Present:    All the Justices

APARTMENT INVESTMENT AND
MANAGEMENT COMPANY

v.   Record No. 982474

NATIONAL LOAN INVESTORS, L.P.

                        OPINION BY JUSTICE BARBARA MILANO KEENAN
                                        September 17, 1999
WINTHROP MANAGEMENT, ET AL.

v.   Record No. 982475

NATIONAL LOAN INVESTORS, L.P.

            FROM THE CIRCUIT COURT FOR THE CITY OF RICHMOND
                      Melvin R. Hughes, Jr., Judge


      In this appeal, we consider whether the trial court erred

in awarding judgment based on a promissory note, which was

assigned without the consent of the maker in violation of a

requirement stated in the note.

      This appeal arises from financial transactions involving

various related business entities in the commercial real estate

industry.    The parent organization is Winthrop Financial

Associates, L.P. (Winthrop Financial), which is the sole

shareholder of First Winthrop Corporation (First Winthrop).

First Winthrop, in turn, holds interests in various partnerships

and corporations involved in the acquisition and management of

commercial property.     First Winthrop primarily manages its

commercial properties through Winthrop Management, a
Massachusetts general partnership in which First Winthrop owns a

99% interest.

     The property acquisition affiliate of First Winthrop

involved in this appeal is Eight Winthrop Properties, Inc.

(Eight Winthrop), which is the general partner of Winthrop

Southeast, L.P. (Winthrop Southeast).   Eight Winthrop and

Winthrop Southeast were formed in 1991 for the purpose of

acquiring eight apartment complexes located in Virginia, North

Carolina, and South Carolina (the Apartments).   Winthrop

Southeast is the general partner of the two limited partnerships

which own the Apartments, Southeastern Income Properties I and

Southeastern Income Properties II (SIP-I and SIP-II).   The

limited partners of SIP-I and SIP-II are about 4,000 individual

investors.

     As part of the acquisition of the Apartments in August

1991, Winthrop Southeast borrowed about $1,161,000 from

Investors Savings Bank, F.S.B (Investors Bank), a federally

chartered savings bank in Richmond.   In the promissory note

executed by Winthrop Southeast to Investors Bank (the Note),

Winthrop Southeast agreed to repay the loan in installments

beginning in February 1993.

     The Note, which defined the term "Noteholder" to include

the successors and assigns of Investors Bank, provided that

"this Note may not be transferred or assigned by Noteholder


                                2
without the prior written consent of [Winthrop Southeast]."    The

Note also contained a non-recourse provision that essentially

provided as the sole remedy on default two security agreements,

one of which is relevant to this appeal (the Security

Agreement).

     In the Security Agreement, Winthrop Management pledged to

Investors Bank, as collateral for Winthrop Southeast's loan, a

security interest in the income, fees, and profits that Winthrop

Management received under contracts for managing the Apartments.

The Security Agreement contained a non-recourse provision in

favor of Winthrop Management and Winthrop Southeast that was

virtually identical to the non-recourse provision in the Note.

     No payments were ever made on the Note or pursuant to the

Security Agreement.   In December 1991, the Resolution Trust

Corporation (RTC) was appointed receiver for Investors Bank.     An

agent acting on behalf of RTC notified Winthrop Southeast in

writing that the loan was in default in July 1994.   In August

1995, RTC assigned its interest in the Note and Security

Agreement to RTC Commercial Loan Trust 1995-NP1A (the Loan

Trust), a Delaware business trust.   The parties to this appeal

agree that the Loan Trust is not part of the RTC.

     In February 1996, the Loan Trust filed an action against

Winthrop Management in the United States District Court for the

Eastern District of Virginia.   The Loan Trust asked that a


                                 3
receiver be appointed to assume control of Winthrop Management's

administration of the Apartments and to collect and pay over to

the Loan Trust "all income" derived from that source.    While the

action was pending, Winthrop Southeast, acting as the general

partner of SIP-I and SIP-II, terminated the management

agreements for the Apartments with Winthrop Management.    Three

days later, Winthrop Southeast executed new management

agreements with Insignia Management Corporation (Insignia). 1

Soon thereafter, Insignia transferred the management of six

other, unrelated apartment complexes to Winthrop Management.

     The action in the federal district court was later

dismissed for lack of jurisdiction.   RTC Commercial Loan Trust

1995-NP1A v. Winthrop Management, 923 F.Supp. 83 (E.D.Va. 1996).

