Collections: Note Guarantee Upheld

     In the case of NationsBank v. Mahoney, the Fairfax County Circuit Court upheld a note and guarantee agreement, as well as the sale of collateral pursuant to the terms of these documents.

      The guarantor in Mahoney argued that the creditor acted in bad faith. The guarantor asked the Court to imply in the note and guarantee agreement additional terms from the commercial good faith provision of Virginia Code §8.1-203. The Court, however, found that the note and guarantee agreement's provisions were "within the preview of the Uniform Commercial Code as adopted in Virginia", and that each alleged act of bad faith was expressly authorized in the terms of the note and guarantee agreement. The Court ruled that it could not imply the terms requested because the result would be to negate or materially alter the explicit terms freely agreed upon by the parties.

     The lesson from Mahoney is that properly prepared notes are the key to collection should the loan become sour. Legal review of loan documents prior to execution can be more cost effective than legal representation after default.

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.