Wednesday, November 6, 2013

The Supreme Court of Virginia and the Merger Doctrine: Abi-Najm v. Concord Condominium

In Abi-Najm v. Concord Condominium, LLC (September 16, 2010), the Supreme Court of Virginia tackled the doctrine of merger. In particular, the Court built-on a line of prior decisions that limit the extent to which warranties, covenants, and other agreements are merged (and thereby extinguished) in the deed of conveyance.

You can read Justice Lemons's opinion in Abi-Najm, here.


The doctrine of merger holds that the provisions in an "instrument of higher dignity" supersede conflicting provisions in a prior instrument.  Merger most often applies to scenarios in which a real estate deed contains provisions that are arguably in-conflict with the language of the underlying purchase contract.

Ever since the Supreme Court's decision in Woodson v. Smith (1920), the extent to which merger applies to a given deed (and the antecedent contract) has actually been relatively circumscribed.


In Woodson, the Court held that "distinct and unperformed stipulations in a contract for sale will not be merged in or discharged by deed where that instrument is silent upon the subject of such stipulations" (emphasis added). In subsequent decisions, a key issue in determining whether merger applies has been whether the deed explicitly addresses the warranties/covenants/etc. which are alleged to have been merged.


For instance, in Beck v. Smith (2000), a property-seller argued that the seller's warranty that utility easements would not materially affect the purchaser's use of the property was not merged into the deed -- even though the purchase contract contained the language that the seller's warranties "SHALL BE DEEMED MERGED INTO THE DEED AT SETTLEMENT AND SHALL NOT SURVIVE SETTLEMENT."  From the Court's perspective, the deed failed to accomplish the merger because it only contained standard language about transfer of title to the property; language that the warranties were extinguished was not included in the deed. The seller had the proper language in its contract but not in its deed, and therefore the purchaser was entitled to the benefit of the warranty.


In Abi-Najm, the purchasers of certain condominiums in Arlington County had included, in their purchase contracts, a provision for certain high-end hardwood flooring.  When they discovered after settlement that the condos actually contained run-of-the-mill hardwood floors, they sued the seller for (among other things) breach of contract.

The Circuit Court granted the seller/defendant's demurrer on the breach of contract claim, holding that the provision for alternative hardwood flooring had been merged into the deed that the purchasers accepted at closing.  In other words, by proceeding to closing without objection, the purchasers had waived their opportunity to object to the floor.

The Supreme Court of Virginia reversed, holding that merger does not apply because the issue of the flooring was not addressed in the deed; therefore, the language of the contract still applied:
"The flooring agreement is a distinct agreement, does not affect the validity or nature of the title conveyed, is not addressed in the deed, and does not conflict with the terms of the deed [citing Beck v. Smith]. Accordingly, we hold that the representations [about the flooring] are collateral to the transfer of title, they are not merged into the deed, and therefore they survive delivery of the deed."

Abi-Najm should serve as a cautionary tale to both purchasers and sellers: do not assume that contract provisions will be merged into the deed, even if the contract specifically provides for a merger.  Instead, ensure that the deed itself addresses the critical provisions and is clear as to whether or not they survive the transfer of title.