Barbara D. Cosgrove, Individually and as the Trustee of the Charles and Barbara Cosgrove Family Revocable Living Trust v. Michael Cade and Billie Cade ( 2015 )

IN THE SUPREME COURT OF TEXAS
════════════
NO. 14-0346
════════════
BARBARA D. COSGROVE, INDIVIDUALLY AND AS THE TRUSTEE OF THE CHARLES AND
BARBARA COSGROVE FAMILY REVOCABLE LIVING TRUST, PETITIONER
v.
MICHAEL CADE AND BILLIE CADE, RESPONDENTS
══════════════════════════════════════════
ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE SECOND DISTRICT OF TEXAS
══════════════════════════════════════════
JUSTICE BOYD, joined by JUSTICE JOHNSON, JUSTICE GUZMAN, and JUSTICE DEVINE,
dissenting in part.
“This deed-reformation dispute . . . .” Ante at ___.
These first four words of the Court’s opinion foretell and ensure its erroneous result. This
case does involve a deed-reformation dispute, and I agree with the Court’s holdings as to that
dispute: because the law charges the Cades with knowledge of the deed they signed, the discovery
rule does not apply and the statute of limitations bars the Cades’ equitable claim to reform the
deed. But as the Court curtly acknowledges at the close of its opinion, this case involves other
claims, including a claim for breach of a separate contractual agreement the parties signed at
closing. I do not agree that the statute of limitations bars the Cades’ claim for breach of the separate
closing agreement, because that claim accrued only two months before the Cades filed this suit.
As to that part of the Court’s judgment, I respectfully dissent.
I.
Background
In September 2006, the parties entered into a real estate sales contract in which they agreed
that the Cades would sell their home and two-acre lot to the Cosgroves1 but retain the mineral
interests, which they had previously leased to an oil company. At the closing the following month,
the Cades signed and delivered a deed that failed to reserve the mineral interests, contrary to the
terms of the sales agreement. Ms. Cosgrove has never disputed that this was a mistake. At the same
closing, however, the parties also signed a separate closing agreement in which they mutually
promised to “comply with all provisions of the [sales] contract” and 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 [sales] contract.”
During the four years following the closing, the lease operator continued to send shut-in
royalties and notices to the Cades, as if they still owned the mineral interests. The evidence
conclusively establishes, and Ms. Cosgrove does not dispute, that neither the Cades nor the lease
operator had actual knowledge that the deed had mistakenly failed to reserve the mineral interests.
It is not clear when Ms. Cosgrove discovered the mistake, but within weeks after the four-year
anniversary of the closing, she contacted the operator, asserted ownership over the minerals, and
demanded that the operator pay all royalties to her. In December 2010, days after the operator
1
Although the Cosgroves purchased the property through their family revocable living trust, I refer to them
personally, rather than to the trust, for clarity’s sake. I refer individually to Ms. Cosgrove when addressing post-closing
events because Mr. Cosgrove died after the closing and before the Cades filed this suit.
2
informed the Cades of Ms. Cosgrove’s demand, the Cades asked Ms. Cosgrove to fulfill the
promises she made in the closing agreement, but she refused. Two months later, in February 2011,
the Cades filed this suit, asserting claims for declaratory judgment (which the Court construes as
“in effect a suit to reform the deed,” ante at ___), tortious interference, statutory theft, and breach
of the closing agreement.
The trial court granted Ms. Cosgrove’s motion for summary judgment and denied the
Cades’ cross-motion, finding that the statute of limitations barred all of the Cades’ claims. The
court of appeals unanimously reversed and remanded. 430 S.W.3d 488. In that court’s only opinion
accompanying its judgment,2 Justice Dauphinot concluded that fact issues precluded summary
judgment for either party. Addressing the Cades’ breach-of-contract claim, Justice Dauphinot
explained that “[t]here 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.” Id. at 506–07. She concluded that Ms. Cosgrove’s alleged
breach of the closing agreement occurred when she refused the Cades’ request to correct the
mistaken deed, two months before they filed this suit, and the claim “was therefore brought within
the limitations period.” Id. at 507. Justice Dauphinot thus concluded that Ms. Cosgrove was not
entitled to summary judgment on the contract claim. But she concluded that the Cades were not
entitled to summary judgment on that claim either, because a “correction deed may be used only
to correct facial imperfections,” and the omission of a reservation of mineral interest is more than
2
Justices Walker and Gabriel concurred “without opinion.” 430 S.W.3d at 508.
