Sweely Holdings v. SunTrust Bank

1 printed pages contain little extracted OCR body text; searchable legal-body completeness has not been established for those pages.

OCR transcription for search; preserved printed pages are authoritative

PRESENT: Lemons, C.J., Mims, McClanahan, Powell, Kelsey, and McCullough, JJ., and
Russell, SJ.

SWEELY HOLDINGS, LLC
OPINION BY
v. Record No. 171165 JUSTICE D. ARTHUR KELSEY

NOVEMBER 21, 2018
SUNTRUST BANK, ET AL.

FROM THE CIRCUIT COURT OF MADISON COUNTY
Daniel R. Bouton, Judge

SunTrust Bank (“SunTrust”) made secured loans totaling $18.3 million to Sweely
Holdings, LLC (“Sweely”) and later sought to recover collateral when Sweely defaulted and
threatened bankruptcy. The parties negotiated a Master Loan Modification and Forbearance
Agreement (“Workout Agreement”) that provided Sweely with another opportunity to pay its
debt. When Sweely failed to do so, SunTrust took action against Sweely’s collateral.

In response, Sweely filed this suit against SunTrust, alleging, among other things, breach
of contract, fraud in the inducement, and constructive fraud. The circuit court dismissed the case
on demunter, finding that the Workout Agreement defeated Sweely’s breach of contract claim
and that Sweely had failed to state a claim for any fraud. We agree and affirm.

I.
A.

“Because this appeal arises from the grant of a demurrer, we accept as true all factual
allegations expressly pleaded in the complaint and interpret those allegations in the light most
favorable to the plaintiff.” Coward v. Wellmont Health Sys., 295 Va. 351, 358 (2018). Though
we “accept as true unstated inferences to the extent that they are reasonable, we give them no
weight to the extent that they are unreasonable. The difference between the two tums on

whether ‘the inferences are strained, forced, or contrary to reason,’ and thus properly disregarded

2
as ‘arbitrary inferences.’” Id. at 358-59 (emphases in original) (citations omitted). We also
“distinguish allegations of historical fact from conclusions of law. We assume the former to be
true arguendo, but we assume nothing about the correctness of the latter because ‘we do not
accept the veracity of conclusions of law camouflaged as factual allegations or inferences.’” Id.
at 359 (emphasis in original) (citation omitted).
B.
1. The Failed Loan Transaction
The Amended Complaint1 alleges that, in 2008, Sweely and SunTrust engaged in an
$18.3 million commercial-lending relationship to provide capital for the Sweely Holdings Estate
Winery in Madison County, Virginia (“the Winery”). In addition to personal property at the
Winery estimated to have a value of $2.5 million, Sweely offered four parcels of real property as
collateral for the loans: (i) a horse farm in Florida appraised at $10 million; (ii) a mixed-use
farm property in Madison County with a tax-assessed value of $1.5 million; (iii) the Winery in
Madison County appraised at $16 million; and (iv) the Sweely family farm in Madison County
appraised at $6.2 million.
Sweely defaulted on these loans in May 2010. Pursuant to the loan documents, SunTrust
seized $1.8 million of Sweely’s cash assets from Sweely’s Interest Reserve Account. After
Sweely had declared its intention to seek bankruptcy protection, the parties entered into
“discussions and negotiations regarding a workout of the loans.” J.A. at 7. Sweely alleges that
during one of those discussions in 2010, a SunTrust employee falsely stated that SunTrust had
obtained appraisals of the four parcels that showed a collective fair market value of $10.5 to
1 The circuit court sustained a demurrer to Sweely’s initial complaint and dismissed that
complaint with leave to amend. Sweely filed a First Amended Complaint, hereinafter “Amended
Complaint,” which the court dismissed with prejudice in response to SunTrust’s demurrer.

