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N.C. Ct. of App.: Patel v. Patel-Assignment of Judgment to One Debt Is Unenforceable

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By Ed Boltz, 21 September, 2024

Summary:

In Patel v. Patel (2024), the North Carolina Court of Appeals reversed a lower court’s decision that granted judgment on the pleadings to Dhirajlal Patel, the plaintiff, in his attempt to renew a 2012 judgment against co-debtors Kiran Patel, Sandip Patel, and Shiv Investments, Inc. The original 2012 judgment stemmed from a commercial loan default. After the judgment, Dhirajlal purchased the judgment from the creditor (Bank of the Carolinas) for less than the full amount owed, despite being one of the co-debtors. He then sought to enforce the judgment against the other co-debtors.

The defendants argued that Dhirajlal, as a co-debtor, was barred from enforcing the judgment, and the appellate court agreed, holding that when a debtor acquires a judgment against himself and co-debtors, the debt is considered satisfied, and the judgment is extinguished. Therefore, Dhirajlal could not renew or enforce the judgment and was only entitled to seek contribution from his co-debtors for the amount he paid. The Court of Appeals,  relying on a trio of rather hoary  old cases, Hoft v. Mohn, 215 N.C. 397, 2 S.E.2d 23 (1939),  Sherwood v. Collier, 14 N.C. 380, 382 (1832), and Scales v. Scales, 218 N.C. 553, 554–55 11 S.E.2d 569, 570 (1940),  found that the following principles emerge: 

(1) A judgment on a debt extinguishes, unless it is preserved by statutory process, when the amount owed under the judgment is satisfied. 

(2) If a debt is transferred to its debtor, the amount owed as a liability merges into the debtor’s assets, the debt no longer exists, and there is no longer any amount owed on any judgment for that debt; the judgment ceases to exist. 

(3) If a co-debtor pays any amount to his judgment creditor and causes the judgment to extinguish, it may only function as a payment in full satisfaction of the debt, and he is entitled not to subrogation of the entire amount of the debt or the entire amount paid, but to a ratable contribution from his co-debtors.

Accordingly, it reversed the trial court’s order in favor of Dhirajlal, ruling that the judgment no longer existed, and he should have sought contributions rather than enforcing the expired judgment.

Commentary:

As the Court of Appeals discusses,  in 2023 North Carolina codified   at N.C.G.S. § 1B-7 a simplified means obtaining contribution payments from non-paying co-debtors, requiring only that a notation be made on the judgment docket to preserve the judgment as a lien against non-paying co-debtors. 

Alternatively,  Dhirajlal Patel  could have brought a timely suit against Kiran Patel for a prorated contribution for the amount paid  or arguably could have had a third party,  who was not a debtor,  purchase the judgment.

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To read a copy of the transcript, please see:

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