Daily Development for Friday, October 26, 2001

Daily Development for Wednesday, October 3, 2001

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

VENDOR/PURCHASER; MERGER; EASEMENTS: Where sale agreement states that grantor will reserve an easement for grantor's benefit over property to be transferred, the easement will be effective even if the grantor fails to reserve it expressly when the deed is conveyed.

Chapdelaine v. Sochocki, 2001 WL 936325 (Mich.App.8/17/2001)

Grantor's counteroffer to grantee's offer to buy the a portion of grantor's property included the requirement that there be a reserved easement over the parcel transferred that would benefit grantor's remaining parcel.

At closing, the grantor did not mention the easement as a reservation to the deed.

Not suprisingly, the grantee argued that the provision for the easement had merged into the deed and that the deed expressed the final intent of the parties. The trial court rejected that argument, and the appeals court here affirmed that ruling.

The appeals court noted that there is an exception to the general concept that unfulfilled promises as to the character of the property conveyed disappear when the deed is delivered.

Generally, a deed executed in performance of a contract for the sale of land operates as satisfaction and discharge of the terms of the executory contract. . . . However, an exception exists where the deed does not constitute full performance of the purchase agreement."

The court characterized the grantee's promise to create the easement as one that necessarily could be fulfilled only after the deed had been delivered. Consequently, it was a separate element of the intended performance and could not be included in the deed.

Comment 1: Although the editor is inclined to agree with the court's conclusion, it is indeed a very close call than the court suggests. The reasoning the court uses is so manifestly incorrect that it is probably necessary to quote from it so readers will believe that this is what the court said:

"[T]he easement reserved by plaintiff was not capable of fulfillment until after the deed was delivered and, therefore, was not fulfilled by the deed. Because the deed plaintiff delivered to defendants did not constitute full performance of the easement provision in the purchase agreement, the doctrine of merger does not apply here to extinguish plaintiff's express easement reservation."

What a silly thing to say! We're talking here about an easement by reservation. Of course it is to be created by the deed. That's what a reservation is - from the total bundle of rights in the property, the reservation holds back that element that relates to the use rights retained by the grantor. The fact that the court made the same error in reasoning in a 1975 opinion, upon which it relies, doesn't make the reasoning any sounder.

The doctrine that the court is talking about is the "collateral" issues doctrine. Items in the contract not necessarily subsumed in the delivery of the deed at closing obviously should not be eliminated just because they weren't mentioned in that deed.

Comment 2: Because, in fact, the contract did contemplate that the provision relating to the easement would be carried out by the language of the deed, we don't really have a collateral issue. Therefore, the question of merger by deed becomes much more difficult for the grantor.

The merger doctrine (which isn't really a classic real estate merger concept at all), is a response to the reality that parties often contract to deliver a real estate title that is different than that which they own or ultimately determine is the proper title to transfer. If the grantee later accepts a lesser performance, or the grantor later delivers a greater performance, than what the contract requires, courts will assume that the deed, and not the contract is the final written statement of their agreement. The concept prevents parties from actually carrying out the closing without complaining and then coming back later to seek damages or for breach of the prior contract or even rescission because the deed didn't conform.

Properly stated, the doctrine (which the editor has in the past suggested be named "Bubba" to differentiate from real merger concepts) contemplates that the parties know that there is a difference between the deed and the intended contractual performance set forth in the contract.

If they don't like the difference, they can object at the closing and indicate that they are reserving their rights. If the other side still agrees to close in the face of such a reservation, there is no Bubba doesn't happen.

In many cases, we have no real evidence that the parties did or did not know that the contract and the deed differed. If neither knew, and intended only the original contract terms, then we have a case of mistake and reformation should lie. If only the buyer was actually aware of the change, then we must ask whether the seller should have been aware.

Here, since it was the seller's condition and the seller drafted the deed, normally we'd say that the seller should be viewed as knowing what it was doing, and should live with the result.

Comment 3: The editor would remand to ascertain whether the buyer, at the time of the closing, was aware that it was getting a deed that didn't include the reserved easement. If not, then we're talking about a simple mistake of fact. They contemplated one description, and the deed included another description. Reformation is appropriate. But application of the merger doctrine is not. Bubba, go home.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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