2009 texas land title institute december 3 – 4, 2009 the ... · status as a bona fide purchaser...

2009 TEXAS LAND TITLE INSTITUTE December 3 – 4, 2009

THE BONA FIDE PURCHASER DEFENSE UNDER TEXAS LAW AN OVERVIEW AND REPRESENTATIVE CASES

Frank Oliver Oliver & Oliver, P.C.

100 Congress Avenue, Suite 2100 Austin, Texas 78701

(512) 370-4050 (512) 370-4051 Fax

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2009 TEXAS LAND TITLE INSTITUTE THE BONA FIDE PURCHASER DEFENSE PAGE 1

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Resume of Frank Oliver

Frank Oliver practices law in Austin, Texas, with the firm of Oliver & Oliver, P.C. He is a 1972 graduate of the University of Texas and a 1975 graduate of the University of Texas Law School. Following a federal judicial clerkship, he has engaged in the private practice of law, principally in the area of real estate and title litigation, including the representation of title insurance companies, title agents, and insureds in the defense of title claims.


The Bona Fide Purchaser Defense Under Texas Law An Overview and Representative Cases

Frank Oliver

Oliver & Oliver, P.C. This paper is intended to provide an overview of the bona fide purchaser defense and presents a sampling of representative cases illustrating the defense. At the outset, it should be remembered that the bona fide purchaser defense, also called the innocent purchaser defense, exists as a longstanding equitable defense available to purchasers and lenders independent of the recording statutes. See Allday v. Whittaker, 1 S.W. 794 (Tex. 1886). The recording statutes do, of course, substantially affect the application of the defense with respect to constructive notice imputed to a purchaser or lender from the public record, and the pertinent recording statutes are also referenced below.

I. Bona Fide Purchaser Defined. The most recent definition of the bona fide purchaser by the Texas Supreme Court is found in Madison v. Gordon, 39 S.W.3d 604 (Tex. 2001), in which the Court considered the issue of constructive notice arising from possession of the property by one other than the seller. The Court in Madison v. Gordon held that a purchaser was not charged with a duty to investigate possible ownership claims of a tenant who was in possession of one unit in a four-plex multifamily apartment building. The Court stated:

Status as a bona fide purchaser is an affirmative defense to a title dispute. A bona fide purchaser is not subject to certain claims or defenses. To receive this special protection, one must acquire property in good faith, for value, and without notice of any third-party claim or interest. Actual notice rests on personal information or knowledge. Constructive notice is notice the law imputes to a person not having personal information or knowledge.

39 S.W.2d at 606. From Madison v. Gordon, the definition of a bona fide purchaser is thus confirmed as one who purchases property in good faith, for value, and without notice, either actual or constructive, of the claims of a third party.

II. The Element of Good Faith. Good faith is a separate and distinct element to be established by the purchaser or lender seeking protection under the bona fide purchaser defense. In Houston Oil Co. v. Hayden, 135 S.W. 1149, 1152-3 (Tex. 1911), a case involving a gross inadequacy in the consideration paid for the land, the Texas Supreme Court discussed the distinct elements required for a bona fide purchaser, including the separate required element of good faith:


To constitute him such, three elements were essential: Valuable consideration, absence of notice, and good faith. 2 Pomeroy, Eq. § 745. In many cases the transaction is such that the questions of consideration and notice are practically the only ones; the element of good faith being regarded as present or absent according to the findings on those points. But it is nevertheless an element essential to the protection given an innocent purchaser, and if in a given case, notwithstanding evidence of the payment of a valuable consideration and of the absence of notice, there remains a question as to the existence of good faith in the transaction on the part of the purchaser, that, too, must be resolved in his favor before the claimed protection can be given. Id. § 762. Although there be no knowledge of an adverse claim, and no circumstances actually brought to the attention of the intending purchaser pointing to one, he may yet appear to have remained purposely ignorant of facts of which he would have learned, had he been scrupulous about the rights of others; the circumstances may show that he has merely speculated on the absence of the proper record evidence of claims, not actually known, but suspected by him, to exist, by attempting to acquire, through the aid of the registration laws, a title which he does not really believe to be in his grantor.

135 S.W. at 1152-3. In Hopper v. Tancil, 3 S.W.2d 67 (Tex. Comm. App. 1928, recommendation adopted), the purchaser was asserting the bona fide purchaser defense against an equitable claim that a prior deed in the chain of title was actually intended only as a mortgage and that equitable title did not pass by the deed. The required element of good faith in the purchaser was found lacking, as a matter of law, because the property was purchased on speculation for less than a full consideration. As stated by the Court, the purchaser “closed his eyes to all avenues of information.” 3 S.W.2d at 70. The Court’s description of the purchaser lacking good faith bears repeating:

[H]e was getting property at much less than it was really worth, and in making this purchase he was entering into a business venture involving unusual risks for a chance of making an unusually large gain or profit. He was also expressly informed, by being told that the transaction was indulging in a speculation, that he was entering into a business transaction or venture from which the proceeds or returns would be conjectural, in that the undertaking was out of the ordinary course of business, and that, in making this purchase, he was engaging in a hazardous business transaction for the chance of unusually large profits. We therefore hold, as a matter of law, that under the above facts [he] was not an innocent purchaser without notice as against the equitable title of Lucy Brown.

3 S.W.2d at 71. However, in order for a purchaser to be guilty of “purposeful ignorance of facts,” as was the case of the purchaser in Houston Oil Co. v. Hayden, supra, it would appear that more is required than merely failing to examine title or obtain an abstract. In Strong v. Strong, 90


S.W.2d 346 (Tex. 1936)(op. adopted), for example, an oil and gas lessee elected not to obtain an abstract or examine title in an unproven area in order to save the expense that would be necessary, and relied instead on the lessor’s affidavit and assurances of title, but no lack of good faith was found by the Texas Supreme Court on these facts. III. Purchaser for Value. To qualify for protection under the bona fide purchaser defense, the transfer must be in consideration of value given. Property acquired by gift or inheritance is not acquired for value, and the donee or heir as applicable is not a purchaser for value. Eaton v. Husted, 172 S.W.2d 493, 499-500 (Tex. 1943). A. Full Value Not Required. To qualify as a purchaser for value does not require that the full value of the property be paid by the purchaser, so long as the consideration is not grossly inadequate. As recognized by the Texas Supreme Court in Nichols-Stuert v. Crosby, 29 S.W. 380 (Tex. 1895):

A purchaser may be a bona fide purchaser for valuable consideration, and be protected against a superior title, of which he has no notice, in cases where he has paid less than the real value of the property; but where the price is grossly inadequate, as in this case, we are of the opinion that he cannot be considered either a bona fide purchaser or a purchaser for value in a contest with the claimant of such superior title.

