Courts will enforce deeds on their express text and will not reform deeds lightly

A funny thing sometimes happens when I’m really close to taking a judgment against somebody.

At some point after the initial demand letter goes out and usually before I take my judgment, they start transferring all their assets out of their name.

We’ve talked about this before. Tennessee has a 4 year statute of limitations for fraudulent conveyances, and so a creditor has the ability to “undo” these “eve of judgment” transactions.

But, nevertheless, when finances get bad and creditors are knocking at the door, debtors still transfer property out of their names.

The Tennessee Court of Appeals recently looked at a matter like this in Scott Trent, et. al. v. Mountain Commerce Bank, et. al., E201801874COAR3CV, 2019 WL 2575010 (Tenn. App. June 24, 2019).

In that case, two individuals owned a piece of real property and, in 2010, one of them quitclaimed all interest over to a third-party limited partnership. In 2012, creditors started taking judgments against the individuals and, in 2013, a judgment lien was recorded.

After another sale to some innocent third party buyers, the issue came to light: When only one of the individuals signed the 2010 quitclaim, was all the ownership interest transferred, i.e. did the 2013 judgment lien attach to that remaining interest?

The non-creditor parties argued that the clear intent of the 2010 quitclaim was to transfer all interests to the new owner. They even recorded a Deed of Correction to fix the omission of the other individual’s signature.

The argument was based on the concept of reformation of deeds.

“Reformation is an equitable doctrine by which courts may correct a mistake in a writing ‘so that it fully and accurately reflects the agreement of the parties.’” Lane v. Spriggs, 71 S.W.3d 286, 289 (Tenn. Ct. App. 2001).

“A court of chancery in Tennessee has the power to reform and correct errors in deeds produced by fraud or mistake. To be the subject of reformation, a mistake in a deed must have been mutual or there must have been a unilateral mistake coupled with fraud by the other party, such that the deed does not embody the actual intention of the parties.” Wallace v. Chase, No. W1999-01987-COA-R3-CV, 2001 WL 394872, at *3 (Tenn. Ct. App. Apr. 17, 2001) (internal citations omitted).

“Still, we have also held that reformation on the basis of mistake is only appropriate where the intent of both parties is clear and is the same.” Hunt v. Twisdale, No. M2006-01870-COA-R3-CV, 2007 WL 2827051, at *8 (Tenn. Ct. App. Sept. 28, 2007). “And, mistake must be shown by “clear, cogent, convincing evidence.” Lane, 71 S.W.3d 289-90 (quoting Dixon v. Manier, 545 S.W.2d 948, 950 (Tenn. Ct. App. 1976)); see also Sikora v. Vanderploeg, 212 S.W.3d 277, 287 (Tenn. Ct. App. 2006) (“Because the law strongly favors the validity of written instruments, a person seeking to reform a written contract must do more than prove a mistake by a preponderance of the evidence. Instead, the evidence of mistake must be clear and convincing.”). Sipes v. Sipes, No. W2015-01329-COA-R3-CV, 2017 WL 417222, at *3-4 (Tenn. Ct. App. Jan. 31, 2017).

The present opinion turned on the fact that the second owner didn’t sign the 2010 quitclaim. ” Tennessee law allows reformation of a deed when the instrument does not “reflect the true intent of the parties.” Holiday Hosp. Franchising, Inc. v. States Res., Inc., 232 S.W.3d 41, 51 (Tenn. Ct. App. 2006). Because only one owner signed the 2010 quitclaim, the text of the deed was clear, and a party not listed or referenced on the deed can’t assert a mistake or be added.

I’d guess that the parties absolutely intended that 100% ownership was to transfer in that 2010 quitclaim, and it’s not as easy as a decision as the Court makes it seem to be. In the end, the Court may have balanced the equities here.

 

 

 

Creditor Issues in Memphis Bankruptcy of Rusty Hyneman Sound Like Law School Exam

Law school exams are a strange creature. Generally, they present a crazy set of facts with a dozen twists and turns, all of which raise different legal issues. The student’s goal is to spot and discuss those issues.

I thought I was reading a law school exam question when I read this Commercial Appeal article about the Bankruptcy filing by Memphis developer Rusty Hyneman.

Hyneman is real estate developer, who has fallen on hard times, and his creditors are aggressively coming after him. Last week, one bank showed up with the sheriff to seize all personal possessions.

But, Hyneman was ready: he had documents showing that he didn’t own any of the stuff in his 12,000 square foot house free and clear. He had pledged it as security to another creditor…his dad.

Now, the banks are in issue spotting mode. They are alleging that the lien granted to the elder Hyneman is a fraudulent conveyance. They are attacking the priority of the father’s lien. They are attacking Hyneman’s proposed sale of his assets to repay his dad. Finally, they are arguing that the proposed purchaser of the assets is a sham entity.

Man-o-man, that’s four legal issues right there, and you can bet there will be a few more.

The best part about the story? The Judge handling this case is Judge Paulette Delk, my former Article 9 professor in law school. This Hyneman case will be a breeze for her, since she’s dealt with law school exams questions with more issues raised than this.