Collections: Timeliness of Mechanic's Lien

     The Prince William Circuit Court reviewed several interesting issues regarding mechanic's liens in the case of American Standard Homes Corp. v. Reinecke, Trustee. 

     In American Standard some of the replacement materials for the prefabricated homes were delivered to each of the six projects more than 90 days after the materials and "extras" designated in the respective material order contracts had been delivered, the time limitation for filing memoranda of mechanic's liens, specified in Virginia Code §43-4. The Court ruled that time began to run upon delivery of the material designated in the material order contracts and not from delivery of the replacement materials. The Court, in making its ruling, determined that the materials delivered under the purchase orders were not materials last furnished within the intendment of the perfection statute, thus, the six liens were not timely filed. 

     The seller of the prefab homes had argued that the material order contracts were "open-ended devices" and that, because "each contract contemplated both extras and multiple purchase orders," the materials acquired under purchase orders were, for purposes of the filing limitation prescribed by the perfection statute, materials last furnished under those contracts. The Court disagreed though, finding that each material order contract contained blank spaces beneath the word "Extras" in which the buyer listed the materials to be added to those designated in the "dry-in" and "trim" packages. Unlike the "Extras" listed in the material order contracts and included in the invoices issued when the two material packages were delivered, the "Extras" to be shipped C.O.D. under particularized purchase orders were articles which were "replacement materials" for those materials that after delivery, had been lost, damaged or stolen and were reordered. Neither the basic contract nor the material order contract required the buyer to purchase such "extras" from the seller; the buyer was free to contract with other materialmen for materials needed to replace those delivered earlier by the seller. In its purchase orders, the buyer offered to buy replacement parts from the seller. The seller accepted that offer by delivering the materials.

     The Court found that this was a contract, one separate and apart from the material order contract. The latter expressly provided that it was "THE COMPLETE AGREEMENT BETWEEN THE PARTIES." When the seller delivered the materials designated as extras listed in the contract, it delivered all it had contracted to deliver. What it delivered under the contract were the materials last furnished within the intendment of the 90-day statutory limit for filing memorandum of mechanic's lien. The Court found that the record showed with respect to each of the six liens at issue that the limitation period had expired before the seller filed its memoranda. Accordingly, the liens were unenforceable.

     The lesson of American Standard - enforcement of creditor’s rights in construction law matters is a very complex and requires experienced counsel.

Collections: Timeliness of Mechanic's Liens

     The Prince William Circuit Court reviewed several interesting issues regarding mechanic's liens in the case of American Standard Homes Corp. v. Reinecke, Trustee.

     In American Standard some of the replacement materials for the prefabricated homes were delivered to each of the six projects more than 90 days after the materials and "extras" designated in the respective material order contracts had been delivered, the time limitation for filing memoranda of mechanic's liens, specified in Virginia Code §43-4. The Court ruled that time began to run upon delivery of the material designated in the material order contracts and not from delivery of the replacement materials. The Court, in making its ruling, determined that the materials delivered under the purchase orders were not materials last furnished within the intendment of the perfection statute, thus, the six liens were not timely filed.
     The seller of the prefab homes had argued that the material order contracts were "open-ended devices" and that, because "each contract contemplated both extras and multiple purchase orders," the materials acquired under purchase orders were, for purposes of the filing limitation prescribed by the perfection statute, materials last furnished under those contracts. The Court disagreed though, finding that each material order contract contained blank spaces beneath the word "Extras" in which the buyer listed the materials to be added to those designated in the "dry-in" and "trim" packages. Unlike the "Extras" listed in the material order contracts and included in the invoices issued when the two material packages were delivered, the "Extras" to be shipped C.O.D. under particularized purchase orders were articles which were "replacement materials" for those materials that after delivery, had been lost, damaged or stolen and were reordered. Neither the basic contract nor the material order contract required the buyer to purchase such "extras" from the seller; the buyer was free to contract with other materialmen for materials needed to replace those delivered earlier by the seller. In its purchase orders, the buyer offered to buy replacement parts from the seller. The seller accepted that offer by delivering the materials.
     The Court found that this was a contract, one separate and apart from the material order contract. The latter expressly provided that it was "THE COMPLETE AGREEMENT BETWEEN THE PARTIES." When the seller delivered the materials designated as extras listed in the contract, it delivered all it had contracted to deliver. What it delivered under the contract were the materials last furnished within the intendment of the 90-day statutory limit for filing memorandum of mechanic's lien. The Court found that the record showed with respect to each of the six liens at issue that the limitation period had expired before the seller filed its memoranda. Accordingly, the liens were unenforceable.
     The lesson of American Standard - enforcement of creditor’s rights in construction law matters is a very complex and requires experienced counsel.

