Preview:

Present: All the Justices INTERNATIONAL FIDELITY INSURANCE COMPANY v. OPINION BY JUSTICE LAWRENCE L. KOONTZ, JR. November 3, 1995 ASHLAND LUMBER COMPANY, INC. FROM THE CIRCUIT COURT OF HANOVER COUNTY Richard H.C. Taylor, Judge In this appeal, we consider whether a judgment creditor may obtain a lien by writ of fieri facias on, and thus reach by garnishment, funds retained by a principal relating to a contract upon which the judgment debtor has defaulted, where the judgment debtor's surety has assumed the duties and responsibilities of its indemnitee. On October 16 and 22, 1992, appellant International Fidelity Insurance Company (IFIC) issued payment bonds on behalf of Nu-Way Builders of Virginia, Inc. (Nu-Way) to secure the cost of labor and materials on two contracts Nu-Way had been awarded from the Virginia Department of Transportation (VDOT). The bonds were Record No. 942210

issued pursuant to an agreement of indemnity between Nu-Way and IFIC. The agreement included a provision that if Nu-Way breached

an indemnified contract, Nu-Way would assign to IFIC, inter alia, "[a]ny and all percentages retained and any and all sums that may be due or [t]hereafter become due on account of any and all contracts referred to in the Bonds" issued pursuant to the agreement. Without indicating specific dates, the record establishes that Nu-Way began work under the two contracts, purchasing materials and letting sub-contracts for some portion of the work.

Prior to August, 1993, VDOT terminated both contracts because Nu-Way failed to pay certain subcontractors and suppliers. that time, VDOT retained $34,123.47 of the contract funds. Thereafter, IFIC made payments to Nu-Way's suppliers and subcontractors in at least partial satisfaction of its bonds. Appellee Ashland Lumber Company, Inc. (Ashland) was a material supplier on open account to Nu-Way. On August 27, 1993, At

Ashland filed a motion for judgment against Nu-Way and its president, C. Earl Vipperman, Jr., alleging Nu-Way's failure to pay on demand its account for materials received in the amount of $15,071.36. Ashland obtained a judgment for the full amount of

the account plus interest, costs, and attorney's fees on February 4, 1994. On August 26, 1994, Ashland filed with the clerk of the trial court a suggestion for summons in garnishment to satisfy the February 1994 judgment. The civil process related to the

suggestion for summons in garnishment, including a writ of fieri facias, was delivered to the sheriff on August 29, 1994. On

August 31, 1994, the sheriff served VDOT with the writ of fieri facias and an appurtenant garnishment summons in the amount of $21,969.50. Upon being served with the writ and summons, VDOT lodged with the trial court funds sufficient to satisfy the garnishment, noting in an accompanying letter that "[w]hile VDOT has tendered [the funds] to the Court pursuant to the garnishment summons, VDOT is not certain that the garnishment summons properly attached to the funds." VDOT also provided IFIC with a copy of

the writ and summons. On September 16, 1994, IFIC, pursuant to Rule 2:15, filed a petition to intervene in the garnishment proceeding. Following

an ore tenus hearing on September 20, 1994, the chancellor directed that the parties file memoranda in support of their respective positions. In its memorandum, IFIC asserted that its

equitable right of subrogation as a surety related back to the dates of the original surety bonds and, thus, took precedence over a subsequent creditor. In the alternative, IFIC asserted

that its contractual right of assignment became effective prior to Ashland's judgment and thus precluded garnishment of the funds assigned to IFIC. Ashland asserted that IFIC failed to perfect

its right to the funds by recording the indemnity agreement or otherwise obtaining a secured interest in the funds, thus subordinating its claim to Ashland's judgment. Upon consideration of the memoranda and oral argument, the chancellor issued a letter opinion in which he stated: [a]pplying the particular facts in this case to the garnishment statute, it is the opinion of this Court that [Nu-Way] "is or may be entitled" to the funds [held by VDOT] and under none of the theories of [IFIC] does it have priority over [Ashland]. In his final order, the chancellor, while permitting the intervention of IFIC, ordered that the funds lodged with the court be paid over to Ashland in satisfaction of its judgment against Nu-Way. We awarded IFIC's appeal assigning error to the

chancellor's determination that IFIC's subrogation and assignment rights did not preclude the garnishment. We need only address IFIC's rights of equitable subrogation,

which we find dispositive of this appeal.

A garnishment of funds

or other intangible property cannot proceed without a valid lien on that property by writ of fieri facias. See Code

Download 1942210.pdf

Virginia Law