29 S.W. at 382. B. The Antecedent Debt Rule. Paying the purchase price by giving the seller a credit on a preexisting debt is not a valuable consideration for purpose of the bona fide purchaser defense. In Swann v. Rotan State Bank, 282 S.W. 789 (Tex. 1926), for example, a bank vice president conveyed property to the bank to resolve a defalcation. His debt to the bank arising from the defalcation was credited in consideration of his conveyance of the property to the bank. The property, however, was his wife’s separate property. The Texas Supreme Court held that the bank did not qualify as a purchaser for value and explained the reason for this rule:

One who buys at a voluntary sale and pays no money, but credits an indebtedness, is not a bona fide purchaser for value, and such purchaser is not entitled to the protection accorded to a bona fide purchaser for a valuable consideration. The reason for the rule is founded upon the principle that the purchaser who pays the purchase price on a pre-existing debt is not protected against equities of others or against fraud, for the reason that he has not advanced anything on the faith of his purchase and has lost nothing if his title should prove worthless. In crediting his debt he divested himself of no right, and placed


himself in no worse position than he would have been if he had not received the conveyance of the property and had not entered the credit.

282 S.W. at 789-90. There are exceptions to the antecedent debt rule, such as where the debt has become barred by limitations prior to the assertion of a superior title by the third party, and the purchaser has thereby suffered a detriment. Dunlap v. Green, 60 F. 242 (5th Cir. 1894). Similarly, if the antecedent indebtedness is owed by a person other than the grantor, then the forgiveness or crediting of the third party’s indebtedness is considered a valuable consideration for purposes of the bona fide purchaser defense. As explained by the Texas Supreme Court in Smith v. Westall, 13 S.W. 540 (Tex. 1890):

It is insisted by appellant that Rowe was not an innocent purchaser, because the consideration paid by him was an antecedent debt. The fact stated is true, that the consideration was a debt due to Rowe; but it was not a debt due by Westall [the seller], but a debt due by one Bates to Rowe,-Bates at the same time surrendering to Westall [the seller] a claim against him for the same amount, $500. We think that this was a valuable consideration, and one that will support the plea of innocent purchaser. Bates [the third party] gave Rowe [the purchaser] no guaranty; was in no way responsible to him if the title failed, or the interests in the estates purchased proved to be of no value. Rowe [the purchaser] surrendered a valuable right, was in a worse position than before, and therefore entitled to protection as an innocent purchaser having no notice of the former conveyance to Masterson.

13 S.W. at 542. Lastly, the renewal and extension of a preexisting indebtedness is considered value for the bona fide purchaser defense. As explained, in Steffan v. Milmo Nat. Bank, 6 S.W. 823 (Tex. 1888):

But should the mortgagee give time upon his debt as a consideration for the security, his case is different. By extending the time of payment, he yields up, for a season, his right of action, which is a privilege deemed value in law. This is accordingly held, by the controlling weight of authority, sufficient to support the claim of an innocent purchaser.

6 S.W. at 824. See also Lone Star Finance v. Fulbright, 61 S.W.2d 562 (Tex. Civ. App. – Beaumont 1933, no writ) C. Independent Proof of Payment Required. In all events it should not be forgotten that payment of the purchase price must be established by independent evidence, and the party claiming status as a purchaser for value may


not rely merely on the recitals in the deed. Watkins v. Edwards, 23 Tex. 443, 448 (1859). Therefore, the party claiming status as a purchaser for value should present specific evidence of the consideration paid or given in the transaction. IV. Actual Notice.

A purchaser who has actual notice of a third party’s claim to or against the title is not protected under the bona fide purchaser defense. Actual notice exists when a person actually knows the facts or should have known them if he had inquired about them after learning of facts that put him on inquiry. City of Richland Hills v. Bertelsen, 724 S.W.2d 428, 429 (Tex. App. – Fort Worth 1987, no writ). Actual notice is a question of fact to be determined from all the facts and circumstances, and it becomes a question of law only when there is no room for ordinary minds to differ. O'Ferral v. Coolidge, 228 S.W.2d 146, 148 ( Tex. 1950). In some circumstances, actual notice can be inferred when the purchaser had the means of knowledge and a reasonably diligent inquiry would have disclosed the full truth. Woodward v. Ortiz, 237 S.W.2d 286, 289 (Tex. 1951). As but one example, when there are newly constructed improvements on the property, the purchaser would be considered to have actual notice of any outstanding mechanic's and materialman's liens against the property which further inquiry would have uncovered. Marks v. Calcasieu Lumber Co., 245 S.W.2d 749, 752 (Tex. Civ. App. – Austin 1952, writ ref'd n.r.e.). V. Constructive Notice from Possession. Possession of property by one other than the seller in certain circumstances places a purchaser under a legal duty to inquire further and charges the purchaser with constructive notice of any claims that the occupant has to title to the property which such further inquiry would have revealed. As to those claims that would have been discovered by such further inquiry, the purchaser is not protected by the bona fide purchaser defense. A. General Test for Constructive Notice from Possession. In Madison v. Gordon, 39 S.W.3d 604 (Tex. 2001), in which the Texas Supreme Court held that a purchaser was not charged with a duty to investigate possible ownership claims of a tenant who was in possession of one unit in a four-plex multifamily apartment building, the character of possession required to impose a duty of inquiry upon the purchaser was described as follows:

One purchasing land may be charged with constructive notice of an occupant's claims. This implied-notice doctrine applies if a court determines that the purchaser has a duty to ascertain the rights of a third-party possessor. When this duty arises, the purchaser is charged with notice of all the occupant's claims the purchaser might have reasonably discovered on proper inquiry. The duty arises, however, only if the possession is visible, open, exclusive, and unequivocal.

39 S.W.3d at 606 [citations omitted](emphasis added).


In articulating in Madison v. Gordon the four attributes of possession required for such possession to impute constructive notice of an occupant’s claims to a purchaser, the Texas Supreme Court relied expressly on an earlier opinion of the Commission of Appeals adopted by the Supreme Court in Strong v. Strong, 90 S.W.2d 346 (Tex. 1936)(op. adopted). In Strong v. Strong, the Court held that an oil and gas lessee was not charged with notice of the ownership claims of children of a first marriage who lived on the property with the father and second wife when all family members worked the property together and no plot was distinctly set aside for the children of the first marriage. The test adopted by the Court in Strong v. Strong was as follows:

So it may safely be said that the “character of possession” referred to as constituting constructive notice, with respect to the character of case we have under consideration, must consist of open, visible, and unequivocal acts of occupancy in their nature referable to exclusive dominion over the property, sufficient upon observation to put an intending purchaser on inquiry as to the rights of such possessor; and that ambiguous or equivocal possession which may appear subservient or attributable to the possession of the holder of the legal title is not sufficiently indicative of ownership to impute notice as a matter of law of the unrecorded rights of such possessor.

