National Bank of Kentucky v. Louisville Trust Co.

• Decision Date: 13 October 1933
• Docket Number: No. 6435.,6435.
• Citation: 67 F.2d 97
• Parties: NATIONAL BANK OF KENTUCKY et al. v. LOUISVILLE TRUST CO.
• Court: U.S. Court of Appeals — Sixth Circuit

67 F.2d 97 (1933)

NATIONAL BANK OF KENTUCKY et al. v. LOUISVILLE TRUST CO.

No. 6435.

Circuit Court of Appeals, Sixth Circuit.

October 13, 1933.

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Robert S. Marx, of Cincinnati, Ohio (Nichols, Morrill, Wood, Marx & Ginter, of Cincinnati, Ohio, on the brief), for appellant.

Robert G. Gordon, of Louisville, Ky. (Squire R. Ogden and Gordon, Laurent & Ogden, all of Louisville, Ky., on the brief), for appellee.

Before HICKS, HICKENLOOPER, and SIMONS, Circuit Judges.

HICKENLOOPER, Circuit Judge (after stating the foregoing facts).

This is an action brought by the appellee for specific performance of an alleged parol contract for the sale to appellant of certain real estate in the city of Louisville, known as 421 West Market street, which contract was said to have been entered into on June 21, 1929. The defendant bank having subsequently become insolvent, and its affairs being in the process of final liquidation, it is conceded that an action in equity for specific performance, strictly speaking, will not lie against either the receiver or the bank. The contract, if one there was, being still wholly executory, we concur in the position just stated. The federal law provides for the method of liquidation of national banks, for the conversion of their assets into money, and for the ratable distribution of these funds among creditors. In addition to the right of a receiver to repudiate executory contracts (Cf. U. S. Trust Co. v. Wabash W. R. Co., 150 U. S. 287, 299, 14 S. Ct. 86, 37 L. Ed. 1085; Dayton Hydraulic Co. v. Felsenthall, 116 F. 961 C. C. A. 6), the granting to the complainant of relief in the nature of specific performance would be the equivalent of full satisfaction of its claim, and it would thus receive a preference to which it is not entitled. For this reason a bill for specific performance will not lie. Southern Express Co. v. Western North Carolina Railroad Co., 99 U. S. 191, 200, 25 L. Ed. 319.

But it is said that this is not, strictly speaking, a bill for specific performance, but rather one for recovery of the stipulated purchase price and the foreclosure of its vendor's lien. In this contention counsel for the complainant have become somewhat confused by the language of the courts in setting forth some of the necessary consequences of the right to specific performance in equity. This right is of very ancient origin. From the instant that a valid and enforceable contract for the sale of real estate has been entered into, equity has, from times immemorial, regarded the contracting purchaser as the equitable owner. Thereafter the risk of loss or damage to the premises, by fire, flood, or other hazard, is upon the vendee; for, in the event of such loss, the vendor may still have specific performance. There is also a resulting equitable conversion of the real estate in the hands of a vendor, that is, the legal title retained by the vendor and subject to his bond for title will descend as personalty, and will be so regarded generally, while the right of the vendee to compel performance by the vendor will, in the event of the death of the vendee, pass to his heirs at law and not to his next of kin. The vendee is therefore said to be the equitable owner.

But these are only incidents or necessary consequences of the right to specific performance, and in seeking to give a simple and easily understood reason for them, courts have frequently said that the vendor "holds the legal title to the real estate in trust for the vendee and as security for the payment of the agreed consideration," and that the vendee likewise holds the purchase money in trust for the vendor; but, obviously, there is no real trust. All that is meant is that the vendee, because of the nature of the bargain, or the unpaid vendor, because the right should be mutual, may compel specific performance. Before performance is thus compelled, it is manifest that the vendor holds the legal title subject to this equitable right of the vendee to compel a conveyance, and that there is also an as yet unexercised right in the vendor to compel the vendee to accept and pay for the property. Hence, until specific performance, the vendee is regarded as the equitable owner, and the risk of loss is upon him; and the vendor holds the legal title subject to the vendee's equitable rights which are analogous to the rights of a cestui que trust only in that a conveyance may be compelled, and, possibly, in that the vendee is entitled to increment in value, rents, and profits, etc., if and when performance is had.

