Bill's Printing, Inc. v. Carder

161 S.W.3d 803, 357 Ark. 242, 2004 Ark. LEXIS 273

• Court: Supreme Court of Arkansas
• Decided: April 29, 2004
• Docket: 03-779
• Status: Published

Opinions

Annabelle Clinton Imber, JPrinting, Inc., and First Security

Appellants Bill’s Printing, Inc., and First Security Bank, bring this appeal from a circuit court’s order quieting title in certain real property in favor of Appellees George F. Carder III and Sharon L. Carder (the Carders). The appellants contend that the circuit court erred in setting aside a cancellation deed issued by the State Land Commissioner and in finding that the Commissioner acted contrary to law in unilaterally cancelling the deed issued to the appellees. Alternatively, they assert on appeal that the circuit court erred in finding that Bill’s Printing was not a bona fide purchaser. We hold that Bill’s Printing is a bona fide purchaser and therefore reverse the order of the circuit court.

In 1993, Mary Scholes conveyed land, including Lot Fifteen in Heber Springs, Cleburne County, to her children Patrick and Laura Scholes. Patrick Scholes testified that that deed contained a statement that tax statements should be sent to “Pat Scholes, 1876 Cowden, Memphis, Tennessee 38104.” In January 1994, Patrick Scholes moved to 3113 Hayley Cove in Germantown, Tennessee without notifying the Cleburne County tax collector of his new address.

On June 30, 1997, the Cleburne County tax collector certified Lot Fifteen, which was listed as owned by C. Patrick and Laura L. Scholes, 1876 Cowden Ave., Memphis, TN 38104, as forfeited to the state for nonpayment of taxes. The list stated that the Scholeses had been delinquent in payment of their real property taxes since 1994. On August 21, 1997, the Land Commissioner sent the Scholeses a notice by certified mail to the Cowden Avenue address in Memphis explaining that Lot Fifteen was certified to the state for delinquent taxes and that they must pay taxes, penalties, interests, and costs due or the land would be sold at a public sale on August 26, 1999. On September 3, 1997, the U.S. Postal Service returned the notice to the Land Commissioner marked undeliverable.¹

On August 26, 1999, the Land Commissioner held a tax-delinquent land sale and sold Lot Fifteen to the Carders for $4,957.86. Mr. Carder testified that they paid real estate taxes on the land for the years 2000 and 2001.

In August 1999, a Cleburne County resident told Patrick Scholes that Lot Fifteen was offered for a tax sale. Scholes testified that he immediately called the Land Commissioner’s office and requested a petition to redeem. On August 31,1999, five days after the land was sold, the Land Commissioner’s office sent a petition to redeem to Scholes. It included information that the sale date was “Subject to sale” and that the taxes for 1994-1997 with interest, penalties, costs, and fees totaled $302.39. The petition also listed the telephone and fax numbers by which to contact the Land Commissioner’s office with any questions. The petition, in bold capital letters, directed the Scholeses to see the “other side for instructions.” The instructions on the reverse side read that petitions to redeem:

are valid for 90 days from the date printed. If 90 days has expired, an updated Petition to Redeem must be requested. Please be aware of the sale date of the property. To avoid the sale of the property, the past due amount must be paid in full. Possession of a valid Petition to Redeem does not postpone the sale date. In the event the property is sold, the record owner has 30 days to redeem the property. If not redeemed within 30 days, the sale is final and the property cannot be redeemed.

The Scholeses did not file a petition to redeem Lot Fifteen within thirty days of the tax sale. Accordingly, on September 29, 1999, the Land Commissioner issued a limited-warranty deed to the Carders for Lot Fifteen as a result of the August 26, 1999 sale. That deed was recorded in Cleburne County on October 7, 1999. On October 13, 1999, Patrick Scholes mailed the petition to redeem and a check in the amount of $302.39 to the Land Commissioner’s office.

On October 21, 1999, Peggy Barnes, Chief Deputy of the Land Commissioner’s office, wrote Patrick Scholes and said that she was returning his check, because Lot Fifteen was “sold on September 29, 1999,’’and that a limited-warranty deed had been filed for record in Cleburne County.

On November 18, 1999, Patrick Scholes contacted the Land Commissioner’s office, spoke with Carol Lincoln, an attorney with that office, and faxed a memo to Ms. Lincoln summarizing their conversation. In that memo, Scholes stated that he believed that he had ninety days to file his petition to redeem and that Ms. Lincoln stated that the sale date on the petition should have read' “August 26, 1999,” instead of “Subject to sale.” Also on November 18, Ms. Lincoln sent a memo to the Land Commissioner, recommending that he “cancel the sale” to the Carders and “allow the redemption,” because “it is the policy of the office to write the sale information on the petition and highlight the information particularly the date the petition must be returned,” which was not done.