98 S.W.2d at 350. B. Possession by Tenant is Possession by Landlord. The possession of property by a tenant is equivalent to possession by the landlord. Mainwarring v. Templeman, 51 Tex. 205, 1879 WL 7660 (Tex. 1879); Collum v. Sanger Bros., 82 S.W. 459, 460 (Tex. 1904). C. Constructive Notice Issues Arising from Co-Tenancy. Property owned in undivided interests by co-tenants, with each having an equal right of possession, presents a variety of issues under the bona fide purchaser defense. 1. Oral Partition Agreement Among Co-Tenants. In Texas, it was early held that a partition agreement among co-tenants need not be in writing and is generally enforceable as outside the statute of frauds. James v. Fulcrod, 5 Tex. 512, 1851 WL 3915 (Tex, 1851)(distinguishing broader English Statute of Frauds); Stuart v. Baker, 17 Tex. 417, 1856 WL 5032 (Tex. 1856). In Allday v. Whittaker, 1 S.W. 794 (Tex. 1886), the Texas Supreme Court held that an innocent purchaser for value under a sheriff’s execution sale of the interest of one co-tenant was not bound by a prior oral partition agreement. The case illustrates the recurring difficulty of establishing notice in light of the shared possessory rights of co-tenants, with the following observation by the Court:

The possession of Cobb [the co-tenant claiming full ownership of a part of the property under the oral partition agreement] was consistent with the title which


the record showed him to have; as co-tenant, he was entitled to just such a possession as he is shown to have had. The property seems to have been divided into blocks and lots, some of which had been actually surveyed, and their boundaries fixed, and it ought not to be contended that the occupation of one or more of these lots by Cobb, just as any other co-tenant has the right to occupy, can operate as notice of a parol partition.

1 S.W. at 796. 2. Equities Existing Among Co-Tenants. In Kirby Lumber Co. v. Temple Lumber Co., 83 S.W.2d 638 (Tex. 1935), the Texas Supreme Court held that a purchaser from a co-tenant is not automatically charged with notice of equities existing among co-tenants, but only with those of which the purchaser has actual notice. The case involved issues of one co-tenant harvesting excessive timber from the property. As stated by the Court:

We think none of these authorities hold that an innocent purchaser from a cotenant is charged in law with notice of all equitable rights of the other co-tenants. In regard to the matter under discussion, we hold that a bona fide purchaser from a co-tenant, without notice of any equities that exist between such cotenant and the other cotenants, takes not charged therewith.

83 S.W.2d at 642. 3. Co-Tenants Not in Possession. In Collum v. Sanger Bros., 82 S.W. 459 (Tex. 1904), one co-tenant conveyed his interest to another co-tenant by unrecorded deed. Thereafter, the grantee co-tenant and a third co-tenant occupied sole possession of the property, and the grantor co-tenant was not in possession. The record interest of the grantor co-tenant who was not in possession was later sold under execution. The purchaser at the execution sale was charged with notice of the unrecorded conveyance by the possession of the grantee co-tenant in the unrecorded deed. As stated by the Court:

[T]he fact that the possession of one holding land is consistent with the recorded title does not exempt a purchaser from the duty of inquiring of him as to any other title. We think it a safe and salutary rule to require of a prospective purchaser of land to ascertain whether any other be in occupancy of it; and, if there be such possession, to go to the possessor and ascertain the nature and extent of his claim. Possession is evidence of title, and, it seems to us, that common prudence and common honesty demand this course. If so, the possession should be notice to him; and, if notice to a purchaser, it is notice to a creditor.

82 S.W. at 460. The holding in Collum v. Sanger Bros. was further explained in Jackson v. De Guerin, 77 S.W.2d 1041, 1042 (Tex. 1935)(op. adopted), in which it was observed that in Collum v.


Sanger Bros. “the appearances on the land pointed to the possessor” and the “possessor was actually residing on the land.” In Aldridge v. North E. Indep. Sch. Dist., 428 S.W.2d 447 (Tex. App. – San Antonio 1968, writ ref'd), a father and son jointly purchased a tract of land. Thereafter, the son conveyed his undivided interest in the land to his father in an unrecorded deed in partial satisfaction of debt owed to his parents. Subsequently, a judgment creditor of the son properly abstracted its judgment against the son. A few days later the deed from the son to the father was finally recorded. The uncontroverted evidence was that the parents and their tenant had exclusive possession and use of the land following execution and delivery of the unrecorded deed to the father. 428 S.W.2d at 449. The Court of Appeals held that this possession by the parents was sufficient to place the judgment creditor under a duty of inquiry. As the Court of Appeals held:

We think it a safe and salutary rule to require of a prospective purchaser of land to ascertain whether any other be in occupancy of it; and, if there be such possession, to go to the possessor and ascertain the nature and extent of his claim. Possession is evidence of title, and, it seems to us, that common prudence and common honesty demand this course. If so, the possession should be notice to him; and, if notice to a purchaser, it is notice to a creditor.

428 S.W.2d at 449-50. In Madison v. Gordon, 39 S.W.3d 604 (Tex. 2001), the Supreme Court concurred with the result in Aldridge, but noted that the analysis by the Court of Appeals would have been better framed in terms of the four requirements that the possession “be visible, open, exclusive, and unequivocal.” 39 S.W.3d at 606. D. Possession Under Resulting Trust. In Bell v. Smith, 532 S.W.2d 680 (Tex. Civ. App. – Fort Worth 1976, no writ), Mr. and Mrs. Smith purchased a house with community funds, but the title was placed in the name of Mr. Smith’s son by a prior marriage to Lucille Bell. This was done with the knowledge of Mrs. Smith. The evidence established a resulting trust, with the equitable ownership held by Mr. and Mrs. Smith with the legal title held by the son as trustee only. Mr. and Mrs. Smith occupied the house, and the son was never in possession. The son then died, leaving his mother Lucille Bell as his only heir. Mr. and Mrs. Smith were divorced a short time later, and the house was awarded to Mrs. Smith in the divorce decree. Mr. Smith executed a quitclaim deed of his interest to the house to Mrs. Smith, but this quitclaim deed was not recorded until after a second deed in which Mr. Smith purported to deed a 1/2 interest in the house to his former wife Lucille Bell. The deed to the former wife Lucille Bell was recorded prior to the quitclaim deed from Mr. Smith to Mrs. Smith. Ms. Bell’s effort to assert status as a bona fide purchaser was unsuccessful, and she was charged with notice of Mrs. Smith’s ownership claims by reason of Mrs. Smith sole possession of the property. As the Fort Worth Court of Appeals observed:


http://web2.westlaw.com/find/default.wl?tf=-1&rs=WLW9.10&serialnum=1968134425&fn=_top&sv=Split&tc=-1&findtype=Y&ordoc=2001112164&mt=Texas&db=713&utid=1&vr=2.0&rp=%2ffind%2fdefault.wl&pbc=D19CB354



In other words, since Lucille Bell's deed was obtained by her at a time when Christine Smith was in actual possession of the property, the said Lucille Bell was not a bona fide purchaser and was charged with notice of all the rights and title of the possessor in and to such property.

