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VIRGINIA COMMERCIAL LENDING LAW
A Guide for Commercial
Lenders and Businesses
Wilson R. Trice, Director
ThompsonMcMullan, P.C.
Richmond, Virginia
TABLE OF CONTENTS
I. INTRODUCTION.............................................................................................................. 1
II. BASIC LEGAL STRUCTURE ......................................................................................... 1
A. General Law.................................................................................................................... 1
B. Administrative Law........................................................................................................ 1
C. Local Law ........................................................................................................................ 1
D. The Virginia Court System............................................................................................ 2
E. Court Rules and Rules of Evidence .............................................................................. 2
1. Virginia Rules of Court.................................................................................................. 2
2. Virginia Rules of Evidence ............................................................................................ 3
III. AUTHORITY TO DO BUSINESS ................................................................................... 3
A. Required Qualifications to Do Business ....................................................................... 3
B. Licensing Requirements ................................................................................................ 4
C. Taxation........................................................................................................................... 4
IV. INTEREST AND USURY; PROMISSORY NOTES ..................................................... 5
A. Compound Interest ........................................................................................................ 5
ii
B. General Rule – No Usury Limits ................................................................................... 5
C. Acceleration. ................................................................................................................... 5
D. Late Payment Fees ......................................................................................................... 5
E. Prepayment and Penalties ............................................................................................. 5
F. Virginia Promissory Notes .................................................................................................. 6
G. Demand Notes ................................................................................................................. 6
V. TYPES OF BORROWERS ............................................................................................... 6
A. Corporations ................................................................................................................... 6
B. Partnerships .................................................................................................................... 6
C. Limited Liability Companies ........................................................................................ 7
D. Business Trusts ............................................................................................................... 8
E. Proprietorships and Individuals ................................................................................... 8
1. Married Borrowers ........................................................................................................ 8
2. Property Exempt From Claims of General Creditors ................................................ 8
3. Age of Majority............................................................................................................... 9
F. Trusts and Estates .......................................................................................................... 9
VI. REAL ESTATE ................................................................................................................ 10
A. Property Rights ............................................................................................................ 10
B. Deeds of Trust ............................................................................................................... 10
C. Recordation/Formal Requirements ............................................................................ 11
D. Recording Fees and Taxes ........................................................................................... 12
E. Assignment of Leases, Rents and Profits ................................................................... 13
F. Transfer of Deed of Trust ............................................................................................ 13
G. Cancellation of Deed of Trust ..................................................................................... 13
iii
H. Default and Foreclosure Remedies ............................................................................. 13
1. Foreclosure. ................................................................................................................... 14
2. Deed in Lieu of Foreclosure......................................................................................... 15
I. Mechanic’s Liens .......................................................................................................... 15
J. Title Insurance .............................................................................................................. 16
VII PERSONAL PROPERTY LENDING AND EQUIPMENT LEASING ..................... 16
A. UCC Article 9 (State Variations) ................................................................................ 16
B. UCC Filing Rules .......................................................................................................... 18
C. As-extracted Collateral, Timber To Be Cut............................................................... 18
D. Fixture Filings ............................................................................................................... 18
E. Local Filings .................................................................................................................. 18
F. Financing Statement Formalities ................................................................................ 18
G. Filing and Other Fees ................................................................................................... 18
H. Titled Motor Vehicles and Watercraft ....................................................................... 18
I. Security Interests in Life Insurance ........................................................................... 19
J. Priority Versus Secret Liens (Statutory and Common Law) ................................... 19
K. Equipment Leasing ...................................................................................................... 20
VIII GUARANTIES AND SURETYSHIP ............................................................................. 20
A. General .......................................................................................................................... 20
B. Waiver of Suretyship Defenses.................................................................................... 20
C. Guaranties ..................................................................................................................... 20
D. Other Suretyship Situations ........................................................................................ 21
E. Reimbursement, Subrogation and Contribution Rights .......................................... 21
IX INSOLVENCY LAWS .................................................................................................... 21
iv
A. Receivership .................................................................................................................. 21
B. Assignment for Benefit of Creditors ........................................................................... 22
C. Fraudulent and Voluntary Conveyances ................................................................... 22
X MISCELLANOUS LENDING TOPICS ....................................................................... 23
A. Loan Commitments ...................................................................................................... 23
B. Statute of Frauds .......................................................................................................... 23
C. Accord and Satisfaction ............................................................................................... 23
D. Setoff and Recoupment ................................................................................................ 24
E. State Assignment of Claims Statute ............................................................................ 24
XI LITIGATION AND ARBITRATION ........................................................................... 24
A. Lender Liability ............................................................................................................ 24
1. Duty of Good Faith ....................................................................................................... 24
2. Fiduciary Duty .............................................................................................................. 25
3. Virginia Consumer Protection Act ............................................................................. 25
B. Recovery of Attorney Fees ........................................................................................... 25
C. Statutes of Limitations ................................................................................................. 25
1. Applicable Periods of Limitations .............................................................................. 25
2. Extension by Voluntary Payment ............................................................................... 27
3. Use of Time-Barred Claim as a Defense..................................................................... 27
4. Effect on Collateral for Time-Barred Claim ............................................................. 27
5. Agreements to Extend or Shorten Limitations Period ............................................. 27
D. Choice of Law Provisions/Conflicts of Laws. ............................................................ 28
E. Forum Selection and Venue Selection Provisions. .................................................... 28
F. Jury Trial Waivers. ...................................................................................................... 28
G. Arbitration Agreements ............................................................................................... 28
H. Pre-Judgment Remedies .............................................................................................. 29
v
I. Judgments ..................................................................................................................... 30
1. Confession of Judgment ............................................................................................... 30
2. Interest on Judgments .................................................................................................. 30
3. Survival of Judgments ................................................................................................. 30
4. Execution and Enforcement of Judgments ................................................................ 30
5. Assignment of Judgments ............................................................................................ 31
6. Enforcement of Foreign Judgments ........................................................................... 31
XII OTHER LAWS OF INTEREST .................................................................................... 31
A. Virginia Environmental Laws and Regulations ........................................................ 31
1
I. INTRODUCTION
This chapter provides an overview of the many laws governing or affecting commercial
loans in the Commonwealth of Virginia. It is not intended to deal with all of the issues which
may arise in a commercial loan transaction in Virginia. It does not deal with laws governing
consumer lending or federal law which affects commercial loan transactions.
II. BASIC LEGAL STRUCTURE
A. General Law
The Commonwealth of Virginia is a "common law" state, which means that much of its
law is based on doctrines that have been developed through reported judicial decisions rather
than legislation. Much of the law affecting commercial credit is now statutory and is set forth in
the Code of Virginia (1950). The Code consists of numerous titles, among which the following
are the most relevant:
• Title 6.2 Financial Institutions and Services
• Title 8.01 Civil Remedies and Procedure
• Title 8.1-8.11 Uniform Commercial Code (hereinafter the "UCC")
• Title 11 Contracts
• Title 13.1 Corporations
• Title 38.2 Insurance
• Title 43 Mechanic's and Certain Other Liens
• Title 46.2 Motor Vehicles
• Title 49 Oaths, Affirmations and Bonds
• Title 50 Partnerships
• Title 55 Property and Conveyances
• Title 58.1 Taxation
B. Administrative Law
A number of Virginia state agencies and boards have rule-making and regulatory
authority. These agencies and boards include the Bureau of Financial Institutions (regulating
banks, savings institutions, credit unions, industrial loan associations and small loan companies),
the State Corporation Commission of Virginia (regulating securities issuers, brokers and dealers
and public utilities), the Bureau of Insurance (regulating insurance companies, insurance agents
and brokers), the Department of Environmental Quality and the Department of Taxation.
Administrative rules and regulations are published in the Virginia Administrative Code.
C. Local Law
There are 95 counties and 38 independent cities in Virginia, each with its own
governmental authorities and ordinances, although several counties and cities share records.
Aside from zoning ordinances, local ordinances are generally not relevant to commercial lenders.
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Virginia is one of the few states which has cities which are independent of surrounding counties.
This distinction is relevant when searching for and filing local financing statements under Article
9 of the Uniform Commercial Code since mailing addresses can be misleading.
D. The Virginia Court System
Each Virginia county and independent city has its own courts. There are 31 judicial
circuits and districts within the Commonwealth. A judicial circuit or district may embrace
several contiguous counties and cities. The general district court in each district is a "court not
of record" with limited small claims (up to $25,000) jurisdiction and from which there is an
automatic right of appeal to the Circuit Court for a new trial. An intermediate Court of Appeals
hears appeals of certain types of civil cases, although generally not cases relevant to commercial
finance. The Court of Appeals sits in Richmond but hears cases throughout the state. The
Supreme Court of Virginia hears appeals from the circuit courts and from the Court of Appeals.
The Supreme Court sits in Richmond.
Virginia has two federal district courts. The United States District Court for the Eastern
District of Virginia, located in Richmond, Alexandria, Newport News and Norfolk, and the
United States District Court for the Western District of Virginia, located in Abingdon, Big Stone
Gap, Charlottesville, Danville, Harrisonburg, Lynchburg and Roanoke.
The United States Court of Appeals for the 4th Circuit (with jurisdiction over Maryland,
Virginia, North Carolina, South Carolina and West Virginia) is headquartered in Richmond.
E. Court Rules and Rules of Evidence
1. Virginia Rules of Court
Every Virginia court is governed by the Rules of the Supreme Court of Virginia (“the
Rules”). The Rules appear as Volume 11 to the Code of Virginia, and are available via the
Supreme Court of Virginia’s website in .pdf format.
Part I of the Rules sets forth general rules applicable to all proceedings. Several of the
Rules contained in Part I have both jurisdictional and substantive legal significance, including
Rule 1:1 (jurisdiction) and Rule 1:6 (Virginia preclusion doctrine). Rule 1:15 and Virginia Code
§ 8.01-4 describe the authority of Virginia courts to promulgate local rules, and the duties of
attorneys to “ascertain the [local] rules of . . . court and abide thereby.” Finally, Rule 1:18
provides the authority of Virginia courts in any civil case to enter a pretrial scheduling order
imposing additional duties on the parties. A “Uniform Pretrial Scheduling Order” appears in the
Appendix to the Rule, and is pervasively relied upon by Virginia courts to govern discovery, the
designation of experts, and pretrial matters—even in cases where no pretrial order has been
entered by the Court.
Part III(A) governs pleading practice before Virginia circuit courts, and Part IV governs
discovery in civil actions before Virginia circuit courts. Part IV is largely derived from the
Federal Rules of Civil Procedure, and though there remain many differences between Part IV of
the Rules and the federal counterpart, the federal discovery rules and interpretive case decisions
3
have expressly influenced much of the case law surrounding the application and interpretation of
Virginia discovery rules. E.g., Am. Surety Safety Cas. v. C.G. Mitchell Constr., 268 Va. 340,
352, 601 S.E.2d 633, 640 (2004).
