michael-cade-and-billie-cade-v-barbara-d-cosgrove-individually-and-as ( 2014 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-11-00424-CV
MICHAEL CADE AND BILLIE CADE APPELLANTS AND APPELLES
V.
BARBARA D. COSGROVE, APPELLEE AND APPELLANT
INDIVIDUALLY, AND AS THE
TRUSTEE OF THE CHARLES AND
BARBARA COSGROVE FAMILY
REVOCABLE LIVING TRUST
----------
FROM THE 17TH DISTRICT COURT OF TARRANT COUNTY
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OPINION
----------
Appellants Michael Cade and Billie Cade appeal from the trial court’s
denial of their motion for summary judgment on their claims against Appellee
Barbara Cosgrove, individually, and as trustee of the Charles and Barbara
Cosgrove Family Revocable Living Trust, and the granting of Cosgrove’s motion
for summary judgment. Cosgrove appeals from the trial court’s denial of her
motion for partial summary judgment for attorney’s fees. The Cades conveyed
property to a revocable trust created by Cosgrove and her husband, now
deceased, under a deed that conveyed the mineral estate in contravention of the
sales contract, and they sued Cosgrove when she refused to execute a
correction deed. Because we hold that neither the Cades nor Cosgrove
established a right to summary judgment, we reverse.
Background Facts and Procedural History
On September 21, 2006, the Cades and the Cosgroves executed a
contract for the sale of the Cades’ property in Arlington, Texas. The property
was subject to an oil, gas, and mineral lease between the Cades and Dale
Resources, LLC. The sales contract stated that the Cades were to retain all
mineral rights. The warranty deed, however, failed to include the mineral
reservation. The deed was signed by the Cades at closing on October 10, 2006,
and was recorded on October 16, 2006.
After the sale, the Cades and the lessee under the mineral lease took acts
consistent with an understanding that the Cades still owned the minerals. The
Cades sent Chesapeake Energy a letter notifying the company of their address
change on December 11, 2008. 1 Chesapeake sent the Cades two shut-in
checks dated January 7, 2009 and January 21, 2010. On October 25, 2010,
1
We assume in this appeal that Chesapeake had acquired the lease with
Dale Resources.
2
Chesapeake mailed the Cades a letter informing them of their rights as royalty
owners.
In December 2010, however, Michael called Chesapeake to ask about the
status of the Cades’ bank deposit forms for royalties, and he learned that the
company had sent the royalty deposit forms to Cosgrove. In this conversation,
Michael learned that there was a “problem” with the deed with respect to the
mineral reservation. The Cades asked Cosgrove to execute a correction deed,
but she refused.
The Cades filed this suit on February 24, 2011, asserting claims for a
declaratory judgment that the Cades owned the minerals, breach of an
agreement with the title company that the parties signed at closing, fee
forfeiture, 2 tortious interference with contractual relationship, and civil theft. The
Cades filed a motion for partial summary judgment, and Cosgrove filed a motion
for summary judgment asserting limitations and the merger doctrine. Cosgrove
asked the trial court to dismiss the Cades’ claims “subject to Cosgrove’s right to
pursue attorney’s fees.”
The trial court signed an order granting Cosgrove’s motion for summary
judgment, denying the Cades’ motion, and dismissing the Cades’ claims.
Cosgrove then filed a motion for partial summary judgment seeking attorney’s
fees under the Declaratory Judgment Act. The trial court signed a final judgment
2
The Cades do not raise any argument on appeal regarding the summary
judgment as to this claim.
3
denying Cosgrove’s motion, stating that “it would be inequitable and unjust to
award attorney’s fees based on the facts in this lawsuit.” Both sides now appeal.
Standard of Review
We review a summary judgment de novo. 3 We consider the evidence
presented in the light most favorable to the nonmovant, crediting evidence
favorable to the nonmovant if reasonable jurors could and disregarding evidence
contrary to the nonmovant unless reasonable jurors could not. 4 We indulge
every reasonable inference and resolve any doubts in the nonmovant’s favor. 5 A
plaintiff is entitled to summary judgment on a cause of action if it conclusively
proves all essential elements of the claim. 6 A defendant who conclusively
negates at least one essential element of a cause of action is entitled to
summary judgment on that claim. 7
When both parties move for summary judgment and the trial court grants
one motion and denies the other, the reviewing court should review both parties’
3
Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010).
4
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844,
848 (Tex. 2009).
5
20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008).
6
See Tex. R. Civ. P. 166a(a), (c); MMP, Ltd. v. Jones, 710 S.W.2d 59, 60
(Tex. 1986).
7
Frost Nat’l Bank v. Fernandez, 315 S.W.3d 494, 508 (Tex. 2010); see
Tex. R. Civ. P. 166a(b), (c).
4
summary judgment evidence and determine all questions presented. 8 The
reviewing court should render the judgment that the trial court should have
rendered. 9
Analysis
1. Cosgrove’s Motion for Summary Judgment
In the Cades’ first issue, they argue that the trial court erred by granting
Cosgrove’s motion for summary judgment. Cosgrove moved for summary
judgment on all of the Cades’ claims. Cosgrove’s summary judgment motion
asserted two grounds for judgment: the merger doctrine and the statute of
limitations.
1.1. Merger Doctrine
Cosgrove argued that the doctrine of merger prohibited the Cades from
using the terms of the sales contract to contradict the terms of the deed.
Generally, the terms of a sales contract are merged into the deed, and the deed
is considered the final expression of the parties’ agreement. 10
8
Mann Frankfort, 289 S.W.3d at 848; see Myrad Props., Inc. v. Lasalle
Bank Nat’l Ass’n, 300 S.W.3d 746, 753 (Tex. 2009).
9
Mann Frankfort, 289 S.W.3d at 848.
10
Harris v. Rowe, 593 S.W.2d 303, 306 (Tex. 1979); Munawar v. Cadle
Co., 2 S.W.3d 12, 16–17 (Tex. App.—Corpus Christi 1999, pet. denied) (citation
omitted).
