92 Va. Cir. 402
Norfolk Cir. Ct.2016Background
- Defendants (Earl C. and Sandra D. Woodhouse) took 13 loans from Bank of the Commonwealth (2008–2010); 12 loans were secured by deeds of trust naming two individual trustees. After the bank failed, Southern Bank acquired the assets and executed deeds of appointment naming Stewart Trustee Services, LLC as substitute trustee.
- Stewart mailed foreclosure notices under Va. Code § 55-59.1(A) before its deeds of appointment were recorded; foreclosure sales were held and properties were sold. Earl Woodhouse attended some sales.
- Southern Bank sued to recover remaining indebtedness after the sales. The Woodhouses counterclaimed alleging (inter alia) invalid foreclosures, actual and constructive fraud (payoff statements), and breach of an implied covenant of good faith and fair dealing.
- Southern Bank demurred to the counterclaim. The court reviews the demurrer (accepting well-pleaded facts but not legal conclusions) and considers statutory provisions governing trustees and notice.
- Court sustained demurrers (without leave to amend) on: Count 1 (challenge to appointment of an LLC as substitute trustee), Count 2 (notice adequacy based on timing of appointment/recordation), and Count 7 (breach of implied covenant). Court overruled demurrers on Counts 4 and 5 (actual and constructive fraud based on allegedly inaccurate payoff statements).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether deeds of trust limited substitute trustees to individual residents (i.e., an LLC cannot serve) | Lender may appoint successor trustee; deeds do not bar corporate trustees and statutes allow entities to serve | Deeds use “he or she” and require where "he or she resides," so only individuals with residences qualify | Deeds’ phrasing not unambiguous; statutes contemplate entities; LLC appointment valid — Demurrer sustained as to Count 1 (no relief) |
| Whether appointment was ineffective until recorded, making notice mailed beforehand invalid | Appointment effective upon execution; recordation not a condition precedent; thus Stewart properly mailed notice | Stewart’s appointment wasn’t effective until recorded, so notices sent earlier were ultra vires | Appointment effective on execution; notices adequate — Demurrer sustained as to Count 2 (no relief) |
| Whether fraud claims (inaccurate payoff statements) are barred by source-of-duty rule or insufficiently pleaded | Plaintiff: duty is contractual and fraud claims attempt to convert contract breach into tort; fraud must be pleaded with particularity | Defendants: duty to provide accurate payoff statements is statutory (Code §§ 6.2-418) and therefore not purely contractual; payoff misstatements were knowingly/negligently made and caused reliance and harm | Statutory duty exists independent of contract; fraud (actual and constructive) pleaded with sufficient particularity — Demurrer overruled as to Counts 4 and 5 |
| Whether Virginia recognizes an independent common-law claim for breach of implied covenant of good faith and fair dealing outside the UCC | Bank: no independent common-law cause of action outside UCC; express contract terms govern; alleged acts fall within contract or statutory remedies | Defendants: breach arises from multiple wrongful acts in the counterclaim | Virginia does not recognize an independent common-law claim outside the UCC; alternatively, alleged bases fail under Ward’s Equipment — Demurrer sustained as to Count 7 (no relief) |
Key Cases Cited
- Harris v. Kreutzer, 271 Va. 188 (demurrer tests legal sufficiency of complaint)
- Cox Cable Hampton Rds., Inc. v. City of Norfolk, 242 Va. 394 (court must accept well‑pleaded facts on demurrer)
- Dunn, McCormack & MacPherson v. Connolly, 281 Va. 553 (court determines whether pleading states cause of action)
- Ward’s Equip., Inc. v. New Holland N. Am., Inc., 254 Va. 379 (implied covenant of good faith not an independent tort where UCC does not apply)
- Filak v. George, 267 Va. 612 (tort recovery requires breach of common‑law or statutory duty independent of contract)
- Prospect Dev. Co. v. Bershader, 258 Va. 75 (elements required for actual fraud)