3
a facial imperfection. Id. at 507–08 (citing Myrad Props., Inc. v. LaSalle Bank Nat’l Ass’n, 300
S.W.3d 746, 750 (Tex. 2009)).3
II.
The Equitable Deed-Reformation Claim
The Court holds today that limitations bars the Cades’ deed-reformation claim, and I agree.
Although the parties agreed in their sales contract that the Cades would retain the mineral interests,
they effectuated that agreement by approving and signing a deed that did not retain those interests.
As we have long recognized, “[w]hen a deed is delivered and accepted as performance of a contract
to convey, the contract is merged in the deed. Though the terms of the deed may vary from those
contained in the contract, still the deed must be looked to alone to determine the rights of the
parties.” Alvarado v. Bolton, 749 S.W.2d 47, 48 (Tex. 1988) (quoting Baker v. Baker, 207 S.W.2d
244, 249 (Tex. Civ. App.—San Antonio 1947, writ ref’d n.r.e.)). Under the merger doctrine, the
Cades conveyed the mineral interests to the Cosgroves, and they cannot rely on the terms of the
sales contract to undo that conveyance.
They can rely, however, on principles of equity. “Despite the merger doctrine, prior
agreements are not merged into a realty deed [that] is signed due to fraud, accident, or mistake.”
Geodyne Energy Income Prod. P’ship I-E v. Newton Corp., 161 S.W.3d 482, 487 (Tex. 2005). In
equity, Texas law would allow the Cades to sue to reform the deed based on mutual mistake, but
they must bring that claim within the four-year statute of limitations. For the reasons the Court
3
The Cades do not contest Justice Dauphinot’s conclusion that a correction deed is unavailable as a remedy
in these circumstances, so we need not address that issue. Justice Dauphinot did not, however, affirm the summary
judgment in Ms. Cosgrove’s favor on that ground, but instead suggested that the Cades may be entitled on remand to
a different form of relief, such as a judgment requiring Ms. Cosgrove “to execute a new instrument conveying the
mineral back to them.” 430 S.W.3d at 508.
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explains, I agree that the law charges the Cades with knowledge of the deed’s contents as of the
date they signed it, so they cannot rely on the discovery rule to toll the statute of limitations, which
expired before they filed suit to reform the deed in February 2011. See Nat’l Prop. Holdings, L.P.
v. Westergren, 453 S.W.3d 419, 425 (Tex. 2015) (per curiam) (holding that “the law presumes that
[a] party knows and accepts” the terms of a contract the party signs, and “it is not the courts’ role
‘to protect parties from their own agreements’”) (quoting El Paso Field Servs., L.P. v. MasTec N.
Am., Inc., 389 S.W.3d 802, 810–11 (Tex. 2012)). As with laches, the “fundamental premise” of
limitations is simple: “If you snooze, you lose.” Am. Int’l Grp., Inc. v. Am. Int’l Bank, 926 F.2d
829, 835 (9th Cir. 1991) (Kozinski, J., dissenting).
III.
The Breach-of-Contract Claim
Another premise, however, is equally fundamental here: “what’s good for the goose is good
for the gander.” In re Allcat Claims Serv., L.P., 356 S.W.3d 455, 480 (Tex. 2011) (Willett, J.,
concurring in part and dissenting in part). Just as the law must charge the Cades with knowledge
of the deed’s contents and hold them to it, the law must charge Ms. Cosgrove with knowledge of
the closing agreement’s contents and hold her to the promise she made to correct any errors or
omissions in the deed. The Court, however, concludes that the four-year statute of limitations bars
the Cades’ separate claim for breach of that promise. Ante at __. I read the Court’s opinion to assert
four reasons for this conclusion: (A) the Cades have no “superior right” to the mineral interests;
(B) the claim accrued when the Cades signed the deed at closing; (C) the Cades waited too long to
ask Ms. Cosgrove to correct the error; and (D) in light of “the need for stability and certainty”
regarding real property titles, the law cannot permit the Cades to “circumvent” limitations against
the Cades’ equity claim by asserting a breach-of-contract claim. I disagree with all four reasons.
