Trent v. Mountain Commerce Bank

• Decision Date: 26 August 2020
• Docket Number: No. E2018-01874-SC-R11-CV,E2018-01874-SC-R11-CV
• Citation: 606 S.W.3d 258
• Parties: Scott TRENT et al. v. MOUNTAIN COMMERCE BANK et al.
• Court: Tennessee Supreme Court

606 S.W.3d 258

Scott TRENT et al.

v.MOUNTAIN COMMERCE BANK et al.

No. E2018-01874-SC-R11-CV

Supreme Court of Tennessee, AT KNOXVILLE.

May 19, 2020 Session¹

FILED August 26, 2020

William E. Phillips, Sr., Rogersville, Tennessee, for the appellants, Scott Trent, Ted C. Trent, Civis Bank, and William E. Phillips, Sr., Trustee.

Steven C. Huret, Kingsport, Tennessee, for the appellee, First Community Bank, N.A.

Edward J. Shultz, Knoxville, Tennessee, for the appellee, Mountain Commerce Bank.

Sharon G. Lee, J., delivered the opinion of the Court, in which Jeffrey S. Bivins, C.J., and Cornelia A. Clark, Holly Kirby, and Roger A. Page, JJ., joined.

Sharon G. Lee, J.

The issue presented is whether a quitclaim deed should be equitably reformed when reformation would benefit parties with constructive notice of a title defect and harm the rights of creditors with recorded judgment liens. A husband and wife quitclaimed parcels of real property to limited partnerships. The wife was omitted as a grantor on one of the quitclaim deeds even though she and her husband owned the property as tenants by the entirety. Two banks obtained judgments against the husband and wife and recorded the judgments. The property was later sold, and the purchasers and their lender discovered that the property was subject to the wife's retained ownership interest and the banks’ recorded judgment liens. To remedy the error, the husband and wife signed a quitclaim deed of correction, referencing the wife's omission as a grantor on the previous quitclaim deed. The purchasers and their lender then filed this declaratory judgment action asking the trial court to hold, based on mutual mistake, that the corrected quitclaim deed reformed the original quitclaim deed, vested ownership in the limited partnership, divested the wife's interest, and removed the banks’ judgment liens. The trial court denied reformation, finding that there was no mutual mistake by the husband and the limited partnership who signed the original quitclaim deed. The Court of Appeals affirmed. After considering the equities of the parties, we decline to grant reformation of the quitclaim deed because doing so would deprive the banks of their recorded judgment liens and benefit the purchasers and their lender who acquired the property with constructive notice of the wife's remaining interest in the property and the banks’ recorded judgment liens. Thus, we need not decide whether reformation is an available remedy to correct a quitclaim deed by adding an omitted grantor. We affirm the judgments of the trial court and the Court of Appeals, based on different reasoning.

I.

Adren S. Greene and his wife, Pamela W. Greene, defaulted on real estate development loans from Mountain Commerce Bank and People's Community Bank. In March 2010, Mr. and Mrs. Greene, facing possible foreclosure and deficiency actions, asked an attorney to prepare quitclaim deeds transferring other property they owned to limited partnerships in which the Greenes had an interest. The attorney drafted six quitclaim deeds conveying ten parcels of property to either Real Estate Holdings of East Tennessee, L.P. ("Real Estate Holdings")³ or Real Estate Investments of East Tennessee, L.P.

On March 10, 2010, Mr. and Mrs. Greene signed the quitclaim deeds at their attorney's office, believing that they had conveyed all of their interest in the ten parcels of property. The Greenes did not review the quitclaim deeds before signing them, trusting that the quitclaim deeds had been properly drafted. Mr. and Mrs. Greene owned property on West First North Street in Morristown ("the Property") as tenants by the entirety. Yet Mrs. Greene was omitted as a grantor on the quitclaim deed transferring the Property to Real Estate Holdings; only Mr. Greene signed the quitclaim deed, which was recorded on March 18, 2010.

Mountain Commerce Bank and People's Community Bank separately foreclosed on development property owned by the Greenes and sued them for the deficiency balances. In January 2012, an agreed judgment was entered against Mr. and Mrs. Greene in favor of Mountain Commerce Bank; the judgment was recorded in the Hamblen County Register of Deeds office on October 22, 2013. In August 2012, an agreed order of judgment was entered against Mr. and Mrs. Greene in favor of People's Community Bank, a division of First Community Bank; the judgment was recorded on March 28, 2013, in the Hamblen County Register of Deeds office.

On August 30, 2016, Scott Trent and Ted C. Trent bought the Property from Real Estate Holdings. Civis Bank financed the purchase. The Trents and their wives signed a Deed of Trust to William E. Phillips, Sr., as Trustee for Civis Bank. Sometime in 2017, the Trents and Civis Bank learned that Mrs. Greene retained an ownership interest in the Property and that Mountain Commerce Bank and First Community Bank, N.A.⁴ ("the Banks") had recorded judgment liens against the Property. On March 22, 2017, Mr. and Mrs. Greene signed a corrected quitclaim deed to Real Estate Holdings, which was recorded on March 29, 2017, in the Hamblen County Register of Deeds office. The corrected quitclaim deed explained that Mrs. Greene had intended to convey her interest in the Property to Real Estate Holdings under the 2010 quitclaim deed but had been omitted as a grantor.

