Face Challenges Confidently

315 Bright v. Johnson

Monday, August 31st, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
Bright v. Johnson, 302 S.W.3d 483 (Tex. App.—Eastland 2009, no pet.), held that a reservation of minerals in a contract described as “All of Record” was a reservation of all the minerals and was not merely a reservation of two outstanding interests held by predecessors in title. The deed, which failed to reserve any minerals but excepted the prior reserved interests, was reformed to reserve all of the minerals to Grantor, notwithstanding that the Grantee’s subsequent assignee claimed to be a bona fide purchaser for value. Grantor owned certain real property subject to two prior mineral interest reservations that were of record. Grantor and Grantee agreed that Grantor was to keep all of the mineral interests that Grantor then owned. The existence of the prior mineral interest reservations was apparently unknown to the parties at the time of their agreement. The parties memorialized their agreement by executing a form Farm and Ranch Contract of Sale (“Sales Contract”). The relevant portion of the Sales Contract provided:
All property sold by this contract is called the “Property.” The Property will be conveyed subject to the following exceptions, reservations, conditions and restrictions (if none, insert “none”):
A.  Minerals, Royalties, and Timber Interests:

  1. Presently outstanding in third parties: None [“None” written in]
  2. To be additionally retained by Seller: All of Record [“All of Record” written in] (emphasis added).

The warranty deed did not reserve or retain the minerals for Grantor, but the two prior mineral interest reservations were listed as exceptions in the deed. Grantor timely filed suit to reform the deed to include a reservation of all the minerals to Grantor, and Grantee’s son intervened, claiming to be a bona fide purchaser for value from his father, without notice of Grantor’s claim to the minerals.
The first issue was whether the Sales Contract itself did or did not reserve minerals to Grantor. The court stated that had the parties intended for the Grantor not to reserve any minerals, they would have inserted “None” rather than “All of Record” in paragraph 2(A)(2). Additionally, had the parties intended only to except from the deed the two prior mineral interest reservations of record, the parties would have “excepted” the prior conveyances from the deed and not “reserved” such conveyances. The court stated: “[a]n exception does not pass title itself; instead, it operates to prevent the excepted interest from passing at all. The primary distinction between a reservation and exception is that a reservation must always be in favor of and for the benefit of the grantor.” The court concluded that it was not logical that the Grantor would reserve to Grantor only the prior mineral reservations owned by others, and, therefore, the reservation of “All of Record” reserved all minerals, royalties, and timber interests to Grantor.  “This agreement might not be a model of clarity, but we believe that it reflects the intent of the parties that, as to minerals, there are no outstanding interests in third parties but that the [Grantor is] retaining all of record.”
The court then considered the claim by the Grantee’s son that he was a bona fide purchaser for value of one-half of the interest of Grantee. Thirteen months after the deed was executed, the son entered into a written purchase contract with the father and paid his father for his one-half interest. The son asserted bona fide purchaser status because he claimed to have fully performed on the date of the purchase contract, received equitable title, and had no notice of Grantor’s claim to the minerals.
The court held that the son did not receive equitable or legal title to the minerals. The court stated that “[a] subsequent purchaser ordinarily acquires only the rights, interests, or title of his predecessor, and unless he shows himself to be a bona fide purchaser, he can only take such rights that his grantor had.” A subsequent purchaser is not a bona fide purchaser if the conveyance is made without warranty. Therefore, based on the son’s testimony that the document was a purchase contract, not a deed, and, in addition, finding that there were no words of conveyance or warranty in the document, the court held that, at best, it was a quitclaim deed. Therefore, the son was not a bona fide purchaser.
The case highlights the distinctions between an exception and a reservation and follows existing case law in holding that a grantee under a quitclaim deed cannot be a bona fide purchaser for value.