Rules of Reformation

March 15, 2016 § Leave a comment

A 1979 deed included the language that “Grantee herein retains all mineral rights on said land and property.”

After Michael and Amy Ward had entered into a gas, oil, and mineral lease in 2007, they discovered to their chagrin that the royalties they had contracted for were not being paid to them, but rather to Carolyn Harrell, a successor in title to the grantor of the 1979 deed. The Wards were successors in title to the grantees.

The Wards filed suit to quiet and confirm and remove cloud from title, and to recover the payments made to Harrell. Harrell counterclaimed to remove cloud, and to cancel the Wards’ mineral lease.

At trial, the Wards argued that the 1979 deed must be construed according to its plain meaning. Harrell countered that the 1979 deed should be reformed to state that Grantor retains, due to mutual mistake and scrivener’s error. The chancellor applied the three-tiered rules of contract construction of an ambiguous instrument set out in Pursue Energy Corp. v. Perkins, 558 So.2d 349, 352-53 (Miss. 1990). The Wards appealed.

In Ward v. Harrell, handed down February 23, 2016, the COA affirmed the chancellor, holding that, although the trial court applied the wrong legal standard, it reached the correct result. Judge Lee writing for the court, distinguished between contract construction and reformation:

¶13. In reforming the 1979 warranty deed, it appears that the chancellor relied solely on Pursue Energy Corp. v. Perkins, 558 So. 2d 349 (Miss. 1990). In that case, our supreme court set out a three-tiered approach for construing and interpreting written instruments when an ambiguity exists. [Fn 5] Id. at 351-53.

[Fn 5] (1) The court is to look solely to the language contained within the “four corners” of the instrument; (2) if the language within the instrument’s “four corners” is ambiguous, the court applies the relevant canons of construction in a discretionary manner; and (3) if the intent of the parties is still unknown, the court looks to extrinsic evidence. Pursue Energy Corp. v. Perkins, 558 So. 2d 349, 352-53 (Miss. 1990).

¶14. However, contract construction, or interpretation, is distinguishable from contract reformation. Essentially, reformation is a remedy—the changing of words—to a contract- formation defense. In contrast, rules of construction, or interpretation, do not change the actual words of the contract but determine the meaning of those words.

¶15. Although an ambiguous deed may be reformed, [Fn 6] when a deed is unambiguous, “the party asserting reformation must prove (1) a mistake on the part of both parties; or (2) a mistake on the part of one party with fraud or inequitable conduct on the part of the other party; or (3) an error on the part of the scrivener.” In re Estate of Summerlin, 989 So. 2d 466, 480 (¶47) (Miss. Ct. App. 2008) (quoting Bacot v. Duby, 724 So. 2d 410, 417 (¶35) (Miss. Ct. App. 1998)). “Moreover, the mistake must be proven beyond a reasonable doubt.” Id.

[Fn 6] Estate of DeLoach v. DeLoach, 873 So. 2d 146, 150 (¶14) (Miss. Ct. App. 2004).

¶16. Here, we do not find the language at issue in the 1979 warranty deed to be ambiguous. See Cypress Springs LLC v. Charles Donald Pulpwood Inc., 161 So. 3d 1100, 1104 (¶13) (Miss. Ct. App. 2015) (finding an instrument is ambiguous if one or more terms or provisions are susceptible to more than one reasonable meaning). Therefore, the chancellor’s reliance on the standard set forth in Pursue Energy Corp. was erroneous. See 17A C.J.S. Contracts § 386 (2011) (The “[r]ules of construction may be used only where the language of the contract, or a portion of it, is ambiguous.”).

¶17. As such, we do not give deference to the chancellor’s findings of fact and conclusions of law. See Brooks [v. Brooks], 652 So. 2d [1113,] at 1118 [(Miss. 1995)]. Instead, we review the record de novo. See id.

The court went on to find that there was a scrivener’s error because only a grantor can make a reservation out of the estate granted (citing Thornhill v. Ford, 213 Miss. 49, 56 So.2d 23,29 (1952), and MCA 27-31-77.

