Trailsend Land Co. v. Virginia Holding Corp.

• Decision Date: 12 October 1984
• Docket Number: No. 811906,811906
• Citation: 228 Va. 319,321 S.E.2d 667
• Parties: TRAILSEND LAND COMPANY v. VIRGINIA HOLDING CORPORATION. Record
• Court: Virginia Supreme Court

Page 667

321 S.E.2d 667

228 Va. 319

TRAILSEND LAND COMPANY v. VIRGINIA HOLDING CORPORATION.

Record No. 811906.

Supreme Court of Virginia.

Oct. 12, 1984.

R. Harvey Chappell, Jr., Richmond (Paul G. Turner, Paul W. Jacobs, II, Bruce A. Templeton, Richmond, Herbert K. Bangel, J. Darrell Foster, Portsmouth, Jonathan B. Hill, R. Bruce Beckner, Washington, D.C., Christian, Barton, Epps, Brent & Chappell, Richmond, Bangel, Bangel & Bangel, Portsmouth, Dow, Lohnes & Albertson, Washington, D.C., on briefs), for appellant.

Jack E. Greer, Norfolk (Samuel J. Webster, Williams, Worrell, Kelly & Greer, P.C., Norfolk, on brief), for appellee.

Present: All the Justices.

THOMAS, Justice.

This is a dispute over the ownership of a 623-acre tract of land in Portsmouth, Virginia. On October 17, 1974, Virginia Holding Corporation (VHC) sold the land to Trailsend Land Company (Trailsend) for approximately four million dollars. The deed contained a repurchase option which reads in pertinent part as follows:

It is mutually agreed between the parties hereto, that the property hereby conveyed and described in Exhibit "A," is to be used for any one or more of the following purposes: the production, handling, processing, distribution or storage of petroleum and other hydrocarbons.

If construction of facilities for the purposes last above enumerated has not been commenced within six years from the date hereof, Grantor shall have the option to repurchase the property described in Exhibit "A," within the next ensuing period of one (1) year for the same consideration as that paid by Grantee to Grantor herein....

Trailsend attempted, for almost six full years, to construct an oil refinery on the property. In this effort, it spent approximately six million dollars, excluding the purchase price of the property. As the October 17, 1980 cut-off date approached, it became apparent to Trailsend that Trailsend would not be able to commence construction of the planned refinery. More than one month before the expiration of the six-year period described in the deed, plans were put into effect to build two petroleum storage tanks. Approximately 10 days before the deadline, work began at the site. Concrete foundations were poured for both tanks, and as of October 17, 1980, one of the eight-foot high steel rings that make up the walls of the first tank was in place and a second ring was under construction.

On October 15, 1980, Trailsend wrote VHC advising that it had commenced construction pursuant to the deed and demanding a deed of release. VHC refused to provide such a deed. In VHC's view, the work done by Trailsend on the property was not sufficient to comply with the terms of the deed. On October 20, 1980, VHC sued Trailsend for specific performance, demanding that the land be returned to VHC and stating that VHC was ready, willing, and able to return the purchase price. Trailsend denied VHC's contentions and filed a cross-bill in which it sought to quiet title to the property and secure specific performance on its own behalf in the form of a deed of release from VHC.

The Chancellor heard evidence ore tenus which included testimony concerning negotiations leading to the execution of the deed, testimony concerning communications between the parties after the execution of the deed, and other evidence, the bulk of which related to efforts on the part of Trailsend to construct a refinery. At the conclusion of the hearing, the trial court ruled in favor of VHC and ordered Trailsend to return the land, by appropriate deed, to VHC.

In its letter opinion, the trial court explained its ruling in the following manner: The deed was unambiguous but parol evidence was nevertheless admissible not to vary the terms of the deed, but to show the "circumstances attending its execution," and "the construction placed upon it by the parties." The trial court also stated that "[w]hile the language in the deed does not require or limit the use of the property to the construction of an oil refinery, the evidence is clear that this was the defendant's intent." The trial court then concluded as follows:

Taking into consideration the purpose of the language of the deed in examining the evidence of the extent of activity on the property, the court is of the opinion that there was not a commencement of construction of facilities for the purpose enumerated within the time prescribed. There was no commencement of the construction of an oil refinery nor were there the necessary permits, source of crude oil or financing therefor. The activities on a part of the property of a facility later to be operated in conjunction with a refinery was minimal, without plans for or commitments to its completion and insufficient to amount to a commencement of construction.

