Filed: Aug. 17, 2000
Latest Update: Mar. 02, 2020
Summary: United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT No. 00-6009EM In re: Leo Joseph Callier * * Debtor * * Donna Callier * * Appeal from the United States Plaintiff/Appellee * Bankruptcy Court for the Eastern * District of Missouri v. * * Leo Joseph Callier * * Defendant/Appellee * * Charles H. Gray * * Defendant/Appellant * Submitted: July 6, 2000 Filed: August 17, 2000 Before KRESSEL, SCOTT and O’BRIEN1, Bankruptcy Judges O’BRIEN, Bankruptcy Judge 1 Dennis D. O’Brien, Chief Judge,
Summary: United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT No. 00-6009EM In re: Leo Joseph Callier * * Debtor * * Donna Callier * * Appeal from the United States Plaintiff/Appellee * Bankruptcy Court for the Eastern * District of Missouri v. * * Leo Joseph Callier * * Defendant/Appellee * * Charles H. Gray * * Defendant/Appellant * Submitted: July 6, 2000 Filed: August 17, 2000 Before KRESSEL, SCOTT and O’BRIEN1, Bankruptcy Judges O’BRIEN, Bankruptcy Judge 1 Dennis D. O’Brien, Chief Judge, U..
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United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 00-6009EM
In re: Leo Joseph Callier *
*
Debtor *
*
Donna Callier *
* Appeal from the United States
Plaintiff/Appellee * Bankruptcy Court for the Eastern
* District of Missouri
v. *
*
Leo Joseph Callier *
*
Defendant/Appellee *
*
Charles H. Gray *
*
Defendant/Appellant *
Submitted: July 6, 2000
Filed: August 17, 2000
Before KRESSEL, SCOTT and O’BRIEN1, Bankruptcy Judges
O’BRIEN, Bankruptcy Judge
1
Dennis D. O’Brien, Chief Judge, United States Bankruptcy Court for the District of
Minnesota, sitting by designation.
Defendant Charles H. Gray appeals from a bankruptcy court judgment reforming a deed to certain
real property, which originally named Defendant Debtor Leo Joseph Callier as sole grantee, to reflect
Plaintiff Donna Callier and Defendant Leo Joseph Callier owners as joint tenants by the entirety. For the
following reasons, we reverse the bankruptcy court’s judgment.
I
Charles H. Gray obtained a judgment in state court against Debtor Leo Joseph Callier in the
amount of $1.3 million on May 15, 1997. On August 8 1997, Mr. Callier filed bankruptcy under Chapter
11. In his bankruptcy schedules, Mr. Callier listed property, which is the subject of these proceedings,
known as the Crawford County Farm. He identified his wife (Plaintiff Donna Callier), along with his son
and daughter-in-law, as potentially claiming an interest in the property.
The Crawford County Farm was acquired in Leo Callier’s name alone in 1990 or 1991, in a
transaction that involved an exchange of another property known as the Christian County property.
Sometime prior to acquisition of the Crawford County Farm property, Mr. Callier made a loan to an
unidentified friend, and took title to the Christian County property from the friend as security for repayment
of the loan. Mr. Callier held the Christian County property in his name alone, and he intended to return
the property to the friend upon repayment of the loan. The friend later repaid the loan by purchasing a
portion of the Crawford County Farm from the seller for the loan amount. The Calliers paid the seller an
additional $150,000 for the purchase. Apparently, the Crawford County Farm property was then deeded
to the friend, who then deeded it to Leo Callier in exchange for a deed to the Christian County property.
The transaction was structured in this manner for tax purposes. The seller of the Crawford County Farm
is not identified in the record, and the deed to Callier was not made part of the record.