The Loan Trust then brought this action in the trial court,

naming as defendants Winthrop Management, First Winthrop

Corporation, Winthrop Southeast, SIP-I, SIP-II, Eight Winthrop,

and Insignia. 2

     Prior to trial, RMA Partners, L.P., on behalf of the Loan

Trust and without the prior written consent of Winthrop

Southeast, assigned its interest in the Note and the Security


     1
       While this appeal was pending, Apartment Investment and
Management Company became the successor in interest to Insignia
and was substituted as a party in this appeal. We will continue
to refer to this party as Insignia in this opinion.
     2
       The trial court dismissed or nonsuited all claims against
SIP-I and SIP-II.

                                4
Agreement to National Loan Investors, L.P. (NLI).    The Loan

Trust also assigned to NLI its interest in "those causes of

action for damages to property" arising under the Note and the

Security Agreement.   NLI later was substituted as plaintiff in

place of the Loan Trust.

     The trial court heard evidence in a bench trial on ten

counts of an amended bill of complaint, five of which are the

subject of this appeal. 3   Those five counts included various

allegations by NLI against Winthrop Management, First Winthrop,

Winthrop Southeast, and Insignia.     NLI alleged that Winthrop

Management transferred the income, fees, and profits from its

management of the Apartments to First Winthrop with the intent

to hinder and delay creditors in their efforts to obtain payment

under the Security Agreement for the Note.    NLI sought an order

setting aside those transfers, as well as a judgment in the

amount of the funds conveyed.

     NLI also alleged that Winthrop Management and Insignia

entered into an "exchange of management rights" with intent to

hinder, delay, or defraud the holder of the Security Agreement.

NLI sought the imposition of a constructive trust "over all

     3
      In its final order, the trial court initially awarded
judgment in favor of NLI on an additional count, Count IX, but
later in the order stated: "On Count IX, the Court does not
enter judgment for plaintiff because, in light of the relief
granted under Counts VII and VIII, the relief sought under Count



                                  5
income, fees, and profits" from the Apartments then being

managed by Insignia, as well as a personal judgment against

Insignia.

     Finally, NLI sought a judgment against Winthrop Southeast

for the full amount due under the Note.   NLI alleged that

Winthrop Southeast remained liable on the Note based on an

exception in the Note's non-recourse provision, which provided

that Winthrop Southeast would be liable for losses resulting

from any fraudulent acts or material misrepresentations made by

Winthrop Southeast or its partners.

     At trial, NLI asserted that an "Event of Default" occurred

under the Note in July 1994, 15 days after the RTC gave Winthrop

Southeast written notice that the loan was in default.   After

hearing evidence on the amended bill of complaint, the trial

court awarded judgment in favor of NLI on the counts included in

this appeal.   The court found that the total amount due on the

Note was $2,085,045.82, including attorneys' fees and costs, and

entered judgment in that amount, plus interest, against Winthrop

Southeast.   The court also entered judgment in lesser amounts

against Winthrop Management, First Winthrop, and Insignia on the

four other counts involved in this appeal.   The court's order

provided that sums recovered under those other counts "be



IX is unnecessary." Since final judgment was not entered on
Count IX, we will not address it in this appeal.

                                 6
considered as a payment towards the satisfaction of the judgment

[on the Note]."

     On appeal, Winthrop Management, First Winthrop, Winthrop

Southeast, Eight Winthrop, and Insignia (collectively, the

defendants) first argue that the trial court erred in awarding

judgment in favor of NLI, because the entire judgment was

predicated on NLI's purported status as holder of the Note.     The

defendants assert that since the evidence was uncontested that

Winthrop Southeast did not give prior written consent to the

assignment from the Loan Trust to NLI as required by the terms

of the Note, NLI failed to establish that it was a valid holder

by assignment.    Thus, the defendants contend that they should

have been awarded judgment on all counts of the amended bill of

complaint.

     In response, NLI agrees that the counts involved in this

appeal are based exclusively on the Note and the collateral

securing the Note.   However, NLI contends that, although the

Note provided that assignments be made with Winthrop Southeast's

prior written consent, the Note did not explicitly prohibit or

invalidate assignments made without such consent.   At most, NLI

argues, the assignment from the Loan Trust to NLI without

Winthrop Southeast's consent constituted a breach of the Note.

NLI also asserts that since Winthrop Southeast first breached

the terms of the Note by its default, Winthrop Southeast cannot


                                  7
rely on the consent requirement in defense of its nonpayment.

We disagree with NLI.

     In Paragraph 17 of the Note, the term "Noteholder" is

defined to include Investors Bank, as well as the "successors

and assigns" of Investors Bank.   However, Paragraph 17 also

provides that "this Note may not be transferred or assigned by

Noteholder without the prior written consent of the Maker

[Winthrop Southeast]."

