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).