Face Challenges Confidently

361 Cornerstone Land, Ltd. v. Pierce

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.

Cornerstone Land, Ltd. v. Pierce, No. 10-10-00151-CV, 2010 WL 4243677 (Tex. App.— Waco Oct. 27, 2010, pet. denied) (mem. op.), held that, under the merger doctrine, a sales contract is not in a landowner’s chain of title, even if the sales contract is referenced in the deed. Grantor entered into a contract to convey land to Grantee but reserved Grantor’s interest in the property’s oil and gas. The deed referenced the sales contract, but the deed did not include the reservation. Grantee’s subsequent assignee entered into an oil and gas lease. Grantor contended that the subsequent assignee was bound by the reservation of the oil and gas in the contract under Westland Oil Development Corp. v. Gulf Oil Corp.

A purchaser is bound by every recital, reference and reservation contained in or fairly disclosed by any instrument which forms an essential link in the chain of title under which he claims. . . . 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 referenced to and affecting the estate is obtained.

When a deed is delivered and accepted as performance of the contract to convey, the contract is merged into the deed, and the deed must be looked to alone to determine the rights of the parties.

Applying the merger doctrine, the court held that the sales contract was not an essential link in Pierce’s chain of title. Because the sales contract merged into the deed, the deed was the essential link in the chain.

The significance of the case is that it imposes at least some limit on Westland. The limit is itself limited, because the holding is only that the doctrine of merger will cancel a gratuitous reference to a purchase and sale agreement. The court identified a policy concern with Grantor’s interpretation of Westland: “[I]mposing a duty on the purchaser to inquire as to every unrecorded document related to the property would put a burden on the transfer of real property. We decline to expand Westland to create such a burden.” That is exactly the problem Westland has created for title examiners. Any reference to an unrecorded document appears to trigger an unlimited duty of inquiry.