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A. “Superior right” to the Mineral Interests
The Court begins its very brief discussion of the Cades’ “remaining claims” with the
conclusory and unsupported assertion that these claims “would be available only if [the Cades]
could reform the deed and prove superior right, which they cannot.” Ante at ___. To the extent the
Court refers here to the Cades’ claims for tortious interference and statutory theft, I agree that those
claims must fail. A claim for tortious interference requires “an existing contract subject to
interference,” Prudential Ins. Co. of Am. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 77 (Tex. 2000),
and a claim under the Texas Theft Liability Act arises only if the defendant unlawfully appropriates
property “with intent to deprive the owner” or “another person [who] has the right of exclusive
possession of the property,” TEX. CIV. PRAC. & REM. CODE § 134.003 (creating civil claim for
“theft”); TEX. PENAL CODE §§ 31.03, 31.10 (defining “theft”). The Cades could prevail on these
claims only if they “could prove superior right [to the mineral interests], which they cannot,” ante
at ___, because Ms. Cosgrove legally owned the mineral interests when she asserted her right to
receive royalties.
The lack of a superior right to the mineral interests, however, has no effect on the Cades’
claim for breach of the closing agreement. The fact that Ms. Cosgrove “owns fee simple title, and
the opportunity for an equitable remedy, expired with limitations,” ante at ___, does not undermine
the Cades’ breach-of-contract claim—it is the very basis for the claim. It is because the deed
erroneously conveyed the mineral interests to the Cosgroves, contrary to the terms of the sales
contract, that Ms. Cosgrove had an obligation under the closing agreement to “execute any and all
documents needed or necessary to” correct that error. And it is because Ms. Cosgrove refused, in
December 2010, to comply with that obligation that the Cades have a breach-of-contract claim
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against her. The Court sets up a catch-22: the Cades cannot enforce Ms. Cosgrove’s promise to
correct an error in the deed unless they first prove that there is no error in the deed. And to the
extent the Cades sought “an equitable remedy” on their breach-of-contract claim, the Court’s
assertion that their opportunity for that remedy “expired with limitations” confuses the deed-
reformation claim with the breach-of-contract claim. Whether the Cades may be entitled to
equitable relief or only breach-of-contract damages or neither is irrelevant to the sole basis on
which Ms. Cosgrove sought summary judgment: the statute of limitations.
B. Accrual of the Breach-of-Contract Claim
The Court concedes that “[a] claim for breach of contract accrues when the contract is
breached.” Ante at ___ (citing Stine v. Stewart, 80 S.W.3d 586, 592 (Tex. 2002)). It then proceeds
to completely ignore that truth and never once addresses the question of when Ms. Cosgrove
breached the closing agreement. Instead, in the very next sentence, the Court concludes that “[t]he
Cades’s breach of contract claim accrued when the deed was executed,” without making any effort
to explain how the execution of the deed could constitute or cause a breach of the closing
agreement. Id. I respectfully disagree.
“Causes of action accrue and statutes of limitations begin to run when facts come into
existence that authorize a claimant to seek a judicial remedy.” Exxon Corp. v. Emerald Oil & Gas
Co., L.C., 348 S.W.3d 194, 202 (Tex. 2011). Through their breach-of-contract claim, the Cades
seek a judicial remedy not for the mistakenly executed deed but for Ms. Cosgrove’s breach of her
promise to execute documents needed to correct errors and effectuate the provisions of the sales
agreement, particularly the provision in which the parties agreed the Cades would reserve the
mineral interests. “[A] breach of contract claim accrues when the contract is breached,” Stine, 80
7
S.W.3d at 592, and “‘[b]reach’ of a contract occurs when a party fails to perform an act that it has
contractually promised to perform.” Greene v. Farmers Ins. Exch., 446 S.W.3d 761, 765 (Tex.
