Daily Development for
Friday, November 1, 1996

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

VENDOR/PURCHASER; WARRANTY OF QUALITY; INSPECTIONS: A termite warranty in a purchase agreement merges into the deed.

Link v. Breen, 649 N.E.2d 126 (Ind. App. 2d Dist. 1995).

A rider incorporated into a purchase agreement contained language stating: "[Seller] warrants that the premises are free from termite or other wood destroying infestation or damage therefrom," and further required that the seller provide an inspection report to buyer prior to closing. The seller complied, forwarding a report to the buyer which stated there was no termite infestation but qualifying the inspection due to the inspector's inability to access the entire house. After the closing, the buyer discovered a termite infestation, apparently in an area that would have been inaccessible to the inspector, and brought a claim in breach of contract and damages for failure to discover and disclose the termite infestation.

The court found that the language of the contract clearly imposed upon the seller the duty to conduct and pay for an inspection and forward the results to the buyer, but that the contract did not evidence a warranty that would survive the closing. The warranty, had it existed, might have been a collateral undertaking that would survive the closing. But, as the warranty, in the view of the court, unambiguously was limited by to seller's duty to correct any damage discovered in the pre-closing inspection, there was no post closing agreement as to infestion. Consequently, no exception to the merger doctrine was applicable. Summary judgment for seller.

Comment: The case clearly reaches a result that tracks the expectations of most parties to most residential agreements. There must be an end to inspection contingencies, and the buyer had the opportunity to bargain for the right to make more complete inspections if it chose.

On the other hand, the language of the contract is rather unusual. What did the parties mean by the phrase "Seller warrants that the premises are free from [termites]?" Such language was superfluous insofar as the termite inspection rights are concerned. To the editor, it appears to be a separate warranty against infestation that might be discovered post closing. (Of course, the warranty would apply only as to infestation that clearly existed pre-closing, but was not discovered.)

The court seems concerned that the seller might be exposed to be liability for termite infestation for an unlimited time into the future. But is this so unusual? The seller gave a warranty deed that imposed such liability for title problems, and sellers commonly make other warranties that may surivive for unstated future periods. So long as the seller's exposure is limited to conditions that existed at the time of the closing, why is it not logical to expect language such as that in this case to express the parties' intent that a warranty existed?

The editor would not draft a contract termite clause in the way the parties did here. Most lawyers would not. But that does not mean that a court ought to read the most logical meaning of the language out of the contract.

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