In Ram’s Gate Winery, LLC v. Joseph G. Roche, et al. (No. A139189 & A141090, filed 4/9/15) (Ram’s Gate), the California Court of Appeal for the First Appellate District held the doctrine of merger did not extinguish a seller’s contractual duty to disclose potentially hazardous seismic conditions on a Sonoma winery property.
In Ram’s Gate, the buyer of the property filed a lawsuit alleging the seller failed to disclose information relating to earthquake issues prior to the close of escrow. In the parties’ “Purchase and Sales Agreement” (Purchase Agreement) the seller agreed to disclose any information known to it regarding “known geological hazards . . . soil reports . . . geotechnical reports” and other facts “having effect on the value of the ownership or use of the property.” The seller, however, argued this disclosure warranty did not survive the escrow period because it did not expressly provide for survival while other provisions in the Purchase Agreement did.
The trial court agreed and granted the seller’s motion for summary adjudication as to the buyer’s breach of contract claim. The trial court held the warranties in the Purchase Agreement merged with the recording of the deed and thus, did not survive the close of escrow. On appeal, the Ram’s Gate court reversed, holding there was a triable issue of fact as to whether the parties intended to have this duty of disclosure merge with the deed.
In reaching its decision, the Ram’s Gate court rejected the trial court’s reliance on Herring v. Teradyn, Inc. (S.D. Cal. 2002) 256 F. Supp.2d 1118 (Herring), reasoning the Herring court overstated the merger doctrine. The court in Herring stated when a contract does not provide the warranties made in the agreement should survive the closing of a transaction, the merger doctrine extinguishes the warranties and any liability rising therefrom. Instead, the Ram’s Gate court limited application of the merger doctrine to circumstances “where the contractual terms are inconsistent with the terms of the deed, or where the parties clearly intend to have all contractual obligations subsumed by the recitals of the recorded deed.”
Applying the merger doctrine in this limited fashion, the Ram’s Gate court found there was no obvious conflict between the terms of the parties’ Purchase Agreement and the terms of the deed. Furthermore, the Court held the trial court erred in refusing to consider a declaration submitted by the buyer that directly conflicted with the seller’s assertions. The Court reasoned the fact that several paragraphs in the Purchase Agreement specifically provided for their survival, did not, as a matter of law, “compel the conclusion that no other provision could survive without a similar recital.” The declaration proposed an interpretation of the Purchase Agreement to which it was reasonably susceptible and as such, it should have been considered in determining the parties’ mutual intent. The assertions in the buyer’s declaration created a triable issue of fact with respect to whether the parties intended the provisions of the prior Purchase Agreement continue in force after the transfer of title.
The merger doctrine has been subject to significant criticism and the Ram’s Gate decision is an example of an attempt to mitigate potential unfairness resulting from a strict application.
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