Opinion ID: 1211307
Heading Depth: 1
Heading Rank: 5

Heading: durable's payments to the law firm

Text: As indicated above, the $250,000 assignment between Marchini and the law firm was made in August of 1980. In September of 1980, Durable paid the law firm $48,233.11 pursuant to the assignment. On October 17, 1980, the Trustees served the writ of garnishment on Durable. After receiving service of the writ, Durable paid the law firm $136,775.96 pursuant to the assignment. Thus, the total paid to the law firm by Durable was $185,283.99. At the post-judgment hearing, the district court found that $129,000 of the $250,000 assignment was given to satisfy the preexisting indebtedness of Marchini. The district court concluded that this portion was exempt from coverage under Article Nine of the Uniform Commercial Code because it was not intended to have an effect as security, because it was not made within the typical commercial financial setting, and because it constituted a single account within the meaning of NRS 104.9104(6). The court then found that $121,000 of the assignment was given to secure future advances by the law firm and that, therefore, this portion was governed by Article Nine of the UCC. Because the law firm did not file a financing statement prior to service of the writ of garnishment, the court concluded that the Trustees, as lien creditors, had priority over the firm's security interest. The district court entered a judgment against Durable in the amount of $56,009.07 ($185,009.07 minus $129,000), as the amount improperly paid the law firm after service of the writ. The Trustees contend that they have priority over the entire $136,775.96 paid by Durable to the law firm after service of the writ of garnishment. First, the Trustees contend that the district court erred by failing to find Marchini's assignment to the law firm voidable as a fraudulent conveyance pursuant to NRS 112.050 and NRS 112.060. Specifically, the Trustees argue that the assignment was made while Marchini was insolvent and that it was not supported by fair consideration, because the amount of the assignment exceeded the preexisting indebtedness. The district court found as a fact that the Trustees failed to show the assignment to the law firm rendered, or would render, Marchini insolvent. The district court then concluded as a matter of law that the Trustees had failed to present sufficient evidence that Marchini was insolvent at the time of the assignment, that the assignment rendered Marchini insolvent, or that Marchini made the assignment with an intent to hinder, delay or defraud its creditors. See NRS 112.080. The district court also concluded that Marchini's antecedent debt to the law firm, which the district court found to be a legitimate and enforceable debt, was fair consideration for the assignment. Our review of the record reveals substantial evidence to support these findings and conclusions of the district court. Therefore, they will not be set aside on appeal. See Folsom v. Woodburn, 100 Nev. 331, 683 P.2d 9 (1984) (where a district court, sitting without a jury, makes a determination based on conflicting evidence, that determination will not be disturbed on appeal as long as it is supported by substantial evidence). Second, the Trustees contend that the entire assignment to the law firm is subject to the filing provisions of Article Nine, and that the district court erred in ruling that a portion ($129,000) of the assignment was exempt. Because the law firm did not perfect its interest in the funds held by Durable by filing a financing statement, the Trustees contend that, as lien creditors, they had priority over the law firm's unperfected interest. See NRS 104.9301(1)(b). The Trustees conclude, therefore, that they are entitled to judgment for the entire $136,778.96 paid by Durable to the law firm after service of the writ of garnishment. The law firm maintains, however, that the entire assignment is excluded from the filing provisions of Article Nine as an absolute assignment of a single account in satisfaction of a preexisting indebtedness. Therefore, the law firm argues, it had priority over the funds received under the assignment because the assignment occurred prior to service of the writ of garnishment. NRS 104.9102 sets forth the transactions covered by Article Nine. This statute provides that, unless otherwise excluded, Article Nine applies [t]o any sale of accounts or chattel paper. [7] According to the drafter's comments to this section, every assignment of an account receivable, whether intended for security or not, is included within the scope of Article Nine unless expressly excluded by some other provision. Only one relevant statutory exclusion exists. NRS 104.9104(6) provides that the transfer of a single account receivable is excluded from the scope of Article Nine. This statute provides in pertinent part: This article does not apply: ..... 