Eastern Ky. Production Credit Ass'n v. Scott

• Court: Supreme Court of Kentucky
• Writing for the Court: SIMS
• Citation: Eastern Ky. Production Credit Ass'n v. Scott, 247 S.W.2d 983 (Ky. 1952)
• Decision Date: 14 March 1952
• Parties: EASTERN KENTUCKY PRODUCTION CREDIT ASS'N v. SCOTT et al.

Page 983

247 S.W.2d 983

EASTERN KENTUCKY PRODUCTION CREDIT ASS'N v. SCOTT et al.

Court of Appeals of Kentucky.

March 14, 1952.

Rehearing Denied May 9, 1952.

Diederich & Lycan, Ashland, McIntire & McIntire, Flemingsburg, William C. Goodwyn, Louisville, for appellant.

Phipps & Phipps, Ashland, for appellees.

SIMS, Justice.

The question for determination is, does the reformation of a deed making it convey the property the parties intended, defeat an attachment lien of a bona fide creditor levied on the property while it stood in the name of the debtor? The chancellor granted appellee reformation and held the reformed deed took precedence over the attachment.

There are practically no contrarieties in the facts. Appellee, Mildred Scott Holbrook, obtained a divorce from Darwin Scott and subsequently married John H. Holbrook. For the sake of brevity and to avoid confusion, we will refer to Mrs. Holbrook as Mildred and to Mr. Scott as Darwin. On Oct. 17, 1946, Mildred sued Darwin for an absolute divorce and on that day the parties entered into a separation agreement which recited she relinquished all claim for alimony, as well as her distributive share in Darwin's estate, in consideration of 'one dollar and other valuable consideration, receipt of which is acknowledged'. Simultaneously with the execution of this settlement agreement Darwin executed to Mildred a deed conveying her a 50 foot lot on the east side of Broadway in Catlettsburg. The conveyance of this property was the real consideration of the separation agreement, as we understand it. The separation agreement was incorporated in the divorce judgment entered Dec. 7, 1946, but no reference was made therein to the conveyance.

Darwin owned two adjacent lots in Catlettsburg on the east side of Broadway. One was a 50 foot vacant lot immediately adjoining the Presbyterian Manse and the other was a 46 foot lot which contained a two-story brick apartment and was immediately north of the vacant lot. The descriptions of these two adjacent lots were such that they could easily be confused. The description of the vacant lot began at the northwest corner of the Manse property, while the description of the 46 foot lot began 50 feet from the northwest corner of the Manse property and each extended back 105 feet to an alley. It was the intention of Darwin to convey Mildred the 46 foot lot containing the apartment building and she thought she was receiving that property. By mistake the draftsman of the deed inserted the description of the vacant lot and Mildred was conveyed it rather than the lot containing the apartment.

When Mildred married Holbrook she went to Seattle, Washington, to reside and never knew of the mistake in her deed until this litigation arose. She listed the apartment property for taxation, paid the taxes thereon, rented the apartments and made minor repairs and improvements on the property. There is no doubt that Darwin intended to convey her the apartment property and there is no doubt that Mildred in accepting the deed thought it conveyed the lot containing the apartment. Darwin and Mr. Harry Price, the attorney who drew the deed for Mildred, both testified it was the intention of Darwin to convey Mildred the apartment property but by mistake the 50 foot vacant lot was described in the deed.

On July 26, 1948, Darwin borrowed $20,500 from appellant, evidenced by his promissory note due Feb. 15, 1949, which was secured by a chattel mortgage on certain livestock. He failed to meet this note at maturity and in the foreclosure suit appellant obtained a general order of attachment which was levied upon certain real estate Darwin owned in Catlettsburg, including the apartment property which was of record in his name. Mildred intervened and her pleadings set out the facts recited above. She tendered with her intervening petition a quit-claim deed to the 50 foot vacant lot and asked the chancellor to reform the deed Darwin executed to her so it would convey the apartment property as intended, and that appellant's general order of attachment be discharged which was levied on the apartment.

Appellant insists that under KRS 382.270 the holder of an unrecorded deed takes subject to the attachment lien of a creditor without notice; that as it was a subsequent creditor without notice, Mildred's claim to the property, merely through possession and without a deed, must yield to the attachment lien. It places most of its reliance in Leslie v. First Huntington Nat. Bank, 301 Ky. 145, 191 S.W.2d 204, and First Nat. Bank v. Williamson, 273 Ky. 116, 115 S.W.2d 565. In the Williamson case the purpose of reforming the deed was to have it convey certain coal royalty which had been omitted by oversight from the original conveyance, and we said that such reformation could not interfere with the bank's prior equity obtained through its attachment, since the property stood in the debtor's name and there was no publicity of the conveyance of the royalty to put the bank on notice. In the Leslie case we held that the possession of the mother who lived on the property under her right of dower and held an unrecorded deed from her daughter, for the latter's undivided interest, did not give the bank notice the mother owned the daughter's interest, and the attachment the bank levied thereon was upheld.

It is urged by Mildred that the reformation of an instrument is retroactive and attaches to the property contemporaneously with its execution, as the reformed instrument is the one the parties intended to execute. Ordinarily this is true, but the reformation cannot prejudice the rights of innocent third parties. See the Williamson case, 273 Ky. 116, 115 S.W.2d 565. She further contends that an attaching creditor has no greater right in the property than the debtor had at the time of the attachment, and as Darwin claimed no interest in the property against her, his creditors may not. But in Meade v. Wells, 309 Ky. 748, 219 S.W.2d 972, we said to adopt this rule would emasculate our recording statutes. Our reasoning in a nutshell is that if an unrecorded deed will not protect the owner against the attachment of a subsequent creditor without notice, certainly mere possession of the property, with no deed at all, cannot protect the equitable owner, unless the possession was sufficient to put the attaching creditor on notice.

There can be no doubt that Mildred was in possession of this...