Daily Development for
Monday, October 14, 1996

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

DEEDS; MERGER; COLLATERAL RIGHTS: A notice in closing instructions that buyer reserves the right to contest whether a lot is to be included in sale or not is not sufficient to invoke the collateral rights exception to the merger by deed doctrine; and thus, by closing the transaction, buyer will lose the right to challenge the boundaries of the property purchased.

Maynard v. Wharton, 912 P.2d 446 (Utah App. 1996).

Six days prior to the closing, sellers revealed to buyers that they did not own, and had never owned, a one acre lot that was part of the contracted-for 25 acres. They attributed the problem to a surveyor's error, but the court does not reach the question of responsibility here.

The buyers hand delivered a funds for closing to the closing agent with a cover letter labelled "Instructions for closing . . .." The letter was addressed to the sellers and the closing agent and indicated that the monies were provided "with the undertstanding that we are reserving our rights to dispute whether the transaction includes and we were sold the property identified as lot 15 on the preliminary plat and the right to claim damages and fees [under the sale agreement]. If this reservation is not acceptable the checks are to be returned to us and the closing is not to proceed."

Neither buyers nor sellers signed the letter quoted above. The parties then proceeded with the closing, with sellers signing a deed and buyers signing a deed of trust and note and all signing other closing documents.

The original contract of sale contained an "abrogation clause" that the court characterized as a contractual statement of the common law doctrine of merger by deed. The clause provided:

"Except for express warranties made in this Agreement, execution and delivery of final closing documents shall abrogate this Agreement."

The court does not dwell on the meaning of the "abrogation clause," but focusses instead on the common law version of the doctrine of merger. This doctrine provides that buyer's acceptance of the deed is a waiver of seller's unmet conditions under the contract. The court points out that Utah recognizes only four exceptions to operation of the doctrine. "(1) mutual mistake in the drafting of the final documents; (2) ambiguity in the final documents; (3) existence of rights collaeral to the contract of sale; and (4) fraud in the transaction." Clearly (1), (2) and (4) were not present here, but the buyer argued that the "Closing Instructions" constituted a "collateral agreement."

Held: Where an agreement deals with the title or quantity of land conveyed, which is the essence of the sale agreement, it is not collateral to the agreement for purposes of the merger by deed doctrine.

Comment: The court points out that the sellers did not execute the "Closing Instructions" letter. But should this preclude enforcement of the letter if the circumstances indicate that they knew of the letter and acquiesced in its contents? It may be that the buyers did not make a case from which the court could conclude an agreement to preserve buyers' rights. But the court's language suggests that such an agreement would be unenforceable in any event due to the doctrine of merger by deed. This appears to take the doctrine further than is appropriate.

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