BECK v. SMITH



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BECK

v.

SMITH


November 3, 2000

Record No. 992904

Present: All the Justices

STEVEN Q. BECK AND BEVERLY S. BECK

v.

WALTER E. SMITH


OPINION BY JUSTICE ELIZABETH B. LACY

FROM THE CIRCUIT COURT OF CULPEPER COUNTY

Arthur W. Sinclair, Judge Designate

In this appeal, we consider a judgment of the
trial court vacating a jury verdict and entering judgment against
the buyers of property on the ground that they could not prevail
as a matter of law on (1) a breach of contract claim because the
terms of the contract for sale of property were merged into the
deed, or on (2) a claim of fraud because the buyers had
authorized a title search.

The facts are not in dispute. In August 1995,
Steven Q. Beck and his wife Beverly S. Beck (collectively
"the Becks") executed a contract with Walter E. Smith
for the purchase of unimproved real estate owned by Smith. The
contract included provisions requiring Smith to obtain a building
permit for the construction of a three-bedroom house on the
property and to provide a general warranty deed subject to
utility easements that "do not materially and adversely
effect [sic] the Purchaser’s intended use of the Property
. . . ."

On February 6, 1996, Smith granted a utility
easement to Rappahannock Electric Cooperative (Rappahannock)
across a portion of the land upon which the Becks’ house was to
be built. The easement was recorded on February 7.
[1] Settlement occurred two days
later, February 9, 1996.

Prior to settlement, the Becks engaged the
settlement attorney to conduct a title search on their behalf.
Neither the settlement attorney nor Smith told the Becks about
Rappahannock’s recorded easement prior to, or at, the settlement.
The deed of conveyance did not specifically identify
Rappahannock’s easement, reciting only that the conveyance was
made subject to any easements "contained in duly recorded
deeds, plats and other instruments . . . ."
Rappahannock subsequently began to construct an electric
transmission line utilizing the easement.

The Becks filed a motion for judgment against
Smith for breach of contract and fraud. The Becks alleged that
Rappahannock’s easement materially and adversely affected their
intended use of the property contrary to the terms of the sales
agreement and that, by failing to tell the Becks of the easement,
Smith knowingly misrepresented material facts upon which the
Becks relied at settlement.

Following presentation of evidence, the jury
returned a verdict in favor of the Becks on both counts. The
Becks were awarded $30,400 compensatory damages and $3,000
consequential damages on the breach of contract count. The jury
also awarded the Becks $10,000 in compensatory damages along with
$17,000 in punitive damages on the fraud count. Smith moved to
set aside the verdict arguing that the Becks were not entitled to
recover on their breach of contract count because, as a matter of
law, the provisions of the contract of sale regarding the impact
of the utility easement were merged into the deed. Smith also
argued that the Becks could not recover as a matter of law on the
fraud count because they had conducted a title examination and,
therefore, could not rely on any representations by Smith.

After further argument and briefing, the trial
court entered an order granting Smith’s motion, vacating the jury
verdict, and entering judgment in favor of Smith. We awarded the
Becks an appeal.

I. Breach of Contract

The contract for sale provided that any utility
easement would "not materially and adversely effect [sic] the . . . intended use of the Property" by the
Becks. The contract for sale also provided that the
representations and warranties of the seller contained in the
contract "SHALL BE DEEMED MERGED INTO THE DEED DELIVERED AT
SETTLEMENT AND SHALL NOT SURVIVE SETTLEMENT." Neither this
language nor similar language regarding the impact of utility
easements was repeated in the deed. Based on the merger language
in the contract of sale and on the doctrine of merger, the trial
court concluded that the contract of sale’s requirement regarding
the impact of utility easements was not collateral to the sale,
was merged into the final deed of conveyance, and, therefore, was
no longer an enforceable provision.

Under the doctrine of merger, provisions in a
contract for sale are extinguished and merged into the deed, an
instrument of higher dignity. However, provisions which are
collateral to the passage of title and not covered by the deed
are not merged into the deed and survive its execution. Empire
Mgmt. & Dev. Co. v. Greenville Assocs.
, 255 Va. 49, 54,
496 S.E.2d 440, 443 (1998); Davis v. Tazewell Place Assocs.,
254 Va. 257, 262-63, 492 S.E.2d 162, 165 (1997); Miller v.
Reynolds
, 216 Va. 852, 854-55, 223 S.E.2d 883, 885 (1976); Woodson
v. Smith
, 128 Va. 652, 656, 104 S.E. 794, 795 (1920).

In discussing the doctrine of merger, we have
explained that a deed "is a mere transfer of title." Miller,
216 Va. at 855, 223 S.E.2d at 885. The deed is the final
expression of the agreements between the parties as to
"every subject which it undertakes to deal with," and
any conflicts between the terms of prior agreements and the terms
of the deed are resolved by the deed. Woodson, 128 Va. at
656, 104 S.E. at 795.

