Court: Court of Appeals of Arkansas; March 10, 2010; Arkansas; State Appellate Court
Appellants Rocky and Debra Lawrence argue that the Faulkner County Circuit Court incorrectly reformed the warranty deeds they received from the Crafton family, which reserved mineral rights. The Craftons cross-appeal, claiming the court erred by denying them attorney's fees and costs. The court's decision affirms the direct appeal but reverses and remands on the cross-appeal.
Factually, Rocky Lawrence negotiated the purchase of 110 acres from the Craftons through real estate agent B.F. Glover. Lawrence asserts he was not informed about the potential sale of mineral rights when making his offer, and the contract he signed did not reserve these rights. However, Glover claims he completed the paperwork at his office, including a reservation of mineral rights, contrary to Lawrence's testimony. Patsy Crafton Barnes, one of the sellers, stated she did not intend to sell the mineral rights and lacked authorization to do so via powers of attorney.
During closing, Lawrence believed he had secured the mineral rights, having asked about them and being told they would convey with the property. Nevertheless, real estate agent Ricky Stone testified he informed Lawrence prior to closing that the mineral rights were not included. Both Barnes and her sister Virginia Crafton Lewis confirmed they did not intend to convey the mineral rights during their closing, with Lewis asserting she repeatedly communicated this to the closing agent. Barnes admitted to not reading the warranty deeds at closing and relied on the title company's preparation. She later discovered the issue when a gas well was constructed on the property and was informed by Lawrence that the mineral rights were not hers, adding confusion about the reservation’s presence in the real estate contract.
Sarah Hooks, representing Conway Title, prepared warranty deeds and acknowledged discussions with the sellers about reserving mineral interests, assuring them that the title company would address this at closing. Although they discussed including a reservation notation on the deeds, the final documents lacked this due to human error. Hooks could not recall a specific conversation with the Lawrences regarding mineral rights, and no addendum was signed to modify the original contract. After discovering a platform on the property, Ms. Barnes approached Conway Title, which promised to file a correction deed to reserve the mineral rights. However, Lawrence refused to sign this correction, leading to litigation.
Lawrence's complaint sought to void the correction deeds, quiet title to the mineral interests, and attorney’s fees. The Craftons counterclaimed for reformation of the warranty deeds and sought damages against Conway Title if the Lawrences succeeded in their claim. The trial court dismissed the Lawrences' quiet title complaint, invalidated the correction deeds, reformed the warranty deeds to reserve mineral rights for the Craftons, and dismissed the claims against Conway Title. The Craftons then requested attorney’s fees, arguing they were the prevailing party, but the court denied this, stating that the statute does not provide for fees in reformation cases and chose not to award fees under its discretionary powers.
Both parties filed notices of appeal. The excerpt explains that reformation is an equitable remedy available for correcting written agreements that do not reflect the true intentions of both parties due to mutual mistake, requiring clear evidence of this mistake. The trial court's factual findings on mutual mistake are reviewed with deference, and the burden of proof lies with the party seeking reformation.
In *Lambert v. Quinn*, the court reviews traditional equity cases de novo, focusing not on whether there is clear and convincing evidence supporting the trial judge's findings but on whether those findings are clearly erroneous. A draftsman's mistake can justify reformation of a document when it does not reflect the parties' true understanding, as established in *Jones v. Jones* and other precedents. The Lawrences argue that the trial court erred in reforming warranty deeds, asserting that the Craftons did not prove a mutual mistake regarding the purchase of mineral rights. They contend that the Craftons were required to demonstrate this with clear, convincing, and unequivocal evidence, which they believe was not met by Glover’s testimony or the handwritten contract. They reference *Doniphan v. K. S. Rd. Co.*, where the Arkansas Supreme Court overturned a trial court's reformation due to insufficient evidence of a mutual mistake regarding contractual terms. The court emphasized that the key question is whether the parties' understanding was accurately reflected in the instrument at the time it was executed. In the *Doniphan* case, the court determined that conflicting evidence did not meet the required standard for reformation, leading to the reversal of the trial court's decision.
The contract in question uses standard language typical of similar legal documents, which does not render it vague or ambiguous. The parties involved executed the contract with full understanding, making it a binding agreement that cannot be modified. The Lawrences assert a conflict regarding intent, with Rocky Lawrence claiming he intended to purchase mineral rights, while Glover and Stone contradict this, asserting they informed him the rights would not convey. The Lawrences argue that the Craftons' evidence lacks sufficient probative value to warrant a ruling in their favor and that the trial court improperly reformed the deeds despite the Craftons having benefited from the agreement for over a year. They point out that Ms. Barnes and Ms. Lewis read the warranty deeds before signing without raising concerns about mineral rights. The Craftons counter that the trial court rightly determined Rocky Lawrence did not intend to purchase the mineral rights, and any misunderstanding is a mutual mistake regarding the contract's terms. The evidence indicated the real estate contract explicitly stated that mineral rights were not included, and the title insurance commitment also excluded these rights. The preparer of the deeds mistakenly failed to reserve the mineral rights for the Craftons. Consequently, the trial court's decision to reform the deeds was justified. Furthermore, the Craftons were not estopped from reforming the warranty deeds, as the Lawrences did not expend funds under a mistaken belief of title; they knowingly contracted to purchase the property without the minerals.
Ms. Barnes discovered during the construction of the pad that the Lawrences were asserting ownership of the mineral rights to the Crafton farm. The trial court's decision regarding this issue was affirmed, as it was not clearly erroneous. The Craftons, on cross-appeal, argued the trial court erred by denying them attorney's fees and costs. Under Arkansas law, attorney's fees are not typically awarded unless specified by statute or rule, as seen in Security Pacific Housing Services, Inc. v. Friddle. Arkansas Code Annotated section 16-22-308 grants trial courts discretion in awarding fees in contract-based cases, and such decisions are upheld unless there is an abuse of discretion (Little Rock Wastewater Utility v. Larry Moyer Trucking, Inc.).
The Craftons asserted that a prevailing party in a breach of contract case is entitled to reasonable attorney's fees, citing Marcum v. Wengert and Cumberland Financial Group, Ltd. v. Brown Chemical Co., which supported this notion. They argued that the nature of the case, despite involving an implied warranty, still justified the request for fees, referencing Curry v. Thornsberry and Murchie v. Hinton, which upheld similar claims regarding contract-related defenses. The Lawrences' complaint included a request for attorney's fees related to their breach of contract claims.
However, the Lawrences countered that their claims were focused on tortious actions regarding title and did not constitute a breach of contract or an implied covenant enforcement. They maintained that the general rule of each party bearing their own attorney's fees should apply. Additionally, they argued that even if fees were permissible, the Craftons did not demonstrate that the trial court abused its discretion in denying them.
The trial court abused its discretion by not awarding attorney's fees in a reformation action, despite the Lawrences' claims for fees related to breach of contract arising from original Warranty Deeds, which are recognized as contracts under Arkansas law. The court explicitly stated that the statute did not allow for such fees, but this was incorrect as the claims fell under Arkansas Code Annotated section 16-22-308. Consequently, the denial of attorney's fees was reversed and the case remanded for further proceedings. The appellate court affirmed the direct appeal and reversed on the cross-appeal, with judges Hart and Brown concurring. Additionally, the Craftons successfully sought to reform their mortgage with First Security Bank to exclude mineral rights, a decision granted by the trial court and recorded in the judgment from May 5, 2009. Prior to that, on October 20, 2008, the Craftons' cross-claim against Conway Title was severed, leading them to obtain a Rule 54(b) Certificate to facilitate an appeal before resolving the cross-claim.
