Bank of California v. Thornton-Blue Pacific, Inc.
| Decision Date | 24 March 1997 |
| Docket Number | No. D021443,THORNTON-BLUE,D021443 |
| Citation | 62 Cal.Rptr.2d 90,53 Cal.App.4th 841 |
| Court | California Court of Appeals Court of Appeals |
| Parties | , 32 UCC Rep.Serv.2d 22, 97 Cal. Daily Op. Serv. 2134, 97 Daily Journal D.A.R. 3897 BANK OF CALIFORNIA, Plaintiff and Respondent, v.PACIFIC, INC., Defendant and Cross-complainant; Jay Fisher Farms, Inc., Cross-defendant and Appellant. |
Thelen, Marrin, Johnson & Bridges and Marion I. Quesenbery, San Francisco, for Cross-defendant and Appellant.
Lewis, D'Amato, Brisbois & Bisgaard, San Francisco, Randall L. Mason, Sacramento and Martin J. Mullen, San Diego, for Plaintiff and Respondent.
In this case we determine the relative priority of the claims of the Bank of California (Bank) and Jay Fisher Farms, Inc. (Grower) to approximately $139,000 in a bank account (Fund) of Thornton-Blue Pacific, Inc. (Thornton). The trial court held the Bank was entitled to the Fund because a security agreement and a UCC-1 financing statement filed with the California Secretary of State created a perfected security interest in Fund in favor of Bank prior to the claim of Grower. Grower contends, inter alia, that neither the source of the Fund nor the Fund was ever owned by Thornton and therefore no security interest in the Fund was created by the security agreement or perfected by the financing statement between Thornton and Bank.
Because of a limited appellate record the background of this case is not free of uncertainty. It appears that Bank made a $600,000 loan to the three shareholders of Thornton. Thornton guaranteed the loan. Apparently to secure the guarantee Thornton and bank entered into a security agreement granting Bank a security interest in certain assets of Thornton. The security interest was perfected by the filing of a financing statement with the Secretary of State. The shareholders defaulted on the loan and Bank filed an action against the shareholders and Thornton, presumably to collect the balance owing on the loan. Thornton then filed a cross-complaint against Grower and others, the purpose of which is not shown in the record.
Bank and Thornton negotiated a settlement pursuant to which cash received by Thornton in connection with its business was delivered to Bank as payment on the loan and in satisfaction of the guarantee. Grower and others in the same position as Grower then asserted claims to that cash and further asserted that their claims had priority over the claim of Bank. The court approved the settlement subject to resolution of the claims of Grower and others and then ordered approximately $139,000 of Thornton's cash receipts placed in a "blocked" account (referred to in this opinion as the Fund) pending resolution of the competing claims. The court set an evidentiary hearing to resolve the claim priority dispute. 1
The evidentiary hearing was conducted by declarations submitted by the parties. The nature of the relationship between Grower and Thornton was established without contradiction: Grower raised flowers. Thornton was a flower "wholesaler." Grower delivered flowers to Thornton for which a delivery receipt was given. Thornton marked the flowers with the name of Grower, packaged the flowers and then sought to sell them to retail florists. The price and terms of sale were determined by Thornton. If the flowers were sold and Thornton received payment, it remitted to Grower 75 percent of the sales price it received and retained 25 percent as its "commission." If the flowers were not sold or were rejected by the buyer or were otherwise discarded, Grower received nothing. Thornton incurred no risk other than its cost of doing business. It was also established without contradiction that until after the default of the loan Bank had no actual knowledge of the nature of the relationship between Thornton and Grower.
Following the evidentiary hearing, the trial court determined that Bank held a first priority claim to the Fund and ordered the Fund released to Bank. Following issuance of the order, Bank and Thornton completed settlement of the dispute between them, and Bank's complaint was dismissed. The record does not disclose the resolution of the cross-complaint filed by Thornton against Grower. Grower appeals the order releasing the Fund to Bank.
Bank contends Grower's appeal should be dismissed. It argues the order from which the appeal is taken is not an appealable order because there was no final judgment in this case. Therefore, Bank argues, Code of Civil Procedure section 904.1, subdivision (a)(1) does not authorize the appeal. It further argues that none of the other subdivisions of Code of Civil Procedure section 904.1, subdivision (a) are applicable to permit appeal from the order.