5
A party may avoid the application of this doctrine, however, by alleging and
proving a mistake in the execution of the deed. 11 The Cades asserted in their
petition that the deed should be reformed because the deed’s omission of their
reservation of their mineral interest was a mutual mistake. A deed may be
reformed on the ground of mutual mistake. 12 Unilateral mistake by one party,
and knowledge of that mistake by the other party, is equivalent to mutual
mistake. 13 Thus, the merger doctrine does not prevent the Cades from seeking
reformation of the deed based on mutual mistake. The contract reflected an
agreement that the Cades would retain the property’s mineral rights, Cosgrove
does not argue to the contrary, and she offered no evidence to contradict the
contract. Because summary judgment should not have been granted for
Cosgrove on this ground, we sustain this part of the Cades’ first issue.
1.2. Statute of Limitations
Cosgrove also asserted the statute of limitations to defeat the Cades’
claims. We first consider the statute of limitations as to the Cades’ deed
reformation claim. The Cades do not dispute that the four-year statute of
limitations applies to claims for deed reformation or that they brought their claim
more than four years after they executed the deed.
11
Harris, 593 S.W.2d at 306; Turberville v. Upper Valley Farms, Inc., 616
S.W.2d 676, 678 (Tex. Civ. App.—Corpus Christi 1981).
12
Davis v. Grammer, 750 S.W.2d 766, 768 (Tex. 1988).
13
Id.
6
Before discussing deed reformation claims, we must clarify the nature of
the claim asserted and acknowledge that what the Cades stated in their petition
was that they wanted a declaration “that the mineral interest of the Property was
not conveyed by them to [Cosgrove] . . . and that they still hold clear legal title to
these mineral interests.” But they do not deny that the deed did convey the
mineral interests, and that conveyance of the minerals is the basis of their suit. It
is clear from reading their pleadings in their entirety that what they sought was a
declaration reforming of the deed. 14
1.2.1. General rule regarding accrual of a claim to reform a deed
Generally, a cause of action accrues, and therefore the limitation period
begins to run, “when a wrongful act causes a legal injury.” 15 But when
determining how long a grantor has to bring an action to reform a deed, we must
take into consideration the presumption of the grantor’s immediate knowledge
(the presumption): a grantor is presumed to know the contents of the deed
immediately upon executing it. 16 Application of the presumption means that the
limitation period on a claim to reform an incorrect deed begins to run as soon as
the deed is executed because, as soon as the deed is executed, the grantor has
14
See Simpson v. Curtis, 351 S.W.3d 374, 377, 381 (Tex. App.—Tyler
2010, no pet.) (reviewing a trial court’s granting of a declaratory judgment
reforming a deed to reserve a mineral interest and affirming as modified).
15
Etan Indus., Inc. v. Lehmann, 359 S.W.3d 620, 623 (Tex. 2011).
16
Sullivan v. Barnett, 471 S.W.2d 39, 45 (Tex. 1971).
7
actual knowledge that the deed is incorrect. 17 This rule has not been strictly
applied in the past, however, and courts have noted numerous exceptions over
the years. 18 We address here (1) how courts have (inconsistently) treated the
presumption in the past, (2) the modern incarnation of the discovery rule, and (3)
questions on how the earlier presumption case law applies today.
1.2.2. The presumption has been held to be rebuttable—but in what
circumstances?
The Texas Supreme Court has said that the presumption can be rebutted,
and “there are various circumstances, such as subsequent conduct of the parties
as though the deed had not contained the error, which will excuse a delay in
discovery of the mutual mistake.” 19 In 1959, in Miles v. Martin, the Supreme
Court considered whether to allow a grantor to move forward with a suit to reform
a deed that had mistakenly omitted the grantor’s mineral reservation. 20 The
grantor Martin and the grantees had intended that Martin would reserve a royalty
interest. 21 The prior grantor who had conveyed the property to Martin had also
17
Id.
18
See, e.g., id. at 45–46; Broyles v. Lawrence, 632 S.W.2d 184, 187–88
(Tex. App.—Austin 1982, no writ).
19
Sullivan, 471 S.W.2d at 45.
20
159 Tex. 336, 343, 321 S.W.2d 62, 67 (1959).
21
Id. at 67.
8
reserved a mineral interest. 22 The deed from Martin included the prior grantor’s
reservation but did not include Martin’s intended royalty interest. 23 Martin filed
suit for reformation almost six years after the deed’s execution. 24
The Supreme Court concluded that the testimony showed that Martin may
not have actually discovered the mistake more than four years before the suit
was filed. 25 As to when Martin should have discovered the mistake, the court
stated that the evidence that he had been receiving delay rentals “indicate[d] that
there may be an issue of fact” about whether he should have known of the
mistake. 26 Though the court did not hold that the deed language was
ambiguous, the court stated that the parties to the deed “may have been mutually
mistaken as to the legal effect of its provisions and believed that the instrument
effectively reserved to [Martin] a one-fourth mineral interest in addition to that
already owned by [the previous grantor].” 27 The court remanded the case for a
new trial to determine Martin’s right to equitable relief. 28 In summary, although
22
Id. at 64, 67.
23
Id. at 64.
24
Id. at 69.
25
Id. at 70.
26
Id.
27
Id. at 67.
28
Id. at 70.
9
the reservation language in the deed was not ambiguous, Martin nevertheless
may have been mistaken about the legal effect of the deed, and the fact that he
had been receiving delay rentals raised a question about whether he should have
known of the mistake.
Nearly ten years later, in McClung v. Lawrence, the Supreme Court once
again considered whether the grantors were bound by the presumption. 29 As in
Martin, the deed in McClung contained a reservation of royalty interest in the
grantors but made no mention of the reservations of prior grantors. 30 The
McClungs sought a reformation of the deed sixteen years after the deed was
executed and filed of record. 31 There was no allegation that the language used
to reserve the McClungs’ interest was itself ambiguous, the Supreme Court did
not hold that it was ambiguous, and the deed clearly did not include any mention
of the prior reservations. 32 But the court held that rule from Martin—that the
equitable remedy of reformation is available when parties to a deed are mistaken
as to the legal effect of deed language—controlled, and it remanded the case for
a trial on when the mistake in the deed was or should have been discovered. 33
29
430 S.W.2d 179, 181–82 (Tex. 1968).
30
Id. at 180–81.
31
Id. at 181.
