Reverter clause in 1875 charitable gift upheld

Where land was conveyed to a church under an 1875 deed that provided the land would revert to the grantors or their heirs if it was not used for church purposes, this was not an unreasonable restraint on alienation.

As a result, when there was a default on a loan secured by the land, the trial court correctly dismissed an action to void the reverter clause filed by a developer who bought the land at a foreclosure sale

Overview

In 1875, the Lynns granted an acre of land to the Woodbine Baptist Church, an unincorporated association. The deed provided that the land would revert to the Lynns or their heirs if the property ceased to be used for church purposes. Woodbine used the land until 2006, when it conveyed the land to the Woodbine Family Worship Center, which continued to use it for worship purposes.

In 2007, Woodbine Family Worship obtained a $1.3 million loan from Virginia Commerce Bank, secured by a five-acre parcel of land that included the one acre the Lynns conveyed to Woodbine in 1875. The bank’s title search extended back to 1900, so the 1875 deed was not discovered.

In 2011, Woodbine Family Worship defaulted on the loan. Canova Land and Investment acquired title to the five-acre parcel at a September 2012 foreclosure sale. Canova has not taken possession due to concerns about the reverter clause. Woodbine Family Worship continues to worship on the land.

Prior proceedings

Canova, the appellant in this case, filed suit to quiet title. It argued that the reverter clause was an unreasonable restraint on alienation and should be voided on public policy grounds. The appellees, Carolyn and Cheryl Crawford, the appellees, are the Lynn’s descendants, argue that the reverter clause only limits Canova’s use, rather than its ability to alienate the land and therefore is valid.

“As to the reasonableness of the restriction, they note that Virginia precedent clearly recognizes a charitable exception to the rule against restraints on alienation, citing this Court’s opinion in County School Board of Scott County v. Dowell, 190 Va. 676, 680 (1950). …

“[T]he circuit court ultimately dismissed the complaint with prejudice in January 2020, finding that the reverter clause was a reasonable land use restriction imposed on a charitable gift. The court explained in its letter opinion that the deed granted a fee simple determinable subject to a possibility of reverter and not a fee simple absolute. Therefore, in acquiring the restricted property from Woodbine Worship Center, Canova ‘ha[d] acquired no more than its predecessor in title had.’

“Relying upon Dowell, the circuit court also reasoned that a landowner has the right to grant a defeasible fee when the land is transferred for charitable purposes.”

Canova appealed.

Analysis

“The 1875 deed granted Woodbine a fee simple determinable subject to the possibility of reverter, not a fee simple absolute. … Canova agrees that the deed creates a fee simple determinable, but it maintains that the restriction is nevertheless ‘all-encompassing’ and constitutes an unreasonable restraint on alienation.

“It points to the Restatement (Second) of Property to buttress its claim that a forfeiture restraint on alienation must be ‘reasonable under all the circumstances of the case.’ Restatement (Second) of Property: Donative Transfers § 4.2 (1983). However, § 3.4 of the same Restatement distinguishes restraints on use, explaining that ‘a restraint on the use that may be made of transferred property by the transferee is not a restraint on alienation, as that term is used in this Restatement.’

“While there is ‘no precise rule’ for determining whether a restraint controls the use of property or its alienation, we look to the form of the restraint, the reasons for imposing the restraint, and the practical effect of the restraint when making our decision. …

“Regarding form, the language of the deed granting land to Woodbine to use it for the worship of God’ clearly suggests that this is a restraint on use. (Emphasis added.) Additionally, the Lynns clearly stated their reason for imposing the restraint: ‘for the worship of God.’ That too suggests that the restraint focuses on the use of the property.

“Nonetheless, Canova claims that the ‘all-encompassing’ nature of the reverter clause makes it a restraint on alienation in practical effect, if not in form. … In arguing that the 1875 deed restraint is unreasonable, Canova has adopted an overly restrictive interpretation that would create significant unintended consequences for church landowners. Under Canova’s interpretation, the deed permits use only by Woodbine as the congregation existed in 1875. We disagree.

“At oral argument, Canova conceded that, under its interpretation, the deed may have been violated when Woodbine incorporated in 2006 to become the Woodbine Worship Center, a transition adopted by countless congregations in Virginia once incorporation was permitted.

“Indeed, following Canova’s interpretation to its logical conclusion, if Woodbine changed its denominational affiliation – such as joining or leaving the Southern Baptist Convention, for example – the subsequent use by the newly-affiliated entity could constitute a violation of the restraint in the deed.

“To adopt such a narrow and rigid interpretation would ignore the practical realities of individual congregations and denominations over decades and even centuries. The more reasonable interpretation of the deed is that the land must be used ‘for the worship of God’ by a congregation that generally follows the tenets of Baptist churches.”

Further, “[b]oth the Restatement and our precedents recognize a preference to uphold charitable gifts. … Given that the Lynns’ original grant to Woodbine constituted a charitable gift, we hold that our longstanding policy preference for such gifts applies in this case. Although we have not previously addressed whether the preference for charitable gifts applies in the context of restraints on alienation, our holding in Dowell suggests that it does.”

Ruling

“Because the Lynns’ deed granted Woodbine a fee simple subject to the possibility of reverter, the reverter by its terms is a restraint on use, and the reverter is not unreasonable in light of the charitable context in which it was given, we affirm the circuit court’s decision to uphold the 1875 deed as valid.”

Canova Land and Investment Co. v. Lynn, et al., Record No. 200476, April 8, 2021 (Mims). From the Circuit Court of Prince William County (Horan). Gregory L. Arbogast (Michael G. Gallerizzo; Gebhardt & Smith, on briefs), for appellant. Robert J. Zelnick (Vanderpool, Frostick & Nishanian, on brief), for appellees Carolyn G. Lynn and Cheryl Crawford. Brian M. McCormack (Dunn, McCormack & Macpherson, on brief), for appellees Unknown Heirs of Levi C. Lynn, Edna A. Lynn and Earl Lynn, by their Guardian Ad Litem. VLW 021-6-024, 10 pp.