Summary
describing the purpose of an escrow account under Cal. Bus. & Prof. Code § 24074
Summary of this case from Allred v. Chi. Title Co.Opinion
Rehearing Denied Sept. 26, 1968.
For Opinion on Hearing, see 77 Cal Rptr. 21,453 P.2d 461.
Huckenpahler & Dion and Michael A. Dion, Costa Mesa, for defendant, cross-complainant and appellant.
Carden, Lae & Gray and Arthur W. Gray, Jr., Anaheim, for plaintiffs, cross-defendants and respondents.
OPINION
LAZAR, Associate Justice Pro Tem.
Assigned by the Chairman of the Judicial Council.
This appeal is from a judgment rendered in interpleader in favor of respondent Grover Escrow Corporation (Escrow), which was escrow agent for the sale of a retail liquor business and license, and against cross-complainant/appellant Joseph G. Gole (Gole), an attachment and execution creditor of the seller in the subject escrow. Escrow interpleaded with respect to the FACTS
On October 5, 1964, Glenn Jagears (Seller) and Hollis J. Stokes and W. A. Busloff (Buyers), by written agreement, opened an escrow with Escrow providing for the sale and purchase of 'stock in trade, fixtures, equipment and good will of a certain Cocktail Bar business.' Buyers and Seller were to apply immediately for transfer of the 'on-sale public premise license with the ABC Board' with 'actual close of (the) transaction (to) be upon issuance of the ABC License, being transferred herein.' Of the purchase price the cash consideration ($13,484.45) was deposited with Escrow. The statutory notice of intended sale fixed the sale date of the 'stock in trade, fixtures, equipment and good will of said business' and payment of 'the consideration therefor together with the consideration for the transfer and assignment of the aforesaid license' on or after November 20, 1964. The escrow as carried out included, although not mentioned in the escrow agreement, assignment and assumption of the Seller's leasehold interest.
Before November 25, 1964, 'bona fide creditors' of Seller filed claims in excess of $70,000. On November 25, Escrow received written notice of Alcoholic Beverage Control approval of the license transfer. Incident to an independent action by Gole against Seller, a writ of attachment was served and levied on Escrow on October 29, 1964 with respect to property and credits of Seller in its possession. Escrow responded that it held nothing.
Gole obtained judgment against Seller in the amount of $9,370, plus costs, in the attachment action on November 20, 1964, and on November 30, 1964 execution was levied upon Escrow for $9,444.85. Escrow answered 'we hold no monies of (Seller). Money to (Seller) upon the issuance of license * * * $8,000.00 owing to (Seller) at the time thereof.' The manager of Escrow testified that 'approval from Alcoholic Beverage Control in Sacramento is considered 'issuance of license'.' He further testified the escrow could not close until receipt of a release from the State Board of Equalization, with was received on December 16, 1964.
In this connection and unexplained anywhere, is exhibit 4 in evidence, a letter from the State Board of Equalization to Escrow, dated November 6, 1964, which stated in part:
'Enclosed is a release of an order to withhold transfer of the above license. You are authorized to direct the release to the [ABC] after receipt of $1500 by the State Board of Equalization [at Santa Ana] * * * If the transfer is not approved, the release must be returned.'
The Alcoholic Beverage Control Board letter of November 25 in turn said:
'This Dept. has approved the qualification of the transferee and premises. There is nothing preventing the transfer at this time except the receipt of the release * * * previously sent to you by the [State Board of Equalization].'
On December 2, 1964 Seller unilaterally instructed Escrow to make certain payments to creditors, including the State Board of Equalization, and to pay the balance to 'the Marshall [sic] as per the Writ of Execution.' On the same date Seller and one of the Buyers signed instructions to pay the State Board of Equalization. Escrow did not make the payments at that On December 16, 1964, Seller and Buyers instructed Escrow to make disbursement pursuant to section 24074, Business and Professions Code, pro rata to Seller's creditors. On the same date amended instructions were signed by Seller and Buyers stating the escrow to be closed. On December 16 and 17, before service on Escrow of a second writ of execution at 10:05 a. m., December 17, all checks to creditors had been placed in the mail. The checks were paid on and after December 18, 1964.
