Johnston v. Sorrels, CA

• Decision Date: 13 May 1987
• Docket Number: No. CA,CA
• Citation: 21 Ark.App. 87,729 S.W.2d 21
• Parties: Gerald M. JOHNSTON and Charlotte Johnston, Husband and Wife, Appellants, v. Kenneth D. SORRELS and Catherine M. Sorrels, Husband and Wife; Elsie Sorrels; Central Arkansas Production Credit Association, Appellees. 86-409.
• Court: Arkansas Court of Appeals

Page 21

729 S.W.2d 21

21 Ark.App. 87

Gerald M. JOHNSTON and Charlotte Johnston, Husband and Wife Appellants, v. Kenneth D. SORRELS and Catherine M. Sorrels, Husband and Wife; Elsie Sorrels; Central Arkansas Production Credit Association, Appellees.

No. CA 86-409.

Court of Appeals of Arkansas Division I.

May 13, 1987.

Ball, Mourton & Adams by Phillip A. Moon, Fayetteville, for appellants.

Shermer & Walker by Jonathan P. Shermer, Jr., Russellville, for appellees.

COULSON, Judge.

The appellants, Gerald and Charlotte Johnston, purchased land at a mortgage foreclosure sale. This appeal is from a decree dismissing the appellants' complaint in equity which sought to reform the property descriptions in certain mortgages, various foreclosure documents, and a commissioner's deed to reflect lands allegedly omitted by mutual mistake of the appellees. The chancellor dismissed the complaint for want of equity on the grounds that purchasers at a foreclosure sale who are not parties to the mortgage being, foreclosed cannot maintain an action for reformation absent some act on the part of the mortgagor causing a bid on the property which would not otherwise have been made. We find that the chancellor erred in dismissing the complaint and reverse and remand.

Beginning sometime in 1976, separate appellee Kenneth Sorrels and his mother, separate appellee Elsie Sorrels, executed a series of mortgages to the First State Bank of Morrilton, Arkansas. Subsequently, Kenneth Sorrels sought a loan from separate appellee Central Arkansas Production Credit Association (CAPCA), which obtained a mortgage on part of the Sorrels property after making the loan and obtaining a release from the bank. CAPCA filed a petition in foreclosure after payments on the loan were not made when due. The decree of foreclosure was entered in December of 1982. All documents pertaining to the foreclosure contained the property description found in CAPCA's mortgage.

A foreclosure sale was held on January 21, 1983, and the appellants placed the highest bid through an agent. Approximately two years after the foreclosure sale, the appellants discovered that the legal description contained in the mortgages, the foreclosure documents, and the commissioner's deed did not include a 29.41 acre tract of land which the appellants thought had been part of the land sold at the foreclosure sale. The appellants' complaint in equity sought reformation of all relevant documents on the theory that, whereas it had been the clear intent of CAPCA and the Sorrels to include the 29.41 acre tract as part of the land being mortgaged, the tract had by mutual mistake been omitted from the legal description in the mortgages and all subsequent documents.

At trial, Don Guess of CAPCA testified that he and Kenneth Sorrels viewed the property to be mortgaged and that Sorrels represented that the land comprising the 29.41 acres was included. Guess also testified that the loan would never have been made had not the 29.41 acre tract and the improvements thereon been subject to the mortgage. Although Guess testified that he made no representations to the appellants as to what land was included in the foreclosure sale, he conceded that he had previously shown the property to others and had represented that the 29.41 acre tract was part of the land to be sold and that he would have made the same representation to the appellants.

Other evidence indicated that Kenneth Sorrels did not claim an interest in the property until after it was discovered that the 29.41 acre tract was not included in the legal descriptions. Also, there was testimony that Kenneth Sorrels requested that he be given time after the sale to remove certain items from the property now in dispute. While neither the appellants nor the Sorrels attended the sale, the agent bidding on behalf of the appellants testified that representations were made at the sale that the property being sold comprised that part of the Sorrels farm land which would have included the 29.41 acre tract.

The chancellor found that the evidence would have supported an action for reformation on the part of CAPCA. However, he determined that the appellants were not entitled to reformation of the mortgages because they were neither parties to the mortgages nor had they shown that the mortgagors (the Sorrels) engaged in any conduct causing a bid on the property which would not otherwise have been made. We find this to be an unduly restrictive interpretation of the cases governing the right of a purchaser at a foreclosure sale to maintain an action for reformation of documents necessary to his chain of title when: (1) it has been determined that the mortgagor and the mortgagee by mutual mistake omitted certain land from the description in the mortgage instrument, and (2) the evidence presents a question of fact as to whether the purchaser intended to buy the property as described.

It is well established that when land is held pursuant to a deed of trust or mortgage so as to secure a debt, and by mutual mistake the parties have omitted from the legal description a tract of land intended to be conveyed, a party to the mutual mistake who subsequently purchases under a decree of foreclosure is entitled to reformation of the deed of trust or mortgage, the decree, and the commissioner's deed so as to include the omitted tract. Foster v. Richey, 192 Ark. 683, 93 S.W.2d 1258 (1936); Allen v. McGaughey, 31 Ark. 252 (1876). Testimony warranting such reformation must be clear, concise, and convincing, though it need not be undisputed. Reformation is predicated upon the equitable maxim that equity treats that as done which ought to be done. Foster, supra.

As was noted by the...