In September 2017, the Trents, along with Civis Bank and Mr. Phillips as Trustee for Civis Bank ("the Petitioners"), petitioned the Hamblen County Chancery Court for a declaratory judgment that the corrected quitclaim deed reformed the original quitclaim deed, vested ownership of the Property in the limited partnership as of the date of the original quitclaim deed, divested Mrs. Greene's interest, and removed the judgment liens. The declaratory judgment action named the Banks as respondents and sought a reformation of the original quitclaim deed based on mutual mistake of the parties.

After a September 10, 2018 hearing, the trial court declined to reform the 2010 quitclaim deed to add Mrs. Greene as a grantor because she had not been a party to the quitclaim deed and thus there had been no mutual mistake by the parties.

The Court of Appeals affirmed, reasoning that because Mr. Greene and Real Estate Holdings intended that Mr. Greene would convey his interest in the Property to Real Estate Holdings, there had been no mutual mistake between the parties to the quitclaim deed—Mr. Greene and Real Estate Holdings. We granted the Petitioners’ application for review.

II.

The material facts here are undisputed, and so the determination of the priority of rights among lienholders is solely a question of law. ABN AMRO Mortg. Grp., Inc. v. S. Sec. Fed. Credit Union, 372 S.W.3d 121, 126 (Tenn. Ct. App. 2011) (citing Bankers Trust Co. v. Collins, 124 S.W.3d 576, 578 (Tenn. Ct. App. 2003) ; ATS, Inc. v. Kent, 27 S.W.3d 923, 924 (Tenn. Ct. App. 1998) ); Holiday Hospitality Franchising, Inc. v. States Res., Inc., 232 S.W.3d 41, 47 (Tenn. Ct. App. 2006) (citations omitted). We review the trial court's ruling on questions of law de novo with no presumption of correctness. ABN AMRO, 372 S.W.3d at 126 (citing ATS, Inc., 27 S.W.3d at 924 ); Holiday Hospitality, 232 S.W.3d at 47 (citation omitted).

The 2010 quitclaim deed's omission of Mrs. Greene as a grantor posed a problem because Mr. and Mrs. Greene owned the Property as tenants by the entirety. Only married couples can own property as tenants by the entirety because the tenancy is "based on the concept that those who are married are not separate persons; rather, they ‘are but one person.’ " Bryant v. Bryant, 522 S.W.3d 392, 400 (Tenn. 2017) (citations omitted). Under a tenancy by the entirety, after the death of one spouse the surviving spouse owns the property. Id. The surviving spouse does not acquire any new or further interest in the property after the other spouse's death because the surviving spouse always had that ownership interest. Id. When Mr. Greene conveyed his interest in the Property to Real Estate Holdings, he could not legally convey Mrs. Greene's ownership interest. See Robinson v. Trousdale Cnty., 516 S.W.2d 626, 632 (Tenn. 1974) (explaining that under tenancy by the entirety, one spouse can convey only his or her survivorship interest without the other spouse's consent, and "[a]ny unilateral attempt will be wholly ... void at the instance of the [other spouse] and any prospective purchaser, transferee, lessee, mortgagee and the like will act at his peril"). Thus, the 2010 quitclaim deed conveyed to Real Estate Holdings only Mr. Greene's interest in the Property. Mrs. Greene retained her interest, which meant that if Mrs. Greene survived her husband, she would own the entire interest in the Property. See Bryant, 522 S.W.3d at 400.

The Banks’ judgment liens attached to Mrs. Greene's remaining interest in the Property upon recordation. See Tenn. Code Ann. § 25-5-101(b)(1) (2017); Tenn. Code Ann. § 66-26-101 (2015).⁵ In short, the Trents acquired the Property subject to Mrs. Greene's interest and the Banks’ judgment liens. Thus, the Petitioners sought to have the quitclaim deed reformed to vest Real Estate Holdings with full ownership of the Property as of March 10, 2010, and free from the Banks’ recorded judgment liens.

Courts have jurisdiction under Tennessee law to reform written instruments to accurately reflect the parties’ agreement. Battle v. Claiborne, 133 Tenn. 286, 180 S.W. 584, 587 (1915) (citation omitted); Sikora v. Vanderploeg, 212 S.W.3d 277, 287 (Tenn. Ct. App. 2006) (citing Greer v. J.T. Fargason Grocer Co., 168 Tenn. 242, 77 S.W.2d 443, 443–44 (1935) ; Tenn. Valley Iron & R.R. Co. v. Patterson, 158 Tenn. 429, 14 S.W.2d 726, 727 (1929) ). Reformation is an equitable remedy "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) (quoting 22 Tenn. Jur. Rescission, Cancellation and Reformation § 46 (199...