On November 23, 1999, pursuant to Patrick Scholes’ request, the Land Commissioner’s office sent a second petition to redeem to Patrick and Laura Scholes for Lot Fifteen. The petition again stated that the sale date was “Subject to sale.” The Land Commissioner’s officer received the Scholes’ completed petition to redeem for Lot Fifteen on December 6, 1999, which was 102 days after the tax sale. On December 8, 1999, the Land Commissioner issued a deed cancelling the Carders’ limited-warranty deed for Lot Fifteen. The cancellation deed was recorded on December 30, 1999. On December 9, 1999, the Land Commissioner issued a redemption deed for Lot Fifteen to Patrick and Laura Scholes. The Scholeses’ redemption deed was duly recorded on December 14, 1999.

Sometime in 2000, John Braswell, owner of Bill’s Printing, Inc., testified that he was driving by Lot Fifteen in Heber Springs, noticed a “For Sale” sign, and called Patrick Scholes, who was listed on the sign with his telephone number. On October 7, 2000, the Scholeses issued a warranty deed for Lot Fifteen to Bill’s Printing, Inc., for $42,000. John Braswell testified that he had a title company examine the title to Lot 15. Mr. Braswell testified that he has been mowing the lot since the purchase and paid taxes on it in the Spring of 2002, after receiving notice from Cleburne County that his taxes were due.

On December 21, 2000, George and Sharon Carder sued Bill’s Printing, Inc., Patrick and Laura Scholes, and the State Land Commissioner. The Carders later added First Security Bank, which carried the mortgage on Lot Fifteen, as a party. The suit sought to cancel the cancellation deed issued by the Land Commissioner and to quiet title to Lot Fifteen in the Carders. On June 24, 2002, a bench trial was conducted by the circuit court.² Patrick Scholes testified that he was not told that the property was sold when he contacted the Land Commissioner’s office in August 1999 to request a petition to redeem. He also testified that no one knew that the Carders had any claim to Lot Fifteen when he closed the land sale to Bill’s Printing, Inc., in October 2000.

Steve Hollowell, Executive Assistant to the Land Commissioner, testified at the bench trial that he believed the Land Commissioner had the authority to cancel a deed that he issued or to set aside a sale. He further stated that the Land Commissioner’s office has written policies consisting of a looseleaf folder with examples of petitions to redeem, disclaimers, redemption deeds, and land patents but that there was no written policy instructing employees about what to do when a petition to redeem is issued after a tax sale but before the thirty-day redemption period has expired. Specifically, he testified that there was no written policy instructing employees to write the date of the actual sale on the petition to redeem, thus alerting the taxpayer that he or she has thirty days to redeem. He did testify that it was an unwritten standard operating procedure in the office to advise persons of those dates when a petition to redeem was mailed out,-but mistakes could still be made as illustrated by the Scholeses’ case.

On July 9, 2002, the circuit court issued its decree. The court found that the Cleburne County Tax Collector properly certified Lot Fifteen as delinquent on June 30, 1997; that the Land Commissioner properly notified the Scholeses by certified mail at their last known address; that the public sale of Lot Fifteen occurred on August 26,1999; that the sale complied with Arkansas law, and no error was found to justify cancelling the limited-warranty deed granted to the Carders; that title to the property was vested in the Carders before the Land Commissioner issued the redemption deed; that the State held no interest in Lot Fifteen to convey to the Scholeses; that the Land Commissioner acted contrary to law in unilaterally cancelling the limited-warranty deed granted to the Carders; that the deed of cancellation is hereby cancelled; that the Land Commissioner never conveyed any title to the Scholeses after the recording of the deed of cancellation; that Patrick and Laura Scholes owned no interest when they conveyed Lot Fifteen by warranty deed to Bill’s Printing, Inc.; that the Carders showed by a preponderance of the evidence that Bill’s Printing, Inc., had notice of such facts and circumstances that would lead to knowledge of the Carders’ claim to the property; and that title to Lot Fifteen is quieted and confirmed in the Carders, and the claims of the Scholeses, the Land Commissioner, Bill’s Printing, Inc., and First Security Bank are declared null and void.

On July 30, 2002, the circuit court issued an order, in which it found that Bill’s Printing, Inc., was not a bona fide purchaser because the Carders’ properly recorded their deed on October 7, 1999. According to the circuit court, the Carders’ recorded deed served as notice to Bill’s Printing of the Carders’ interest in the property. The court further found that Ark. Code Ann. § 26-37-204 (Repl. 1997), does not give the Land Commissioner the authority to cancel or set aside a deed where the sale of the tax-delinquent land has been conducted in accordance with Arkansas law without error.