3
$13.5 million. Sweely asked for copies of these appraisals but did not receive them during the
negotiations.
At the time of this alleged misrepresentation, Sweely claims, SunTrust possessed
appraisals estimating the collective worth of the parcels to be $22.8 million and had filed
regulatory documents repeating this valuation. According to Sweely, SunTrust intended the
misrepresentation as a subterfuge to deter Sweely from declaring bankruptcy because SunTrust
would be able to seek relief from the automatic stay of collections imposed by bankruptcy law if
the low appraisals were accurate and if SunTrust were an under-secured lender.
The Amended Complaint concedes that “Sweely initially expressed doubt as to the
accuracy of the appraisals”2 but nevertheless alleges that Sweely “believed and relied on the
misrepresentation that SunTrust possessed appraisals showing” a value of $10.5 to $13.5 million
for the collateral and “further believed and relied on the misrepresentation that SunTrust could
demonstrate to a court that there was a negative equity position on the loans.” Id. at 9. The
possibility that SunTrust could make that under-secured showing, Sweely alleges, caused it “not
2 SunTrust’s demurrer to the Amended Complaint relied upon various documents that
were the subject of a motion craving oyer. Four of them were appraisals, one for each of the
properties that served as collateral, which Sweely consented to being made part of the record.
See J.A. at 59. Another document was a memo written by Jess Sweely stating that, at the
meeting in which SunTrust claimed it had low appraisals, Jess Sweely “told [the SunTrust
employee] that the appraisals were a farce and that what she was proposing made no sense” and
“that there was no way that all of the appraisals were only $13.5 million.” Ex. 3 to Original
Demurrer (filed Sept. 8, 2015); see also J.A. at 42-43, 46-47 (relying on the same exhibit in the
demurrer to the Amended Complaint).
Sweely conceded in the circuit court that the memo “memorialize[d]” what Jess Sweely
had said to the SunTrust employee. J.A. at 60. Sweely, however, objected to the memo being
considered pursuant to SunTrust’s motion craving oyer. While hearing arguments in open court,
the court stated that it intended to “defer ruling on the motion craving oyer” because such a
ruling was not “critical at this point.” Hr’g Tr. at 69 (Jan. 4, 2017). The court’s final order,
however, stated that it had considered SunTrust’s demurrer, which relied upon the memo. See
J.A. at 71; see also id. at 42-43, 46-47. For purposes of our analysis, however, we will assume
without deciding that the court did not base its decision to sustain the demurrer on the memo.

4
to file for bankruptcy, not to negotiate for more favorable workout terms . . . , and to enter into
the Workout Agreement instead.” Id.
Pursuant to SunTrust’s motion craving oyer, the circuit court admitted into the record
four appraisals that SunTrust had obtained in 2010 and 2011. See supra note 2. The 2010
appraisals of the Winery, the family farm, and the Florida horse farm offered two alternative
valuations: a “Market Value As Is,” which assumed, for each separate property, a one- to four-
year period of marketing and exposure, and a “Disposition Value,” which assumed a one-year
period of marketing and exposure. See J.A. at 124, 272, 383-84 (altering capitalization). The
2011 appraisal of the mixed-use property offered a single “Market Value ‘As Is’” figure of
$975,000 and assumed a 12- to 18-month marketing and exposure period. Id. at 494, 498.
Collectively, these alternative valuations ranged between $13,550,000 in “Disposition Value” for
three of the four properties to $18,715,000 in “Market Value As Is” for all four properties. The
appraisal reports also contained an assumption that there were no liens on the properties. See id.
at 218, 358, 461, 500.
2. The Workout Agreement
The parties subsequently entered into the Workout Agreement, which stated that the
obligors, including Sweely, had “requested that SunTrust Bank forbear from exercising its rights
and remedies . . . to allow the Obligors time to either refinance the Loans and/or obtain equity
investments in their businesses.” Id. at 103. SunTrust made clear, however, that its agreement to
forbear was conditional: “Without waiving any rights or remedies available to SunTrust Bank on
account of the defaults recited above, SunTrust Bank is willing to grant the Obligors’ request,
provided that all of the Obligors comply with each of the terms, conditions and understandings
contained in this Agreement.” Id.

5
The principal condition was Sweely’s agreement to a “disposition schedule and incentive
plan” that established “turnover” dates for each of the four properties by which Sweely would
either make a specific cash payment to SunTrust or voluntarily convey the collateralized
property to SunTrust. See id. at 110-12. Each property had a different turnover date: (i)
November 5, 2010, for the Florida property; (ii) January 31, 2011, for the mixed-use property;
(iii) March 31, 2011, for the Winery; and (iv) June 30, 2011, for the family farm. See id. at 110-
11. The Workout Agreement also required SunTrust to prepare and deliver the deeds to the
properties to Sweely for Sweely to execute if it could not make the required payments by each
property’s corresponding turnover date. See id. at 112. If Sweely did not make the required cash
payments, but instead delivered the deeds, Sweely would receive a credit from each deed toward
its overall debt, culminating in its release from all future liability. See id. at 110-11.
For each of the properties, the disposition schedule provided that “SunTrust Bank may,
immediately after such turnover date, schedule and conduct a foreclosure sale . . . which all of
the Obligors agree shall be subject to the ‘Friendly Foreclosure’ provisions of Section 8.12
hereof.” Id. at 110-12 (emphasis omitted). Titled “‘Friendly Foreclosure’ of Real Property
Collateral Upon Expiration of Property-Specific Deadlines or Forbearance Default,” Section 8.12
provided that the obligors would give “full cooperation with the commencement and
continuation of any foreclosure action” against the collateralized properties. Id. at 116. The
provision added:
In the event a Foreclosure Action is commenced (but only after a
Forbearance Default under this Agreement), such cooperation shall
include the present agreement of each Obligor that no Obligor will
contest, object to, file injunctive relief with respect to, or otherwise
hinder or delay any Foreclosure Action in any way, shape or form,
and will not request, induce or influence other third parties to do
so.