Nevertheless, we have recognized that not all
agreements between the parties regarding the purchase and sale of
the property are contained in the deed. Id. Such
agreements are considered collateral to the sale if they are
distinct agreements made in connection with the sale of the
property, if they do not affect the title to the property, if
they are not addressed in the deed, and if they do not conflict
with the deed. See, e.g., Empire Mgmt., 255
Va. at 54, 496 S.E.2d at 443 (agreement for payment of rental
income after transfer of property deemed collateral); Davis,
254 Va. at 263-64, 492 S.E.2d at 165-66 (warranty that house to
be constructed on property would be constructed in workmanlike
manner held collateral); Miller, 216 Va. at 854-56, 223
S.E.2d at 884-86 (agreement that land was suitable for
percolation and would qualify for building permit found
collateral).

If an agreement meets these criteria, it is a
collateral agreement, is not merged into the deed, and survives
the execution of the deed. In this case, the provision in the
sales contract regarding the impact of easements is a distinct
agreement, does not affect the validity or nature of the title
conveyed, is not addressed in the deed, and does not conflict
with the terms of the deed. Under these circumstances, the
agreement in the contract for sale regarding the impact of
utility easements on the Becks’ intended use of the property was
collateral to the transfer of title, was not merged into the
deed, and survived the execution of the deed.

Accordingly, we will reverse the judgment of
the trial court entered in favor of Smith on the breach of
contract count.

II. Fraud

The Becks assert that Smith’s failure to notify
them of the Rappahannock utility easement constituted the
deliberate, intentional, and knowing misrepresentation of Smith’s
actual knowledge that the easement would interfere with the
location of the Becks’ residence and that they were damaged by
their reliance on this misrepresentation. The trial court held
that because the Becks undertook to investigate the status of the
title prior to settlement through their attorney, the Becks were
not entitled to rely on any misrepresentation on the part of
Smith with regard to the easements.

An action for fraud requires a showing that
there was a false representation of a material fact, made
intentionally and knowingly with the intent to mislead, and
relied upon by the party misled to his detriment. Winn v.
Aleda Constr. Co.
, 227 Va. 304, 308, 315 S.E.2d 193, 195
(1984). Concealment of a material fact may constitute the element
of misrepresentation. Van Deusen v. Snead, 247 Va. 324,
328, 441 S.E.2d 207, 209 (1994).

Reliance may not be justified, however, when a
potential buyer undertakes an investigation regarding the matter
at issue. Upon undertaking such an investigation, the buyer is
charged with the knowledge the investigation reveals, or, if the
investigation was incomplete, the knowledge that would have been
revealed had the investigation been pursued diligently to the
end. Watson v. Avon St. Bus. Ctr., Inc., 226 Va. 614, 619,
311 S.E.2d 795, 798 (1984); Poe v. Voss, 196 Va. 821, 827,
86 S.E.2d 47, 50 (1955); Masche v. Nichols, 188 Va. 857,
867-68, 51 S.E.2d 144, 148 (1949).

The Becks’ primary argument is that there was
"nothing in the public land records which would place the
title examiner on notice that the newly recorded rights of way
resulted" in an adverse impact on the intended use of the
property. In short, the Becks assert that because the alleged
misrepresentation of material facts was not an issue of title, it
was outside the scope of the title examination and would never
have been revealed by a title examination. The Becks correctly
characterize the scope of a title examination; however, in
conducting the title examination, the Becks’ settlement attorney
would or should have discovered the existence and location of the
Rappahannock easement. The settlement attorney’s knowledge is
imputed to the Becks.
[2] Yamada v. McLeod, 243 Va. 426, 433, 416 S.E.2d
222, 226 (1992). With such imputed knowledge, the Becks were in a
position to determine whether the easement interfered with their
use of the property because they, like Smith, knew the intended
location of their home. Thus, the trial court correctly held that
the Becks were not entitled to rely on Smith’s misrepresentation.

For the stated reasons, we will affirm the
judgment of the trial court in favor of Smith on the fraud count
and reverse the judgment of the trial court in favor of Smith on
the breach of contract count, reinstate the jury verdict awarding
the Becks $30,400 in compensatory damages and $3,000 in
consequential damages, and enter final judgment.

Affirmed in part,

reversed in part,

and final judgment.

FOOTNOTES:

[1] On February 8, 1996, Smith gave
Bell Atlantic an easement across the property for the
installation and maintenance of telephone lines. However, this
easement was inside an existing easement, was recorded after
settlement, and is not involved in this appeal.

[2] Because we deal here with
imputed notice derived from an independent investigation, the
decisions in Adams v. Seymour, 191 Va. 372, 380, 61 S.E.2d
23, 27 (1950), and Bossieux v. Shapiro, 154 Va. 255, 261,
153 S.E. 667, 668 (1930), holding that constructive notice of
duly recorded instruments will not defeat a fraud claim are
inapplicable.

 

 

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