August 20, 2019

Colorado Court of Appeals: Statute of Limitations Does Not Begin when Party Signs Prepared Document

The Colorado Court of Appeals issued its opinion in Bell v. Land Title Guarantee Co. on Thursday, May 17, 2018.

Buy and Sell Contract—Mineral Rights—Warranty Deed—Negligence—Breach of Contract—Statute of Limitations—Third Party—Cause of Action—Accrual Date.

The Bells hired Orr Land Company LLC (Orr) and its employee Ellerman to represent them in selling their real property. Orr found a buyer and the Bells entered into a buy and sell contract with the buyer, which provided, as pertinent here, that the sale excluded all oil, gas, and mineral rights in the property. Orr then retained Land Title Guarantee Company (Land Title) to draft closing documents, including the warranty deed. In 2005 the Bells signed the warranty deed and sold the property to the buyer. The Bells didn’t know that the warranty deed prepared by Land Title didn’t contain any language reserving the Bells’ mineral rights as provided in the buy and sell contract. For over nine years, the Bells continued to receive the mineral owner’s royalty payments due under an oil and gas lease on the property. In 2014 the lessee oil and gas company learned that the Bells didn’t own the mineral rights, so it began sending the payments to the buyer. After that, the Bells discovered that the warranty deed didn’t reserve their mineral rights as provided in the buy and sell contract. In 2016 the Bells filed this negligence and breach of contract action against defendants Land Title, Orr, and Ellerman. Defendants moved to dismiss, arguing that the Bells’ claims were untimely because the statute of limitations had run. The district court granted defendants’ motion to dismiss.

On appeal, the Bells contended that the district court erred in granting defendants’ motions to dismiss because they sufficiently alleged facts that, if true, establish that the statute of limitations didn’t begin to accrue on their claims until the oil and gas company ceased payment in September 2014, which is when they contended they discovered that the warranty deed didn’t reserve their mineral rights. A plaintiff must commence tort actions within two years from the date the cause of action accrues, and contract actions within three years from the date the cause of action accrues. A cause of action accrues on the date that “both the injury and its cause are known or should have been known by the exercise of reasonable diligence.” The trial court relied on the legal principle that one who signs a document is presumed to know its contents, so the Bells should have known on the day they signed the deed that the mineral rights reservation language was not included, and thus their claims accrued on that date. However, the presumed-to-know principle applies conclusively only where a party (for example, a grantor) seeks to avoid the legal effects of a deed in an action against another party to the conveyance (a grantee), not where a party (a grantor) asserts claims against third parties who failed to conform the deed to an underlying agreement on that party’s behalf. Here, the Bells claims against defendants, who aren’t parties to the deed, don’t seek to avoid the deed, but seek damages for negligent preparation of the deed, and the purpose of the presumed-to-know principle isn’t applicable. Taking the complaint’s factual allegations as true, the Bells filed their negligence and breach of contract claims within the statute of limitations and stated a plausible claim for relief. The court erred in granting defendants’ motions to dismiss.

The order of dismissal was reversed.

Summary provided courtesy of Colorado Lawyer.

Print Friendly, PDF & Email

Speak Your Mind

*