The payments made by Escrow were to 'creditors' whose claims * * * 'would constitute a cloud on the title of the Buyers, or in the case of government claims, were necessary to effect transfer of licenses,' and totaled $7,956.84, leaving a remainder of $4,957.08 which was deposited in court by Escrow for the purpose of the interpleader action. The trial court determined that Gole was entitled to no priority over other creditors, that Escrow was entitled to attorney's fees and costs from the fund, and that the balance of funds should be distributed pro rata to the creditors, including Gole. At all times during the life of the escrow the filed claims of bona fide creditors of Seller exceeded the total of moneys on deposit with Escrow.
QUESTIONS
Appellant Gole asserts five points in contending that either his attachment or one of his executions should have been recognized and his judgment paid in full before any payment on the claims of other creditors. These points in altered order may be summarized in this fashion:
'1. (a) Section 24074, Business & Professions Code, does not provide the sole method of recovery by creditors of the seller of a liquor license;
'(b) To hold Section 24074, Business & Professions Code mandatory with respect to the sale of the liquor business (including the license) would create an implied exemption from attachment and execution and would violate Art. I, § 11 of the California Constitution, providing for the uniform operation of all laws of a general nature.
'2. The escrow agent at the time of levy of garnishment was in possession of a debt, credit or other property of seller to which the levy could attach.
'3. Issuance and mailing of checks to the claiming creditors was not an assignment of the moneys represented thereby placing such funds out of the escrow agent's possession and control so as to defeat the garnishment.
'4. Escrow agent's failure to recognize the garnishments resulted in a conversion of funds to which appellant was entitled, to appellant's damage in the amount of $9,444.85.
Respondent, somewhat less precise in defining the issues, states them to be:
'A. This appeal raises no issue as to the Necessity of Paying Certain Obligations in Order to Transfer Clear Title to the Buyers.'
and
'B. The levies upon the trust account of respondent did not give appellant a priority over the other bona fide creditors of Seller.'
In our view the matter resolves itself into two basic questions:
1. Does section 24074, Business and Professions Code, delineate a procedure for transfer of liquor businesses which excludes the application of the garnishment process?
2. If section 24074, Business and Professions Code, does not control, did the garnishment process, under the facts of this case, reach any property belonging to the seller in the subject escrow?
As in effect at the time the transaction occurred, section 24074, Business and Professions Code, read:
'Before the filing of such a transfer application with the department, if the intended transfer of the business or license involves a purchase price or consideration, the licensee and the intended transferee shall establish an escrow with No authority to which we have been cited nor our own reading of the section persuades us that the section provides for the elimination of the garnishment process in relation to the transfer of liquor licenses. A paucity of cases is available in this area of the law, but we need cite no extensive authority in support of the proposition that the subject of liquor licenses is fully and strictly a matter of State control under the Alcoholic Beverage Control Act. (Bus. & Prof.Code § 23000 et seq.) The fact, however, that most aspects of liquor licenses, their ownership, use, revocation, transfer, and so forth, are objects of vigilant concern and strict control does not mean that all matters incidental to the ownership of a liquor license are also subject to the same concern and control.
Section 24074 in the first place provided for the opening of an escrow for transfers of a license involving a purchase price or consideration and for the deposit of the full amount thereof in such escrow. The requirement of an escrow may readily be seen to be a protection to the seller in knowing that the funds he expects to be paid are actually at hand, and a protection to the buyer in that he will not lose control of his money before being assured of a license. It would tend to preclude collusion between the seller and buyer for the purpose of defeating all creditors. At the same time the escrow arrangement provides a simple and effective means of controlling and timing the actual transfer of license from the seller to the buyer.