532 S.W.2d at 686. In Madison v. Gordon, 39 S.W.3d 604 (Tex. 2001), the Supreme Court approved the result in Bell v. Smith, but also noted that the analysis by the Court of Appeals would have been better framed in terms of the four requirements that the possession “be visible, open, exclusive, and unequivocal.” 39 S.W.3d at 606. E. Growing Crops Alone Not Notice. The cultivation of crops on the land is itself insufficient to provide notice of the rights of a third party and is regarded as consistent with the record ownership of the land. As explained in Jackson v. De Guerin, 77 S.W.2d 1041 (Tex. 1935)(op. adopted):

There is no higher type of physical facts to denote actual possession of a given tract of land than a growing crop; but, standing alone, the possession thus revealed is insufficient to put a purchaser on an inquiry. A purchaser would be justified in assuming that the possession is that of the holder of the record title, unless the visible circumstances attending the possession at the time be of such import as to indicate distinctly, to a prudent observer, a different possessor.

77 S.W.2d at 1042. Similarly, in Paris Grocer Co. v. Burks, 105 S.W. 174 (Tex. 1907), a mother conveyed record title of a tract of land to her son, who later conveyed the property back to his mother by unrecorded deed. The mother raised crops on the land and also used the land for pasture. The Court held that when possession of a cultivated and segregated tract as between the grantor and grantee of an unrecorded deed is uncertain from the observable conditions on the property, a judgment creditor of the grantor of unrecorded deed (the son) was not placed upon a duty of inquiry concerning the rights of the grantee under the unrecorded deed (the mother). The possession of the mother was “too uncertain and equivocal a kind to constitute notice of her unrecorded deed.” Id. at 176. F. Tenant in Multi-Family Property. Possession of a single unit in a multi-family dwelling is not sufficient to charge a purchaser with a duty of inquiry concerning possible claims of the occupant. As explained by the Texas Supreme Court in Madison v. Gordon, 39 S.W.3d 604 (Tex. 2001):

Gordon's possession as a tenant in a multi-unit structure did not satisfy the criteria necessary to give Madison constructive notice. His possession was neither exclusive nor unequivocal. As rental property, one would expect


occupants on the property. Indeed, Gordon was one of four tenants living on the property, and there was nothing to indicate he would later claim title. Gordon's occupancy simply does not meet the exclusive requirement necessary to impute notice of his claims to Madison.

39 S.W.3d at 607. G. Continued Possession By Grantor After Conveyance. The continued possession of the property by the grantor of a deed does not impose a duty of inquiry upon a subsequent purchaser from the grantee named in the deed. This rule was announced and explained in Eylar v. Eylar, 60 Tex. 315, 1883 WL 9328 (Tex. 1883).

By the deed in question, the parties who now assert claim through a secret agreement declared in the most solemn form that the land in controversy was the property of O. A. Eylar; they permitted that declaration to be placed on record for the very purpose of giving information to all persons as to the true ownership. Such being true, can the simple fact that they remained in possession of the land which they had declared belonged to another, which they might lawfully do as the tenants at sufferance or otherwise of such other person, make it requisite for any person who may desire to buy from the person whom they have so declared to be the owner, to inquire of themselves whether or not they had uttered the truth in their deed, whether or not their own declaration was false? We are of the opinion, under the facts in this case, that a purchaser from O. A. Eylar was not bound to inquire of the appellees what right they had in the land; that the inquiry was sufficiently prosecuted; prosecuted as far as a prudent man, having a due regard to the rights of others, and to his own protection, would be bound to prosecute it, when he looked to the record and there found that O. A. Eylar was declared by the very persons in possession to be the true and absolute owner of the land.

1883 WL 9328, at 4-5. H. Pretended Sale Under Deed Intended As Mortgage. In Causey v. Handley, 98 S.W. 431 (Tex. Civ. App. 1906), a husband and wife executed a deed to the property. They remained in possession after execution of the deed. Their grantee then conveyed to an innocent purchaser. The husband was in possession shortly before the closing, but the wife was away. The husband represented to the purchaser that he was the agent for the seller, and the husband vacated the property upon closing, and the purchaser entered into possession. Upon her return, the wife asserted that the deed was intended only as a mortgage and that she had been defrauded by her husband. The Court of Appeals, relying largely on the


rule of Eylar v. Eylar, supra, protected the innocent purchaser at the expense of the defrauded spouse:

If, as Mrs. Causey swore, her husband represented to her that the instrument was a mortgage and thereby perpetrated a fraud on her, Handley [the subsequent purchaser] cannot be made to suffer for it. He knew nothing of the false representations and being innocent of any fraud should not be made to bear the brunt of it.

98 S.W. at 432. On somewhat different facts a different result was reached in Moore v. Chamberlain, 195 S.W. 1135 (Tex. 1917). Mr. and Mrs. Chamberlain conveyed their homestead in a pretended sale by deed with vendor’s lien. The vendor’s lien note was sold to an innocent third party (Moore). Subsequently, a second pretended sale by deed with vendor’s lien was made by the first grantee to a second grantee, and the resulting vendor’s lien note executed by the second grantee was also sold to the same innocent party (Moore), who accepted the second vendor’s lien note in renewal of the first vendor’s lien note. Following default in payment, the innocent purchaser of the vendor’s lien notes foreclosed and purchased the property at the foreclosure sale. At the time of the foreclosure sale, the property was in the possession of the Chamberlains’ tenants. The Texas Supreme Court held that the purchaser of the vendor’s lien notes was charged with a duty of inquiring arising from the continued possession of the Chamberlains and their tenants. The Court stated:

We are of the opinion that the deed of conveyance by the trustee, Luckett, to the plaintiff in error, Moore, was void, and not voidable. When the plaintiff in error purchased the land from the trustee, it was in possession of the tenants of the Chamberlains. This placed him upon inquiry, as a matter of law, as to whether the deed from the Chamberlains to Carson [the first grantee] and from Carson to Trammell [the second grantee] were absolute, or were intended only as mortgages. There being no finding that he exercised any diligence by making inquiry, the possession of the tenants constituted actual notice to him that the deeds were intended as mortgages.