On appeal, Trailsend contends, in essence, that though the deed gave it the right to commence construction relative to any of five types of facilities for use with hydrocarbons, the trial court penalized it for not commencing construction of a refinery, which, according to Trailsend, was only one of the five permitted uses. Trailsend contends that the trial court erred in failing to hold that Trailsend had commenced construction of a permitted facility within the time limits set forth in the deed. Trailsend contends further that the trial court erred in not strictly construing the repurchase option; in failing to place the burden of proof upon VHC to establish that Trailsend did not commence construction on time; in admitting into evidence any testimony for use in construing the deed; and in admitting into evidence irrelevant evidence of Trailsend's intention to build a refinery. We agree with Trailsend's contentions; therefore, we will reverse the judgment of the trial court.

Trailsend argues that options to repurchase are not favored in the law and are to be strictly construed against the grantor. Trailsend is correct. An option to repurchase is a condition subsequent. See G. Thompson, Commentaries On the Modern Law of Real Property § 1875, at 573 (1979). When a grantee takes property subject to a condition subsequent this means that the grantee, though vested with an estate in land, can become divested of that estate if the condition is broken. Put another way, the grantee can forfeit his interest in the property. It has long been the law in the Commonwealth that such forfeitures are to be avoided:

Nothing is better settled than that in conditions subsequent, since they are in defeasance of interests already vested, courts of law and courts of equity are strict in requiring the very event, or the act to be done, with all its particulars, which is to defeat the interest previously vested.

Lewis v. Henry's Executors, 69 Va. (28 Gratt.) 192, 203 (1877). Accord Martin v. Housing Authority, 205 Va. 942, 140 S.E.2d 673 (1965); Peoples Pleasure P. Co. v. Rohleder, 109 Va. 439, 61 S.E. 794 (1909). In Lewis, we emphasized the critical importance of holding the grantor to the precise conditions contained in the deed. We quoted Harrison v. Foreman, 31 Eng.Rep. 549, 550, 5 Vesey Jr. 207, 209 (Ch.1800), as follows:

[W]here there are clear words of gift, creating a vested interest, the court will never permit the absolute gift to be defeated, unless it be perfectly clear that the very case has happened in which it is declared that the interest shall not arise.

Lewis v. Henry's Executors, 69 Va. (28 Gratt.) at 203. See G. Thompson, supra, § 1876, at 581. There is little question that VHC's deed should have been strictly construed against VHC with respect to the repurchase option. Upon our review of the record, we do not think that the trial court adhered to this rule of strict construction. It is apparent to us that the trial court found in favor of VHC even though VHC failed to establish that the work done by Trailsend did not fall under any category of construction permitted by the deed.

Trailsend is also correct in stating that the burden was upon VHC to prove a breach of the condition subsequent. In Schwarzschild v. Welborne, 186 Va. 1052, 1058, 45 S.E.2d 152, 155 (1947), we discussed the burden of proof upon a person attempting to enforce a restrictive covenant:

It is also the general rule that while courts of equity will enforce restrictive covenants where the intention of the parties is clear and the restrictions are reasonable, they are not favored, and the burden is on him who would enforce such covenants to establish that the activity objected to is within their terms. They are to be construed most strictly against the grantor and persons seeking to enforce them, and substantial doubt or ambiguity is to be resolved in favor of the free use of property and against restrictions.

(Emphasis added.) Though in the instant appeal we are considering a condition subsequent instead of a restrictive covenant, there is no reason for the burden to be less upon one attempting to secure the benefit of a condition subsequent. This is so because the penalty for violating a condition subsequent is generally more onerous than for violating a restrictive covenant. ¹ VHC's proof that Trailsend failed to build a refinery does not meet its burden of proving that Trailsend violated the condition subsequent.

Trailsend next complains that the trial court admitted evidence to explain the deed when no such evidence should have been admitted. According to Trailsend, the evidence of negotiations prior to the deed should not have been admitted because of the parol evidence rule, and the post-deed evidence of its intent to build a refinery should not have been admitted because it was irrelevant. Taking a slightly different approach, Trailsend contends that where a deed is clear and unambiguous, no parol evidence should be used to help construe it. The latter argument best applies to this appeal.

In our opinion, and in the opinion of the trial court, the language of the deed was clear and unambiguous. Where such is the case, a...