During the course of the bankruptcy case, Mr. Gray learned that Mr. Callier executed a contract
to sell the Crawford County Farm to his son and daughter-in-law on March 30, 1997, less than two months
before Mr. Gray’s judgment was entered against him. Mr. Gray thereupon filed an adversary proceeding
to avoid the transfer as fraudulent. Subsequently, the bankruptcy court ordered Mr. Callier to sell his
interest in the property by a date certain. Plaintiff Donna Callier then filed this adversary proceeding against
Leo Callier seeking a declaratory judgment that the Crawford County Farm is owned by the Colliers as
tenants by the entirety and requesting reformation of the deed based on mutual mistake in the conveyance,
to reflect joint tenancy by the entirety ownership.
2
Leo Callier did not contest the declaratory judgment proceeding. Charles Gray sought to intervene,
and, both adversary proceedings were called for trial on the same day, December 20, 1998. At the trial,
the parties agreed, and the bankruptcy court permitted Mr. Gray to be joined as a defendant in this
declaratory judgment proceeding and that it be tried first. Following the trial, the bankruptcy court made
oral and written findings of fact entered on January 19, 2000, concluding that “[t]here was a mutual mistake
in the execution of the deed in the failure to reflect that the Crawford County Farm was to [be] owned
jointly by Plaintiff and Defendant in tenancy by the entirety.”
The conclusion was based on findings by the bankruptcy court that Donna Callier and Leo Callier
intended to receive and hold the Crawford County Farm property as joint tenants by the entirety. No
findings or conclusions were made regarding the intention or understanding of the grantor in the deed. The
bankruptcy court ordered reformation of the deed based on the court’s findings and conclusions, and,
judgment was entered accordingly.
Mr. Gray asserts on appeal that the bankruptcy court erred in reforming the deed for the Crawford
County Farm, based on mutual mistake, because: (1) there was no evidence of mistake in the conveyance
on the part of the grantor of the property; and (2) the evidence was insufficient to support a finding of
mistake by Leo Callier, grantee party to the instrument, and Donna Callier, in the conveyance.
Alternatively, Gray claims that the bankruptcy court erred in applying the equitable remedy of reformation
because the equities in the case heavily favor him, not the Calliers. We agree that the bankruptcy court
erred in reforming the deed because there was no finding or evidence of mistake in the conveyance on the
part of the grantor, and we reverse the judgment without considering the other alleged errors.
II
We review the bankruptcy court’s findings of fact for clear error, and we review the trial court’s
application of the law de novo. Bailey v. Amsted Indus., Inc., 172 F.3d 1041, 1044 (8th Cir. 1999); In
re Waugh,
95 F.3d 706 (8th Cir. 1996). When faced with a question of substantive state law, a federal
court is bound by decisions of the state’s highest court. Bass v. General Motors Corp.,
150 F.3d 842, 847
(8th Cir. 1998). The issue here is whether, under Missouri law, a deed conveying real property can be
reformed upon a showing of mistake in the original conveyance by only one of two parties to the instrument.
We conclude it cannot. In reviewing Missouri law on reformation of contracts, we conclude that the
bankruptcy court misapplied the law to the facts and the judgment must be reversed.
3
III
There were two parties to the deed sought to be reformed in this case: an unidentified grantor friend
of Leo Callier and Leo Callier, grantee. In general, Missouri law regarding reformation of contracts based
on mutual mistake, requires that an alleged mistake be mutual and common to both parties to the instrument
in order to justify reformation of a contract. J.E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d
261 (Mo. 1973). Quoting from an earlier Missouri Supreme Court case, the Hathman court said:
We have concluded from examination of the record that a reformation of
the contract on the basis of mutual mistake of fact was not justified. In
Allan v. Allan, 364 S.W.2d 578, 581 (Mo.1963), this court said: "(A)
mistake affording ground for the relief of reformation must be mutual and
common to both parties to the instrument. It must appear that both have
done what neither intended * * * (A)nd that mutual mistake, in order to
justify granting the relief of reformation, must be established by clear and
convincing evidence."
Id. at 267, 268.
