July 6, 2010 - In South Tacoma Way L.L.C. v State of Washington and Sustainable Urban Development #1, L.L.C., ___ Wn.2d ___, ___ P.3d ___ (June 24, 2010), the Washington Supreme Court clarified the scope of the ultra vires and bona fide purchaser doctrines in a case arising out of the sale of State-owned property.

The decision has implications for individuals that enter into contracts with State or local governments. The decision also extends the bona fide purchaser doctrine to circumstances beyond disputes between two putative titleholders. 

The ultra vires doctrine holds that a government agency is liable for — and thus bound by — only the actions it had general authority to perform. Opinion ("Op."), p. 4. The bona fide purchaser doctrine provides that a good faith purchaser for value who is without actual or constructive notice of another’s interest in purchased real property has a superior interest in that property. Op., p. 10.

The case arose from the sale of surplus property by the Washington State Department of Transportation (“DOT”) to Sustainable Urban Development (“Sustainable”). In the course of the sale, DOT made an error in determining the number of property owners that abutted the surplus property. Under the statutes that authorized the DOT sale, abutting property owners are entitled to notice of a proposed sale, and if more than one of them expresses interest in the property, DOT must hold a public auction. RCW 47.12.063(2)(g).  In this case, because DOT believed that Sustainable was the only abutting property owner, it did not provide notice of the proposed sale to South Tacoma Way’s (“STW’s”) predecessor-in-interest, Staub. 

DOT’s error was not discovered until several weeks after the sale had closed. Staub and STW asked DOT to rescind the sale and hold a public auction. STW sought declaratory relief after DOT refused to do so.  The State and Sustainable jointly defended the validity of the deed.

STW asserted that DOT’s failure to comply with the statutory requirements was an ultra vires act that rendered the sale void and unenforceable. Op., p. 4. STW also argued that because the government action was ultra vires, the equitable bona fide purchaser doctrine did not apply.

By a vote of 7-1, the Court upheld the sale and the validity of Sustainable’s deed. The Court distinguished between government acts that were absolutely ultra vires and those that complied with the intent of a statute but suffered from some procedural irregularity. 

The Court explained the difference as follows:

Ultra vires acts are those performed with no legal authority and are characterized as void on the basis that no power to act existed, even when the proper procedural requirements are followed. Ultra vires acts cannot be validated by later ratification or events.

Conversely, acts done without strict procedural or statutory compliance are subject to a different review. Those acts may or may not be set aside depending on the circumstances involved. Thus, government entities may remain responsible for lesser deviations in authority, such as failures to comply with proper procedure. Consequently, a contract formed between a government entity and a private entity will be void only where the government entity had no authority to enter into the contract in the first place.

In this case, because there was no evidence of fraud or collusion, and because DOT had acted within its sphere of authority, albeit irregularly, and consistent with the policy underlying the statute at issue, DOT’s actions were not ultra vires.

Sustainable had argued that its deed was valid and superior to STW’s claim because Sustainable was a bona fide purchaser for value. The bona fide purchaser doctrine recognizes that good faith purchaser for value without actual or constructive notice of another’s interest in purchased real property, has a superior interest in that property. Op., p. 10. 

The Court concluded that, in the absence of  fraud, and where the State has general authority to sell land, a good faith purchaser has a right to rely on the resulting deed. Op., p. 12. Thus, the bona fide purchaser remedy was available, and Sustainable could enforce the procedurally irregular land sale because DOT’s action was not absolutely ultra vires and the procedural irregularity that occurred in the case did not undermine the policy behind the statute at issue. Op., p. 12, fn. 5.   

The successful Petitioner in this case was represented by Foster Pepper Real Estate Litigation attorneys Patrick J. Mullaney (206.447.2815; mullp@foster.com) and Bradley P. Thoreson (206.447.3867; thorb@foster.com). Please contact either Patrick or Brad if you would like more information about the case or other real estate litigation issues.