195 S.W. at 1136-7. In Madison v. Gordon, 39 S.W.3d 604 (Tex. 2001), the Supreme Court questioned the analysis in Moore v. Chamberlain, but confirmed that the correct result was reached in Moore v. Chamberlain, noting that the case and others like it involved an occupant living in a single-unit dwelling. 39 S.W.3d at 606. In considering the result in Moore v. Chamberlain, it should also be noted that the party in possession of the property was not the grantor named in the last deed of record, so that


presumably the underlying rationale of Eylar v. Eylar, supra, was not considered to be applicable.

I. Family Members in Possession Under Parent. In Strong v. Strong, 90 S.W.2d 346 (Tex. 1936)(op. adopted), the children of Mr.

Strong’s first marriage sued Mr. Strong, his second wife, and Sun Oil Company claiming an undivided interest by inheritance from the first Mrs. Strong in the land and the minerals under a 50 acre tract. Sun Oil Company claimed ownership of the entire mineral interest under a lease from Mr. Strong and his second wife. The children of the first marriage, including one son who was an unmarried adult, lived on the property with the family, though the evidence showed the property was worked by the entire family with no particular portion visibly set aside for any child of the first marriage. A portion of the property had been set aside by the father for the adult son, but all family members worked this plot.

The Supreme Court in the adopted opinion of the Commission of Appeals held that Sun

Oil was not on these facts charged with notice of the undivided ownership interest of the children of the first marriage by reason of their occupancy of the property together with the other family members. The Supreme Court approved the test set forth by the court of appeals in its opinion in the case, as follows:

So it may safely be said that the ‘character of possession’ referred to as constituting constructive notice, with respect to the character of case we have under consideration, must consist of open, visible, and unequivocal acts of occupancy in their nature referable to exclusive dominion over the property, sufficient upon observation to put an intending purchaser on inquiry as to the rights of such possessor; and that ambiguous or equivocal possession which may appear subservient or attributable to the possession of the holder of the legal title is not sufficiently indicative of ownership to impute notice as a matter of law of the unrecorded rights of such possessor.

98 S.W.2d at 350.

In Madison v. Gordon, 39 S.W.3d 604 (Tex. 2001), the Supreme Court confirmed that this test in the Strong case – containing the four elements of open, visible, exclusive, and unequivocal possession—are required to charged a purchaser with a duty to investigate the possession of the property by a third party. VI. Constructive Notice from the Public Record. A. The Recording Statutes. Recording statutes are not a modern innovation but date to 1536 in England with the enactment of the Statute of Enrollments, the Statute of Anne, and similar statutes. See TIFFANY, REAL PROPERTY, Sect. 789, page 840-41 (1940 ed.). The first Congress of the Republic of Texas in December 1836 adopted a statute to protect purchasers from unrecorded conveyances. Act approved Dec. 20, 1836, 1st Cong., R.S., § 40, 1822-1838 Laws of Texas 148, 156. Similar statutes have continued to the present time.


B. Statutes Protecting Bona Fide Purchasers and Lenders. 1. General Statutory Protection. The general protection of innocent purchasers and creditors from prior unrecorded interests is found in Texas Property Code §13.001(a) as follows:

A conveyance of real property or an interest in real property or a mortgage or deed of trust is void as to a creditor or to a subsequent purchaser for a valuable consideration without notice unless the instrument has been acknowledged, sworn to, or proved and filed for record as required by law.

2. Effectiveness of Unrecorded Instruments. Consistent with the common law rules, the statute confirms that unrecorded instruments are valid as between the parties and their heirs and are also binding on subsequent purchasers who have not paid a valuable consideration or who had notice of the unrecorded instrument. Texas Property Code §13.001(b) provides that:

The unrecorded instrument is binding on a party to the instrument, on the party's heirs, and on a subsequent purchaser who does not pay a valuable consideration or who has notice of the instrument.

3. Effect of Recording. Subject to the rules discussed below limiting constructive notice to instruments in the purchaser’s chain of title, Texas Property Code § 13.002 provides generally that:

An instrument that is properly recorded in the proper county is: (1) notice to all persons of the existence of the instrument; and (2) subject to inspection by the public.

4. Place for Recording. For constructive notice to be given by recording, the instrument must be recorded in the county where the property is located. Texas Property Code § 13.003 provides that:

The original or a certified copy of a conveyance, covenant, agreement, deed of trust, or mortgage, relating to land, that has been recorded in a county of this state other than the county where the land to which the instrument relates is located, is valid as to a creditor or a subsequent purchaser who has paid a valuable consideration and who does not have notice of the instrument only after it is recorded in the county in which the land is located. Recording a previously recorded instrument in the proper county does not validate an invalid instrument.

5. Lis Pendens. Texas Property Code § 13.004 protects purchasers and lenders for value without actual or constructive notice of pending litigation affecting the title to property unless a notice of lis pendens has been recorded in the county where the property is located. The statute provides as follows:


(a) A recorded lis pendens is notice to the world of its contents. The notice is effective from the time it is filed for record, regardless of whether service has been made on the parties to the proceeding. (b) A transfer or encumbrance of real property involved in a proceeding by a party to the proceeding to a third party who has paid a valuable consideration and who does not have actual or constructive notice of the proceeding is effective, even though the judgment is against the party transferring or encumbering the property, unless a notice of the pendency of the proceeding has been recorded under that party's name in each county in which the property is located.

A 2007 case from the Austin Court of Appeals confirms that an improperly recorded lis pendens does not impart constructive notice. A party seeking imposition of a constructive trust on property that had been purchased with misappropriated funds filed for record a lis pendens. This was not a proper lis pendens under the holding in Flores v. Haberman, 915 S.W.2d 477 (Tex. 1995), in which the Court held that Texas Property Code § 12.007 does not authorize a lis pendens in a suit seeking to impose a constructive trust on property. In Countrywide Home Loans, Inc. v. Howard, 240 S.W.3d 1 (Tex. App. – Austin 2007, pet. denied), the Austin Court of Appeals held that in such a case, no constructive notice is imparted from the recording of the improper lis pendens. 6. Justice Court Judgment. Title to property derived from an execution sale on a justice court judgment is protected under Texas Property Code § 13.005:

A certified transcript of a justice court judgment recorded under Section 12.015 of this code has the same effect as a recorded deed. A court shall admit as evidence the transcript or a copy of the transcript, if the copy is certified with the signature and seal of the clerk of the county in which the transcript is recorded, in the same manner and with the same effect as the original judgment and execution.

7. Recording of Partition Decree or Judgment for Title. Texas Property Code § 12.005 requires the recording of a partition decree and a court order awarding title as a prerequisite for later use as evidence in a title contest:

A court order partitioning or allowing recovery of title to land must be recorded with the county clerk of the county in which the land is located in order to be admitted as evidence to support a right claimed under the order.

