Chi. Title Ins. Co. v. Cochran Invs., Inc.

• Decision Date: 19 June 2020
• Docket Number: No. 18-0676,18-0676
• Citation: 602 S.W.3d 895
• Parties: CHICAGO TITLE INSURANCE COMPANY, Petitioner, v. COCHRAN INVESTMENTS, INC., Respondent
• Court: Texas Supreme Court

602 S.W.3d 895

CHICAGO TITLE INSURANCE COMPANY, Petitioner,

v.COCHRAN INVESTMENTS, INC., Respondent

No. 18-0676

Supreme Court of Texas.

Argued January 30, 2020

Opinion Delivered: June 19, 2020

Jonathan J. Cunningham, Gregory T. Brewer, Fidelity National Title Group, Dallas, for Petitioner.

Jerry L. Schutza, Law Office of Jerry L. Schutza, Houston, Marcie L. Schout, Quilling, Selander, Lownds, Winslett & Moser, P.C., Dallas, for Respondent.

Justice Lehrmann delivered the opinion of the Court.

The principal issue in this case is whether a special warranty deed conveying real property limits the grantor's liability for allegedly breaching the implied covenant of seisin—that is, the covenant that the grantor owned the property being conveyed.

The grantor purchased property at a foreclosure sale. The grantor and grantee then entered into a residential sales contract regarding the property, and the grantor conveyed the property by special warranty deed to the grantee. In connection with the conveyance, the grantee obtained title insurance from an insurer. The validity of the foreclosure sale to the grantor was later challenged, and the insurer assumed the grantee's defense and settled the suit. The insurer, as the grantee's subrogee, then sued the grantor for breach of the implied covenant of seisin and breach of the sales contract.

The trial court found for the insurer on both claims. The court of appeals reversed, holding that the special warranty deed did not imply the covenant of seisin, the grantor thus had not breached the covenant, and the merger doctrine barred the breach-of-contract claim because the deed included no covenant regarding the ability to convey property. We agree that the deed bars the insurer's recovery here, though for different reasons. Regardless of whether it implies the covenant of seisin, the deed limits the grantor's liability for failures of title to claims asserted by individuals "by, through and under" the grantor. Because the failure of title did not arise from such a claim, the grantor did not assume the risk for it and, therefore, was not liable for it. In turn, the merger doctrine bars the insurer's breach-of-contract claim, as the grantee would be unable to recover based on the limited scope of the special warranty deed's protection. Accordingly, we affirm the court of appeals' judgment.

I. Background

In 2009, William England and Medardo Garza owned equal shares of a parcel of real property in Houston, Texas. The property was subject to a deed of trust held by EMC Mortgage. In September 2009, England conveyed his interest in the property to Garza. Three months later, a bankruptcy proceeding was commenced against England. As part of that proceeding, England's conveyance to Garza was set aside as a fraudulent transfer. In December 2010, EMC Mortgage foreclosed its lien on the property, which Cochran Investments, Inc. subsequently purchased at a foreclosure sale.

In May 2011, Cochran and Michael Ayers entered into a residential sales contract regarding the property. The sales contract states that Cochran "agrees to sell and convey to [Ayers] and [Ayers] agrees to buy from [Cochran] the Property defined below" for a purchase price of $125,000. Further, the contract states that, at closing, Cochran "shall execute and deliver a general warranty deed conveying title to the Property" to Ayers. The sales contract also includes a savings clause, which provides in pertinent part:

19. REPRESENTATIONS: All covenants, representations, and warranties in this contract survive closing. If any representation of Seller in this contract is untrue on the Closing Date, Seller will be in default....

Cochran and Ayers closed on June 6, 2011, and Cochran executed a special warranty deed conveying title to Ayers. The deed states that Cochran "has GRANTED, SOLD, AND CONVEYED and by these presents does hereby GRANT, SELL, AND CONVEY unto [Ayers], all of that certain tract of land lying and being situated in Harris County, Texas" and provides a detailed description of the land. In addition to the land, the special warranty deed conveyed "all buildings, improvements and fixtures located thereon and all rights, privileges and appurtenances pertaining thereto." The deed also notes that, "[w]ithout limiting the grant or the warranty of title provided herein," Ayers "acknowledges that [Cochran] has made no representation or warranty as to the physical condition of the Property" and that Ayers "accepts the Property in its current physical condition, as is, after having inspected the Property to the extent [Ayers] desired." (Emphasis omitted.) Additionally, the deed binds Cochran and its successors and assigns "to WARRANT AND FOREVER DEFEND, all and singular the Property, subject to the matters stated herein, unto [Ayers, his successors, and his assigns], against every person whomsoever lawfully claiming or to claim the same or any part thereof, by, through and under [Cochran], butnot otherwise."