The same considerations do not apply to the following provisions of the section relating to creditors and their claims. No classification is made of the creditors' claims; they may or may not relate to title to the business assets, they may or may not relate to the operation of the business and the use of the license; they may be so remote in time and nature that they are completely divorced from any relationship to the license or business, for instance an old personal injury judgment. The intent would appear to be to control the seller, the buyer and the license. The fact that the statute provides for an agreement between the seller and buyer, deposited with the escrow agent, is indicative of such intent. Were the intent of the statute to be more comprehensive in effect so as to include and bind creditors it presumably would have included provisions for like agreement by claimant creditors or would have specified the statute as a modification of the general law and the sole basis of the escrow terms.
Again, the statute's specifications of the approval of the transfer of the license as the cut-off point for the determination of creditors who shall be paid is indicative of an intent to control the seller and the buyer, not the creditor.
Respondent relies upon Pacific Firestone Escrow Co. v. Food Giant Markets, Inc., 202 Cal.App.2d 155, 20 Cal.Rptr. 570. In that action the escrow agent sued in interpleader when a creditor who filed his claim after the approval of the transfer claimed he was entitled to share ratably with those who had filed before. No The rationale is stated in these words:
'The Legislature has seen fit, in enacting a comprehensive scheme of alcoholic beverage control for this state, to require the parties to a sale of a liquor license to establish an escrow for the orderly transfer of such license; the Legislature has further provided for a cut-off date beyond which creditors of the licensee may not obtain collection from the specific fund so created. It is clear that the statute in no way deprives any creditor of his claim against the debtor and that appellant still has his cause of action for the unpaid balance of his claim against his debtor. The scheme of the statute is that if a creditor wishes to establish any rights to the specific fund (the consideration paid for the license) he must act promptly and within the time provided for in the statute.
'It is well established that the state has complete control over matters dealing with the sale and licensing of alcoholic products. [Citation.] The same control would naturally and reasonably extend to the transfer of liquor licenses, for without control over transfers the power over original applications would be meaningless.
'Liquor licenses are 'property' and usually have substantial value. [Citation.] The state in the exercise of its police power properly may regulate the manner in which creditors of the licensee may seek some protection in the collection of their debts from the proceeds of the sale of a license.' [pp. 157-158, 20 Cal.Rptr. p. 572.]
The foregoing statement may be accepted as generally valid. However, no authority is cited for the implied proposition that section 24074, Business and Professions Code, is a regulation of creditors as distinguished from the seller, buyer and escrow agent. In the absence of some standard of causal relationship peculiar to the creditor and the use of the license, no reason is apparent why a general creditor of a licensee should not have the same rights as he would have against a nonlicensee. A license by statute (Code Civ.Proc. § 688) is exempt from levy and sale on execution but it is 'property' and the proceeds of its voluntary sale are nowhere specified to be exempt. (Cf. Golden v. State of California, 133 Cal.App.2d 640, 285 P.2d 49.) We find no such inconsistency or repugnancy between the terms of section 24074 and the general rights of creditors as to require a construction that the statute had the effect of limiting those rights as a matter of law.
'A repeal by implication although sometimes possible is looked upon with disfavor and there is a presumption against such a repeal. (45 Cal.Jur.2d, Statutes, secs. 77-79, and cases cited, pp. 596-598.) "To overcome the presumption the two acts must be irreconcilable, clearly repugnant, and so inconsistent that the two cannot have concurrent operation. The courts are bound, if possible, to maintain the integrity of both statutes if the two may stand together."' (People v. Connor, 229 Cal.App.2d 716, 718, 40 Cal.Rptr. 603, 604.)
Harriman v. Tetik, 56 Cal.2d 805, 17 Cal.Rptr. 134, 366 P.2d 486, has no application to the facts of this case.
