Title: Union Recovery Ltd. Partnership v. Horton
Citation: N/A
Docket Number: 960329
State: Virginia
Issuer: Virginia Supreme Court
Date: November 1, 1996

Present:  All the Justices 
 
UNION RECOVERY LIMITED PARTNERSHIP 
 
OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR. 
v. Record No.  960329                  November 1, 1996 
 
THOMAS E. HORTON, ET AL. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
 
M. Langhorne Keith, Judge 
 
 
In this appeal we consider whether an assignee of a 
promissory note from the Resolution Trust Corporation (RTC) is 
entitled to the benefit of the statute of limitations available 
under federal law to RTC as receiver of the insured depository 
institution which originally held the note.  Adhering to the 
common law rule that an assignee acquires the rights of the 
assignor, we hold that the federal statute controls the 
limitations period. 
 
BACKGROUND
 
The facts of the case are not in dispute.  On June 8, 1989, 
Thomas E. Horton executed a promissory note in favor of Federal 
Savings Bank of Virginia, F.S.B. (Federal) in the principal 
amount of $80,000.  A variable rate of interest was payable 
monthly on the note from August 1, 1989, and the principal was 
due "ON DEMAND, BUT IF NO DEMAND IS MADE THEN ON JULY 1, 1990."  
Robert J. Leipzig executed a partial guaranty of the note in the 
amount of $20,000. 
 
Sometime prior to April, 1992, Horton defaulted on the note 
and Leipzig defaulted on the guaranty.  On April 10, 1992, RTC 
was appointed receiver for Federal and assumed control of its 
assets, including the note and guaranty at issue.  On June 26, 
1995, RTC assigned the note and guaranty to Union Recovery 
Limited Partnership (Union Recovery). 
 
On August 30, 1995, Union Recovery filed a motion for 
judgment against Horton and Leipzig to recover on the note and 
guaranty.  Within the motion for judgment, Union Recovery 
asserted the applicability of the six-year statute of limitations 
afforded to RTC under the Financial Institutions Reform, Recovery 
and Enforcement Act (FIRREA).  12 U.S.C. § 1821(d)(14)(A)(i).  
Both Horton and Leipzig filed pleas in bar contesting the 
application of the federal limitations period and asserting that 
any action on the note was barred by the running of the five-year 
statute of limitations provided for under Code § 8.01-246(2), 
which they alleged was the applicable state statute of 
limitations. 
 
The parties filed briefs in support of their respective 
positions and presented argument to the trial court.  By order 
entered November 17, 1995, the trial court sustained the pleas of 
the statute of limitations and dismissed the motion for judgment 
with prejudice. 
 
Union Recovery filed a motion for reconsideration.  In an 
opinion letter dated December 5, 1995 and adopted by reference in 
a subsequent order denying the motion for reconsideration, the 
trial court set forth the grounds for its decision.  Citing 
WAMCO, III, Ltd. v. First Piedmont Mortgage Corp., 856 F.Supp. 
1076 (E.D. Va. 1994), the trial court held that the statute of 
limitations provided for in FIRREA was a right applicable only 
for suits brought by government chartered corporations.  As such, 
the trial court reasoned, the right was personal to RTC, and 
Union Recovery could acquire only those rights RTC had under the 
note and guaranty instruments, not those which RTC had by virtue 
of its status as a receiver under FIRREA.  We awarded Union 
Recovery an appeal. 
 APPLICATION OF STATE AND FEDERAL STATUTE OF LIMITATIONS PERIODS
 
Virginia Statute of Limitations
 
The note and its associated guaranty were executed in 1989 
prior to the enactment of Title 8.3A, and, accordingly, this case 
is governed by the rules found in superseded Title 8.3.  The 
parties have consistently treated the note as a pure demand note 
although it provided for a specific payment date if no demand was 
made.  Under the provisions of Code § 8.3A-108(c), absent a 
demand, a note of this type becomes payable at a definite time on 
the fixed date with the cause of action accruing on that date.  
Because the issue is not relevant to the ultimate determination 
of this appeal, we will assume, without deciding, that the 
parties have correctly applied the rules of superseded Title 8.3 
in their treatment of the note as a pure demand note.  Under 
former Code § 8.3-122(1)(b), the cause of action on a pure demand 
note accrued upon its execution.  Formerly, demand notes were 
subject to the five-year statute of limitations applicable to 
contracts generally.  Code § 8.01-246(2).
*  Accordingly, Federal 
was required to sue on the note before June 8, 1994 to avoid an 
effective plea in bar of the statute of limitations. 
                     
     
*Title 8.3A now provides for a six-year statute of 
limitations on most forms of negotiable instruments.  
Code § 8.3A-118. 
 
Federal Statute of Limitations under FIRREA
 
FIRREA, Pub. L. No. 101-72, 103 Stat. 277 (1989)(codified in 
disconnected sections of Titles 12 and 15 of the U.S. Code), 
governs the procedures under which federally chartered 
corporations acting as agents of the United States become 
receivers or conservators of failed federally insured financial 
institutions.  Its principal application is to the Federal 
Deposit Insurance Corporation (FDIC).  However, when acting as 
receiver of an insured depository institution, RTC is deemed to 
be an agent of the United States.  12 U.S.C. § 1441a(b)(1)(A).  
As such, RTC, as receiver, has the same rights and powers as does 
FDIC under FIRREA.  12 U.S.C. § 1441a(b)(4)(A).  Thus, although 
created for different purposes, RTC and FDIC are in all respects 
identically situated when acting as receivers in the name of the 
United States under FIRREA. 
 
