Bona fide purchaser
Encyclopedia
A bona fide purchaser (BFP) referred to more completely as a bona fide purchaser for value without notice is a term used in the law
of real property
and personal property
to refer to an innocent party who purchases property without notice of any other party's claim to the title of that property. A BFP must purchase for value, meaning that he or she must pay for the property rather than simply be the beneficiary of a gift. Even when a party fraudulently conveys
property to a BFP (for example, by selling to the BFP property that has already been conveyed to someone else), that BFP will, depending on the laws of the relevant jurisdiction
, take good (valid) title
to the property despite the competing claims of the other party, so long as the BFP properly records the transaction pursuant to local property law. However, parties with claim to ownership in the property will retain a cause of action (a right to sue) against the party who made the fraudulent conveyance.
A BFP will not be bound by equitable interests of which he/she does not have actual or imputed notice, as long as he/she has made "such inspections as ought reasonably to have been made".
BFPs are also sometimes referred to as "Equity's Darling". However, as Jeffrey Hackney
has pointed out, the title is somewhat misleading; in cases where legal title is passed to a bona fide purchaser for value without notice, it is not so much that equity has any great affection for the purchaser - it is simply that equity refuses to intervene to preserve any rights held by the former beneficial owner of the property. The relationship between the courts of equity and the BFP are better characterised as benign neglect. However, equity still undoubtedly recognises the right of the beneficial owner to claim against the former legal owner where the sale was improper.
In the United States, the patent law codifies the bona fide purchaser rule, . Unlike the common law
, the statute
cuts off both equitable and legal claims to the title.
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
of real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
and personal property
Personal property
Personal property, roughly speaking, is private property that is moveable, as opposed to real property or real estate. In the common law systems personal property may also be called chattels or personalty. In the civil law systems personal property is often called movable property or movables - any...
to refer to an innocent party who purchases property without notice of any other party's claim to the title of that property. A BFP must purchase for value, meaning that he or she must pay for the property rather than simply be the beneficiary of a gift. Even when a party fraudulently conveys
Conveyancing
In law, conveyancing is the transfer of legal title of property from one person to another, or the granting of an encumbrance such as a mortgage or a lien....
property to a BFP (for example, by selling to the BFP property that has already been conveyed to someone else), that BFP will, depending on the laws of the relevant jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
, take good (valid) title
Title (property)
Title is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest. The rights in the bundle may be separated and held by different parties. It may also refer to a formal document that serves as evidence of ownership...
to the property despite the competing claims of the other party, so long as the BFP properly records the transaction pursuant to local property law. However, parties with claim to ownership in the property will retain a cause of action (a right to sue) against the party who made the fraudulent conveyance.
A BFP will not be bound by equitable interests of which he/she does not have actual or imputed notice, as long as he/she has made "such inspections as ought reasonably to have been made".
BFPs are also sometimes referred to as "Equity's Darling". However, as Jeffrey Hackney
Jeffrey Hackney
Jeffrey Hackney is a legal academic specialising in property law, law of trusts, and legal history at the University of Oxford. He retired in 2009 from his position as a Fellow of Wadham College, Oxford , and is now an Emeritus Fellow...
has pointed out, the title is somewhat misleading; in cases where legal title is passed to a bona fide purchaser for value without notice, it is not so much that equity has any great affection for the purchaser - it is simply that equity refuses to intervene to preserve any rights held by the former beneficial owner of the property. The relationship between the courts of equity and the BFP are better characterised as benign neglect. However, equity still undoubtedly recognises the right of the beneficial owner to claim against the former legal owner where the sale was improper.
In the United States, the patent law codifies the bona fide purchaser rule, . Unlike the common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
, the statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
cuts off both equitable and legal claims to the title.