CONSTRUCTIVE NOTICE Timothy C. Dowd - PowerPoint Presentation

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CONSTRUCTIVE NOTICE

Timothy C. DowdElias, Books, Brown & Nelson211 N. Robinson Ave., Ste. 1300Oklahoma City, OKtdowd@eliasbooks.com

BONA FIDE PURCHASER FOR VALUE

The essential elements of a “bona fide purchaser” of land are:

1) The payment of a valuable consideration;

2) good faith and absence of purpose to take an unfair advantage of third persons;

3) absence of notice, actual or constructive, of outstanding rights of others; although good faith may often be implied where the other two elements, that is, valuable consideration and absence of notice, are shown

These elements must concur or the defense will be unavailing

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COMMON LAW

The common law maxim is: “First in time is first in right”. See, e.g.,

In re N-Ren Corp

., 1989 OK 79, ¶ 8, 773 P.2d 1269, 1271: “The maxim “first in time, first in right” governs priority between competing security and statutory liens.”

At common law in England, there was no system of registration, and the rule between claimants to the same title was found in the maxim “prior in tempore

potior est in jure” (first in time is first in right).In Oklahoma, this maxim (“First in time, first in right”) is implemented – with regard to real estate instruments, such as deeds, mortgages, and oil and gas leases – through the use of the State’s recording statutes relating to constructive notice.

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CONCEPT OF NOTICE

The concepts of actual and constructive notice are defined by Oklahoma’s Statutes as follows:

25 O.S. § 10: “Notice is either actual or constructive.”

25 O.S. § 11: “Actual notice consists in express information of a fact.”

25 O.S. § 12: “Constructive notice is notice imputed by the law to a person not having actual notice.”

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OPERATION OF CONSTRUCTIVE NOTICE

As previously noted, “constructive notice” is based on a statute which imposes notice on a person even when such person does not have actual knowledge of a fact.

As explained in a 1943 Oklahoma Supreme Court Case:

The general rule is that the record of an instrument entitled to be recorded will give constructive notice to persons bound to search for it. But constructive notice being a creature of statute, no record will give constructive notice unless such effect has been given to it by some statutory provision. 46 C.J. 550.

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Recording Act

When it comes to notice of instruments affecting title to real property, there are two statutes, enacted in 1910 by the Oklahoma legislature, which, together, serve as our Recording Act:16 O.S. § 15: Except as hereinafter provided, no acknowledgment or recording shall be necessary to the validity of any deed, mortgage, or contract relating to real estate as between the parties thereto; but no deed… shall be valid as against third persons unless acknowledged and recorded as herein provided…AND16 O.S. § 16: Every conveyance of real property acknowledged or approved, certified and recorded as prescribed by law from the time it is filed with the register of deeds for record is constructive notice of the contents thereof to subsequent purchasers, mortgagees, encumbrancers or creditors.No substantive change since 1910.

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Tract index

In a tract index system, like the one in place in Oklahoma, the statute, 19 O.S. § 298(A) expressly provides:Every county clerk in this state shall require that the mandates of the Legislature be complied with, as expressed in Sections 287 and 291 of this title, and for that purpose, every instrument offered which may be accepted by the county clerk for recording, affecting specific real property whether of conveyance, shall by its own terms describe the property by its specific legal description, and provide such information as is necessary for indexing as required in Section 287 and 291 of this title…

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In re cornerstone e&P Co., L.P.

A 2010 bankruptcy case in the Northern District of Texas (interpreting Oklahoma law) is instructive about the need for a specific legal description. In In re Cornerstone E&P Co., L.P. the court held that under Oklahoma law a “blanket security agreement” in a recorded mortgage covering oil and gas leases located in Oklahoma, did not provide constructive notice due to the absence of specific legal descriptions of the subject mortgage. It stated:…. a recorded conveyance provides constructive notice when it is “recorded as prescribed by law.” 16 O.S. § 16. 19 O.S. § 298 requires that every document offered for recording “shall by its own terms describe the property by its specific legal description, and provide such information as is necessary for indexing as required in Section 287 and 291 of this title…”19 O.S. § 298. In turn, § 287 and §291 direct the clerk of each county to keep a grantor-grantee index and a tract index, respectively. Thus, by the terms of the statute, a deed may only be “recorded as prescribed by law” if it contains a specific legal description and provides sufficient information for indexing in both the grantor-grantee index and the tract index. The Court concluded that the language of the statute is unambiguous and must be given the effect of its plain meaning. Thus, as a matter of law, to be “recorded as prescribed by law” and thereby constitute constructive notice solely by virtue of the fact of its filing, a conveyance must provide a specific legal description sufficient for indexing in both the county grantor-grantee index and the county tract index.

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Riverbend land, LLC, plaintiff/appellant, v.State of Oklahoma, ex rel. Oklahoma turnpike authority, defendant/appellee2019 OK civ app 31

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issue

The question before the court was whether the legal description used in the recorded Mamosa/OTA Deed was adequate for the purpose of giving constructive notice to subsequent third party purchasers for value without actual notice.

