Case Title: Beck v. Smith

Citation: 

Docket Number: 992904

State: virginia

Court: Virginia Supreme Court

Date: 2000-11-03T00:00:00Z

Document:
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. 
 
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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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