Cosgrove v. Cade
No. 14-0346
Case Summary written by Luke Luttrell, Staff Member.
JUSTICE WILLETT delivered the opinion of the Court, in which CHIEF JUSTICE HECHT, JUSTICE GREEN, JUSTICE LEHRMANN, and JUSTICE BROWN joined.
The deed-reformation dispute settles the issue of whether a mistaken omission in an unambiguous warranty deed is the type of injury to which the “discovery rule” applies. The Court holds that plainly obvious and material omissions in an unambiguous deed give parties notice for limitations purposes. The Court also decided whether Property § 13.002–“an instrument that is properly recorded in the proper county is notice to all persons of the existence of the instrument”–provides all persons with notice of the deed’s contents. The Court held that it does.
Michael and Billy Cade (Plaintiffs) sued Barbara Cosgrove (Defendant) over two acres of land that Defendant purchased from Plaintiffs through a trust in 2006. It is undisputed that the deed mistakenly–but unambiguously–failed to reserve mineral rights. Prior to the sale, Plaintiffs leased the mineral estate to Dale Resources, LLC, and soon after Chesapeake Energy became operator of the lease. After the sale, in 2010, Chesapeake sent a letter to Plaintiffs informing them that Chesapeake owned the mineral rights. Plaintiffs asked Defendant to correct the deed, in which Defendant replied that the statute of limitations barred any claims they might have. Plaintiffs sued Defendant seeking a declaratory judgment that the Plaintiffs owned the mineral rights. Plaintiffs also sought breach of contract, fee forfeiture, civil theft, and tortious interference with contractual relationship.
The Court first decided that the discovery rule does on apply in plain-omission cases. The court relied on the suggestion in Mclung v. Lawrence 471 S.W.2d 179 (Tex. 1978), that parties are charged as a matter of law with knowledge of an unambiguous deed’s material omissions from the date of its execution, and the statute of limitations begins to run on that date. The Plaintiffs had actual knowledge of the deed’s omission upon execution. An injury involving a complete omission of mineral interests in an unambiguous deed is inherently discoverable. The presumption of knowledge of the deed is irrebuttable because the alleged error is obvious.
The Court next decided whether § 13.002 gives all parties notice of the deed’s contents. Section 13.002 provides that “an instrument that is properly recorded in the proper county is notice to all persons of the existence of the instrument.” The Court has previously stressed that the duty of diligence sometimes includes a duty to monitor public records, and that public records can give constructive notice, and so it creates an irrebuttable presumption of actual notice. The Court relied on HECI Exploration Co. v. Neel, 982 S.W.2d 881 and stated that there is an obligation on mineral interest owners to exercise reasonable diligence to protect their interest. Then, the Court affirmed two statements in Hooks v. Sampson Lone Star, L.P., 457 S.W.2d 52: (1) reasonable diligence includes examining public records, and (2) reasonable diligence should lead to information in the public record. Therefore, the Plaintiffs did not act with reasonable diligence when they failed to notice the mistake in the unambiguous deed.
The Plaintiffs’ remaining claims would have only been available if they reformed the deed and proved a superior right. Because the Plaintiffs could not reform the deed, and the discovery rule did not apply, the Plaintiffs’ remaining claims were barred. The Court then remanded the case to the court of appeals to decide whether Defendant was entitled to attorney fees.
JUSTICE BOYD joined by JUSTICE JOHNSON, JUSTICE GUZMAN, and JUSTICE DEVINE dissenting in part.
The dissent agreed with the majority that the statute of limitations barred the Plaintiffs’ equitable claim to reform the deed, but disagreed that the statute of limitations barred the Plaintiffs’ claim for breach of the separate closing agreement. Along with the unambiguous deed, the parties also signed an agreement in which they mutually promised to “comply with all provisions of the contract” and to “fully cooperate, adjust, and correct any errors or omissions and to execute any and all documents needed or necessary to comply with all provisions of the above mentioned contract.” Four years after the sale, the Plaintiffs demanded that Defendant fulfill the promises she made in the closing agreement, but she refused.
According to the dissent, the majority found that the statute of limitations barred the Plaintiffs’ breach of contract claim for four reasons: (A) the Plaintiffs have no “superior right” to the mineral interest; (B) the claim accrued when the Plaintiffs signed the deed at closing; (C) Plaintiffs waited too long to ask Defendant to correct the error; and (D) the law cannot permit Plaintiffs to circumvent limitations against Plaintiffs’ equity claim by asserting a breach of contract claim. The dissent disagreed with all four reasons.
The dissent found that the lack of a superior right to the mineral interest had no effect on the breach of contract claim. The majority confused the deed-reformation claim by stating that the opportunity for an equitable remedy expired with limitations. Whether Plaintiffs were entitled to equitable relief or breach of contract damages was irrelevant to the Defendant’s basis for seeking summary judgment: the statute of limitations.
The dissent next disagreed with the majority that the Plaintiffs’ breach of contract claim accrued when the deed was executed. The dissent agreed with the Plaintiffs that the breach of contract occurred when Defendant refused to fix the deed as the agreement stated. This was only months before Plaintiffs filed suit. Neither the deed nor its contents breached Defendant’s separate promise to correct any omission in the deed. The dissent found that a beach of contract claim accrues when the contract is breached, not when the deed is signed. Therefore, the dissent disagreed with the majority that the breach of contract claim was barred by the statute of limitations.
The dissent argued in its next point that the majority confused a contractual deadline with a statutory limitations deadline. The closing agreement did not set forth a deadline for the Plaintiffs to ask Defendant to correct the deed. Where a contract is silent as to the time of performance, the law implies that a reasonable time is meant. Plaintiffs requested Defendant’s performance soon after discovering the mistake in the deed. The dissent did not say that the time was reasonable, or that is was not reasonable, but it believed the parties should have the opportunity to argue whether four years after closing was a reasonable amount of time.
Finally, the dissent argued that the majority disregarded the Court’s well-established rules that govern the applications of limitations to a breach of contract claim. The dissent found three reasons to disagree: (1) the closing agreement created independent obligations that were not affected by the deed; (2) equitable principles and duties do not overrule the contractual agreements; and (3) the Plaintiffs could obtain relief without undermining the deed records.
The dissent concluded by reiterating that the law charges the Plaintiffs with knowledge of the deed, but it also holds Defendant to the promise she made, and that the promise was not breached until shortly before the Plaintiffs filed suit. The dissent concurred to the majority’s decision to reverse and render judgment for Defendant on the Plaintiffs equitable deed-reformation claim, but dissented from the judgment on the breach of contract claim and would have affirmed the court of appeals judgment to remand the claim.