Practice before Virginia general district courts is guided by Parts VII(A) and (B).
Discovery in civil actions pending in Virginia general district courts is very limited. The most
significant discovery device available is found under Virginia Code § 16.1-89, which expressly
incorporates Rule 4:9A by reference, and permits the issuance of subpoenas duces tecum to both
parties and non-parties to the extent permitted by this Rule.
2. Virginia Rules of Evidence
It was for many years the case in Virginia that the “rules of evidence” were scattered
throughout the Virginia Code and case decisions from Virginia’s appellate courts. That changed
effective September 12, 2011 with the promulgation of the Virginia Rules of Evidence. The
Virginia Rules of Evidence appear as Part II of the Rules of the Supreme Court of Virginia, and
are numbered in a manner analogous to the Federal Rules of Evidence. But a litigant should be
mindful that significant differences exist between the Virginia Rules of Evidence and their
federal counterpart. For instance, Virginia has never adopted the standard for the admissibility
of expert testimony espoused in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993). Though the Virginia Rules of Evidence provide broad coverage of the statutory and
common law rules of evidence in Virginia as developed throughout the centuries, they are by no
means exhaustive. See Rule 2:102.
III. AUTHORITY TO DO BUSINESS
A. Required Qualifications to Do Business
It is generally not necessary for institutional commercial lenders based outside Virginia to
qualify to do business in Virginia in order to:
• Solicit business by mail or in person so long as the contract is accepted outside Virginia.
• Maintain, defend or settle a legal proceeding.
• Make loans or extensions of credit to Virginia debtors or create or acquire security interests
in real or personal property located in Virginia.
• Collect debts owed by Virginia debtors or enforce deeds of trust and security interests with
respect to property located in Virginia.
• Own, without more, real or personal property in Virginia.
• Maintain bank accounts.
See Va. Code Ann. §§ 13.1-757 et seq., with respect to foreign corporations, §§ 13.1-1051 et seq.
with respect to foreign limited liability companies, §§ 13.1-1241 et seq., with respect to foreign
business trusts, and §§ 50-73.53 et seq., with respect to foreign limited partnerships.
Legal entities (other than general partnerships) which otherwise transact business in
Virginia are required to qualify or register with the State Corporation Commission of Virginia,
4
maintain a registered office in Virginia, and designate a registered agent in Virginia. An out-of-
state lender or business which transacts business in Virginia but which fails to qualify or register
may not maintain any proceeding in any Virginia court. Moreover, the officers, directors and
employees of foreign corporations; the members, managers and employees of foreign LLCs; and
the trustees, officers and employees of foreign business trusts who knowingly do any business in
Virginia without a certificate of authority are liable for a money penalty of not less than $500
and not more than $5,000. Va. Code Ann. §§ 13.1-757, -758 (foreign corporations); id. §§ 13.1-
1052, -1057 (foreign limited liability companies); id. §§ 13.1-1241, -1247 (foreign business
trusts); id. §§ 50-73.54, -73.59 (foreign limited partnerships); and id. §§ 50-73.138, -73.140
(foreign registered limited liability partnerships).
B. Licensing Requirements
Out-of-state commercial lenders and equipment lessors transacting business in Virginia
are not subject to any special licensing requirements in Virginia. Licenses are required to
operate as a consumer finance company making consumer loans bearing interest in excess of 12
percent per annum; per Va. Code Ann. §§ 6.2-1500 et seq;; a mortgage lender or broker per Va.
Code Ann. §§ 6.2-1600 et seq.; a mortgage loan originator per Va. Code Ann. §§ 6.1-1700 et
seq.; a payday lender per Va. Code Ann. §§ 6.1-1800 et seq.; or a motor vehicle title lender per
Va. Code Ann. §§ 6.2-2200 et seq.
C. Taxation
Out-of-state lenders and equipment lessors extending credit or leasing equipment in
Virginia are subject to Virginia income tax on income from Virginia sources. Va. Code Ann.
§ 58.1-302 (definition of “income and deductions from Virginia sources”); id. §§58.1-320 et
seq.; id. §§ 58.1-400 et seq. For corporate lenders which derive more than 70 percent of their
gross income from providing financial services, gross income is apportioned to Virginia in the
same proportion as costs of performance are incurred in Virginia. Va. Code Ann. § 58.1-418; 23
Va. Admin. Code § 10-120-150.
Out-of-state banks with permitted branches in Virginia are subject to bank franchise taxes
but are not subject to Virginia income tax and certain other state and local taxes. Va. Code Ann.
§§ 58.1-1200 et seq.
Out-of-state businesses are responsible for the collection and remittance of sales and use
taxes in Virginia in connection with the sale or rental of tangible personal property in Virginia
(Va. Code Ann. §§ 58.1-600 et seq.), subject to federal constitutional restrictions. See Quill
Corp. v. North Dakota, 504 U.S. 298 (1992).
Generally, organizations have the same income tax status (i.e., corporation or pass-
through) in Virginia as they have for federal income tax purposes. Va. Code Ann. § 58.1-390.1
(definition of pass-through entity).
5
IV. INTEREST AND USURY; PROMISSORY NOTES
A. Compound Interest
The Virginia common law disallows the compounding of interest on loans except where a
clear agreement to charge interest on past due interest is clear. Compound interest is permitted
by agreement. See Blanchard v. Dominion Nat’l Bank, 130 Va. 633, 108 S.E. 649 (1921). By
statute in Virginia, compound interest is permitted by agreement on commercial loans made to
an individual or entity of $5,000 or more for business or investment purposes, and loans in any
amount made to any corporation, partnership, limited liability company, business trust, or a joint
venture organized for the purpose of holding, developing and managing real estate for profit. Va.
Code Ann. §§ 6.2-308, -317.
B. General Rule – No Usury Limits
Generally, commercial loans are exempt from Virginia's usury laws and any law relating
to the compounding of interest. Va. Code Ann. §§ 6.2-308, -317. Agricultural loans are deemed
to be business loans for purposes of this rule.
C. Acceleration.
Virginia law does not restrict the ability of a commercial lender to accelerate a
commercial loan as set forth in the loan contract.
D. Late Payment Fees
A late charge in an amount not to exceed 5 perenct of the amount of any payment,
installment or single maturity, which is delinquent in excess of 7 days is enforceable if specified
in the loan contract. Va. Code Ann. § 6.2-400B. Commercial loans are likely exempt from this
restriction as stated above.
E. Prepayment and Penalties
Virginia adheres generally to the common law rule that a lender may strictly enforce the
loan contract and need not permit prepayment of an obligation before it is due. An exception
exists with respect to loans made in an initial amount less than $75,000 secured by a first deed of
trust or first mortgage on real estate, although a lender may assess a prepayment fee of up to 1
percent of the unpaid principal balance. Va. Code Ann. § 6.2-421B et seq. Prepayment fees on
other loans secured by a mortgage or deed of trust on a home occupied by the borrower cannot
exceed 2 percent of the amount prepaid. Va. Code Ann. § 6.2-422. Most commercial loans are
not regulated as to prepayment or prepayment fees. Prepayment fees may not be assessed upon
the acceleration of any loan secured by real property comprised of one to four family residential
units. Va. Code Ann. § 6.2-420.
6
F. Virginia Promissory Notes
The Virginia law applicable to promissory notes is found in revised Article 3 of the
Virginia UCC. Va. Code Ann. §§ 8.3A-101 et seq. Promissory notes in Virginia customarily
include provisions regarding the recovery of reasonable attorney’s fees, late charges,
delinquency fees, default interest, prepayment penalties and the like since they must be expressly
contracted for in order to be recoverable.
G. Demand Notes
Notes payable on demand are valid in Virginia. Demand notes which are negotiable
instruments are governed by Article 3 of the UCC. In Virginia, the statute of limitations on a
negotiable or non-negotiable demand note is six (6) years from the date of demand. If no
demand for payment is made, action to enforce a demand note is barred if neither principal nor
interest on the note has been paid for a continuous period of ten (10) years. Va. Code Ann. §
8.3A-118.
V. TYPES OF BORROWERS
A. Corporations
Virginia stock corporations are subject to the Virginia Stock Corporation Act, Va. Code
Ann. §§ 13.1-601 et seq. Virginia nonstock corporations are subject to the Virginia's Nonstock
Corporation Act, Va. Code Ann. §§ 13.1-801 et seq. Professional corporations are also governed
by a separate chapter in the Code. Va. Code Ann. §§ 13.1-542.1 et seq. The Virginia Stock
Corporation Act is derived from the Revised Model Business Corporation Act.
It is advisable to obtain a good standing certificate from the State Corporation
Commission of Virginia when making a loan to a corporation organized under Virginia law. It is
also advisable to obtain a corporate borrowing resolution certified by the borrower's secretary or
assistant secretary. If a corporate borrower doing business in Virginia is incorporated under the
laws of another state, it is prudent to obtain a certificate of qualification to do business in
Virginia from the State Corporation Commission of Virginia in addition to appropriate
certification from the corporation’s home state.
B. Partnerships
There are three types of partnerships recognized in Virginia: (1) ordinary business
partnerships (general partnerships), (2) limited partnerships and (3) registered limited liability
partnerships, which may be either limited liability partnerships or limited liability limited
partnerships. The law governing these entities is found in Title 50 of the Virginia Code.
A lender to any partnership should obtain a copy of the partnership agreement. Generally
speaking, all of the general partners of any partnership should execute the loan documents and
any instruments affecting partnership property. If fewer than all general partners execute a loan
document or an instrument, the lender should obtain the consent of all partners or a certified
7
copy of the partnership’s statement of partnership authority, if any, from the State Corporation
Commission of Virginia in order to determine who may bind the partnership. When lending to a
limited partnership or a registered limited liability partnership, a lender should obtain a certified
copy of the partnership’s certificate of limited partnership or registration statement from the
State Corporation Commission of Virginia. In the case of a foreign limited partnership or
foreign registered limited liability partnership doing business in Virginia, the lender should
require a certified copy of the limited partnership’s or registered limited liability partnership’s
certificate of registration from the State Corporation Commission in addition to appropriate
certificates from the limited partnership’s home state.
The general partners in a partnership, except for a registered limited liability partnership,
are jointly and severally obligated for the debts of the partnership which are incurred while they
are general partners. Va. Code Ann. § 50-73.96. Nevertheless it may be advisable to require
personal guarantees of individual partners when making a loan to a Virginia partnership in order
to specify remedies and waive certain defenses.
C. Limited Liability Companies
Virginia law authorizes limited liability companies (LLCs). An LLC is a hybrid between
a partnership and a corporation, having many of the attributes of both. An LLC may be taxed
like a partnership, while providing limited liability to its members or owners similar to a
corporation. Virginia LLCs are subject to the Virginia Limited Liability Company Act, Va.
