Title: First Security Federal Savings Bank v. McQuilken

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
FIRST SECURITY FEDERAL  
SAVINGS BANK, INC. 
 
v.  Record No. 960916  
OPINION BY JUSTICE BARBARA MILANO KEENAN 
                                    January 10, 1997 
JANE MCQUILKEN, ET AL. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
 
Jane Marum Roush, Judge 
 
 
In this appeal, the plaintiff, a party to a release 
agreement, challenges the trial court's exclusion of parol 
evidence offered to prove that the release was not intended to 
benefit the defendants. 
 
On August 9, 1995, First Security Federal Savings Bank, Inc. 
(First Security) filed a motion for judgment against Jane 
McQuilken, John C. Myers, Mary D. Greenway, and Edward G. Heck 
(collectively, the former employees), and others.  First Security 
alleged that the former employees left its employ to form 
Security Capital, Inc., "d/b/a Mortgage Capital Investors," and 
that the former employees diverted clients to this corporation 
while they were still employed by First Security.  First Security 
also alleged that the former employees' conduct constituted a 
breach of their contractual and fiduciary duties to First 
Security, as well as fraud, conspiracy, misappropriation of trade 
secrets, and tortious interference with existing contracts. 
 
On August 16, 1995, one week after filing its motion for 
judgment, First Security acquired two offices of "CMK Corporation 
T/A Mortgage Capital Investors."  In connection with this 
acquisition, the parties executed a written agreement which 
contained the following release: 
 
 
 
 
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First Security, its agent, representatives, and/or 
assigns do hereby remise, release and forever discharge 
Mortgage Capital, its related companies, subsidiaries, 
divisions, their officers, directors, employees, 
agents, successors, heirs, representatives, executors, 
administrators and/or assigns, and Kevin Keegan, from 
any and all manner of actions, cause of actions, suits, 
litigation, debts, sums of money, accounts, reckonings, 
bonds, bills, covenants, controversies, grievances, 
variances, disputes, promises, trespasses, damages, 
judgments, liens, executions, claims and demands of any 
kind whatsoever, in law or in equity, which arose or 
could have arisen directly or indirectly prior to the 
date of the execution of this Agreement which were or 
could have been asserted by First Security against 
Mortgage Capital, its related companies, subsidiaries, 
divisions, their officers, directors, employees, 
agents, successors, heirs, representatives, executors, 
administrators and/or assigns, and Kevin Keegan. 
 
 
In their amended grounds of defense, the former employees 
stated that when the agreement was signed, they were employees of 
"a related company, division and/or subsidiary of Mortgage 
Capital Investors and were intended beneficiaries of the release 
of liabilities."  The defendants filed a motion requesting 
summary judgment on this basis.  In response, First Security 
asserted that the former employees were not intended 
beneficiaries of the release agreement, and sought to present 
parol evidence regarding the negotiation and execution of the 
agreement. 
 
The trial court ruled that parol evidence was inadmissible 
because the language of the release was unambiguous and included 
the former employees, as well as the claims brought against them. 
 Based on its ruling, the trial court entered summary judgment 
for the former employees and dismissed the action with prejudice.  
 
 
 
 
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On appeal, First Security contends that the trial court 
improperly refused to consider parol evidence of its intent in 
executing the release agreement.  Citing McComb v. McComb, 226 
Va. 271, 274-75, 307 S.E.2d 877, 879-880 (1983), First Security 
argues that the parol evidence rule does not apply to a 
controversy between itself, a party to the written release, and 
the former employees, who First Security contends are "strangers" 
to the release. 
 
In response, the former employees assert that the trial 
court did not err in refusing to consider parol evidence because 
the language of the release agreement is clear and unequivocal.  
The former employees contend that the release plainly conveyed a 
benefit on them and, thus, that they are not "strangers" to the 
release agreement within the meaning of McComb.  We agree with 
the former employees. 
 
The scope of a release agreement, like the terms of any 
contract, is generally governed by the expressed intention of the 
parties.  See Great Falls Hardware v. South Lakes Village Ctr., 
238 Va. 123, 125-26, 380 S.E.2d 642, 643-44 (1989).  In the 
present case, First Security executed an agreement containing 
unrestricted language releasing the employees of Mortgage Capital 
from "any . . . actions . . . which arose . . . prior to the date 
of the execution of this Agreement." 
 
It is undisputed that each of the former employees was an 
employee of Mortgage Capital on the date the release was signed. 
 
 
 
 
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 Nevertheless, First Security asserts that its intent remains a 
disputed issue of fact, and that it should be allowed to present 
parol evidence to show that it did not intend to release these 
particular employees of Mortgage Capital from the action it had 
filed against them one week earlier. 
 