32
Id. at 180.
33
Id. at 181–82.
10
In reaching its holding, the Supreme Court briefly discussed two earlier
courts of appeals cases, Kennedy v. Brown 34 and Kahanek v. Kahanek. 35 The
court of appeals in McClung had relied on these cases in holding that reformation
was unavailable to the grantors. 36 The Supreme Court distinguished both cases
on the ground that in those two cases, the grantors were not entitled to
reformation because the reservations of mineral rights “had been entirely omitted
from the deeds, a fact plainly evident.” 37 Thus, unlike the McClungs’s requested
relief, the relief sought in Kennedy and Kahanek was not based on “a mistake of
the parties as to the legal effect of the instruments.” 38 This distinguishing of
Kennedy and Kahanek suggested that the rule for reformation after limitations
had run was that if no reservation of a mineral interest is reserved in the deed,
the grantor has notice of the mistake, but if some mineral interest is reserved, the
parties could be mistaken as to the legal effect of the reservation and therefore
about whether the deed conforms to the parties’ agreement.
34
113 S.W.2d 1018 (Tex. Civ. App.—Amarillo 1938, writ dism’d).
35
192 S.W.2d 174 (Tex. Civ. App.—Galveston 1946, no writ).
36
430 S.W.2d at 181.
37
Id. at 181.
38
Id. at 181 (emphasis added).
11
Three years later, however, in Sullivan v. Barnett, 39 the Supreme Court
again addressed the issue, but this time it did not expressly rely on a “mistaken
as to the legal effect of the language used” theory to reach its decision. Unlike
Martin and McClung, the Sullivan case did not deal with the failure to include a
reservation of a mineral interest. When the Sullivans conveyed to the grantees a
half interest in some property, the deed mistakenly included an additional forty
acres. 40 The Sullivans lived on that forty acres and continued to do so after the
deed’s execution. 41 The same mistake was repeated in a deed of trust from the
Sullivans and the grantees in favor of Barnett. 42
The Supreme Court stated that there were numerous exceptions to the
rule that grantors are charged with knowledge, including “subsequent conduct of
the parties as though the deed had not contained the error.” 43 Thus, when the
actions of both parties after execution of the deed show that the parties believed
and behaved as though there was no error in the deed, the limitation period
begins when the mistake was or should have been discovered. 44
39
471 S.W.2d at 45 (emphasis added).
40
Id. at 41–42.
41
Id. at 42–43.
42
Id. at 41.
43
Id. at 45.
44
See id.
12
In a footnote, the court discussed its previous apparent acceptance of
Kennedy and Kahanek, saying it had
distinguished the McClung facts from those in Kahanek and
Kennedy, and we find no decision by this Court citing either of those
cases with approval or following the rule stated by them on this
point. The holding in Kahanek was dicta, since in that case there
was a finding of actual knowledge of the mutual mistake by grantor
more than four years prior to suit. The Kennedy decision clearly
recognizes an exception to the rule when the grantor is lulled into a
sense of security by subsequent acts of the grantee. 45
The court thus appeared to step away from allowing Kahanek and
Kennedy to stand for a bright-line rule. The court then cited multiple cases in
which a grantor who had accidentally conveyed more property than was intended
was allowed to seek reformation of the deed after limitations had run. 46 The
court thus indicated that whether the deed had language that could cause the
grantor to be unsure about the legal effect of the deed was not the determining
factor in rebutting the presumption. 47 That is, reformation after the limitation
period might still be available even when the deed did not contain language that
could cause the grantor to believe the deed was correct.
Toward the end of the Sullivan opinion, the Supreme Court stated that its
holding was “supported by an established rule of law applicable to grantors who
remain in possession of land which was inadvertently included in a deed by
45
Id. at 46 n.3 (emphasis added).
46
Id. at 45–46.
47
See id.
13
mutual mistake,” and “[a]s long as no rights of bona fide innocent purchasers
have intervened, actions or defenses by such persons in peaceable possession
based upon mutual mistakes in deeds and removal of clouds from title are not
barred by the four-year statute of limitation.” 48 In this case, the Cades did not
continue to have physical possession of the property after the sale. They did,
however, continue to receive royalty payments.
The Sullivan court cited with approval the opinion in Luginbyhl v.
Thompson, 49 a case from the same court that later issued Kennedy. In
Luginbyhl, the deed omitted the grantor’s intended mineral reservation, the suit
for reformation was filed six years after the deed’s date, and reformation was
allowed. 50 The contract between the parties in the case called for the grantor to
reserve the mineral rights on half of the property. 51 Before executing the deed,
the grantor leased the mineral rights on the half of the property that he intended
to reserve. 52 He continued to receive payments under the lease after the
execution of the deed. 53 The grantee leased the mineral rights to the other half
48
Id. at 47.
49
11 S.W.2d 380 (Tex. Civ. App.—Amarillo 1928, writ dism’d).
50
Id. at 381–82.
51
Id. at 383.
52
Id.
53
Id.
14
of the property “but stated [after the deed’s execution] that the mineral rights on
the north half of the section belonged to” the grantor. 54 The grantor learned of
the mistake when he tried to sign a new mineral lease. 55 The court of appeals
upheld the trial court’s judgment reforming the deed to reflect the parties’
agreement, noting that “there was no fact nor circumstance to arouse [the
grantor’s] suspicion relative to the omission from the deed, and, in order to set in
operation the statute of limitation, there must be some fact or circumstance to put
him on inquiry.” 56
The later Kennedy court distinguished Luginbyhl on the ground that in
Luginbyhl, the grantee had “permitted the grantor to collect the proceeds of the
lease and, although having full knowledge that he was doing so, made no
objection” and by doing so had “lulled the grantor into a sense of security which,
under the law, excused him from exercising any effort to ascertain the fact that
his rights under the contract had been omitted from the deed.” 57 In this case, the
Cades continued to collect royalty checks from Chesapeake, and the summary
judgment evidence does not show that Cosgrove took any action to assert her
right to the minerals until after the limitation period had passed.
54
Id.
55
Id. at 381.
56
Id. at 382.
57
Kennedy, 113 S.W.2d at 1021.
