Texas Correction Deed Statute Revisited … Again

Texas Correction Deed Statute Revisited … Again

You might recall this post on Broadway National Bank, Trustee v. Yates Energy Corporation. We now have Yates Energy Corporation et al v. Broadway National Bank, Trustee, the court of appeals’ ruling after remand. Recall the result from the Supreme Court: Execution of the 2013 Amended Correction Mineral Deed by the parties to the original 2005 Mineral Deed and the 2006 Correction Mineral Deed, without joinder of the current owners of the minerals, complied with Texas Property Code §5.029. The question remaining was whether the current owners were bona fide purchases for value without notice. Skipping all sorts of rulings on side issues, the result is that current owner Yates was not a BFP.  Other appellants survived to fight another day.

Yates

Yates et al acquired their interests in the minerals before execution of the 2013 deed. But in 2006 Broadway sent Yates recorded copies of the 2006 deed which recited that the 2005 deed had conveyed interests to John in fee simple by oversight, that the conveyance should have been limited to a life estate, and that specific individuals owned remainder interests.

Yates’ concession that it received the 2006 deed before it acquired its interest satisfied Broadway Bank’s threshold summary judgment burden that Yates had received actual notice of the claims. The burden shifted to Yates to present evidence raising a genuine issue of material fact about whether it had actual notice. Yates argued:

  • Actual notice is a question of fact not of law. The court concluded that was no room for reasonable minds to differ about whether Yates received actual notice.
  • Actual notice would not defeat its BFP defense because the 2006 deed was ineffective and unenforceable and notified Yates only of an alleged mistake that had never been proved or properly corrected. The court declined to hold that an invalid correction instrument is wholly ineffective to impart notice on the subsequent purchaser. The validity of the remainderman’s claimed interest was irrelevant to whether Yates had notice of that claim. Yates did not raise a genuine issue of material fact about whether the deed’s factual recitations were “sufficient to excite the suspicions of a person of ordinary prudence”.
  • Only a correction instrument that complies with §5.029 could defeat a BFP defense. Not so; a purchaser who acquires property with constructive or actual notice of a potential third party claim cannot successfully assert a BFP defense. It didn’t matter that the recording of the 2006 deed was insufficient as constructive notice because it was outside of Yates’ chain of title. Yates received actual notice.
  • John as holder of a life estate could sell the property in fee simple as long as he held the proceeds for the remaindermen. But John did not have unlimited power to dispose of the fee estate and there was no evidence that John held the proceeds for the remainderman.

Broadway conclusively showed that Yates received actual notice of the remainderman’s claim and Yates presented no evidence that raised a genuine issue of material fact. The court affirmed the probate court judgment that Yates was not entitled to protection as a BFP.

Appellants Jalapeno, Curry Glassell, ACG3, Glassell Nonoperating, and EOG.

While Yates could pass no greater interest than it owned, that general rule applies only if the grantee fails to show himself to be a BFP. There was no evidence that Jalapeno and Curry Glassell received actual notice of the facts in the 2006 deed. A subsequent purchaser is only deemed to have constructive notice of recorded documents within its direct chain of title. Jalapeño and Corey Glassell’s chain would not have included any instruments executed by Broadway after it conveyed the property to John. Broadway did not show as a matter of law that Jalapeno or Curry Glassell had constructive notice of the remainderman’s claims.

Broadway and ACG3 and Glassell Nonoperating all moved for summary judgment. The evidence did not conclusively establish either the BFP defenses or that those appellants had actual or constructive knowledge of the remainderman’s claims. Summary judgment for Broadway against ACG3 and Glassell Nonoperating was reversed.

Broadway and EOG filed competing MSJ’s. The evidence did not conclusively establish that EOG had actual knowledge of the 2006 deed when it acquired its interest in the minerals. A fact issue remained on that subject. An affidavit from an EOG landman asserting that EOG acquired John’s interest without notice was not conclusive proof of the fact. Summary judgment against EOG was reversed.

Result: Yates is out.  Its back to the probate court for the others. More likely, it’s on to the Supreme Court for another round.

Your musical interlude. Some things never change.

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