6
Id. Finally, Sweely represented in the Workout Agreement that it had not granted any liens on
the properties that it had not “previously disclosed” to SunTrust. Id. at 106.
When Sweely was unable to make the required payment by the turnover date applicable
to the Florida property, it voluntarily conveyed that property to SunTrust pursuant to the
Workout Agreement. As the January 31, 2011 turnover date for the mixed-use property
approached, Sweely found itself unable to make the required payment. Sweely claims that it
failed to convey the property by the turnover date because SunTrust refused to accept the
property pursuant to a deed in lieu of foreclosure.
Sweely alleges that SunTrust contacted a title-service company to review a deed in lieu of
foreclosure for the mixed-use property. The title-service company, the Amended Complaint
asserts, advised SunTrust that “it would be ‘much safer’ for SunTrust to foreclose on the Mixed-
Use Property due to the existence of liens on the property” because “[u]nder Virginia law, certain
liens would have been extinguished if the property was foreclosed on but not if it was transferred
by deed.” Id. at 15. SunTrust “immediately confirmed” to the title-service company that it
“would not record a deed-in-lieu and would instead foreclose on the Mixed-Use Property.” Id. at
16. For this reason, Sweely asserts, SunTrust elected to foreclose on the mixed-use property
rather than accept a deed in lieu of foreclosure.
As the March 31, 2011 turnover date for the Winery approached, Sweely again found
itself unable to make the required payment. SunTrust stated that it would “forsake the Deed
delivery requirement” and simply foreclose on the Winery instead. Id. at 19. SunTrust agreed to
accept the deed in lieu of foreclosure for purposes of triggering Sweely’s right to a credit and to
relief from any deficiency obligations but would not record the deed. See id. Prior to the date of
foreclosure, Revolution, LLC, a real-estate-investment firm, bought all of the Sweely promissory

7
notes from SunTrust for an aggregate price of $7.5 million.3 Sweely alleges that its debt balance
at this time was “just in excess of” $9 million and that the value of the remaining collateral “was
at least twice that amount.” Id. at 22. Sweely later negotiated a final settlement with Revolution,
LLC that resulted in the sale of the Winery to an affiliate of Revolution, LLC in exchange for
Sweely’s right to keep the family farm and avoid any deficiency judgments.
3. Sweely’s Lender-Liability Lawsuit
Sweely filed suit against SunTrust, three of its employees, and its outside counsel,
alleging various causes of action including, among others, breach of contract, fraud in the
inducement, and constructive fraud.4 The circuit court sustained SunTrust’s demurrer to the
Amended Complaint and dismissed all counts with prejudice.
The breach of contract claim failed, the court held, because the Workout Agreement
preserved SunTrust’s preexisting right to foreclose and did not require SunTrust to forfeit that
right if Sweely offered a deed in lieu of foreclosure. See id. at 90-91 (relying on SunTrust’s
argument in its post-trial supplemental brief). The court dismissed the fraud counts on the
ground that the Amended Complaint did not make out a prima facie case of “justifiable reliance”
on the alleged misrepresentation, id. at 81, because “there simply are no facts that would allow
3 Sweely claims that it had been negotiating directly with Revolution, LLC prior to this
time and that SunTrust tortiously interfered with Sweely’s economic expectancy by announcing
SunTrust’s future foreclosure plans and inducing Revolution, LLC to make a deal solely with
SunTrust. In its demurrer order, the circuit court dismissed this claim with prejudice. Because
none of Sweely’s assignments of error challenge this decision, we do not address it.
4 Naming SunTrust as the sole defendant, Sweely filed a prior suit in 2014 in the Circuit
Court of Madison County. Relying on diversity jurisdiction, SunTrust removed the case to
federal court pursuant to 28 U.S.C. § 1441. Sweely thereafter obtained a voluntary dismissal of
the federal case and refiled the complaint in the Circuit Court of Madison County naming
SunTrust, three of its employees, and its outside counsel as defendants.