The Missouri Supreme Court has consistently applied these principles to reformation of deeds conveying
real estate for the past one hundred years. Allan v. Allan,
364 S.W.2d 578, 581 (Mo. 1963); Wilhite v.
Wilhite,
224 S.W. 448 (Mo. 1920); Benn v. Pritchett ,
63 S.W. 1103 (Mo. 1901).
In 1901, the Missouri Supreme Court held, in Benn v. Pritchett,63 S.W. 1103 (Mo. 1901), that
a petition in a suit to set aside a deed on the ground of mistake, which merely alleged mistake on the part
of one of the parties, did not state a cause of action, since equity will provide relief from mistake only when
mutual to both parties to the instrument, or when induced by fraud.
The petition charges simply a mistake of Geary in making the deed to the
Pritchetts. The decree finds that there was a mutual mistake of both
parties, notwithstanding no mutual mistake was alleged in the petition. The
petition did not state facts sufficient to constitute a cause of action. The
decree supplied the substantial fact whose omission made the petition
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insufficient. Equity will only relieve against mutual mistakes. The mistake
of one party to a contract will not entitle him to relief, unless the other
party induced him to act under such mistake, which is not this case.
Matthews v. Kansas City, 80 Mo. 231; Cassidy v. Metcalf, 66 Mo., loc.
cit. 531; Henderson v. Beasley, 137 Mo. 199,
38 S.W. 950; Steinberg
v. Insurance Co., 49 Mo. App. 255; Bartlett v. Brown,
121 Mo. 353,
25
S.W. 1108; Adkins v. Tomlinson,
121 Mo. 487,
26 S.W. 573; Koontz
v. Bank, 51 Mo. 275. A mistake of a conveyancer will not constitute a
mutual mistake as a ground for a reformation of the instrument, unless he
acted for both parties. Brocking v. Straat, 17 Mo. App. 296, loc. cit.
305. The justice of the peace in this case acted for Geary alone. Mistake
on one side, without fraud of some kind on the other side inducing the
mistake, will not be sufficient to relieve the party making the mistake.
Norton v. Bohart, 105 Mo. 615,
16 S.W. 598.
Id. at 1106.
In 1920, the Missouri Supreme Court, in Wilhite v. Wilhite, 224 S.W. 448 (Mo. 1920), again held
that reformation of deeds, based on mistake, must involve a mutual mistake of both parties to the
instrument.
It may be conceded for the purpose of this discussion that, where an
instrument is drawn in language the legal effect of which the parties
misunderstand, and which expresses what the parties did not intend to
express, a court of equity will reform the contract so as to conform to the
intention of the parties. Williamson v. Brown, 195 Mo. loc. cit. 331, 93
S.W. 791; Corrigan v. Tiernay, 100 Mo. loc. cit. 280, 281,
13 S.W.
401; McKim v. Met. St. Ry. Co., 196 Mo. App. loc. cit. 547, 548,
196
S.W. 433.
However, before a court of equity will entertain a bill to reform a contract
on the ground of mistake, the mistake must be mutual; that is, the contract
must be written in terms which violate the understanding of both parties.
5
Meek v. Hurst, 223 Mo. 688, loc. cit. 696,
122 S.W. 1022, 135 Am.
St. Rep. 531; Benn v. Pritchett, 163 Mo. loc. cit. 571, 572, 63 S.W.
1103; Wolz v. Venard, 253 Mo. loc. cit. 82,
161 S.W. 760. The mistake
must occur in reducing to writing the contract upon which the parties had
agreed; the prior agreement upon the terms of the contract is
presupposed. Parker v. Van Hoozer, 142 Mo. loc. cit. 629, 44 S.W.
728; Robinson v. Korns, 250 Mo. loc. cit. 675,
157 S.W. 790;
Dougherty v. Dougherty, 204 Mo. loc. cit. 237, 102 S.W. 1099. Proof
of the prior agreement, which was erroneously written by mistake, must
be clear and convincing. Wall v. Mays, 210 S.W. 871, loc. cit. 872;
Crouch v. Thompson, 254 Mo. loc. cit. 487, 162 S.W. 149; Horine v.