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background

In November 1998, Mamosa conveyed to OTA by general warranty deed the following described property “together with abutter’s rights, if any to wit:”A tract of land in the NE ¼ of Section 17, T-13-N-R-4-W, I.M., Oklahoma County, Oklahoma, being more particularly described as: Beginning in the NE Corner of said NE ¼ (NE Corner being a PK Nail w/Tag)… Containing 245,748.76 square feet or 5.4 acres more or less, of new right-of-way… together with all abutters rights…Riverbend initiated the present action because OTA claims the abutters rights to portions of the 7.34 acre tract through the 1998 OTA/Mamosa Deed.Riverbend argued that it acquired the entire fee simple interest in the subject property including the abutters rights. Riverbend further contended that unless OTA can “show a conveyance to it including the specific legal description ... describing (the remaining portion of the grantors land) ... that would have covered the related Riverbend Lands Abutters Rights ... such rights were not conveyed to OTA.”

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Legal Arguments

Riverbend argued that 16 O.S. 2011 § 16 and 19 O.S. 2011 § 298 require a specific legal description to impose constructive knowledge on a subsequent bona fide purchaser for value. Further, 16 O.S. § 15 provides in pertinent part: “no deed ... or other instrument relating to real estate ... shall be valid as against third persons unless acknowledged and recorded as herein provided.” OTA argues, among other things, that Riverbend had constructive notice presumed in law pursuant to 16 O.S. 2011 § 16. OTA argues the OTA/Mamosa Deed was accepted for recording by the county clerk and was filed of record for more than ten years prior to the Riverbend Deed. It asserts that deed the describes both “the 5.64 acres of real property purchased by OTA” and “describes that OTA, together with real property purchased, also acquired the grantor’s abutters rights, including access from the ‘remaining portion of the grantor’s land’ onto the limited access turnpike[.]”

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Analysis

The Court concluded 1) the OTA/Mamosa Deed did not contain the required legal description of “the remaining portion of the grantors land”, 2) did not contain a legal description of the 7.34 acre tract at issue here, 3) the mandate of 19 O.S. 2011 § 298(A) has not been met, and 4) a third party, therefore, cannot be held to have had constructive notice of that deed pursuant to 16 O.S. 2011 § 16. To be “recorded as prescribed by law,” such that constructive notice of the deed is presumed in law as to third parties, § 298(A) clearly and unambiguously provides that a record of the deed must be made as required by both §§ 287 and 291—that is, in both the grantor/grantee index and the tract index, both of which require a description of the property—and that a specific legal description of the property must be provided.The mere fact that a filed deed may contain information from which one could “figure out” what interest was restricted, was not, in the Court’s view, sufficient to impose constructive notice of the existence of that deed on a third party pursuant to 16 O.S. § 16...

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Analysis

In Plano Petroleum, LLC v. GHK Exploration, L.P., 2011 OK 18, 250 P.3d 328, the Oklahoma Supreme Court addressed the infirmity of “an instrument which contains absolutely no legal description of the leased premises.” The Supreme Court stated:There is a long-standing black letter rule of law that “the description of the premises conveyed must be so certain and definite as to enable the land to be identified.” Arbuckle Realty Trust v. Southern Rock Asphalt Co., 1941 OK 237. That requirement is more than a legal nicety, it is essential for recording in the county clerk’s office and for establishing a chain of title. The want of an adequate and precise description of the premises tends to render [the] title unmarketable and objectionable to future purchasers; and ... a conveyance, though admitted to record, is not notice to subsequent purchasers, unless the granted premises be therein so plainly and clearly described that a person reading the deed may locate and identify the property therefrom.Thus, in the present case, the OTA/Mamosa Deed did not give constructive notice to Riverbend “unless such effect has been given to it by some statutory provision.” That statutory authority, as above discussed, is found in the recording statutes and they require a specific legal description of the property affected by the OTA/Mamosa Deed. If adopted, OTA’s argument would, in effect, defeat the express requirements of the recording statutes.

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Applicable to oil and gas?

Many oil and gas leases provide, in pertinent part:It is the intent of the Lessor to lease, and Lessor does hereby grant, demise, lease and let unto Lessee, all oil, gas and other minerals owned by Lessor in Section (XX), Township (XX), Range (XX), (INSERT COUNTY) County, OK whether or not properly and completely described herein. In the event it is determined that Lessor actually owns more net mineral acres than that assumed by the parties in the calculation of lease bonus and paid by Lessee, Lessor and Lessee agree that Lessee shall pay Lessor for such additional net acreage at the same bonus price per acre agreed upon for the execution of this oil and gas lease. Likewise, in the event it is determined that Lessor owns less net acres, or it is determined that Lessor's acreage is currently leased under a prior oil and gas lease, then the Lessor agrees to reimburse Lessee for the bonus per acre paid for the acreage not owned by Lessor or under the prior oil and gas lease.

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Other issues

Bad acknowledgments

not constructive notice (could be actual notice)

16 O.S. § 16 - Every conveyance of real property acknowledged or approved, certified and recorded as prescribed by law from the time it is filed with the register of deeds for record is constructive notice of the contents thereof to subsequent purchasers, mortgagees, encumbrancers or creditors.

Affidavits not allowed under statute

Not constructive notice (Crater v. Wallace, 1943 OK 250)Affidavits allowed:Terminate joint tenancy/ life tenancyMemorandum of TrustNumerous matters under 16 O.S. § 83

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Instruments recorded contemporaneously

First one recorded (without notice) prevails.

McAllister v. Clark

, 217 P. 178 (Okla. 1923)

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BB&T of South Carolina

v.

Kidwell, 565 S.E.2d 316 (S.C. 2002)

“Where two mortgages on same property were recorded on same date and at same time, legal priority would be given to document that was indexed first in the records.”

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Mail vs. walk-in

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The END

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