2014). Here, Ms. Cosgrove did not—indeed, she could not—fail to perform her promise to correct
the erroneous deed until after the Cades requested that she do so, just months before the Cades
filed this suit. See Ingersoll-Rand Co. v. Valero Energy Corp., 997 S.W.2d 203, 211 (Tex. 1999)
(holding that party “did not breach its agreement to indemnify [contractor] until [contractor] made
a demand for indemnity, and [party] refused to perform,” and “[i]t was only at this time that the
statute of limitations began to run”); see also Nat’l Union Fire Ins. Co. of Pittsburgh, PA v.
Crocker, 246 S.W.3d 603, 609 (Tex. 2008) (concluding insurer had no duty to defend until insured
notified insurer that he had been served with process and expected insurer to answer on his behalf).
I agree with the Cades that Ms. Cosgrove’s breach of contract occurred when she refused
the Cades’ request that she correct the errors and omissions as she had promised. The Court
disagrees “because the Cades are charged with notice of the contents of their deed upon execution.”
Ante at ___. But the Court makes no effort to explain how the Cades’ notice of the deed’s contents
equates to a breach of contract by Ms. Cosgrove. I agree that the law charges the Cades with
knowledge of the deed’s contents as of the date they signed it, but neither the deed nor its contents
breached Ms. Cosgrove’s separate promise to correct any omissions in the deed. That breach
occurred when Ms. Cosgrove refused the Cades’ request that she correct the errors, not when the
Cades signed the deed. A breach-of-contract claim accrues when the contract is breached, Greene,
446 S.W.3d at 765, and the Cades’ execution of the mistaken deed could not and did not cause or
constitute Ms. Cosgrove’s breach of the closing agreement.
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The Court asserts that, because the Cades are charged with knowledge of the deed’s
contents, they had only two choices: “They could have declined to close the deal until the deed
was corrected. Or they could have closed, demanded immediate correction, and then treated any
refusal as a breach of contract.” Ante at ___. Because they did neither, and instead “demanded . . .
correction” four years later, the Court concludes that, “under either a contract theory or a deed-
reformation theory, . . . the limitations period began to run at the execution of the deed.” Id. As I
discuss in the following section, the question of how quickly the Cades should have “demanded . . .
correction” may raise a legitimate issue, but it is not an issue of limitations, nor one Ms. Cosgrove
raises here. Ms. Cosgrove sought summary judgment on limitations, and as to that issue the
controlling question is: “Where’s the breach?” The Court makes no effort to address that question.
I thus disagree with the Court’s assertion that, “[b]y the time the Cades asked Cosgrove to
reform the deed, limitations had expired, and the Cades could claim no right to Cosgrove’s
property.” Ante at ___. I agree that “limitations had expired” by then on the Cades’ equitable
deed-reformation claim, but it had not expired on their contract claim because that claim had not
even accrued. It accrued later, when Ms. Cosgrove breached the contract by refusing to perform
as she had promised.
C. Delayed Demand for Correction
In light of the Court’s failure to even consider when Ms. Cosgrove breached her promise
and caused the Cades’ breach-of-contract claim to accrue, it seems clear that what the Court is
actually holding is that the Cades waited too long to request that Ms. Cosgrove correct the mistaken
deed, not that they waited too long to sue her for refusing that request. The Court confirms this
when it states that “[t]he question before us is how long the Cades may sit on their putative
9
contractual right to request material changes to an unambiguous deed on file in the courthouse.”
Ante at ___ (emphasis added); see also ante at ___ (asserting that “[a]llowing [the Cades] to
slumber on this knowledge, for years or decades or generations, before seeking a corrected deed
is not a luxury we have recognized”) (emphasis added). By holding that limitations bars the Cades’
breach-of-contract claim, however, the Court is confusing a contractual deadline (by which the
Cades had to request performance) with a statutory limitations deadline (by which the Cades had
to file a claim for Ms. Cosgrove’s failure to perform in response to the Cades’ request).
