This is the third and final post regarding the Texas Supreme Court’s (the “Court”) decision in Chicago Title Insurance Company v. Cochran Investments, Inc., No. 18-0676 (Tex. 2020). Part 1 addressed the Court’s ruling that qualifying language in a special warranty deed limits the grantor’s liability for breach of the implied covenant of seisin [click here for Part 1] and Part 2 discussed the effect of the merger doctrine on Chicago’s claim for breach of the purchase agreement for failure to convey title [click here for Part 2].  In this post, I will discuss the practical implications of Cochran on real estate conveyances.

To address the Court’s decision in Cochran, real estate attorneys should consider incorporating revisions to all deeds conveying an interest in real property, especially special warranty deeds.  This is particularly important in commercial real estate transactions where special warranty deeds are the most commonly used form of deed to convey property.

If you represent a buyer, consider inserting express language in all deeds, especially special warranty deeds, whereby the grantor covenants that it owns the land in which he is purporting to convey, both in terms of the quantity of the land described therein and the quality of the title set forth therein, and that he has good right to convey it.

Example: Grantor warrants that it is the lawful owner of the property and has full right and authority to convey same. 

If you are representing a seller, consider adding an express disclaimer of the covenant of seisin and the covenant of good right to convey.  At the very least, you should keep the standard special warranty deed language in place and avoid the inclusion of any express covenants that might weaken the limitations to the covenant of seisin held by the Court in Cochran.

Example: This conveyance contains no implied covenants including, but not limited to, the covenant of seisin and the covenant of good right to convey, other than those codified in Texas Property Code Section 5.023.

In my previous post, I discussed the Texas Supreme Court’s (the “Court”) decision in Chicago Title Insurance Company v. Cochran Investments, Inc., No. 18-0676 (Tex. 2020) that pertained to the claim for breach of the covenant of seisin [click here for Part 1].   In this post, I will discuss the Court’s holding that the merger doctrine barred Chicago’s claim for breach of contract for failure to convey title.

As a reminder, the Court ruled that:

  • Qualifying language in a special warranty deed limits the grantor’s liability for the implied covenant of seisin (the covenant that the grantor owns the property being conveyed).

  • The merger doctrine bars a claim for breach of warranty under the purchase agreement if (i) the deed limits the grantor’s liability for failures of title to claims asserted by those claiming by, through and under the grantor (special warranty deed) and (ii) the claimant’s asserted interest is not made by, through and under the grantor.

Now for a quick refresher on the facts of the case.  In 2009, William England and Medardo Garza owned equal shares of a parcel of land located in Houston, Texas. The land was mortgaged to EMC Mortgage.  In September of 2009, England conveyed his interest in the property to Garza.  A few months later, a bankruptcy proceeding was commenced against England.  England’s conveyance to Garza was set aside as a fraudulent transfer in the bankruptcy proceeding.  In December of 2010, EMC Mortgage foreclosed its lien on the property.  Cochran Investments, Inc. (“Cochran”) purchased the property at the foreclosure sale.  In May 2011, Cochran and Michael Ayers entered into a residential sales contract for the property.  The contract provided that, at closing, Cochran would execute and deliver a general warranty deed conveying title to the property to Ayers.  The contract also included a savings clause, which provided in pertinent part:

“Representations: All covenants, representations, and warranties in this contract shall survive closing.  If any representation of Seller in this contract is untrue on the Closing Date, Seller will be in default…”

On June 6, 2011, the sale closed and in conjunction with the sale, Ayers obtained a special warranty deed from Cochran and an owner’s title policy from Chicago Title Insurance Company (“Chicago”).  Four days after Cochran signed the special warranty deed, England’s bankruptcy trustee sued EMC Mortgage and Cochran asserting that the foreclosure sale of the property violated the bankruptcy proceeding’s automatic stay and seeking to set aside the sale.  Ayers was subsequently added as a defendant to the suit and filed a claim with Chicago, which assumed his defense in the proceeding. Chicago defended Ayers and paid the bankruptcy trustee and Garza for their interests in the property.

Chicago, as Ayer’s subrogee under the title policy, sued Cochran, asserting claims for breach of the implied covenant of seisin and breach of contract.  The trial court rendered judgment for Chicago.  The 14th Court of Appeals reversed, holding that the deed’s granting clause did not make a representation or claim that the grantor owned the property at issue and therefore, does not imply the covenant of seisin and that the merger doctrine barred Chicago’s breach of contract claim. Cochran Investments, Inc. v. Chicago Title Insurance Company, 550 S.W.3d 196 (Tex. App.—Houston [14th Dist.] 2018).  The Court affirmed the appellate court’s decision, finding in favor of Cochran on the claims for breach of the implied covenant of seisin and breach of contract, although its reasoning differed from the appellate court.