Royal Ins. Co. (App.) 201 S. W. loc. cit. 959.
Id. at 449.
Subsequently, in 1963, the Missouri Supreme Court stated unequivocally a third time, in Allan v.
Allan, 364 S.W.2d 578 (Mo. 1963), that a mistake providing ground for reformation must be mutual and
common to both parties to the instrument, and must be established by clear and convincing evidence.
At the outset of our consideration of this appeal we deem it appropriate
to quote certain established rules applicable to cases of this nature. '[A]
mistake affording ground for the relief of reformation must be mutual and
common to both parties to the instrument. It must appear that both have
done what neither intended. * * * [A]nd that mutual mistake, in order to
justify granting the relief of reformation, must be established by clear and
convincing evidence.' Walters v. Tucker, Mo.Sup., 308 S.W.2d 673,
675, 679. "A mutual mistake presupposes a prior or preceding agreement
between the parties, and, this agreement of necessity must be shown.'
Dougherty v. Dougherty, 204 Mo. 228, 237,
102 S.W. 1099, 1101.'
Zahner v. Klump, Mo.Sup., 292 S.W.2d 585, 587.
Id. at 581.
6
The facts in Allan v. Allan reveal that divorce litigation was brought by Thomas Allan’s spouse
against Allan to partition and sell the Allan family farm that had been deeded during their marriage from
Allan’s parents to Allan and his spouse. Allan’s father died shortly after the conveyance and before the
divorce litigation. Allan’s mother was a third party defendant in the lawsuit. Allan and his mother claimed
that the deed was given conditionally upon the grantors’ retaining a life estate, and sought reformation of
the deed. The deed made no mention of a life estate, but was an ordinary warranty deed. The Missouri
Supreme Court concluded that grounds for reformation did not exist, stating:
In order to prevail on the issue of reformation it is necessary to show that
the mistake was mutual, i. e., common to both parties. In that connection
we should perhaps state that we are convinced that there was an
agreement between defendant and his parents that they should have the
right to occupy the farm as a home as long as either lived. However, it
does not appear to have been agreed that that provision would be written
into the deed. No witness testified that there was any agreement or
understanding that the grantors would reserve a life estate in the deed.
Id.
Donna Callier argues that evidence of a grantor’s mistake is not a necessary element to the cause
of action for reformation of a deed, citing Shaffer v. Dalrymple,
507 S.W.2d 65 (Mo. Ct. App. 1974).
In Shaffer v. Darlymple, a widow sued to have the deeds to two parcels of real estate, held solely
in the name of her deceased spouse, reformed to reflect ownership in them both as joint tenants by the
entirety. The lower court ordered judgment reforming the deeds on evidence of mutual mistake on the part
of the widow and her deceased spouse, even though there existed no evidence in the record that the
grantors were mistaken in the grants of the conveyances. The Missouri Court of Appeals affirmed, stating:
It is true, as appellants contend, that a mistake affording ground for relief
by way of reformation must be mutual and common to both parties to the
instrument, and that the mutual mistake must be established by clear and
convincing evidence. Allan v. Allan, 364 S.W.2d 578, 581(1--5)
(Mo.1963), and cases cited. But what appellants seem to argue is that
7
there is a lack of evidence of mutuality of mistake as between the parties
grantor and the grantees to the two deeds in question. * * *
The argument ignores the nature of an action for the reformation of an
instrument on the ground of mutual mistake of fact, that the parties affected
by the mistake are the only ones who are in interest.' 'It has been held that
all parties who possess an actual interest in the matter must be mistaken,
but it is enough if the mistake is mutual as between the real parties in
interest, or between the parties affected thereby.' 76 C.J.S. Reformation
of Instruments, s 28C., p. 368; 'On the other hand, it has been held that
reformation may be sought on the ground of mistake without joining a
party to the mistake where it appears that such party no longer has an
interest in the subject matter of the litigation, such as in the case of an
action between the grantees of a common grantor.' 66 Am.Jur.2d, s 100,
p. 632. See also 76 C.J.S. Reformation of Instruments s 70, p. 425,
stating, 'The grantor in the deed sought to be correct is a necessary party,
at least where the conveyance contains covenants of warranty, * * *; but
there is some authority restricting the application of this rule and holding
that necessary parties to the action do not include grantors who have
conveyed their whole title and interest in the property which will be
affected by reformation, * * *.' (Italics added.) Both Connecticut General
and the Meltons, as grantors, conveyed their entire interests in the lands
by the deeds in question. They were not necessary parties to this suit.
