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WAYNESBORO VILLAGE, L.L.C. v. BMC PROPERTIES, ET AL. (59950)


WAYNESBORO VILLAGE,
L.L.C. v. BMC PROPERTIES, ET AL.


January 9, 1998
Record No. 970343

WAYNESBORO VILLAGE, L.L.C.

v.

BMC PROPERTIES, ET AL.

OPINION BY JUSTICE LEROY R. HASSELL, SR.
FROM THE CIRCUIT COURT OF THE CITY OF WAYNESBORO

Rudolph Bumgardner, III, Judge
Present: All the Justices


The primary issue we consider in this appeal is whether a
restrictive covenant is enforceable.

The relevant facts are not in dispute. Shenandoah Village
Associates, L.P., predecessor in title to appellant, Waynesboro
Village, L.L.C., was the original developer of a retail shopping
mall in Waynesboro. By recorded deeds of trust, Shenandoah
Village conveyed certain real estate, in trust, to secure an
indebtedness to Dollar Dry Dock Bank.

Subsequently, BMC Properties executed an agreement with
Shenandoah Village to purchase a four-acre tract of land, which
was a part of the land encumbered by the deeds of trust. After
the deeds of trust were recorded, a certificate of partial
release for the four-acre tract was recorded among the land
records in Waynesboro. Shenandoah Village conveyed to BMC the
four-acre tract of land by a recorded deed dated 1989 which
contained the following restriction on the remaining property
owned by Shenandoah Village:

"The party of the first part [Shenandoah Village] covenants and agrees (i) not to sell any remaining portion of the
property which it acquired from Royal Oaks Investment Corporation
for use as a motel, hotel, inn or lodging business or similar
facility, (ii) not to allow any remaining portion of the property
which it acquired from Royal Oaks Investment Corporation to be
used, constructed or improved as a motel, hotel, inn or lodging
business or similar facility, and (iii) that no such lodging
facility or business shall be allowed to operate or exist within
the boundaries of its remaining property. This restriction shall
only apply for so long as the property herein conveyed to the
party of the second part is being used as a motel, hotel, inn or
lodging business or similar facility. Upon the discontinuance of
such use, this restriction shall expire."

Also included in the recorded deed to BMC was the following
restriction on the use of BMC’s property:

"The party of the second part [BMC] covenants and
agrees that (i) no factory outlet or discount retail stores
or gas station, (ii) no drive-in or fast food restaurant,
including but not limited to a McDonald’s, Burger King,
Wendy’s or Roy Rogers, (iii) no free-standing restaurant,
except for a free-standing non-drive-in restaurant which is
being operated while a motel, hotel, inn or lodge is located
and operating on the property herein conveyed, and (iv) no
other use not permitted by any master plan adopted (whether
now existing or hereafter adopted) and any amendments thereto
by the City of Waynesboro shall be constructed or operated
upon the property herein conveyed or any portion thereof.
This restriction shall only apply for so long as any portion
of the remaining property owned by the party of the first
part is being used as a factory outlet and/or discount retail
stores. Upon the discontinuance of such use this restriction
shall expire."

By a recorded deed of trust, BMC conveyed its four-acre tract
to Alexander F. Dillard, Jr., and Earl R. Johnson, trustees, to
secure payment of an indebtedness to the Bank of Essex.

After Shenandoah Village conveyed the four-acre tract to BMC,
the Federal Deposit Insurance Corporation (FDIC) exercised its
rights to take control of Dollar Dry Dock Bank as receiver.
Apparently, Dollar Dry Dock Bank acquired title to the property
that Shenandoah Village Associates had conveyed to the Bank in
trust and, by a recorded deed, that property was conveyed to the
FDIC. Subsequently, the FDIC, as receiver for the Bank, conveyed
135.801 acres of the property to Waynesboro Village, without
reference to the restrictive covenants in the 1989 recorded deed.