Code of Civil Procedure section 904.1, subdivision (a) codifies the "one final judgment rule" that an appeal is available only from a final judgment. (See generally, Eisenberg, Horvatz & Wiener, Cal. Prac. Guide: Civil Appeals & Writs 1 (The Rutter Group 1996) ch. 2, pp 2:21, 2:22; California Appellate Practice Handbook (1995) 5th ed., Appellate Court Committee, San Diego County Bar Association, ch. 1, §§ 1.1-1.4, p. 1.)
Although Bank correctly asserts that no final judgment was entered in the action commenced by the filing of its complaint against Thornton, the order from which the appeal is taken may be considered in legal effect a final judgment for purposes of appeal. As stated in Joyce v. Black (1990) 217 Cal.App.3d 318, 321, 266 Cal.Rptr. 8, the "... order has all the earmarks of a final judgment." There remains nothing for judicial consideration with regard to the priority of claims to the Fund; the order is the only judicial ruling with regard to the Fund; and there is no other opportunity to review the order by appeal. (Id. at p. 321, 266 Cal.Rptr. 8; see generally, Eisenberg, et al., Cal.Practice Guide: Civil Appeals & Writs 1, pp 2:36-2:38, 2:43.1, pp. 2-17 to 2-18, 2-23 to 2-24.) Under these circumstances the order from which the appeal is taken is an appealable order because, in effect, it is a final judgment. 2
The UCC-1 financing statement between Bank and Thornton describes the collateral subject to the Bank's security interest as:
"All inventory ... used ... in [Thornton's] business now owned or hereafter acquired; and all accounts ... and rights to payment of every kind now or hereafter arising in favor of [Thornton] out of [Thornton's] business, ..."
Grower contends this description of the collateral does not include the Fund and therefore the security agreement and financing statement did not create a security interest in the Fund.
Upon delivery of Grower's flowers to Thornton the flowers became "inventory" of Thornton because they were held by Thornton for sale. (See COM.CODE, § 91093.)
For purposes of this appeal, we assume the Fund consists of the "proceeds" of this inventory. 4 (See § 9306, subd. (1).) Although the term "proceeds of inventory" is not included in the financing statement description of the collateral, the word "inventory" includes the proceeds from the sale of inventory. Section 9306, subdivision (2) provides in part that "... a security interest continues ... in any identifiable proceeds including collections received by the debtor[,]" and section 9203, subdivision (3) provides in part that "... a security agreement gives the secured party the rights to proceeds provided by [s]ection 9306." As stated in Secured Transactions, supra, chapter 4, section 4.55 at page 232, "[t]he present version of the Commercial Code does not require that the financing statement specifically claim the right to proceeds if that right is to be asserted."
We conclude that the description of the collateral in the security agreement and financing statement included the Fund because the Fund consisted of proceeds of inventory and inventory was included in the described collateral. The description of the collateral was sufficient to give notice to Grower that receipts from the sale by Thornton of Grower's flowers were subject to Bank's claimed security interest.
Grower contends the sale of flowers by Grower to Thornton was a consignment sale; as a result, Thornton never had title to the flowers and Thornton never owned the collateral (inventory) to which Bank's security interest could attach. Grower further contends the exception to this principle set forth in section 2326, subdivision (3) is inapplicable to this case.
A consignment sale is one in which the merchant takes possession of goods and holds them for sale with the obligation to pay the owner for the goods from the proceeds of a sale by the merchant. If the merchant does not sell the goods the merchant may return the goods to the owner without obligation. (See Secured Transactions, supra, § 1.18, pp. 21, 22.) In a consignment sale transaction, title to the goods generally remains with the original owner. (See U.Com.Code com., Prior Cal.Law, § 2326 California Code Comment, Prior California Law, § 3, 23A West's Ann.Cal.Com.Code (1964 ed.) § 2326, p. 345.) The arrangement between Grower and Thornton was a consignment sale arrangement; Grower was the consignor and Thornton the consignee.
Whatever the respective rights between the consignor and the creditors of the consignee may have been prior to 1963, the adoption of section 2326 established new rules which, under specified circumstances, made the retention of title by the consignor irrelevant to resolving claims between the consignor and the creditors of the consignee. Section 2326, subdivision (3) provides in part:
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