*This article is not a substitute for the advice of an attorney.*
Two recent Texas appellate court decisions illustrate the level of care required when reserving mineral rights during a property sale.
Cade v. Cosgrove
In September 2006, the Cades and Cosgroves entered into a contract by which the Cades agreed to sell property in Arlington, Texas, to the Cosgroves. At the time of the sale, the mineral rights had been leased to an oil production company. The parties’ sales contract stated clearly that the Cades were to reserve all mineral rights. The warranty deed, signed at closing in October 2006, contained no such reservation. It was not until 2010 that Mr. Cades learned there was a problem with the deed and that Chespeake had sent certain royalty forms to Mr. Cosgrove. At that time, the Cades requested that the Cosgroves sign a correction deed to state that the mineral rights had not been transferred, but the Cosgroves refused to do so.
In February 2011, the Cades filed suit seeking, among other claims, a declaratory judgment that they owned the minerals. Mr. Cosgrove argued that the doctrine of merger–which provides that generally the parties’ agreements in a sales contract are merged into the final deed and it is the terms of the deed that shall control–governed this, meaning that the minerals were transferred to the Cosgroves. The Cades pointed to an exception to this doctrine–mutual mistake–which would allow the court to reform the parties’ agreement. Mr. Cosgrove also argued that the statute of limitations had run on the claim. The Fort Worth Court of Appeal found that there were questions of fact as to both of these issues and remanded the case to be decided by a jury. [Read opinion here.]
Trahan v. Mettlen
The Trahans bought 22.61 acres of land from the Mettlens. After the transaction was complete, the Mettlens claimed that they retained ownership of the mineral interests, while the Trahans claimed that the interests were conveyed as part of the sale of the property. The parties signed a contract for the property transaction, which did not mention any reservation of mineral rights by the Mettlens. The subsequent warranty deed, however, includes a clear reservation of mineral rights by the Mettlens, and Mrs. Mettlen admits calling the title company and requesting this reservation. Mr. Trahan admits that he was at closing on April 6, 2006, when the deed was signed, but that he did not review the deed and did not learn of the reservation of mineral until September 2010.
In December 2010, more than four years after closing occurred, the Trahans filed suit seeking a judgment that they were the rightful mineral owners. The Texarkana Court of Appeals found that this suit was barred by the four-year statute of limitations on such claims and because the reservation of rights was clear and unambiguous on the face of the deed, the statute of limitations was not tolled. The court did, however, note that were the suit not time barred, reformation of the contract in favor of the Trahans may have been a proper remedy. [Read opinion here.]
Why Does This Matter?
Real estate transactions involving mineral rights are extremely complex. Remember that under Texas law, where a property is transferred without reference to the mineral rights, the conveyance includes all real property that the grantor had, including all mineral rights held by the grantor.
These cases illustrate the importance of detail when executing contracts and deeds for the sale of real estate involving mineral rights. It is critical that any mineral reservation be set forth in both the contract and deed in a clear and unambiguous language. Additionally, it is imperative that both parties review the contract and the deed to ensure that their agreement has been accurately reflected in the document. Because the deed is only signed by the seller, it is easy for a purchaser to fail to adequately review the document. Don’t make this mistake!
If such care is not taken and an issue arises later, the best-case scenario is that the parties may be able to reach a mutual agreement and simply execute a correction deed. But, if this type of mutual agreement cannot be reached, the parties may end up in years of expensive, time consuming litigation in order to solve a problem that could have easily been prevented.