Case Title: Kelley v. Griffin

Citation: 

Docket Number: 951503

State: virginia

Court: Virginia Supreme Court

Date: 1996-06-07T00:00:00Z

Document:
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 
                     
     
1The party actually secured was Marc A. dos Santos who 
thereafter assigned the deed of trust to Samson. 
 
 
 
 
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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 
superiority of the lien of the Kelley deed of trust.
2
                     
     
2In 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.