Michael and Billie Cade sold Barbara Cosgrove over two acres
of land in 2006. The Special Provisions clause stated “Sellers to retain all
mineral rights.” But the Deed did not contain any reservations and instead
conveyed the property to Cosgrove in fee simple.
The Cades had leased the mineral estate to Dale Resources,
which was succeeded by Chesapeake Energy. In 2009 and 2010, Chesapeake sent the
Cades lease payments. In late 2010, Chesapeake advised Michael Cade that there
was a problem with the Deed’s mineral reservation.
So the Cades investigated, then sent a demand letter to
Cosgrove asking her to issue a correction deed. Cosgrove refused, and replied
instead that the statute of limitations had expired and barred any claims the
Cades might have over the 2006 Deed.
In February 2011, the Cades sued Cosgrove claiming that
Cades owned the mineral interests and Cosgrove breached the 2006 Contract by
failure to execute a correction deed. Cosgrove defended by claiming that the
statute of limitations had expired and the merger doctrine applied to this
situation. And as a consequence, the Cades had no lawful claim against
Cosgrove.
The trial court ruled that the statute of limitations did
indeed apply, and denied the request to reform the Deed by adding a mineral
reservation in favor of the Cades. Cosgrove then sought attorney’s fees from
the trial court, which the trial court denied.
Both parties appealed. Cosgrove wanted attorney’s fees. The
Cades wanted the Deed they signed to be judicially corrected to include a
mineral reservation.
The Court of Appeals reversed the trial court’s judgment for
Cosgrove and continued to deny her reimbursement for attorney’s fees. Cosgrove
appealed to the Texas Supreme Court.
At this juncture there were two primary issues before the
Supreme Court: (1) Should the Deed be corrected to reserve mineral rights; and
if so (2) Is Cosgrove entitled to reimbursement for attorneys fees?
The Texas Supreme Court started their analysis with a
presumption that every grantor (seller) knows of defects in a Deed that result
from mutual mistake, because grantors are the ones who sign the Deed. In our
Texas land conveyancing custom, grantees (buyers) very rarely sign or approve
deeds. Only grantors do so.
Indeed (pun strictly intended), some grantees do not even
see the Deed until months after closing and recordation while others never see
it.
The Supremes then decided 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 runs from that date.”
The Cades had actual knowledge of the deed’s omissions at the time of
execution. They were charged with knowledge of what was included and excluded.
When a mineral reservation is completely omitted from a
deed, the error is obvious. As such, it is irrefutable because “. . . the
conspicuousness of the mistake shatters any argument to the contrary [emphasis
added].”
The Supremes left open the possibility that a fraud claim
might yield a different result. However – in this case anyway – there was no
claim of fraud.
Cosgrove owns fee simple title without a mineral
reservation, and the opportunity for deed correction by a Texas Court expired
with the statute of limitations. Cosgrove wins; Cades lose.
See Barbara Cosgrove v. Michael Cade and Billie Cade; Cause
No. 14-0346; Texas Supreme Court; July 20, 2015.
Lessons
learned:
1. Practice
Point: The party signing the Deed is charged with knowledge of its contents. If
the Grantor has a problem, then the Grantor better raise it quickly. Although
not stated in this decision, presumably the same logic applies with other docs
that are signed by only one party (like Bills of Sale, Estoppels, Assignments
and Bonds, for examples).
2. Practice
Point: Before closing, critically compare the proposed Deed to the Purchase and
Sale Agreement, all Amendments, title commitment and vesting deed. If you are
even 1% unsure, get a real estate lawyer to assist. Deed challenges in Texas
just became much more difficult after the date of this decision – July 20,
2015.
3. Find Me: The
NTCAR Expo is September 2 this year. Look for me there under the banner “IPSE
DIXIT.”
Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.
