Present: All the Justices
WARREN E. KELLEY
OPINION BY JUSTICE ROSCOE B. STEPHENSON, JR.
v. Record No. 951503
June 7, 1996
MICHAEL R. GRIFFIN, ET AL.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Jack B. Stevens, Judge
The dispositive issue in this appeal is whether a party
seeking reformation and subordination of a deed of trust has
standing to obtain such relief.
Warren E. Kelley filed a chancery suit against Samson
Financial Group, Inc. (Samson), Michael R. Griffin, and various
trustees, seeking to have a deed of trust securing Samson (the
Samson deed of trust) 1 set aside and declared null and void and
to have a purchase money deed of trust securing Kelley (the
Kelley deed of trust) restored to first priority. Samson filed
an amended cross-bill, seeking reformation of the Kelley deed of
trust and its subordination to the Samson deed of trust.
Following an ore tenus hearing, the trial court reformed the
Kelley deed of trust and subordinated it to the Samson deed of
trust. Kelley appeals.
The facts germane to the dispositive issue are undisputed
and may be stated briefly. On June 30, 1993, Kelley and Griffin
entered into a written contract whereby Kelley agreed to sell
and Griffin agreed to purchase certain unimproved real estate in
Fairfax County. The contract provided for a first purchase money
1
The party actually secured was Marc A. dos Santos who
thereafter assigned the deed of trust to Samson.
deed of trust on the land securing Kelley in the payment of a
note made by Griffin in the amount of $68,000, the balance of the
purchase price. The contract also provided for the subordination
of the purchase money deed of trust (the Subordination
Provision). The Subordination Provision stated that the
deed of trust shall contain a provision requiring the
trustees under [the] deed of trust, without the
necessity of obtaining the prior consent of [Kelley],
to subordinate the . . . deed of trust to any bona fide
construction loan or loans placed from time to time
upon the . . . property . . . or portions thereof.
Thereafter, Griffin, a builder, submitted a development plan
to Samson, a construction lender. Samson agreed to make a
construction loan to Griffin and informed Kelley that it "ha[d]
committed to . . . Griffin financial backing regarding the
[property]."
In October 1993, Kelley proceeded to settlement on the
contract. A provision requiring subordination to any
construction loan, however, was not included in the Kelley deed
of trust. Kelley attended the settlement and afterward
understood that he had a first lien on the property.
On the same day that Kelley proceeded to settlement on the
contract, Griffin closed on the construction loan. Upon
settlement of the construction loan, the settlement attorney had
the Samson deed of trust recorded ahead of the Kelley deed of
trust and had the word, "SECOND," typed on the face of the Kelley
deed of trust. Kelley first learned of what the settlement
attorney had done when Samson attempted to foreclose on its deed
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of trust. This litigation ensued.
Kelley contends on appeal, as he did at trial, that Samson
does not have standing to seek the relief requested in its cross-
bill because Samson was neither a party to the contract nor in
privity with a party thereto. Samson concedes that it was
neither a party to the contract nor in privity with a party
thereto. Samson contends, nonetheless, relying upon Code § 55-
22, that it has standing as a third-party beneficiary of the
contract.
Code § 55-22 reads, in pertinent part, as follows:
[I]f a covenant or promise be made for the benefit, in
whole or in part, of a person with whom it is not made,
or with whom it is made jointly with others, such
person, whether named in the instrument or not, may
maintain in his own name any action thereon which he
might maintain in case it had been made with him only
and the consideration had moved from him to the party
making such covenant or promise.
Pursuant to Code § 55-22, therefore, a third party who
claims to be the beneficiary of a contract between others need
not be named in the contract. The third party, however, must
show by the evidence that the parties to the contract clearly and
definitely intended to confer a direct benefit upon him. Aetna
Casualty v. Fireguard Corp., 249 Va. 209, 214-15, 455 S.E.2d 229,
232 (1995); Ward v. Ernst & Young, 246 Va. 317, 331, 435 S.E.2d
628, 635 (1993); Valley Company v. Rolland, 218 Va. 257, 259-60,
237 S.E.2d 120, 122 (1977). A mere incidental beneficiary of a
contract does not have standing to sue on the contract.
Copenhaver v. Rogers, 238 Va. 361, 367, 384 S.E.2d 593, 596
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(1989); Valley Company, 218 Va. at 260, 237 S.E.2d at 122; N.-P.
Newspapers v. Stott, 208 Va. 228, 231, 156 S.E.2d 610, 612
(1967).
Applying these principles of law in the present case, it
becomes readily apparent that Samson was not a third-party
beneficiary of the contract between Kelley and Griffin. Only
Kelley and Griffin acquired benefits and assumed obligations
under the contract, and, clearly, they did not intend to confer a
direct benefit upon Samson. Indeed, Samson was a stranger to the
contract, and there is no evidence that the parties considered or
even knew about Samson when the contract was executed. It was,
at best, an incidental beneficiary of the contract. Griffin,
alone, has standing to seek enforcement of the Subordination
Provision, and he has not sought to do so. Consequently, we
conclude that the trial court erred in ruling that Samson had
standing to seek reformation and subordination of the Kelley deed
of trust, and we hold that the lien of the Kelley deed of trust
is superior to the lien of the Samson deed of trust.
Accordingly, we will reverse and vacate the judgment of the
trial court and remand the case to the trial court with
directions that it take the appropriate action to ensure the
2
superiority of the lien of the Kelley deed of trust.
2
In his brief, Kelley contends that he is entitled to
damages and requests a remand for an award of damages. Kelley,
however, did not seek this relief in his pleadings, and,
therefore, we deny his request.
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Reversed and remanded.
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