SCOTX applies discovery rule to breach of right of first refusal regarding conveyance of mineral interest

Carl M. Archer Trust No. Three v. Tregellas, No. 17-0093 (Tex. Nov. 11, 2018) 

Texas Supreme Court applies discovery rule to breach of right of first refusal regarding conveyance of mineral interest, reversing intermediate court of appeal's judgment; limits holding to the particular breach at issue in the case: conveyance with no notice of the intent to sell or the existence of an offer

Carl M. Archer Trust No. Three v. Tregellas No. 17-0093 (Tex. Nov. 11, 2018)

CARL M. ARCHER TRUST NO. THREE, MARY FRANCES G. ARCHER TRUST NO. THREE, AND MARY ARCHER DIXON AND CARLA ARCHER JOHNSON, TRUSTEES v. RONALD RALPH TREGELLAS AND DONNITA TREGELLAS (Tex. Nov. 11, 2018) (appeal from Hansford County; 7th Court of Appeals District (07-14-00421-CV, 507 SW3d 423, 12-20-16)  

IN THE SUPREME COURT OF TEXAS

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No. 17-0093

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CARL M. ARCHER TRUST NO. THREE, MARY FRANCES G. ARCHER TRUST NO.

THREE, AND MARY ARCHER DIXON AND CARLA ARCHER JOHNSON, TRUSTEES,

PETITIONERS,

v.

RONALD RALPH TREGELLAS AND DONNITA TREGELLAS, RESPONDENTS

══════════════════════════════════════════

ON PETITION FOR REVIEW FROM THE

COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS

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~ consolidated for oral argument with ~

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No. 17-0094

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CARL M. ARCHER TRUST NO. THREE, MARY FRANCES G. ARCHER TRUST NO.

THREE, AND MARY ARCHER DIXON AND CARLA ARCHER JOHNSON, TRUSTEES,

PETITIONERS,

v.

RONALD RALPH TREGELLAS AND DONNITA TREGELLAS, RESPONDENTS

══════════════════════════════════════════

ON PETITION FOR REVIEW FROM THE

COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS

══════════════════════════════════════════

Argued September 13, 2018 

JUSTICE LEHRMANN delivered the opinion of the Court.

This case concerns whether the statute of limitations bars a claim for breach of a recorded

right of first refusal to purchase a mineral interest. The grantors of the right conveyed the mineral

interest to a third party without notifying the holders. More than four years later, the rightholders

learned of the conveyance and sued the third party for breach, seeking specific performance. The

trial court rendered judgment for the holders, but the court of appeals reversed, holding that the

statute of limitations bars the claim. Specifically, the court of appeals held that the rightholders’

cause of action accrued when the grantors conveyed the property without notice and that the

discovery rule does not apply to defer accrual. We agree with the court of appeals’ first conclusion

but disagree with the second. Accordingly, we reverse the court of appeals’ judgment in part and

reinstate the trial court’s judgment.

[...] 

2. Discovery Rule

The discovery rule is a “limited exception” to the general rule that a cause of action accrues

when a legal injury is incurred. BP Am. Prod. Co. v. Marshall, 342 S.W.3d 59, 66 (Tex. 2011).

When applicable, the rule defers accrual until the plaintiff knew or should have known of the facts

giving rise to the cause of action. S.V., 933 S.W.2d at 4. We apply the discovery rule when the

nature of the injury is inherently undiscoverable and the evidence of injury is objectively verifiable.

Id. at 6. These two elements attempt to strike a balance between the policy underlying statutes of

limitations (barring stale claims) and the objective of avoiding an unjust result (barring claims that

could not be brought within the limitations period). Id. at 3, 6. The parties do not dispute that the

injury here is objectively verifiable; in contention is discoverability.

An injury is inherently undiscoverable when it is “unlikely to be discovered within the

prescribed limitations period despite due diligence.” Via Net v. TIG Ins. Co., 211 S.W.3d 310,

313–14 (Tex. 2006) (quoting Wagner & Brown, Ltd. v. Horwood, 58 S.W.3d 732, 734–35 (Tex.

