Community Bank v. Jones

• Decision Date: 21 June 1977
• Citation: 566 P.2d 470,278 Or. 647
• Parties: , 22 UCC Rep.Serv. 168 The COMMUNITY BANK, Appellant, v. Robert L. JONES, dba R. L. Jones Motor Company, Defendant, Roy Ell, George Vassil and Ray Bruce, Respondents.
• Court: Oregon Supreme Court

Page 470

566 P.2d 470

278 Or. 647, 22 UCC Rep.Serv. 168

The COMMUNITY BANK, Appellant, v. Robert L. JONES, dba R. L. Jones Motor Company, Defendant, Roy Ell, George Vassil and Ray Bruce, Respondents.

Supreme Court of Oregon.

Argued and Submitted Feb. 10, 1977.

Decided June 21, 1977.

[278 Or. 648-C] Ferris F. Boothe of Black, Kendall, Tremaine, Boothe & Higgins, Portland, argued the cause and filed briefs for appellant.

Leslie M. Roberts of Kell, Alterman & Runstein, Portland, argued the cause and filed a brief for respondent Roy Ell.

Diane W. Spies, Portland, argued the cause for respondent George Vassil. With her on the brief were Connall & Spies, P. C., Portland.

J. W. Rosacker, Portland, filed a brief for respondent Ray Bruce.

Before DENECKE, C. J., and HOLMAN, TONGUE, HOWELL, BRYSON, LENT and BRADSHAW, JJ.

BRYSON, Justice.

Plaintiff (Bank) filed this suit (consisting of 11 causes of suit) to have its security interest covering the automobile inventory of defendant Robert L. Jones (Jones), an automotive wholesaler doing business as Robert L. Jones Motor Company, declared a first and prior security interest in Jones' inventory. Plaintiff further alleged and prayed for "judgment in favor of Plaintiff and against Defendant Jones in the amount of all sums owed Plaintiff * * * "; the appointment of a receiver to take possession of all collateral; and foreclosure of its security interest in the inventory or the proceeds thereof.

Defendants Roy Ell (Ell), George Vassil (Vassil) and Ray Bruce (Bruce) were joined as transferees of the collateral and proceeds in which plaintiff claimed its security interest. Against these defendants plaintiff sought a decree declaring their interests to be inferior to plaintiff's security interest and

"(d)irecting the defendants to deliver said (inventory) to the Department of Justice Services within ten (10) days or otherwise entering Judgment against each said defendant for the value of collateral or amount of collateral proceeds he received and withheld, whichever is greater."

These defendants denied that plaintiff had an interest in the disputed collateral and asserted various affirmative defenses.

Plaintiff appeals from the trial court's decree that it is not entitled to possession of the inventory, or to the receipts from the sale thereof, from defendants Ell, Vassil and Bruce and from the court's findings of fact and conclusions of law as hereinafter related.

Before proceeding to the merits of the case, one preliminary matter requires our attention. Prior to trial, defendant Jones entered into an agreement with plaintiff stipulating his liability and consenting to all the relief sought against him by plaintiff. ¹ Also prior to trial, all of the contested collateral was sold by defendants. At the beginning of the first day of trial defendants moved that they be granted a trial by jury, counsel for defendant Ell arguing as follows:

"In light of what happened yesterday, it appears to Defendant Ell in the settling of the judgment by Mr. Jones, that this is no longer a foreclosure action but an action in law in conversion, interfering with the Bank's collateral, and it has become an action for which the Defendant Ell is entitled to a jury, and Defendant Ell requests a jury, and in light of the changes in the case, which we had no knowledge of yesterday, it is no longer proper to have an equity case, and Defendant Ell respectfully requests a jury."

Defendants' motion was denied and the case was tried as one in equity. Defendant Vassil's motion at the close of plaintiff's case to dismiss for failure to prove an equitable cause of suit and defendant Bruce's similarly timed demurrer were likewise denied.

Having prevailed below, defendants do not cross-appeal the denial of their motion for a jury trial. However, in determining the proper scope of our review, we must, as a preliminary matter, determine whether this lawsuit is one at law or in equity. See, e. g., Lieuallen v. Heidenrich, 259 Or. 333, 485 P.2d 1230 (1971); Trans. Equip. Rentals v. Ore. Auto. Ins., 257 Or. 288, 292-93, 478 P.2d 620 (1970); ORS 19.125; Oregon Constitution Art. VII (Amended), § 3.

The rights of a secured creditor on default are set forth in ORS 79.5010, which provides in relevant part as follows:

"(1) When a debtor is in default under a security agreement, a secured party has the rights and remedies provided in ORS 79.5010 to 79.5070 and except as limited by subsection (3) of this section those provided in the security agreement. He may reduce his claim to judgment, foreclose or otherwise enforce the security interest by any available judicial procedure. * * * " (Emphasis added.)