In Corley v. Rinz, 24 S.W. 935, 937 (Tex. Civ. App – 1894), relying on the predecessor

statute to Texas Property Code § 12.005, the Court of Civil Appeals held that “[a person] having purchased the land from parties holding it under an apparent regular chain of title from the patentee, paying an adequate and valuable consideration therefor, under the bona fide belief that he was buying from the true owners, and was getting a good title to the property, without notice


of said proceedings and judgment of the district court--acquired a title to said lands unaffected by said proceedings and judgment.” 8. Lien Extension Agreements. Texas Civil Practice and Remedies Code § 16.037 protects innocent purchasers for value, lenders, and lessees from unrecorded lien extension agreements who do not have actual notice of the extension agreement. The statute provides as follows:

An extension agreement is void as to a bona fide purchaser for value, a lienholder, or a lessee who deals with real property affected by a real property lien without actual notice of the agreement and before the agreement is acknowledged, filed, and recorded.

9. Purchaser at Execution Sale. The purchaser at an execution sale is entitled to assert the bona fide purchaser defense if he would have qualified as a bona fide purchaser had he purchased directly from the judgment debtor. Texas Civil Practice and Remedies Code § 34.046 provides as follows:

The purchaser of property sold under execution is considered to be an innocent purchaser without notice if the purchaser would have been considered an innocent purchaser without notice had the sale been made voluntarily and in person by the defendant.

In Love v. R. S. Allday Supply Co., 106 S.W.2d 830 (Tex. Civ. App. – Eastland 1937, writ dism’d), community property standing only the name of the husband was sold at execution of a judgment against the husband. The wife had previously died, and her interest had been inherited by her son. The Eastland Court of Appeals cited to the predecessor statute of Texas Civil Practice and Remedies Code § 34.046 in holding that the purchaser at the execution sale prevailed under the bona fide purchaser defense against the equitable title claim of the son. 10. Separate Property Schedules. Texas Family Code § 3.004 authorizes the recording of a schedule of a spouse’s separate property, but provides that there is no constructive notice derived from such schedule unless it is recorded in the county in which the property is located:

(a) A subscribed and acknowledged schedule of a spouse's separate property may be recorded in the deed records of the county in which the parties, or one of them, reside and in the county or counties in which the real property is located. (b) A schedule of a spouse's separate real property is not constructive notice to a good faith purchaser for value or a creditor without actual notice unless the instrument is acknowledged and recorded in the deed records of the county in which the real property is located.

11. Fraudulent Transfers. Good faith purchasers for a reasonably equivalent value and their successors are protected from a fraudulent transfer in the chain of title even when


the fraudulent transfer is made with actual intent to defraud. The Texas Uniform Fraudulent Transfer Act provides such protection in Texas Business and Commerce Code § 24.009(a) as follows:

A transfer or obligation is not voidable under Section 24.005(a)(1) of this code [protecting present and future creditors from fraudulent transfers made with actual intent to defraud] against a person who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee.

12. Purchasers From Probate Estate. Bona fide purchasers from an executor

or administrator are protected even if the conveyance is later determined to be unauthorized. Texas Probate Code § 188 states:

When an executor or administrator, legally qualified as such, has performed any acts as such executor or administrator in conformity with his authority and the law, such acts shall continue to be valid to all intents and purposes, so far as regards the rights of innocent purchasers of any of the property of the estate from such executor or administrator, for a valuable consideration, in good faith, and without notice of any illegality in the title to the same, notwithstanding such acts or the authority under which they were performed may afterward be set aside, annulled, and declared invalid.

See also Dallas Servs. for Visually Impaired Children, Inc. v. Broadmoor II, 635 S.W.2d 572, 577 (Tex. App.- Dallas 1982, writ ref’d n.r.e.)(“ Such purchasers, therefore, will be protected against any attack on their title based on a claim of invalidity of the acts of the executors on which their title is based.”). 13. Purchase from Seller in Bankruptcy. United States Bankruptcy Code, 11 U.S.C. § 549(c) protects an innocent purchaser for fair equivalent value from the trustee of a party in bankruptcy when the purchaser has no actual knowledge of the bankruptcy if notice of the bankruptcy has not been recorded. If the purchase is for less than fair equivalent value, the purchaser is given a lien to the extent of the value given. The statute provides as follows:

The trustee may not avoid under subsection (a) of this section a transfer of an interest in real property to a good faith purchaser without knowledge of the commencement of the case and for present fair equivalent value unless a copy or notice of the petition was filed, where a transfer of an interest in such real property may be recorded to perfect such transfer, before such transfer is so perfected that a bona fide purchaser of such real property, against whom applicable law permits such transfer to be perfected, could not acquire an interest that is superior to such interest of such good faith purchaser. A good faith purchaser without knowledge of the commencement of the case and for less than present fair equivalent value has a lien on the property transferred to the extent of any present value given, unless a copy or notice of the petition was so filed before such transfer was so perfected.


C. Constructive Notice Limited to Information in the Chain of Title. A purchaser is not charged with constructive notice of every recorded document. If the rule were such, the purpose of the recording system to provide a practical system for searching land titles would completely fail from impracticality. Rather, a purchaser is charged with knowledge of those facts appearing in the chain of title through which the purchaser claims title that would place a reasonably prudent person on inquiry as to the rights of third parties in the property. Williams v. Jennings, 755 S.W.2d 874, 882 (Tex. App. – Houston [14th Dist.] 1988, writ denied) (citing Blocker v. Davis, 241 S.W.2d 698, 700 (Tex. Civ. App. -- Fort Worth 1951, writ ref'd n.r.e.). A purchaser is further “bound by every recital, reference, and reservation contained in or fairly disclosed by an instrument that forms an essential link in the chain of title under which he claims.” Westland Oil Dev. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 908 (Tex. 1982), quoting Wessels v. Rio Bravo Oil Co., 250 S.W.2d 668 (Tex. Civ. App. – Eastland 1952, writ ref'd).

The required process of examination is described in Loomis v. Cobb, 159 S.W. 305 (Tex. Civ. App. -- El Paso 1913, writ ref'd):

The rationale of the rule is that any description, recital of fact, or reference to other documents puts the purchaser upon inquiry, and he is bound to follow up this inquiry, step by step, from one discovery to another and from one instrument to another, until the whole series of title deeds is exhausted and a complete knowledge of all the matters referred to and affecting the estate is obtained.

