Continental American Life Ins. Co. v. Griffin

• Decision Date: 08 September 1983
• Docket Number: No. 39834,39834
• Citation: 251 Ga. 412,306 S.E.2d 285
• Parties: , 36 UCC Rep.Serv. 1737 CONTINENTAL AMERICAN LIFE INSURANCE CO. v. GRIFFIN.
• Court: Georgia Supreme Court

Page 285

306 S.E.2d 285

251 Ga. 412, 36 UCC Rep.Serv. 1737

CONTINENTAL AMERICAN LIFE INSURANCE CO. v. GRIFFIN.

No. 39834.

Supreme Court of Georgia.

Sept. 8, 1983.

Penland & Schaikewitz, Steven Schaikewitz, Atlanta, for Continental American Life Ins. Co.

Kevin C. Greene, Troutman, Sanders, Lockerman & Ashmore, Atlanta, for Warren S. Griffin.

GREGORY, Justice.

Plaintiff-appellee, Warren S. Griffin ("Griffin") brought this diversity action in the United States District Court for the Northern District of Georgia against defendant-appellant, Continental American Life Insurance Company ("Continental"). Griffin sought to enforce his perfected security interest in fifty per cent (50%) of all insurance commissions payable to Norman Greenberg ("Greenberg"), an employee of Continental. Continental answered alleging it was entitled to a set-off against any and all sums which may be payable to Greenberg pursuant to his employment contract. The case was decided on cross-motions for summary judgment in favor of Griffin. Continental appealed to the United States Court of Appeals for the Eleventh Circuit which certified questions of state law for our resolution. (Rule 36 of the Supreme Court of Georgia. See, OCGA § 15-2-9; Code Ann. § 24-4536). The questions and our responses are:

1. Under Georgia law does Article Nine (Secured Transactions) of the Uniform Commercial Code apply to contractual rights of set-off? Yes.

2. If Article Nine applies to contractual rights of set-off, does the contractual right of set-off have priority over a perfected security interest in the same fund? No.

Two other certified questions need not be answered in view of our responses to these questions.

In 1971, Greenberg was indebted to the First National Bank of Atlanta in the amount of $100,000 pursuant to a promissory note on which Griffin acted as indemnitor. On September 20, 1977, Greenberg's debts were discharged in bankruptcy. Griffin was called upon to satisfy the $100,000 indebtedness.

At the time, Greenberg was employed by National Life of Vermont as an insurance agent. To compensate for Griffin's payment of the First National Bank debt, and other debts, Greenberg agreed to indemnify and hold harmless Griffin for any payments made by Griffin on behalf of Greenberg. In connection with the indemnification, on May 17, 1976, Greenberg and Griffin executed a written agreement whereby Greenberg granted Griffin a security interest in 50% of all new or renewal commissions to which Greenberg would be entitled so long as his debt to Griffin remained unsatisfied.

After entering into the indemnification agreement with Griffin, Greenberg commenced employment with Continental. In connection with this employment, Greenberg signed an agreement allowing Continental to retain amounts owed Continental by Greenberg from commissions due him from Continental.

Griffin subsequently perfected his security interest in commissions due Greenberg from Continental by filing a financing statement. Continental has never filed a financing statement with regard to its interest in commissions due Greenberg. Griffin attempted to obtain immediate possession of Greenberg's commissions by obtaining a writ of possession in a state court legal proceeding. Continental refused to pay Greenberg's commissions over to Griffin. Continental alleged that during his employment with Continental, Greenberg became indebted to it in an amount exceeding the amount of commissions owed. Griffin then filed the present action.

In determining whether Article Nine, the Uniform Commercial Code's chapter on secured transactions, is applicable to the assertion of a right of set-off, we are confronted with statutory language that "This article [chapter] does not apply ... to any right of set-off..." OCGA § 11-9-104(g) (Code Ann. § 109A-9-104). While the language is plain enough, the conclusion that this section removes from operation of the Code any controversy between a set-off and a secured party is not warranted by the narrow purpose this provision was intended to serve. Professor Gilmore, a principal reporter for Article Nine of the Code, gives this explanation for the set-off exclusion:

"This exclusion is an apt example of the absurdities which result when draftsmen attempt to appease critics by putting into a statute something that...