Merging a Purchase Agreement with a Deed
The buyer and seller of real estate typically sign a purchase agreement, an executory contract that obligates the parties to buy and sell the real estate on certain conditions. They may make various promises and representations in their purchase agreement.
The purchase agreement governs the parties’ relationship until closing, when the seller gives a deed to the buyer and the buyer gives the purchase money to the seller. At that point, the purchase agreement is said to merge with the deed, although maybe it would make more sense to say that the deed replaces the purchase agreement.
By delivering a deed and the purchase money, the parties indicate that the conditions of the purchase agreement have been met or that they waive the failure of any conditions that haven’t been met. They also indicate that they accept the other party’s performance of its obligations under the purchase agreement. That indication is especially strong when the deed addresses the same subject as the purchase agreement.
If either party feels that a condition hasn’t been met or that the other party has breached a covenant in the purchase agreement, she must demand performance before closing, waive the objection, or expressly agree with the other party to go forward with the closing and resolve the objection after closing.
The merger doctrine has some exceptions. Even after closing, a party may enforce terms of the purchase agreement in the following situations:
Express intent to survive closing: The parties can enforce a term of the purchase agreement if the parties clearly indicated their intent that the term would be enforceable after closing, such as by a clause saying that the particular term would survive closing.
Promises to be performed after closing: The parties can enforce purchase-agreement promises that are intended to be performed after closing. A simple example is a promise in the purchase agreement that says the seller will make certain repairs on the house within a certain time period after closing. The parties obviously would intend that promise to be performed and enforceable after closing.
Collateral provisions: The deed transfers title and possession to the grantee and may warrant that title. The deed doesn’t generally include any other types of promises. So if the purchase agreement includes promises that aren’t related to the transfer of title and possession, and if the deed says nothing about those promises, there’s no reason to think that the deed was meant to take the place of those provisions of the purchase agreement.
Fraud: A party can sue the other for fraud after closing, despite the merger doctrine. For example, if the purchase agreement represented that the heating system worked and the seller lied in telling the buyer that she recently had the heating system inspected and it worked fine, the buyer could sue the seller for fraud even after closing.
Mutual mistake: A mutual mistake exists when both parties share a mistaken belief and their written agreement therefore doesn’t reflect their actual agreement. For example, a drafting mistake in the deed’s legal description of the conveyed property may be a mutual mistake, and a party may have the deed reformed after closing to reflect the parties’ actual agreement.