The main things to take away here are that: (1) there are specific rules governing reformation of a deed; and (2) the burden of proof is beyond a reasonable doubt.

 

ANOTHER OBJECT LESSON IN PSA DRAFTSMANSHIP

December 21, 2011 § 2 Comments

What does the following language in a divorce property settlement agreement (PSA) mean?

The parties both agree and understand that [Stephen] will retire from Martin Marietta Manned Space Systems effective April 24, 1992. . . . The parties have agreed to accept #D-Level Income as the monthly benefit option. This will provide [Stephen] a monthly income of approximately $3[,]189.26. [He] will remit to [Gloria] one-half of this income, being the approximate amount of $1,594.63, on the first day of each month . . . commencing on January 1, 1993. These monies will be considered alimony[,] and [Gloria will be responsible for the income taxes].

That was the question squarely presented to the chancellor in litigation between former spouses Stephen and Gloria Reffalt.

Stephen and Gloria were divorced in 1993. Stephen had retired from his job with Martin Marietta (MM). Approximately two years later Stephen’s retirement benefits paid by MM were reduced when his Social Security benefits kicked in, as the plan provided. As a result of the automatic reduction, the $1,594 payments to Gloria came to represent considerably more than 1/2 of the MM benefit. Nonetheless, Stephen continued paying the $1,594 until December 2008, when he apparently decided enough was enough, and he filed a petition to modify the payments proportionally to about $1,150 a month.

Stephen took the position that the above PSA language clearly intended that Gloria receive only 1/2 of his MM retirement benefits, whatever that amount might be.

Gloria argued that the language mandated that she be paid 1/2 of Stephen’s total retirement benefits from whatever source.

The chancellor found the language to be ambiguous and accepted parol evidence of the parties’ intentions in the drafting of the contract. Placing heavy emphasis on the parties’ course of conduct over fifteen years after the reduction in MM benefits, the trial court held that the language intended that Stephen pay the higher amount, and denied his request for a downward modification.

In Reffalt v. Reffalt, decided December 13, 2011, the COA affirmed. I recommend that you read the opinion, written by Judge Ishee, for its exposition on the principles of contract interpretation and what is and is not an ambiguous contract. The opinion also touches on the question of modification of property settlement.

This case is yet another example of draftsmanship that may appear at first blush to be clear, but on further inspection is susceptible to several different interpretations. Consider the language ” … This will provide …” and ” … one half of this income …” To what do the pronouns this refer? Are their objects the same thing or different? Better to have said “… one half of the #D-Level benefit each month …” Or “Stephen will pay to Gloria the sum of $1,594 each month.” Or “The amount payable by Stephen shall be adjusted automatically to be equal to 50% of his #D-Level benefit actually received, without any voluntary action on his part to reduce the amount received.”

A few suggestions:

  • As I have said here before, it’s a good idea to draft and set aside that agreement for a day or two. Then pick it up and read it through different eyes. Cast yourself in the role of the judge looking at it years later, or the plan administrator considering how to apply it, or another lawyer to whom your former client has carried it.
  • Go pronoun hunting. Eliminate as many as you possibly can, replacing them with the specific term that you intend to refer to.
  • Does your language say exactly what you mean to say, or is it indirect and prolix? More words are not always better. The more verbosity you use, the more likelihood that confusion, unintended meanings and ambiguity will grow and fester in that thicket like a staph infection. 
  • Here are five suggestions for improving your PSA’s.
  • And here are five more.
  • Here is a post about a nightmare scenario in draftsmanship.
  • Kicking the can down the road, and why it’s not a good idea in your PSA’s. 
  • And here is a post on some examples of the hidden costs of divorce that you need to take into account when drafting a PSA.

Give your PSA’s some thought. That’s what you’re being paid for. Strive for your PSA’s to be better than 99% of other attorneys’. Make it your goal that no judge will ever have to find one of your PSA provisions to be ambiguous.

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