First Security Bank and Bill’s Printing appealed to the Arkansas Court of Appeals, and that court affirmed the circuit court’s decree that the Land Commissioner had acted contrary to law in unilaterally cancelling the limited-warranty deed issued to the Carders and that the cancellation deed be set aside. See Bill’s Printing, Inc. v. Carder, 82 Ark. App. 466, 120 S.W.3d 611 (2003). We subsequently granted a petition for review filed by the appellants.

When we grant review following a decision by the court of appeals, we review the case as though it had been originally filed with this court. Edens v. Superior Marble & Glass, 346 Ark. 487, 58 S.W.3d 369 (2001). The critical issue in this case is whether the circuit court erred in quieting title in Lot Fifteen in favor of the Carders. Bill’s Printing argues that the circuit court erred because the Land Commissioner acted within its authority in cancelling the Carders’ deed, and, alternatively, that Bill’s Printing was a bona fide purchaser who took title free and clear of the Carders’ purported interest. Because we hold that Bill’s Printing is a bona fide purchaser, we need not address whether the Land Commissioner exceeded his authority in cancelling the Carders’ deed.

The following time line is critical to understanding the chain of title at the time Bill’s Printing purchased the subject land:

1993 Deed to the Scholeses recorded

September 29, 1999 Land Commissioner’s limited-warranty deed issued to the Carders

October 7, 1999 The Carders’ hmited-warranty deed recorded

December 8, 1999 Cancellation deed issued, cancelling the Carders’ limited-warranty deed

December 9, 1999 Redemption deed issued to the Scholeses

December 14, 1999 Redemption deed to the Scholeses recorded

December 30, 1999 Cancellation deed, cancelling the Carders’ hmited-warranty deed, recorded

On October 7, 2000, or almost one year after both the cancellation deed and the Scholeses’ redemption deed had been recorded, the Scholeses sold the property for the sum of $42,000 and issued a warranty deed to Bill’s Printing, the purchaser. Prior to purchasing the property, the owner of Bill’s Printing had verified ownership of the real property through a title company.

In order to be a bona fide purchaser of land in Arkansas, one must take property in good faith, for valuable consideration, and without notice of a prior interest. Wilkins v. Jernigan, 195 Ark. 546, 113. S.W.2d 108 (1938); Ellis v, Nickle, 193 Ark. 657, 101 S.W.2d 958 (1937). There is no dispute about Bill’s Printing taking the subject property in good faith and for valuable consideration. This case hinges on notice. In Arkansas, a buyer is on notice if he or she is aware of such facts and circumstances as would put a person of ordinary intelligence and prudence on such inquiry that, if diligently pursued, would lead to knowledge of those prior interests. Massey v. Wynne, 302 Ark. 589, 791 S.W.2d 368 (1990). This type of notice must be enough to excite attention or put a party on guard to call for an inquiry. Killam v. Texas Oil & Gas Corp, 303 Ark. 547, 798 S.W.2d 419 (1990). The party opposing the claim of a bona fide purchaser has the burden of proving such notice by a preponderance of the evidence. Bowen v. Perryman, 256 Ark. 174, 506 S.W.2d 543 (1974); Woods v. Wright, 254 Ark. 297, 493 S.W.2d 129 (1973).

In Woods v. Wright, 254 Ark. 297, 493 S.W.2d 129 (1973), this court held that disclosure to the party claiming bona fide purchaser status of an earlier recorded contract of sale coupled with disclosure by the vendor of the actions he took to cancel that contract, put the party claiming bona fide purchaser status on notice of a prior interest. In that case, however, the party claiming to be a bona fide purchaser took a warranty deed after being informed by the seller that he had repossessed the land due to nonpayment. Id. In this case, the only notice to Bill’s Printing would have stemmed from the Land Commissioner’s cancellation deed issued after a tax sale coupled with a redemption deed issued by the Land Commissioner to the original owner. The critical distinction between Woods v. Wright and the case at bar is the source of the information that constitutes notice. In Woods v. Wright, supra, the party claiming bona fide purchaser status relied on the seller’s words; whereas, in this case, the purchaser relied on a cancellation deed duly issued by the Land Commissioner. We have recognized that a public officer’s actions are presumed to be valid and within the bounds of the law. See Dilday v. State, 300 Ark. 249, 778 S.W.2d 618 (1989). Thus, Woods v. Wright is inapposite.