159 S.W. at 307; see also Waggoner v. Morrow, 932 S.W.2d 627, 632 (Tex. App. – Houston [14th Dist.] 1996, no writ); W. T. Carter & Bro. v. Davis, 88 S.W.2d 596 (Tex. Civ. App. – Beaumont 1935, writ dism'd); 5 Lange, Land Titles, supra, § 814, p. 252. Thus, for example, a purchaser must look for conveyances by a prior owner during the period of such prior owner’s record ownership, and as a general matter a purchaser need not search for conveyances prior to or after such period of record ownership, for such conveyances, if any, are outside the chain of title. Similarly, when a purchaser takes a conveyance from a seller who holds title under the first deed from the seller’s grantor, the purchaser is not bound to search further for a subsequent deed from the seller’s grantor. White v. McGregor, 50 S.W. 564, 565-66 (Tex. 1899); 5 Lange, Land Titles, supra § 814, p. 248. In our recent past, in which correction instruments seem to be increasingly common, the case of Swanson v. Grassedonio, 647 S.W.2d 716 (Tex. App. – Corpus Christi 1982, no writ), should be considered. A lender recorded a mistaken release of lien and upon discovering its mistake recorded a correction document. The purchaser and her title company found the first release, but not the correction instrument. On appeal, the Corpus Christi Court of Appeals upheld an injunction in favor of the purchaser to stop a foreclosure sale, stating that the purchaser had established her status as a bona fide purchaser without notice. In relying on cases holding that a purchaser does not need to search for conveyances outside the time that grantors in the chain held title, the Court of Appeals clearly appears to have held that upon finding the first


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mistaken release of lien, the purchaser had no obligation to look further and was not bound by the subsequent correction release. D. The Requirement of Proper Recording. 1. The Instrument Must Be Eligible for Recording. Chapter 12 of the Texas Property Code describes the various instruments that are eligible for recording. Texas Property Code § 12.001 generally provides as follows:

An instrument concerning real or personal property may be recorded if it has been acknowledged, sworn to with a proper jurat, or proved according to law.

In Pearson v. Wicker, 746 S.W.2d 322 (Tex. App. – Austin 1988, no writ), for example, the Austin Court of Appeals held that a properly acknowledged joint venture agreement that specifically identified the property subject to the venture was properly recorded, and that a subsequent purchaser had constructive notice of a provision in the agreement requiring the consent of both venturers for a conveyance of the property. 2. The Instrument Must Be Properly Acknowledged.

a. No Notice Without Proper Acknowledgement. The recordation of a deed without a proper acknowledgment does not constitute notice. Hill v. Taylor, 14 S.W. 366, 367 (Tex. 1890). b. Financial or Beneficial Interest of Notary. One who is financially and beneficially interested in a transaction is disqualified from taking an acknowledgment concerning the transaction. However, if the instrument and the notary's certificate of acknowledgement are regular on their face and do not disclose the interest of the notary in the transaction, the instrument is constructive notice to subsequent purchasers without actual notice of the defect in the acknowledgement. Gulf Prod. Co. v. Continental Oil Co., 61 S.W.2d 185, 186-87 (Tex. Civ. App.—Texarkana 1933), aff'd, 164 S.W.2d 488 (Tex. 1942). c. Only Facial Defects Prevent Notice. The defect in the acknowledgment must appear on the face of the acknowledgment. Titus v. Johnson, 50 Tex. 224, 240 (1878); Peterson & Fowler v. Lowry, 48 Tex. 408, 412 (1877). d. Special Curative Statute of Limitations. Texas Civil Practice and Remedies Code § 16.033(a)(8) provides a two-year statute of limitations with respect to defective acknowledgements as follows:

(a) A person with a right of action for the recovery of real property or an interest in real property conveyed by an instrument with one of the following defects must bring suit not later than two years after the day the instrument was filed for record with the county clerk of the county where the real property is located: . . . (8) failure of the record or instrument to show an acknowledgment or jurat that complies with applicable law; . . .


E. Quit Claim Deeds. A warranty deed to land conveys the land. A quitclaim deed conveys the grantor’s right in the land. Geodyne Energy Income Prod. P’ship I-E v. Newton Corp., 161 S.W.3d 482, 486 n. 12 (Tex. 2005). The purchaser taking a quitclaim deed takes the property “with notice of all defects in the title and equities of third persons,” and thus cannot qualify as a bona fide purchaser. See Woodward v. Ortiz, 150 Tex. 75, 237 S.W.2d 286, 291 (1951). A quitclaim deed in the chain of title is fatal to status as a bona fide purchaser, unless (a) the quitclaim deed predates the creation of the adverse title claim, see Houston Oil Co. of Texas v. Niles, 255 S.W. 604 (Tex. Com. App. 1923, judgment approved.); Straus v. Shamblin, 120 S.W.2d 598 (Tex. Civ. App. – Amarillo 1938, writ dism’d); (b) there is an intervening bona fide purchaser in the chain of title providing protection under the “shelter rule,” which with some exceptions allows subsequent grantees to claim the bona fide purchaser status of an earlier grantee, see, e.g., Hunley v. Bulowski, 256 S.W.2d 932 (Tex. Civ. App. Texarkana 1953, writ ref’d n.r.e.); or (c) the quitclaim deed appears in the chain of title prior to a common source of title. Tobin v. Benson, 152 S.W. 642 (Tex. Civ. App. - 1912, writ ref’d)(bona fide purchaser defense was available “as the quitclaim deeds thus objected to lie back of the common source under which all parties to this controversy claim.”). Some deeds which on first impression might not seem to be a quitclaim deed have been construed as quitclaims. In Enerlex, Inc. v. Amerada Hess, Inc., 2009 WL 3212554 (Tex. App. - Eastland 2009)(pub. pending), for example, the deed conveyed “all, right, title and interest” in a described tract of land. It was not limited as with some quitclaim deeds to “all my right, title, and interest” or “all right, title, and interest, if any.” The deed in question also contained a covenant of general warranty as to the described tract. The deed did not contain any disclaimer of warranty. However, because the deed contained no specific representation of ownership, it was held to be a quitclaim deed and bona fide purchaser status was denied. F. Sheriff’s and Constable’s Deeds. Texas Civil Practice and Remedies Code § 34.045 provides as follows with respect to execution sales:

When the sale has been made and its terms complied with, the officer shall execute and deliver to the purchaser a conveyance of all the right, title, interest, and claim that the defendant in execution had in the property sold.

It has been held that the purchaser at a constable’s sale receives only the equivalent of a quitclaim deed, and takes the property subject to all prior claims to title. Diversified, Inc., v. Hall, 23 S.W.3d 403, 407 (Tex. App. – Houston [1st Dist] 2000, pet. denied). As another example, a Sheriff’s Deed that conveyed “all the estate, right, title and interest which” the judgment debtor had in the property on the date of sale is a quitclaim deed only, and the purchaser cannot be a purchaser without notice. Kidwell v. Black, 104 S.W.3d 686, 691 (Tex. App. – Fort Worth 2003, pet. denied). Neither of these cases discussed the effect of Texas Civil


Practice and Remedies Code § 34.046, discussed above, which provides that a purchaser at an execution sale is a bona fide purchaser if he would have been such in a voluntary purchase from the judgment debtor. G. Foreclosure Sales. In First Southern Properties, Inc. v. Vallone, 533 S.W.2d 339 (Tex. 1976), the Texas Supreme Court confirmed that:

[A] a purchaser under a power at a foreclosure sale obtains only such title as to trustee had authority to convey.

