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Chamberlain v. Marshall Auto & Truck Center, Inc.

Supreme Court of Virginia

April 13, 2017


          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.

          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 ยง 49-27 of ...

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