When a seller agrees to sell a property to a buyer, both parties sign a contract outlining the property, stating the purchase price, and covering a few other important points (plus a myriad of minor points). The parties then close their transaction, and as part of this closing, the seller signs a contract to transfer the property to the buyer.
What if the bond didn’t describe the correct property and the buyer didn’t realize it and closed it anyway? Under traditional principles of real estate law, the contract “merging” into the bond, which means that the contract actually ends and all that’s left is the deed. If the deed transfers the wrong property, it is very bad for the buyer – and of course also for any attorney who approved the buyer’s deed.
This principle may seem rather brutal. However, it has been a part of American real estate law for centuries. A recent New York state appeals decision confirmed that New York continues to follow this principle. In this case, the contract required the seller to transfer a plot of land on which the buyer intended to build a house. The batch is described in a “Standard Legal Description” – effectively, a narrative reading of the boundaries of a survey chart illustrating the batch.
In conclusion, the seller transferred a slightly different piece of real estate, although the difference did not jump out because the description of the piers and boundaries attached to the deed was very similar to the description in the contract. However, the description in the bond omitted a second payment that was necessary for the buyer to be able to install a septic tank system for the house.
The seller refused to correct the bond and tried to get the buyer more money for the second payment. The buyer eventually sued. The court stated that the bond embodies the final agreement between the parties, and that the contract is irrelevant. The court will not review the contract.
Of course, there are exceptions to this rule. For example, if the description of the property in the deed is somewhat vague, the court may go back and consider the contract. If the contract itself provides that certain obligations under the contract remain in effect after closing, the court will enforce that provision. Most modern commercial real estate contracts state that many terms of the contract will survive closing. The list of remaining provisions does not usually, however, include the seller’s obligation to transfer the agreed property.
None of the exclusions mentioned in the previous paragraph were enforced in the recent New York lawsuit, so the buyer lost the case.
The buyer, or his attorney, could have prevented the problem by reviewing the bond more carefully at closing. They could also specify which property would be transferred by referencing the Platt map, which would have resulted in a simpler and less error-prone description of the property.
The case referred to is Picard vs CampbellNY Slip Op. 04442 (July 8, 2022, Appeals Chamber, Fourth Circuit).