Collection: No Debt Cure from Extra Payments

     In the case of W. Harold Tulley I LLC v. North Richmond Investments Inc., the City of Richmond Circuit Court addressed a case involving an alleged cure of a default by payments made after default.

     The Court ruled in Tulley that Plaintiff lender is entitled to a deficiency judgment after foreclosure on real estate that secured a commercial loan. The Court rejected Defendant guarantors’ contention that their additional payments after default cured the default, as such was not provided for under the parties’ contract.
     Defendants asserted that the Third-Party Defendant trustees and Plaintiff breached their obligations and duties because they knew or should have known Defendants were not in default. Defendants claimed that the trustees violated their duties under the loan documents, failed to act impartially, failed to acquire the best price upon the sale, sold the property at an inadequate sale price, and as they were never in default, should not have conducted the sale. Defendants contended that the trustees conducted the sale on a sham bid, knowing that Defendants were not in default.
     The Court noted that neither the deed of trust and guaranty agreement nor the applicable statute, Virginia Code Section 55-59, lists any of the duties Defendants would have imposed on the trustees in foreclosure sales.
     The Court found that both the deed of trust and the guaranty agreement describe default as failure to pay the agreed upon amounts at the agreed upon time on a timely basis. The guarantor stated that upon his tender of the two advance interest payments, there was no agreement regarding how the payments were to be applied, and that he understood they were not required under the financing and deed of trust documents. The Court ruled that Defendants were held properly in default, the amounts due accelerated triggering foreclosure.

Collection: Bank Denied Lawyer Fees Due to Problem in the Guaranty

     In the case of Jefferson National Bank v. Estate of Frogale, a Loudoun County Circuit Court Judge denied the award of attorney's fees to a bank because the guaranty agreement did not have a provision for attorney's fees even though the promissory note clearly provided for 25% attorney's fees. The Loudoun Court found that the guaranty referred only to collection of "charges or costs" upon default. The Court ruled that this language was ambiguous, and as such, construed the ambiguity against the bank because they drafted the documents.

     In Frogale a corporation defaulted in the payment of a note and the bank sued the note's guarantor. The guarantor filed a motion for summary judgment regarding the question of the guarantor's liability for attorney's fees. The Loudoun Court reviewed the Virginia Supreme Court case of Mahoney v. Nationsbank. In Mahoney the Virginia Supreme Court ruled that a note and guaranty are two separate agreements, but each must be construed in the light of the other. In doing so, the Loudoun Court stated that it was "crucial that the bank chose to distinguish in the Note between 'all other applicable fees, costs and charges' and attorney's fees; and that it chose not to place a specific attorney fee obligation in the guaranty." The Loudoun Court pointed out that the bank could have placed an attorney's fee provision in the guaranty just as it had done in the note.
     The lesson of Frogale is that you should be careful that when you have guaranties you ensure that the language in the guaranty "mirrors" the language in the promissory note - without mirror language, there can be a problem, with mirror language, ambiguity should not be an issue.