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Zawodniak v. Hutchinson

2005 WL 3338066 (N.J. Super. App. Div. 2005) (Unpublished)

DEEDS; REFORMATION—A court may order reformation of a deed or other legal instrument only upon a showing of either mutual mistake or unilateral mistake by one party and fraud or unconscionable conduct by the other.

By her first marriage, a woman had two children. She had no children by her second marriage. She contracted to buy a house, in her own name, but during the attorney review period, the attorney who represented her and her second husband asked the seller’s attorney to add the second husband’s name to the contract of sale. That was done. They subsequently made a joint application for a mortgage. “However, before the closing, either [the woman] or a representative of the mortgage company who was financing the purchase informed [the seller’s attorney] that title to the property would be taken in [the woman’s] name only. As a result, the application for title insurance was made solely in [her] name. In addition the [municipal certificate of inspection] ... and the [municipal] certificate of permitted occupancy ... listed [the woman] as the sole owner.” Further, at closing, the deed was issued in the woman’s name alone even though the woman and her second husband attended the closing. According to the seller’s attorney, he pointed out to the couple “that even though the mortgage company was requiring them to both sign the mortgage and note, title to the property was being taken solely in [the woman’s] name.” The seller’s attorney “stated that to the best of recollection, [the second husband] ‘did not have an objection’ to this arrangement.” Three years after closing, the woman executed a will leaving a one-half share of the house to her daughter. Then, she died.

Her second husband brought an action “for reformation of the deed to reflect that [his deceased wife] and he owned” the property “as tenants by the entirety and that he became sole owner upon her death.” In a one day trial that followed, the buyer’s attorney was asked if it was unusual that the second husband was signing the note even though his name was not on the deed. The response was that he pointed the situation out to his clients and he conformed that title would just be in the woman’s name. On the other hand, the second husband testified that he first learned that the deed was not in his name almost three years later, “when he found it in a box in the closet to his bedroom.” He claimed that he asked his wife about it and that she said that she would change the deed when she felt better. Unfortunately, “she died before she had the opportunity to execute an amended deed.” The lower court found that the attorney fully advised the couple that title was being acquired solely in the woman’s name and that each of the couple were experienced adults and neither one of them was naive. “Nonetheless, the court found that ‘[the woman] intended that this property would be jointly held between her and her husband,’ and on that basis concluded that [the woman’s daughter] ‘[held] the property in a constructive trust for [her mother’s second husband].’” The lower court relied primarily on the will which referred to a one-half share in the property being devised to the daughter and understood from the language of the will that the deceased woman believed that she was a joint owner of the property. The daughter appealed.

The Appellate Division stated the law as being that “[a] court may order reformation of a deed or other legal instrument only upon a showing of ‘either a mutual mistake or unilateral mistake by one party and fraud or unconscionable conduct by the other.’” No fraud was found by the lower court, therefore, the second husband’s “reformation claim [was] based solely on alleged mutual mistake. ‘Reformation predicated upon mutual mistake requires that both parties are in agreement at the time they attempt to reduce their understanding to writing, and that the writing fails to express that understanding correctly.’ ... Such mutual mistake must be proven by ‘clear and convincing’ evidence.” The Appellate Division was troubled that the lower court “did not indicate [whether] its factual findings were based on clear and convincing evidence” and did not refer to this standard in the course of its opinion. In fact, the text of the lower court’s opinion seemed to tell the Appellate Division that the lower court thought it was “a close question.” Also, upon analyzing the lower court’s opinion, the Appellate Division concluded that the lower court had “applied a preponderance of the evidence standard in evaluating the evidence rather than the ‘clear and convincing’ standard that governs a claim for reformation of a deed.” Consequently, the Court held that the lower court applied the wrong burden of proof. It further concluded that the record in the court below “could not support a finding by clear and convincing evidence” and that the couple’s “intent at the time of closing was to take title to the property as tenants by the entirety.” Further, the Court believed that there was no basis to use inferences regarding the woman’s intent as expressed in her will as indicating what her intent was at the time of closing. It pointed out that there were “a variety of possible explanations for this provision of the will.” It might simply have been that the woman “and the attorney who drafted the will believed that [the couple] were tenants in common which would have given [the woman] the ability to bequeath her one-half interest in the property to her daughter.” Nonetheless, whatever the woman may have believed at the time she drafted her will, could not be used to “demonstrate by clear and convincing evidence” that the couple’s intent, at closing, was to take title to the property as tenants by the entirety. For that reason, the Court reversed the lower court’s ruling.

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