     The evidence was uncontested that Winthrop Southeast did

not give prior written consent to the assignment of the Note

from the Loan Trust to NLI.   William Carter Smith, vice

president of NLI, conceded this fact when he testified that

neither NLI nor the Loan Trust sought such prior written consent

before NLI acquired the Note.

     NLI's failure to obtain written consent to an assignment of

this non-recourse obligation was not merely a breach of the

Note's terms.   Prior written consent was a condition precedent

to assignment of the Note and, since such consent was not

obtained, the Loan Trust's purported assignment to NLI was

invalid.   Thus, NLI was not entitled to maintain the present

causes of action, which are all predicated on NLI's incorrect

assertion that it was a valid "Noteholder."

     We find no merit in NLI's contention that our decision in

Hurley v. Bennett, 163 Va. 241, 176 S.E. 171 (1934), requires a


                                  8
different result.   Quoting Hurley, NLI contends that "[t]he

party who commits the first breach of a contract, is not

entitled to enforce it . . . against the other party for his

subsequent failure to perform."   163 Va. at 253, 176 S.E. at

175; see also Federal Ins. Co. v. Starr Elec. Co., 242 Va. 459,

468, 410 S.E.2d 684, 688-89 (1991).   NLI argues that under this

principle, the defendants cannot attack NLI's status as a

purported "Noteholder" because Winthrop Southeast committed the

first breach of contract in failing to make payment on the note

in 1993.   We disagree.

     NLI's argument effectively asks us to allow a stranger to

the Note, NLI, to enforce the Note against a party to the Note,

Winthrop Southeast, because that party is in default.   As we

explained above, Winthrop Southeast's failure to consent to the

assignment of the Note to NLI precluded the establishment of a

contractual relationship between NLI and the Note's maker,

Winthrop Southeast.   Thus, NLI's failure to obtain this consent

was not a subsequent failure of performance of a contract under

the rule stated in Hurley, but was an unsatisfied precondition

to the formation of a valid contract between the parties.

Accordingly, Winthrop Southeast's initial breach of the Note did

not preclude it from asserting that NLI failed to establish




                                  9
itself as a "Noteholder" entitled to assert the present causes

of action. 4

     NLI argues, nevertheless, that the Note's restriction on

assignment is preempted by 12 U.S.C. § 1821(d)(2)(G)(i)(II),

which provides in relevant part that the RTC may "transfer any

asset or liability of the institution in default . . . without

any approval, assignment, or consent with respect to such

transfer."     NLI contends that it was entitled to the benefit of

this provision, because the Loan Trust was a holder in due

course, and that NLI, as the transferee of a holder in due

course, obtained the same statutory right to receive an

assignment of the Note without the prior written consent of

Winthrop Southeast.    We disagree.

     While the RTC's assignment of the Note to the Loan Trust

without the consent of Winthrop Southeast was permitted under

the above statute, that assignment did not confer on the Loan

Trust the status of a holder in due course of a negotiable

instrument.    The Loan Trust was not a holder in due course

because, among other things, the Note was not a negotiable

instrument.    As a non-recourse obligation, the Note lacked

negotiability because it did not constitute an unconditional


     4
      We also find no merit in NLI's unsupported contention that
Winthrop Southeast's failure to object to prior assignments of
the Note in which its written consent was not obtained bars the
defendants from asserting that defense here.

                                  10
promise to pay a fixed amount of money.    See Code § 8.3A-104;

United Nat'l Bank of Miami v. Airport Plaza Ltd. Partnership,

537 So.2d 608, 610 (Fla.App. 1988).   A promissory note is

rendered conditional when it provides that the borrower will not

be liable personally for payment in the event of default and

limits recourse for payment to certain tangible property or

other collateral.   See id.   Thus, since the Note was not a

negotiable instrument, neither NLI nor the Loan Trust could

assert any right that a holder in due course may have had to

rely on in the statutory provision at issue.    See Code § 8.3A-

302; Levin v. Virginia Nat'l Bank, 220 Va. 1087, 1091, 265

S.E.2d 758, 760 (1980); Brantley v. Karas, 220 Va. 489, 493, 260

S.E.2d 189, 192 (1979). 5

     For these reasons, we will reverse the trial court's

judgment and enter final judgment for the defendants.

                                       Reversed and final judgment.




     5
      Since NLI's failure to establish that it was a "Noteholder"
is dispositive of this appeal, we need not address the
defendants' remaining assignments of error.

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