Daily Development for
Friday, March 13, 1998

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

Note that this case involved a number of issues, and I have divided the report into two separate items set forth below:

DEEDS; MERGER DOCTRINE: The merger doctrine does not bar a purchaser of thirty acres of land from proving the existence of an oral contract for the purchase of a total of fifty-nine acres and proving that the amount paid for the initial thirty acres exceeded the per acre contract price.

Johnson Farms v. McEnroe, 568 N.W.2d 920 (N.D. 1997), discussed further below under the heading: "Statute of Frauds; Part Performance; Bifurcated Transactions."

In order to facilitate a like-kind exchange, the seller and buyer orally agreed to a two-part conveyance. The buyer acquired the initial thirty acres through a like-kind exchange. The land that the buyers exchanged, selected by the sellers, was also a thirty acre tract, but was worth substantially more per acre than the land sellers exchanged for it.

Later, the seller agreement refused to convey the remaining twenty-nine acres. (Time had passed, during which there had been difficulty identifying suitable exchange property, and now there was an opportunity to sell some of the seller's remaining twenty nine acres at a higher price.)

Buyer brought an action for specific performance or, in the alternative, for return of the excess compensation that the seller received for the initial acreage. The seller moved for summary judgment based upon the Statute of Frauds. The buyer answered that part performance of the oral agreement took the contract out of the Statute of Frauds. The trial court, however, found that any such oral agreement was "merged" into the deed of the thirty acres, and was no longer effective.

On appeal: held: Reversed. The court held that the merger doctrine does not defeat the purchaser's claim and that parol evidence may be used to prove the contract and that the actual compensation differs from that recited in the deed.

The court indicated that the purpose of the merger doctrine is not served by ignoring evidence that the parties did not view the deed as the final statement of their agreement, but rather a part of a larger agreement. Consequently, the buyers were able to overcome summary judgment and proceed with their effort to demonstrate that their part performance of the alleged oral agreement took that agreement out of the Statute of Frauds and rendered it enforceable.

Comment 1: As the editor has indicated in prior discussions of the merger by deed doctrine, properly interpreted, it has almost nothing to do with the mechanical merger concepts of the sixteenth century. It is nothing more or less than interpretive tool. If the parties, with knowledge that title is different from that as to which they originally contracted, nevertheless agree to close their transaction, and do nothing to reserve the rights of the party disserved by the difference in title, then the court will assume that the parties had agreed to compromise the problem and permit the actual title to serve as the basis for the deal.

There may be some instances where the court would apply the same presumption to matters other than title, such as where a seller has agreed to perform certain improvements prior to closing, and has not done so, and the buyer, with knowledge that the improvements are not completed, and without reservation of rights, elects to proceed to closing.

But because these applications of the "merger" doctrine have almost nothing to do with the existence of two "estates" in one party, the editor has always felt that the term "merger" is an inadequate description of the concept, and has proposed naming the concept "Bubba" instead. The idea has not caught on.

Comment 2: Here, the trial court attempted to make a mechanical application of ole' Bubba to sweep the dispute under the rug and to avoid dealing with the complex test of truth that was sure to ensue when buyer and seller got down to proof of facts. But the appeals court wouldn't buy the ploy. If, indeed, a broader contract existed, then this contract was completely inconsistent with the deed being the final expression of the deal, and other facts alleged by buyer demonstrated that fact. Indeed, there was a written option agreement (described in a separate report under this heading) that lent credence to seller's characterization of the facts. Hence, there was adequate reason to conclude that no presumption of finality should be drawn from buyer's acceptance of the deed to the thirty acres.

STATUTE OF FRAUDS; PART PERFORMANCE; BIFURCATED TRANSACTIONS: Even where possession of some of the property subject to a contract has not transferred, buyer can enforce verbal contract to acquire land if other circumstances suggest that parties have performed in ways uniquely consistent with the existence of the contract, and transfer of part of the property may be one such performance.

Johnson Farms v. McEnroe, 568 N.W.2d 920 (N.D. 1997), discussed further above under the heading "Deeds, Merger."

This case was an action based upon an alleged oral agreement to sell land. The buyer alleged that the seller agreed to sell a fifty nine parcel for a set price, but wanted to do so through a tax deferred exchange. The seller could not identify exchange property to use up the whole purchase price, but transferred thirty of the acres in exchange for another thirty acre parcel acquired for exchange by the buyer, and agreed that the balance of the exchange could occur later.

The trial court granted summary judgment to seller, and buyer appealed. The appeals court court reversed and remanded. One element of the discussion is reported in a separate report - dealing with the merger doctrine. But a separate element of the case, discussed here, is the relevance of various evidentiary items to prove buyer's case.

The court discussed other facts alleged by the buyer (and in this summary judgment action - presumed to be true):

The buyer alleged that the value of the 30 acres transferred in exchange for the seller's original thirty acre parcle was much higher than the value of that parcel, so that if the buyer were not able to carry out the balance of the deal, the buyer would be substantially overpaying for the acreage it got.

The buyer further alleged that, when it became apparent that it was desireable to acquire and exchange the 30 acre parcel prior to identification of the balance of the exchange property, the seller unilaterally executed an option instrument granting the buyer the right to obtain and exchange other property for the remaining 29 acres. The option also provided that buyer could deposit cash into an escrow account reflecting the balance of the purchase price. The cash amount stated in the option tended to corroborate buyer's contention that the value of the property seller had already transferred was less than the value of the property that buyer had exchanged for it.

Buyer also alleged that when seller was unable to identify property for exchange prior to the expiration of the option, seller's son informed buyer that seller (who was out of town) preferred not to have cash deposited into escrow, but rather would extend the option. The option term did expire without the seller executing any extension.

Thereafter, the buyer, anticipating that closing on the 29 acres would occur shortly, proceeded to invest $6500 in platting a subdivision on part of that acreage. Seller reviewed and approved the proposed subdivsion, and buyer arranged for it to be finally approved by local zoning authorities.

Later, the seller argued that his son lacked agency authority to extend the option and that, in any event the extension would have varied the terms of a written instrument and had to be in writing itself.

The trial court had ruled that the whole deal had been altered to a sale of the thirty acres for the full price, due to its application of the merger doctrine. It is unclear, therefore, exactly what it thought of all this additional evidence.

The appeals court, having reversed the merger conclusion, did provide additional analysis for the remand as follows:

1) Although normally part performance involves a transfer of possession of the property allegedly sold, this is not necessary in every case. Here, where some of the consideration was paid, and part of the property transferred, and the parties collaborated on the subdivision of the remaining property as part of the subdivision of the property transferred, there was sufficient additional evidence of conduct specifically referrable to the existence of the alleged contract for a trier of fact to conclude that part performance had occurred.

2) Courts will recognize exceptions to the Statute of Frauds when necessary to prevent the Statute itself to be used for fraud. Consequently, buyer here will be permitted to show by parole evidence both the fact of the son's agency to extend the option and the extension itself.

Comment: Although this part of the case clearly is "fact driven," and therefore of less use as precedent, the willingness of the court here to expand the available evidence may be of use in similar cases in the future. Note, however, that there was a written agreement - the option - that discussed the deposit of the balance of the purchase price into escrow and therefore indicated quite clearly the existence of an original agreement, establishing that substantial inequity would arise if the buyer was unable to complete the deal.

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