15
To review, in Luginbyhl, where a mineral reservation was entirely omitted
from a deed, the Amarillo court of appeals held that the limitation period on the
grantor’s claim for reformation began to run when the grantor discovered the
mistake or when he should have discovered it by the exercise of reasonable
diligence, not from the time that the grantor executed the deed. 58 The same
court then held in Kennedy that when a deed omitted entirely the grantor’s
mineral reservation, the grantor was charged with knowledge at the time of the
deed’s execution that the deed did not reserve his mineral rights. 59 But Kennedy
also distinguished Luginbyhl on the ground that the grantee in that case had
acted in a manner that lulled the grantor into a false sense of security about what
was in his deed, thereby exercising any effort to confirm his rights under the
deed. 60 Thus, the Kennedy court recognized that even when the deed entirely
omits a reservation and does not contain ambiguous language, in some
circumstances the grantor may assert a claim for reformation after the limitation
period would have otherwise run. 61 And we note that the Kennedy court also
58
11 S.W.2d at 382.
59
113 S.W.2d at 1021.
60
Id.
61
See id.
16
found important that the grantor in that case had hired his own attorney to
prepare the deed and had signed the deed in the attorney’s office. 62
Then the Supreme Court saw the need to distinguish Kennedy in reaching
its holding in McClung, thus giving Kennedy tacit approval. But then it later
appeared to reject the part of Kennedy about plain omissions from a deed when
it (1) cited Luginbyhl with approval, (2) stated that it had never approved
Kennedy or had followed that part of Kennedy, and (3) pointed out that Kennedy
had acknowledged the exception of when a grantee’s actions lead the grantor to
believe the deed is correct (suggesting that it did still approve of that part of
Kennedy). In other words, case law on what circumstances allow rebuttal of the
presumption has not followed a straight line. And at least as of Sullivan, the
Supreme Court was unwilling to hold unequivocally that a grantor may never
rebut the presumption when the mistake in the deed is that the deed omits a
reservation entirely.
1.2.3. Brown v. Havard
Almost a decade after Sullivan, the Texas Supreme Court issued Brown v.
Havard. 63 Brown involved a deed with an incorrect mineral reservation, but it
was the grantees who wanted to reform the deed, not the grantors. 64 The court
62
Id. at 1020.
63
593 S.W.2d 939 (Tex. 1980).
64
Id. at 940.
17
held that the reservation clause in the deed was ambiguous. 65 And the court
held that the mistake in the deed was not “so plainly evident as to charge King
[the grantee] with the legal effect of the words used.” 66 The court pointed out that
even the justices on that court disagreed about the meaning of the clause used in
the deed, and “[c]ertainly King, who was not a lawyer, cannot be charged as a
matter of law with knowledge of the meaning of the reservation.” 67
The court did not state that reformation after limitations have run is
available only when a deed contains some reservation that could cause a party
to the deed to not understand the deed’s legal effect. But the opinion did note
that “[p]rior to the Browns’ rejection of the division order, King [the grantee] and
his assignees were in possession of the land[,] and there was nothing in the deed
to King or the Browns’ conduct to place them on notice as a matter of law” that
the grantors claimed the one-half interest they later asserted. 68 This language
could be read to mean that language in the deed can put a party on notice as a
matter of law such that the party would not be permitted to show that he or she
65
Id. at 942.
66
Id. at 944.
67
Id.
68
Id. (emphasis added).
18
did not actually have knowledge of the deed’s contents. But the court did not
disavow or distinguish Sullivan and in fact cited it with approval. 69
1.2.4. More Recent Discovery Rule Case Law
Between 1980 (the year that Brown was issued) and the most recent
Texas Supreme Court case on the presumption (Lesley, 70 discussed below), the
Texas Supreme Court issued opinions refining the body of law on the discovery
rule. In its 1996 Altai and S.V. opinions, the court distilled its broad line of cases
justifying deferred accrual of claims into the application of the discovery rule that
we use today: that application of the rule should be permitted when the nature of
the injury is inherently undiscoverable and the evidence of injury is objectively
verifiable. 71 When the type of injury is one to which the discovery rule applies,
then a court looks at when the plaintiff knew or with the exercise of reasonable
diligence should have known of the injury. 72 The court stated that in deciding
whether a claim is inherently undiscoverable, a court looks at whether the injury
69
Id.
70
Lesley v. Veterans Land Bd. of Tex., 352 S.W.3d 479 (Tex. 2011).
71
Computer Assocs. Int’l, Inc. v. Altai, 918 S.W.2d 453, 456 (Tex. 1996);
S.V. v. R.V., 933 S.W.2d 1, 3–8 (Tex. 1996).
72
Altai, 918 S.W.2d at 455.
19
is the type of injury that is undiscoverable, not whether the particular injury in the
case at hand was undiscoverable. 73
The holdings in Martin, McClung, Sullivan, and Brown were fact-based
rather than category-based. They did not address whether a mistake in a deed is
a type of injury that is inherently undiscoverable and went straight to an analysis
of whether the party wanting to avoid the presumption actually knew or should
have known of the error in the deed, that is, whether some circumstance excused
the failure to discover it. These courts, then, appeared to accept that a mistake
in a deed is the type of injury for which accrual of a claim based on the injury may
be deferred. Since Altai, the Texas Supreme Court has not addressed how the
rebuttable presumption fits with the discovery rule. But in Lesley, its most recent
case involving deed reformation after limitations had run, it held that the grantor’s
claim for reformation was not barred by the statute of limitation.
1.2.5. Lesley v. Veterans Land Bd.
The Texas Supreme Court issued Lesley v. Veterans Land Board of the
State of Texas in 2011. This case dealt with a mineral reservation in a deed. 74
The court said the reservation was “not as opaque as the one in Brown,” but it
contained provisions that made it unclear about what was being reserved, and a
subsequent grantee appeared to share the grantor’s understanding of what had
73
Id. at 456; see also Via Net v. TIG Ins. Co., 211 S.W.3d 310, 314 (Tex.
2006).
74
Lesley, 352 S.W.3d at 484–86.