Code Ann. §§ 13.1-1000 et seq. Professional limited liability companies are governed by the
Virginia Professional Limited Liability Company Act, Va. Code Ann. §§ 13.1-1100 et seq.
LLC Articles of Organization must be filed with the State Corporation Commission of
Virginia. A Virginia LLC is required to have a registered office in Virginia as well as a
registered agent for service of process.
When making a loan to a Virginia LLC, it is advisable to obtain a copy of the certificate
of organization issued by the State Corporation of Commission of Virginia as well as a certified
copy of the LLC's Articles of Organization and a certificate of fact (the equivalent of certificates
of good standing for corporations). If an LLC has an Operating Agreement, it is prudent to
obtain a copy as the Operating Agreement is the company’s organizational document and will set
out the manner in which the company is organized and the manner in which its business is
conducted. The Virginia LCC statutes allow an LLC to be managed by its members or by a
manager or managers, who may or may not be members. The Operating Agreement will outline
the authority of members or managers to borrow money, pledge assets or guarantee
indebtedness. If less than all of the members or managers of an LLC sign the loan documents, an
authorizing resolution signed by all of the members or managers, as applicable, should be
delivered to the lender.
Individual members and managers of an LLC are not liable for company debts.
Consequently, it is generally advisable to obtain personal guarantees from LLC members when
making a loan to a Virginia LLC.
8
An LLC organized under the laws of another state is required to register with the State
Corporation Commission of Virginia in order to transact business in Virginia. Accordingly, the
lender should obtain a copy of a certificate of registration from the Commission in such
circumstances in addition to appropriate certification from the company’s home state.
D. Business Trusts
Business trusts are governed by the Virginia Business Trust Act, Va. Code Ann. §§ 13.1-
1200 et seq. A lender to a business trust should obtain a copy of the business trust’s certificate of
trust issued by the State Corporation Commission, as well as a copy of the business trust’s
governing instrument.
A business trust organized under the laws of another state is required to register with the
State Corporation Commission of Virginia in order to transact business in Virginia.
Accordingly, the lender should obtain a copy of a certificate of registration from the Commission
in such circumstances in addition to appropriate certification from the trust’s home state.
E. Proprietorships and Individuals
Loans to proprietorships are treated in the same manner as loans to individual owners of
the businesses. Proprietorships which operate under assumed business names must file a
certificate in the local court where the business is conducted. Va. Code Ann. § 59.1-69.
1. Married Borrowers
Virginia is not a community property state. Real property held by married persons as
“tenants by the entireties” cannot be reached by a creditor of only one of the spouses.
Accordingly, if an interest in such property represents a significant asset of an individual
borrower or guarantor, then either (i) both spouses must be obligated to repay unsecured
indebtedness in order for a creditor to reach the property in the event of default, or (ii) both
spouses must have conveyed the property to secure the indebtedness. Lenders should be mindful
of the rules set forth in the Federal Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 et seq., and
regulations promulgated thereunder, which restrict the ability of lenders to require the signature
of nonapplicant spouses on loan documents.
2. Property Exempt From Claims of General Creditors
Certain assets of individual debtors in Virginia are exempt from seizure to satisfy claims
of general unsecured creditors. These include, by way of example, any real or personal property
up to the value of $5,000.00 per individual, or, if the individual is 65 years or older, $10,000.00,
plus $500.00 for each dependent. Va. Code Ann. § 34-4. In addition, individuals may exempt
certain heirlooms, certain ordinary household items, tools of the trade, and medically prescribed
health aids. Va. Code Ann. §§ 34-26 et seq. Virginia has "opted out" of the federal preemption
scheme under the Bankruptcy Code, so that only Virginia exemptions may be asserted in
bankruptcy.
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3. Age of Majority
The age of majority in Virginia is eighteen (18) years of age. Va. Code Ann. § 1-204.
The Virginia common law provides that contracts made by persons under the age of 18 are
voidable unless they are contracted to provide "goods or services which are necessary to sustain
the well-being of the minor, such as food, clothing and education," in which case there is an
implied contract that the minor must pay the fair market value of the goods or services
contracted. See Zelnick v. Adams, 263 Va. 601, 561 S.E.2d 711 (2002). There is also a statute
which bars a claim of infancy (i) by an infant doing business as a “trader” unless certain public
notice is given and (2) to repudiate a student loan. Va. Code Ann. §8.01-278.
F. Trusts and Estates
The authority of a fiduciary of a Virginia trust or estate to borrow, pledge assets or
guaranty the indebtedness of others is determined primarily with reference to the instrument
creating the trust or estate. Unless limited by the instrument, a fiduciary may borrow money and
pledge assets for proper trust purposes. Va. Code Ann. § 64.2-777 et seq. When there is doubt
about the authority of a fiduciary to assume liability on a contract or encumber estate assets,
leave of court should be obtained.
When a trust or estate is a party to a loan document, the appropriate reference to that
party is the fiduciary's name, followed by an appropriate fiduciary title and the nature of the
representation, e.g. John Jones, Executor of the Estate of Sam Smith, Deceased, or John Jones,
Trustee U/W Sam Smith, Deceased, or John Jones, Trustee u/a of Sam Smith dated mm/dd/yyyy.
In any case, the loan documents should always be executed by the fiduciary in the appropriate
fiduciary capacity.
Section 17.1-249 of the Virginia Code requires that a recorded instrument made in a
representative capacity is to be indexed in the fiduciary's name and in the name of the former
record owner, which needs to be listed in the first clause of the instrument. Article 9 of the UCC
in Virginia requires that a UCC financing statement with respect to collateral being administered
by a decedent's estate name the decedent as a debtor, with an indication elsewhere in the form
that the collateral is being administered by a personal representative. If the debtor is a trust that
specifies a name for the trust in the instrument creating the trust, then that name is the proper
name of the debtor for filing purposes. If the instrument creating the trust does not specify a
name, then the name of the debtor is the name of the settlor of the trust or the testator and a
notation must be made elsewhere on the form that the collateral is held in trust. Va. Code Ann.
§§ 8.9A-503(a)(2) and (a)(3).
10
VI. REAL ESTATE
A. Property Rights
Property rights in Virginia real estate are generally governed by Title 55 of the Virginia
Code entitled "Property and Conveyances" (Va. Code Ann. §§ 55-1 et seq.) and Virginia case
law. The coverage of Title 55 includes liens on and leases of real property, as well as the
recordation of instruments relating to real property.
B. Deeds of Trust
In Virginia, the common instrument for obtaining a lien on real property is a deed of
trust, under which the property is conveyed to a trustee with a power of sale which enables the
trustee to sell the property upon default without judicial action. (Although mortgages remain
valid and enforceable in Virginia, mortgages are not commonly used as they require judicial
foreclosure.)
To be effective against purchasers for value without notice and lien creditors, a deed of
trust must be in writing (Va. Code Ann. § 11-1) and be recorded in the county or independent
city in which the property encumbered thereby is located. Va. Code Ann. § 55-96.
Unless the secured debt is also secured by real estate outside Virginia, trustees under
deeds of trust must be residents of Virginia. Similarly, a corporation, limited liability company,
partnership or other entity serving as a trustee must be organized under the laws of Virginia or
the laws of the United States. Va. Code Ann. § 55-58.1.
Virginia law provides a specific statutory mechanism, the “credit line” deed of trust, by
which real property in Virginia may be encumbered to secure payment of indebtedness that
includes advances or extensions of credit to be made in the future by the noteholder named
therein. Compliance with the requirements of the statute ensures that such future advances or
extensions of credit will take priority over most (but not all) liens on the real property arising
after the credit line deed of trust is recorded. Va. Code Ann. § 55-58.2.
To comply with the statute, a credit line deed of trust must:
1. Include the language "THIS IS A CREDIT LINE DEED OF TRUST" on the front
page thereof, either in capital letters or in underscored type. Va. Code Ann. § 55-
58.2(A);
2. Specify the maximum aggregate principal amount to be secured by the credit line
deed of trust at any one time. Va. Code Ann. § 55-58.2(A);
3. Set forth the name of the noteholder secured by the credit line deed of trust and
the address at which communications may be mailed or delivered to such
noteholder. Va. Code Ann. § 55-58.2(E).
11
Every deed of trust in Virginia will be construed in accordance with its terms to the
extent not in conflict with the law and, unless otherwise provided therein, will be construed to
impose certain duties, rights and obligations on the parties thereto which are set forth in detail in
Va. Code Ann. § 55-59.
C. Recordation/Formal Requirements
Although Va. Code Ann. § 55-58 provides a general form of deed of trust which may be
followed, no specific form of deed of trust is required in Virginia. There are, however, a number
of formal requirements with which a deed of trust should comply in order to ensure that it will be
accepted for recordation by the clerk of court.
Each deed of trust must name in the first clause each (i) grantor, (ii) trustee and, if
applicable, (iii) grantee under whose names the deed of trust is to be indexed. Va. Code Ann.
§ 55-58. It is common practice in Virginia to describe each beneficiary under a deed of trust as a
"grantee" for indexing purposes.
Acknowledgment is necessary for recordation. Va. Code Ann. § 55-106.
Acknowledgement of an instrument is ordinarily performed by a notary public. Every
notarization by a notary public must include the date of the act, the county or city where the act
was performed and the notary’s official seal must be affixed to the notarial certificate. Va. Code
Ann. § 47.1-16. The notarial certificate must appear on the same page as the signature which has
been notarized unless the notarial certificate includes the names of the persons whose signatures
are being notarized. Va. Code Ann. § 47.1-15. The notarial certificate must recite the date that
the notary’s commission expires and the notary’s registration number. Va. Code Ann. § 47.1-2.
Virginia has adopted the Uniform Recognition of Acknowledgments Act, Va. Code Ann. §§ 55-
118.1 et seq., which generally validates “notarial acts” performed outside of Virginia as if
performed by a notary public of Virginia, provided that the form of the certificate of
acknowledgment (i) is prescribed by the law of Virginia, (ii) is prescribed by the law of the place
where the acknowledgment is taken, or (iii) contains the words “acknowledged before me” (or
their substantial equivalent). Va. Code Ann. § 55-118.4.
Each deed of trust must include the full residence or business address (including street
address and zip code) of each trustee named therein. Va. Code Ann. § 55-58.1(B).
Any deed of trust relating to real property located in a locality with a unique parcel
identification system must also bear, on the first page thereof, the tax map reference number or
numbers, or the parcel identification number (PIN) or numbers, of the affected parcel or parcels.
Va. Code Ann. § 17.1-252.
