Tennessee Supreme Court Holds That a Court May Not Reform a Deed When Reformation Would Eliminate Existing Liens

August 26, 2020

The Tennessee Supreme Court has unanimously held that a court may not retroactively correct, or “reform,” a deed when reformation would harm parties with valid recorded liens on the property and would benefit other parties who bought the property with notice of the liens. 

Courts in Tennessee have the authority to correct an error in a written agreement, such as a deed, if the error was caused by the mutual mistake of the parties to the agreement. To correct a mutual mistake, the parties must prove by clear and convincing evidence that they reached an agreement, they intended to put the agreement into writing, the written agreement is materially different than the agreement they previously reached, and the error in the written agreement was not caused by the gross negligence of the party seeking to correct it. Reformation is an equitable remedy, thus before granting reformation, courts should consider how reformation would affect the parties.

Adren and Pamela Greene, facing possible foreclosure and lawsuits over development property they owned, decided to quitclaim other property that they owned to a limited liability company. The Greenes signed several quitclaim deeds and thought they had conveyed all of their jointly owned property to the limited liability company. But Mrs. Greene’s name was left off the quitclaim deed to property on West First North Street in Morristown that the Greenes owned jointly. No one noticed the mistake until seven years later, after Scott Trent and Ted Trent had bought the property. Before the Trents bought the property, Mountain Commerce Bank and People’s Community Bank had sued the Greenes, obtained judgments against them, and recorded the judgments in the Hamblen County Register of Deeds office. Under Tennessee Code Annotated section 66-26-102, once a deed or a judgment has been recorded, it is “notice to all the world” of the lien. The Greenes tried to fix the mistake in the quitclaim deed for the West First North Street property by signing a corrected quitclaim deed explaining that Mrs. Greene had intended to convey her interest in that property to the limited liability company but had been accidentally left off of the original quitclaim deed.

The Trents, along with Civis Bank which had financed the Trents’ purchase of the property, filed a petition in the Hamblen County Chancery Court asking the court to enter a judgment stating that the corrected quitclaim deed reformed the original quitclaim deed. This would mean that both Mr. and Mrs. Greene’s ownership in the property was conveyed to the limited liability company as of the date of the original quitclaim deed, which would deprive Mountain Commerce Bank and People’s Community Bank of their liens. The chancery court denied the petition, ruling there had been no mutual mistake of the parties to the original quitclaim deed because Mrs. Greene had not been a party to the original quitclaim deed. The Court of Appeals affirmed. The Supreme Court granted review of the case.

In the unanimous opinion, authored by Justice Sharon G. Lee, the Tennessee Supreme Court held that the deed should not be reformed. The Court determined that it would not be equitable to deprive the banks of their liens to the benefit of the Trents, who had constructive notice of Mrs. Greene’s remaining ownership interest and of the banks’ liens but failed to protect their own interests.

To read the opinion of the Court in Trent v. Mountain Commerce Bank, please visit the Opinions section of TNCourts.gov.