The Doctrine of Merger

By Holly H. Alderman, Esq.

Most first year law students are familiar with the doctrine of merger which states that
when one entity obtains both a greater and a lesser interest in land to the same piece of
real property, the lesser interest merges into the greater interest and is thereby
extinguished. While many practitioners apply this doctrine without pause, this author has
seen many cases where it is truly inapplicable, it is adverse to the intention of the parties
or otherwise creates an unjust result for a third party. This article will briefly discuss the
history of the doctrine of merger, its application under the majority rule and from a title
insurance underwriters perspective.

HISTORY

According to one commentator, the doctrine of merger arose shortly after William the
Conqueror claimed title to all land in England. Burkhart, Freeing Mortgages of Merger,
40 Vand. L. Rev. 283, 290 (1987). (Citing G. Cheshire, The Modern Law of Real
Property 12 (9th ed. 1962)). For a variety of reasons existing at that time, the primary
items of value were land and cattle. Because there were few, if any, written land records
in existence, possession was the method of establishing protecting, and evidencing
ownership to real property. In order to simplify the various ownership interests in real
property, the doctrine of merger came into existence. For example, if A owns Blackacre
together with an appurtenant easement over Greenacre and later acquires fee simple title
to Greenacre, As easement interest in Greenacre would merge into his fee simple interest
in Greenacre and be extinguished. If A were later to sell Greenacre, such an easement
appurtenant to Blackacre might not be readily apparent to the purchaser. Using The
doctrine of merger to extinguish it and thereby simplify the status of title, A would need
to reserve said easement as an appurtenance to Blackacre if and when he later conveys
Greenacre to a third party.

Because interests in title are now memorialized in writing and are required to be of record
in most states in order to be respected vis a vis third parties, one commentator suggests
that its application creates absurd results in todays environment and furthermore, that it
should not apply to mortgage for the following reasons. 40 Vand. L. Rev. at 304.

First, the mortgage is not an interest in land from a historical perspective and second, the
doctrine of merger creates many onerous results. For the reader who is interested in a
detailed analysis of the history of mortgages, the doctrine of merger and the reason the
doctrine should not apply to mortgages, this author highly recommends the Vanderbilt
Law Review article cited herein. Regardless, the following is a condensed synopsis. The
term "mortgage" comes from the French word "gage", meaning a pledge of ones
property to secure an obligation, and the Latin word "mort." Originally, a mortgage was
known as a mort gage, in other words a dead gage. This term was used because the lender
had possession of the property pledged by the debtor and the right to collect all of the
crops and other profits derived from the property as interest. None of the profits were

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used to reduce the principal amount of the debtors obligation. Although interest was not
prohibited by law at this time, the English church prohibited interest as a form of usury.
Accordingly, "a Christian lender who died while holding a mort gage died as a sinner,
and his personal property was forfeited to the monarch." 40 Vand. L. Rev. at 306. It is
likely that this sentiment toward usury coupled with the fact that the gagee was not
considered to have actual seisen to, or a recognized estate in land meant that the courts
would not recognize an action brought by the gagee to regain possession of the land if
ousted by third party or even if ousted by the gagor himself. 40 Vand. L. Rev. at 304.

As the form of mortgages evolved, many lenders included a forfeiture clause in the gage.
If the debtor did not pay the debt, his title to the land was forfeited to the lender. By
having possession to the land already, the lender avoided the need to go to court to
enforce the forfeiture clause. As time when on, the character of a mortgage was altered
further to include a grant of a term of years interest (usually a very long one) subject to
the condition that said conveyance would be void upon repayment of the debt. Unlike the
earlier form of gage, this Thirteenth Century form of mortgage created an interest in land
for the lender. Accordingly, the doctrine of merger could apply. The mortgage as we
know it today went through numerous other modifications to satisfy feudal law concepts
and goals that at times would or would not permit an interest in a mortgage to be subject
to the doctrine of merger. By the middle of the Twentieth Century in the United States,
only eight states Alabama, Georgia, Maine, Maryland, Massachusetts, New Hampshire,
Pennsylvania, and Rhode Island still adhered to the theory that a mortgage conveys title
to the mortgagee and are thus appropriately subject to the doctrines application. 40
Vand. L. Rev. at 323, 324.

APPLICATION

Disregarding whether a mortgage creates an interest in land to which the doctrine of

merger is applicable, which is frequently the case when litigated, its application can
create unduly harsh and often absurd results. Unduly harsh results frequently occur when
the doctrine is applied to merge a lenders mortgage interest into its fee interest that was
acquired via a deed in lieu of foreclosure. If the deed in lieu of foreclosure is later set
aside by a trustee in bankruptcy, the lenders mortgage interest is no longer in existence
and he finds himself in the unenviable position of an unsecured creditor. Similarly, to the
extent junior liens have attached to the property, the lender will be unable to clear title of
these junior liens, a benefit the lender would have enjoyed had it foreclosed on its
mortgage interest. If a property owner executes a deed in lieu and was not personally
liable on the note secured by the mortgage, the deed in lieu may be challenged for failure
of consideration. Similarly, if the note was non-recourse, a deed in lieu may be attacked
due to the failure of consideration. Without the property or an obligation for which the
borrower is personally liable, the lender will be left with nothing in the event such a
conveyance is set aside.