In addition to these specific requirements for deeds of trust, a deed of trust must meet
certain general requirements applicable to all documents submitted for recordation. For
example, the clerk may refuse to accept any document for recordation unless (i) each individual's
surname only, where it first appears in the document, is underscored or written entirely in capital
letters, (ii) each page of the writing is numbered consecutively, (iii) the Virginia Code section
under which any exemption from recordation taxes is claimed is clearly stated on the face of the
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document and (iv) the names of all grantors and grantees are listed as required by Virginia law
(as discussed above with respect to deeds of trust) and if a cover sheet is used (as discussed
below) the names are the same as those listed on the cover sheet. Va. Code Ann. § 17.1-2239(A).
The clerk may refuse to record any document that includes the social security number of any
grantor, grantee or trustee, and the attorney or other party who prepares the document “has
responsibility for ensuring” that any social security number is removed prior to recordation. Va.
Code Ann. § 17.1-223(B).
Clerks may require any document conveying an interest in real property to be filed with a
cover sheet setting forth the information required to record the document. This cover sheet, if
required, would not be construed to convey any interest in real property or purport to be a
document in the chain of title conveying any interest in real property. Va. Code Ann. § 17.1-
227.1. Each jurisdiction must be contacted as to whether it has such a requirement and as to how
to prepare the required cover sheet.
Finally, deeds of trust, as other documents, need to meet certain archival standards
promulgated by the Virginia State Library Board. Va. Code Ann. §§ 42.1-82, 55-108;17 Va.
Admin. Code § 15-70-10 et seq. Such standards include requirements such as: only white paper,
size no less than 8-½ x 11 and no more than 8-½ x 14 inches, signatures in only dark blue or
black ink, print size no less than 9 points, and margins no less than one (1) inch on the top,
bottom and left margins and no less than ½ inch on the right margin. 17 Va. Admin. Code § 15-
70-10 et seq.
D. Recording Fees and Taxes
In addition to various clerk's fees totaling approximately $30-$70, depending on the
number of pages in the deed of trust, Virginia imposes a state recordation tax of $0.25 on every
$100 or fraction thereof of the principal amount secured by the deed of trust up to $10,000,000,
with a decreasing rate schedule for principal amounts over $10,000,000. If a deed of trust
secures a loan which refinances an existing loan secured by the property, the rate schedule begins
at $0.18 on every $100.00 of indebtedness secured or fraction thereof. In the case of an open-
end or revolving debt, the amount of the obligation for purposes of calculating the tax is the
maximum amount which may be outstanding at any one time. If the amount of the indebtedness
secured exceeds the fair market value of the property, the tax may be calculated on the fair
market value of the property. Va. Code Ann. §§ 58.1-803 et seq. The deed of trust should bear a
notice to this effect if the fair market value is to be used. Clerks of Court ordinarily accept the
tax assessed value of real estate for this purpose.
In addition to the state recordation tax, the county or city in which the deed of trust is
being recorded is entitled to impose a recordation tax in an amount equal to one-third (1/3) of the
amount of the state recordation tax. Va. Code Ann. § 58.1-814.
There are some exceptions to having to payment of the full recordation tax on
instruments related to deeds of trust, e.g., supplemental instruments. Va. Code Ann. §§ 58.1-
803,-809.
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E. Assignment of Leases, Rents and Profits
The assignment by a property owner of its interest in the leases, rents or profits arising
from real property is permitted in Virginia and the provisions with respect to such assignment
may be included in a deed of trust or in a separate document. Recordation of a deed of trust or
separate document containing such provisions will fully perfect the interest of the assignee as to
the assignor and all third parties without the necessity of (i) furnishing notice to the assignor or
lessee, (ii) obtaining possession of the real property, (iii) impounding the rents, (iv) securing the
appointment of a receiver, or (v) taking any other affirmative action. Va. Code Ann. § 55-220.1.
Though, as noted above, it is not necessary to do so, it is common in Virginia to record a separate
assignment of leases, rents and profits. An assignment which is supplemental to a recorded deed
of trust is exempt from recordation tax. Va. Code Ann. § 58.1-809 and § 58.1-807 (C).
F. Transfer of Deed of Trust
Virginia follows the common law rule that the security "follows" the debt upon
assignment or transfer without the need to record an assignment. The Virginia Code, however,
specifically allows an assignee of debt secured by a deed of trust to cause the instrument of
assignment or a certificate of transfer (in the form set forth in the statute) to be recorded to
operate as a notice of such assignment. Va. Code Ann. § 55-66.01.
If the note or indebtedness secured by a credit line deed of trust is assigned or transferred,
the name and address of the new noteholder should be set forth in the certificate of transfer or, in
lieu of doing so, the credit line deed of trust itself should be modified by a duly recorded
instrument. Va. Code Ann. § 55-58.2(E).
G. Cancellation of Deed of Trust
Once the debt secured by a deed of trust has been fully satisfied, and in certain
circumstances when the debt has been partially satisfied, the creditor must issue a certificate of
satisfaction (or certificate of partial satisfaction) in recordable form; provided, however, that in
the case of a credit line deed of trust, the creditor must do so only upon request after payment in
full of the debt secured. The creditor must either record the certificate of satisfaction with the
appropriate clerk’s office, or, if requested to do so by the settlement agent before such
recordation has occurred, deliver to the settlement agent such certificate of satisfaction, in either
case within ninety (90) days after payment of the debt. Failure to do so within the 90-day period
could result in a $500 forfeiture by the creditor to the obligor. Va. Code Ann. §§ 55-66.3(A)(1).
If the debt secured has been assigned or transferred, the subsequent holder is subject to
the same requirements. Va. Code Ann. § 55-66.3 (A)(2).
Note, too, that the settlement agent, subject to certain requirements (and the risk of
liability for a wrongful or erroneous release), also may release the creditor’s lien by recording a
certificate of satisfaction. Va. Code Ann. § 55-66.3(E).
H. Default and Foreclosure Remedies
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1. Foreclosure.
Although judicial foreclosure is available in Virginia, the most common method of
foreclosure is by public sale of the property by the trustee, more specifics of which are discussed
below.
With regard to trustee foreclosures, in addition to any requirements that may be in the
deed of trust, the Virginia Code provides specific guidelines for conducting a sale of the property
by the trustee under a deed of trust. Va. Code Ann. §§ 55-59 through 55-59.4. For example, the
trustee must notify in writing the record owner of the property and particular subordinate
lienholders of the impending foreclosure. In addition, the trustee must advertise the sale in a
newspaper with a general circulation in the city or county in which the property is located, in the
section of the newspaper where legal notices appear or where the type of property being sold is
generally advertised for sale. The instrument may provide that the sale may be advertised for as
few as three (3) consecutive days. In the absence of an express provision in the deed of trust, the
statute provides for a minimum advertising requirement of once a week for four (4) successive
weeks unless the property is in a city or a county contiguous to a city, in which case, advertising
may occur once a day for five (5) days, which may be consecutive. The sale may not be held
sooner than eight days after the first advertisement is published or more than 30 days after the
last advertisement is published. Failure to advertise the sale properly is grounds for judicial
voiding of the sale. As a consequence, trustees often advertise more frequently than the
instrument might permit. The advertisements of sale must include, among other things, a
description of the property; the time, place and terms of sale; the name of the trustee(s); the name
and telephone number of a person to contact for more information; and anything else which the
deed of trust specifically directs that the advertisement include.
The sale must take place at the premises or in the front of the circuit court building or at
such other place in the city or county in which the property or the greater part thereof lies, or in
the corporate limits of any city surrounded by or contiguous to such county, or in the case of
annexed land, in the county of which the land was formerly a part, as the trustee may select upon
such terms and conditions as the trustee may deem best. Va. Code Ann. § 55-59(7). The trustee
may require from any bidder at the sale a cash deposit of as much as 10% of the sale price before
his bid is received. Va. Code Ann. § 55-59.4(A)(2).
If the deed of trust encumbers more than one parcel of land, unless the deed of trust
clearly states to the contrary, the trustee may sell only so much of the property as is necessary to
pay the debt. See Smith v. Woodward, 122 Va. 356, 94 S.E. 916 (1918).
Although there is no statutory right of redemption in Virginia, borrowers do have the
right to pay off the debt secured by a deed of trust at any time before the property is sold at
foreclosure (i.e., before the bidding is closed).
A trustee conveys the property to the purchaser subject to prior liens, leases, easements,
encumbrances and other matters of record. The purchaser at a trustee's sale can require a deed
from the trustee with only a special warranty of title. The trustee is not responsible for
15
conveying good title, because the trustee may only sell the interest that was conveyed to him by
the deed of trust.
The proceeds of sale must be applied as follows: (i) first, to discharge the expenses of
executing the trust, including a reasonable commission to the trustee; (ii) second, to discharge all
taxes, levies, and assessments, with costs and interest if they have priority over the lien of the
deed of trust, including the due pro rata thereof for the current year; (iii) third, to discharge in the
order of their priority, if any, the remaining debts and obligations secured by the deed of trust,
and any liens of record inferior to the deed of trust under which sale is made, with lawful
interest; and (iv) fourth, the residue of the proceeds is paid to the defaulting debtor or his assigns.
Va. Code Ann. § 55-59.4(A)(3).
Within six months of the date of sale, the trustee must provide an account of sale to the
commissioner of accounts of the court wherein the deed of trust was recorded. The
commissioner will then state, settle and report to the court an account of the transactions of such
trustee. Failure of the trustee to submit such account may result in a forfeiture by the trustee of
its commissions on such sale. Va. Code Ann. § 64.2-1217.
A creditor may also, of course, maintain any action at law or in equity otherwise
available to it for the collection of debts in Virginia.
Deficiency judgments may be obtained in Virginia.
2. Deed in Lieu of Foreclosure.
In contrast with a foreclosure sale, which results in a conveyance of the subject property
free of liens which are subordinate to the lien of the deed of trust, a deed in lieu of foreclosure
conveys the property to the lender subject to all encumbrances, including those which are
subordinate to the lien of the deed of trust. Ordinarily the doctrine of merger would operate to
terminate the lien of the deed of trust. In Virginia, the parties may expressly agree to preserve
the lien of the deed of trust to avoid a merger if the parties wish to preserve the ability to pass
title to a purchaser free of all liens and encumbrances subordinate to the lien of the deed of trust.
See Allen v. Patrick, 97 Va. 521, 34 S.E. 451 (1899).
I. Mechanic’s Liens
In Virginia, all persons performing labor or furnishing materials with a value of one
hundred fifty dollars ($150.00) or more for the construction, removal, repair or improvement of
any building or structure permanently annexed to the freehold may claim a mechanic's lien upon
such building or structure and so much land therewith as is necessary for the convenient use and
enjoyment thereof. Va. Code Ann. § 43-3(A). The term “structure permanently annexed to the
freehold” includes, among other things, sidewalks, driveways, parking lots, water systems, septic
systems and swimming pools. Va. Code Ann. § 43-2.
