Collections: Motion to Set aside Judgment - Timely Filing

     Timing can be everything.  A prime example of this is the case of Trimark Partners v. HST L.L.C.  In Trimark the Fairfax Circuit Court ruled that a debtor cannot move to set aside a confessed judgment because he failed to file a motion within twenty one days of learning of the judgment.

     In Trimark the Court initially entered a judgment against three defendants based on a confession-of-judgment provision in a note. Two of the defendants had executed the note containing the confession-of-judgment terms. A third defendant later had signed an allonge, or attachment to the note, by which he consented to the note obligations. All three defendants later moved to set aside the judgment.

     Under Virginia Code §8.01-433, a defendant must move to set aside a confessed judgment within twenty one days following notice to him that the judgment has been entered. The judgment can be set aside "on any ground which would have been an adequate defense or set off in an action at law...".

     The Court found as a matter of fact that on a certain date the debtors were advised by the creditor of the entry of a judgment. A couple weeks later the judgment order was actually served on the debtors. More than twenty one days from the date on which the creditor advised the debtors of the entry of judgment, but not more than twenty one days from the date the judgment order was served on the defendants, the defendants filed a motion to set aside the judgment. The judgment creditor objected to the motion because it was not made within twenty one days of notice.

      The Court ruled in favor of the creditor, ruling that notice was proven by the creditor's evidence of notice (advising by letter); the Court found that notice was not proven only by the serving of the judgment on the defendants.

     The lesson of Trimark, as is the lesson in so many cases, is to create a paper trail of all transactions, and act promptly.  It will usually reap dividends.

Real Estate: Suit to Enforce Mechanic’s Liens

     In recent editions of Creditor News we have been discussing the benefits of using real estate to improve creditors’ positions.  Last month we discussed perfection of liens.  This month we will discuss suit to enforce mechanic’s liens.

Virginia Code §43-17 provides that no suit to enforce a mechanic’s lien can be brought:

 “…after six months from the time when the memorandum of lien was recorded or after sixty days from the time the building, structure or railroad was completed or the work thereon otherwise terminated, whichever time shall last occur; provided, however, that the filing of a petition to enforce any such lien in any suit wherein such petition may be properly filed shall be regarded as the institution of a suit under this section; and, provided further, that nothing herein shall extend the time within which such lien may be perfected.”

Virginia Code §43-17.1 provides that:

“Any party, having an interest in real property against which a lien has been filed, may, upon a showing of good cause, petition the court of equity having jurisdiction wherein the building, structure, other property, or railroad is located to hold a hearing to determine the validity of any perfected lien on the property. After reasonable notice to the lien claimant and any party to whom the benefit of the lien would inure and who has given notice as provided in § 43-18 of the Code of Virginia, the court shall hold a hearing and determine the validity of the lien. If the court finds that the lien is invalid, it shall forthwith order that the memorandum or notice of lien be released from record.”

Virginia Code §43-18 provides:

“The perfected lien of a general contractor on any building or structure shall inure to the benefit of any subcontractor, and of any person performing labor or furnishing materials to a subcontractor who has not perfected a lien on such building or structure, provided such subcontractor, or person performing labor or furnishing materials shall give written notice of his claim against the general contractor, or subcontractor, as the case may be, to the owner or his agent before the amount of such lien is actually paid off or discharged.”

      We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Collections: Construction Case Garnishments

     The United States District Court in Alexandria has reviewed a matter important to many supplier and contractor creditors: the garnishment of funds due their debtors from another party.  The case was U.S. v. Harkins Builders Inc.  In Harkins a material supplier was pursuing a garnishment proceeding against a builder who owed money to the judgment debtor, a drywall subcontractor.  The Court ruled that the supplier was not bound by a mandatory arbitration clause in a separate contract between the builder and the drywall sub.

     In Harkins a materials company supplied drywall materials to drywall subcontractors.  When the drywall subs failed to pay for the materials, the supplier obtained a federal court judgment for $278,520.  The supplier then initiated a garnishment proceeding against a builder to attach monies owed by the builder to the drywall sub under a contract between them.  As garnishee, the sub confessed assets but argued that the amount it owed to the drywall sub should be reduced by setoffs totaling $50,853 allegedly owed by the sub to the builder under their contract.  The garnishee also argued that any dispute about these setoffs must be resolved through arbitration, as provided in the contract between the drywall sub and the builder.

     The Court rejected the contention that the resolution of the amount of money owed by the builder to the drywall sub and subjected to garnishment must be accomplished through arbitration.  As a judgment creditor of the drywall sub, the supplier was not a party to the contract between the sub and the builder, and its interest was limited to the drywall sub's property interest in the builder's hands.  The parties to the drywall builder contract agreed to arbitration as an efficient procedural mechanism for resolving contractual disputes, including disputes over amounts owed.  The agreement to arbitrate, however, does not add or subtract value in the calculus for determining the value of the contract right.  The Court ruled that since the judgment creditor was afforded court procedures for determining the value, the fact that the property before the court was created by a contract containing an arbitration clause did not require a non-party to the contract to follow the contract's procedural mechanisms for dispute resolution.