Present: All the Justices
STEVEN Q. BECK AND BEVERLY S. BECK
v. Record No. 992904 OPINION BY JUSTICE ELIZABETH B. LACY
November 3, 2000
WALTER E. SMITH
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.
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
Following presentation of evidence, the jury returned a
verdict in favor of the Becks on both counts. The Becks were
awarded $30,900 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
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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
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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
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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
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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
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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 $30,900 in compensatory damages and $3,000
in consequential damages, and enter final judgment.
Affirmed in part,
reversed in part,
and final judgment.
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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