Though the mechanic’s lien statutes are generally strictly construed, the terms “labor”
and “materials” have generally liberal definitions. The term “materials” includes surveying,
16
grading, clearing, and earth moving required for the improvement of the grounds upon which
such building or structure is situated. Va. Code Ann. § 43-2. The term “labor” includes
architect’s fees, see Cain v. Rea, 159 Va. 446, 166 S.E. 478 (1932), and the Virginia Supreme
Court's broad interpretation of the term “labor” could probably include claims for labor such as
engineering work or construction management work, provided that such work was necessary for
the construction, removal, repair, or improvement of a building or structure.
To perfect a mechanic's lien, the claimant must record in the land records a
"memorandum of lien" at any time after the claimant begins to provide labor or materials but no
later than 90 days after the last day of the month in which the claimant last provided labor or
materials, and in no event later than 90 days after the day the building or structure is completed
or all work is otherwise terminated. Furthermore, the memorandum may not include sums for
labor or materials furnished more than 150 days prior to the last day on which labor was
performed or materials furnished to the job preceding the filing of the memorandum. Va. Code
Ann. § 43-4. In addition to the memorandum of lien, claimants below the level of general
contractors must give notices of the memorandum to certain parties. Va. Code Ann. § 43-7 and
§ 43-9.
With respect to priority, mechanic’s liens enjoy some preferential treatment. For
example, with respect to the construction of a building for which the labor or materials were
provided, a properly perfected mechanic's lien will take priority over the lien of a deed of trust on
the building recorded prior to the commencement of the work for which the mechanic's lien is
claimed. With respect to the land on which the building is situated, a properly perfected
mechanic's lien related to the construction of a building will take priority over the lien of a deed
of trust on the land that was recorded after the work commences. Va. Code Ann. § 43-21.
Given this possible loss of priority, lenders in Virginia generally protect themselves from
mechanic's liens in two ways: (1) by obtaining waivers from providers of labor and materials of
their right to file and/or enforce a mechanic's lien, which waivers may be obtained at any time,
even before work commences (Va. Code Ann. § 43-3(C)); and (2) by obtaining affirmative
mechanic's lien title insurance coverage.
J. Title Insurance
"Mortgagee" title insurance coverage is generally available in Virginia, and has almost
entirely superseded attorney title opinions as the means by which a lender obtains assurance that
the lien of its deed of trust has priority. Unlike some other states, Virginia does not limit the
availability or mandate the forms of title insurance endorsements. The title insurance companies
that transact business in Virginia will, if requested, generally provide the standard endorsements
used nationwide, as well as negotiated endorsements in certain circumstances.
VII PERSONAL PROPERTY LENDING AND EQUIPMENT LEASING
A. UCC Article 9 (State Variations)
17
Virginia variations to the current version of Article 9 (the “Uniform Act”) include:
1. Article 9 is not applicable to a transfer of an interest in or assignment of a claim
under an annuity contract. Va. Code Ann. § 8.9A-109(d) (8).
2. Dragnet and cross-collateral provisions in consumer credit sale documents are
limited. Va. Code Ann. § 8.9A-204.1.
3. The concept of “free assignability” of accounts, chattel paper, payment
intangibles, healthcare insurance receivables and promissory notes is not
applicable to rights to receive compensation for personal injuries or sickness
arising out of Virginia’s worker’s compensation act, claims or rights to receive
benefits under special needs trusts created under the Social Security Act, and
rights to payments under structured settlements pursuant to Virginia’s Structured
Settlement Protection Act, Va. Code Ann. §§ 59.1-475 et seq. Va. Code Ann.
§ 8.9A-408(e).
4. Local real estate related filings must contain a description of the real estate similar
to that used with a mortgage or deed of trust. Va. Code Ann. § 8.9A-502(b)(3).
Local court clerks sometimes insist on exhibited legal descriptions attached to the
prescribed UCC-1 AD form.
5. The proper name for the filing in the name of an individual debtor holding an
unexpired driver's license or identification card issued by the Division of Motor
Vehicles is that name indicated on the driver's license or identification card. Va.
Code Ann. 8.9-503(4).
6. Virginia has adopted the less stringent alternatives with respect to information
required to be included in amendment, continuation, termination, and correction
statements. Va. Code Ann. §§ 8.9A-512(a), - 518(b), -519(f) and -522(a).
7. Virginia filing offices are required to file and index financing statements within
five (5) business days after receipt of the record and to communicate a refusal to
file within the same time frame. Va. Code Ann. § 8.9A-519(h), -520(b).
Likewise, the filing office must respond to requests for information within five (5)
business days. Va. Code Ann. § 8.9A-523(e).
8. In Virginia, whether notification of the disposition of collateral is timely is a
question of law, not fact. Moreover, the 10-day "safe harbor" provision of § 9A-
612 is applicable to both consumer and commercial transactions.
9. A junior secured party that receives the cash proceeds of a disposition of
collateral in good faith and without knowledge of a conflicting senior security
interest does not necessarily take free of that conflicting security interest. Va.
Code Ann. 8.9A-615.
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10. The Virginia statute does not allow statutory damages for noncompliance with
Article 9. Va. Code Ann. § 8.9A-625.
B. UCC Filing Rules
If the local law of Virginia governs perfection, UCC-1 financing statements must be filed
with only the State Corporation Commission of Virginia, unless collateral is as-extracted
collateral or timber to be cut or the financing statement is filed as a fixture filing, in which case
the UCC-1 financing statement must be filed locally (see below).
C. As-extracted Collateral, Timber To Be Cut
When collateral is timber to be cut or as-extracted collateral (oil, gas, minerals and
accounts arising out of their sale at the well head or minehead), then a UCC-1 must be filed in
the circuit court of the county or city where the related real estate is located.
D. Fixture Filings
When goods are or are to become fixtures, the UCC-1 may be filed as a “fixture filing” in
the circuit court of the county or city where the related real estate is located in order to protect
the secured party’s interest vis a vis competing real estate interests.
E. Local Filings
In Virginia, cities are independent of surrounding counties. Accordingly, care must be
exercised when filing financing statements locally and conducting lien searches to insure that the
appropriate jurisdiction is identified, particularly when a debtor is located in a county contiguous
to an independent city, because mailing addresses can be misleading.
F. Financing Statement Formalities
The national form of the UCC-1 financing statement is effective in Virginia. Whenever a
financing statement covers timber to cut, or as-extracted collateral or is made as a fixture filing,
in addition to the standard information on the UCC-1 form, the form should contain a detailed
real estate description similar to that used with a mortgage or deed of trust. Local court clerks
sometimes require a legal description to be exhibited in addition to the UCC-1 AD form. A
mortgage or deed of trust is effective as a financing statement filed as a fixture filing from the
date of recordation if the goods are described in the instrument by item or type, the secured party
is identified in the instrument, the instrument satisfies non-UCC Virginia law governing the
instrument, and the instrument is duly recorded. Va. Code Ann. § 8.9A-502(b).
G. Filing and Other Fees
The basic fee for filing any UCC-1 financing statement is $20.00.
H. Titled Motor Vehicles and Watercraft
19
The ownership of motor vehicles and watercraft (other than inventory held for sale) in
Virginia is evidenced by a certificate of title issued by the Department of Motor Vehicles in the
case of motor vehicles, or the Department of Game and Inland Fisheries, in the case of boats.
Security interests in such collateral cannot be perfected by filing financing statements but can be
perfected only by noting the lien on the certificate of title.
I. Security Interests in Life Insurance
A security interest in the cash surrender value and/or the proceeds of a life insurance
policy is not subject to Article 9 of the Virginia UCC. A lender to a Virginia debtor should (i)
obtain a written assignment from the debtor assigning the policy, (ii) the possession of the
original policy, and (iii) obtain a written acknowledgment of the assignment from the insurer.
J. Priority Versus Secret Liens (Statutory and Common Law)
In Virginia, the common law landlord's lien on the goods of a tenant has been codified.
Va. Code Ann. §§ 55-230 et seq. The landlord's lien has priority over a perfected security
interest in the goods unless the security interest was perfected when the goods were carried onto
the premises. It is not clear in Virginia whether a purchase money security interest in goods
other than inventory which is perfected by filing during the 20-day grace period after the debtor
takes possession but after arriving on the premises, would have a priority over the landlord's lien.
With respect to inventory, while it seems that the language of the statute awards priority to the
landlord's lien in inventory on hand when the inventory financer perfects its lien, and
subordinates the landlord's lien to new inventory that turns over after the security interest is
perfected, the landlord's lien statute predates the UCC and its concept of a floating lien.
Accordingly, secured creditors typically seek to have the landlord's lien expressly subordinated
to their UCC security interest in all circumstances rather than rely on the statute.
Section 43-32 awards a storage lien on aircraft and boats to aircraft hangar owners and
marinas. The statute provides that the storage lien has a priority of up to $300 against competing
liens, and if efforts are made to contact the secured party of record at the Department of Game
and Inland Fisheries a priority up to $500. Anyone incurring charges for providing towing or
recovery services for a boat or aircraft has a lien with a priority over competing creditors to the
full extent of those charges and secured parties of record are notified within seven business days
of taking possession of the aircraft.
Similar provisions apply to garage keepers with respect to motor vehicles. Va. Code
Ann. § 46.2-644.01.
Section 43.33 of the Virginia Code provides a lien on personal property in the possession
of a repairman with a priority up to $800.00. A similar lien with like priority is expressly
afforded to an automobile repair facility. Va. Code Ann. § 46.2-644.02.
In addition to the specific statutes mentioned, there exists a common law lien in favor of
bailees (other than those expressly addressed in the statute) in possession of personal property.
20
The possessory lien of a bailee would have priority over a security interest perfected under the
UCC by virtue of Section 8.9A-333(b) of the Virginia Code.
K. Equipment Leasing
Virginia has adopted Article 2A of the UCC (which governs leases of goods) without any
material variation from the Uniform Act, except that Virginia has adopted its own version of
§ 2A-216, extending the express and implied warranties of manufacturers to lessees. Va. Code
Ann. § 8.2A-216.
VIII GUARANTIES AND SURETYSHIP
A. General
General principles of the law of suretyship and guaranty, as set forth in the Restatement
(Third) of Suretyship and Guaranty, apply in Virginia. The principles apply whether a person is
a surety, which is a primary obligor, or a secondary obligor such as a guarantor or an endorser of
a negotiable instrument.
B. Waiver of Suretyship Defenses
While there are no Virginia state court cases directly on point, the waiver of suretyship
defenses and consents to action which might otherwise discharge guarantors and sureties (such
as impairment of recourse to collateral) have been given effect by federal courts in Virginia in
the absence of bad faith or willful misconduct by the creditor. See, e.g., United States v. Houff,
202 F. Supp. 471 (W.D. Va. 1962), aff'd. on other grounds, 312 F.2d 6 (4th Cir. 1962). Likewise,
§ 8.3A-605(i) of the Virginia UCC recognizes that endorsers and accommodation parties to
negotiable instruments may by agreement waive rights to discharge conferred by the statute in
the same fashion.
