## Facts

- On August 16, 1969, Thomas J. Reed and Sally Reed agreed to buy two residential lots (Lots 82 and 83, Bay View Park, Sussex County, Delaware) from Andrew and Loretta Hassell.
- The written sales contract called for “good and merchantable” title, free of liens and encumbrances, except “publicly recorded easements for public utilities and other easements which may be observed by the inspection of the property.”
- The contract thus placed the risk of easements observable by inspection on the buyers.
- Settlement occurred on February 4, 1970, after Andrew Hassell died, with Loretta Hassell conveying the lots by special warranty deed as required by the contract.
- At the time of contracting and conveyance, an existing road known as Hassell Avenue, contrary to the recorded plot plan, seriously encroached onto Lot 82 and deprived it of about 25% of its square footage.
- The encroachment reduced Lot 82 to a smaller, awkward parcel that was difficult to build upon due to zoning setbacks and side-line requirements.
- At settlement, the lots had heavy and tall growth that made it impractical to inspect boundaries or measure the lots without significant clearing work.
- After settlement, the Reeds cleared the growth, obtained a survey, and discovered the encroachment.
- The court found no evidence that Loretta Hassell knew about the encroachment at settlement; the Reeds also were unaware at that time.
- The evidence showed both parties intended the transaction to involve buildable lots substantially as depicted on the plot plan.
- The Reeds sued for money damages, asserting theories including fraud/deceit and breach of the covenants in the special warranty deed.

## Issues

1. After delivery and acceptance of a special warranty deed, did the contract’s exception for easements observable by inspection control, or did the contract merge into the deed so that the deed’s covenants governed the parties’ rights?
2. Did the road’s substantial encroachment onto Lot 82 constitute a title defect/encumbrance that breached the deed’s covenant of special warranty, even though the seller lacked knowledge and there was no fraud?

## Decision

- The court entered judgment for the Reeds and awarded damages.
- The court applied the merger rule: contract provisions concerning title were treated as merged into the deed upon delivery and acceptance, leaving the deed’s covenants as the source of post-settlement rights for defects in title.
- The court held that the road’s invasion of approximately 25% of Lot 82 was a substantial burden inconsistent with the parties’ shared expectation of buildable lots as shown on the plot plan.
- The court rejected the seller’s reliance on the contract clause shifting risk of “observable” easements to the buyers, reasoning that the clause did not excuse a major encroachment of this character, particularly where heavy growth made meaningful observation at settlement unrealistic.
- The court rejected fraud/deceit liability because the seller’s representation was innocent and unknowing; the basis for recovery was breach of the deed warranty, not tort.

## Legal Principles

- Upon delivery and acceptance of a deed, the land-sale contract generally merges into the deed as to title matters, and the grantee’s remedies typically depend on the deed’s covenants.
- A significant roadway encroachment that materially diminishes the area and usefulness of the conveyed land can constitute a breach of a special warranty deed’s covenants, supporting an award of damages.
- A contract exception for easements observable by inspection is construed in light of ordinary, practical inspection at the time of settlement; conditions that prevent boundary verification can affect whether an encroachment is fairly treated as “observable.”
- Fraud or deceit requires proof of knowing misrepresentation; a seller’s lack of knowledge may defeat tort liability but does not necessarily bar contract-based recovery under deed warranties when the conveyed title is not as warranted.

## Conclusion

Reed v. Hassell held that the buyers could recover damages under the special warranty deed for a substantial road encroachment that took roughly one-quarter of a lot and impaired its use as a building lot, because the contract’s easement exception did not control after settlement and the seller’s lack of knowledge defeated fraud claims but not deed-warranty liability.


Reed v. Hassell, 340 A.2d 157 (1975)