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

Tuesday, August 7th, 2018

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

Jarzombek v. Ramsey, 534 S.W.3d 534 (Tex. App.—San Antonio 2017, pet. denied), held in a deed reformation case that the discovery rule did not toll the running of the statute of limitations (“SOL”). Grantor owned the surface estate to two tracts of land and a 1/16 royalty interest in tract 1 and the entire mineral interest in tract 2. The real estate contract provided that Grantor would “keep 1/2 of the mineral and royalty interest that he currently owns” and Grantor would “convey 1/2 of the mineral and royalty interest that he owns to [Grantee] at closing.” The 2006 deed conveyed both tracts to Grantee and reserved unto Grantor an undivided one-thirty-second (1/32) royalty interest in and to all of the oil, gas and other minerals in both tracts, “being one-half of the interest owned by the Grantor. . . .” In 2013, Grantor sued Grantee for deed reformation. Grantor alleged the deed contained an error due to either mutual mistake or a unilateral mistake. Grantee asserted SOL as an affirmative defense, to which Grantor responded that the discovery rule tolled the SOL. The sole issue on appeal was whether the deed reformation claim was barred by limitations.

Grantor argued that the Texas Supreme Court’s holding in McClung v. Lawrence governed. The McClung court determined that the parties to the disputed deed may have been mutually mistaken as to the legal effect of the deed. Under such circumstances, equity may grant relief against such a mistake of law and the SOL will not start running until the mistake was, or should have been discovered.

Grantee contended that the Texas Supreme Court holding in Cosgrove v. Cade governed so that Grantor was precluded from asserting the discovery rule to toll the SOL. The Cosgrove court held “[p]arties are charged as a matter of law with the knowledge of an unambiguous deed’s material omissions from the date of its execution, and the [SOL] runs from that date,” and “[i]n cases like these which involve an unambiguous deed, the conspicuousness of the mistake shatters any argument to the contrary.”

In Jarzombek, the court held that the deed in question unambiguously reserved only a 1/32 royalty interest. The Court was unpersuaded by Grantor’s attempts to distinguish Cosgrove by arguing: (1) the deed in Cosgrove involved a complete omission of mineral reservations rather than an erroneous one; (2) this case involved two tracts of land and the conveyance was correct for one; and (3) the distinction between minerals and royalties is not obvious to an ordinary person. The court believed that the fact that the reservation was different for each tract made the mistake on the face of the deed even more conspicuous. The Court also considered the distinction between the mineral and royalty interest in the real estate contract as evidence the parties were aware of the difference in the two types of interests. Further, even if Grantor was not aware of the difference in the interests, Grantor would know that 1/2 and 1/32 are unmistakably different. The court concluded that Cosgrove controlled, and, “[a]lthough the reservation in the deed is inconsistent with the language in the real estate contract, [Grantor] ‘[was] charged as a matter of law, with actual knowledge of what the deed included.’”

The holding, that the discovery rule was not applicable to toll the SOL because the deed in question was not ambiguous, follows recently established precedence. The significance of the case is that it provides another example of language that will not toll the SOL under the discovery rule and it continues the trend of limiting the application of the discovery rule.