Opinion
No. 28697.
September 22, 1930. Suggestion of Error Overruled, November 3, 1930.
1. APPEAL AND ERROR.
On appeal from decree of the chancellor, all reasonable inferences must be indulged in favor of appellees.
2. REFORMATION OF INSTRUMENTS. Creditor intentionally omitted from mortgage as mortgagee because debtor believed such creditor would be otherwise paid held not entitled to reformation of mortgage on ground of mistake.
Debtor determined to mortgage all his property for benefit of several different creditors, and commissioned his son to consummate matter. Son was informed that certain business concern would take care of designated note, and that it would not be necessary to carry such note into mortgage arrangement. Note was therefore not secured by mortgage executed to other creditors upon faith of such promise, but promise to pay note was never carried out. After foreclosure of mortgage, leaving no surplus, creditor, whose note was not secured, filed its bill praying for reformation of mortgage by including it as a mortgagee therein. Error in omitting such creditor from security resulted from mistake and belief that note would be otherwise paid, and, as matter of fact, debtor actually intended to omit such creditor from mortgage.
3. REFORMATION OF INSTRUMENTS.
Mistake to warrant reformation of instrument must be mutual to both sides of transaction.
4. REFORMATION OF INSTRUMENTS.
"Intention" as element of mistake, warranting reformation of instrument, is derivative of knowledge, although knowledge may be imperfect.
5. REFORMATION OF INSTRUMENTS.
Mistake which will warrant equity in reforming instrument has reference to intention, that is, equity will make instrument speak mutual intention.
6. MORTGAGES.
Mortgage given to creditors for extension of time for paying existing debts constitutes mortgagees thereunder incumbrancers for valuable consideration.
APPEAL from chancery court of Harrison county. HON. D.M. RUSSELL, Chancellor.
Milling, Godchaux, Saal Milling, of New Orleans, La., and R.C. Cowan, of Gulfport, for appellant.
If through fraud, mistake or accident the writing has not been made to speak the agreement of the contracting parties, it will be reformed to truly represent what the parties intended it should; and, when thus reformed, it will be enforced as if originally so drawn.
Simmons v. North, 3 S. M. 67; Peques v. Mosby, 7 S. M. 340; Dunbar v. Newman, 46 Miss. 231; Phoenix Ins. Co. v. Hoffheimer, 46 Miss. 645; Willis v. Gattman, 53 Miss. 721; Cummings v. Steele, 54 Miss. 647.
A court of equity will grant relief in cases of mistake, in written agreements, not only where the fact of the mistake is expressly established, but is fairly implied from the nature of the transaction.
Phoenix Ins. Co. v. Hoffheimer, 46 Miss. 645, 657.
To hold that a court of equity could not correct mistakes for the reason alone that the parties used the terms they actually intended to use would be to curtail its powers to a hitherto unheard extent.
Miles v. Miles, 84 Miss. 624, 37 So. 112.
A deed which expressed the then existing intention of the grantor, which intention was the result of a mistake comes within the power of an equity court to reform for mistake.
Hoy v. Hoy, 48 So. 903, 93 Miss. 732.
Accident differs from mistake in that the latter always supposes the operation of the will of the agent in producing the event, although that will is caused by erroneous impressions on the mind.
21 Corpus Juris, p. 83.
The court will rectify a voluntary deed after the death of the donor where it is clearly shown that, through mistake, the deed failed to carry out the proved intention of the donor.
Spencer v. Spencer, 75 So. 770.
Gardner, Brown Backstrom, of Gulfport, Stevens Heidelberg, of Hattiesburg, and J.L. Taylor and J.C. Ross, both of Gulfport, for appellees.
It is generally laid down that reformation will not be awarded on account of a mere unilateral mistake, a mistake of but one party — standing alone. Where, however, the instrument does not express the true intent of the parties, owing to mistake on one side coupled with fraud or inequitable conduct on the other, relief will be freely given.
5 Pomeroy's Equity Jurisprudence, Secs. 4728, 4730.
To constitute a mutual mistake, so as to authorize reformation of an instrument, the minds of the parties must meet in common intent.
Cottam v. Frank, 76 A. 489.
The phrase mutual mistake as used in equity, means a mistake common to all the parties to a written contract or instrument.
Page v. Higgins, 150 Mass. 27, 31.
A party who seeks to reform a written instrument has the burden of proving mutual mistake beyond a reasonable doubt. Parol testimony to reform must be received with great caution and distrust. The burden of proof grows heavier upon the complainant by the lapse of time before seeking reformation.
Watson v. Owen, 142 Miss. 676, 107 So. 860; Jones v. Jones, 88 Miss. 784, 41 So. 373; St. Paul Fire, etc., Co. v. McQuaid, 114 Miss. 430, 75 So. 255; Rogers v. Clayton, 115 So. 108.