Rule 52.04(a), V.A.M.R. The inquiry here is only the sufficiency of the
evidence to show a mutual mistake of fact at the time the deeds were
made as between respondent and deceased.
Shaffer v. Dalrymple, at 69, 70.
Shaffer v. Dalymple seems to us clearly contrary to Missouri law of reformation of contracts,
consistently articulated by the Missouri Supreme Court for at least seventy-five years prior to Shaffer. In
addition to the fact that we are bound to follow the law of Missouri as determined by that state’s highest
court, Bass v. General Motors Corp., 150 F.3d 842, 847 (8th Cir. 1998), there are additional reasons
8
why we do not find Shaffer to be controlling Missouri law, either generally, or with respect to the facts of
this case.
The same appellate court recently declined to follow Shaffer, even though it had the clear
opportunity to do so. In Morris v. Brown, 941 S.W.2d 835 (Mo. Ct. App. 1997), Morris, who purchased
property from one Boone, received title by life estate with remainder in her two daughters as tenants in
common. One of the daughters predeceased Morris, who then sought reformation of the deed based on
mutual mistake to reflect a life estate in Morris with the remainder in her daughters as joint tenants. The
trial court ruled in her favor.
The Missouri Court of Appeals reversed the trial court, specifically holding that evidence was
insufficient to support reformation of a deed where there exists no evidence of mistake on the part of the
grantor party to the instrument. The Morris court implied that a grantor is inherently a party affected by
a mutual mistake and a proposed reformation, whether or not required to be a party to a reformation
proceeding itself.2
One of the assigned errors on appeal in Morris was that the petition for reformation failed to plead
a cause of action due to failure of the petitioners to specifically plead mistake on the part of the grantor.
The appeals court found the petition to be adequate, in this discussion:
A well-pled petition for reformation of a deed because of mutual mistake
is characterized by three elements:
preexisting agreement between the parties affected by the proposed
reformation that is consistent with the change sought; that a mistake was
made in that the deed was prepared other than had been agreed upon;
and that the mistake was mutual, i.e., was common to both parties.
Wates v. Joerger, 907 S.W.2d 294, 296 (Mo.App.1995); see also
Cockrell, 762 S.W.2d at 881. Here, in Count II of respondents' petition,
they did request reformation of the deed as a result of mutual mistake. In
this respect, the respondents alleged in their petition that "the parties to the
2
The grantor, Boone, was not a party in the Morris v. Brown lawsuit.
9
deed of February 28, 1973 and, in particular, the Grantees thereof Louise
Massey, Norma Summers (now Lemons) and Nellie Morris intended that
the interest of the Grantees be a survivorship interest...." L.F. 6 (emphasis
added). Although this allegation is not a model in pleading reformation of
a warranty deed for mutual mistake and does not specifically mention the
grantor, Boone, as to his intent in regard to the deed, giving it a liberal and
favorable construction to respondents, we cannot say that respondents'
petition as a whole failed to adequately plead the three necessary elements
of reformation based on mutual mistake.
Morris v. Brown, at 839, 840.
