Court Opinion

ID: 2812471
Source: CourtListenerOpinion
Date Created: 2015-06-29 07:25:18.097016+00
Date Added: 2024-06-11T12:24:06.131005
License: Public Domain

IN THE SUPREME COURT OF TEXAS

                                               ════════════
                                                 NO. 14-0346
                                               ════════════

  BARBARA D. COSGROVE, INDIVIDUALLY AND AS THE TRUSTEE OF THE CHARLES AND
       BARBARA COSGROVE FAMILY REVOCABLE LIVING TRUST, PETITIONER

                                                          v.

                           MICHAEL CADE AND BILLIE CADE, RESPONDENTS

               ══════════════════════════════════════════
                             ON PETITION FOR REVIEW FROM THE
                    COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS
               ══════════════════════════════════════════

                                            Argued March 24, 2015

       JUSTICE WILLETT delivered the opinion of the Court, in which CHIEF JUSTICE HECHT,
JUSTICE GREEN, JUSTICE LEHRMANN, and JUSTICE BROWN joined.

     JUSTICE BOYD filed an opinion dissenting in part, in which JUSTICE JOHNSON, JUSTICE
GUZMAN, and JUSTICE DEVINE joined.

        This deed-reformation dispute resolves whether a mistaken-but-unmistakable omission in

an unambiguous warranty deed is the type of injury to which the “discovery rule,” a limited

exception to statutes of limitations, should apply. As the court of appeals opinion lamented, “we

have no guidance from the Texas Supreme Court on how to apply [the discovery rule’s inherently

undiscoverable injury] standard to the body of law on deed reformation.”1 The stakes are high, as

the reliability of record title contributes mightily to the predictability of property ownership that is

so indispensable to our legal and economic systems.

        1
            430 S.W.3d 488, 503–04. Only one justice joined the court of appeals opinion. See id. at 508.
        Today we expressly hold what we have suggested for almost half a century: Plainly obvious

and material omissions in an unambiguous deed charge parties with irrebuttable notice for

limitations purposes.2 Also disputed in this case is whether Property Code section 13.002—“[a]n

instrument that is properly recorded in the proper county is . . . notice to all persons of the existence

of the instrument”—provides all persons, including the grantor, with notice of the deed’s contents

as well.3 We hold that it does. Parties to a deed have the opportunity to inspect the deed for mistakes

at execution. Because section 13.002 imposes notice of a deed’s existence, it would be fanciful to

conclude that an injury stemming from a plainly evident mutual mistake in the deed’s contents

would be inherently undiscoverable when any reasonable person could examine the deed and

detect the obvious mistake within the limitations period.

        A grantor who signs an unambiguous deed is presumed as a matter of law to have

immediate knowledge of material omissions. Accordingly, this grantors’ suit was untimely, and

we reverse the court of appeals’ judgment.

                                               I. Background

        Respondents Michael and Billie Cade sued Petitioner Barbara Cosgrove over two acres of

land that Cosgrove purchased from the Cades in 2006 through a trust. The first condition listed

under the “Special Provisions” clause of the parties’ Real Estate Contract states, “Sellers to retain

all mineral rights.” But the notarized deed, which the Cades either initialed or signed on each page,

granted the land in fee simple. The deed was signed and recorded in October 2006. One of the

closing documents, the “Acceptance of Title and Closing Agreements,” a form agreement prepared

        2
            See McClung v. Lawrence, 430 S.W.2d 179, 181 (Tex. 1968).
        3
            TEX. PROP.CODE § 13.002.

                                                       2
by the title company, bound both parties 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 real estate contract.” It is undisputed that the deed mistakenly—but

unambiguously—failed to reserve mineral rights.

       Prior to entering into the contract, the Cades leased the mineral estate to Dale Resources,

LLC, and soon thereafter Chesapeake Energy became operator of the lease. In 2009 and 2010,

Chesapeake sent the Cades shut-in checks, which enabled Chesapeake to keep the non-producing

lease in force by the payment of a shut-in royalty. In October 2010, Chesapeake sent a letter to the

Cades informing them of their rights as royalty owners. That December, Michael Cade contacted

Chesapeake to inquire about his royalty payments, and a Chesapeake representative responded

there was a “problem” with the deed’s mineral reservation. Within days, the Cades sent a demand

letter to Cosgrove asking Cosgrove to issue a correction deed. Cosgrove replied that the statute of

limitations barred any claims the Cades might have over the deed.