We hold that the judgment must be reversed for the reason that the case was tried upon an inapplicable theory, the record provided us in connection with the agreed statement of facts does not afford us an opportunity to decide whether the findings of fact and conclusions of law Obviously if the right of garnishment is not precluded by section 24074, as we hold it is not, then the questions to be answered are whether the escrow agent at any critical time held any property or owed any obligation to the garnishment debtor, and, if so, what or how much. In this connection a helpful review of the law of garnishment may be found in Steineck v. Haas-Baruch Co., 106 Cal.App. 228, 231-234, 288 P. 1104.
For the reason evidence responsive to an appropriate theory of the case will have to be considered by the trial court, we discuss but do not decide some of the questions which will be involved.
On October 29, 1964, when Gole's writ of attachment was levied, transfer of the license had not been approved nor the license issued. At that time Escrow had only Seller's license and it was not subject to levy (Code Civ.Proc. § 688). Title to the non-license property would seem still to be in Seller because the transaction was not to close until the license was issued. The proper subject of attachment was the assets of the business less the license. Accordingly, the October 29 levy would affect nothing in the escrow.
On November 30, 1964, levy of writ of execution was made. On November 25, 1964, transfer of the license had been approved by Alcoholic Beverage Control Board. As far as the escrow was concerned Seller was to be paid no money until the releases had been obtained from the State Department of Employment and State Board of Equalization. Buyers' right to the bill of sale and license had been perfected however. (Portuguese American Bank v. Schultz, 49 Cal.App. 508, 193 P. 806; Todd v. Vestermark, 145 Cal.App.2d 374, 377, 302 P.2d 347.) Seller's right to the money had been perfected except for the deferred payment awaiting the required releases. At that point Buyers were entitled to demand delivery of their purchase and the consideration became substituted for the business and the license. Seller's interest in the fund at that point became subject to garnishment. (Dawson v. Bank of America, 100 Cal.App.2d 305, 309, 223 P.2d 280.) True, if Seller and Buyers had theretofore executed the instruction to pay creditors in accordance with section 24074, an assignment would have been made which could defeat the garnishment. Such assignment had not been made. On November 30, Escrow had on hand funds in excess of the demands of the State Board of Equalization and State Department of Employment and the amount of Gole's execution. Escrow should have answered accordingly, and by answering 'Money to Mr. Jagears upon the issuance of license * * * $8,000.00 owing to said defendant----at the time thereof; * * *' almost did. Escrow's failure was in giving no effect to the provision in the escrow agreement that 'actual close of this transaction' should be on 'issuance of the ABC license.'
We reach a point at which the escrow agreement as written should be considered. In summary it provided for a bill of sale of the business and application for transfer of the on-sale public premise license. As mentioned before, 'actual close' of the transaction would occur upon issuance of the license. The brokerage commission was payable upon issuance of the license but the 'net proceeds' were not to be disbursed to Seller until releases from the Department of Employment and Board of Equalization were deposited in the escrow. The parties agreed all 'cost involved in this transaction' was to be shared equally, presumably expense incident to the escrow. Sales tax on $7,000 was chargeable to Buyers. Personal property tax and rentals were to be prorated to close of escrow, but Seller agreed to pay rentals coming due before such close. Seller was entitled to a credit of $450 for rental paid in advance. Except as itemized above, the agreement contained no directions to pay any specific 'You will hold the money and documents, other than Notice(s) of Intention, in escrow until the closing hour and day specified in said notice(s), at which time, PROVIDED you hold said money and documents and sufficient money is in escrow available to pay all approved bills and claims, together with prorations, your costs and charges and the agent's commission if payable through the escrow, and to enable you to hold the amount of all unapproved bills and claims plus 50% thereof, you will then deliver to the BUYER said Bill of Sale unrecorded, file for record the Chattel Mortgage, if any, and deliver to the SELLER, or order, the Chattel Mortgage Note described above, if any, deduct the charges and costs of escrow which the seller has agreed to pay, pay all bills and other items which have been approved in writing by any one of the SELLERS, withhold the amount of all unapproved bills and claims plus 50% thereof and pay the balance to the SELLER or order.
