Virginia Lawyers Weekly VA Lawyers Weekly
Where a building owner sued its tenant for breach of contract, the owner could still pursue its claim after transferring the property to a third party.
Background
Oreze Healthcare operated an assisted living facility. A regulatory board suspended the license of Oreze’s administrator.
“If the facility ceased operations, the residents risked eviction. To avoid this outcome, [Eastern Shore Community Services Board] ESCSB … agreed to lease the facility from Oreze and to provide interim care until a permanent solution was reached.”
Under the lease, ESCSB was to keep the four buildings that comprised the facility “in a clean, safe and tenantable condition[.]”
“Buildings A, B, and D were unoccupied. In late December 2017, the sprinkler systems in Buildings A and B froze and burst, allowing water to flood the buildings.
“Soon after, in February 2018, Building D also flooded with water after a water filter behind a sink froze and burst. The damage to the buildings had not been remedied as of July 31, 2018, the date ESCSB terminated the lease. …
“While Oreze’s breach of contract suit against ESCSB was pending, Oreze conveyed the property at issue to a third party by general warranty deed[.] …
“ESCSB moved for summary judgment in the contract action, arguing that Oreze could no longer pursue its property damage claims because the deed had conveyed the claims to the third party.”
Parties’ arguments
“ESCSB cited to Code §§ 55.1-301 and 55.1-303, which state respectively that a ‘deed conveying land’ encompasses ‘all the estate, right, title, and interest, both at law and in equity, of the grantor in or to such land’ and ‘all buildings, privileges, and appurtenances of every kind belonging to such land’ unless otherwise specified.
“ESCSB also cited to Goodson v. Capehart, 232 Va. 232, 237 (1986), in which this Court held that ‘the language in a deed will be construed to pass to the grantee the greatest estate which the language employed is capable of conveying.’
“ESCSB lastly cited to City of Lynchburg v. Mitchell, 114 Va. 229 (1912), where this Court held that a grantor’s pre-existing claims against a third party were transferred to the grantee.
“Oreze opposed the motion, arguing that the holding in Mitchell did not stand for the proposition that a real property deed necessarily conveys to the buyer causes of action related to contracts or property damage.
“Oreze contended that Mitchell is distinguishable in that the grantor in that case did not file suit before conveyance and because the damage was continuing in that case. The grantor in Mitchell also went beyond simply conveying the property and separately assigned its claims to the purchaser.
“Oreze further argued that Goodson is distinguishable because it involved an internal conflict between two provisions contained in a deed. At the hearing on the motion, Oreze contended that the terms ‘right’ and ‘privilege’ in Code §§ 55.1-301 and 55.1-303 only encompass a grantor’s rights to the real property itself, not claims for prior damage.
“The circuit court granted summary judgment from the bench, holding that Oreze failed to reserve its claims in the deed.”
Oreze appealed.
Discussion
“Though Oreze contends that the circuit court wrongly disregarded Virginia’s merger doctrine in finding that Oreze failed to reserve its breach of contract claim, this argument is misplaced[.] …
“The merger doctrine simply does not apply here. It is concerned with agreements pertaining to a conveyance between a grantor and grantee, of which ESCSB is neither.
“Furthermore, the lease was not a collateral agreement ‘made in connection with the sale.’ …
“Even more pertinently, however, a deed could not extinguish an agreement that had already been terminated. The lease between Oreze and ESCSB was terminated in 2018, and the deed was not executed until 2021. A contract no longer existed for the deed to extinguish.
“In this case, the issue is not whether the lease merged with the deed. Instead, the issue is whether the deed extinguished or transferred Oreze’s right to sue ESCSB for property damage arising from an alleged breach of the lease. We conclude that it did not do so.”
Chose in action
“[T]he right to recover upon a broken covenant does not follow the land; rather ‘[i]t remains a chose in action.’ …
“A chose in action is ‘intangible personal property.’ … In Virginia, ‘[a]ny right which has not been reduced to possession is a chose in action,’ …, a ‘classic example’ of which is a ‘contractual right[.]’ …
Such a right is ‘owned’ by the possessor of the right to recover.’ … As personal property owned by the possessor, that right can be assigned. …
“In this case, as a result of the lease between Oreze and ESCSB, Oreze possessed the right to recover damages arising from a breach by ESCSB. Oreze’s breach of contract claim against ESCSB was therefore a chose in action ‘owned’ by Oreze that did not transfer to the third party as successor in interest simply by execution of the deed.
“While Oreze could have assigned its right to the breach of contract claim to the third party, the deed conveying the property was silent as to that claim. Absent provisions effecting an assignment, the deed could neither extinguish Oreze’s right to pursue the claim nor transfer the claim to the third party. …
“We find … that the present case is readily distinguishable from Mitchell, in which there was an additional assignment of all claims for damages to the property. …
“[T]he previous owners not only conveyed the property, but additionally assigned the rights to any claim against the City for damages. The same cannot be said here, where Oreze conveyed the property by general warranty deed with no assignment to the third party of claims that Oreze possessed against ESCSB.”
Conclusion
“As a chose in action that belonged to Oreze that did not run with the land, the breach of contract claim did not transfer with the property upon execution of the deed, and it was unnecessary for Oreze to expressly reserve the claim.
“The deed contains no indication that Oreze assigned any existing claims to the third party. Therefore, Oreze retained the right to pursue its breach of contract claim against ESCSB.”
Reversed.
Oreze Healthcare v. Eastern Shore Community Services Board, Record No. 220072; (Chafin) May 4, 2023. From the Circuit Court of the City of Portsmouth. (Spry). Taylor D. Boone (Adams & Boone Attorneys at Law, on brief), for appellant. Randy C. Sparks, Jr. (Neil S. Talegaonkar; Adam B. Pratt; Kaufman & Canoles, on brief), for appellee. VLW 023-6-013, 8 pp.