Perhaps the Cades did wait “too long” before asking Ms. Cosgrove to fulfill her promise
to correct the deed. Or perhaps not. The parties have not argued that issue and the lower courts did
not address it. The closing agreement does not provide a deadline by which the Cades had to ask
Ms. Cosgrove to correct the deed’s errors and omissions. The parties certainly could have agreed
to such a deadline, but they did not. That does not necessarily mean that the Cades’ right to request
Ms. Cosgrove’s performance was unlimited, or that they possessed “an open-ended breach of
contract claim,” as the Court bemoans. Ante at ___. “[I]t is quite elementary that where the contract
is silent as to the time of performance, the law implies that a reasonable time is meant.” Tex. Farm
Bureau Cotton Ass’n v. Stovall, 253 S.W. 1101, 1106 (Tex. 1923); see also Moore v. Dilworth,
179 S.W.2d 940, 942 (Tex. 1944) (“Generally, where no time of performance is stated in a contract,
the law will imply a reasonable time.”). “What is a reasonable time depends undoubtedly upon the
nature and character of the thing to be done, the circumstances of the particular case, and the
difficulties surrounding and attending its accomplishment.” Hart v. Bullion, 48 Tex. 278, 289
(1877).
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Here, the Cades requested Ms. Cosgrove’s performance almost immediately after they
actually discovered the mistake in the deed, but the law charges them with knowledge of the deed’s
mistake as of the date they signed it, more than four years earlier. Perhaps the Court might hold
that the contract includes an implied reasonable deadline, and perhaps it might hold that the Cades’
four-year delay did not meet that implied deadline. That seems to be what the Court is in fact
holding, but it is not what Ms. Cosgrove has argued, not what the trial court or court of appeals
addressed, and not even what the Court says it is holding. Instead, the Court says it is holding that
the Cades failed to meet a statutory limitations deadline because their breach-of-contract claim
accrued when they signed the deed, even though Ms. Cosgrove did not breach the contract until
more than four years later. The question of whether the Cades met an implied contractual deadline
to ask for Ms. Cosgrove’s performance is different than whether they met a statutory limitations
deadline to sue for her refusal to perform as asked. If this Court desires to address the implied
contractual deadline, we should at least allow the parties to raise and argue it first. And more
importantly, we should actually address it, rather than confuse it with the limitations issue and
thereby provide the wrong answer to the question the parties actually raise.
D. Equity, “Stability,” and “Certainty”
Finally, the Court’s primary reason for holding that limitations bars the Cades’ contract
claim appears to be its view that “[t]he Cades cannot circumvent the inapplicability of the
discovery rule (and indefinitely toll limitations until the Cades demand a correction deed) simply
by recasting their deed-reformation claim as a breach-of-contract claim.” Ante at ___. “To hold
otherwise,” the Court asserts, “would circumvent the statute of limitations by allowing an open-
ended breach of contract claim” and
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would defy all that we hold today regarding (1) the inapplicability of the discovery
rule to suits involving obvious omissions from the face of a deed, (2) the duty on
the mineral interest owner to exercise diligence with regard to the contents of his
own mineral interest, (3) the need for stability and certainty in deed records, and
(4) our construction of section 13.002 as applying to the contents of deeds.
Ante at ___. In light of these concerns, the Court chooses to disregard our well-established rules
that govern the application of limitations to a claim for breach-of-contract. Although I share some
of the Court’s concerns, I do not agree that they justify the Court’s holding here, for at least three
reasons: (1) the closing agreement creates independent obligations unaffected by the deed; (2)
equitable principles and duties do not trump the parties’ contractual agreements; and (3) the Cades
can obtain relief without undermining the stability and certainty of the deed records.
1. Independent Obligations
To justify its holding, the Court variously characterizes the closing agreement as merely a
“form prepared by [a] title company,” ante at ___, as “not just any contract, but one concerning a
deed,” ante at ___, and as “part of a single, routine real estate closing,” ante at ___. According to
the Court, the fact that the Cades rely on such an agreement does not “change[] the limitations
period, [because] the statute of limitations is four years for equitable reformation and four years
for breach of contract.” Ante at ___. There are at least three obvious and fundamental problems
with this analysis.