The facts in this case are undisputed, and while, by force of the chancellor's decree, all reasonable inferences run in favor of appellees, we will, for the purpose of discussion, reverse the inferences and state the facts and the reasonable inferences to be drawn therefrom as favorably as may be in behalf of appellant. So doing, the facts are: John R. Pratt, the owner of considerable property, found himself heavily involved by reason chiefly of indorsements on the paper of a business concern in which he had an interest. This concern desired an extension of its indorsed obligations which the appellee banks, the holders of the paper, were willing to grant, provided the paper were secured by a mortgage by Mr. Pratt on all the unincumbered property owned by him. Mr. Pratt was agreeable to this arrangement, but, being unwell and advanced in years, he was unwilling to incumber all his property for these indorsement debts without at the same time doing the honorable part of including all the individual or personal debts which he owed to several different banks, appellant among them.
He commissioned his son to consummate the matter in the manner last mentioned; and the son, accepting the task, made inquiry of all the banks and ascertained the amounts due each. In the course of this inquiry, he was informed by the business concern heretofore mentioned that the note for ten thousand dollars due appellant bank had been arranged to be taken care of by said concern, and that it would not be necessary to carry that item into the mortgage arrangement. Acting upon the faith that this assurance was genuine, the son, in calling a conference of the banks, omitted appellant bank, and, in the conference at which the terms of the security were agreed upon, appellant bank was not present nor represented. The son did not mention in the conference that anything was due appellant bank, and none of the other banks, appellees here, knew of the debt to appellant bank until after the mortgage had been executed, and the matter had been thus for the time closed.
The mortgage was executed on November 21, 1927, and Mr. Pratt died on December 12th following. A year later the mortgage was foreclosed, the property was purchased at the sale by the mortgagees, without surplus. There was otherwise no estate out of which to pay appellant's unsecured note, the concern, which promised the son to care for it, having in the meantime wholly failed to do so, and still so fails, being apparently unable to redeem its said promise.
Appellant thereupon has filed its bill praying that, by way of reformation, it be admitted as a mortgagee in the security aforesaid, and as a proportionate party in interest in the foreclosed property. The bill is bottomed upon the equitable doctrine of reformation for mistake, and it is the insistence of appellant that, since it was Mr. Pratt's intention to secure all his bank creditors proportionately, and all alike without preference, this intention through mistake was not carried into execution when the mortgage was made, and that therefore it is within the province and duty of a court of equity to rectify this mistake and make the transaction conform to the true intention.
There are several insurmountable difficulties in the way of appellant, and the first lies at the threshold. It is clear that, when the mortgage was actually executed, it was the intention of Mr. Pratt to omit appellant therefrom. True, this immediate intention arose out of the error in supposing that appellant's note would be otherwise paid, which, as it now turns out, was a complete error; but, as was tersely said by this court in Wise v. Brooks, 69 Miss., page 895, 13 So. 836, the point of inquiry is, What did the mortgagor intend to do at the time, informed as he was, not what he would have done, or would have intended to do, had he been differently informed, or had known better? To push the doctrine of mistake substantially beyond the limits thus stated would be to involve business transactions in an unendurable uncertainty, for it is no less than an obvious fact that many, very many, of our executed contracts express intentions, which have been formed out of a succession of mistaken considerations. And if the door be opened, where in the order of succession is it to be closed?
The second difficulty is that a relievable mistake must be mutual to both sides of the transaction. It is undisputed that the mortgagee banks had never heard of appellant's debt and did not know of its existence. So far as their knowledge was concerned, it was a fact nonexistent. Intention, as the term is understood in the law, is a derivative of knowledge, although the knowledge may be imperfect. So that, when the element of knowledge is wholly absent, nonexistent, there can be no intention in respect to it, else we would have the impossible conception of a derivative from nothing. The mistake that equity relieves against has reference to intention; it seeks to make the instrument speak the mutual intention. It does not undertake the threefold function of gathering the true facts for the parties, and, this done, to form for them an intention on the facts thus gathered, and thereupon to execute for them a contract which they did not make.
Realizing the difficulties stated, appellant insists finally that, since Mr. Pratt was delivering all the unincumbered property owned by him, delivering without reservation everything that appellee banks could have obtained by any process known to the law, the case should be likened to a donation, and that the ultimate intention of the donor should prevail regardless of any particular intent on the part of the donees. It is enough to say of this that the transaction was not a donation, but was one of business for a valuable consideration. Appellees were granting an extension, and it is well settled that a security given for an extension of a pre-existing debt constitutes the holder thereof an incumbrancer for a valuable consideration. 13 C.J., p. 344; 41 C.J., p. 386; 1 Jones on Mortgages (8 Ed.), pp. 766-7; Sanders v. Smith (Miss.), 5 So. 514; Schumpert v. Dillard, 55 Miss., pages 361, 362.
Affirmed.