Real Property – Deed Reformation – Scrivener’s Error – Deed of Trust – Priority

S.T. Wooten Corp. v. Front Street Construction, LLC (Lawyers Weekly No. 11-07-1226, 10 pp.) (John C. Martin, Ch.J.) Appealed from Wake County Superior Court. (Paul G. Gessner, J.) N.C. App. Click here for the full-text opinion.

Holding: After the defendant-bank’s deed of trust on the defendant-owner’s property was recorded, and after the plaintiff-subcontractor performed work on the property, the owner and grantor recorded a new deed to correct a scrivener’s error that had incorrectly conveyed only a one-half interest to the owner when both parties intended that a 100 percent interest be conveyed. In order to reflect the corrected deed, the bank’s deed of trust was re-recorded, but this occurred after the subcontractor had performed work on the property. The trial court correctly reformed the deed and declared the bank’s deed of trust superior to the subcontractor’s lien.

When a grantor, through a mutual mistake, conveys less to a grantee than was intended, the grantor holds the remaining portion of the property not conveyed in constructive trust for the grantee.

As a result of the scrivener’s error in the deed, the grantor held, by operation of law, the half of the property mistakenly not conveyed in constructive trust for the defendant-owner. The subcontractor contracted with the general contractor assuming that the defendant-bank, as the lender financing the project, had a superior interest in the property.

The subcontractor began work in September 2007 but did not learn of the scrivener’s error until sometime in 2009. Thus, it did not begin work or furnish new materials in reliance upon the error in the original deed. Moreover, because the subcontractor, by its own admission, did not know of the mistake in the deed, the subcontractor is not prejudiced by reformation of the deed to reflect the original intent of the parties.

Reforming the deed will put the subcontractor in the position it expected to be in when it contracted to do the work originally. The trial court did not err in ordering reformation of the deed.

The subcontractor contends that the bank had unclean hands due to the bank’s representation to the subcontractor that the bank had extended sufficient credit to the owner to cover the cost of the proposed work on the property. Since this alleged misconduct arises out of matters which are merely collateral to the deed reformation, the equitable remedy is not barred.

While it is true that the bank benefits from reformation of the deed, this benefit is only incidental to the reformation of the transaction between third parties, the grantor and the property owner, which is wholly unrelated to any representation made by the bank to the subcontractor. Therefore, we hold that since the bank’s alleged wrongdoing is collateral to the transaction in controversy, the trial court did not abuse its discretion in reforming the deed.

Affirmed.