Language in Deed Generally Supersedes that of Real Estate Purchase / Sale Contract

San Antonio Texas Real Estate Attorney Trey Wilson wrote:
As a San Antonio lawyer with an active real estate practice, I am frequently questioned about the legal effect of terms contained in a real estate purchase/sale agreement (earnest money contract) that do not appear in the deed. Some of examples of contractual provisions that may be omitted from deeds are:  rights of first refusal on adjacent property of the Seller,  easements or access reserved for the Seller, the right of the Buyer to cross adjacent property retained by the Seller, and the provision of a warranty on the property's condition.  The pattern is usually the same -- the parties negotiated a contract, and included certain "Special Provisions" in their written agreement, but those terms were never incorporated into the Deed recorded by the Seller after closing.

When this occurs, several legal doctrines may be implicated. This post focuses on the legal doctrine of MERGER.

It is the law in Texas that  a purchaser takes title to real property solely through a deed. See Stephens Cnty. Museum, Inc. v. Swenson, 517 S.W.2d 257, 261 (Tex. 1974). An instrument that does not operate as a present conveyance of title to real property is a contract to convey rather than a deed. See TEX. PROP. CODEANN. § 5.002; see also 30 Tex. Jur. 3d Deeds § 9 (2007). A contract to convey real property contemplates further acts leading up to the actual conveyance of title in the deed. See 30 Tex. Jur. 3d Deeds§ 9; see also Cont'l Royalty Co. v. Marshall, 239 S.W.2d 837, 840-41 (Tex. Civ. App.-Texarkana 1951, no writ). When a deed is delivered by the Seller and accepted by the Buyer as performance of a contract to convey real estate, the contract is MERGED in the deed.   

Though the terms of the  deed may vary from those contained in the contract, still the deed must be looked to alone to determine the rights of the parties. 2 DEVLIN, LAW OF DEEDS § 850a.  This principle is what Texas courts call "Merger. " See Baker v. Baker, 207 S.W.2d 244 (Tex.Civ.App. —San Antonio 1947, writ ref'd n.r.e.).

The Rule applicable in all contracts, that prior stipulations are merged in the final and formal contract executed by the parties, applies, of course, to a deed based 49upon a contract to convey. When a deed  is delivered and accepted as performance of a contract to convey, the contract is merged in the deed . Though the terms of the deed may vary from those contained in the contract, still the deed  must be looked to alone to determine the rights of the parties. No rule of law is better settled than that where a deed  has been executed and accepted as performance of an executory contract to convey real estate, the contract is functus officio and the rights of the parties rest thereafter solely in the deed .

Id. at 249-50, quoting 2 DEVLIN, LAW OF DEEDS § 850a.

Thus, when a Buyer accepts a deed as performance of an earnest money contract requiring the Seller to convey legal title top real property, it is the general rule that any collateral agreements contained in the contract are extinguished.  

This Rule, as most in the law, has exceptions.  For example, the Texas Supreme Court has held that the doctrine of merger may not be applied to defeat a cause of action under the DTPA for breach of an express warranty made in an earnest money contract and breached by deed.  See Alvarado v. Bolton, 749 S.W.2d 47, 48 (Tex.1988).  Likewise,  the doctrine of merger does not apply when a real estate contract was procured by fraud, accident or mistake in transactions leading up to the deed. ECC Parkway Joint Venture v. Baldwin, 765 S.W.2d 504, 511-12 (Tex.App.-Dallas 1989, writ denied);see also 1464-Eight, Ltd. v. Joppich, 154 S.W.3d 101, 104 n. 1 (Tex.2004) (disapproving court of appeals cursory analysis that based on merger doctrine earnest money contract was superseded by documents executed at closing).

Requirements for a Valid and Recordable Deed in Texas

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Having litigated numerous disputes over title to land and/or real estate purchase contracts, I have encountered all variety of "deeds" purporting to convey some interest in real property in Texas.

Some of the more interesting of these "deeds" are hand-written or obvious 'cut and paste' jobs taken from the Internet.  Some were recorded, others not. Many failed because they lacked sufficient information to meet even the minimum standards for deeds under Texas law.

In Texas, Deeds for the conveyance of real estate are not required to take any particular format.* However, in order for a deed to be legally valid and recordable in Texas, it must meet several basic criteria:

• be in writing (TPC 5.021, Tex Bus & Comm Code 26.01)
• be signed by the grantor (TPC 5.021, 12.001)
• be acknowledged or sworn to by the grantor before two credible witnesses, or a notary public, who also sign the document (TPC 12.001
• be in English  (TPC 11.002)
• contain all grantees' addresses (TPC 11.003)
• include within itself or by reference to another existing writing, the means or data to identify the particular property with reasonable certainty. Wilson v. Fisher, 144 Tex. 53, 188 S.W.2d 150 (1945). See also Kmiec v. Reagan, 556 S.W.2d 567 (Tex. 1977); Pick v. Bartel, 659 S.W.2d 636, 637 (Tex. 1983); Morrow v. Shotwell, 477 S.W.2d 538, 539 (Tex. 1972).
• be delivered to and accepted by grantee (the grantee need not sign the deed)

* There is a statutorily-suggested format for a general warranty deed in Section 5.022 of the Texas Property Code.

If you are a party to a real estate transaction in which the deed fails to meet these criteria, or may otherwise be invalid or fraudulent, you should seek the assistance of an experienced real estate lawyer. Texas law provides stiff civil (and possibly even criminal) penalties for real estate fraud. In other instances, failed conveyances can be corrected.

Contract for Deed -- Penalties for Seller's Failure to Provide Annual Accounting

Buyers purchasing real property in Texas under a Contract for Deed are entitled to numerous statutory protections. Whether all of these protections are necessary to prevent Seller abuses is widely debated, and many of Property Code Chapter 5's provisions have been criticized for being designed to set Sellers up for failure.

Among the oft' criticized provisions is Texas Property Code Section 5.077, which requires a Seller under a Contract for Deed to provide the Buyer with an annual statement by January 31 of each year during the contract. The statute requires that the state include at least the following information:

(1)  the amount paid under the contract;

(2)  the remaining amount owed under the contract;

(3)  the number of payments remaining under the contract; 

(4)  the amounts paid to taxing authorities on the purchaser's behalf if collected by the seller;

(5)  the amounts paid to insure the property on the purchaser's behalf if collected by the seller;

(6)  if the property has been damaged and the seller has received insurance proceeds, an accounting of the proceeds applied to the property;  and

(7)  if the seller has changed insurance coverage, a legible copy of the current policy, binder, or other evidence that satisfies the requirements of Section 5.070(a)(2).

While few would debate that the statement is a good idea, the penalties for failure to furnish one can be harsh. Those penalties are largely dependent on the number of Contracts for Deed (also referred to as executory contracts) that a Seller enters in a given year.

A seller who conducts less than two transactions in a 12-month period who fails to timely furnish the annual accounting is liable to the purchaser for liquidated damages in the amount of $100 for each annual statement the seller fails to provide and reasonable attorney's fees.

 A seller who conducts two or moretransactions in a 12-month period and fails to provide the annual accounting is liable to the purchaser for liquidated damages of $250 per dayplus the buyer's reasonable attorneys' fees.