20
been reserved. 75 The court said that “[i]n these circumstances, it cannot be said
that, as a matter of law, Lesley [the grantor] knew or should have known of the
mistake in her deed when she executed it. Whether the claim for reformation is
barred by limitations involves disputed facts.” 76 The court remanded the claim to
the trial court for further proceedings. 77
Because the Lesley case also involved confusing mineral reservation
language, the court did not address other circumstances where reformation might
be sought and whether other deed problems are the type of which the grantor
has knowledge as a matter of law at the time of the deed’s execution. The court
thought it was worth noting that the grantee shared the grantor’s understanding
of the deed’s language. 78 This notation could be the court’s recognizing that
mutual mistake is enough to rebut the presumption, or it could be the court’s
simply recognizing that if the grantee shares the grantor’s understanding of a
deed’s language, then the language is not so clear as to give the grantor
knowledge as a matter of law.
We should note that in Lesley, the Texas Supreme Court did not articulate
that the discovery rule was the basis for its holding that reformation was
75
Id. at 486.
76
Id.
77
Id. at 492.
78
Id. at 486.
21
available. It mentioned the discovery rule in deciding a different issue in the
case—whether the holder of the right to execute a mineral lease on property
owes a fiduciary duty to nonparticipating royalty owners. 79 But in the discussion
of whether Lesley was entitled to reformation of the deed after the limitation
period has passed, the court did not discuss whether the injury alleged by Lesley
was the type to which the discovery rule should apply. 80
1.2.6. Recent cases from this court: Kidwell v. Black and Poag v. Flories
This court has also addressed the issue, 81 and two relatively recent
opinions must be acknowledged. The 2003 case of Kidwell v. Black involved an
incorrect block number in a series of deeds and lien instruments. 82 In this
opinion, we cited Brown for the proposition that the statute of limitation begins to
run on a claim to reform a deed based on mutual mistake when the mistake is
discovered or, in the exercise of reasonable diligence, should have been
79
Id. at 488–89.
80
Id. at 484–86.
81
See, e.g., Mason v. Univ. of the S., 212 S.W.2d 854, 857 (Tex. Civ.
App.—Fort Worth 1948, writ ref’d n.r.e.) (noting the presumption “in the absence
of proof to the contrary, that the parties were familiar with the contents and
meaning of the instrument from the date of its execution,” holding that the
evidence supported the trial court’s finding of mutual mistake in the execution of
a deed of trust, and affirming the trial court’s reformation of the deed of trust
sixteen years after its execution).
82
104 S.W.3d 686, 686–87 (Tex. App.—Fort Worth 2003, pet. denied).
22
discovered. 83 We noted that when the mistake should have been discovered
was a question of fact, and we upheld the trial court’s implied ruling that the claim
was not barred. 84 In that case, however, limitations were asserted against the
grantee, not the grantor.
The second case, Poag v. Flories, is cited by Cosgrove and so should be
discussed here. 85 Poag was a probate case involving a subsequent grantee
(Poag) under an administrator’s deed. 86 The administrator’s deed conveyed the
“surface estate only.” 87 The grantee in that deed then conveyed its interest in the
property to Poag under a deed that did not state that it conveyed the “surface
estate only” but did state that it was subject to any and all reservations affecting
the property. 88 Poag sued for reformation, not of the deed conveying the
property to him, but of the prior administrator’s deed. 89 The administrator’s deed
had been recorded, and we held that the recording put Poag, a third party to the
deed, on notice of the deed’s contents, and, thus, the discovery rule did not
83
Id. at 689–90.
84
Id. at 690.
85
317 S.W.3d 820, 825 (Tex. App.—Fort Worth 2010, pet. denied).
86
Id. at 823–24, 826.
87
Id. at 826–27.
88
Id.
89
Id. at 823–24.
23
prevent limitations from running. 90 We stated in a footnote that the original
grantee might not be able to argue mutual mistake, either, because the deed
expressly stated that it conveyed the “surface estate only.” 91 But that language
was dicta, and we cited for that proposition the court of appeal opinion in
Lesley—which the Texas Supreme Court subsequently overruled. 92
This court has therefore indicated that a recording of a deed puts a third
party to the deed on notice of the deed’s contents, and if the deed is recorded
and does not contain ambiguous language, the discovery rule will not apply to
the claim. 93 But in that opinion, we did not directly address whether the
discovery rule could apply to a reformation claim as between the original parties
to the deed when the deed is recorded. And we did not discuss whether a
mistake in a deed is the type of injury for which the discovery rule is or is not
available but instead went directly to the analysis of whether the grantee should
90
Id. at 827; see also Cox v. Clay, 237 S.W.2d 798, 804 (Tex. Civ. App.—
Amarillo 1950, writ ref’d n.r.e.) (op. on reh’g) (stating that “[t]he object of the
recording acts is to protect innocent purchasers . . . against previous deeds” and
that the recording of an instrument “carries notice of its contents only to those
who are bound to search for it, such as subsequent purchasers under the grantor
in such an instrument,” and holding that limitations did not bar the grantor’s claim
for reformation).
91
Poag, 317 S.W.3d at 827 n.1.
92
Id.
93
See also HECI Exploration Co. v. Neel, 982 S.W.2d 881, 887 (Tex. 1998)
(stating that when constructive notice applies, it creates an irrebuttable
presumption of actual notice). But see Brown, 593 S.W.2d at 944 (allowing a
subsequent grantee to reform a deed).
24
have known of the mistake. Thus, like the Texas Supreme Court in Lesley, we
implicitly accepted that deed reformation is the type of claim for which the
discovery rule is available under the right facts.
1.2.7. Applying the Law to this Case
In summary, the discovery rule defers accrual of a cause of action until the
diligent plaintiff knew or should have known of the alleged injury. 94 Likewise, in
rebuttable presumption cases, the courts have said that the claim for reformation
does not accrue until the grantor actually knew or, in the exercise of reasonable
diligence, should have known of the mistake. In both discovery rule cases and
cases involving the presumption, the same rule applies for the running of
limitations. Courts have thus appeared to accept the application of the discovery
rule to deed reformation claims. We will now state explicitly what we have
previously only implied: a mutual mistake in a deed is a type of injury for which
the discovery rule is available.