BMC is a Virginia partnership which owns, develops, and
operates lodging facilities and has plans to develop its
four-acre parcel as a motel with a restaurant as permitted by the
restrictive covenants. BMC spent $350,000 to purchase the land
and has spent at least $93,680 in fees to architects, attorneys,
engineers, and surveyors for the planning and future construction
of a motel. Additionally, BMC has incurred interest and debt
service expense to secure loans to finance the acquisition of the
property and construction of a motel on its property.

Waynesboro Village filed its bill of complaint against BMC,
the Bank of Essex, and Alexander F. Dillard, Jr., trustee, and
Earl R. Johnson, trustee, seeking a decree that the
aforementioned restrictive covenants do not prohibit Waynesboro
Village from using its property "for a motel, hotel, inn or
lodging business or similar facility." The defendants filed
numerous responsive pleadings and a cross-bill. Additionally, the
defendants filed a motion for summary judgment, asserting that
the restrictive covenants contained in the deed from Shenandoah
Village Associates, predecessors in title to Waynesboro Village,
L.L.C., and BMC Properties, are expressly intended to create a
servitude and burden upon their respective properties so long as
the proposed uses of the property are maintained and, thus, the
covenants run with the title of the respective land as a matter
of law and are enforceable. Because there were no material facts
in dispute, the trial court considered argument of counsel and
certain exhibits, and entered a final decree which granted the
defendants’ motion for summary judgment and decreed that the
covenants are enforceable. Waynesboro Village appeals.

Waynesboro Village argues that the trial court erred
"either in its determination that the [restrictive covenants
are] not ambiguous or in its determination that the correct
interpretation of the [r]estriction is that it currently
restricts [Waynesboro Village from] using its land for the
development of a hotel, motel, or other lodging facility."
Continuing, Waynesboro Village says that the restriction which
prohibits it from constructing a motel on its property is
ambiguous because it may "be construed to take life at such
time (if ever) as BMC actually develops its property for use as a
lodging facility. When or if that will occur is not clear from
the record. Hence, the [r]estriction, which does not now apply
and may never apply by its own terms, yields an anomalous
result." Waynesboro Village says that this purported
ambiguity renders the restriction unenforceable.[1]

We disagree with Waynesboro Village’s contentions. We follow
the "plain meaning" rule when construing written
instruments:

"[W]here an agreement is complete on its face, is
plain and unambiguous in its terms, the court is not at
liberty to search for its meaning beyond the instrument
itself. . . . This is so because the writing
is the repository of the final agreement of the
parties." Berry v. Klinger, 225 Va. 201,
208, 300 S.E.2d 792, 796 (1983) (quoting Globe Co. v. Bank
of Boston
, 205 Va. 841, 848, 140 S.E.2d 629, 633 (1965)).

Capital Commercial Prop. v. Vina Enterprises,
250 Va. 290, 294-95, 462 S.E.2d 74, 77 (1995); Management
Enterprises
v. The Thorncroft Co., 243 Va. 469, 472,
416 S.E.2d 229, 231 (1992). We have stated that the word
"ambiguity" is defined as "the condition of
admitting of two or more meanings, of being understood in more
than one way, or of referring to two or more things at the same
time." Berry, 225 Va. at 207, 300 S.E.2d at 796
(quoting Webster’s Third New International Dictionary 66
(3d ed. 1976)).

Additionally, and just as important, we stated in Friedberg
v. Riverpoint Bldg. Comm., 218 Va. 659, 665, 239 S.E.2d
106, 110 (1977):

"Valid covenants restricting the free use of land,
although widely used, are not favored and must be strictly
construed and the burden is on the party seeking to enforce them
to demonstrate that they are applicable to the acts of which he
complains. Riordan v. Hale, 215 Va. 638, 641, 212
S.E.2d 65, 67 (1975); Traylor v. Halloway, 206 Va.
257, 259, 142 S.E.2d 521, 522-23 (1965). Substantial doubt or
ambiguity is to be resolved against the restrictions and in favor
of the free use of property. Schwarzschild v. Welborne,
186 Va. 1052, 1058, 45 S.E.2d 152, 155 (1947).

