Opinion ID: 1058593
Heading Depth: 2
Heading Rank: 1

Heading: Double Recovery Defense in a Uniform Commercial Code Proceeding

Text: Before analyzing Nizan's assignments of error, we first address Wells Fargo's argument that under the Uniform Commercial Code (UCC), as applicable in Virginia, Nizan can only be relieved of his obligation to pay the Note if he is discharged from that obligation under the provisions of Code § 8.3A-601. That statute provides that discharge occurs as stated in this title or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract. Wells Fargo asserts that Nizan's liability was not discharged by any means described in Title 8.3A, nor by agreement with Wells Fargo. It further asserts that its act of characterizing . . . the UBS Settlement [as a] write-off [of] the Lee Hall Loan . . . does not operate as a discharge. Therefore, Wells Fargo contends Nizan remains obligated to pay the Note and cannot assert an extra-statutory `equitable discharge' means of relief via the defense of double recovery. Whether an equitable defense such as double recovery can be asserted against the holder of a negotiable instrument under the UCC is an issue of first impression in Virginia. Code § 8.3A-601, on which Wells Fargo relies, addresses the means by which an obligation to pay a promissory note can be discharged under the UCC. However, Nizan does not assert that his obligation has been discharged. Instead, he has raised the defense of double recovery. We have analyzed the common law defense of double recovery in several contexts, including as a defense to recovery of damages in contract-based actions. See, e.g., Cox v. Geary, 271 Va. 141, 150, 624 S.E.2d 16, 21 (2006); Klaiber v. Freemason Assocs., 266 Va. 478, 488-89, 587 S.E.2d 555, 560-61 (2003). This Court has recognized that a party with two valid causes of action is entitled to seek compensation in each, [but is], nonetheless, estopped from collecting the full amount [of damages] in the second action if they were partially paid therefor in the first. Katzenberger v. Bryan, 206 Va. 78, 85, 141 S.E.2d 671, 676 (1965). We based this proposition[] upon basic principles of fairness and justice. Id. We have also recognized that the holder of a promissory note may not obtain a judgment against the [obligor] for the balance due on the note [when doing so] would be inequitable and allow him a double recovery. Joyner v. Graybeal, 204 Va. 543, 546, 132 S.E.2d 467, 469 (1963) (pre-UCC). The defense of double recovery is thus rooted in common law and equitable principles regarding the relief a particular party is entitled to receive, and is not based in either general contract law or the UCC. Specifically incorporated into the UCC by statute is the general principle that: [u]nless displaced by the particular provisions of the Uniform Commercial Code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause supplement its provisions. Code § 8.1A-103. Thus, unless a particular provision of the UCC displaces the defense of double recovery, that defense would be available in a UCC-based claim. Code § 8.3A-601 does not touch upon, much less displace, the defense of double recovery. Therefore, under the provisions of Code § 8.1A-103, the defense of double recovery may be applicable in UCC-based actions as a principle of law and equity not displaced. For purposes of this opinion, it is unnecessary to address the corollary issue of whether a person who successfully asserts the defense of double recovery is thereby discharged from the underlying debt under Code § 8.3A-601. [9] Accordingly, Wells Fargo's argument under Code § 8.3A-601 fails. We now turn to the merits of Nizan's assignments of error.