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The Lantermans (the “Buyers”) purchased the Edwards' (the “Sellers”) Illinois home. Two days after moving into the home, the Buyers discovered that the heating and air conditioning system (the “System”) was not functioning properly. They sued the Sellers for breach of contract. The trial court awarded the Buyers $3,450, which was the cost of replacing the System.
On appeal to the Appellate Court of Illinois, the Sellers argued that the provision of the real estate sales contract between themselves and the Buyers (the “Contract”), in which they warranted the condition of the System, merged into the deed at the closing and did not survive the Contract.
The relevant portion of the Contract was as follows: “Condition of Premises. Buyers acknowledge that they have inspected the real estate and the improvements thereon, they are acquainted with the condition thereof and they accept the same in ... As-is condition except Sellers warrant the plumbing, heating, electrical and air conditioning systems to be in normal working condition on date of possession.”
The lower court had found this clause to be a “collateral undertaking,” meaning that it was incidental to the main purpose of the Contract, which was the sale of the property. Therefore, that court found that the warranty survived the Contract and did not merge into the deed at the closing. In general, under the doctrine of merger, if the terms of a real estate contract have been fulfilled by the closing date and the delivery of the deed, then the contract merges into the deed, and the deed supersedes the contract. If a contract contains provisions collateral to the subsequent deed (or which specifically state that they survive the deed), then those clauses do not merge into the deed and they survive the contract.
In Lanterman, the appellate court stated that “warranties as to quality, in comparison with requirements of conveyancing, touch upon aspects other than the conveyance itself and are incidental to the main purpose of the deed, which is to transfer good title.” It therefore agreed with the trial court that the merger doctrine did not apply in this situation and found that the warranty of the System being in working order survived the Contract.
Even so, the appellate court found that the amount of the damages awarded by the lower court to the Buyers, equal to the cost of a totally new System, was excessive and amounted to a windfall which would make them “more than whole.” As the court pointed out, the intent behind awarding damages in breach of contract cases is to place the damaged party in the place he would have been in if the contract had not been breached. Here, there had been expert testimony that the System could be repaired at a significantly lower cost. The case was remanded for a determination as to the appropriate amount of damages to award the Buyers.
Lanterman v. Edwards, 294 Ill.App.3d 351, 689 N.E.2d 1221 (Ill. Ct. App. 1998).