The Urge To Merge: What Happens To My Bargained-For Protections After The Closing?

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Ruminations has explored the thorny area of integration clauses and the limits of the parol evidence rule in the context of contracts. [If you don’t believe us, click HERE or HERE or HERE to see if we’re fibbing.] We haven’t heretofore look at the same question in the context of the interplay between a purchase agreement and the deed to which such an agreement gives birth. Today, we do. A cautionary warning would be in order. As much as we wanted to stay out of the “weeds,” that didn’t entirely work out, and what follows turned out to be a little “wonky.”

One of the branches of the tree sometimes named “the deed merger doctrine” is often described as follows: “Where a deed is executed in pursuance of a contract for the sale of land, all prior proposals and stipulations are merged and the deed is deemed to express the final and entire contract between the parties.” [There is an entirely different branch, one having to do with the implied combining of multiple tax lots into one lot, but that’s not the kind of “deed merger” being explored today.] It’s too bad that the coverage of today’s real property law school courses have been trimmed from “what they used to be” because too little time is now devoted to understanding the actual extent of such “mergers by deed.” Just like we learned in prior Ruminations postings when it came to the limitations of the parol evidence rule, the common formulation of the deed merger doctrine set forth above is “overstated” because “[t]he rule that prior expressions are merged into the deed is not as broad and absolute as some abbreviated statements of the doctrine might indicate.”

[It’s time to interrupt this already windy discourse for an explanation and a disclosure, starting with the disclosure. Here is the disclosure: the impetus for today’s posting and the really quality quoted material (as contrasted with our passing comments and “highlighted” words and phrases) comes from the April , 2015 California Court of Appeal’s in Ram’s Gate Winery, LLC v. Roche, a copy of which can be seen by clicking HERE. The promised explanation (for those many readers who would be helped by it) is of the “Parol Evidence Rule” and it is this: parol evidence (extrinsic material – stuff “outside” the agreement) cannot be used to contradict the terms of a later written agreement (and, sometimes, a contemporaneous agreement).]

Basically, the question that brings the deed merger doctrine to the discussion is “Will a representation or warranty in the deal’s purchase agreement or a “promise” (read that, “representation”) made by a seller that induced the buyer to go forward be extinguished after the closing takes place (i.e., if the deed is delivered and accepted) or will the representation or warranty “survive”? To get any clue as to how to answer that question, we’ll need to revisit two old friends of Ruminations: (a) contract interpretation; and (b) the schizophrenic nature of a contract for conveyance of real estate.

We’ve already signaled that the simple explanation of the deed merger rule is “overstated.” So, what would be a better description? We’re glad you asked. Here is one: “When a provision in a deed is certain and unambiguous it prevails over an inconsistent provision in a contract of purchase pursuant to which the deed was given.” That means one looks at the “deed” for the “intent” of the parties. That’s the touchstone of contract interpretation (even though a deed isn’t a contract – we’ll get there in a little while). If one finds that the parties clearly intended for every (or any particular) prior representation, warranty or agreement related to the conveyed property to “disappear” as if it never existed, then that will be the outcome.

This leads us to why we invoked the psychological term, “schizophrenia.” Readers schooled in the area (of real estate law, not psychology) and those who recall some of our prior Ruminating, will know that real estate agreements have two faces: conveyance and contract. A deed is dominantly (and sometimes only) an instrument of conveyance. This may be a helpful “picture” to explain that concept. In Merry Old England, when a buyer acquired a plot of land, there would be an enfeoffment ceremony (a clue as to why we say “fee simple absolute” or “conveying a fee interest). Basically, the buyer and seller would go out to the field in question, accompanied by almost every adult in the village (that could be 22 people). The seller would pull a tuft of grass from the field to be conveyed and hand it to the buyer while saying, “I enfeoff you with my land” (or somesuch). There was no deed. Instead, the entire adult community (or nearly the entire community) witnessed the conveyance, and the deal was done. If there was any later dispute or question as to who “owned” the land, all you needed to do was ask anybody in town.

Notice, there were no promises or representations. There was no contract. The deal was over. The property was conveyed. The transaction was all conveyance and no contract. This was the origin of the deed merger doctrine. If the buyer accepted that tuft of grass, it was implied that he and his seller intended that the deal was done, finished, over.

Rue as you will for the good old days when things were so simple, they are done, finished, over. Today, the deed is one page; the purchase agreement is 85 pages. So, there must be other things in that purchase agreement besides those related to the conveyance itself. There are, and they are covenants (agreements), representations, warranties, conditions, contingencies, and more. We now know that a deed conveys the real property interest that is the subject of the purchase agreement, but what does a deed do to or with all of those “contract” aspects of the agreement?

That brings us back to “what was the intent of the parties” when the particular deed was delivered. Unfortunately, very few deeds answer that on their face other than as to certain covenants (promises) and warranties pertaining to things about the property’s ownership: i.e., things that go to “did the seller really own the property and are there any other people with legitimate ownership or leasehold or similar claims against the property?” The covenants and warranties only relate to the conveyance, i.e., to the real property aspects of the transaction. Very few deeds say anything about the disposition of representations or warranties made by a seller in the purchase agreement (or otherwise, before the closing) concerning the environmental, physical or similar condition of the property. Nor do many deeds at all “discuss” the disposition of earlier promises of the financial future of the property or whether a key highway exit will remain open.

Are you waiting for an answer to the questions or issues we’ve posed? Are you waiting to read whether when the property turns out to be polluted when the purchase contract promised otherwise? Well, that’s not going to happen today. Some may jump up and say, “a cliffhanger,” but it really isn’t. That’s because according to the greatest authority on everything in the modern world, Wikipedia, a “cliffhanger or cliffhanger ending is a plot device in fiction which features a main character in a precarious or difficult dilemma, or confronted with a shocking revelation at the end of an episode of serialized fiction.” It would be a cliffhanger if today’s Ruminations was fiction. It isn’t.

So, if you’d like to know how Ruminations gets Winky Dink out of the pit, you’ll have to dial in next week. And, next Sunday being part of a holiday weekend, there will be a small change from our customary posting schedule. Instead of being available mid-day on Sunday, the conclusion to this topic’s coverage will be posted late Monday, Memorial Day, instead.

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