The Morris court went on to reverse the trial court, however, in part on insufficiency of the evidence
to show mistake on the part of the grantor, Boone. Applying the law to the facts of the case, the court
reasoned:
Appellants contend that because Boone never specifically agreed with the
grantees to title the property in Massey and Lemons as joint tenants, there
never was a preexisting agreement with the grantor, and thus, no mutual
mistake supporting reformation. On the other hand, respondents contend
that it was not necessary to discuss the specifics of the titling with Boone
in that it was implied in the sale agreement that Boone agreed to convey
the land in whatever form the grantees desired. They argue that this alone
is sufficient to establish a preexisting agreement between the grantor and
grantees to find a mutual mistake supporting reformation of the deed. In
support of their argument, respondents rely on the testimony of the realtor,
Rita Stephens, who handled the sale for the grantor. She testified that the
real estate contract here had been lost or destroyed. However, she
testified that in this case, as is the case in most sales of real estate, Boone's
only interest or concern in selling the real estate was to obtain the price at
which the land was offered, and that it was implied in the agreement to
sell, that Boone agreed to title the property in whatever manner the
grantees chose, otherwise there would not be a sale. This argument of
10
respondents would certainly have some merit if, in fact, there was a
showing that Boone at the time of conveyance was aware of how the
grantees wanted the property titled. Otherwise, how could it be said that
Boone intended the real estate to be titled as a joint tenancy and it was
not, and thus, the alleged mistake in the language of the deed frustrated his
intent as to the titling of the property, creating a mutuality of mistake as to
what interest was conveyed by the deed? On this issue, there is no
evidence that Boone was ever advised that the property was to be titled
in Massey and Lemons as joint tenants.
Morris v. Brown at 841. Shaffer v. Dalrymple, 507 S.W.2d 65 (Mo. Ct. App. 1974), is not mentioned
in the Morris v. Brown decision. Even if the Missouri law of reformation of contracts was not well settled
by the Missouri Supreme Court, we would be persuaded by the more recent Morris v. Brown,
941
S.W.2d 835 (Mo. Ct. App. 1997).
Finally, even if Shaffer v. Dalrymple, 507 S.W.2d 65 (Mo. Ct. App. 1974) was the controlling
Missouri law on reformation of contracts, the trial court’s legal conclusions and judgment would not be
sustainable. The bankruptcy court did not specifically find that Leo Callier’s grantor was not affected by
the alleged mistake or proposed reformation. Nor can the finding be inferred, since the record does not
disclose the identity of the grantor, what he understood, what he was told, what he assumed, or, what he
intended in the transaction.3 A finding of unaffectedness is critical to the Shaffer rationale that an unaffected
grantor need not have been mistaken in the transaction for a viable cause of action to exist between
grantees and others.
In conclusion, there were two parties to the instrument sought to be reformed in this case: an
unidentified grantor friend of Leo Callier and Leo Callier, grantee. In order to sustain a cause of action for
reformation of the deed based on mutual mistake, Missouri law requires that both parties to the instrument
3
If anything, the dynamic of the transaction seems to indicate that the grantor might indeed be
affected by the alleged mistake and proposed reformation of the deed. As we understand the record,
the grantor’s participation in the transfer of the Crawford County Farm property was to enable him to
get back his Christian County property through a land exchange that would qualify as a like kind
property exchange and tax free transfer under 26 U.S.C. § 1031. Generally, exchanges must be
among the same taxpayer owners to qualify under the statute.
11
must have been mistaken in the conveyance, established by clear and convincing evidence. There was no
finding by the bankruptcy court that the grantor party to the instrument was mistaken in the conveyance,
and there is no evidence in the record from which such a finding could be made. Therefore, we conclude
that the trial court erred in application of Missouri law by reforming the deed, based on unilateral mistake
of the grantee Leo Callier.
IV
Accordingly, the judgment of the bankruptcy court is reversed.
A true copy.
Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
EIGHTH CIRCUIT
12
