Deed Reformation

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.

Statute of Frauds!

In Texas a Statute of Frauds tells us that most contracts must be in writing. Actually in Texas real estate law we have two Statutes of Frauds. The ‘generic’ one is in the Business & Commerce Code. The one that is unique to real estate is in the Property Code.

But of course everyone knows this. Well not every one . . .

In January 2005 Randall May and Bill Buck (and others) signed a letter agreement regarding mineral rights in Leon County, Texas. Exhibit A was attached which provided a comprehensive description of four parcels of land, comprising 563 acres.

The letter agreement, however, also said that Buck would assign to May “. . . all the mineral rights and a 100-acre spacing centered around the David Morris Gas Unit # 1 in Leon County, Texas.”

Buck did not assign the mineral rights to May, so May filed a lawsuit. Buck defended based on a failure to satisfy the statute of frauds, meaning the letter agreement was unenforceable because the 100-acre parcel was not defined in the letter or in an attachment.

It appears that the issue at trial was not related to the location of David Morris Gas Unit # 1, but rather the boundaries of the 100-acre parcel. Predictably, one expert testified that he could not determine the location of the 100 acres. Now here’s a big surprise. The other expert said he could determine with reasonable certainty the shape and location of the 100 acres. I know you were shocked to read that.

Then the experts argued that the parcel was in the shape of “rectangular halo,” “donut” or “picture frame,” while others were of the belief that since the well bore was at the center, the spacing must resemble a circle, square or oblong.

You can’t make this stuff up.

The trial court ruled for Bill Buck and determined that the letter agreement failed. Because it did not satisfy the Texas statute of frauds.

Randall May appealed.

Texas law is about as clear as mud on this point. Basically, if enough data appears in the description that a person who is familiar with the area can find it, it is sufficient.

The Texas Court of Appeals concluded the description failed to meet the statute. And that made the letter agreement unenforceable. The Judgment of the trial court was affirmed.

Bill Buck wins. Again. Randall May lost. Again.

See May v. Buck; No. 05-09-01501-CV; Texas 5^th Court of Appeals; July 11, 2012.

Lessons learned:

1.      There are two Statutes of Frauds that relate to real property in Texas. Not just one.

2.      References in an agreement or lease or contract to attached exhibits work fine. Sometimes even drawings are sufficient. But simply stating a “100-acre space” or similar, without anything more, means the deal may fail if challenged.

3.      If the deal is challenged, and fails, bad things happen. Sellers, buyers, landlords, tenants, lenders and others are not happy. Unhappy people tend to sue those they think are responsible for their sense of unhappiness. Don’t be on the receiving end of unhappiness. Don’t be that person.

Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.