First, the fact that the closing agreement was a “form prepared by [a] title company” is
completely irrelevant to issues in this case. Perhaps that fact would matter if Ms. Cosgrove were
arguing over the meaning of the agreement’s terms. See, e.g., Epps v. Fowler, 351 S.W.3d 862,
866 (Tex. 2011) (looking to how other courts construe a “legal-usage term within a form
contract”); Progressive Cnty. Mut. Ins. Co. v. Sink, 107 S.W.3d 547, 553 (Tex. 2003) (explaining
12
that, in construing a standard-form insurance policy, we make “an effort to determine the ordinary
lay meaning of the words to the general public”); Ins. Co. of N. Am. v. Cash, 475 S.W.2d 912, 915
(Tex. 1971) (“Printed form contracts are to be construed most strongly against the insurer.”). It
might also matter if she were contending that the agreement was unconscionable or otherwise
unenforceable. See, e.g., Cate v. Dover Corp., 790 S.W.2d 559, 562 (Tex. 1990) (addressing
whether inconspicuous disclaimer of implied warranty in form contract was unconscionable). But
Ms. Cosgrove has raised no such arguments, nor does the Court purport to base its holding on
them. Form agreement or not, Ms. Cosgrove signed the closing agreement, is charged with
knowledge of its contents, and is bound by its provisions. And contrary to the Court’s suggestion,
a claim for its breach accrues when the breach occurs, just as with any other contract.
Second, the Cades are not trying to “change[] the limitations period” applicable to their
breach-of-contract claim. Ante at ___. They agree that their equitable deed-reformation claim and
their breach-of-contract claim are both subject to a four-year limitations period. The issue is not
the length of the applicable limitations period but the date on which that period began. The Court
is at best incorrect to assert that we “simply disagree” on “whether relying on a . . . closing
document that was part of a single, real estate closing changes the limitations period.” Ante at ___.
We don’t disagree on that at all. What we disagree on is when that limitations period accrued, and
the Court simply refuses to address that question.
And third, the fact that the closing agreement is a contract “concerning a deed” and was
“part of a single, routine real estate closing” does not make it unenforceable or subject a claim for
its enforcement to different limitations rules. Texas law has never recognized such a concerning-
a-deed doctrine or part-of-a-sale doctrine. The closest I can find (and the only similar doctrine the
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parties address) is the merger doctrine, which the Court acknowledges does not apply to the closing
agreement at issue here. Ante at ___ (“We do not rely on the merger doctrine.”).
The merger doctrine is worth considering here, however, because the reasons for its
(conceded) inapplicability illustrate the Court’s error in treating the closing agreement differently
just because it is a contract “concerning a deed” and was “part of” a real estate sale. As I briefly
mentioned above, “[w]hen a deed is delivered and accepted as performance of a contract to convey,
the contract is merged in the deed.” Alvarado, 749 S.W.2d at 48. Under this merger doctrine, if
“the terms of the deed . . . vary from those contained in the contract, . . . the deed must be looked
to alone to determine the rights of the parties.” Id. Thus, for example, “[t]he merger doctrine
prevents the admission of any warranties made in the prior earnest money contracts which are
contradicted in the deed.” Id. “[I]n the absence of fraud, accident or mistake, all prior agreements
entered into between the parties are considered merged in the deed.” Commercial Bank,
Unincorporated, of Mason, Tex. v. Satterwhite, 413 S.W.2d 905, 909 (Tex. 1967) (citing Barker
v. Coastal Builders, Inc., 271 S.W.2d 798 (Tex. 1954)).
The merger doctrine applies, however, only to the parties’ prior agreement regarding the
conveyance of an interest in the land, and not to “other distinct and unperformed provisions” of
the parties’ contract. Harris v. Rowe, 593 S.W.2d 303, 307 (Tex. 1979). “A contract of sale which
provides for the performance of acts other than the conveyance remains in full force and effect as
to such other acts.” Id. (citing Sanchez v. Dickinson, 551 S.W.2d 481 (Tex. Civ. App.—San
Antonio 1977, no writ)). When the parties have agreed to rights and obligations that are “collateral
to and independent of the conveyance, such as completion of construction or escrow agreements
pending construction,” those rights “survive[] a deed that is silent in respect to the construction or
14
escrow agreement.” Id. We thus held in Harris that the parties’ execution of an escrow agreement
“contemporaneously with” their execution of a deed that “pertained only to the conveyance” itself
“plainly shows” that the parties “did not intend to merge the conditions of the agreement into the
deed.” Id.