Bankruptcy: Revocation of Discharge - Chapter 7

     In the case of Dean v. McDow, the United States District Court at Norfolk, Virginia affirmed a Bankruptcy Court revocation of the debtor’s discharge of indebtedness.

     The District Court in Dean stated that the Bankruptcy Court did not err in revoking the debtor’s chapter 7 discharge based on the evidence of fraud in the debtor’s earlier reporting of her pre-bankruptcy transfers of property (antiques, collectibles, furniture and jewelry), and her statements about prior involvement in a business, after her operation of a thrift store called “New to You.”
     The District Court found as fact that the debtor received a discharge in her chapter 7 case about two years prior. The Bankruptcy Court later reopened the debtor’s case and revoked her discharge based upon the debtor’s fraud. The debtor raised four grounds on appeal: 1) the complaint to revoke her discharge was not timely filed; 2) the U.S. Trustee did not meet an affirmative duty to investigate the debtor’s bankruptcy and therefore constructively knew of the debtor’s fraud; 3) the debtor did not make false oaths because she lacked fraudulent intent and her misstatements were de minimums; and 4) the revocation was based upon inadmissible evidence.
     The District Court stated that cases dealing with whether the timely filing of a complaint objecting to discharge is jurisdictional are sharply divided. Despite the overall disagreement among the federal courts, the Fourth Circuit has indicated the position it finds more persuasive: the timeliness of a dischargeability complaint is not a jurisdictional prerequisite, but rather presents an affirmative defense similar to the statute of limitations that must be raised in an answer or responsive pleading. The court noted that there was nothing in the debtor’s brief or the 4th Circuit case, Farouki v. Emirates Bank Int’l ltd., to indicate that the dischargeability time limitation of Bankruptcy Rule 4004(a) should be treated differently from Bankruptcy Code Section 727(e)(1). The District Court stated that it was therefore unnecessary to address whether the U.S. Trustee’s complaint was timely filed because the debtor had waived her right to appeal on this point. Failure to raise a non-jurisdictional issue before the Bankruptcy Court will generally be treated by the District Court as a waiver of the right to have the issue heard.
     The District Court stated that the debtor argued for the first time on appeal that the errors and omissions of her schedules should have put the U.S. Trustee on notice of possible fraud, triggering an obligation to investigate. Because the U.S. Trustee began investigating possible fraud only after receiving a telephone call concerning the debtor’s bankruptcy about a year after the entry of the discharge order, the debtor argues that the Trustee could not rely upon the “did not know” provision of Bankruptcy Code Section 727(d)(1). The District Court noted again, however, that the debtor did not raise the issue of the trustee’s knowledge in her answer or at trial, and the issue did not fall within the “very limited circumstances” of plain error which would result in a miscarriage of justice. The debtor waived her right to have this issue considered on appeal.
     The District Court next noted that the debtor did not dispute that her schedules and Statement of Financial Affairs contained false oaths. Instead, the debtor argued that she lacked the fraudulent intent, and that her omissions were de minimus. The District Court noted that the Bankruptcy Court’s determination of fraud was a factual finding reviewed for clear error. The District Court concluded that the Bankruptcy Court did not commit clear error in determining that the debtor knowingly and fraudulently made false oaths and that the oaths concerned materials facts. Nor could the District Court find error in the Bankruptcy Court’s conclusion that the debtor’s failure to read her bankruptcy papers constituted a reckless indifference to the truth and the functional equivalent of fraud.
     Finally, the District Court ruled that the Bankruptcy Court’s admission of certain exhibits relating to the debtor’s fraud, is error at all, did not even approach the standard of error so serious that it went to the integrity of the trial.
     Accordingly, the revocation of the debtor’s discharge was upheld.