We recognize that the Texas Supreme Court has stated that the deferring
of the accrual of a claim based on fraudulent concealment is a distinct concept
from deferred accrual based on the discovery rule. 95 Thus, the discovery rule is
94
Kerlin v. Sauceda, 263 S.W.3d 920, 925 (Tex. 2008).
95
See Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 736 (Tex. 2001).
We refer to the delay in accrual of a claim rather than tolling of the limitations
period after limitations has begun. The Texas Supreme Court has used both
phrases in discussing the discovery rule. See id. (stating that the discovery rule
and fraudulent concealment can toll limitations); S.V., 933 S.W.2d at 4 (citing
Trinity River Auth. V. URS Consultants, Inc., 889 S.W.2d 259, 262 (Tex. 1994) as
25
not the only legal doctrine that allows a party to bring suit beyond the time at
which limitations appear to have run, and, therefore, we have considered
whether deferring accrual of a claim for reformation based on mutual mistake,
like fraudulent concealment, is a distinct legal basis for deferring accrual of a
claim from the discovery rule. But because the language used to discuss
deferral of a claim for reformation and language used to discuss the discovery
rule is essentially the same, because the Texas Supreme Court has discussed
the history of case law on deferred accrual of claims and divided them into only
the two categories of the discovery rule and fraudulent concealment, and
because courts have implicitly applied the discovery rule to these types of claims,
we decline to acknowledge a separate legal basis for deferring accrual of a claim
for reformation apart from the discovery rule or fraudulent concealment.
We now turn to whether the summary judgment evidence raises a fact
issue about whether the Cades knew or should have known of the omission in
the deed within the limitation period. Having held that the presumption may be
rebutted, we must start with the proposition that execution of the deed is not
enough to irrefutably establish a grantor’s knowledge as a matter of law so that a
grantor will always be prohibited from introducing evidence of when the grantor
distinguishing between deferring accrual of a claim, thereby delaying the start of
the limitations period, and tolling the running of limitations once the period has
begun, and stating that the discovery rule defers accrual of a claim). Because
we discuss here the delay in the accrual of the claim rather than some
circumstance that stopped the limitation period from running after it had begun,
we use the term “deferred accrual.”
26
actually learned of the deed’s true contents. Nor can execution of the deed
absolutely establish when the grantor should have known of the deed’s contents
such that the trial court would be prohibited from considering evidence of when
the grantor should have known. To hold that execution of a deed has that effect
in all cases as a matter of law, we would have to overrule all prior case law
holding that the presumption may in some circumstances be rebutted and hold
that the presumption is irrebutable. Because the presumption may be rebutted,
we must take the position that a grantor may introduce, and the factfinder may
consider, evidence disputing that the grantor actually knew of the deed’s
contents at the time of its execution and that the grantor should have known of
the deed’s contents within the limitation period.
In a letter brief, Cosgrove argues that property code section 13.002
dictates that the Cades had notice of the existence of the instrument because the
deed was recorded in the public records of the property county. 96 The recording
of an instrument does not work to create notice as a matter of law in every
circumstance. 97 The Cades are not third parties to the deed and are not a
person interested in an estate admitted to probate—persons charged with
96
Tex. Prop. Code Ann. § 13.002 (West 2004).
97
See HECI Exploration Co., 982 S.W.2d at 887 (“[W]hen the rationale for
imposing constructive notice is lacking, public records have not been held to
create an irrebuttable presumption of notice.”).
27
knowledge as a matter of law with instruments filed in the public records. 98 The
Cades were perfectly aware of the deed’s existence, and they had no reason
after conveying the property to search the public records to examine the deed,
absent some circumstance to put them on notice of a problem.
We must next consider the extent of this rule that the presumption may be
rebutted and determine whether the presumption may be rebutted to allow
correction of any mutual mistake in a deed or only those kinds of mistakes that
may not be plainly evident to parties when they read the deed. That is, we must
decide whether the Cades may be allowed to rebut the presumption when they
do not rely on ambiguous language in their deed to explain why they did not
realize sooner and should not have realized sooner that their deed contained a
mistake.
In Lesley and Brown, the Texas Supreme Court recognized that language
in a deed that could reasonably cause a party to be mistaken as to the deed’s
legal effect was an exception to the presumption. 99 Cosgrove argues in her brief
that this is the only circumstance by which a grantor may rebut the presumption.
But further back than that, in Sullivan, the Texas Supreme Court held that a party
should be allowed to rebut the presumption, and it did not reach that holding by
first holding that deed language could have caused the parties to misunderstand
98
See id.
99
Lesley, 352 S.W.3d at 485–86; Brown, 593 S.W.2d at 944.
28
the deed’s effect. 100 And that court cited cases allowing reformation for mistakes
that should have been plainly evident on the face of the deed. 101 Thus, we must
either (1) distinguish Sullivan or determine that it has been abrogated or (2) hold
that in some circumstances, even when the alleged error in the deed should be
apparent, a party to the deed may show that it did not know and had reason not
to know of its contents. We choose to follow the latter approach.
As stated above, the discovery rule applies to types of injuries that are
“inherently undiscoverable.” 102 As yet, we have no guidance from the Texas
Supreme Court on how to apply this standard to the body of law on deed
reformation. But the court has said that an injury is “inherently undiscoverable if
it is by nature unlikely to be discovered within the prescribed limitations period
despite due diligence.” 103 Harmonizing this language with the fact that case law
on deed reformation has not been rejected by the Texas Supreme Court, we
conclude that a mutual mistake in a deed is an injury that a grantor is unlikely to
discover within the prescribed limitations, despite due diligence, unless some
circumstance puts the grantor on notice of the mistake. And until the Texas
Supreme Court instructs us otherwise, we will continue to look to older cases on
100
471 S.W.2d at 45–46.
101
Id. at 45.
102
Altai, 918 S.W.2d at 456.
103
S.V., 933 S.W.2d at 7.
29
rebutting the presumption for guidance on what circumstances should have put
the grantor on notice and what kind of facts will suffice to rebut the presumption.
The court in Sullivan stated that it had “never permitted the rule [presuming
the grantor’s immediate knowledge] to blindfold it to the true facts concerning
actual discovery of the mutual mistake and subsequent conduct of the parties
with respect thereto.” 104 Applying this language, and noting that the rights of third
parties are not involved and would not be affected by reformation and that
reformation would, at most, put the parties in the position that they bargained for,
we hold that the presumption does not prevent the Cades from introducing
evidence to establish the true facts regarding when they knew or should have
known of the mistake in the deed.