8
Sweely to reasonably rely on . . . the information that was given to [it] by the bank about the
appraisals,” id. at 79.5
II.
On appeal, Sweely contends that the circuit court misread the Workout Agreement to
allow SunTrust the option of foreclosing rather than accepting and recording a deed in lieu of
foreclosure. Sweely also argues that the court misapplied the justifiable-reliance doctrine and,
on that flawed basis, dismissed the fraud claims. We disagree with both of Sweely’s assertions.
A.
Sweely contends that the Workout Agreement forbade SunTrust from foreclosing on any
of the four properties even if Sweely never paid a dollar of the underlying debt because Sweely
had a right to convey the collateral to SunTrust against SunTrust’s will by issuing a deed in lieu
of foreclosure. The Workout Agreement, Sweely reasons, contemplated that SunTrust would
have to immediately absorb “the continued operating costs” of the properties (relevant mostly to
the Winery) and that Sweely would be protected from “the notoriety and negative business
impact of public foreclosures.” Appellant’s Br. at 12, 16.
The circuit court read the Workout Agreement differently, as do we. The point of
departure is the maxim that “[a] contract must be construed as a whole and the intention of the
parties is to be collected from the entire instrument and not from detached portions.” Babcock &
Wilcox Co. v. Areva NP, Inc., 292 Va. 165, 180 n.8 (2016) (quoting 11 Samuel Williston &
Richard A. Lord, A Treatise on the Law of Contracts § 32:11, at 765 (4th ed. 2012)). “All of the
5 The circuit court also held that Sweely’s theory of recovery was inherently speculative
as a matter of law. The court specifically “note[d] that there really are no pleaded facts that
would establish any damages for [the fraud] claim[s].” J.A. at 85. Given our holding, we need
not address this alternative ground for sustaining the demurrer.

9
different parts of an agreement must be viewed together, i.e., as a whole, and each part
interpreted in the light of all of the other parts.” Id. (alteration omitted) (quoting John Edward
Murray, Jr., Murray on Contracts § 88(C), at 481 (4th ed. 2001)).
Prior to executing the Workout Agreement, Sweely was in default on each of the four
loans and SunTrust had an uncontested right to foreclose on all of the collateralized properties.
In the recitals of the Workout Agreement, SunTrust agreed to “forbear from exercising,” but not
to “waiv[e] any rights or remedies available to [it],” including its right to foreclose. J.A. at 103.6
Addressing the turnover dates for the four properties, Section 5.5(a) of the Workout Agreement
states that Sweely “shall deliver to SunTrust” either a specified amount of money or a “Deed”
transferring the property to SunTrust. Id. at 110-11. If the latter, Sweely would receive an
agreed-upon credit toward its overall debt, concluding with a complete release from all liability.
Not one of the four turnover provisions, however, states that SunTrust shall accept the
deed and thereby waive its preexisting right to foreclose on the property. To the contrary, each
provision ends with the following statement: “SunTrust Bank may, immediately after such
turnover date, schedule and conduct a foreclosure sale under the [applicable mortgage or deed of
trust], which all of the Obligors agree shall be subject to the ‘Friendly Foreclosure’ provisions of
Section 8.12 hereof.” Id. at 110-12 (emphasis omitted).
Though inartfully written, these provisions reveal a finely tuned balance of contractual
rights and duties. SunTrust was free to accept and record a deed in lieu of foreclosure if it was
willing to assume there were no subordinate liens against the collateralized property (thereby
taking the risk there were some) that would need to be extinguished by foreclosure. SunTrust
6 “[P]refatory recitals ‘shed light on the circumstances the parties wished to have
considered in the interpretation of the contract.’” Babcock & Wilcox Co., 292 Va. at 181
(quoting 2 E. Allan Farnsworth, Farnsworth on Contracts § 7.10, at 289 (3d ed. 2004)).