Here, contemporaneously with the parties’ execution of the deed (and after their execution
of the sales contract), the parties executed a closing agreement, mutually promising 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 [sales] contract.” This
agreement was distinct from the sales agreement and collateral to the conveyance itself. It was not,
and could not be, performed by the parties’ execution of the deed, because it obligated the parties
to correct any errors or omissions, including those within the deed itself. As such, it was not merged
into the deed, and instead stands alone as a separate and independent agreement. See, e.g., Sanchez,
551 S.W.2d at 486 (holding that promise to confirm right of first refusal in deed was “distinct and
unperformed” and thus did not merge into deed and “remains in full force and effect as to such
other act until full performance thereof”); Pleasant Grove Builders, Inc. v. Phillips, 355 S.W.2d
818, 823 (Tex. Civ. App.—Dallas 1962, writ refused n.r.e.) (holding that sellers’ agreement to
furnish title policy was “a separate agreement, not superseded by the deed and properly not
included in the deed”).4
4
The Second Restatement of Contracts rejects “the discredited concept of ‘merger by deed’” by which “the
contract duties of a seller of land are discharged by the buyer’s mere acceptance of a non-conforming deed of
conveyance.” RESTATEMENT (SECOND) OF CONTRACTS § 275 cmt. a (1981). The First Restatement, which recognized
the merger doctrine, also confirmed that it applies only to the conveyance agreement, and not to separate agreements
related to the conveyance, providing the following illustration:
A contracts to sell Blackacre to B, and as part of the same contract, contracts to build a partition
fence between Blackacre and another tract of his land. A makes and B accepts a deed of Blackacre,
15
Because Ms. Cosgrove’s promise to correct the error and omission was not merged into
the deed, it remains as a separate and enforceable obligation. We cannot disregard that agreement
or, as the Court does here, deem it as breached prior to its breach simply because it somehow
“concern[ed] a deed” or was “part of” a real estate sale. As a separate agreement, it is
independently enforceable, and a claim for its breach accrued only when the breach occurred.
2. Equity and Contract
The Court holds that the Cades “cannot circumvent the inapplicability of the discovery
rule . . . simply by recasting their deed-reformation claim as a breach-of-contract claim.” Ante at
___. In other words, because limitations bars the Cades’ equity-based claim for deed-reformation,
limitations must also bar their contract-based claim for Ms. Cosgrove’s refusal to correct the errors.
This holding ignores the important distinction we have recognized between contractual obligations
and obligations under equitable principles. Under Texas law, the parties’ contractual agreements
control over the principles of equity. “We generally adhere to the maxim that ‘equity follows the
law,’ which requires equitable doctrines to conform to contractual . . . mandates, not the other way
around.” Fortis Benefits v. Cantu, 234 S.W.3d 642, 648 (Tex. 2007). Thus, “[w]here a valid
contract prescribes particular remedies or imposes particular obligations, equity generally must
yield unless the contract violates positive law or offends public policy.” Id. at 64849.5
in which nothing is said of the partition fence. A’s contractual duty to build the fence is not
discharged.
RESTATEMENT (FIRST) OF CONTRACTS § 413 illus. 2 (1932).
5
See also Gotham Ins. Co. v. Warren E & P, Inc., 455 S.W.3d 558, 560 (Tex. 2014) (“[B]ecause the insurance
contract addresses the insured’s conduct, we hold that the insurer cannot rely on its equity claims.”); Tex. Health Ins.
Risk Pool v. Sigmundik, 315 S.W.3d 12, 14 (Tex. 2010) (“[E]quitable doctrines conform to contractual and statutory
mandates, not vice versa.”); Tex. Ass’n of Counties Cnty. Gov’t Risk Mgmt. Pool v. Matagorda Cnty., 52 S.W.3d 128,
16
“This Court has ‘long recognized a strong public policy in favor of preserving the freedom
of contract.’” Id. at 649 (quoting Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 553 (Tex. 2001)).