First Security contends that McComb supports its right to 
present parol evidence.  There, we stated that "the parol 
evidence rule operates only between the parties to a writing and 
has no application in a suit involving strangers to the writing 
nor in a suit involving one party to the writing and a stranger 
thereto."  226 Va. at 274-75, 307 S.E.2d at 879.  Accord Poff & 
Co. v. Ottaway, 191 Va. 779, 788, 62 S.E.2d 865, 870 (1951); 
Harriss, Magill Co. v. Rodgers Co., 143 Va. 815, 831, 129 S.E. 
513, 518 (1925); Roselle v. Commonwealth, 110 Va. 235, 237, 65 
S.E. 526, 527 (1909), aff'd, 223 U.S. 716 (1912). 
 
In McComb, a wife's parents had lent $4,000 to be used as a 
down payment on a home jointly purchased by their daughter and 
son-in-law.  In return, the husband alone executed a note for 
repayment of the loan.  After the marriage failed, the wife sued 
the husband on another obligation, and the husband demanded a 
set-off of $2,000 based on his claim that the wife was jointly 
liable to repay the note, despite the fact that she had not 
signed it. 
 
The wife invoked the parol evidence rule, arguing that the 
husband should not be allowed to present testimony to vary the 
 
 
 
 
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content of the note.  The trial court ruled, and this Court 
affirmed, that parol evidence was admissible because the wife was 
a "stranger" to the note.  We stated that since the wife was free 
to present parol evidence regarding the note, her husband must be 
equally free to do so.  226 Va. at 275-76, 307 S.E.2d at 880. 
 
Third party beneficiaries, however, are not "strangers" to 
an instrument within the meaning of McComb.  Like a party to an 
agreement, a third party beneficiary is entitled to enforce the 
terms of the agreement and is subject to defenses arising from 
that agreement.  See Code § 55-22; Ashmore v. Herbie Morewitz, 
Inc., 252 Va. 141, 149, 475 S.E.2d 271, 275 (1996); Kelley v. 
Griffin, 252 Va. 26, 29, 471 S.E.2d 475, 477 (1996); Levine v. 
Selective Ins. Co., 250 Va. 282, 286, 462 S.E.2d 81, 84 (1995). 
 
An agreement will be enforced in favor of a third party 
beneficiary when the beneficiary establishes that the parties to 
the agreement clearly and definitely intended to confer a benefit 
on the beneficiary.  See Levine, 250 Va. at 286, 462 S.E.2d at 
83; Ward v. Ernst & Young, 246 Va. 317, 330, 435 S.E.2d 628, 634 
(1993).  Here, the language of the release agreement established 
that the parties intended to confer a benefit on the former 
employees, namely, to release them from legal actions which were 
brought, or could have been brought, against them prior to the 
execution of the agreement. 
 
The intent of the parties is established as a matter of law 
when the release language is considered in the context of the 
 
 
 
 
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undisputed facts that (1) First Security had filed an action 
against the former employees one week before it executed the 
release, and (2) the former employees were employees of Mortgage 
Capital on the date the release was signed.
*  Therefore, the 
trial court did not err in granting summary judgment because no 
material fact remained in genuine dispute.  See Rule 3:18; Carson 
v. LeBlanc, 245 Va. 135, 139-40, 427 S.E.2d 189, 192 (1993). 
 
Although the trial court did not specifically state that the 
former employees were third party beneficiaries of the release, 
such a finding is implicit in the court's ruling.  If the former 
employees were not third party beneficiaries, the release 
provisions would have been irrelevant to this case. 
                     
     
*These facts distinguish the present case from Lemke v. 
Sears Roebuck Co., 853 F.2d 253 (4th Cir. 1988).  There, the 
court ruled that parol evidence was admissible to determine 
whether a homeowner's release of its insurer was also intended to 
release Sears, the seller of a lawn mower whose operation caused 
the injury.  Unlike the present case, in which the release 
language specifically designated the employees of Mortgage 
Capital as persons included in the release, the language in the 
release in Lemke did not contain any specific reference to Sears. 
 Thus, the court was unable to determine from the record before 
it whether Sears was a third party beneficiary of the release 
agreement. 
 
 
 
 
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Thus, the trial court properly applied the parol evidence 
rule in this case because First Security was a party to the 
release agreement, and the former employees, as third party 
beneficiaries, were not "strangers" to that agreement.  When the 
trial court has reached the correct result for reasons not 
expressed in its ruling, we will uphold that result.  See Robbins 
v. Grimes, 211 Va. 97, 100, 175 S.E.2d 246, 248 (1970). 
 
For these reasons, we will affirm the trial court's 
judgment. 
 
Affirmed.