'Make prorations on basis 30-day month. 'Close of Escrow' shall mean the date of sale specified in the Notice(s) of Intention. Any unpaid balance on a mortgage or contract authorized herein and the interest payments thereon, are to be based on written statement of the payee or holder thereof. Make disbursements by your check. Documents and checks in my favor to be mailed to my address below, and fire and other insurance policies to first encumbrance holder, if any. If title search is to be obtained, procure it from any title company operating in county where property is located, subject to exceptions and conditions contained in said company's regular form.
'* * *
'It is understood and agreed that no examination of the property described in the Bill of Sale, Chattel Mortgage, or any other document deposited in this escrow, or of the title thereto, is to be made or procured by you, nor protection given as to property purchased on contract or under conditional sale agreements.
'* * *
'* * * Your liability as escrow holder shall be confined to the things specifically provided for in my written instructions in this escrow.
'Should you before or after close of escrow receive or become aware of any conflicting demands or claims with respect to this escrow or the rights of any of the parties hereto, or any money or property deposited herein or affected hereby, you shall have the right to discontinue any or all further acts on your part until such conflict is resolved to your satisfaction, and you shall have the further right to commence or defend any action or proceedings for the determination of such conflict. The parties hereto jointly and severally agree to pay all costs, damages, judgments and expenses, including reasonable attorney's fees, suffered or incurred by you in connection with, or arising out of this escrow, including but without limiting the generality of the foregoing, a suit in interpleader brought by you. In the event you file a suit in interpleader, you shall ipso facto be fully released and discharged from all obligations further to perform any and all duties or obligations imposed upon you in this escrow.'
No amendment of the escrow agreement occurred until December 16, 1964, when belated instructions were given for payment of creditors according to Business and Professions Code, section 24074; but further stating in all other particulars the 'original escrow agreement' should remain in force and making demand that the escrow should be closed.
The managing officer of Escrow testified without contradiction that approval of the transfer by the 'Alcohol Beverage Control in Sacramento is considered 'issuance of license'.' Such approval was received November 25. The record is silent on the question of what bills or claims, if any, had been approved in writing by Seller as called for by the escrow agreement, although it does appear who were bonafide creditors as used in section 24074, Business and Professions Code, on November 30, 1964 and we remark, without comment, the emphasized classification. The first indication of 'approved bills and claims' appears on December 2, 1964, but no action was taken by Escrow to make payment. On December 16, 1964, the amendment designed to comply with section 24074 was signed and delivered to Escrow but still Seller gave no approval of specific 'bills' or 'claims' as called for by the other terms of the escrow, unless the amendment be deemed a blanket approval of all bills and claims filed.
Escrow, at this point, apparently embarked on a frolic of its own. As demonstrated by the testimony of the manager, it did not follow the amendment; it selected the creditors to be paid according to Escrow's opinion whether the payments, other than those to government agencies, were necessary to clear title to specific assets, although nowhere in any of the escrow instructions is any such obligation imposed upon Escrow; and made no payment to creditors otherwise. (Cf. Moore v. Trott, 156 Cal. 353, 104 P. 578.) Instead it commenced an interpleader action almost one month later. Obviously it followed neither its own escrow instructions or section 24074 in execution of its duties and in fact demonstrated an ineptness taxing the imagination in the conduct of a service it purported to provide the public. The evidence discloses a complete lack of administrative finesse and of understanding of the legal problems implicit in the function it represented itself able to perform.
The critical question is when was the license issued within the framework of the particular transaction so that 'title' to the consideration passed to Seller.