The merger doctrine operates when earlier contracts are contradicted in the deed.  The merger doctrine provides that when a deed is delivered and accepted as performance of a contract to convey, the contract is merged in the deed.  Where the terms of the deed vary from those contained in the contract, courts look to the deed alone to determine the rights of the parties.   Chicago argued that the pertinent obligations in the sales contract do not contradict the obligations in the deed and the savings clause in the sales contract precludes the effect of the merger doctrine.

The Court disagreed, holding that the terms of the deed and the purchase agreement vary because (i) the deed limits Cochran’s liability for failure of title in a way the contract does not and (ii) the special warranty limits Cochran’s liability with respect to a failure of title to claims of an individual claiming by, through and under Cochran but not otherwise. Accordingly, Chicago’s claim for breach of contract was foreclosed by the special warranty in the deed.  The Court noted that allowing the savings clause to preserve a breach of contract claim for the same failure of title for which the special warranty bars recovery would undo the effect of the warranty, rendering it useless.  The Court also pointed out that had Chicago pursued a claim for breach of contract based on Cochran conveying the property by special warranty deed rather than by general warranty deed, as contemplated by the contract, Chicago could have proceeded on that claim.

On June 19, 2020, the Texas Supreme Court (the “Court”) issued a decision in Chicago Title Insurance Company v. Cochran Investments, Inc., No. 18-0676 (Tex. 2020), that will cause real estate attorneys to stop and reconsider the language used in most deeds.  The Court ruled that:

  • Qualifying language in a special warranty deed limits the grantor’s liability for the implied covenant of seisin (the covenant that the grantor owns the property being conveyed).

  • The merger doctrine bars a claim for breach of warranty under the purchase agreement if (i) the deed limits the grantor’s liability for failures of title to claims asserted by those claiming by, through and under the grantor (special warranty deed) and (ii) the claimant’s asserted interest is not made by, through and under the grantor.

This post will only discuss the Court’s ruling on the implied covenant of seisin.  The Court’s ruling regarding the doctrine of merger is addressed here.

The facts of the case begin in 2009, when William England and Medardo Garza owned equal shares of a parcel of land located in Houston, Texas. The land was mortgaged to EMC Mortgage.  In September of 2009, England conveyed his interest in the property to Garza.  A few months later, a bankruptcy proceeding was commenced against England.  England’s conveyance to Garza was set aside as a fraudulent transfer in the bankruptcy proceeding.  In December of 2010, EMC Mortgage foreclosed its lien on the property.  Cochran Investments, Inc. (“Cochran”) purchased the property at the foreclosure sale.  In 2011, Cochran sold the property to Michael Ayers and in conjunction with the sale, Ayers obtained a special warranty deed from Cochran and an owner’s title policy from Chicago Title Insurance Company (“Chicago”).  Four days after Cochran signed the special warranty deed, England’s bankruptcy trustee sued EMC Mortgage and Cochran asserting that the foreclosure sale of the property violated the bankruptcy proceeding’s automatic stay and seeking to set aside the sale.  Ayers was subsequently added as a defendant to the suit and filed a claim with Chicago, which assumed his defense in the proceeding. Chicago defended Ayers and paid the bankruptcy trustee and Garza for their interests in the property.

Chicago, as Ayer’s subrogee under the title policy, sued Cochran, asserting claims for breach of implied covenant of seisin and breach of contract.  The trial court rendered judgment for Chicago.  The 14th Court of Appeals reversed, holding that the deed’s granting clause did not make a representation or claim that the grantor owned the property at issue and therefore, does not imply the covenant of seisin and that the merger doctrine barred Chicago’s breach of contract claim. Cochran Investments, Inc. v. Chicago Title Insurance Company, 550 S.W.3d 196 (Tex. App.—Houston [14th Dist.] 2018).  The Court affirmed the appellate court’s decision, finding in favor of Cochran on the claims for breach of the implied covenant of seisin and breach of contract, although its reasoning differed from the appellate court.

With respect to a conveyance of land, a covenant of seisin is a covenant that the conveying grantor owns the land, both in quantity and quality, which the grantor purports to convey.  Under common law, the covenant of seisin arises in every conveyance of land unless the deed contains a qualifying expression indicating the parties’ intent to limit the covenant of seisin or the deed is a quitclaim deed, which only conveys the grantor’s rights in the property.  The deed at issue in this case was a special warranty deed, not a quitclaim deed that merely transferred Cochran’s right, title and interest in the property.  The Court stopped short of resolving whether the special warranty deed at issue implied the covenant of seisin, because the deed contained a qualifying expression, specifically a special warranty clause.  The special warranty clause in the deed limited the warranty provided by Cochran to claims by, through and under him, but not otherwise.  The express warranty terms in the deed, foreclose Cochran’s liability for failure of title that is not premised on claims by, through and under Cochran. Because the bankruptcy trustee and Garza did not claim the property by, through and under Cochran, Cochran is not liable to Ayres for the failure of title resulting from the foreclosure sale’s violation of the automatic stay.  Accordingly, the Court held that the special warranty clause in the deed was a qualifying expression that limited the scope of liability for a failure of title, even if that failure of title fell within the scope of the covenant of seisin.