10
was also free to accept, without recording, a deed in lieu of foreclosure and thereafter to conduct
a friendly foreclosure if the risk of subordinate liens was unacceptable. Without this choice,
SunTrust would have been contractually obligated to accept and record the deed in lieu of
foreclosure, afford Sweely a credit against its overall debt, and ultimately forfeit any right to
pursue a deficiency judgment against Sweely — all in exchange for property potentially subject
to recorded or unrecorded subordinate liens.7 The agreement as a whole undermines this
interpretation as both unreasonable and unrealistic.
In the circuit court, as here, SunTrust argued that its “right to conduct an immediate
foreclosure sale after turnover of collateral, notwithstanding SunTrust’s receipt of a deed, was
therefore critically important to remove subordinate liens.” Id. at 67.8 It is hard to find fault
with this interpretation. Any contractual promise that Sweely — an insolvent debtor threatening
bankruptcy — might make about undisclosed liens would provide very little succor to a creditor
holding millions of dollars in defaulted loans on its books. The Workout Agreement took this
fact into account by preserving SunTrust’s preexisting power of foreclosure, the only legal
remedy that would extinguish subordinate liens and justify the forbearance compromise.
Sweely is not without a response to this view. Perhaps SunTrust intended to preserve its
right to foreclose, Sweely contends, but SunTrust waived that right in Section 8.12 of the
7 Sweely acknowledges the underlying premise of this observation in its Amended
Complaint: “Under Virginia law, certain liens would have been extinguished if the property was
foreclosed on but not if it was transferred by deed per the terms of the Workout Agreement.”
J.A. at 15. This concession is important because the property appraisals assumed there were no
liens on the properties, see id. at 218, 358, 461, 500, and Sweely only promised in the Workout
Agreement that it had not “granted any liens or security interests to any creditor not previously
disclosed to SunTrust Bank in writing on or before the date of this Agreement,” id. at 106
(emphases added).
8 In sustaining the demurrer, the trial court specifically relied on SunTrust’s post-trial
brief, which had raised the issue of subordinate liens. See id. at 90-91 (citing id. at 66-70).

11
Workout Agreement. Words matter, and words in a contract, when clear, supersede
unarticulated intentions. We take this point seriously, as it goes to the heart of our judicial task:
We have neither the duty nor the inclination to creatively construe
an unambiguous contractual phrase “so as to conform it to the
court’s notion of the contract the parties should have made” under
the circumstances. We are “aware of the temptation” of courts to
“indulge in artificial interpretations or abnormal implications in
order to save a party from a bad bargain.” We resist this
temptation with the observation that our interpretative task is far
simpler: “It is the court’s duty to declare what the instrument itself
says it says.” “What the parties claim they might have said, or
should have said, cannot alter what they actually said.”
Babcock & Wilcox Co., 292 Va. at 189 (alterations, footnote, and citations omitted). We have no
disagreement with Sweely’s invocation of this maxim. We contest only its application to the
language of the Workout Agreement.
Section 8.12 is titled “‘Friendly Foreclosure’ of Real Property Collateral Upon Expiration
of Property-Specific Deadlines or Forbearance Default.” J.A. at 116 (emphasis added). Two
paragraphs follow. The first paragraph tracks the first half of the title — a friendly foreclosure
“Upon Expiration of Property-Specific Deadlines.” Id. This paragraph obligates Sweely to
cooperate with “any foreclosure action . . . against any of the parcels of real property” subject to
the debt. Id. (emphases added). The paragraph does not state that SunTrust “shall” accept and
record a deed in lieu of foreclosure. Nor does it expressly state or reasonably imply that Sweely,
by merely offering such a deed, can extinguish SunTrust’s preexisting right of foreclosure and
thereby eliminate the legal protection that foreclosure gives SunTrust as a potentially under-
secured, priority creditor.
The second paragraph tracks the second half of the title — a friendly foreclosure
“Upon . . . Forbearance Default.” Id. This paragraph adds specificity to Sweely’s duty to
cooperate: “In the event a Foreclosure Action is commenced (but only after a Forbearance

12
Default under this Agreement), such cooperation shall include” Sweely not “contest[ing],
object[ing] to,” or seeking an injunction to stop the foreclosure or attempting to hinder it in any
way, and not “request[ing], induc[ing] or influenc[ing] other third parties to do so.” Id. Read
literally, this paragraph of Section 8.12 affords additional protection to SunTrust’s right to
foreclose in the event that Sweely fails to either make the required payment or execute a deed in
lieu of foreclosure by the turnover date. The paragraph does not purport to limit SunTrust’s
preexisting right to foreclose but, instead, further protects it.
Sweely rejects this interpretation, contending that the parenthetical “(but only after a
Forbearance Default under this Agreement),” id., means nothing if it does not bar every
foreclosure, whether friendly or not, unless a Forbearance Default has occurred. While we agree
that “no part” of a contract “should be discarded as superfluous or meaningless,” CNX Gas Co. v.
Rasnake, 287 Va. 163, 168 (2014), we disagree that Sweely’s implausible interpretation is the
only one that saves the parenthetical from being wasted ink.
As noted earlier, the parenthetical is preceded by a paragraph presupposing SunTrust’s
right to initiate, and Sweely’s duty to cooperate with, “any foreclosure action . . . against any of
the parcels of real property” subject to the debt. J.A. at 116 (emphases added). The descriptive
title of the entire section, moreover, tracks its two paragraphs: “‘Friendly Foreclosure’ of Real
Property Collateral Upon Expiration of Property-Specific Deadlines or Forbearance Default.”
Id. (emphasis added). The parenthetical appears in the second paragraph of the section, but not
in the first.
For Sweely’s interpretation to be plausible, SunTrust would have had to agree to subject
itself to any and all subordinate liens that it had a preexisting right to extinguish through
foreclosure. And, after giving up this uncontested right, SunTrust would then have had to