       In February 2011, the Cades sued Cosgrove for a declaratory judgment that the Cades

owned the mineral interests—in effect a suit to reform the deed. They also brought actions for

breach of contract (that Cosgrove refused to execute a correction deed in contravention of the

Acceptance of Title and Closing Agreements), fee forfeiture, civil theft, and tortious interference

with contractual relationship. The tortious interference claim has a two-year limitations period.4

The remaining claims each have a limitations period of four years.5 A four-year period also applies

       4
           TEX. CIV. PRAC. & REM. CODE § 16.003(a).
       5
           Id. § 16.051.

                                                      3
to deed-reformation claims.6 Cosgrove counterclaimed for a declaratory judgment that the Cades’

claims were barred by limitations and the merger doctrine, and sought attorney fees.

       Both parties moved for summary judgment. The Cades urged the trial court to declare as a

matter of law that the 2006 deed did not convey mineral rights. They also argued that Cosgrove

breached the sales contract by refusing to execute a correction deed. Cosgrove asserted that

limitations and the merger doctrine barred the Cades’ claims. The trial court ruled that the Cades’

claims were time-barred and also denied their deed-reformation and breach-of-contract arguments.

Cosgrove then sought attorney fees, which the trial court denied.

       Both parties appealed. The court of appeals reversed the grant of summary judgment for

Cosgrove, affirmed the denial of summary judgment for the Cades, and overruled Cosgrove’s

appeal for attorney fees as moot. Notably, while the court of appeals’ judgment was 3-0, two

justices declined to join the authoring justice’s opinion, which stated the discovery rule delayed

the accrual of limitations for a deed-reformation claim because “a mutual mistake in a deed is a

type of injury for which the discovery rule is available.”7 Cosgrove then appealed to this Court.

                                                 II. Discussion

       A. The Discovery Rule Does Not Apply in Plain-Omission Cases

       There is generally a rebuttable presumption that a grantor has immediate knowledge of

defects in a deed that result from mutual mistake.8 The court of appeals plurality correctly notes

that “[a]pplication of the presumption means that the limitations period on a claim to reform an

       6
           Brown v. Havard, 593 S.W.2d 939, 943 (Tex. 1980).
       7
430 S.W.3d at 502.
       8
           Sullivan v. Barnett, 471 S.W.2d 39, 45 (Tex. 1971).

                                                         4
incorrect deed begins to run as soon as the deed is executed because . . . the grantor has actual

knowledge that the deed is incorrect.”9 This Court has not strictly applied the presumption of

knowledge rule because, as we noted many years ago, “[n]umerous exceptions are as well

established as the rule itself.”10

        The court of appeals plurality did not apply the rebuttable presumption but instead applied

the discovery rule, which defers accrual of a claim until the injured party learned of, or in the

exercise of reasonable diligence should have learned of, the wrongful act causing the injury.11

Courts apply the discovery rule in limited circumstances where “the nature of the injury incurred

is inherently undiscoverable and the evidence of injury is objectively verifiable.”12 Discovery rule

cases focus on categorical “types of injury, not causes of action.”13

        A plainly evident omission on an unambiguous deed’s face is not a type of injury for which

the discovery rule is available. A generation ago, we held in Sullivan v. Barnett that certain

circumstances may trigger a rebuttable presumption that a grantor has immediate knowledge of

        9
430 S.W.3d at 494 (citing Sullivan, 471 S.W.2d at 45).
        10
             Sullivan, 471 S.W.2d at 45.
        11
           Id. See also Gaddis v. Smith, 417 S.W.2d 577, 581 (Tex. 1967) (discussing the extent to which Texas has
adopted the discovery rule), superseded by Act of May 31, 1975, 64th Leg., R.S., ch. 330, § 1, 1975 Tex. Gen. Laws
864, 865, repealed by Act of May 30, 1977, 65th Leg., R.S., ch. 817, § 41.03, 1977 Tex. Gen. Laws 2039, 2064, as
stated in Morrison v. Chan, 699 S.W.2d 205, 208 (Tex. 1985).
        12
           Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex. 1996). See also S.V. v. R.V., 933
S.W.2d 1, 7 (Tex. 1996) (injury is “inherently undiscoverable if it is by nature unlikely to be discovered within the
prescribed limitations period despite due diligence”) (citing Computer Assocs., 918 S.W.2d at 456); accord Wagner
& Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734–35 (Tex. 2001); HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886
(Tex. 1998) (The discovery rule defers the accrual of a cause of action “until the plaintiff knew or, exercising
reasonable diligence, should have known of the facts giving rise to a cause of action.”).
        13
             Via Net v. TIG Ins. Co., 211 S.W.3d 310, 314 (Tex. 2006).

