Daily Development for Tuesday, September 6, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

VENDOR/PURCHASER; MERGER BY DEED; PRORATION OF TAXES:  Purchase contract provision regarding proration of taxes was not exempt from the merger doctrine due to a mutual mistake of fact.

 Andrew Chapman v. Anchor Lumber, 823 N.E.2d 594 (2005). 

In 2002, plaintiff purchased from defendant a parcel of residential real estate upon which a dwelling had recently been constructed.  The purchase contract provided for proration of the applicable property taxes as of the closing date of the sale.  Both parties, however, were under the mistaken impression that the parcel was subject to assessment as a "new construction," rather than as "substantially completed." 

The property had been reassessed in late 2001, but none of the parties called the assessor's office prior to the closing, and thus remained unaware of the reassessment until it was published in a newspaper a week after the closing.  The amount initially prorated had been $180.46; the amount that would have been due from seller under the reassessment was $4,168.58. 

The circuit court ordered that this mutual mistake of fact required a recalculation of the taxes according to the new assessment.  Defendant appealed, arguing that the contract merged into the deed, making the calculation of the real estate taxes final and barring plaintiff's claim.  Citing Daniels v. Anderson, 642 N.E. 2d 128 (1994), the appeals court agreed that the merger doctrine is the general rule when property is conveyed via deed, and the deed survives as the only binding instrument, but an exception does exist when there are provisions of the contract that the conveyance of the deed does not fulfill. 

The court found in the case at hand that plaintiff had not proved that the parties intended this proration provision to survive merger.  The court also cited Hagenbuch v. Chapin, 500 N.E. 2d 987 (1986), a case in which a mutual mistake regarding the acreage of the property conveyed merited another exception to the merger doctrine.  However, in the instant case, the court declined to broaden Hagenbuch to create a broad exception for mutual mistake, despite the decision of another district of the state appellate court to create just such a broad exception.  The case was remanded with directions to enter judgment for the defendant.

Comment: The conclusion, obviously, is that this was a discoverable circumstance of which the buyer should have made itself aware before closing.  In the alternative, the buyer should have included language in the agreement for closing that would have protected it from miscalculations of prorated property taxes.  In fact, most escrow instructions, as the editor understands things, do have that kind of language, in order to protect the escrow agent. 

But what in the world does the concept of merger have to do with anything? 

Readers are encouraged to respond to or criticize this posting.

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