After Acquired Title Doctrine.
As a Petroleum Landman, have you ever run into a situation where an After Acquired Title problem existed? Do you know how to recognize it when it occurs? How does it affect you as a Petroleum Landman chaining title or reviewing someone else’s title report?
The legal definition for the After Acquired Title Doctrine
- The term After Acquired Title arises in the context of bankruptcies, secured sale transactions, mortgaged property, and the law of Wills. After Acquired Title is simply property that is acquired after a security purchase agreement is signed by a borrower, by a debtor, after a bankruptcy case is commenced, or by a Testator after a Will is made.
- The After Acquired Title Doctrine is a legal Doctrine under which, if a Grantor conveys what is mistakenly believed to be Good Title to land that he or she did not own, and the Grantor later acquires that Title, it vests automatically in the Grantee.
In the case of secured sale transactions, whether the After Acquired Title becomes part of the collateral pledged by the borrower is dependent upon both the language of the security agreement and of the Uniform Commercial Code.
This Doctrine has been codified into a statutory provision in some states but originally it was an equitable Doctrine to prevent unjust enrichment. As a general principle, Warranty Deeds and Grant Deeds are deemed to transfer After Acquired Title, but Quitclaim Deeds do not.
Application
After Acquired Title
- This is a legal Doctrine recognized in many jurisdictions which provides that, when a Grantor purports to convey or mortgage property to which he is not vested, any Title subsequently obtained by that Grantor automatically passes to his Grantee by operation of law.
- The purpose of this Doctrine is to give effect to the intent of the parties to a conveyance, or security instrument as evidenced by the documents they execute.
After Acquired Title in Title to property acquired after the owner attempts to sell or transfer the Title to another person before he/she got legal Title.
- When the Title is acquired by the Seller in this paper shuffle, Title automatically goes to the person to whom it was sold, passing through the person who acquired Title "like a dose of salts" on its way to the new purchaser.
Examples
- Mike signs, acknowledges, and records a Deed transferring his land to Bob, but Mike has not yet received Title from the Estate of his late father. When Mike gets Title from his father's Estate and records it, the After Acquired Title goes automatically to Bob.
NOTE: An unaware Landman can see the original deed from Mike to Bob thinking that Bob owns the minerals and takes a lease from Bob before Mike takes possession of the land. What if you are chaining title and see this Deed and Lease? Do you see the potential problem with this? How do you know when Mike takes possession?
A practical example is Husband and Wife own Blackacre. Wife is awarded the property through a Divorce Decree. Wife sells the property to a bonafide purchaser for value. Wife executes a Warranty Deed to the purchaser and the Deed is properly recorded. Subsequently, a Deed from the Husband to the Wife is recorded. Under the After Acquired Title Doctrine, the interest received by the wife automatically transfers to the new purchaser.
After Acquired Property
After acquired Property is real property or personal property to which party A obtains title only after falsely selling it to party B for value when party A did so without proper Title.
- EXAMPLE would be Mr. Jones pretends to sell his farm to Bob for $1,000 (US) but does not own the property at the time and then uses the money to buy that same property from the true owner.
- The apparent outcome would be Mr. Jones owns the property and Bob has lost $1,000.
- Because the result of the set of transactions would be an injustice, a legal concept called the ‘After Acquired Title Doctrine’ vests the legal Title in the property to party B even though buying it before party A had legal Title to the property and therefore had no right to transfer the Title.
EXAMPLE of the Doctrine tied to a mortgage
- ‘A’ purchases 160 acres of surface land and 120 acres of undivided minerals under the 160 acres but holds off purchasing the remaining 40 undivided minerals acres until the first transaction is consummated with the intent of selling that remaining 40 acres of minerals to ‘B’. ‘A’ makes the initial purchase and Mortgages all the surface land and minerals under the land. ‘A’ enters into an agreement to sell the remaining 40 acres of minerals before purchasing it to ‘B’.
- Later, ‘A’ then purchases the remaining 40 undivided mineral acres with the intent of selling it, however, the mortgage company looks at these 40 acres of undivided minerals as additional collateral and is not willing to let ‘A’ sell it without their prior written approval. The minerals do not transfer to the ‘B’ due to the After Acquired Title Doctrine.
Important Note
A Title issue regarding this After Acquired Title Doctrine can be difficult to spot when chaining title. Most Petroleum Landmen see its possible existence when completing the chain not during the chaining process. If you miss it, it is not the end of the world, but like the Duhig Rule, it can cause some confusion in your Chain of Title.
If you believe this Doctrine may apply to someone but you are not sure, ask someone in your company for help and clarification on the matter. More than likely, it will take an attorney to spot it and make the curing of this title defect a requirement in his Title Opinion.
The Petroleum Landman School, Professional Landman Schools, and the Institute of Energy Management’s courses deal with many other critical issues to help a Petroleum Landman become more aware of things which could become critical issues.
Please visit www.instituteofenergymanagement.com for a complete list of the most comprehensive and applicable Petroleum Landman training courses available.