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Jarzombek v. Ramsey held that although a conveyance in a deed differed from that in a real estate contract, the discovery rule could not toll the statute of limitations for a deed reformation claim. The Jarzombeks owned the surface estate to two tracts. They owned a 1/16 royalty interest in Tract 1 and the entire mineral interest in Tract 2. In 2006, the Jarzombeks and Ramsey entered into a contract whereby the Jarzombeks agreed to convey the surface estate of the two tracts and 1/2 of the mineral and royalty interest. In the deed, however, the Jarzombeks only reserved a 1/32 royalty interest, “being one-half of the interest owned by the Grantor.” In 2013, the Jarzombeks sued Ramsey, alleging that the deed contained an error and requested the deed to be reformed. Ramsey filed a motion for summary judgment, arguing that the claim was barred by the statute of limitations. The Jarzombeks responded, asserting the discovery rule tolled the limitations period. The trial court granted summary judgment for Ramsey, and the Jarzombeks appealed.

The Court of Appeals examined applicable caselaw to determine whether the deed reformation claim was barred by the statute of limitations. The Jarzombeks argued the Texas Supreme Court’s ruling in McClung v. Lawrence governs here. In McClung, the deed stated that the grantors reserved 1/4 of the minerals, and “upon the leasing of said land the interest of the said grantors their heirs and assigns shall be and become 1/32 (one thirty-second) royalty interest under such leases it being the intention hereby to reserve and retain in said grantors a non-participating 1/32 royalty interest . . . .” The McClungs argued the deed should be reformed to clarify that the 1/32 reservation was in addition to the 1/4 reservation. Lawrence asserted the McClung’s claim was barred by limitations. The Court held the discovery rule applied and cited the presiding rule that when parties may be mutually mistaken about the legal effect of a deed on its face, equity will grant relief. The statute of limitations will toll until the mistake is, or with reasonable diligence should be, discovered.

In the present case, instead of McClung v. Lawrence, Ramsey argued that Cosgrove v. Cade governs. In Cosgrove, the parties entered into a contract whereby the Cades would retain all mineral rights. However, in the deed, the Cades conveyed all land in fee simple, including the mineral rights. The Texas Supreme Court held that the deed was unambiguous. “At execution, the grantor is charged with immediate knowledge of an unambiguous deed’s material terms.” As such, the Court ruled that the limitations period began at execution of the deed.

To aid its analysis, the Court of Appeals in this case cited two additional appellate cases which followed the ruling in Cosgrove. In the first, Webb v. Martinez, Webb owned 75% of the mineral estate, and the parties agreed that Webb would retain its entire mineral interest. However, in the deed, Webb reserved 75% of the minerals “presently owned by [Webb].” Webb sought a reformation of the deed because Webb should have instead reserved 100% of its 75% mineral interest. The court held the deed to be unambiguous and the discovery rule inapplicable. In the second appellate case, Whitfield v. Ondrej, Ondrej leased its land and gave the Whitfields the option to purchase its property save Ondrej’s royalty interest in a specific lease.  Ondrej thereafter executed a deed, reserving all minerals and royalties under existing leases. The Whitfields sought a reformation whereby Ondrej would be entitled to the royalties under only the one specific lease. The court also held the deed to be unambiguous and the discovery rule inapplicable.

Here, the court held that the facts in this case resembled those in the Cosgrove line of cases more so than those in McClung. The deed unambiguously reserved a 1/32 royalty interest. Attempting to distinguish the facts, the Jarzombeks argued that the deed in Cosgrove omitted a mineral reservation altogether while the deed here includes a reservation that was erroneous. The court cited Webb and Whitfield as cases which involved erroneous reservations yet followed the Cosgrove ruling. The Jarzombeks also contended Cosgrove was distinguishable because unlike Cosgrove, the deed here was correct as to one tract but erroneous as to another. The court wasn’t persuaded, reasoning that this fact should have made the mistake in the deed even more conspicuous. Lastly, the Jarzombeks argued the difference between minerals and royalties in the deed is not obvious to a lay person. The court however held that the contract evidenced awareness of the distinction. Thus, the court ruled the deed to be unambiguous and the discovery rule inapplicable.

Significance

The court’s ruling that the discovery rule is inapplicable to toll the statute of limitations as to unambiguous deeds follows legal precedent established in McClung and Cosgrove. The ruling is a reminder for grantors to carefully draft conveyance and reservation language in conveyances and for grantees to carefully read over such provisions to ensure their intent is adequately reflected in the instrument.


Author

Jessica M. Lilierose

Table of Sources

Jarzombek v. Ramsey, 534 S.W.3d 534 (Tex. App.—San Antonio 2017, pet. denied).

McClung v. Lawrence, 430 S.W.2d 179 (Tex. 1968).

Cosgrove v. Cade, 468 S.W.3d 32 (Tex. 2015).

Webb v. Martinez, No. 04-16-00042-CV, 2016 Tex. App. LEXIS 13190 (Tex. App.—San Antonio Dec. 14, 2016, no pet.) (mem. op.).

Whitfield v. Ondrei, No. 04-15-00052-CV, 2016 Tex. App. LEXIS 13491 (Tex. App.—San Antonio Dec. 21, 2016, no pet.) (mem. op.)

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McCarn & Weir, P.C. is comprised of attorneys and professional staff highly experienced in transactions and litigation involving the Energy, Real Estate, Corporate, Banking and Finance industries. Our firm has multiple attorneys Board Certified in Oil, Gas and Mineral Law by the Texas Board of Legal Specialization, along with attorneys licensed in Texas, Oklahoma, New Mexico, North Dakota, and California. Our goal is to provide high quality and cost-effective legal services, while maintaining the flexibility to adapt to the ever-changing needs of the industries we represent.


 

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