The Oregon Uniform Commercial Code (Code) does not, by itself, establish any judicial remedy at law or in equity. It merely preserves to the creditor recourse to remedies available to him under pre-Code law. See, Davenport, Default, Enforcement & Remedies Under Revised Article 9 of the Uniform Commercial Code, 7 Val.U.L.Rev. 265, 304 (1973); Heath, Remedies and Collateral Liquidation Under Uniform Commercial Code Article 9, 4 Gonz.L.Rev. 217, 228 (1969).

We find the instant case to be a suit in equity. It is essentially a creditor's suit brought to determine the respective rights of multiple parties, each of whom claim to have, or to have had, interests in contested collateral. In Security S. & T. Co. v. Portland F. M. Co., 124 Or. 276, 305, 261 P. 432, 441 (1928), we quoted with approval the following from Wyman v. Wallace, 201 U.S. 230, 26 S.Ct. 495, 50 L.Ed. 738 (1906):

" ' * * * Whenever a creditor has a trust in his favor, or a lien upon property for the debt due him, he may go into equity without exhausting legal processes or remedies. * * * ' "

See also Dawson v. Coffey, 12 Or. 513, 518, 8 P. 838 (1885).

4 Pomeroy's Equity Jurisprudence § 1415 (5th ed. 1941), at page 1066, states:

" * * * Creditors' suits were therefore permitted to be brought in those instances where the relief by execution at common law was ineffectual; as for a discovery of assets; to reach equitable and other interests not subject to levy and sale at law; and to set aside fraudulent conveyances and obstructions." (Footnotes omitted.)

In the instant case, some of the collateral in which the Bank claims a security interest was transferred to defendants by Jones prior to suit. The complexity involved and procedural flexibility required to properly order priorities and property rights where multiple parties claim conflicting interests in the same collateral (or proceeds therefrom) renders a creditor's relief at law inadequate and brings the issue within the jurisdiction of the equity court. In such a case, it is not decisive that the recovery will be money nor that the primary debtor is only a nominal party to the suit. See Stumbo v. Hult Lumber Co., 251 Or. 20, 444 P.2d 564 (1968) (suit for declaration of property interests in inventory); Evans Products v. Jorgensen, 245 Or. 362, 421 P.2d 978 (1966); Stotts v. Johnson and Marshall, 192 Or. 403, 234 P.2d 1059, 235 P.2d 560 (1951) (rights and liabilities of conflicting claimants determined incident to a suit for foreclosure).

We review de novo, and an abbreviated review of the facts reveals the following. Jones operated a used car wholesale and retail business in Portland, Oregon. At the time of his financial failure and the collapse of his business in December of 1973, he had an inventory of some 130 vehicles with an estimated value in excess of $200,000. Prior to that date his average dollar volume was estimated to have been between $200,000 and $300,000 per month. Jones' business was highly leveraged ² and depended upon rapid inventory turnover to generate the cash flow needed to cover his financing and operating expenses. Jones obtained financing by flooring ^2a vehicles with the plaintiff. Jones also did financing with noninstitutional lenders; namely, defendants Ell, doing business as Ell Motor Company, Vassil, and James E. McClincy.

Community Bank began financing Jones in 1970 and entered into an "Inventory Loan and Security Agreement" on October 28 of that year. A financing statement was filed two days later, on October 30. ³ When Jones subsequently moved his business to a new location, he and the Bank executed and filed a second security agreement reflecting that change of address. The second security agreement was executed on April 19, 1972, and filed eight days later, on April 27. Both security agreements cover future advances and give plaintiff a security interest in after-acquired property and proceeds.

In addition to its security agreements of October 28, 1970, and April 19, 1972, plaintiff took trust receipts and titles covering specific vehicles as security for its loans.

Ell began financing Jones in 1970 or 1971. Like the Bank, Ell took trust receipts and titles to specific automobiles to secure his loans to Jones. A general security agreement was entered into by Jones and Ell on October 14, 1971, and amended December 15, 1971. However, it purports to grant Ell a security interest only in those vehicles specifically identified in the trust receipts taken by Ell, and the proceeds therefrom. The Ell and Jones security agreement of October 14, 1971, stated, "2. Each loan Ell decides to make to Jones shall be secured by a particular automobile acceptable to Ell." No financing statement was filed by Ell until October 18, 1971.

The evidence shows Ell to have been advised by his attorney of the Bank's prior perfected security interest on April 22, 1971, but Ell made no inquiry of plaintiff to determine the extent of that security interest. Ell financed cars only after they were in Jones' possession.

George Vassil began financing used cars for Jones in 1972. He also took trust receipts as security for his loans but, unlike the Bank and Ell, entered into no written general security agreement with Jones and filed no financing statement. He financed cars only after t...