Can the Sale of Real Property Be Enforced When Title to Property Was Not Held By Seller at Time of Transaction, but is Later Acquired?

The Tennessee Court of Appeals’ case of Gary Atchley v. Tennessee Credit, LLC, No. M2013-00234-COA-R3-CV, 2014 WL 4629042 (Tenn. Ct. App. 2014), discussed the doctrine of “after-acquired-title” under Tennessee law.  This case is relatively straight forward.  On September 22, 2009, the plaintiff purchased from Tennessee Credit, LLC a piece of real property for $18,000.00.  At that time he signed and presented the $18,000.00 check to Tennessee Credit, LLC.  The problem was, Tennessee Credit, LLC did not actually own the property at the time of the sale.  Tennessee Credit, LLC did have the right to foreclose on the property at the time of the sale but they had not done this yet, so they did not actually own the property.  It was not until December 4, 2009 that Tennessee Credit, LLC actually owned the property.

After Tennessee Credit, LLC obtained title, the purchaser desired to rescind the transaction and demanded a refund of the $18,000.00 paid to Tennessee Credit, LLC.  This Tennessee Court of Appeals’ decision ultimately agreed that this contract could be rescinded and the $18,000.00 should be refunded to the purchaser.  The Trial Court said it best, “you can’t sell property you don’t own . . .”.  Atchley at 2.  The Appellate Court reviewed some very old Tennessee decisions from the early 1900’s and 1800’s in order to decide this case.  There has not been case law on the “after-acquired-title” doctrine at issue in this case in the last 80 years.  Tennessee Credit, LLC attempted to argue the principal of “after-acquired-title” which would allow them to enforce the transaction because they acquired the title after the transaction.  The Tennessee Court of Appeals rejected this argument and stated as follows: 

When Mr. Dunn advertised Ms. Roller's property for sale and attempted to sell the property to Mr. Atchley, he knew Tennessee Credit did not have title to the property. Like the executor in Woods, Mr. Dunn's representation that he had a right to sell Ms. Roller's property was a “species of fraud.” Therefore, in keeping with the principles announced in Woods, we do not believe Mr. Atchley should be compelled to take the after-acquired-title from Tennessee Credit.

Atchley at 4.  As a result, it is certainly an uphill battle to argue that you can enforce a real estate transaction when you did not own the property at the time of the transaction.  There is a theoretical argument supporting the doctrine of “after acquired title” in the case law, however almost all of the cases supporting this argument in Tennessee are greater than 80 years of age.  This is shaky precedent to say the least. 

This more recent Tennessee Court of Appeals’ decision, Atchley, shows you cannot rely upon this doctrine in Tennessee any longer.  I think it is highly unlikely that the “after-acquired-title” doctrine would be applicable today based on this decision.  The rule moving forward in Tennessee should be simple, “you can’t sell property you don’t own”.  That is a clear concise statement of what the law should be in Tennessee and the Atchley decision supports this rule of law.