Likwise, Massey v. Wynne, 302 Ark. 589, 791 S.W.2d 368 (1990), is distinguishable. In that case, a party claiming bona fide purchaser status failed to. consult his own attorney or search the records after having had conversations with the party claiming a prior interest who indicated that the land had been sold to them. Id. Here, the Carders never informed Bill’s Printing of their interest and in the year after the Land Commissioner cancelled their limited-warranty deed, the Carders never filed an action to quiet title, which would have availed them of the Arkansas lis pendens statute. See Ark. Code Ann. § 16-59-101 et seq. (1987) (filing of notice constitutes constructive notice of interest). Suffice it to say, the Carders sat on their claim until Bill’s Printing purchased the subject property.

In short, there have been no cases where this court has specifically addressed the application of bona fide purchaser status to a real estate purchase in which the validity of a cancellation deed or a redemption deed issued by the Land Commissioner was challenged. Other jurisdictions, however, have applied the standards of a bona fide purchaser when tax titles were allegedly defective. See, e.g., State ex rel. State Tax Comm’n v. Carda,11 N.M. 703, 427 P.2d 230 (1967); Aluminum Co. of America v. Mineral Holding Trust, 157 Tex 54, 299 S.W.2d 279 (1956).

The case of State ex rel. State Tax Comm’n v. Garcia, 11 N.M. 703, 427 P.2d 230 (1967), is particularly instructive. The New Mexico Tax Commission issued a redemption deed to Mr. Garcia who was not entitled to redemption. Id. Mr. Garcia then transferred the property by quitclaim deed to a third party, the Wilkeses. Id. Even though the redemption deed was within the chain of title, the Supreme Court of New Mexico held that the Wilkeses were bona fide purchasers. Likewise, the Texas Supreme Court held that the failure of a decree to include pertinent information did not put successors to the tax-sale purchasers on notice of any irregularities or fraud. Aluminum Co. of America v. Mineral Holding Trust, supra (noting that a layman ought not be required to discover a deficiency when two county officials charged with the duty acted entirely in good faith and without the suggestion of any fraud).

As we pointed out earlier, the standard for bona fide purchaser status in Arkansas is well-settled: A buyer of land is on, notice if he or she is aware of such facts and circumstances as would put a person of ordinary intelligence and prudence on such inquiry that, if diligently pursued, would lead to knowledge of those prior interests. Massey v. Wynne, supra. It is undisputed that the Land Commissioner has the power to issue cancellation deeds and redemption deeds in some circumstances. See Ark. Code Ann. § 22-6-109(b) (Repl. 2004); Ark. Code Ann. § 26-37-303 (Repl. 1997). Bill’s Printing was entitled to presume that the Land Commissioner’s actions were valid and within the bounds of the law. See Dilday v. State, 300 Ark. 249, 778 S.W.2d 618 (1989). To hold otherwise would require a party purchasing property to go behind a cancellation deed or redemption deed issued by the Land Commissioner and question that public officer’s authority to issue the deed. Such an inquiry is beyond the scope of that which has heretofore been required in order to attain bona fide purchaser status in Arkansas.

In the instant case, Steve Hollowell, Executive Assistant to the Land Commissioner, testified at the bench trial that he believed the Land Commissioner had the authority to cancel a deed that he issued or to set aside a sale. Therefore, if Bill’s Printing had made an inquiry at the Land Commissioner’s Office, it would have been told that the property had been redeemed upon the Scholeses’ payment of taxes. A similar inquiry to the Scholeses, or even to the Carders, would have elicited the same information.

This court will not require a party claiming bona fide purchaser status to make inquiry into the circumstances surrounding the legal legitimacy of a cancellation deed or redemption deed issued by the Land Commissioner. In the case at bar, we cannot say that the Carders proved by a preponderance of the evidence that Bill’s Printing was put on notice so as to deny it bona fide purchaser status under the governing principles of law. Bowen v. Perryman, supra. The diligent pursuit of an appropriate inquiry into the facts and circumstances in this case would not have led to knowledge of the Carders’ prior interest. Accordingly, we conclude that the circuit court clearly erred in finding that Bill’s Printing was not a bona fide purchaser.

Reversed and remanded.

Thornton, J., concurs. Brown, J., dissents.

1 By Act 1376 of 2003, codified at Ark. Code Ann. § 26-37-301 (Supp. 2003), the notice provision has now changed so that actual notice must be given to the owner of a homestead if the Land Commissioner fails to receive proof that the certified mail was received.

2 Pursuant to Amendment 80, the Cleburne County Chancery Court became a division of the Cleburne County Circuit Court on July 1,2001.