But if it is apparent from a reading of the whole instrument
that the restrictions carry a certain meaning by definite and
necessary implication, then the thing denied may be said to be
clearly forbidden, as if the language used had been in positive
terms of express inhibition. Whitehurst v. Burgess,
130 Va. 572, 576-77, 107 S.E. 630, 631-32 (1921)."

We hold that the restrictive covenants here are unambiguous.
It is apparent from a review of the restrictive covenants that
they have definite and necessary meanings. The aforementioned
reciprocal restrictive covenants were created to establish a
general plan of development in which a lodging facility would be
developed on the four-acre parcel purchased by BMC and factory
outlets, discount retail stores, gas stations and fast food
facilities would be developed only on the remaining parcel. These
recorded restrictions are covenants, at common law, which run
with the land and are, therefore, enforceable. As we recently
stated:

"At common law, a landowner may enforce a covenant
running with the land provided he establishes: (1) privity
between original parties; (2) privity between original
parties and their successors; (3) an intent that the
restriction will run with the land; and (4) that the covenant
‘touches and concerns’ the land. Additionally, the conveyance
must be in writing." Sloan v. Johnson, 254
Va. 271, 276, 491 S.E.2d. 725, 728 (1997) (citations
omitted).

The record indicates that the defendants established each of
these requirements.

Waynesboro Village contends that the trial court, "acting
as a court of equity, erred in applying the [r]estriction to
restrict [Waynesboro Village] from using its land for the
development of a hotel, motel, or other lodging facility."
Essentially, Waynesboro Village argues that more than seven years
have elapsed since the restrictions were placed in the 1989 deed,
that BMC has taken no apparent action "to cause the
[r]estriction to ripen into an enforceable provision" and
that "the lapse of time, coupled with BMC’s inaction, has
resulted in a change in position by [Waynesboro Village], an
innocent party acting in good faith without notice of the
applicability of any current restriction."

We find no merit in Waynesboro Village’s contentions. When
Waynesboro Village purchased the property from the FDIC,
Waynesboro Village was charged with constructive knowledge of the
restrictive covenants contained in the 1989 deed because the deed
was in Waynesboro Village’s chain of title and "once a deed
is recorded, the admission to record is in law notice to the
entire world." Porter v. Wilson, 244 Va. 366,
369, 421 S.E.2d 440, 442 (1992); Jones v. Folks,
149 Va. 140, 144, 140 S.E. 126, 127 (1927).

We also disagree with Waynesboro Village’s contention that BMC
is estopped "to ask a court of equity to interpret the
[r]estriction so as to apply in the future to the detriment of
[Waynesboro Village]." The doctrine of equitable estoppel
simply has no application here.

"To establish equitable estoppel, it is not necessary to
show actual fraud, but only that the person to be estopped has
misled another to his prejudice, Security Co. v. Juliano,
Inc.
, 203 Va. 827, 834, 127 S.E.2d 348, 352 (1962), or that
the innocent party acted in reliance upon the conduct or
misstatement by the person to be estopped. Khoury v. Memorial
Hospital
, 203 Va. 236, 243, 123 S.E.2d 533, 538 (1962).
Elements necessary to establish equitable estoppel, absent a
showing of fraud and deception, are a representation, reliance, a
change of position, and detriment." T… v. T…,
216 Va. 867, 872-73, 224 S.E.2d 148, 152 (1976).

Waynesboro Village does not contend that the defendants
engaged in any fraudulent conduct or deception, and the record
does not show that the defendants made any representations to
Waynesboro Village.

Next, Waynesboro Village argues that the restrictive covenant
is unenforceable because of the D’Oench, Duhme doctrine.
We disagree.