                                                          5
defects in a deed that result from mutual mistake.14 Once the presumption is rebutted, the

reformation claim does not accrue until the grantor actually knew, or in the exercise of reasonable

diligence should have known, of the mistake.15 But we have never decided a case involving a plain

omission in an unambiguous deed.16 Sullivan reserved the possibility of recognizing a rebuttable

presumption in plain-omission cases, but we never explicitly endorsed it, and we decline to do so

now. At execution, the grantor is charged with immediate knowledge of an unambiguous deed’s

material terms.

        We have noted that circumstances may exist where a party is charged with knowledge of a

mistake in a deed as a matter of law. For example, in Brown v. Havard, we implicitly recognized

the possibility that parties can be charged with knowledge of an obvious mistake: “Nor can it be

said that the mistake is so plainly evident as to charge [grantee] with the legal effect of the words

used.”17 Decades earlier, in McClung v. Lawrence, we distinguished mistakes about the legal effect

of a deed’s terms from instances where “mineral rights had been entirely omitted from the deeds,

a fact plainly evident.”18 In McClung, we cited approvingly two court of appeals cases favoring

the bright line we adopt today:

              Kahanek v. Kahanek—“It is well settled . . . in suits to correct a mistake in a
               deed . . . if such actor be the grantor, then he is charged, as a matter of law, with

        14
471 S.W.2d at 45 (delaying discovery of a mutual mistake in a deed when subsequent conduct lulled a
party into a sense of security about the deed’s contents).
        15
             See, e.g., id.
        16
             See, e.g., Brown, 593 S.W.2d at 939 (involving an ambiguous deed).
        17
             Id. at 944.
        18
             430 S.W.2d 179, 181 (Tex. 1968).

                                                         6
              knowledge of the contents of his deed from the date of its execution, and
              limitation begins to run against his action to correct it from that date.”19

             Kennedy v. Brown—Agreeing that at the time the deed is executed a party is
              charged as a matter of law with knowledge of whether the deed reserves mineral
              rights provided in the contract, at which time limitations begins to run.20

       In plain-omission cases, McClung suggests, and we squarely adopt today, the rule stated

by the courts of appeals in Kahanek and Kennedy: 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.21 The Cades had actual knowledge of the deed’s omission

upon execution. They were charged, as a matter of law, with actual knowledge of what the deed

included, and excluded, and limitations began to run from the date of execution. An injury

involving a complete omission of mineral interests in an unambiguous deed is inherently

discoverable—“a fact plainly evident,” as McClung put it.22 When a reservation of rights is

completely omitted from a deed, the presumption of knowledge becomes irrebuttable because the

alleged error is obvious. It is impossible to mistake whether the deed reserves rights when it in fact

removes rights. In cases like these which involve an unambiguous deed, the conspicuousness of

the mistake shatters any argument to the contrary.

       19
            192 S.W.2d 174, 176 (Tex. Civ. App.—Galveston 1946, no writ).
       20
            113 S.W.2d 1018 (Tex. Civ. App.—Amarillo 1938, writ dism’d).
       21
            McClung, 430 S.W.2d at 181.
       22
            Id.

                                                       7
        B. Section 13.002

        While the Court has recognized that public records can impose an irrebuttable presumption

of notice on a grantee to prevent application of the discovery rule, 23 we have yet to recognize

circumstances where section 13.002 imposes constructive notice on a grantor as well. We do so

today to the extent that public records filed under section 13.002 establish as a matter of law a lack

of diligence in the discovery of a mistaken omission in an unambiguous deed. We do not impose

an affirmative duty to search the public record; we only say that obvious omissions are not

inherently undiscoverable.

        The Cades’ assertion that section 13.002 only provides them with notice of the deed’s

existence and not the deed’s contents defies common sense and clashes with our precedent that

mineral interest owners bear a high duty of due diligence to protect their mineral interests. We

have stressed in other property-related cases that the duty of diligence sometimes includes the duty

to monitor public records;24 that public records can constitute constructive notice and therefore

create an irrebuttable presumption of actual notice;25 that parties in an arms-length transaction,

such as a conveyance of property, must read the documents they sign;26 and that without a showing

of fraud, mineral interest owners may not claim a failure to understand what they were signing as

        23
             Ford v. Exxon Mobil Chem. Co., 235 S.W.3d 615, 617–18 (Tex. 2007) (per curiam).
        24
             See Shell Oil Co. v. Ross, 356 S.W.3d 924, 928 (Tex. 2011).
        25
             HECI Exploration Co., 982 S.W.2d at 887; Ford, 235 S.W.3d at 617–18 (public records in a grantor’s
chain of title generally create an irrebuttable presumption of notice).
        26
             Thigpen v. Locke, 363 S.W.2d 247, 251 (Tex. 1962).

