding they were not judgment creditors within the meaning of Code § 50-28. On May 18, 1998, the court granted Rack an order charging Buchanan's interest in the partnership with Rack's judgment and appointing Inman as a receiver for Buchanan's share of the profits from the partnership and any other money due or to fall due to him in respect of the partnership.

In early June 1998, Buchanan defaulted in payment of the $150,000.00 note. In a letter dated June 4, 1998, counsel for the Ainslies notified Buchanan and Byrd, the owner of the other 50% of the partnership, that the letter would "serve as notice that pursuant to the default of the underlying promissory note, [the Ainslies were] taking possession of and foreclosing upon the partnership interests of [Buchanan in the partnership]." This letter also instructed "the partnership to transfer the name of ownership of the former interest of [Buchanan] to [the Ainslies]." The Ainslies received no response from Buchanan or his partner to the June 4 letter or any evidence that the partnership had transferred the name of the ownership of Buchanan's interest in the partnership to the Ainslies.

On August 6, 1998, the Circuit Court of the City of Chesapeake entered a consent judgment order in favor of the Ainslies against Buchanan in the amount of $150,000.00, with interest. This judgment remained of record with no amendments or notations at the time the present proceeding was pending in the trial court. Further, from the date the Ainslies received their judgment in 1998 until their filing of the present petition for declaratory judgment on August 25, 2000, the Ainslies "took no collection actions against Buchanan through the courts (i.e., a summons to answer debtor's interrogatories, a summons in garnishment, a levy, etc.)."

January 26, 2000, marked the five-year anniversary of the filing of the Ainslies' financing statement. The five years elapsed without the filing of a continuation statement as provided by Code § 8.9-403(2).

In mid-2000, counsel for the partnership disbursed two checks totaling approximately $200,000.00 to Inman, as receiver, representing what the partnership claimed was Buchanan's share of the partnership's profits from the sale of a portion of the partnership's land. Inman still holds the funds in his capacity of receiver. On July 28, 2000, Inman filed a petition with the Circuit Court of the City of Chesapeake asking the court to determine the priority of claims between Rack and the Ainslies to Buchanan's interest in the partnership.

On August 25, 2000, the Ainslies filed the present declaratory judgment proceeding asking the trial court to declare that their security interest had priority over Rack's judgment. On May 2, 2001, the Ainslies filed a motion asking for the entry of a charging order on their judgment against Buchanan. In its final order entered December 5, 2001, the trial court granted the Ainslies a charging order but declared that it was junior in priority to Rack's charging order entered May 18, 1998.

The Ainslies have assigned three errors. The first two involve the interpretation of several statutes. The Ainslies maintain, and Rack agrees, that the interpretation of statutes presents a pure question of law subject to de novo review by this Court. See Cain v. Rea, 159 Va. 446, 450, 166 S.E. 478, 479 (1932). The third assignment of error involves the legal effect of the letter that the Ainslies' counsel directed to Buchanan and his partner on June 4, 1998. The Ainslies maintain, and Rack agrees, that the legal effect of a writing is also a question of law. Baker Matthews Lumber Co. v. Lincoln Furniture Mfg. Co., 148 Va. 413, 421, 139 S.E. 254, 257 (1927). Yet, as Rack states, although we review the matters involved in the case de novo, the trial court's judgment is presumed to be correct and stands until error has been pointed out. See Lavenstein v. Plummer, 179 Va. 469, 471, 19 S.E.2d 696, 697 (1942).

The Ainslies' first two assignments of error focus upon Code § 8.9-501(5). That subsection provides that "[w]hen a secured party has reduced his claim to judgment the lien of any levy which may be made upon his collateral by virtue of any execution based upon the judgment shall relate back to the date of the perfection of the security interest in such collateral."

The Ainslies state that a levy on a partnership interest is effected by obtaining a charging order, see O.C. Partnership v. Owrutsky & Associates, P.A., 88 Md.App. 507, 596 A.2d 76, 78 (Md.1991),

and that a charging order is a type of levy of execution pursuant to a judgment within the contemplation of Code § 8.9-501(5). The Ainslies say that a secured creditor who reduces a claim to judgment prior to the expiration of his perfected security interest "is entitled to the relation back provision for a subsequent execution on the judgment, even if that execution occurs after the lapse of the [financing statement] filing."

The Ainslies maintain that they reduced their claim to judgment on August 6, 1998, before the expiration of their financing statement and when they had a perfected security interest in Buchanan's partnership interest. Hence, the Ainslies conclude, the execution on their judgment in the form of the charging order they obtained on December 5, 2001, related back to January 26, 1995, the date the security interest was perfected, making their charging order of first priority over Rack's charging order.

We disagree with the Ainslies. As Rack states, it is a familiar rule of statutory construction that when a given controversy involves a number of related statutes, they should be read and construed together in order to give full meaning, force, and effect to each. See Kole v. City of Chesapeake, 247 Va. 51, 56, 439 S.E.2d 405, 408 (1994)

. Pursuant to this rule, we think it is necessary to read and construe Code § 8.9-501(5) together with Code § 8.9-403(2). In pertinent part, Code § 8.9-403(2) provides as follows:

[A] filed financing statement is effective for a period of five years from the date of filing. The effectiveness of a filed financing statement lapses on the expiration of the five-year period unless a continuation statement is filed prior to the lapse.... If the security interest becomes unperfected upon lapse, it is deemed to have been unperfected as against a person who became a purchaser or lien creditor before lapse.

(Emphasis added.) Hence, the Ainslies' financing statement...