In connection with the conveyance, Chicago Title Insurance Company issued an Owner's Policy of Title Insurance to Ayers, agreeing to "pay [Ayers] or take other action if [Ayers] ha[d] a loss resulting from a covered title risk." That policy covered Ayers in the event he did "not have good and indefeasible title."

Four days after Cochran executed the special warranty deed, the trustee overseeing England's bankruptcy proceeding 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 Title, which assumed his defense in the proceeding. The case was voluntarily dismissed after Chicago Title paid $45,000 to the bankruptcy trustee and $20,000 to Garza in exchange for their interests in the property.

Chicago Title, as Ayers's subrogee under the title policy, later sued Cochran, asserting claims for breach of the implied covenant of seisin and breach of contract.¹ The case proceeded to a bench trial, and the trial court rendered judgment for Chicago Title, finding that the foreclosure sale and accompanying deed to Cochran were void and that Cochran had breached (1) the covenant of seisin implied in the special warranty deed that conveyed the property to Ayers and (2) the residential sales contract with Ayers in connection with the sale of the property. The court awarded Chicago Title $125,000 in actual damages representing the amount of the purchase price and $11,000 in attorney's fees. Cochran appealed.²

The court of appeals reversed, rendering a take-nothing judgment in favor of Cochran. 550 S.W.3d 196, 206 (Tex. App.—Houston [14th Dist.] 2018).³ First, the court held that the special warranty deed does not imply the covenant of seisin.

Id. at 205. The court emphasized that a covenant is implied in a real-property conveyance only if it appears from the deed's express terms that the parties clearly contemplated the covenant to be implied, or if it is necessary from the deed's language to infer such a covenant in order to effectuate the full purpose of the deed as a whole. See id. at 202 (citing HECI Expl. Co. v. Neel , 982 S.W.2d 881, 888 (Tex. 1998) ). Analyzing the deed's language, the court held that the deed does not make a representation or claim of ownership of the property at issue. Id. at 203–05. The court reasoned that, because section 5.023 of the Property Code provides that the use of the words "grant" or "convey" in a deed implies only a limited covenant that does not extend to ownership of the property being conveyed,⁴ id. at 204–05 (citing TEX. PROP. CODE § 5.023(a) ), the deed's granting clause does not make a representation or claim that the grantor owned the property at issue and, therefore, does not imply the covenant of seisin, see id. at 205.

Second, the court held that the merger doctrine bars Chicago Title's breach-of-contract claim. Id. at 205–06. The court emphasized that, under the merger doctrine, "deeds are generally regarded as the final expression of the parties' agreement and the sole repository of the terms on which they have agreed." Id. at 205. Although the sales contract contains provisions addressing any failure to transfer title, the court noted that the deed itself contains no such provisions. Id. at 205–06. Thus, the court concluded that, under the merger doctrine, Chicago Title may not "rely on the contract's conveyance provisions to redress a failure to transfer title." Id. at 206.

Chicago Title filed a petition for review, arguing that the court of appeals erred in reversing the trial court's judgment as to both the seisin claim and the contract claim. We granted the petition.

II. Analysis

A. Deed Interpretation Principles

Neither party argues that the deed is ambiguous. We "construe an unambiguous deed as a matter of law." Stribling v. Millican DPC Partners, LP , 458 S.W.3d 17, 20 (Tex. 2015). When construing an unambiguous deed, we "discern the parties' intent from the deed's language in its entirety ‘without references to matters of mere form, relative position of descriptions, technicalities, or arbitrary rules.’ " Id. (quoting Luckel v. White , 819 S.W.2d 459, 462 (Tex. 1991) ). Further, we presume that the parties to a deed "intend every clause to have some effect and in some measure to evidence their agreement." Altman v. Blake , 712 S.W.2d 117, 118 (Tex. 1986).

B. Implied Covenant of Seisin

The first issue in this case is whether Chicago Title may recover for Cochran's alleged breach of the implied covenant of seisin. "A covenant of seisin is an assurance to the grantee that the grantor owns the very estate in the quantity and quality" that she "purports to convey." Jackson v. Wildflower Prod. Co. , 505 S.W.3d 80, 92 (Tex. App.—Amarillo 2016, pet. denied) ; see also 5 TEX. PRAC. , LAND TITLES AND TITLE EXAMINATION § 34.4.50 (3d ed. 2020 update). "A covenant in a deed or assignment to the effect...