## Facts

- Homeowners in a subdivision sought to enforce recorded use restrictions limiting lots to single-family dwellings.
- The Knights purchased a lot intending to build a home with a basement rental apartment and discussed that intent with the developer’s sales agent before signing an earnest-money agreement.
- At the time of the earnest-money agreement, no restrictive covenants had been recorded and the contract did not mention restrictions.
- After the earnest-money agreement and before closing, restrictive covenants were recorded restricting the subdivision to single-family dwellings.
- At closing, the Knights accepted a warranty deed that referenced “restrictions of record,” but the parties did not discuss the covenants.
- The Knights built the home with a basement apartment and rented it as a separate unit.
- Neighbors sued for an injunction to stop the rental as a violation of the single-family covenant.
- The Knights filed third-party claims against the developers for fraud and against the title company for breach of fiduciary duty.

## Issues

1. Whether the deed’s reference to “restrictions of record” and the doctrine of merger bound the Knights to recorded restrictive covenants despite the earnest-money agreement’s silence on restrictions.
2. Whether alleged pre-deed statements by the developer’s agent established fraud sufficient to avoid merger or support a damages claim against the developers.
3. Whether any alleged promises regarding a basement apartment were collateral to the conveyance and therefore survived delivery of the deed.
4. Whether the title company owed and breached a fiduciary duty to disclose or explain the recorded restrictive covenants to the Knights.

## Decision

- The Utah Supreme Court affirmed the injunction prohibiting operation of the basement rental apartment.
- The court affirmed judgment for the developers on the Knights’ fraud claim.
- The court affirmed dismissal with prejudice of the Knights’ claim against the title company.
- The court held the recorded restrictive covenants were enforceable against the Knights because they accepted a deed referencing restrictions of record and were charged with notice of recorded covenants.

## Legal Principles

- Under the doctrine of merger, upon delivery and acceptance of a deed, the provisions of the underlying contract for sale merge into the deed, and the deed controls the parties’ rights concerning title and related terms addressed by the conveyance.
- Collateral acts or undertakings distinct from the conveyance of title may survive the deed and are not extinguished by merger.
- Fraud or mistake can be an exception to merger, but fraud must be proven with clear and convincing evidence, including a material misrepresentation, reasonable reliance, and resulting damage.
- A deed’s reference to “restrictions of record” binds the grantee to recorded restrictive covenants and charges the grantee with notice of those covenants.
- A title company conducting a closing generally must follow the closing instructions and documents; absent a specific undertaking, it has no general duty to provide legal advice about the effect of recorded covenants referenced in the deed.

## Conclusion

The court enforced the recorded single-family restriction against the Knights because their accepted deed incorporated restrictions of record, and merger prevented reliance on the earlier contract’s silence; the Knights also failed to prove fraud by the developers or a breach of fiduciary duty by the title company.


Secor v. Knight, 716 P.2d 790 (Utah 1986)