A party’s contractual rights and obligations arise from the language of the contract, not from
principles of equity, and they “are not generally supplanted by court-fashioned equitable rules that
might apply, as a default gap-filler, in the absence of a valid contract.” Id. at 647. As we have
repeatedly confirmed, “parties have the right to contract as they see fit as long as their agreement
does not violate the law or public policy.” In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129
(Tex. 2004).
I cannot join the Court’s decision to disregard Ms. Cosgrove’s contractual promises simply
because the contract affords the Cades a remedy that equity does not provide. It is the very nature
of contracts to impose duties that are different from or in addition to those that already exist under
the law. Consistent with Fortis Benefits, I would enforce the closing agreement, into which Ms.
Cosgrove freely and voluntarily entered, independent of the availability or unavailability of any
equitable claims, subject only to defenses against the enforcement of that agreement. The defense
Ms. Cosgrove raised was limitations, and that defense fails because the claim did not accrue until
she breached her obligation two months before the Cades filed this suit.
3. Stability and Certainty
Finally, the Court expresses a concern that allowing the Cades to enforce their contract
would undermine the “need for stability and certainty regarding titles to real property.” Ante at
___. This case does not implicate the Court’s concern, however, because there is no evidence or
13435 (Tex. 2000) (refusing to recognize equitable right to subrogation when insurance contract did not provide such
right).
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indication that Ms. Cosgrove has conveyed the mineral interests or that any third party has
detrimentally relied on the deed that mistakenly conveyed the interest to Ms. Cosgrove. But even
if this case implicated the Court’s concern, the Cades could obtain relief from Ms. Cosgrove while
still protecting the interests of any innocent bona fide purchaser or other third party. Even if the
Cades could not obtain specific performance in the form of an order requiring Ms. Cosgrove to
execute a correction deed, which in effect would retroactively nullify the original mistaken deed,
they could seek an order requiring Ms. Cosgrove to convey the interest back to the Cades, to fulfill
her promise to execute “any and all documents necessary to comply with all provisions of the . . .
[sales] contract.” And alternatively, they could seek damages instead of specific performance. See
RESTATEMENT (FIRST) OF CONTRACTS § 363 (1932) (“If a plaintiff in good faith sues for specific
enforcement, and that relief is denied, damages or restitution may be awarded in the same
proceeding, subject to the rules applicable to those remedies.”). Contrary to the Court’s conclusion,
permitting the Cades’ breach-of-contract claim need not undermine “the need for stability and
certainty in deed records.” Ante at ___.
IV.
Conclusion
We have often confirmed that public policy requires courts to honor and enforce the terms
of private agreements:
[I]f there is one thing which more than another public policy requires it is that
[people] of full age and competent understanding shall have the utmost liberty of
contracting, and that their contracts when entered into freely and voluntarily shall
be held sacred and shall be enforced by Courts of justice. Therefore, you have this
paramount public policy to consider—that you are not lightly to interfere with this
freedom of contract.
18
Wood Motor Co. v. Nebel, 238 S.W.2d 181, 185 (Tex. 1951) (quoting Printing & Numerical
Registering Co. v. Sampson, 19 L.R.Eq. 462, 465 (1875)). Here, the Cades signed a deed in which
they mistakenly failed to reserve their mineral interests, but Ms. Cosgrove signed an agreement in
which she promised to cooperate and correct that error. The law charges the Cades with knowledge
of the deed they signed, but it also holds Ms. Cosgrove to the promise she made, and she did not
breach that promise until shortly before the Cades filed this suit. I concur in the Court’s decision
to reverse and render judgment for Ms. Cosgrove on the Cades’ equitable deed-reformation claim,
but I respectfully dissent from the judgment on their breach-of-contract claim and would affirm
the court of appeals’ judgment remanding that claim to the trial court.
_________________________________
Jeffrey S. Boyd
Justice
Opinion delivered: June 26, 2015
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