So also with the statement that a contracting vendor of real estate holds the legal title "as security for the payment of the purchase price." This means, and was intended to mean, no more than that, while the vendee has a right to compel specific performance, the vendor will not be required to convey unless and until the purchase price be paid. This suggests another insuperable difficulty in adopting complainant's contention here made. Unless there be a right in the complainant to recover a judgment for the entire purchase price of the property, there can be no foreclosure of a vendor's lien or sale of the security to satisfy such a claim. This right to recover the purchase price would exist at law only after complete performance of the contract on the part of the vendor. It exists in equity only by virtue of the right to specific performance. There must first be a decree that the vendee specifically perform its contract, that is, that it pay the purchase price, before there can be the subsequent relief of sale of the property, application of the proceeds of such sale in satisfaction of the obligation already decreed, and finally a decree disposing of the surplus receipts, or making provision for the payment of any deficiency. The fact that the complainant is willing to waive in part its right to a mandatory order for the payment of the deficiency, which right normally forms a part of the remedy obtainable in an action for specific performance, and to accept in lieu of such mandatory decree a similar mandate that the receiver of the National Bank of Kentucky receive, file, approve, report to the Comptroller, and pay dividends upon the claim of the Louisville Trust Company in the sum of $857,096.50 with interest at 6 per cent. per annum from October 14, 1930, until such dividends plus any sums which may be received from the sale of the property equal the face value of the claim plus interest, does not prevent the present action from being one for specific performance, or the relief granted from being essentially the specific performance of the contract. Except upon such hypothesis there could be no judgment for the entire alleged purchase price, but only for the amount in which the Louisville Trust Company had been damaged by the proved breach of a contract to purchase.

We have been cited to no case which fundamentally conflicts with the above views, and we know of none. Nor do we regard the fact that ejectment will not lie after delivery of possession of the real estate under a bond for title, and that the only remedy of the vendor in such a case is in a court of equity, as inconsistent with the position here taken. This is but to say that equity affords a remedy where the legal remedy of ejectment would be unavailable. Nor does our position deny to the complainant full equality of relief with all other creditors. The complainant still has possession and title to the building in question. In addition to this it is entitled to enforce at law whatever rights it has acquired by virtue of the alleged breach of contract by the National Bank of Kentucky. Upon any judgment so obtained it is entitled to whatever dividends are paid other creditors. It is not entitled to more than this equality of treatment simply because, were circumstances other than they are, a right to specific performance might exist.

Since the decree of the court below must be reversed and the cause be remanded for further proceedings, and since such proceedings may involve a transfer of the case to the law side of the court, a repleading of the cause, and a trial of the issues of the existence and alleged breach of the contract, it seems necessary that we express our views at this time on several issues here presented and elaborately argued, which it is insisted should bar a right of recovery either at law or in equity.

The first of these questions is presented by the claim of the appellant, defendant below, that the evidence fails to establish the making of any contract. There was ample parol evidence of an authorized offer of sale which was acceptable to and accepted, in words of vague generality, by the board of directors of the National Bank of Kentucky. On the other hand, there are many facts and circumstances tending to show that neither party intended the making of a contract, with all the finality thereby implied. Among these facts and circumstances we note the exceeding informality of the recorded action by the board of directors of the National Bank of Kentucky. Among the members of the board were prominent attorneys of the city of Louisville and men of broad business affairs. It might reasonably be assumed that in a transaction involving so much, had it been intended to act within the sphere of the creation of legal liability, there would have been the presentation of a formal resolution, a direct authorization of the officers to carry into effect the will of the board, and a record of the vote taken in the adoption of the resolution. The secretary of the board testified that there was simply a general discussion in which a number of the directors took part and that the minutes were merely the statement of his impression of the general consensus of opinion, which was in accord with proceeding, when the time was ripe, along the lines suggested.

There are also the further facts that in November, 1929, five months...