Virginia has a statute which requires that a creditor sue the primary debtor upon written
demand of the surety. The creditor's failure to bring such an action within 30 days will discharge
the surety. Va. Code Ann. §§ 49-25 and 49-26. It is customary in Virginia for the surety to
expressly waive rights under the statute.
C. Guaranties
Virginia courts will interpret a guaranty as they would any other contract, although the
effect of a guaranty will be strictly construed in favor of the guarantor. Open-ended guaranties
of a series of transactions in the future will be given effect if the intention of the parties is
apparent from the language of the contract and the circumstances existing when it was made. If
no duration is stated in an open-ended guaranty, a court will enforce it for a reasonable period.
Nevertheless, if an open-ended guaranty confers a right of revocation as to future indebtedness, a
court will not impose a limitation of the duration. See Bank of Southside Va. v. Candelario, 238
Va. 635, 385 S.E.2d 601 (1989).
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D. Other Suretyship Situations
In addition to guarantors, accommodation makers and endorsers of negotiable
instruments have suretyship status under the common law. Moreover, the UCC confers certain
rights on accommodations makers and endorsers of negotiable instruments to be discharged from
their obligations in circumstances similar to those conferred on sureties at common law. The
statute allows accommodation parties to waive the benefit of this statute. Va. Code Ann. § 8.3A-
605(i).
E. Reimbursement, Subrogation and Contribution Rights
Virginia common law provides that sureties who perform their obligations under their
contract in whole or in part are entitled to reimbursement from the principal obligor. A surety
which fully satisfies the obligations of a primary obligor to a creditor may be subrogated to the
rights of the creditor with respect to collateral securing the obligation. See Aetna Cas. & Surety
Co. v. Whaley, 173 Va. 11, 3 S.E.2d 395 (1939). If there is more than one surety for an
obligation, any co-surety who pays more than his proportionate share of the principal obligation
has rights to contribution from his co-surety. See Sacks v. Tavss, 237 Va. 13, 375 S.E.2d 719
(1989).
G. Equal Credit Opportunity Act
Under the Federal Equal Credit Opportunity Act, (“ECOA”) , 15 U.S.C. 1691 et seq. and
its implementing Federal Reserve Regulation B, 12 C.F.R 202.7, it is a violation of ECOA to
require the spouse of an applicant for credit to guarantee a loan if the applicant independently
qualifies for credit under the creditor’s standards of creditworthiness. The Virginia Supreme
Court has held that a spousal guaranty required in violation of ECOA is a defense to enforcement
of the guaranty. Eure v. Jefferson National Bank, 248 Va. 245, 448 S.E.2d 417 (1994). The
United States Court of Appeals for the 4th
Circuit has not dealt with the question whether the
spouse whose guaranty is required in violation of ECOA is an “applicant” with standing to assert
a claim or defense under the statute. See Hawkins v. Community Bank of Raymore, 761 F.3d
937 (8th
Cir., 2014). Compare RL BB Acquisition, LLC v. Bridgemill Commons Dev. Grp, 754
F. 3d 380 (6th
Cir. 2014). The lower Federal courts within the 4th
Circuit have generally favored
the view that a guarantor is an “applicant” under ECOA, allowing both claims and counterclaims
to be brought by a guarantor spouse, although several courts have resisted allowing an ECOA
violation as an affirmative defense. See, e.g., CMF Virginia Land, LP v. Brinson, 807 F. Supp.
90 (E. D Va. 1992).
IX INSOLVENCY LAWS
A. Receivership
Virginia law provides for the appointment of a special receiver: "[w]henever the
pleadings in any suit make out a proper case" for such appointment. Va. Code Ann. § 8.01-591.
The statute is silent on what constitutes a proper case. In determining whether to appoint a
22
receiver, courts generally look to see if the property that is the subject matter of the lawsuit is in
jeopardy of loss, waste, misappropriation or destruction. The principal purposes of a receiver are
to preserve, protect and conserve property, sometimes to sell or liquidate property and with
respect to a business entity, sometimes to manage and wind down the business. Certain powers
and duties of a receiver, generally notice provisions, are set forth in the statutes. Va. Code Ann.
§§ 8.01-591 through -599. Mostly, the powers and duties of a receiver are set forth in the court
order appointing the receiver. The creditor or plaintiff seeking a receiver will have wide latitude
in suggesting to the court the receiver’s powers, duties and compensation. Receivers also may
be appointed in shareholder derivative and corporate and limited liability company dissolution
suits.
B. Assignment for Benefit of Creditors
Virginia’s little-used assignment for the benefit of creditors statute is found in §§ 55-156
through -167 of the Code of Virginia. The statute provides a mechanism for the assignment of
property and/or the assignment of wages to a trustee to pay creditors.
A property assignment is accomplished by recorded deed. Va. Code Ann. §§ 55-156
through -160. Creditors are provided with notice of the terms of sale of the property and
conditions, instructions, timetable for acceptance, etc. Creditors may replace the trustee. The
mechanism allows for creditor claims to be challenged by other creditors and for creditor claims
to be discharged as to creditors who accept payment under this mechanism.
A wage assignment is accomplished by assignment filed with the court and court order
appointing a trustee. Va. Code Ann. §§ 55-161 through 167. A majority of creditors in both
amount and number must approve the assignment. In addition, the debtor’s employer must
consent. The trustee receives and distributes the debtor’s wages according to statutorily
prescribed priorities and subject to exemption claims. All listed creditors are subject to the
process and may not garnish or levy against the debtor. Further, the assignment has priority over
subsequently obtained liens. The court may terminate or revoke the assignment.
C. Fraudulent and Voluntary Conveyances
Virginia has adopted neither the Uniform Fraudulent Transfers Act nor the Uniform
Fraudulent Conveyances Act. The Virginia fraudulent conveyance statute is found in Va. Code
§ 55-80. This statute provides for the avoidance of transfers, transactions, etc. that were made
with the intent to delay, hinder or defraud creditors, purchasers and others. Fraudulent intent
must be proven by clear and convincing evidence. See In re Decker, 295 F. Supp. 501 (W.D. Va.
1969). Fraudulent intent may be proven through circumstantial evidence often referred to as
“badges of fraud”. See In re Tarangelo, 378 B.R. 128, 134 (Bankr. E.D. Va. 2007) (quoting In re
Porter, 37 B.R. 56, 63 (Bankr. E.D. Va. 1984). There is no statute of limitations for bringing
such an action. The only limitation is the doctrine of laches. See Flame S.A. Indus. Carriers,
Inc., 24 F. Supp.3d 493 (E.D. Va. 2014); In re Massey, 225 B.R. 887 (Bankr. E.D. Va. 1998)).
The Virginia voluntary conveyance statute is found in § 55-81 of the Virginia Code. This
statute provides for the avoidance of transfers, transactions, etc. which are not based upon
consideration deemed valuable at law by an insolvent transferor or which renders the transferor
23
insolvent. Avoidance is accomplished for the benefit of existing creditors at the time of the
avoided transfer or transaction. A five (5) year statute of limitations applies. Va. Code Ann.
§ 8.01-253.
X MISCELLANOUS LENDING TOPICS
A. Loan Commitments
Virginia has enacted a special statute of frauds which provides that no claim can be
brought on any agreement or promise to lend money in excess of $25,000.00 unless the
agreement is in writing and signed by the party to be charged. Va. Code Ann. § 11-2. This
statute would also apply to agreements to modify a loan.
B. Statute of Frauds
In addition to A above, Virginia's statute of frauds requires that the following agreements
must be in writing and signed by the party to be charged:
a) A contract to pay the debt of another (i.e., a guaranty)
(Va. Code Ann. 11-2)
b) An agreement to pay a debt discharged in bankruptcy
(Va. Code Ann. 11-2.01).
Security agreements in personal property (other than pledges) must be in writing and
signed by the debtor. Va. Code Ann. § 8.9A-203(b).
C. Accord and Satisfaction
Virginia has a statute which provides that part performance of an obligation, either before
or after default thereof, will extinguish the obligation if the part performance is "expressly"
accepted by the creditor in satisfaction and rendered in pursuance of an agreement to that effect.
Va. Code Ann. §11-12. No new consideration is required for such an agreement to be made.
Express acceptance of part performance by the creditor and the agreement of the parties to settle
the obligation for less that the full amount thereof can be implied from the circumstances.
Accordingly, it is customary in Virginia loan documents to stipulate that acceptance of partial
payments will not excuse payment in full.
Section 8.3A-311 of the Virginia UCC sets forth the circumstances under which an
accord and satisfaction of an "unliquidated" claim can be settled by the acceptance and collection
of a check bearing, or accompanied by, a conspicuous notice that it is tendered in full satisfaction
of the claim. One bar to reaching an accord and satisfaction by check is if the creditor proves
that the check was not received in a specified office of which the debtor had notice prior to
sending the check. Some lenders in Virginia indicate "conspicuous" notices specifying an office
for this purpose in their loan documents.
24
Section 11-10 of the Virginia Code provides that the release of one joint obligor does not
release the other joint obligor. The statute applies to settlement with a co-surety. See Yuillie v.
Wimbish, 77 Va. 308 (1883). The statute does not affect or impair any right of contribution. Va.
Code Ann. § 11-13.
D. Setoff and Recoupment
Virginia law recognizes distinctions between the defenses of setoff and recoupment.
Setoff is an equitable defense to a plaintiff's claim arising out of transactions or circumstances
extrinsic to the plaintiff's claim. Recoupment is an equitable plea for recovery over against a
plaintiff on a claim arising out of the same transaction that gave rise to the plaintiff’s action. See,
e.g., Dexter- Portland Cement Co. v. Acme Supply Co., 147 Va. 758, 133 S.E. 788 (1926)
(superseded by Rule 3:8 of the Rules of the Supreme Court of Virginia on other grounds).
Recoupment is now governed by statute in Virginia. Va. Code Ann. § 8.01-422. The distinction
between setoff and recoupment still exists, particularly regarding the effect of the running of the
statute of limitations on a defendant's claim of a setoff or recoupment. See § XI.C.3 of this
chapter. The recoupment statute also allows an award to a defendant in excess of the plaintiff’s
claim.
In Virginia there is a well-recognized common law right of setoff which permits
depository institution to set off against a customer’s account to satisfy indebtedness owed to the
institution by the customer. See Twentieth Street Bank v. Gilmore, 71 F.2d 594 (4th Cir. 1934).
