Boers v. Payline Systems, Inc.

EDMONDS, J.,

dissenting.

The majority holds that respondent is entitled to priority under ORS 79.3010(4) based on a perfected security agreement executed in June 1994. Plaintiff’s garnishment was served in early September 1994. Plaintiff concedes that respondent’s security interest gives them priority for services rendered before the garnishments were served. The question, which the majority resolves in favor of respondent, is whether the security agreement has priority as to services rendered to and charges incurred by the judgment debtor after October 16, 1994, or 45 days after the garnishments were served. The majority characterizes those services as “advances” under the statute and concludes that, therefore, the statute is applicable. For the reasons that follow, I disagree with the characterization of respondent’s legal services as “advances” and the conclusion that ORS 79.3010(4) applies.

Plaintiff obtained a judgment against Pease on June 24, 1994. Respondent undertook to represent Pease against plaintiff in post-trial motions before the judgment was entered. After the judgment was entered, respondent and Pease entered into a fee and pledge agreement pertaining to Pease’s brokerage accounts for purposes of appeal on June 30,1994. The security interest in the brokerage accounts was perfected the following month. In September 1994, plaintiff, based on his prior judgment, sought to garnish the brokerage accounts that Pease had pledged to respondent as security. Under the pledge agreement, Pease continued to incur obligations for the legal services performed by respondent as they were rendered. As to when payment was due under the agreement on the obligations, the security agreement states,

*8 “1. Payment of Obligations. Pease shall pay all obligations when due. Payment shall be made by Secured Party first applying any funds available from the Deposits described below. Thereafter, Pease shall make such payments.” (Emphasis supplied.)

The threshold issue in this case is whether the legal services rendered by respondent after the brokerage accounts were garnished by plaintiff qualify as “advances” under ORS 79.3010(4) in the light of the above agreement. If they do not, then the statute is inapplicable, and the priority claimed by respondent under the statute is lost. The statute provides:

“A person who becomes a lien creditor while a security interest is perfected takes subject to the security interest only to the extent that it secures advances made before the person becomes a lien creditor or within 45 days thereafter or made without knowledge of the lien or pursuant to a commitment entered into without knowledge of the lien.”

In interpreting a statute, we seek to discern the legislature’s intent by first looking at the text and context of the statute. PGE v. Bureau of Labor and Industries, 317 Or 606, 611, 859 P2d 1143 (1993). ORS chapter 79 is a codification of the Uniform Commercial Code (UCC) Article 9. The context of ORS 79.3010(4) is “secured transactions” under the UCC. ORS 79.3010(4) provides a rule of priority regarding security interests whose attachment to collateral is authorized by ORS 79.2040. ORS 79.2040(3) is patterned after UCC § 9-204(3) and authorizes the attachment of security interests for “future advances.” The statute provides:

“(3) Obligations covered by a security agreement may include future advances or other value whether or not the advances or value are given pursuant to commitment as defined in ORS 79.1050(1)(k).” (Emphasis supplied.)

The official commentary to UCC § 9-204(3), on which ORS 79.2040(3) is based, states, in part:

“As in the case of after-acquired collateral, a security interest based on future advances may be subordinated to conflicting interests in the same collateral. See Sections 9-301(4); 9-307(3); 9-312 (3), (4) and (7).” (Emphasis supplied.)

*9 Additionally, UCC § 9-301(4) (ORS 79.3010(4)) provides:

“A person who becomes a lien creditor while a security interest is perfected takes subject to the security interest only to the extent that it secures advances made before he becomes a hen creditor or within 45 days thereafter or made without knowledge of the lien or pursuant to a commitment entered into without knowledge of the lien.” (Emphasis supplied.)

The official commentary to UCC § 9-301(4) refers repeatedly to “future advances.” One commentator, referring to UCC § 9-301(4) writes:

“The purpose of this provision is to balance the interest of a future advance lender and a lien creditor by giving priority to the lender for advances made * * *.” Clark, The Law of Secured Transactions under the Uniform Commercial Code, 3-31 (1993). (Emphasis supplied.)

It is clear, then, that a necessary element of an “advance” under § 9-301(4) is that the quid pro quo for what is advanced is not due contemporaneously with the advance. For example, in Kimbell Foods, Inc. v. Republic Nat'l Bank, 557 F2d 491 (5th Cir 1977), the future advances involved the advance of inventory on credit. Payment for the inventory was by a promissory note due at a later time. In sum, the interpretation of the word “advances” in ORS 70.3010(4), when read in the context of ORS chapter 79 and the UCC, can refer to nothing other than to agreements to make future advances.

Thus, by their very nature, “advances,” as contemplated by ORS 79.3010(4), do not encompass concurrent performances of the obligations to exchange services for consideration. The significance of that concept to this case is that respondent’s prior perfected security agreement could take priority over plaintiffs subsequent lien only if the legal services furnished by respondent after October 16, 1994, were “advanced” and payment was not due contemporaneously. The pledge agreement is clear. Pease was obligated to pay for respondent’s legal services at the time they were furnished, and the obligation to pay for the services was not delayed until a future date. Under the agreement, respondent could reach the assets of the brokerage accounts for payment upon *10 rendering their services. No delay in payment is contemplated by the agreement. The majority’s assertion that what is controlling is that the commitment to furnish the services was made in June 1994 is wrong. It does not matter when the commitment or agreement was made if it did not contemplate a future advance of services within the meaning of the statute. Nothing in the commitment between Pease and respondent defers payment or extends services on credit after the services are rendered.1

The majority is also wrong when it characterizes the agreement as rendering services with the expectation of payment at a later date. The billing for services at the end of the month for services rendered during the month could not constitute a future advance under the statute and the UCC. Otherwise, all monthly billings on an account would fall within the category of future “advances” and, clearly, the statute and the UCC use “advances” as a word of art that connotes a difference from typical billing practices on an open account when the balance is due at the end of the billing period. Thus, the majority’s opinion supplies a context to the word “advances” that is wholly inconsistent with the meaning of the word in the UCC, and it is for this reason that the legal services rendered by respondent do not qualify as “future advances” under ORS 79.3010(4).

Nonetheless, respondent argues that they are entitled to priority under ORS 79.2040(3). They assert that even if ORS 79.3010(4) is not applicable, their security agreement covered services to be rendered in the future and that because their security interest was perfected before plaintiffs hen and remained in effect after October 16,1994, it has priority. See ORS 79.3120(5)(a) (regarding the determination of priorities among conflicting security interests in the same collateral). The flaw in respondent’s argument is that this case is not about the priority between two competing security interests. Rather, it is about a judgment creditor’s priority over a security interest that attaches only when the services *11 are performed. In the absence of a specific statute that gives the security interest priority over the lien arising from the garnishment under a judgment entered prior to respondent’s security interest, there is no legal ground for concluding that the services rendered after October 16,1994, have priority.

For these reasons, I dissent.

ORS 646.639(l)(d), regarding unlawful trade practices, provides, “ ‘Credit’ means the right granted by a creditor to a consumer to defer payment of a debt, to incur a debt and defer its payment, or to purchase or acquire property or services and defer payment.” (Emphasis supplied.)