Opinion ID: 1399334
Heading Depth: 1
Heading Rank: 1

Heading: reinstatement of air power's lien

Text: Air Power's mechanic's lien was released by the trial court order dismissing Air Power's enforcement action on December 19, 1991. Although Air Power appealed this decision, it did not seek a stay of the proceedings or other relief to prevent execution of the court's judgment. The order releasing the lien, along with the certificate of release, was filed in the deed records on January 18, 1992. Therefore, when Virgrun A Corporation (Virgrun) purchased most of the subject real property [2] at a foreclosure sale on March 5, 1993, Air Power had no mechanic's lien of record against the property. Under these circumstances, Thompson argues that the trial court erred in reinstating Air Power's lien against the property retroactively because, as a matter of law, the enforcement suit could not proceed in the absence of a perfected lien against the property and because the property had been sold to a third-party purchaser for value without notice. For the reasons stated below, we reject both of Thompson's contentions and will affirm the judgment of the trial court reinstating Air Power's lien and giving it retroactive effect. We have held that, under certain circumstances, a court has the authority to reinstate a previously released lien, and, upon reinstatement, the lien relates back to the time of its initial filing, except to the extent it adversely affects the rights of a bona fide purchaser for value without notice. Fox v. Templeton, 229 Va. 380, 386, 329 S.E.2d 6, 9 (1985). While Fox only addressed reinstatement of a lien in the event of fraud or mistake, we believe that the holding of Fox should be extended to the circumstances of this case. If a lien dismissed by a trial court could not be reinstated when an appellate court determined that the trial court was in error, the appellate process would be ineffective insofar as providing relief to the successful litigant. This Court's mandate in reversing the judgment of the trial court in the prior appeal called for reinstatement of the enforcement action and directed that proceedings in that action would continue. Those rulings necessarily contemplated reinstatement of the lien upon which the suit was based. As in Fox, conditioning retroactive application of the reinstated lien on the absence of any prejudice to a third-party purchaser for value without notice equitably balances the interests of the lien holder and any innocent third-party purchaser. Therefore, the trial court did not err in reinstating Air Power's mechanic's lien against the property. We next consider Thompson's argument that the trial court erred in applying the lien retroactively because Virgrun was a bona fide purchaser for value without notice. The parties do not dispute that Virgrun was a bona fide purchaser for value, only whether Virgrun had constructive notice of the lien. Constructive notice in this context may be of two kinds: notice that comes from the deed records, and that which results from a knowledge of facts outside the deed records which should lead the person to knowledge of the ultimate fact. Orphanoudakis v. Orphanoudakis, 199 Va. 142, 147, 98 S.E.2d 676, 681 (1957). Air Power contends that Virgrun had constructive notice of both types and, therefore, does not qualify as a bona fide purchaser for value without notice. [3] First, Air Power asserts that Virgrun was charged with notice, not only of the facts specifically set out in the deed records, but also of other matters therein suggested which might be disclosed upon prudent inquiry. Chavis v. Gibbs, 198 Va. 379, 382, 94 S.E.2d 195, 197 (1956). Air Power claims that the December 13, 1991, court order dismissing its lien recorded in the deed records put Virgrun on notice of Air Power's lien because Air Power's counsel endorsed the order as Seen and excepted to. This endorsement, Air Power argues, should have alerted Virgrun and caused it to examine the court records, which would have revealed the appellate proceedings in the case. Those proceedings included this Court's decision reinstating the enforcement action, issued at least three months prior to Virgrun's purchase of the property. Therefore, Air Power asserts that Virgrun should be charged with constructive notice of Air Power's lien and cannot qualify as a bona fide purchaser for value without notice. The requirement of prudent inquiry recited in Chavis does not apply under the facts of this case. In Chavis, the purchaser's deed specifically recited that it was subject to a deed of trust placed on the property by a prior owner. Having notice of the deed of trust, the purchaser should have inquired as to whether the deed had been satisfied or the property sold, but failed to do so. Id. at 387, 94 S.E.2d at 200. Other cases imposing the duty of prudent inquiry begin with an affirmative statement in the deed records revealing an apparently outstanding interest encumbering the property. See e.g., Allen v. Green, 229 Va. 588, 594, 331 S.E.2d 472, 476 (1985) (express reservation of right to remove building from land conveyed); Fox, 229 Va. at 386, 329 S.E.2d at 9 (judgment, later erroneously released, appeared on land records at time equitable mortgage filed). In the present case, the records contained no affirmative statement of interest, only the court order that cancelled a lien previously filed against the property. The mere statement at the foot of the court order that the order was Seen and excepted to by Air Power's counsel is not an indication of any affirmative interest attaching to the property sought to be purchased. Taken as a whole, there was no indication of any affirmative interest held by Air Power against the property at the time Virgrun purchased the property. Additionally, Donald E. Kidwell, a title examiner qualified as an expert at the trial, testified that based on the certificate of release and order filed in the deed records and on the fact that the 30-day period for appealing the December 19, 1991, decision had expired at the time those documents were filed in the deed records, a prudent title examiner in Virginia would not have looked back to the records of the trial court. Because there was no affirmative indication in the record that the property was subject to Air Power's lien, the requirement of prudent inquiry is inapplicable in this case. Therefore, we hold that Virgrun cannot be charged with constructive notice of Air Power's lien by virtue of counsel's endorsement on the December 19, 1991, order dismissing its enforcement action. Air Power also asserted that Virgrun had constructive notice of facts outside the deed records regarding the status of Air Power's mechanic's lien by virtue of its relationship to American Security Bank (the Bank). Relying on testimony by Michael Capretti, vice-president of Ken Thompson and Associates, that he thought Virgrun was a corporation set up by the Bank to take title to the property at the foreclosure sale, Air Power concludes that Virgrun is charged with the same level of information as the Bank. The general rule is that the knowledge of the parent corporation is not imputed to its subsidiary nor would knowledge acquired by an agent or officer of Virgrun while acting on behalf of the Bank be imputed to Virgrun unless a sufficient nexus between them is shown. 3 William M. Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 814.10 (perm. ed. rev. vol. 1994). Nexus sufficient to provide an equitable reason for disregarding the separate corporate existences is generally established by showing control, interaction, or other similar involvement between the corporations or their agents. There is no evidence in this record regarding the incorporation of Virgrun, identifying the officers, directors, or shareholders of Virgrun or the Bank, showing interlocking directors, or evidencing any other indicia of the involvement or relationship between the two corporations. Therefore, even assuming Virgrun was a subsidiary of the Bank, that legal relationship alone does not impute the Bank's knowledge of the litigation involving Air Power's lien to Virgrun. In this case, there are no allegations of fraud and no evidence that Virgrun had actual notice of the litigation over the status of Air Power's lien. Accordingly, Virgrun was a bona fide purchaser for value without notice. Therefore, the trial court erred by retroactively applying Air Power's mechanic's lien to the property purchased by Virgrun.