At common law, the obligations must be mutual and matured. Accordingly, at common law,
setoff against a joint account to pay the debts of one of the joint account holders, or setoff against
a time deposit before its maturity, is not permitted. Neither will setoff be permitted against a
special account such as a trust account or escrow account. The common law right is often
supplemented by an agreement in Virginia loan documents which purports to enable a broader
reach than the common law allows.
E. State Assignment of Claims Statute
Virginia has not enacted a law similar to the Federal Assignment of Claims Act
restricting the ability to assign the proceeds of government contracts.
XI LITIGATION AND ARBITRATION
A. Lender Liability
1. Duty of Good Faith
Section 8.1A-304 of the Virginia UCC imposes an obligation of good faith in the
performance and enforcement of every contract or duty arising under the UCC. The Virginia
Supreme Court has held that violation of this duty is not an independent tort, but only gives rise
to a breach of contract. See Charles E. Brauer Co., Inc. v. NationsBank of Va., 251 Va. 28, 466
S.E.2d 382 (1996). The Virginia Supreme Court has also held that when the parties to a contract
have created valid and binding rights, the UCC's implied duty of good faith and fair dealing
25
cannot be violated by exercising those rights. See Ward Equipment, Inc. v. New Holland N.
Am., Inc., 254 Va. 379, 493 S.E.2d 516 (1997). Virginia does not recognize an implied covenant
of good faith and fair dealing outside of the UCC. See Greenwood Assocs. v. Crestar Bank, 248
Va. 265, 448 S.E. 2d 399 (1994).
2. Fiduciary Duty
The relationship of debtor and creditor is a contractual relationship and does not give rise
to a fiduciary relationship. See Deal’s Adm’r v. Merchant & Mechanics Savings Bank, 120 Va.
297, 91 S.E. 135 (1917). Virginia courts have consistently rejected efforts to portray the debtor-
creditor relationship as a fiduciary relationship that would lower the bar for lender liability. See,
e.g., Daisy J., Inc. v. First Bank & Trust Co., 50 Va. Cir. 596 (Va. Cir. Ct. Oct. 30 1998) (County
of Washington).
3. Virginia Consumer Protection Act
There are no reported decisions of a Virginia court extending the protections afforded to
commercial loan transactions.
B. Recovery of Attorney Fees
Virginia generally adheres to the “American rule,” which provides that a prevailing party
ordinarily cannot recover attorney’s fees from a losing party. See W. Square, LLC v. Commc’n
Techs., Inc., 274 Va. 425, 433, 649 S.E.2d 698, 702 (2007). But a prevailing party may recover
reasonable attorney’s fees where such remedy is provided by contract as recognized in Mullins v.
Richlands Nat’l Bank, 241 Va. 447, 449, 403 S.E.2d 334, 335 (1991); upon a finding of fraud by
clear and convincing evidence as recognized in Prospect Dev. Co. v. Bershader, 258 Va. 75, 92,
515 S.E.2d 291, 301 (1999); as sanctions for violating Virginia Code§ 8.01-271.1, which is
Virginia’s equivalent to Rule 11 of the Federal Rules of Civil Procedure; or as otherwise
provided by statute. Examples of such fee-shifting statutes include the Virginia Consumer
Protection Act, Va. Code Ann. § 59.1-204(B); the Virginia Residential Landlord and Tenant Act,
Va. Code Ann. §§ 55-248.9, -248.10:1, -248.21, -248.22, -248.31; the Virginia UCC, Va.Code
Ann. § 8.2A-108 (providing fee shifting upon a finding of unconsionability); and Va. Code Ann.
§ 8.01-221.2 (providing fee shifting in certain actions for rescission of a deed, contract or other
instrument). Attorney’s fees must be demanded in accordance with Rule 3:25 of the Rules of the
Supreme Court of Virginia or the remedy is waived.
C. Statutes of Limitations
1. Applicable Periods of Limitations
Written contracts in Virginia are subject to a five-year limitations period, and oral or
implied contracts are subject to a three-year limitations period. Va. Code Ann. § 8.01-246. The
limitations period for an action on both negotiable and non-negotiable notes payable at a definite
time under Virginia law is six years from the accrual of the cause of action. Va. Code Ann. §
8.3A-118(a). The statute of limitations on demand notes is discussed in Section IV(G), supra.
26
All actions for personal injuries and fraud are generally governed by a two-year
limitations period from accrual of the cause of action. Va. Code Ann. § 8.01-243(A) (subject to
stated exceptions). Where fraud, concealment or intentional misrepresentation prevents
discovery of a cause of action, the limitations period is one year from the date when such action
was discovered or should have been discovered. Va. Code Ann. § 8.01-243(C)(2). Actions for
injury to property are governed by a more generous five-year limitations period. Va. Code Ann.
§ 8.01-243(E). All actions for libel, slander, insulting words, and defamation are subject to a
one-year statute of limitations. Va. Code Ann. § 8.01-247.1.
Deeds of trust, mortgages, and other liens securing purchase money obligations are
subject to a ten-year limitations period from the date the secured obligation became due and
payable without regard to any acceleration terms. Va. Code Ann. § 8.01-241. This time period
may be extended by filing a certificate with the clerk of court in the jurisdiction wherein the
property is situated in the form provided under §§ 8.01-241.1 of the Virginia Code. Any deed(s)
executed pursuant to the foreclosure of any mortgage or the conveyance of any deed of trust
must be recorded in the appropriate jurisdiction within one year of the expiration of the
limitations period or such deeds are void. Va. Code Ann. § 8.01-241(C). Once the applicable
limitations period has run, any duly recorded liens securing such purchase money obligations
become unenforceable. Id.
Notwithstanding the foregoing, any deed of trust (other than a credit line deed of trust)
which does not state a date certain for its maturity, will not be enforced after twenty (20) years
from its date. Va. Code Ann. § 8.01-242. The statute of limitations may be extended as
described in the preceding paragraph. A credit line deed of trust without a stated maturity cannot
be enforced after forty (40) years from its date. Id.
Judgments rendered in the circuit courts of Virginia are subject to a limitations period of
twenty years from the date of such judgment, except that this period may be extended for an
additional twenty years in the manner provided under § 8.01-251 of the Virginia Code.
Judgments rendered in the general district courts are subject to a ten-year limitations period
pursuant to § 16.1-94.1 of the Virginia Code, except that such judgments may be docketed with
the clerk of the circuit court, in which event the judgment is treated the same as a circuit court
judgment under § 8.01-251 of the Virginia Code.
There are various statutory provisions for the suspension or tolling of the statutes of
limitations, the majority of which are set forth in § 8.01-229 of the Virginia Code. Upon the
taking of a nonsuit, the limitations period is tolled for a period of six months from the date such
nonsuit was granted, and the plaintiff may recommence the action within the greater of six
months or the expiration of the statute of limitations. Va. Code Ann. § 8.01-229(E)(3).
Execution or written affirmation of an accord tolls the accrual of a cause of action to the date of
the accord, and upon breach of such accord, the plaintiff may elect to sue upon the original
promise or the accord. Va. Code Ann. § 8.01-229(G). Infancy and incapacity at the time a cause
of action accrues generally tolls the limitations period until the disability is removed. Va. Code
Ann. § 8.01-229(A). Incapacity occurring after the accrual of the cause of action tolls the
limitations period from the time of incapacity until either (i) the disability is removed or (ii) a
27
fiduciary is appointed to manage the incapacitated person’s affairs. Va. Code Ann. § 8.01-
229(A)(2)(b). Death of either a would-be plaintiff or defendant tolls the limitations period for
one year from the qualification of a personal representative. Va. Code Ann. § 8.01-229(B).
2. Extension by Voluntary Payment
Other than the receipt of a payment of interest or principal on a demand note as outlined
in Section IV. G of this chapter, there are no statutes or reported decisions in Virginia which
provide that receipt of a payment tolls the running of the statute of limitations or extends the
period of limitations on a payment obligation and the weight of authority is contrary. See,e.g,
Guth v. Hamlett Associates, 230 Va. 64, 331 S.E.2d 558 (1985).
3. Use of Time-Barred Claim as a Defense
The law in Virginia is not settled on this issue. But this much is clear: pursuant to
Virginia’s statutory recoupment scheme, Va. Code Ann. § 8.01-422, if a defendant asserts a true
claim in recoupment in the form of an equitable plea, the plaintiff is denied the benefit of any
legal defenses to the defendant’s equitable plea of recoupment, including the statute of
limitations defense. See Cummings v. Fulghum, 261 Va. 73, 80, 540 S.E.2d 494, 498
(2001). This rule has potentially harsh consequences because Virginia’s recoupment statute
permits a defendant to recover an amount in excess of plaintiff’s demand. Id. at 80 n.3, 540
S.E.2d at 498 n.3. The procedural device used to assert a claim in recoupment is likely of great
consequence; an equitable plea in recoupment would invoke the benefit of the statute while a
counterclaim asserting the same matter presumably would not. Moreover, the statute appears to
make a distinction between true claims in recoupment and mere setoff, though no Virginia
appellate court appears to have settled this issue. See Williams v. Kinser, No. 125461, 64 Va.
Cir. 128 (Va. Cir. Ct. Feb. 24, 2004) (County of Fairfax) (holding that § 8.01-422 of the Virginia
Code has no application to a plea of setoff as opposed to a claim in recoupment).
4. Effect on Collateral for Time-Barred Claim
Under Virginia law, the running of the statute of limitations on a note secured by a deed
of trust does not affect the creditor’s right to file an action on a covenant arising under the deed
of trust. See Holcomb v. Webley, 185 Va. 150, 37 S.E.2d 762 (1946). Consequently, the fact
that the statute of limitations has run on the note secured by the deed of trust is no defense to a
foreclosure sale or other legal action on the covenant. Rather, the action on the covenant is
governed by the limitations period stated in §§ 8.01-241 and -242 of the Virginia Code
(discussed in §m XI.C.1 of this chapter), and any remedies arising by virtue of a deed of trust
may be exercised within these limitations notwithstanding the fact that the statute of limitations
has run on the note secured.
5. Agreements to Extend or Shorten Limitations Period
The parties to a contract governed by the Virginia Commercial Code may agree to reduce
the limitations period to not less than one year. Va. Code Ann. § 8.2-725. Similarly, parties may
agree to shorten the limitations period governing common law contracts, so long as the contract
28
limitations period is not “unreasonably short.” See Massie v. Blue Cross & Blue Shield of Va.,
256 Va. 161, 164, 500 S.E.2d 509, 511 (1998). A written promise not to plead the statute of
limitations is enforceable when made in furtherance of settlement. Va. Code Ann. § 8.01-232.
Unwritten promises not to plead the statute of limitations are generally unenforceable. Id.