When the Cades knew or should have known of the deed’s error is a fact-
based inquiry. 105 We look to see what evidence the parties introduced to show
whether the Cades actually knew or should have known of the deed’s contents
104
471 S.W.2d at 45.
105
See Lesley, 352 S.W.3d at 486 (determining that the question of
whether Lesley’s claim for reformation was barred by limitations involved
disputed facts); Brown, 593 S.W.2d at 944 (stating that the question of whether
the grantee should have known of the deed’s recitals by the exercise of
reasonable diligence is one of fact); see also Mason, 212 S.W.2d at 857 (stating
that it was “rather hard for us to see how [the parties to the instrument] could
have been mistaken about such an important matter” but that the court was “not
permitted to substitute our judgment on the facts for that of the trial court so long
as there is any evidence of probative value to support his findings”).
30
more than four years before they brought suit. In this case, the evidence
regarding the Cades’ knowledge is as follows:
• The parties executed the deed in October 2006, and the deed did
not contain language that restricted the conveyance to the surface
estate;
• The sales contract for the property stated, “Sellers to retain all
mineral rights”;
• The warranty deed states that the conveyance is “made subject to
any and all valid and subsisting restrictions, easements, rights of
way, reservations, maintenance charges together with any lien
securing said maintenance charges, zoning laws, ordinances of
municipal and/or other governmental authorities, conditions and
covenants, if any, applicable to and enforceable against the above-
described property,” but it does not state that it conveys only the
surface estate;
• On December 11, 2008, the Cades sent a letter to Chesapeake
informing it that their address had changed;
• In early January 2009, Chesapeake paid a shut-in royalty to the
Cades by check;
31
• In January 2010, Chesapeake sent the Cades another check for a
shut-in royalty payment, and this check had the Cades’ new address
on it;
• In October 2010, Chesapeake sent the Cades a letter informing
them of their right as royalty owners to request information about
deductions from their royalty payments;
• In connection with their closing, the parties signed a document titled
“Acceptance of Title and Closing Agreements” (closing agreement),
in which they stated that they “agree to comply with all provisions of
the real estate contract . . . or other documents executed in
connection with the closing of this transaction” and that they “agree
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”;
• The deed states that after recording, it is to be returned to “Ted L.
Tittsworth,” an attorney also named in the closing agreements and
apparently representing or connected with the title company;
• Michael stated in an affidavit that he and his wife never intended to
convey the mineral rights on the property;
32
• Michael stated in his affidavit that he first learned of the mistake in
the deed in December 2010 when he spoke to someone with
Chesapeake;
• Billie stated in her affidavit that in December 2010, she called
Cosgrove to discuss what Michael had learned from his conversation
with Chesapeake and that Cosgrove told her that she [Cosgrove]
had executed the documents sent to her by Chesapeake, that the
title company had failed to put the reservation of mineral rights into
the warranty deed, and that Chesapeake’s delay in drilling had
caused the Cades to lose their mineral rights to the property;
• In Michael’s responses to Cosgrove’s request for admissions, he
denied that he and Billie delivered the deed to Cosgrove, stating that
he and Billie “executed the documents at closing, then a person from
the title company took all of the documents to another room, and she
gave us and the Cosgroves documents when she returned”;
• Billie’s response contained the same statement; and
• Cosgrove attached an affidavit to her motion for summary judgment,
and it contained no statements regarding the intentions of the parties
regarding the minerals or when she discovered that the deed did not
contain the reservation.
Michael also stated in his affidavit that the title company assured them that
the deed contained their reservation and that in December 2010, someone from
33
Chesapeake told him that Chesapeake had sent forms to Cosgrove, who told the
Chesapeake employee that she did not believe that she owned the mineral
rights, but the trial court sustained Cosgrove’s objections to these two
statements. But the evidence that the trial court considered included evidence
that the Cades did not know the deed contained the mistake at the time they
executed it and that they continued to receive royalty payments and
correspondence from Chesapeake after signing the deed. This is some evidence
that the Cades attempted to exercise reasonable diligence in protecting the
mineral interests they thought they owned by keeping in communication with
Chesapeake and by making sure that Chesapeake had their correct address. 106
There is no evidence that a copy of the deed was given to the Cades after they
had signed it. This evidence is sufficient to raise a fact issue about whether the
Cades actually knew of the deed’s contents within the limitations period.
This evidence is also sufficient to raise a fact issue about when the Cades
should have known of the deed’s contents. No evidence suggested that
Cosgrove disputed the Cades’ ownership of the mineral rights until she received
forms from Chesapeake or that she did anything to create a question about who
owned the minerals. Chesapeake continued to treat the Cades as the mineral
owners for years after execution of the deed, and no evidence shows that any
106
See Wagner & Brown, Ltd., 58 S.W.3d at 736 (Tex. 2001) (stating that
royalty owners have some obligation to exercise reasonable diligence in
protecting their interests).
34
circumstance that occurred before December 2010 should have put the Cades
on inquiry about whether they had retained the mineral rights. 107 We hold that
the trial court should not have granted summary judgment for Cosgrove on the
reformation claim based on limitation, and we sustain this part of the Cades’ first
issue.
1.2.8. Summary Judgment as to the Cades’ Remaining Claims
As to the Cades’ claims for tortious interference and civil theft, Cosgrove
sought summary judgment on the ground that the Cades knew or should have
known about any possible claim under these causes of action on the date of
closing—October 12, 2006. But the injury giving rise to both the tortious
interference claim and the theft claim did not arise until Cosgrove asserted
mineral rights to the property. That is, the mistake in the deed was an injury for
which the Cades could seek the remedy of reformation, but it did not give rise to
a tort claim. Under the evidence, the mistaken deed was not in itself a ground to
assert a tort claim against Cosgrove because it was not a wrongful act committed
by her, and if Cosgrove had never asserted a right to the payment from
Chesapeake, the Cades would not have had any reason to assert these
107
See Martin, 321 S.W.2d at 70 (including the grantor’s continuing to
receive delay rentals as a fact raising a fact issue about whether he should have
known of the mistake in his deed); Luginbyhl, 11 S.W.2d at 382 (“[T]here was no
fact nor circumstance to arouse [the grantor’s] suspicion relative to the omission
from the deed, and in order to set in operation the statute of limitation, there must
be some fact or circumstance to put him on inquiry.”).