13
obligate itself to give Sweely full credit toward the remaining outstanding debt and forever waive
any right to seek a deficiency judgment. As the circuit court correctly concluded, this is too
heavy an interpretation to drag out on such a weak textual limb.
The process of eliminating Sweely’s implausible interpretation leaves only one plausible
alternative: The second paragraph, including its parenthetical, provides SunTrust with
additional, anti-injunction specificity to Sweely’s duty to cooperate following a Forbearance
Default, however the parties understood that term.9 While this thin meaning attributable to the
second paragraph may seem to add little to the first, it does add something, and it is certainly
more in line with the rest of Section 8.12 than Sweely’s proffered interpretation. The process of
accepting or rejecting contractual interpretations under the surplusage canon must focus on “the
entire instrument” and not “detached portions,” and should avoid placing too much “‘emphasis
on isolated terms’ wrenched from the larger contractual context.” Babcock & Wilcox Co., 292
Va. at 180 & n.8 (citations omitted).10
9 SunTrust argues on appeal that Sweely never did deliver an executed deed in lieu of
foreclosure for the Winery. See Appellees’ Br. at 5-6. For this reason alone, SunTrust contends,
Sweely’s argument collapses upon its first premise — that no Forbearance Default ever occurred
and, thus, that no foreclosure of any kind could take place. Sweely disagrees, contending that
“[a] Forbearance Default did not occur,” Appellant’s Br. at 11, because SunTrust failed to
provide Sweely with the deed form prior to the turnover date for the Winery and expressly
disclaimed any intent to record a deed in lieu of foreclosure conveying the Winery, see id. at 6-7.
The circuit court did not address this issue, and our interpretation of the Workout Agreement
likewise moots any need to do so.
10 See also Ames v. American Nat’l Bank of Portsmouth, 163 Va. 1, 39 (1934) (“No word
or clause is to be treated as meaningless if any reasonable meaning consistent with the other
parts of the contract can be given to it . . . .” (emphasis added)); Antonin Scalia & Bryan A.
Garner, Reading Law: The Interpretation of Legal Texts 176 (2012) (“If a provision is
susceptible of (1) a meaning that gives it an effect already achieved by another provision, or that
deprives another provision of all independent effect, and (2) another meaning that leaves both
provisions with some independent operation, the latter should be preferred.”).

14
For these reasons, the circuit court did not err in its decision to dismiss Sweely’s breach
of contract claim with prejudice.
B.
The circuit court dismissed Sweely’s claims for fraud in the inducement and constructive
fraud on the ground that the factual allegations themselves defeated any reasonable inference of
“justifiable reliance” on the alleged misrepresentation. See J.A. at 81-82. “[T]here simply are no
facts,” the circuit court held, “that would allow Sweely to reasonably rely on . . . the information
that was given to [it] by the bank about the appraisals.” Id. at 79.11 On appeal, Sweely argues
that the circuit court misapplied the justifiable-reliance doctrine. We disagree.
1.
Under Virginia law, “[f]raud, whether actual or constructive, is never presumed and must
be strictly proved as alleged.” Henderson v. Henderson, 255 Va. 122, 126 (1998). The burden
of proof applicable to fraud, clear and convincing evidence, is higher than a mere preponderance.
See Kent Sinclair, Sinclair on Virginia Remedies § 19-1[C], at 19-3 to -6 (5th ed. 2016 & Supp.
2017). In this context, the burden of proof is highly relevant to the burden of pleading. “Fraud,
since it must be clearly proved, must be distinctly alleged.” Welfley v. Shenandoah Iron,
Lumber, Mining & Mfg. Co., 83 Va. 768, 771 (1887) (citation omitted). “It will not do to state it
argumentatively. The charge must be direct as the proof must be clear.” Alsop, Mosby & Co. v.
Catlett & Jenkins, 97 Va. 364, 370 (1899). For these reasons, allegations of fraud in a complaint
“must show, specifically and in detail,” Southall v. Farish, 85 Va. 403, 410 (1888), all elements
11 As previously noted, see supra note 5, the circuit court held that Sweely’s theory of
recovery was inherently speculative as a matter of law because “there really are no pleaded facts
that would establish any damages for [the fraud] claim[s].” J.A. at 85. We acknowledge the
court’s reasoning on this alternative ground but see no need to address it.