However, a promisor is estopped from asserting the statute of limitations whenever the failure to
enforce a promise not to plead the statute of limitations would operate as a fraud on the
promisee, without regard to whether the promise is written or unwritten, or whether such promise
is made in furtherance of settlement negotiations. Id. Section 8.01-229 (G) of the Virginia Code
provides that a new promise of payment will extend the period of limitations
D. Choice of Law Provisions/Conflicts of Laws.
Virginia adheres to the traditional rule that a contract is governed by the law of the
jurisdiction where the contract was made. Virginia courts will enforce choice of law provisions
expressed in a contract if the state whose law is chosen bears a reasonable relationship to the
purpose of the contract and the application of the chosen law would not violate the policy of
Virgina See, e.g., Union Central Life Ins. Co. v. Pollard, 94 Va. 146, 26 S.E. 461 (1896). See
Hooper v. Mussolino, 234 Va. 558, 364 S.E.2d 207 (1988). See also Willard v. Aetna Casualty
& Surety Co., 213 Va. 481, 193 S.E.2d 776 (1973).
If a transaction is subject to the UCC, the applicable choice of law rules are found in
§ 8.1A-301 of the Virginia Code. Generally, the parties may agree that the law of any state or
nation shall control the rights and duties if that state bears a reasonable relationship to the
transaction. The law governing the perfection, the effect of perfection or nonperfection, and the
priority of security interests cannot be changed by agreement.
E. Forum Selection and Venue Selection Provisions.
Virginia has adopted the modern rule that forum selection clauses are prima facie value
unless they are unfair or unreasonable, or affected by fraud or unequal bargaining power. See
Paul Business Systems, Inc. v. Canon U.S.A., Inc., 240 Va. 337, 397 S.E.2d 804 (1990).
F. Jury Trial Waivers.
Virginia courts will uphold a contractual provision waiving the right to a jury trial in a
civil action. See Azalea Drive-In Theater, Inc. v. Sargoy, 215 Va. 714, 214 S.E.2d 131 (1975).
G. Arbitration Agreements
Virginia is one of thirty-two jurisdictions to adopt the Uniform Arbitration Act. Under
the Act, written agreements to submit “any existing controversy” to arbitration is “valid,
enforceable and irrevocable.” Va. Code Ann. § 8.01-581.01. Upon the institution of a civil
action in Virginia, any party may tender an agreement to arbitrate and move the court for an
order directing the parties to submit the matter to arbitration. Va. Code Ann. § 8.01-581.02. If
the non-moving party denies the validity of an agreement to arbitrate, the court “shall proceed
summarily to the determination of the issue of the existence of an agreement.” Id. An
29
arbitration award may be vacated within 90 days upon a finding by a court that the arbitration
proceedings suffered from any of the deficiencies enumerated in § 8.01-581.010 of the :Virginia
Code. Under Virginia Code § 8.01-262.1, agreements to arbitrate certain construction projects in
Virginia must identify Virginia as the arbitration forum.
H. Pre-Judgment Remedies
There are several pre-judgment remedies in Virginia for the protection of a plaintiff’s
interests during the pendency of litigation. In an action for detinue, a claimant may petition for
pretrial seizure of the personal property placed at issue in the litigation. Va. Code Ann. § 8.01-
114. Such seizure must be secured by a bond whose value is at least twice the estimated fair
market value of the property. Va. Code Ann. § 8.01-115. A defendant may have possession of
the property returned by posting an identical bond. Va. Code Ann. § 8.01-116.
Under § 8.01-533 of the Virginia Code, prejudgment attachment may be had of a
defendant’s assets upon a showing of any of the grounds enumerated in § 8.01-534 of the
Virginia Code, (e.g. defendant is a foreign corporation or not a Virginia resident, the defendant
or its property is absconding or being removed from Virginia, etc.). The form of a petition for
attachment is prescribed under § 8.01-537 of the Virginia Code, and a sufficient bond must be
posted as security for the attachment at the time of filing the petition for attachment pursuant to
§ 8.01-537.1 of the Virginia Code. Where the object of the attachment is real property, notice of
such attachment may be provided by filing a memorandum with the clerk of court in the
jurisdiction wherein such property is situated in the manner provided under § 8.01-268 of the
Virginia Code. Where specific real property is the object of litigation, a memorandum of lis
pendens may be recorded pursuant to § 8.01-268 of the Virginia Code without first seeking
prejudgment attachment.
Preliminary injunctive relief is available under circumstances to freeze the status quo
during the pendency of litigation. Va. Code Ann. § 8.01-620 et seq. The Supreme Court of
Virginia has acknowledged that injunctive relief is an “extraordinary remedy, available only in
equity,” and that such relief is only available upon a showing that the plaintiff would “suffer
irreparable harm if the injunction were not granted and that he did not have any adequate remedy
at law.” See Wright v. Castles, 232 Va. 218, 224, 349 S.E.2d 125, 129 (1986). Beyond this
limited guidance, neither the Court nor the General Assembly has specifically identified the
plaintiff’s burden in seeking preliminary injunctive relief. Many circuit courts confronted with a
petition for preliminary injunctive relief have employed the federal standard. See, e.g., Newell
Indust. Corp. v. Lineal Techs., Inc., No. CH96-439, 43 Va. Cir. 412, 413 (Va. Cir. Ct. Oct. 2,
1997) (City of Roanoke) (following Blackwelder Furniture Co. v. Seilig Mfg. Co., 550 F.2d 189
(4th Cir. 1977)). However, the federal “balancing of the hardships” test was recently abrogated
in part by the Supreme Court of the United States’ opinion in Winter v. Natural Res. Def.
Council, Inc., 555 U.S. 7 (2008), and the impact of this decision on Virginia law is as yet
undetermined.
Virginia courts are empowered to appoint special receivers in appropriate cases in the
manner provided under Va. Code Ann. § 8.01-591 et seq.
30
I. Judgments
1. Confession of Judgment
Agreements to confess judgment are valid and enforceable in Virginia pursuant to § 8.01-
432 et seq., of the Virginia Code, which will be strictly construed. Any bond, note or other
evidence of debt providing for confession of judgment must contain a conspicuous notice of
confession of judgment set forth on the face of the instrument in accordance with § 8.01-433.1 of
the Virginia Code.
In the instrument or contract evidencing an obligation, the debtor may appoint an
attorney-in-fact to confess judgment in the clerk's office of a designated Virginia court. Unless
the instrument is a note or bond, the signature of the debtor must be notarized. The creditor may
substitute an attorney-in-fact by recording an instrument in the court where judgment may be
confessed. If the instrument is a note or bond and it contains a notice of the right to substitute an
attorney-in-fact, no separate notice of substitution is required. In all other cases, including that
of a guarantee, notice to the debtor or guarantor is required within ten (10) days after the
recording of a substitution of attorney-in-fact. Va. Code Ann. § 8.01-435.
When judgment is confessed by an attorney-in-fact for the debtor, the clerk of court will
cause a copy of the judgment order to be sent to the debtor. Within twenty-one days of notice,
the debtor may move to set aside a confessed judgment under § 8.01-433 of the Virginia Code on
any ground that would constitute an adequate defense or setoff. Upon confession of judgment,
the clerk is required to record a lien that becomes effective immediately, except where credit was
extended for personal, family or household purposes, in which case no lien is effective until the
expiration of the twenty-day period provided under § 8.01-433 of the Virginia Code. Va. Code
Ann. § 8.01-434.
2. Interest on Judgments
Both pre-judgment and post-judgment interest may be awarded by a court upon entry of
any verdict, judgment or decree. Va. Code Ann. § 8.01-382. The judgment rate of interest is six
percent, unless the contract or instrument fixes a higher rate of interest, in which case the higher
rate is applied. Va. Code Ann. § 6.2-302. Negotiable instruments are excluded from Code
section 8.01-382, and interest on such instruments is instead governed by § 8.3A-112 of the
Virginia Code.
3. Survival of Judgments
A judgment entered by a Virginia court can be enforced for a period of twenty (20) years.
Va. Code Ann. § 8.01-251.
4. Execution and Enforcement of Judgments
The basic device for levying a debtor’s property to satisfy a judgment for money damages
is the writ of fieri facias issuing from the clerk of court. Va. Code Ann. § 8.01-466.
31
Alternatively, a writ of possession may issue upon judgments for specific personal property. Va.
Code Ann. § 8.01-470. A creditor may conduct debtor’s interrogatories under oath to ascertain
the nature and location of the debtor’s assets. Va. Code Ann. §§ 8.01-506 et seq.
The debtor’s property in the hands of a third party may be levied upon by issuing a
suggestion in garnishment in the manner provided by §§ 8.01-511 et seq. of the Virginia Code.
A charging order may be issued against the transferable interest of a debtor in a limited liability
company or partnership in the manner provided by §§ 13.1-1041.1 and 50-73.46:1 of the
Virginia Code, respectively. A charging order entitles the judgment creditor to any distributions
from such interests, and constitutes a lien against the debtor’s transferable interest.
Virginia homestead, poor debtor’s and wage exemptions are provided by Title 34 of the
Virginia Code. For judgments against a deceased debtor, additional exemptions are provided for
surviving family members pursuant to §§ 64.2-309 et seq. of the Virginia Code.
5. Assignment of Judgments
It is generally the rule that judgments are assignable under Virginia law. See Selden v.
Williams, 108 Va. 542, 549–550, 62 S.E. 380, 382 (1908). An assignee of a judgment in Virginia
is subject to all defenses available to the judgment debtor at the time of the assignment, without
regard to whether the assignee had notice of such defenses. Id. An assignee’s interest in a
judgment is subject to the maxim of nemo dat, i.e. an assignee “can take no rights which his
assignor did not possess, and generally make no defense he could not make.” Id. at 550, 62 S.E.
at 382. Assignment of judgments may be recorded in the manner provided by § 8.01-452 of the
Virginia Code.
6. Enforcement of Foreign Judgments
The Virginia General Assembly has adopted the Uniform Enforcement of Foreign
Judgments Act, Va. Code Ann. §§ 8.01-465.1 et seq. Upon compliance with the procedures
provided under this uniform act, a judgment docketed with the clerk of court “has the same effect
and is subject to the same procedures” as judgment issuing from a Virginia court. Va. Code
Ann. § 8.01-456.2. The Virginia General Assembly has also adopted the Uniform Foreign
Country Money-Judgments Recognition Act, Va. Code Ann. §§ 8.01-465.6 et seq., as well as the
Uniform Foreign-Money Claims Act, Va. Code Ann. §§ 465.14 et seq. for judgments rendered
outside the United States and judgments denominated in foreign currencies, respectively.
XII OTHER LAWS OF INTEREST
A. Virginia Environmental Laws and Regulations
Virginia has extensive laws and regulations governing environmental matters. Unlike
some states, Virginia does not confer upon itself a super-priority lien to enforce the state's right
to environmental cleanup costs.
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