6. To a sale of accounts or chattel paper as part of a sale of the business out of which they arose, or an assignment of accounts or chattel paper which is for the purpose of collection only, or a transfer of a right to payment under a contract to an assignee who is also to do the performance under the contract or a transfer of a single account to an assignee in whole or partial satisfaction of a preexisting indebtedness .... (Emphasis added.) Therefore, if the assignment constitutes a transfer of a single account within the meaning of the above exception, the assignment is excluded in its entirety from the provisions of the UCC. If, on the other hand, more than one account is transferred, the entire assignment is governed by the provisions of Article Nine. There is no statutory authority for splitting the assignment and finding a portion of the transfer exempt from Article Nine and a portion of the same assignment subject to the provisions of Article Nine. Therefore, at the very least, the district court erred by dividing the assignment and treating it as partially covered and partially excluded by Article Nine. The question of whether a single account was transferred by Marchini to the law firm was vigorously disputed by the parties. The Trustees argued that Marchini assigned his rights to payment under two distinct framing contracts. [8] The Trustees noted that the written assignment between Marchini and the law firm explicitly recognized the existence of two distinct framing contracts. Although the subcontracts between Durable and Marchini involved two residential housing projects, Marchini averred that he treated all his contracts with Durable as a single account. The district court resolved this dispute in Marchini's favor, concluding that the assignment was of a single account. The district court viewed the subcontracts as Durable's framing account with Marchini. This conclusion is supported by substantial evidence in the record and, therefore, we will not disturb it on appeal. See Folsom v. Woodburn, supra . Accordingly, the entire transfer was outside the scope of Article Nine. Because the entire transfer was outside the scope of Article Nine, the validity of the transfer, and the priorities of the amounts due Marchini from Durable under the assignment, must be determined according to common law principles. The general rule is that priority between an attachment or garnishment and an assignment of a chose in action depends on priority in time. See Saunders v. Adcock, 249 Ark. 856, 462 S.W.2d 219, 221 (1971); Martinez v. Dixon, 710 P.2d 498, 500 (Colo.Ct.App.1985); Higgs v. Amarillo Postal Employees Credit Union, 358 S.W.2d 761, 763 (Tex.Civ.App.1962); Monegan v. Pacific Nat'l Bank of Washington, 16 Wash.App. 280, 556 P.2d 226, 231 (1976). Therefore, the assignment in this case, which predated service of the writ of garnishment, has priority. Nevertheless, we conclude that the assignment has priority over the writ of garnishment only to the extent that the consideration given for the assignment represented a present advance or antecedent debt. See NRS 112.040; [9] cf. Edward L. Eyre & Co. v. Hirsch, 36 Wash.2d 439, 218 P.2d 888, 897 (1950) (where bank sold warehouse receipts after service of writ of garnishment for an amount less than their value, bank was liable to garnishor for difference between the amount for which the receipts were sold and the value of the receipts). In this case, it is uncontroverted that a portion of the assignment was given to secure possible advances that the law firm might make on behalf of Marchini in the future. The district court found that at the time the assignment was executed, $129,000 represented an antecedent debt owed by Marchini to the law firm. The district court also found that the remaining $121,000 represented security for future advances. The law firm alleges, however, that prior to the service of the writ of garnishment, it advanced funds to, and performed services for, Marchini in the amount of $203,000. [10] Although this figure is disputed by the Trustees, the law firm is entitled to priority over that portion of the assignment that represents funds actually advanced to, or on behalf of, Marchini prior to the service of the writ of garnishment. The district court did not determine the amount of the antecedent debt Marchini owed to the law firm at the operative or relevant time, i.e., the date of service of the writ of garnishment. See Walker v. Carolina Mills Lumber Co., Inc., 429 So.2d 1065, 1068 (Ala.Civ.App.1983) (date of service of writ of garnishment becomes date on which priority among various claimants is determined); cf. Gambino v. Culp, 444 So.2d 730, 732 (La.Ct.App.1984) (seizure in garnishment procedure is effective the moment of service of garnishment interrogatories). Therefore, we must remand this matter to the district court with instructions that it conduct an evidentiary hearing to determine the amount of the assignment that represented either present advances or antecedent debts owed to the law firm as of October 17, 1980, the date the Trustees served Durable with the writ of garnishment.