2001)). The determination of whether an injury is inherently undiscoverable is made on a

categorical basis rather than on the facts of the individual case. HECI Expl. Co. v. Neel, 982 

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S.W.2d 881, 886 (Tex. 1998). Here, therefore, we look not to whether Trustees in particular could

have discovered their injury with diligence, but whether Trustees’ injury was “the type of injury

that could be discovered through the exercise of reasonable diligence.” BP Am. Prod. Co., 342

S.W.3d at 66.

The court of appeals held that Trustees’ injury was not inherently undiscoverable. 507

S.W.3d at 433. It noted that a conveyance of real property, including one made in violation of a

right of first refusal, is likely to be reflected in a publicly recorded instrument and that knowledge

of the conveyance may also be gleaned from “other public sources like tax rolls and from

commercial sources like abstractors.” Id. The court thus concluded that the holder of a firstrefusal

right exercising reasonable diligence to protect its interest (as contracting parties must do)

would have discovered the conveyance. See id. And the court of appeals rejected Trustees’

argument that ROFR holders are akin to property owners who have no duty to routinely search

public records for documents impugning their title; instead, it concluded that an ROFR holder has

a mere contractual right to purchase property on the occurrence of certain events. Id. at 433–34.

We have held that the discovery rule applies in certain circumstances even though the

injury could have been gleaned from reviewing publicly available information. For example, in

Kelley v. Rinkle, we held that the rule delayed accrual of a libel action based on the submission of

a false credit report to a reporting agency. 532 S.W.2d 947, 949 (Tex. 1976). We explained that

a “person will not ordinarily have any reason to suspect that he has been defamed by the

publication of a false credit report to a credit agency until he makes application for credit to a

concern which avails itself of the information furnished by the credit agency.” Id. In turn, we

concluded that applying the general accrual-at-injury rule would enhance the potential for abuse 

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by wrongdoers and that the policy considerations weighed in favor of deferring accrual until the

person defamed learns of, or by reasonable diligence should have learned of, the existence of the

credit report. Id.

Using similar reasoning, courts have applied the discovery rule to a property owner’s

fraudulent-lien claims despite the lien’s filing in the property records. E.g., Vanderbilt Mortg. &

Fin., Inc. v. Flores, 692 F.3d 358, 369–70 (5th Cir. 2012) (applying Texas law). Such an injury is

nevertheless inherently undiscoverable where the property owner has “no reason . . . to believe

that any adverse claim has been made on his property, and no reason to be checking regularly to

see whether such a filing has been made.” Id. at 368. This is consistent with the well-settled

principle that one who “already owns the land . . . is not required to search the records every

morning in order to ascertain if something has happened that affects his interests or deprives him

of his title.” Cox v. Clay, 237 S.W.2d 798, 804 (Tex. Civ. App.—Amarillo 1950, writ ref’d n.r.e.);

cf. Leonard v. Benford Lumber Co., 216 S.W. 382, 384 (Tex. 1919) (noting that “registration of

an instrument carries notice of its contents only to those bound to search for it, among whom are

subsequent purchasers”) (emphasis added).

On the other hand, we have held that the discovery rule does not apply to royalty owners’

claims of underpayment of royalties where “[r]eadily accessible and publicly available

information” would have revealed the underpayments. Shell Oil Co. v. Ross, 356 S.W.3d 924,

929–30 (Tex. 2011); BP Am. Prod. Co., 342 S.W.3d at 66–67. We have rejected royalty owners’

arguments that “due diligence did not require that they verify information or payments received

from their lessees,” confirming that they must “exercise due diligence in enforcing their

contractual rights . . . within the statutory limitations period.” Via Net, 211 S.W.3d at 314 

Page 15

(discussing HECI Expl. Co., 982 S.W.2d at 887, and Wagner & Brown, 58 S.W.3d at 737) (internal

quotations omitted). And in Via Net, we recognized that application of the discovery rule to

contract claims “should be rare, as diligent contracting parties should generally discover any

breach” during the limitations period. Id. at 315.

