Daily Development for Friday, August 23, 2002

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

STATUTE OF FRAUDS; PART PERFORMANCE: Where the parties to a sale of real estate planned on both finalizing an irrigation water agreement and transferring title after the delivery of deeds, the collateral rights exception to the merger doctrine applies to the water agreement. Spears v. Warr, 44 P.3d 742 (Utah 2002). , dicussed under the heading: "Vendor/Purchaser; Merger by Deed; Collateral Rights

The parties agreed upon the sale of property with a subsequent transfer of water rights. The agreement as to water rights was verbal, and, after the closing on the property, the seller refused to transfer the water rights. The seller argued first that the acceptance of the deed without the water rights precluded any argument that water rights were included. In the discussion of the case noted above, we outline the court's response that the merger by deed doctrine did not apply because the water rights agreement involved "collateral rights."

This left the problem that the agreement for water rights was unwritten. The court found that plaintiffs had partially performed the sales contract by paying a purchase price which included payment for water rights. Even though those rights were "collateral," they were still part of the deal.

The strength of the evidence that this payment was partially for water rights served to ease the requirement that the reliance by plaintiffs was exclusively referable to the contract. This partial performance removed the water agreement from the Statute of Frauds, thus rendering it enforceable.

Comment: The editor finds the case interesting because of the juxtaposition of the "collateral rights" concept and the reliance upon the principle contract to serve as "part performance" to support the enforcement of those collateral rights. Nothing wrong in this - but it does serve to underscore the distinct nature of the two concepts.

VENDOR/PURCHASER; MERGER BY DEED; COLLATERAL RIGHTS EXCEPTION: Where the parties to a sale of real estate planned on both finalizing an irrigation water agreement and transferring title after the delivery of deeds, the collateral rights exception to the merger doctrine applies to the water agreement.

Spears v. Warr, 44 P.3d 742 (Utah 2002). Each plaintiff bought a subdivided parcel from defendants or transferees of defendants (the "Purchasers"). Defendants had promised the Purchasers that they would get water rights sufficient for the land, but did not transfer water rights. Plaintiffs sued defendants for specific performance. In related litigation defendants testified that they had sold the parcels based upon their representation to purchasers that they would get water rights.

Defendants urged that the doctrine of merger dictated that all of the obligations of the Defendants were embodied in the deeds. The court noted that, in this case, the irrigation rights are not necessarily appurtenant to the parcels. The court held that in light of this fact and where, as here, the parties planned on both finalizing an irrigation water agreement and transferring title after the delivery of deeds, the collateral rights exception made the merger doctrine inapplicable here.

The court also found that plaintiffs had partially performed the sales contract by paying a purchase price which included payment for water rights. The strength of the evidence that this payment was partially for water rights served to ease the requirement that the reliance by plaintiffs was exclusively referable to the contract. This partial performance removed the water agreement from the statute of frauds, thus rendering it enforceable.

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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