35
claims. 108 The summary judgment evidence was that Cosgrove did not assert
rights to payments under the mineral lease until at least December 2010. The
Cades filed their claim on February 24, 2011. The Cades asserted these claims
within limitation period on those causes of action. 109 We sustain this part of the
Cades’ first issue.
Similarly, Cosgrove’s limitation argument also fails as to the Cades’ breach
of contract claim. There is no allegation that Cosgrove breached any contract
other than the closing agreement, in which she agreed to cooperate in correcting
any errors in any documents executed in connection with the transaction. The
summary judgment evidence is that acts alleged by Cosgrove in violation of this
agreement occurred in December 2010, and the Cades’ suit was therefore
brought within the limitations period. 110 We sustain the remainder of the Cades’
first issue.
108
See, e.g., Waxler v. Household Credit Servs., Inc., 106 S.W.3d 277, 281
(Tex. App.—Dallas 2003, no pet.) (holding that the issuing of a negative credit
report and the charging of an account off to bad debt were not themselves
unlawful acts and that the plaintiff’s negligence claim “could only accrue when
she sustained damages resulting from these actions”).
109
See Tex. Civ. Prac. & Rem. Code Ann. § 16.003(a) (West Supp. 2013),
§ 16.051 (West 2008).
110
See Tex. Civ. Prac. & Rem. Code Ann. § 16.051; Stine v. Stewart, 80
S.W.3d 586, 592 (Tex. 2002) (“It is well-settled law that a breach of contract
claim accrues when the contract is breached.”).
36
2. The Cades’ Motion for Summary Judgment
The Cades sought summary judgment on their reformation claim and on all
of the elements of their breach of contract claim except damages. In their
second issue, they argue that the trial court erred by denying their motion for
partial summary judgment.
2.1. The Cades’ Deed Reformation Claim
Although the evidence is enough to raise a fact issue on when the Cades
knew or should have known of the deed’s contents, we cannot say that it
establishes as a matter of law that they did not and should not have in the
exercise of reasonable diligence discovered the mistake sooner. There was no
summary judgment evidence considered by the trial court regarding whether the
Cades read the deed at closing (and if so, what they understood it to mean),
what the Cades were told about the deed at closing, or any other circumstance
explaining why they did not discover at closing that the deed did not comply with
the sales contract. Although Michael stated in his affidavit that he “specifically
was assured by the title company that the reservation” was included in the deed,
the trial court sustained Cosgrove’s hearsay and best-evidence rule objections to
this statement. There was also no evidence addressing whether the Cades had
ever seen the deed at any other time after closing, and if they had, why they
believed it did not convey the mineral rights. Because we hold that the Cades
have not established their right to judgment as matter of law on their claim, we
overrule this part of the Cades’ second issue.
37
2.2. The Cades’ Breach of Contract Claim
The Cades also argued that they established as a matter of law that
Cosgrove breached the “Acceptance of Title and Closing Agreements” and that
they are entitled to specific performance requiring Cosgrove to execute a
correction deed. Correction deeds have been used to change the conveyance of
the original deed. 111 Recently, however, the Texas Supreme Court has clarified
that the proper use of a correction deed is narrow in scope. 112 A correction deed
may be used only to correct facial imperfections, such as a defective description
of the grantor’s capacity. 113 To change the deed to eliminate the conveyance of
the mineral estate is more than a facial imperfection. 114 As such, the Cades
could not use a correction deed for the purpose they intended, and they therefore
were not entitled to specific performance. If what the Cades actually sought was
111
See, e.g., CenterPoint Energy Houston Elec., L.L.P. v. Old TJC Co., 177
S.W.3d 425, 433 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (holding that
the correction deed conveyed the grantor’s reversionary interest that had been
set out in the original deed); Rogers v. Carter, 385 S.W.2d 563, 566 (Tex. Civ.
App.—San Antonio 1964, writ ref’d n.r.e.) (reciting as background facts that 200
acres had been inadvertently omitted from a deed but that those acres had been
subsequently conveyed by correction deeds).
112
Myrad Props., 300 S.W.3d at 750.
113
Id.
114
See, e.g., Acker v. Guinn, 464 S.W.2d 348, 352 (Tex. 1971) (noting that
a reservation of mineral rights creates a distinct, separate estate that is dominant
to the surface estate).
38
not a correction of the 2006 deed but for Cosgrove to execute a new instrument
conveying the mineral back to them, their pleadings do not make that clear.
Cosgrove did not raise as a ground for summary judgment on this claim
that the Cades were not entitled to the correction deed that they sought as a
matter of law, and, accordingly, the trial court could not have granted summary
judgment for Cosgrove on the breach of contract claim on that ground. 115 But
because the Cades are not entitled to the relief that they seek on their breach of
contract claim, the trial court did not err by denying their motion for summary
judgment seeking specific performance. We overrule the remainder of the
Cades’ second issue.
3. Cosgrove’s Appeal
In her sole issue on appeal, Cosgrove argues that the trial court erred by
holding that it would be inequitable and unjust to award attorney’s fees based on
the facts of this lawsuit. Because we have held that the trial court erred by
granting summary judgment for Cosgrove, we overrule this issue as moot.
Conclusion
Having sustained the Cades’ first issue and having overruled the Cades’
second issue and Cosgrove’s sole issue, we reverse the trial court’s summary
judgment and remand this case for further proceedings.
115
See McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 339
(Tex. 1993) (stating that a summary judgment motion “must stand or fall on the
grounds expressly presented in the motion”).
39
/s/ Lee Ann Dauphinot
LEE ANN DAUPHINOT
JUSTICE
PANEL: DAUPHINOT, WALKER, and GABRIEL, JJ.
WALKER and GABRIEL, JJ., concur without opinion.
DELIVERED: April 3, 2014
40