Granted, these unduly harsh results can be prevented by the lender if he is willing to
proceed with a foreclosure rather that accepting a deed in lieu, but is that a desired result
when it will cost more money and a deed in lieu can achieve the outcome desired by the

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parties absent the doctrine of merger? Most would think not. The application of the
doctrine of merger can produce an equally adverse effect on an innocent third party. For
example, if the holder of a leasehold interest in real property grants that interest as
security for a debt, later acquires the underlying fee simple interest which thereby
extinguishes his leasehold interest, the leasehold interest pledged to his lender no longer
exists and the lender has nothing. Similarly, merger might operate to destroy a term for
years when the lessee acquires a life estate in the same land, even if the term for years
would have lasted longer than the life estate. Since courts of law would apply the doctrine
of merger to reach the absurd results described previously, in the late 1600s the courts of
equity started to hold that the doctrine of merger applies only if the holder of the two
property interests intend them to merge.

Today, the majority of the states in the United States follow the historical lead of
Englands court of equity. The intention of the party controls whether or not the doctrine
of merger applies. Thus, it is wise to state the intention of the party receiving the second
interest in the instrument conveying said interest. Unfortunately, some more modern
court decisions have disregarded the stated intention to produce results that both defy and
support a logical intention. 40 Vand. L. Rev. at 345. (Citing Crosby v. Chase, 17 Me. 369,
369 (1840); Hardin v. Boyd, 113 U.S. 756, 765-76 (1885); Allen v. Glenn, 87 Ga. 414,
13 S.E. 565 (1891); Shaver v. McCloskey, 101 Cal. 576, 36 P. 196 (1894); Jenks v.
Shaw, 99 Iowa 604, 610, 68 N.W. 900, 902 (1896); McGovney v. Gwillim, 16 Colo.
App. 284, 287, 65 P. 346, 347 (1901); Contra Ford v. Nesbitt, 72 Ark. 267, 269, 79 S.W.
793, 794 (1904); Katz v. Obenchain, 48 Or. 352, 358, 85 P. 617, 620 (1906); Sullivan v.
Saunders, 66 W. Va. 350, 353, 66 S.E. 497, 498 (1909); Kern Valley Bank v. Koehn, 157
Cal. 237, 239, 107 P. 111, 112 (1910); Austin v. Edwards, 201 Ala. 532, 533, 78 So. 886,
887 (1918); Small v. Cunningham, 120 N.W.2d 13 (N.D. 1963); Fowler v. Carter, 77
N.M. 571, 575, 425 P.2d 737, 740 (1967); Eldridge v. Salazar, 81 N.M. 128, 464 P.2d
547 (1970); Contra 200 E. 64th St. Corp. v. Manley, 37 N.Y.2d 744, 337 N.E.2d 133, 374
N.Y.S.2d 621 (1975); Quality Fin. Co. v. Bourque, 315 So. 2d 656 (La. 1975); Floorcraft,
251 So. 2d 138 (Fla. Dist. Ct. App. (1971)).

Many of these cases include fact patterns where a lender has a mortgage interest in the
property and then acquires the fee simple interest via deed in lieu of foreclosure. When
the lender later sells or conveys the property to a third party in an arms length transaction,
the courts conclude that the lender intended its interest to merge and thereby to convey to
said third party fee simple title unencumbered by the mortgage. Since there are cases
where the court has applied the doctrine of merger notwithstanding the express intention
of the parties otherwise, and vice versa, it is prudent in all jurisdictions to obtain a
cancellation of any mortgage not being assumed rather than relying on the doctrine of
merger. In those states that have adopted formal title practice standards that specifically
state a title examiner may treat the mortgage lien as merged into the fee title when the
mortgagee owns both the fee and the mortgage at the time of the conveyance, such a
cancellation or release is not necessary. As of 1987, the states which had adopted such
standards included Maine, Minnesota and Ohio. Burkhart, Freeing Mortgages of Merger,
40 Vand. L. Rev. at 361 (1987).

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TITLE INSURANCE UNDERWRITERS PERSPECTIVE

Due to the uncertainty of how courts will interpret the doctrine of merger, most title
insurance underwriters are reluctant to eliminate lesser interests reflected on the public
record based upon the application of this doctrine. Accordingly, it is best to report all
lesser interests not specifically canceled or released of record. If the proposed insured has
one interest and wishes the doctrine of merger to apply when acquiring a second interest,
this author recommends that the title lawyer communicate this desire to the title insurance
underwriter. Thereafter, the title insurance company can take exception to the lesser
interest and include a note which reads as follows: "Upon receipt of satisfactory
confirmation that the proposed insured has acquired fee simple title to [both the benefited
and burdened parcel] [both the leasehold interest and fee simple interest] [description of
interests to be merged] and the document conveying said interest expresses the parties
intention to have the lesser interest merge into the greater interest, this exception shall be
deleted in its entirety."

In any event, title lawyers should remember that it is best to first consult their title
insurance underwriter or at a minimum use caution when applying the doctrine of merger
as the basis for determining the status of title.

2002 Investors Title Company