Court Opinion

ID: 4160048
Source: CourtListenerOpinion
Date Created: 2017-04-13 14:14:20.554305+00
Date Added: 2024-06-11T14:23:11.080539
License: Public Domain

PRESENT: All the Justices

CHARLES R. CHAMBERLAIN
                                                             OPINION BY
v. Record No. 160349                              CHIEF JUSTICE DONALD W. LEMONS
                                                            APRIL 13, 2017
MARSHALL AUTO & TRUCK CENTER, INC.

                  FROM THE CIRCUIT COURT OF FAUQUIER COUNTY
                       Herman A. Whisenant, Jr., Judge Designate

       In this appeal, we consider whether the Circuit Court of Fauquier County (“circuit court”)

erred by holding that a surety who was an accommodation guarantor of a promissory note was

not entitled to judgment against the maker of the note under Code § 49-27 upon default by the

maker and seizure of collateral by the lender.

                                      I. Facts and Proceedings

       On January 5, 2015, Charles R. Chamberlain (“Chamberlain”) filed a complaint against

Marshall Auto & Truck Center, Inc. (“Marshall”) in the circuit court. The complaint alleged that

Marshall executed a promissory note (“Note”) in the amount of $950,000 in favor of Middleburg

Bank (“Middleburg”), and that Chamberlain executed a guaranty (“Guaranty”) of that Note.

Marshall failed to make payments to Middleburg, and the bank withdrew funds from

Chamberlain’s account to satisfy Marshall’s obligations under the Note. Chamberlain maintains

that, pursuant to Code § 49-27, he is entitled to judgment against Marshall for the amount taken

by the lender from his account and applied in satisfaction of Marshall’s obligations under the

Note. Chamberlain demanded $50,614.94, plus interest.

       Marshall filed an answer, which admitted the validity of the Note and that Chamberlain

executed the Guaranty. As an affirmative defense, however, Marshall asserted that “[a]ny and

all payments, if any, by Chamberlain constituted a gift.”
       At a bench trial on November 2, 2015, evidence was presented demonstrating that in

2007 Marshall executed the Note in favor of Middleburg to obtain a loan. Payment of the Note

was secured, in part, with the Guaranty. As collateral for the loan, Chamberlain provided a

$50,000 certificate of deposit (“CD”) on account with Middleburg and further took out a $1

million life insurance policy on his life, naming the bank as beneficiary.

       On numerous occasions between 2009 and 2011, Marshall failed to make its scheduled

payments on the Note. Consistent with the Guaranty, Middleburg withdrew a total of $50,614.94

from Chamberlain’s CD and applied those funds in partial satisfaction of Marshall’s payment

obligations.

       At trial, Chamberlain testified that he executed the Guaranty because he “wanted to help

out” Marshall’s sole owner and president, Manzar Asjodi (“Asjodi”). The two were “intimately

involved.” Chamberlain believed that Asjodi would be unable to obtain a new loan without his

assistance. Chamberlain “was not looking to make a profit” and he did not consider the

arrangement to be a business opportunity. Instead, Chamberlain testified that he placed the CD

on deposit with Middleburg “[t]o help [Asjodi] gain loan approval.”

       Chamberlain further testified that the banker informed him and Asjodi that the CD was

intended only as a “backstop” in the event that Marshall missed payments. According to

Chamberlain, the suretyship arrangement “was supposed to be a low-risk situation.” He “did not

expect payments would not be made.” For her part, Asjodi testified that “the purpose of that CD

was whenever [Marshall] needs money we can go take that money.” At some point after

Chamberlain executed the Guaranty, his romantic relationship with Asjodi ended. The two were

no longer communicating regularly when the bank began making the withdrawals from the CD.

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        After presentation of the evidence, the circuit court announced its ruling from the bench.

First, the court found that “the gift was putting the CD up,” and that Chamberlain did so because

of the “romantic relationship that he was having with [Asjodi].” Second, the court found that

Chamberlain wanted to help Asjodi and did not file suit until “everything went sour between the

parties.” Third, the lack of documentation between the parties to “make it very clear as to who

owed what to whom,” suggested that Chamberlain “did it as a friend to another friend. It wasn’t

a business transaction and, indeed, it was a gift.” For these reasons, the circuit court ruled “that

the Plaintiff recover nothing from the Defendant and that the Defendant have a verdict in its

favor.” Chamberlain filed a motion for reconsideration, which the circuit court denied.

Chamberlain then appealed to this Court, and we granted his appeal on the following assignment

of error:

               1. The trial court erred in ordering that the plaintiff recover
               nothing and entering a verdict in favor of the defendant.

                  a. The trial court erred in failing to apply § 49-27 of the Code.

                  b. The trial court erred in finding a gift.

