In a ruling that could benefit mineral owners who don’t regularly examine county deed records (to-wit, you?) the Supreme Court of Texas in Carl M. Archer Trust No. Three et al v. Tregellas held that the discovery rule delayed the running of the statute of limitations on behalf of the holder of a recorded right of first refusal to purchase mineral interests.

The trustees sued the Tregellases for buying the minerals without allowing the Trust to exercise its ROFR, contending that a contract was formed when they sued more than four years after the Tregellases’ purchase; the suit was their acceptance of the right to purchase the minerals, they said.

According to the Trellgases, the claim was barred by limitations because the suit was filed more than four years after the sale. The trustees responded that even if that were so, limitations should be delayed because they they had no obligation to search the county deed records.

The discovery rule described …

The rule defers accrual of a cause of action until the plaintiff knew or should have known of the fact giving rise to the cause of action. The injury must be inherently undiscoverable and the evidence objectively verifiable. Whether an injury is inherently undiscoverable is determined on a categorical basis, not on the facts of the individual case.

… and applied

The court held that the Trust suffered an injury when the minerals were sold, but the discovery rule delayed limitations. The Tregellases bought the mineral rights with actual or constructive knowledge of the ROFR. The mineral owner conveyed the property in breach of that right without giving the trustees notice.

The question was not whether the trustees could have discovered their injury with diligence but whether the injury was the type of injury that could be discovered through the exercise of reasonable diligence.

A purchaser of property with actual or constructive notice of a ROFR purchasers subject to that right and stands in the shoes of his grantor. The ROFR holder has the right to be offered the property at a price offered by a bona fide purchaser if and when the owner decides to sell. Only when the grantor discloses the offer does the holder have a duty to act.

Who has a duty?  

The ROFR was described as an essentially dormant option. Only when the grantor communicates its intention to sell and discloses the offer does the ROFR holder have a duty to act. Here, in light of the grantor’s duty to provide notice, the absence of the ROFR holder’s duty to act before receipt of notice, and the fact that a purchaser takes property subject to the recorded ROFR, the holder who has been given no notice of the grantor’s intent to sell or the existence of a third-party offer generally has no reason to believe that his interest may have been impaired.

How is this different from Neel and its progeny?

In HECI Exploration Company v. Neel, the lessee failed to notify royalty owners of the existence of a cause of action against an adjoining operator for depleting a common reservoir. The Supreme Court deemed that not to be an inherently undiscoverable injury. Wells visible on neighboring properties put royalty owners or inquiry that there was a potential claim, and the royalty owners could have gotten the information from the lessee if they had just asked (Are you kidding me?), and Railroad Commission records showing drilling and production were not inherently undiscoverable. The inequity in Neel was that the royalty owners lived far away and, as a real world matter, were not in a position to investigate their rights and, as with the Trust in this case, did not know they had a reason to worry until limitations had run.

It was a happy time for the trustees.