15
of the cause of action at a level which, if believed, would qualify as clear and convincing proof.
“Generalized, nonspecific allegations . . . are insufficient to state a valid claim of fraud.” Ward’s
Equip., Inc. v. New Holland N. Am., Inc., 254 Va. 379, 385 (1997).
One element of fraud, particularly fraud in the inducement, is that the victim “reasonably
relied upon the misrepresentations . . . that allegedly constituted the fraud. Absent such
reasonable or ‘justifiable reliance,’ no fraud is established.” Murayama 1997 Tr. v. NISC
Holdings, LLC, 284 Va. 234, 246 (2012) (citation omitted). When this subject arises during a
jury trial on a motion to strike, the court asks only whether a reasonable jury could conclude that
the reliance was justifiable. The court does not ask whether the evidentiary allegations
themselves are true — only whether, assuming that they are true, a reasonable jury could find
them sufficient to justify the plaintiff’s reliance under a clear-and-convincing standard of proof.
Viewing the pleadings through this lens, a court must engage in the same analysis when
considering a demurrer to a fraud claim.12 The court must assume that the factual allegations
12 The historical demurrer to the evidence is analogous to the modern motion to strike the
evidence as insufficient at trial. See Code § 8.01-276 (“Any matter that heretofore could be
reached by a demurrer to the evidence may hereafter be subject to a motion to strike the
evidence.”). See generally W. Hamilton Bryson, Bryson on Virginia Civil Procedure § 11.05[4],
at 11-27 (5th ed. 2017) (describing the expansion of the motion to strike to subsume demurrers to
the evidence); Martin P. Burks, Common Law and Statutory Pleading and Practice § 284, at 506-
18 (T. Munford Boyd ed., 4th ed. 1952 & Supp. 1961) (also describing the acceptance of
motions to strike).
Under modern practice, the expression “demurrer” is limited to a challenge to the
pleadings. See Code § 8.01-273(A); Kent Sinclair & Leigh B. Middleditch, Jr., Virginia Civil
Procedure § 9.6, at 734 (6th ed. 2014). The conceptual framework, however, has never changed.
See Coutlakis v. CSX Transp., Inc., 293 Va. 212, 222 (2017) (holding that “because a rational
jury could conclude the last clear chance doctrine applies based upon the facts pled and any
reasonable inferences therefrom, the trial court erred in sustaining the demurrer” (emphases
added)); Horner v. Speed, 2 Pat. & H. 616, 630-31 (1857) (opinion of Thompson, J.) (stating that
the object of a demurrer to the evidence is “to declare the inference of law upon the facts proved,
in like manner as it does in a demurrer in law or to the declaration upon the facts stated or
averred”). Compare Duncan v. Carson, 127 Va. 306, 319-20 (explaining “the familiar law
applicable to demurrers to the evidence”), aff’d on reh’g per curiam, 127 Va. 306, 326-33

16
and their inferences are true and ask only whether, if such allegations and inferences are true, a
reasonable jury could find the reliance justifiable based upon clear and convincing evidence.
The legal boundaries of justifiable reliance depend upon the facts of each case. Our prior
cases illustrate this point. In Murayama, for example, a plaintiff claimed that it “had been
duped” into a settlement agreement that resolved a dispute through the sale of corporate shares.
Id. at 243. Prior to the agreement, the defendants had allegedly threatened the plaintiff with
litigation if the plaintiff did not agree to sell the shares to the defendants. After the settlement
agreement had been executed, the plaintiff filed suit claiming fraud in the inducement. The
complaint alleged that the defendants had misrepresented the value of the shares at $2 million
while negotiating a separate sale that “would have resulted in a distribution of approximately
$9,000,000 to the [plaintiff].” Id. The plaintiff claimed to have relied on the misrepresentation
that no sale was imminent and on the omission of information regarding the sale and, as a result,
to have entered into the settlement agreement that transferred the shares at a price below market
value. See id. at 242-43.
Affirming the circuit court’s sustaining of a demurrer, we stated that “to establish fraud, it
is essential that the defrauded party demonstrates the right to reasonably rely upon the
misrepresentation,” which is an element of fraud sometimes labeled “justifiable reliance.” Id. at
245 (emphasis and citation omitted). Without such justifiable reliance, “no fraud is established.”
Id. at 246. We then examined the plaintiff’s allegations of reliance and concluded that the
alleged reliance, even if factually true, was unjustified as a matter of law. Relying on prior
precedent, we explained
(1920), with Coward, 295 Va. at 358-59 (describing a similar standard of review for a demurrer
to the pleadings).

