Friday, May 6, 2011

Fuller v. Callister, May 6, 2011 Idaho Supreme Court

The Idaho Supreme Court issued a new opinion today in the case of Fuller v. Callister. The opinion is authored by Justice Burdick and is a 5-0 decision reversing the district court. The district court had entered summary judgment in favor of Callister, Confluence Management, LLC (CM), and Liberty Partners, Inc. (LP), and dismissed the Fullers' case. This decision remands for further proceedings.

The facts are pretty simple. Fullers contracted with CM to sell CM 12.73 acres in Meridian, Idaho. The Ada County Highway District (ACHD) had been trying to purchase part of the Fullers' property in order to expand Ten Mile Road. After entering into the initial Purchase Agreement, Fullers and CM entered into Addendum #1, which provided that CM would deed over a portion of the property to ACHD and transfer the proceeds to the Fullers. The Fullers retained the right to negotiate price with ACHD.

CM then assigned the Purchase Agreement to LP, with the Fullers' consent. Fullers then executed a warranty deed conveying the property to LP. The warranty deed did not mention Addendum #1 or the anticipated condemnation of the property by ACHD. LP subsequently sold the property to ACHD for #83,921 and refused to turn over the proceeds to the Fullers. The Fullers filed suit.

The district court granted summary judgment to Callister, CM, and LP on the basis that the Purchase Agreement had been merged into the warranty deed and that the assignment of the contract from CM to LP relieved CM from any obligations under the Purchase Agreement.

The Idaho Supreme Court reverses because the merger doctrine does not apply to the terms of Addendum #1. The general Idaho rule on the merger doctrine is that the acceptance of a deed to premises merges prior contract terms into the terms of the deed. All claims for relief have to be based on the terms of the warranty deed rather than the antecedent contract. The rule makes sense and has been followed consistently by Idaho courts.

Of course, there are exceptions to any general rule. One of the primary exceptions relied on by the Fullers is the exception that "collateral stipulations" are not merged into the deed. Addendum #1 applies special terms or stipulations to take place after the transfer of the property from Fullers to CM/LP. The terms of the Addendum made it clear that those terms were not intended to merge with the warrranty deed and when that intent is clear, then the merger doctrine does not apply. Justice Burdick notes that Addendum #1 clearly contemplated continuing in effect after the execution of a warranty deed. "Where the relevant conditions of a contract could not have been performed prior to execution of the warranty deed, merger is inappropriate."

The Court's ultimate conclusion is that Addendum #1 did not "implicate[] the alienation of property." The Court states that "[b]ased on the language of Addendum # 1 and the clear intent of the parties that the condition expressed in paragraph 3 would occur after the execution of the warranty deed, as well as the fact that the reservation of condemnation proceeds is properly viewed as part of the consideration for the sale, we find that the doctrine of merger does not apply here."

The Court rejects the district court's rationale that the assignment between CM and LP relieved CM of all obligations. The assignment never purports to release CM of its obligations under the Purchase Agreement.

The Court's decision moots consideration of the cross-appeal on attorney fees. The Court does state that the district court can consider the fees and costs associated with the appeal when it addresses fees and costs at the end of the case. There was no valid novation relieving CM from its obligations under the Purchase Agreement.

Overall, the decision seems to be a solid application of the law governing the merger doctrine. There are certain stipulations and conditions that are not part of the transfer of property that cannot and should not be extinguished based on the warranty deed. Idaho recognizes this and the decisions appears to be the right one.