Daily Development for Thursday, September 19, 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

VENDOR/PURCHASER; MERGER BY DEED; COLLATERAL AGREEMENT 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. Defendants urged that the doctrine of merger dictated that all of the obligations of the Defendants were embodied in the deeds. Thus their agreement respecting water rights was no longer in effect.

The court noted that, in this jurisdiction, 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.

Comment: The court got this one right, and more courts should follow suit. The merger by deed doctrine is nothing more than a determination of whether the parties, in carrying out a deed transfer without fulfilling other requirements of the sale agreement, intended to modify that agreement. Sometimes they do so intend, but often they don't.

STATUTE OF FRAUDS; PART PERFORMANCE: Where, in connection with the sale of land, sellers verbally represent that they will also transfer appropriated water rights when they later obtain them, the buyer's performance under the land sale agreements constitutes part performance of the agreement pertaining to the water rights.

Spears v. Warr, 44 P.3d 742 (Utah 2002). , also discussed under the heading: "Vendor/Purchaser; Merger by Deed; Collateral Agreement Exception."

In another legal proceeding related to their obtaining the water rights, defendant sellers had admitted in an affidavit that they had sold certain parcels based upon their representation to purchasers that they would get water rights. Later, when the sellers did obtain the water rights, they demanded additional consideration from the buyers for these rights.

Buyers contended that there had been an oral understanding that the purchase of the land carried with it the purchaser of the water rights when finally obtained by the sellers.

The court noted that the trial court had found that the evidence of the existence of the oral agreement was "clear and definite." The court also found that the evidence also was clear and definite that the buyers had paid extra money for the irrigation rights at the time they purchased their lots. (The court does not cite any evidence to this effect, such as a dual pricing system for land with water rights and without. And, of course, there is nothing in writing.)

The court asserted that Utah law provided that when the evidence of the alleged oral understanding is "clear and definite," a party alleging part performance has a lesser burden to demonstrate that the performance is referrable to the argued-for contract rights.

Comment: The court's statement that the overwhelming evidence that there was an oral contract leads to more generous treatment under the part performance doctrine is critical here. Clearly, under most interpretations of the doctrine, the payment of money to obtain a deed is not part performance of an agreement to acquire something else. Presumably the written sales agreements for the land identified the price for the land as the price that the buyers paid. Consequently, there appears to have been a completed contract regarding the land, and it is difficult to conclude that the purchase of that land was part performance of any other agreement.

Despite the fact that the court is getting to the probable correct result, the editor regrets seeing the court distorting the part performance doctrine to get there.

VENDOR/PURCHASER; MERGER BY DEED: Grant, included in real property sales agreement, to "future buyers" by seller of access rights to unspecified lands retained by seller has merged into deed, which did not mention any rights and thus purchaser's successors do not have any such rights against seller.

Richman v. Gehring Ranch Corp., 37 P.3d 732 (Mont. 2001).

Defendants' predecessor ("seller") sold 360 acres of land to Plaintiffs' predecessor ("buyer") who developed the land into a residential subdivision. In the sales agreement, seller granted to "future buyers"

access rights for outdoor recreation on unspecified lands retained by the seller "with the understanding that rules and regulations will be established by a Future Owners Association" which could, for cause, prevent the future buyers from using their rights.

Plaintiffs, subdivision home-buyers, were not permitted by defendants to enter on to their 3,600 acres of land adjacent to the plaintiff's land. Plaintiffs sued defendants for enforcement of their claimed rights of access.

The Montana Supreme Court held that the grant was merged into the deed and was thereby wiped out. The merger occurred because the grant was part of a larger agreement to transfer land in the future.

This was evidenced by the fact that the grant was part of the sales agreement, which was not recorded until eleven years later, no separate grant was filed, there was no evidence that access rights were intended to be part of a collateral agreement supported by consideration apart from the purchase price. Also, a rescindable grant by seller of rights to access to unspecified land to unidentified future buyers if certain conditions were met does not constitute an easement.

Plaintiffs argued that the language in the sale agreement that seller "hereby grants privileges to future Buyers" indicated that the intent was to create an immediate easement, and not to transfer an easement in connection with the later sale of the 360 acres. The court acknowledged that the plaintiffs had a point, but noted that in context the clear intent of the parties was that if there had been no later sale of the acreage, there would have been no easement. For instance, the provision went on to say that an owner's association would be created to manage the use of the various rights. The court inquired how there could be an owner's association if there were no owners - and there could be no owners unless the 360 acres ultimately were transferred.

Comment 1: It does appear that there was no intent to create an immediately existing right, but only a right that took effect after the delivery of the 360 acres to the buyers.

Comment 2: Notwithstanding the above, it might be possible to argue that the existence of a condition precedent to the effectiveness of the easement does not preclude the conclusion that it existed once the necessary conditions were satisfied.

Comment 3: The editor believes the court was convinced by the facts that the contract was in fact not carried out immediately, that non of those who purchased parcels from the original subdividers sought rights to use the alleged easement, and that only these two owners - remote from the original subdividers, had so requested to this date.

To the editor, these facts are not dispositive. If the developer itself was not to enjoy the easement, but only ultimate remote purchasers from the developer, it would not necessarily be the practice of the parties to record a deed in the original transfer to the developer. The court did not address this little difficulty, and it should have.

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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