                                                          8
grounds for avoiding the transaction.27 Reasonable diligence requires mineral interest owners to

read and inspect their deeds to ensure their mineral interests are properly reserved. 28 The Cades’

ability to monitor information contained in public records to discover their injury prevents that

information from being deemed undiscoverable. The rationale we underscored in HECI for

recognizing that public records constitute constructive notice likewise applies here: the “need for

stability and certainty regarding titles to real property.”29 When it comes to obvious deed

omissions, the accrual of a deed-reformation claim is not delayed. Section 13.002 establishes a

lack of diligence in the discovery of a mistaken omission in an unambiguous deed as a matter of

law.

         Our recent decision in Hooks v. Sampson Lone Star, Limited Partnership addresses this

issue in the fraud setting.30 It recognizes that the date a cause of action accrues is normally a

question of law, and the exercise of reasonable diligence is usually a question of fact, but “in some

circumstances, we can still determine as a matter of law that reasonable diligence would have

uncovered the wrong.”31 After thoroughly surveying our prior decisions, Hooks concludes, “when

          See In re Bank of Am., N.A., 278 S.W.3d 342, 345 (Tex. 2009) (“The general rule is that in the absence of
         27

a showing of fraud or imposition, a party’s failure to read an instrument before signing it is not a ground for avoiding
it.”).
         28
            See HECI Exploration Co., 982 S.W.2d at 886 (recognizing that mineral interest owners bear some
obligation “to exercise reasonable diligence in protecting their interests”).
         29
              Id. at 887.
         30
              457 S.W.3d 52, 59 (Tex. 2015).
         31
              Id. at 58.

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there is actual or constructive notice, or when information is ‘readily accessible and publicly

available,’ then, as a matter of law, the accrual of a fraud claim is not delayed.”32

       Hooks makes two particularly relevant statements that we affirm in the plain-omission

setting: (1) reasonable diligence includes examining “readily available information in the public

record,”33 and (2) “reasonable diligence should lead to information in the public record.”34 It

follows that if HECI imposes an obligation on mineral interest owners “to exercise reasonable

diligence in protecting their interests,” and Hooks recognizes that “reasonable diligence should

examine readily available information in the public record,” then the Cades cannot claim they

acted with reasonable diligence when they failed to notice a plain mistake when executing their

deed, and the deed was readily available for inspection in public records for the remainder of the

limitations period.

       C. The Cades’ Remaining Claims

       The Cades’ remaining claims would be available only if they could reform the deed and

prove superior right, which they cannot. Because the discovery rule does not apply to, and

limitations begin to run against, an action involving a plain omission from an unambiguous deed

from the date of execution, the Cades’ remaining claims are barred. Execution of the deed

irrefutably establishes the grantor’s knowledge as a matter of law, so the Cades are prohibited from

introducing evidence other than whether the deed was executed and notarized to establish when

       32
            Id. at 59 (quoting Ross, 356 S.W.3d at 929).
       33
            Id. at 60.
       34
            Id.

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the parties learned of the deed’s true contents. Cosgrove owns fee simple title, and the opportunity

for an equitable remedy expired with limitations.

        A claim for breach of contract accrues when the contract is breached.35 The Cades’ breach

of contract claim accrued when the deed was executed and is therefore barred by limitations. The

Cades’ argument that the breach occurred when Cosgrove later refused to execute a correction

deed in contravention of the Acceptance of Title and Closing Agreements—a form prepared by

the title company—fails because the Cades are charged with notice of the contents of their deed

upon execution. By the time the Cades asked Cosgrove to reform the deed, limitations had expired,

and the Cades could claim no right to Cosgrove’s property. The Cades cannot circumvent the

inapplicability of the discovery rule (and indefinitely toll limitations until the Cades demand a

correction deed) simply by recasting their deed-reformation claim as a breach-of-contract claim.36

To hold otherwise would circumvent the statute of limitations by allowing an open-ended breach

of contract claim that would defy all that we hold today regarding (1) the inapplicability of the

discovery rule to suits involving obvious omissions from the face of a deed, (2) the duty on the

mineral interest owner to exercise diligence with regard to the contents of his own mineral interest,

(3) the need for stability and certainty in deed records, and (4) our construction of section 13.002

as applying to the contents of deeds. Contract law and the attendant statute of limitations cannot

be reduced to a few simple axioms, and an analysis of the contract claim must recognize that the

        35
             Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002).
         36
            The Cades admit that the conveyance of the minerals is the basis of their suit, and that they seek a
declaration reforming the mineral interest conveyed in the deed.