The relevant portions of FIRREA applicable to this appeal 
are found at 12 U.S.C. § 1821(d)(14)(A) and (B): 
 
(A) In general.  Notwithstanding any provision of any 
contract, the applicable statute of limitations with 
regard to any action brought by the Corporation as 
conservator or receiver shall be--  
 
 
(i) in the case of any contract claim, the longer of--  
 
 
(I) the 6-year period beginning on the date the claim 
accrues; or  
 
 
(II) the period applicable under State law; 
 
 
. . . . 
  
 
(B) Determination of the date on which a 
claim accrues. For purposes of 
subparagraph (A), the date on which 
the statute of limitations begins 
to run on any claim described in 
such subparagraph shall be the 
later of--  
 
 
(i) the date of the appointment of the Corporation as 
conservator or receiver; or  
 
 
(ii) the date on which the cause of action accrues. 
 
When RTC acquired the note and guaranty as receiver, it was 
entitled under FIRREA to institute actions on them under the 
longest period provided by the combined application of 
subsections A and B of 12 U.S.C. § 1821(d)(14).  Under the 
provisions of subsection B, RTC was permitted to advance the date 
of accrual of the causes of action to April 10, 1992, the date of 
its appointment as receiver.  It was further permitted to take 
the six-year statute of limitations of subsection A over the 
five-year statute of limitations available under state law.  
Accordingly, RTC had until April 9, 1998 to sue upon the note and 
guaranty. 
 
DISCUSSION
 
It is well established law in Virginia that an assignee 
obtains his rights from the assignor, and, thus, he is said to 
"stand in the shoes" of the assignor when pursuing an action on 
the contract or instrument assigned.  See, e.g., National Bank 
and Trust Company at Charlottesville v. Castle, 196 Va. 686, 
692-93, 85 S.E.2d 228, 232 (1955).  Thus, the sole question in 
this appeal is whether the statute of limitations contained in 12 
U.S.C. 1821(d)(14)(A) and (B) applies to assignees of RTC, or do 
these assignees take their assignments subject only to the rights 
which would have accrued to the failed institution for which RTC 
is acting as receiver, thus becoming de facto assignees of the 
institution.   
 
In Mountain States Financial Resources Corp. v. Agrawal, 777 
F.Supp. 1550 (W.D. Okla. 1991), the first reported case to 
address the application of FIRREA's statute of limitations 
provisions to an assignee of an agent corporation of the United 
States, the court held that the federal statute of limitations 
applied to an assignee of FDIC.  Id. at 1552.  The court reasoned 
that:  
 
An assignee stands in the shoes of the assignor, and 
acquires all of the assignor's rights and liabilities 
in the assignment.  This general principle and a strong 
public policy require that the FDIC's assignee acquire 
the six-year limitations period provided by 
§ 1821(d)(14)(A).  
 
Id.  
 
Several courts have relied on the reasoning in Mountain 
States to extend to assignees of FDIC the six-year statute of 
limitations provided by 12 U.S.C § 1821(d)(14)(A)(i).  See, e.g., 
F.D.I.C. v. Bledsoe, 989 F.2d 805 (5th Cir. 1993); Remington 
Investments, Inc. v. Kadenacy, 930 F.Supp. 446 (C.D. Cal. 1996); 
White v. Moriarty, 19 Cal. Rptr. 2d 200 (Cal. Ct. App. 1993); 
Tivoli Ventures, Inc. v. Bumann, 870 P.2d 1244 (Colo. 1994); 
Cadle Co. II, Inc. v. Lewis, 864 P.2d 718 (Kan. 1993), cert. 
denied, ___ U.S. ___, 114 S.Ct. 1613 (1994); Central States 
Resources Corp. v. First National Bank, 501 N.W.2d 271 (Neb. 
1993).  In addition, a recent decision of the Appellate Court of 
Illinois has applied this same reasoning to a suit brought by an 
assignee of RTC.  Twenty First Century Recovery, Ltd. v. Mase, 
665 N.E.2d 573 (Ill. Ct. App. 1996). 
 
Disagreeing with the majority view, the court in WAMCO, the 
decision relied on by the trial court in this case, held that the 
five-year Virginia statute of limitations applied to a demand 
note assigned by RTC to WAMCO.  WAMCO, 856 F.Supp. at 1088.  In 
its analysis the court found that the statute plainly conferred 
the benefit of the six-year limitation on RTC in its status as 
receiver.  As such, the court reasoned that the benefit is 
personal and, therefore, does not transfer to an assignee under 
existing common law rule.  Id. at 1086.  The court further found 
that public policy alone could not supply the right where the 
statute was silent.  Id.
 
We do not concur in the view expressed in WAMCO and adopt 
the view taken by the majority of other federal and state 
jurisdictions.  We find that application of the common law, even 
without reference to the public policy this would promote, 
mandates the application of the longer limitations period.  As 
expressed by the United States Court of Appeals for the Fifth 
Circuit in Bledsoe, we hold that where "statutes are absolutely 
silent on [a] matter[, i]t is an axiomatic principle of statutory 
construction that in effectuating Congress' intent courts are to 
fill the inevitable statutory gaps by reference to the principles 
of the common law."  Bledsoe, 989 F.2d at 810. 
 
The extended statute of limitations is merely a mechanism 
for providing the receiver with an adequate time to pursue those 
claims which the financial institution could not successfully 
pursue prior to its failure.  As such, the receiver's right to 
sue within the statute of limitations period is inherent in its 
possession of the instruments at issue and would thus be among 
the "'rights, remedies and benefits which are incidental to the 
thing assigned,'"  WAMCO, 856 F.Supp. at 1086, and not merely a 
right "'personal to the assignor and for [its] benefit only.'"  
Id. (citation omitted). 
 
For these reasons, we will reverse the order of the trial 
court dismissing the motion for judgment and remand the case for 
further proceedings. 
 
Reversed and remanded.