Nowadays, if a student in a U.S. law school brushes up against BFP doctrine at all, it is likely to be at the intersection of Property and Contracts. Assume the rightful owner of a painting contracts to sell it to a museum. Instead of transferring to the museum legal title to the painting pursuant to the terms of the contract, the owner proceeds in exchange for something of equivalent value to transfer legal title to a third party who is unaware of (and could not reasonably be expected to be aware of) the contract’s existence. The BFP may keep the painting. “Where the equities are equal, the law shall prevail” goes the maxim. As the museum and the third-party purchaser are equally innocent, equity declines to interfere with the purchaser’s legal title. The museum, of course, has an action against the transferor for breaching the contract. Had the transferor stolen the painting, he would not have had good title to the painting and thus could not have effectively conveyed the painting to anyone, including a BFP. This in a nutshell is the applicable black-letter law. Nuances and exceptions, statutory and otherwise, are beyond the scope of this posting.
BFP doctrine, however, takes center stage when it comes to the law of trusts. Recall that legal title to entrusted property is in the trustee. As to the world, the trustee is the owner of the property. This definitive attribute of the trust relationship has enormous practical significance. Assume one is trustee of a noncharitable trust an express purpose of which is to retain and curate a valuable painting. In blatant violation of the trust’s terms the trustee conveys the legal title to a BFP. The BFP may keep the painting, the trust beneficiaries and the BFP being equally innocent of the travesty. The “equities” are equal in other words. Of course, the beneficiaries (and possibly the settlor as well) would have an action in equity against the trustee personally for breach of trust. And the sales proceeds themselves, of course, are rightfully trust property.
Some observations: First, BFP doctrine is nowhere covered in the Uniform Trust Code. Second, most, if not all, American law schools no longer require that their students take Equity. Third, Equity is no longer on the list of subjects to be tested on the bar-exam. Finally, that a trustee of a trust may effectively convey its property to a BFP in flagrant violation of its terms is one more reason why trustee selection is serious business. Prospective settlors and their advisors take note. BFP doctrine in the trust context is taken up generally in §8.15.63 of Loring and Rounds: A Trustee’s Handbook (2022), which section is reproduced in the appendix below. The Handbook is available for purchase at https://law-store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.
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