Escrow contends title to the money did not pass until the payments were made which cleared title to Seller's assets and that such was a condition of the escrow. On the other hand we have these considerations to face: this is an action between a third party and an escrow agent, not between the escrow agent and the parties to the escrow; the escrow agreement contemplated issuance of the license and 'transfer of title' before the mechanical close of the escrow; the only 'conditions' actually expressed in the escrow were that no disbursement be made to Seller before the releases were obtained from the Department of Employment and the State Board of Equalization; and those conditions were not conditions of transfer of title but conditions of payment of money; the escrow terms, as quoted above, expressly disavowed Escrow's responsibility for 'clear title' to any of the personal property; by the amended escrow instructions of December 2 and December 16, all parties to the escrow, including Escrow, appear to have recognized that title had passed on November 25, for nothing had happened between then and those dates to add to the Alcoholic Beverage Control letter of November 25; nowhere does respondent challenge the validity of its manager's testimony that approval of the transfer was the equivalent to issuance; the documentary transfer or issuance did not occur in fact until December 31, again with nothing intervening in the way of action by the Alcoholic Beverage Control since November 25.
The only actual condition to the transfer of the license would appear to be that of Alcoholic Beverage Control requiring receipt of the State Board of Equalization release as expressed in the November 25 letter; that release was already in hand and could have been mailed to the Alcoholic Beverage Control concurrently with the mailing of a check for $1,500 to the Santa Ana office of the State Board of Equalization. This Alcoholic Beverage Control requirement was not one between Escrow and the parties, however, as the parties, by their original escrow instructions, had contemplated payment of agency claims after We have discussed at some length Escrow's failure to recognize the problems facing it during the course of the escrow. It is also necessary to consider whether on November 30, the date of levy of the first execution, Seller would have had a right to demand any moneys from Escrow. We have pointed out above that title to the consideration passed on November 25. Buyers specified only two claims that had to be paid before Seller would be entitled to disbursement of the proceeds; the necessary funds were available and use of the documents at hand was permitted and feasible. Did the creditors have any rights on November 30 which (aside from Escrow's right of interpleader) would legally justify Escrow's denying payment to Seller?
We have held that they had none by virtue of section 24074, Business and Professions Code. We have noted that the notice of intention did make reference to section 24074 in stating that the consideration would be paid only after transfer of the license had been approved by Alcoholic Beverage Control. While we are satisfied this did not afford a substitute for the agreement required by that section, we refrain from any comment on its possible effect on the relationship between Seller and his creditors who filed claims in the escrow. The only reference to general creditors is found in the printed portions of the escrow instructions quoted above and the matter of payment of their claims could be construed not to be in accord with the agreement of Seller and Buyers as expressed in the typewritten portion of the instructions. As far as the escrow instructions are concerned, no provisions appear or standards are set by which any creditor could be designated a third party beneficiary of the agreement. Any rights of creditors were prospective only and would come to life only upon Seller's written approval of a claim or claims. It would seem Escrow's obligation to Seller, the real object of levy here, was subject to garnishment whether or not due and was required to be impounded whatever the rights of creditors.
'[W]henever the conditions attending the escrow have been so far performed that the transaction which has called the escrow into being becomes complete the nature of [the] dual agency changes to an agency not for both, but for each of the parties to said transaction * * *, the agent of the purchaser as to such deed and of the seller as to such money.' (Shreeves v. Pearson, 194 Cal. 699, 707-708, 230 P. 448, 451);
and the ordinary rule is that a garnishment will impound a debt even though not yet due. (Trow v. Moody, 27 Cal.App. 403, 405, 150 P. 77.) The facts as disclosed are such that it is highly questionable that the creditors had any enforceable rights against Escrow, but even if on retrial it should develop that the instruction did create such rights, they do not have the effect of rendering the garnishment invalid and would go only to the amount ultimately produced by it.
In view of the fact that the case was decided upon a theory which we hold to be untenable, i.e., that the case is controlled by section 24074, and since there are factual questions which need to be determined, the cause must be returned for retrial. The views we have expressed render it unnecessary to consider the effect of the second levy of writ of execution. A minor matter, perhaps, but one piquing curiosity, is why Seller was charged escrow fees of $245 and Buyers only $155, when the escrow instructions called for equal sharing of such costs.
The judgment is reversed as to all parties, appellant to have his costs against respondent Grover Escrow Corporation.
COUGHLIN, Acting P. J., and WHELAN, J., concur.