17
that parties to a settlement agreement that [are] in an adversarial
relationship and represented by counsel at the time of negotiation
and settlement . . . will be strictly held to this reasonable reliance
standard under Virginia law when seeking to vitiate the settlement
based on claims of detrimental reliance on the misrepresentations
and/or omissions of information by the adversary.
Id. at 248 (emphasis added) (summarizing the holding of Metrocall of Del., Inc. v. Continental
Cellular Corp., 246 Va. 365 (1993)).13
2.
The specific facts of Murayama, while different, share a common narrative with the
present case. In Murayama, the alleged fraud involved the value of the corporate shares. Here,
the alleged fraud involves appraisal reports valuing the collateralized property. Prior to the
agreement in Murayama, the parties “were in an adversarial relationship and represented by
counsel.” Id. The same was true here. Sweely was in default on millions of dollars in loans.
SunTrust had already seized $1.8 million from Sweely’s Interest Reserve Account. Distrustful
of SunTrust’s alleged appraisals, Sweely asked for copies but did not receive them during
negotiations. Like the plaintiffs in Murayama, Sweely “had every reason to be skeptical,” id. at
249, of the alleged misrepresentation.
The parties in Murayama entered into the settlement agreement to avoid the imminent
prospect of litigation. Similarly, Sweely threatened to delay further collection efforts by filing
13 See also 1 Charles E. Friend & Kent Sinclair, Friend’s Virginia Pleading and Practice
§ 14.18, at 14-40 to -41 (3d ed. 2017) (summarizing this rule from Murayama); Sinclair, supra,
§ 19-2[B], at 19-35 to -36 (summarizing the justifiable-reliance rule from Metrocall); id. § 55-
3[C], at 55-15 to -17 (same); Sinclair & Middleditch, supra note 12, § 18.11, at 1443-44
(reiterating Murayama’s rule regarding when parties will be “strictly held to the reasonable
reliance standard”). See generally 3 Dan B. Dobbs et al., The Law of Torts § 672, at 668-69 (2d
ed. 2011 & Supp. 2018) (stating the general rule requiring justifiable reliance); William L.
Prosser & W. Page Keeton, Prosser and Keeton on the Law of Torts § 108, at 749-50 (Dan B.
Dobbs et al. eds., 5th ed. 1984) (same).

18
for bankruptcy, which would trigger an automatic stay and jeopardize SunTrust’s ability to seek
deficiency judgments. To be sure, Sweely’s theory of reliance rests in part on this premise. But
for being duped into the Workout Agreement, Sweely asserts, it would have immediately
stopped all of SunTrust’s collection efforts by filing for bankruptcy. From any reasonable
perspective, the parties negotiated and entered into the Workout Agreement, at least in part, for
the purpose of avoiding the threat of imminent bankruptcy litigation.
The question that we must answer, like the one that we answered in Murayama, is
whether a reasonable factfinder could accept Sweely’s factual allegations as true and nonetheless
conclude that Sweely justifiably relied on SunTrust’s alleged misrepresentation. See id. at 248-
49. Like the circuit court, we think not. The allegations in the Amended Complaint, when
placed in the context of the relevant documents in the record and the parties’ arguments,
demonstrate that any alleged reliance by Sweely on the appraisal information was unjustified as a
matter of law. Thus, the circuit court also did not err in its decision to dismiss the fraud in the
inducement and constructive fraud claims on demurrer.14
III.
In sum, the circuit court correctly interpreted the Workout Agreement to preclude
Sweely’s breach of contract claim and correctly held that the fraud claims failed because Sweely
had not alleged any justifiable reliance on SunTrust’s alleged misrepresentation. We thus affirm
the judgment of the circuit court dismissing these claims with prejudice on demurrer.
14 Actual fraud claims (including claims for fraud in the inducement) must generally be
distinguished from constructive fraud claims. See Sinclair, supra, § 19-2[C], at 19-38 to -40.
Even so, both require a showing of “justifiable reliance by the injured party.” 13 Peter Nash
Swisher et al., Virginia Practice Series: Tort and Personal Injury Law § 10.5, at 321-22 (2017-
2018 ed.). The parties correctly assume, therefore, that the circuit court’s holding on the absence
of justifiable reliance was dispositive of both of Sweely’s fraud claims. See J.A. at 79;
Appellant’s Br. at 17; Appellees’ Br. at 17; Reply Br. at 4-5.

Affirmed.
19