The United States Supreme Court, in D’Oench, Duhme &
Co.
v. FDIC, 315 U.S. 447, 457 (1942), created a rule
designed to implement a "federal policy to protect [the
FDIC], and the public funds which it administers, against
misrepresentations as to the securities or other assets in the
portfolios of the banks which [the FDIC] insures or to which it
makes loans." There, a securities firm sold certain bonds to
a bank, and payment upon the bonds was later defaulted. The firm
executed a demand note, payable to the bank, to cover the loss of
the amount due on the bonds. The bank identified the note,
instead of the past due bonds, as an asset on the bank’s
financial books. The firm and the bank made a secret agreement
that the proceeds of the bonds would be credited to the note and
that the note would never be called for payment. Subsequently,
the bank failed, and the FDIC acquired the note as part of the
collateral securing a loan to the bank. The FDIC filed a suit to
collect on the note, and the firm claimed that the agreement with
the bank relieved it of liability.

The Supreme Court held that the defendant "was
responsible for the creation of the false status of the note in
the hands of the bank. It therefore cannot be heard to assert
that the federal policy to protect [the FDIC] against such
fraudulent practices should not bar its defense to the
note." Id. at 461. The Court also stated:

"Plainly one who gives such a note to a bank with a
secret agreement that it will not be enforced must be
presumed to know that it will conceal the truth from the
vigilant eyes of the bank examiners. . . . The
test is whether the note was designed to deceive the
creditors or the public authority, or would tend to have that
effect. It would be sufficient in this type of case that the
maker lent himself to a scheme or arrangement whereby the
banking authority on which [the FDIC] relied in insuring the
bank was or was likely to be misled." Id. at 460.

Subsequently, Congress enacted 12 U.S.C. ? 1823(e)(1) which, to
some extent, codified the D’Oench, Duhme doctrine.[2]

Assuming, but not deciding, that Waynesboro Village, as a
purchaser of real property from the FDIC, has standing to assert
a defense that the restriction violates the D’Oench, Duhme
doctrine and ? 1823(e),
we hold that neither the doctrine nor the federal statute is
implicated here. As the United States Court of Appeals for the
Fifth Circuit stated, "[t]he modern D’Oench rule
protects the FDIC, as receiver of a failed bank or as purchaser
of its assets, from a borrower who has "’lent himself to a
scheme or arrangement’ whereby banking authorities are likely to
be misled." Beighley v. Federal Deposit Ins. Corp.,
868 F.2d 776, 784 (5th Cir. 1989) (quoting D’Oench). In
particular, D’Oench bars the use of unrecorded agreements
between the borrower and the bank as the basis for defenses or
claims against the FDIC." Bowen v. Federal Deposit
Ins. Corp.
, 915 F.2d 1013, 1015-16 (1990).

The undisputed facts in the record reveal that the restrictive
covenants contained in the 1989 deed of trust, which were
recorded among the land records in Waynesboro County, simply did
not mislead the FDIC, the failed bank (Dollar Dry Dock Bank), or
Waynesboro Village.

Accordingly, we will affirm the judgment of the trial court.

Affirmed.

 

 

 

FOOTNOTES:

[1] Waynesboro Village withdrew its
assignment of error that the trial court erred "in its
determination that the [restriction] is not invalid because
[Shenandoah Village Associates] did not possess the necessary
capacity to convey an interest in what would become the
[Waynesboro Village property]."

[2]
The Federal Deposit Insurance Act of 1950, 12 U.S.C. ? 1823(e)(1) provides:

"No agreement which tends to diminish or defeat the
interest of the Corporation [FDIC] in any asset acquired by
it under this section or section 1821 of this title, either
as security for a loan or by purchase or as receiver of any
insured depository institution, shall be valid against the
Corporation unless such agreement –

(A) is in writing,

(B) was executed by the depository institution and any
person claiming an adverse interest thereunder, including
the obligor, contemporaneously with the acquisition of
the asset by the depository institution,

(C) was approved by the board of directors of the
depository institution or its loan committee, which
approval shall be reflected in the minutes of said board
or committee, and

(D) has been, continuously, from the time of its
execution, an official record of the depository
institution."

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