Waynesboro Village, L.L.C. v. BMC Properties

Present: All the Justices

WAYNESBORO VILLAGE, L.L.C.
OPINION BY JUSTICE LEROY R. HASSELL, SR.
v. Record No. 970343 January 9, 1998

BMC PROPERTIES, ET AL.

FROM THE CIRCUIT COURT OF THE CITY OF WAYNESBORO
Rudolph Bumgardner, III, Judge

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
1
unenforceable.
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
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]."
 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
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."
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.