                                               II. Analysis

                                        A. Standard of Review

        Statutory interpretation presents a question of law, which we review de novo. McGrath

v. Dockendorf, 292 Va. 834, 837, 793 S.E.2d 336, 337 (2016). We likewise review the circuit

court’s application of law to undisputed facts de novo. Johnson v. Hart, 279 Va. 617, 623, 692
S.E.2d 239, 242 (2010). The circuit court’s findings of fact, however, will not be disturbed

unless they are plainly wrong or without supporting evidence. Preferred Sys. Sols., Inc. v. GP

Consulting, LLC, 284 Va. 382, 394, 732 S.E.2d 676, 682 (2012).

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                                              B. Code § 49-27

        An accommodation or gratuitous surety is someone who assumes secondary liability on

an obligation for the benefit of the principal rather than for their own profit. See Southwood

Builders, Inc. v. Peerless Ins. Co., 235 Va. 164, 168-69, 366 S.E.2d 104, 106-07 (1988) (noting

that accommodation sureties “deriv[e] no benefit from the transaction”) (quoting Kirschbaum v.

Blair, 98 Va. 35, 40, 34 S.E. 895, 897 (1900)). In Virginia, “the accommodation surety has

always been one of the favorites of the law.” Dickenson v. Charles, 173 Va. 393, 406, 4 S.E.2d
351, 356 (1939) (quoting Scott v. Norton Hardware Co., 54 F.2d 1047, 1051 (4th Cir. 1932)).

Compensated sureties, by contrast, act “to promote their own interests, and are to be judged

accordingly.” Southwood Builders, 235 Va. at 169, 366 S.E.2d at 107 (quoting C. S. Luck &

Sons v. Boatwright, 157 Va. 490, 494-95, 162 S.E. 53, 54 (1932)). Compensated or not,

however, “[i]t is elementary that one secondarily liable on an obligation . . . who has satisfied the

demands of the holder . . . is entitled to reimbursement from the party primarily liable.”

Dickenson, 173 Va. at 400, 4 S.E.2d at 353.

        A surety’s or guarantor’s right to reimbursement is founded “upon the plainest principles

of natural reason and justice.” Id. (quoting Kendrick v. Forney, 63 Va. (22 Gratt.) 748, 749-50

(1872)). The common law has long recognized this right, which is now codified by Code § 49-

27. In pertinent part, that statute states:

                If any person liable as . . . guarantor . . . pay[s], in whole or in part,
                such note . . . the person having a right of action for the amount so
                paid may . . . obtain a judgment or decree against any person
                against whom such right of action exists for the amount so paid,
                with interest from the time of payment, and five per centum
                damages on such amount. The person so paying, in whole or in
                part . . . any such note . . . shall, by operation of law, in addition to
                the remedy above provided, be substituted to and become the

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                owner of all of the rights and remedies of the creditor for the
                enforcement and collection of the amount or amounts so paid, and
                shall be deemed the assignee thereof.

Code § 49-27.

       On appeal, Marshall argues that Code § 49-27 does not apply because Chamberlain

executed the Guaranty as a gift. Marshall maintains that the circuit court’s finding that

Chamberlain executed the Guaranty “to help out” Asjodi precludes him from exercising any

right to reimbursement under Code § 49-27. We do not agree. Code § 49-27 makes no

distinction between compensated and uncompensated sureties. On the contrary, the right to

reimbursement is expressly available to “any person liable as [a] . . . guarantor.” Code § 49-27

(emphasis added).

       Chamberlain testified that he put the CD on deposit with Middleburg to “help [Asjodi]

gain loan approval,” but the CD was not itself a “gift.” To the extent the facts demonstrate any

gift at all, that gift was Chamberlain’s decision to act as an accommodation surety rather than a

compensated surety. Chamberlain merely made it possible for Marshall to gain loan approval by

putting the CD on deposit as collateral.

       Neither Chamberlain nor Asjodi testified that Chamberlain agreed not to seek

reimbursement if the CD was drawn down by Middleburg. Indeed, the record does not contain

any evidence that Chamberlain waived his rights under Code § 49-27. The undisputed evidence

instead demonstrates that Chamberlain assumed secondary liability as a guarantor of the Note

and that Middleburg withdrew funds from Chamberlain’s CD to partially satisfy the Note.

Taken together, these facts triggered Chamberlain’s right to reimbursement “for the amount so

paid, with interest from the time of payment, and five per centum damages on such amount.”

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Code § 49-27. Because there is no evidence in the record that Chamberlain made a gift of the

CD or waived his statutory rights under Code § 49-27, he is entitled to judgment.

                                        III. Conclusion

       For the reasons stated, we will reverse the judgment of the circuit court and remand for a

determination of the amount due to Chamberlain under Code § 49-27.

                                                                         Reversed and remanded.

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