The Tregellases argue that holders of first-refusal rights resemble royalty owners with a

duty to verify a lessee’s contractual compliance, while Trustees compare such rightholders to

property owners with no duty to continually confirm that their title is not being unlawfully

impugned. As the Tregellases note, a right of first refusal does not itself convey title to its holder.

But we have described the right as a property interest that “runs with the land itself and thus . . . is

not a collateral or personal contract between the parties.” Stone v. Tigner, 165 S.W.2d 124, 127

(Tex. App.—Galveston 1942, writ ref’d). Further, as discussed, one who purchases property with

actual or constructive notice of a first-refusal right does so subject to that right. Jarvis, 400 S.W.3d

at 652–53. Considering the nature of the first-refusal right, and balancing the appropriate policy

considerations, we conclude that the discovery rule applies.

A right of first refusal has been described as “essentially a dormant option.” A.G.E., 105

S.W.3d at 673. The rightholder has no right to compel or prevent a sale per se; rather, as explained,

he has the “right to be offered the property at a fixed price or at a price offered by a bona fide

purchaser if and when the owner decides to sell.” Abraham Inv. Co., 968 S.W.2d at 525 (emphasis

added). Only when the grantor communicates her intention to sell and discloses the offer does the

holder have a duty to act by electing to accept or reject the offer. A.G.E., 105 S.W.3d at 673. In

accordance with this principle, the ROFR in this case required Trustees to accept or reject a bona 

Page 16

fide offer to purchase the Farbers’ mineral interest no later than “sixty (60) days after receipt of

said offer.”

In light of the grantor’s duty to provide notice of an offer, the corresponding absence of

the rightholder’s duty to act before receipt of said notice, and the fact that a purchaser takes

property subject to a recorded first-refusal right, we agree with Trustees that a rightholder 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. In turn, we cannot conclude

that such a rightholder in the exercise of reasonable diligence would continually monitor public

records for evidence of such an impairment. This is in stark contrast to a rightholder who, for

example, learns of the existence of a third-party offer but is unable, despite a reasonable

investigation, to clarify the offer’s specific terms. See Comeaux v. Suderman, 93 S.W.3d 215, 221

(Tex. App.—Houston [14th Dist.] 2002, no pet.) (noting that a grantor must make reasonable

disclosure of an offer’s terms, while a holder must undertake a reasonable investigation of any

terms that are unclear). Under those circumstances, the holder is given some indication the grantor

intends to convey the property and thus has reason to monitor whether that has occurred.

We therefore hold that a grantor’s conveyance of property in breach of a right of first

refusal, where the rightholder is given no notice of the grantor’s intent to sell or the purchase offer,

is inherently undiscoverable and that the discovery rule applies to defer accrual of the holder’s

cause of action until he knew or should have known of the injury.10 In this instance, the opposing

policies at play—on the one hand, preventing stale claims and on the other, discouraging deceptive

10 We limit our holding to this particular breach—conveyance with no notice of the intent to sell or the existence of an offer—of this particular type of right. 

Page 17

conduct and ensuring claims are not barred before a party even knows he is injured—weigh in

favor of applying the discovery rule.

Here, the trial court found that Trustees did not know of their injury, nor in the exercise of

reasonable diligence should they have known, until May 4, 2011. Other than their general

arguments regarding the nature of Trustees’ injury, which we have rejected, the Tregellases do not

challenge this finding. That is, the Tregellases point to no evidence that purportedly would or

should have put Trustees on notice before May 2011 that the Farbers had (or even may have)

conveyed the burdened mineral interest. Therefore, Trustees sued well within four years of the

date the cause of action accrued, and the statute of limitations does not bar their claim.

[...]

III. Conclusion

The court of appeals erred in reversing the portion of the trial court’s judgment granting

Trustees specific performance of the ROFR with respect to the Farbers’ conveyed mineral interest.

Consequently, the court of appeals also erred in reversing the trial court’s award of attorney’s fees.

We therefore reverse the court of appeals’ judgment in part in Cause No. 17-0993, reverse the

court’s judgment in Cause No. 17-0994, and reinstate the trial court’s judgment. 

Page 18

________________________________

Debra H. Lehrmann

Justice

OPINION DELIVERED: November 16, 2018