                                                         11
agreement here is not just any contract, but one concerning a deed that expressly if erroneously

conveyed a mineral interest.

       The Cades were charged with notice—as a matter of law and upon execution of the deed—

that the deed failed to retain their mineral rights. Allowing them to slumber on this knowledge, for

years or decades or generations, before seeking a corrected deed is not a luxury we have

recognized, and would render meaningless parties’ recognized duty to exercise diligence in

examining their mineral rights. To be “charged” with notice—as the law mandates—means there

are consequences for failure to act on that notice. Hence, we disagree with the dissent insofar as it

contends the Cades’ contract claim for refusal to correct the deed is subject to a different limitations

period. As a matter of law, the Cades were on notice at the time of execution of a fundamental and

obvious error in the deed. They could have declined to close the deal until the deed was corrected.

Or they could have closed, demanded immediate correction, and then treated any refusal as a

breach of contract. Therefore, under either a contract theory or a deed-reformation theory, both of

which have a four-year statute of limitations, the limitations period began to run at the execution

of the deed.

       The dissent imagines a disagreement over the existence of an enforceable contract. But our

analysis nowhere holds, as the dissent implies, that these parties entered into an unenforceable real

estate contract. We do not rely on the merger doctrine to hold that a contract to correct the deed

was extinguished when the deed was executed, a position that would make no sense. The dissent’s

labored discussion of this doctrine is perplexing. We do not hold that signing a side agreement to

correct errors in a deed is, under the merger doctrine, an invariably futile act because the agreement

                                                  12
is merged into and therefore extinguished by the deed itself. Our decision does not require this

result, nor do we suggest approval of such a stringent rule.

       The question before us is how long the Cades may sit on their putative contractual right to

request material changes to an unambiguous deed on file in the courthouse. The dissent frets that

in failing to see how a title company form upends our analysis of the statute of limitations issue,

we are trampling on freedom of contract or elevating equitable rights over legal rights. We do not

rely on equitable doctrines but rather recognize that contract rights are paired with contract

responsibilities, including the statute of limitations, a legal doctrine. We simply disagree on when

limitations began to run in this legal and factual context, and whether relying on a different closing

document that was part of a single, routine real estate closing changes the limitations period, when

the statute of limitations is four years for equitable reformation and four years for breach of

contract.

       The virtues of legal certainty and predictability are nowhere more vital than in matters of

property ownership, an area of law that requires bright lines and sharp corners. The Cades, charged

with instant knowledge of a significant and plainly obvious error in the deed, had four years to act

on that knowledge, including under the correction agreement.

       D. Cosgrove’s Claim for Attorney Fees

       Before filing her counterclaim, Cosgrove wrote a letter to the Cades advising them that

limitations barred the Cades’ claims, and if the Cades brought suit, Cosgrove would seek attorney

fees. Cosgrove did just that, citing sections 37.009 and 10.001 of the Civil Practice & Remedies

Code, but the trial court denied the fee request, saying it would be “inequitable and unjust to award

attorney’s fees based on the facts in this lawsuit.” The court of appeals, after ruling for the Cades

                                                 13
on the deed-reformation claim, overruled Cosgrove’s fee request as moot. Given our holding

today, the attorney-fee issue is no longer moot, and we remand it to the court of appeals.

                                          III. Conclusion

       The Cades’ subjective beliefs about the contents of the unambiguous deed are irrelevant

for purposes of tolling the statute of limitations. The discovery rule does not apply to this mistaken

omission, which was inherently discoverable and objectively verifiable. The Cades have been on

notice of sufficient facts for any deed-related claims since the date of execution.

       We reverse the court of appeals’ judgment and render judgment that the Cades take

nothing. We remand the issue of attorney fees to the court of appeals.

                                               __________________________________________
                                               Don R. Willett
                                               Justice

OPINION DELIVERED: June 26, 2015

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