By: Thomas S. Tripodianos Published: October 2007

Merger Doctrine

Question. Does the "merger doctrine" extinguish a clause in the buyers' pre-purchase-agreement allocating their respective percentage of ownership of real estate where such clause conflicts with a similar provision in the deed of conveyance that provides a different percentage of ownership?

answer NO. Buyer A entered into an agreement (hereinafter referred to as “buyers-pre-purchase-agreement”) with Buyer B to jointly purchase certain real property. The property was divided into four distinct parts: a garage, a multi-purpose dwelling and two vacant lots, which were intended to accommodate buyer's respective businesses.

Pursuant to the buyers-pre-purchase-agreement, after the purchase, Buyer A shall occupy the garage and Buyer B shall occupy the remainder, a multi-purpose dwelling and two vacant lots. The buyers-pre-purchase-agreement required Buyer A to provide the down payment and Buyer B to cover the remainder of the purchase price with a purchase money mortgage. In addition, the buyers-pre-purchase-agreement provides that, after the closing, the parties shall undertake to cause the property to be divided so that the lot improved by a garage building shall be designated as one lot and the remaining three lots as one lot.” The garage constitutes twenty five percent (25%) of the property, while the other three lots constitute seventy five percent (75%) of the property.

Seller, who is not a party to this action, owned these four contiguous real properties. Seller entered into a purchase-and-sale agreement to convey the real properties to Buyer A and Buyer B. The deed executed and delivered to purchasers contains a provision allocating thirty percent (30%) ownership of the property to Buyer A, and the remaining seventy percent (70%) to Buyer B According to Buyer A prior to closing, Buyer B was unable to meet part of its commitment. In consideration for making up for the deficiency of Buyer B's commitment, Buyer A received an increase of five percent of his ownership interest in the properties. In contrast, Buyer B claims that the five percent increase was done solely to require Buyer A to assume a greater percentage of the tax obligation, so as to more equitably reflect the actual value of its portion of the property; it was never intended to alter the ownership split, as provided in the buyers-pre-purchase-agreement.

Reportedly, since the transfer Buyer A has used a portion of the vacant lot behind the multi purpose dwelling to store certain business equipment and vehicles. Such space, Buyer A claims, constitutes the five percent (5%) increase in ownership it acquired at the closing. A dispute ensued when Buyer B refused to divide the property along the 70/30 percent split, as delineated in the deed of conveyance.

There is no support in the law for Buyer A's contention that the buyers-pre-purchase-agreement-allocating a 75/25 percent split of ownership-merged into the deed and is therefore extinguished. The merger doctrine has no application to this case. This is because the principle of merger addresses the obligations between the seller and buyer of real property. Except in limited circumstances, a deed entered between the seller and buyer would have the effect of extinguishing unfinished obligations of the seller or buyer arising from a prior contract of sale. In other words, the delivery and acceptance of an executed deed is considered prima facie evidence of a merger superseding the provisions of the antecedent contract which had imposed obligations upon the parties.

In this case, however, the dispute is not between the seller and buyer. Rather, the dispute pertains to the rights and obligations between the buyers. Accordingly, the resolution of the conflict depends upon the interpretation of the terms of the buyers-pre-purchase-agreement and the deed with regard to the party's respective share of ownership of the property upon the agreed partition. Thus, since the rights of the parties as to the allocation of ownership upon the agreed partition does not arise from the contract of sale, their promulgation in the buyers-pre-purchase-agreement are not extinguished by the doctrine of merger.

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