When a seller agrees to sell real estate to a buyer, the parties sign a contract that identifies the real estate, states the purchase price, and covers a few other important points (plus a myriad of minor points). The parties then close their transaction, and as part of that closing the seller signs a deed to convey the real estate to the buyer.
What if the deed doesn’t describe the correct real estate, but the buyer doesn’t realize it and closes anyway? Under traditional principles of real estate law, the contract “merges” into the deed, meaning that the contract effectively goes away and all that’s left is the deed. If the deed conveyed the wrong real estate, that’s too bad for the buyer – and also of course for any lawyer who approved the deed for the buyer.
That principle may sound rather brutal. It has, however, been a part of American real estate law for centuries. A recent New York state appellate decision confirmed that New York still follows this principle. In that case, the contract required the seller to convey a lot on which the buyer intended to build a house. The lot was described in a typical “metes and bounds legal description” – effectively, a narrative reading of the boundaries of a survey diagram showing the lot.
At the closing, the seller conveyed a slightly different piece of real estate, though the difference didn’t jump out because the metes and bounds description attached to the deed was quite similar to the one in the contract. The description in the deed, however, omitted a second lot that was essential for the buyer to be able to install a septic tank system for the house.
The seller refused to correct the deed and tried to have the buyer pay more money for the second lot. The buyer eventually sued. The court stated that the deed embodies the final agreement between the parties, and the contract is irrelevant. The court will not revisit the contract.
Of course, there are exceptions to this rule. For example, if the property description in the deed is somehow ambiguous, then the court might go back and look at the contract. If the contract itself provides that certain obligations under the contract survive the closing, then a court will enforce that provision. Most modern commercial real estate contracts state that numerous provisions of the contract will survive the closing. That list of surviving provisions typically does not, however, include the seller’s obligation to convey the agreed-upon real estate.
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Neither of the exceptions mentioned in the previous paragraph applied in the recent New York litigation, so the buyer lost the case.
The buyer, or its lawyer, could have prevented the problem by reviewing the deed more carefully at closing. They could also have identified the property to be conveyed by referring to a plat map, which would have resulted in a much simpler and less mistake-prone description of the property.
The referenced case is Pickard v. Campbell, N.Y. Slip Op. 04442 (July 8, 2022, Appellate Division, Fourth Department).