533 S.W.2d at 341. As explained by the Court of Appeals in Henke v. First Southern Properties, Inc., 586 S.W.2d 617 (Tex. Civ. App. – Waco 1979, writ refused n.r.e.):

[T]he doctrine of good faith purchaser for value without notice does not apply to a purchaser at a void foreclosure sale. One who bids upon property at a foreclosure sale does so at his peril. If the trustee conducting the sale has no power or authority to offer the property for sale, or if there is other defect or irregularity which would render the foreclosure sale void, then the purchaser cannot acquire title to the property.

586 S.W.2d at 620. However, a subsequent bona fide purchaser is protected. In Slaughter v. Qualls, 162 S.W.2d 671, 675 (Tex. 1942), the purchaser at a void foreclosure sale (there was no default and the sale was a sham) sold to subsequent bona fide purchaser. The title of the subsequent bona fide purchaser prevailed, with the Texas Supreme Court stating that;

[T]hose who purchased interests in or took liens on the land in good faith from [the purchaser at the foreclosure sale] after the purported sale to her by the substitute trustee acquired good title as against [the mortgagor]; but this is so not on the theory that the title actually passed, but rather on the theory that [the mortgagor], by the execution of the deed of trust, made it possible for the trustee to create the appearance of good title in [the purchaser at the foreclosure sale], and it would be inequitable to permit [the mortgagor] now to show otherwise as against those who have purchased in good faith in reliance thereon.” Important in this case was the fact that the absence of a default was not a matter that could be determined from the record.

162 S.W.2d at 675. Defects in the foreclosure process that can be ascertained from the record will prevent successful use of the bona fide purchaser defense. For example, in Martin v. Cadle Co., 133


S.W.3d 897, 904-5 (Tex. App. – Dallas 2004, pet. denied), the subsequent purchaser from the purchaser at the foreclosure sale was not a bona fide purchaser without notice when the record showed that the party foreclosing acquired the lien after the foreclosure sale and therefore the trustee had no authority to sell the property, thereby distinguishing the result in Slaughter v. Qualls above. In Disanti v. Wachovia Bank, N.A., 2009 WL 1372970 (Tex. App. – Fort Worth 2009)(mem. op.), the purchaser at homeowner’s association assessment lien foreclosure sale was denied status of bona fide purchaser. The deed to the homeowners and their purchase money deed of trust were recorded in the wrong county. However, the trustee’s deed to the purchaser at the assessment lien foreclosure sale recited the names of the homeowners according to the association’s records. This placed a duty of inquiry upon the foreclosure purchaser and defeated his status as a purchaser without notice. In Hellman v. Circle C Properties I, Ltd., 2003 WL 22897220 (Tex. App. – San Antonio 2003, pet. denied)(mem. op.), the lender made a loan to a corporate borrower to purchase real property. The note and deed of trust were executed by the corporate borrower. However, the title to the property was taken in the individual name of the corporate borrower’s president. The president of the corporate borrower later executed a deed of trust lien on the property in favor of a judgment creditor holding a judgment against the president individually. Both the lender to the corporation and the judgment lien creditor foreclosed their respective deeds of trust. The court of appeals held that the corporate borrower was the beneficiary of a resulting trust with respect to the property, and the corporate borrower held the superior equitable title to the property. In the resulting trust, the corporate president held mere legal title as trustee for the corporation. When the lender to the corporation foreclosed its lien, it acquired the superior equitable title, and the judgment lien creditor was required to convey the legal title to the lender to the corporation. H. Limitations Title. The bona fide purchaser defense is not available to a purchaser from the holder of record title against an adverse claimant whose title has been previously perfected by limitations. Marshburn v. Stewart, 295 S.W. 679, 688 (Tex. Civ. App.--Beaumont 1927); Bowles v. Bryan, 247 S.W. 276 (Tex. 1923). In East Texas Land & Improvement Co. v. Shelby, 41 S.W. 542 (Tex. Civ. App. 1897, writ ref’d), title was acquired by limitations, but by the time of the purchase from the record owner possession of the property had been abandoned and the property was unoccupied. The holder of limitations title still prevailed. In MacGregor v. Thompson, 26 S.W. 649 (Tex. Civ. App. 1894, no writ), “[a]fter such title by limitation had become complete, the houses and fences, by means of which possession had been evidenced, were burned, occupancy ceased, and there were no vestiges upon the land itself to show that it had ever been occupied.” Nonetheless, the limitations title prevailed against an innocent purchaser for value without notice.



The theory of these cases is that limitations title is a complete legal title with priority in time over a later claim of legal title by a subsequent purchaser. VII. Burden of Proof. The general rule is that one claiming to be a good-faith purchaser has the burden of proof on that issue. Fenley v. Ogletree, 277 S.W.2d 135, 141 (Tex. Civ. App. – Beaumont 1955, writ ref'd n.r.e.); Watkins v. Edwards, 23 Tex. 443, 448 (1859). A party claiming an equitable title to the property, however, has the burden to establish that the purchaser of the legal title was not a good faith purchaser for value without notice. Hill v. Moore, 1884 WL 8972 (Tex. 1884); Mitchell v. Schofield, 171 S.W. 1121 (Tex. 1915); Teagarden v. R. B. Godley Lbr. Co., 154 S.W. 973, 974 (Tex. 1913); Howard v. Commonwealth Bldg. & Loan Ass'n, 94 S.W.2d 144, 145 (Tex. 1936); Baldwin v. Root, 40 S.W. 3 (Tex. 1897); NRG Exploration, Inc. v. Rauch, 671 S.W.2d 649, 653 (Tex. App. – Austin 1984, writ ref'd n.r.e.). For example, it was held in AMC Mortgage Services, Inc. v. Watts, 260 S.W.3d 582, 585 (Tex. App. – Dallas 2008), that a party claiming equitable subrogation arising from its payment of a prior lien on the property had the burden to prove that the purchaser at a foreclosure sale of another lien on the property was not a bona fide purchaser. VIII. Conclusion. The general principles discussed above are intended to be helpful in gaining an overview of the bona fide purchaser defense in Texas. Cases involving the defense are, however, very fact specific, especially in the area of constructive notice from possession by a party other than the seller.

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2009 texas land title institute december 3 – 4, 2009 the ... · status as a bona fide purchaser...

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