Collections: 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.

Collections: 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. 

Foreclosure: Advertisements of Sale

      The Code of Virginia provides specific guidance as to advertisements for foreclosure sales. The sale must be properly advertised or it will be void upon order of the court.

     Virginia Code §55-59.2 states that if the deed of trust provides for the number of publications of the advertisements, no other or different advertisement shall be necessary, provided that: if the advertisement is inserted on a weekly basis, it shall be published not less than once a week for two weeks, and, if such advertisement is inserted on a daily basis, it shall be published not less than once a day for three days, which may be consecutive days. If the deed of trust provides for advertising on other than a weekly or daily basis, either of these statutory provisions must be complied with in addition to the provisions of the deed of trust. If the deed of trust does not provide for the number of publications for the advertisement, the trustee shall advertise once a week for four consecutive weeks; however, if the property, or a portion of the property, lies in a city or county immediately contiguous to a city, publication of the advertisement may appear five different days, which may be consecutive. In either case, the sale cannot be held on any day which is earlier than eight days following the first advertisement or more than thirty days following the last advertisement.
     Advertisements must be placed in the section of the newspaper where legal notices appear, or, where the type of property being sold is generally advertised for sale. The trustee must comply with any additional advertisements required by the deed of trust.

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.

Bankruptcy: ERISA Funds, the Bankruptcy Estate and Homestead Exemptions

     In the case of Philips v. Bottoms, Judge Payne of the United States District Court at Richmond, Virginia, upheld a Bankruptcy Court ruling that the Virginia homestead exemption, Virginia Code §34-34, was not preempted by ERISA, and that the bankruptcy trustee could claim a portion of an individual retirement account (IRA) not funded by the debtor’s funds from an ERISA-qualified plan.

     In Phillips, it was disputed that the IRA was not an ERISA-qualified plan. However, because the debtors used funds from an ERISA-qualified plan to create the IRA, the debtors contended that the exemption applicable to an ERISA-qualified plan exempted the IRA because it was created by funds having their origin in such a plan. The Bankruptcy Court held that the IRA was property of the bankrupt estate and that Virginia Code §34-34 was not preempted by ERISA. The Court further held that the debtor’s claimed exemption should be allowed in the amount of $21,532.
     In the Bankruptcy Court, the trustee sought to thwart the claim that the IRA funds were partially exempt by arguing that Virginia Code §34-34 was preempted by ERISA and therefore was not available to protect any part of the IRA from the claims of creditors. The Bankruptcy Court allowed $21,532 of the $48,858 in interest in the IRA because the parties had agreed that if an exemption was allowable at all, that was the correct amount.
     The District Court, in its review, found that although the federal bankruptcy provisions permitted exemption of a payment under a pension to the extent reasonably necessary for the support of the debtor and any dependent, Virginia had enacted an alternative exemption provision, found in Virginia Code §34-34. The state provision, like the federal one it replaced, limited the exemption of retirement benefits. However, rather than limiting the exemption to the extent reasonably necessary for the support of the debtor and his dependents, the Virginia law provided instead that the exemption should not apply to the extent that the interest of the individual in the retirement plan would provide an annual benefit in excess of $17,500. The District Court concluded that given the legislative intent underlying the Bankruptcy Code, it was logical to conclude that the limit on pension plan exemptions was Virginia’s attempt to set an exemption level appropriate for the Commonwealth, precisely as was envisioned by Congress when it revised the Bankruptcy Code.
     The District Court affirmed the Bankruptcy Court’s decisions that the debtor’s interest in the IRA was part of the bankruptcy estate and that Virginia Code §34-34, even if theoretically preempted by §514(a) of ERISA, was saved from preemption by §514(d) of ERISA.