Talley v. Eastland

• Citation: 259 Ky. 241
• Parties: Talley et al. v. Eastland et al.
• Decision Date: 10 May 1935
• Court: United States State Supreme Court (Kentucky)

259 Ky. 241

Talley et al. v. Eastland et al.

Court of Appeals of Kentucky.

Decided May 10, 1935.

1. Mortgages. — Whether instrument is a conditional sale or a mortgage must be determined from the surrounding circumstances, and in case of doubt instrument will be held to be a mortgage.

2. Mortgages. — In determining whether instrument was deed or mortgage, where notes were not surrendered when instrument was executed but were surrendered more than two years later upon release of mortgage securing one of the notes, presumption, in absence of evidence, was that notes were not canceled until release of such mortgage.

3. Mortgages. — Where debtors gave deed to bank in consideration of $2,000 and cancellation of all indebtedness to estate of which bank was administrator on condition that they should have a year in which to redeem land for $2,000 without interest, and deed provided that otherwise it should be absolute, but notes evidencing indebtedness were not surrendered, debtors remained in possession, and made improvements, deed held a "mortgage," and debtors were entitled to claim land upon payment of $2,000 as against purchasers with notice, though $2,000 was not paid within a year and bank conveyed property to creditor's sole heir, who devised it to others who sold it to defendants.

4. Mortgages. — In determining whether instrument is a deed or a mortgage, evidence of surrounding circumstances is admissible.

5. Vendor and Purchaser. — In suit to have instrument declared a mortgage where instrument provided on its face that grantors should have a year in which to redeem the property and other deeds of record gave notice of original transaction and ultimate purchasers knew that original grantors were in possession, such purchasers were not "innocent purchasers" so as to hold land free of any claim of original grantors.

6. Vendor and Purchaser. — Where original deed was a mortgage and purchasers claiming through original grantee knew that original grantors were still living on the land, purchaser was charged with notice of everything he would have learned by prudent inquiry.

7. Mortgages; Vendor and Purchaser. — Absolute conveyance intended as a mortgage will retain its character in hands of subsequent purchasers with notice of rights of the parties, and if purchaser from original grantee knew nature of transaction, or facts sufficient to put him on inquiry, he cannot claim to be absolute owner, but mortgagor may redeem from him as well as from the grantee.

Appeal from Caldwell Circuit Court.

R.W. LISANBY and ALVIN LISANBY for appellants.

MARSHALL P. ELDRED and GEORGE O. ELDRED for appellees.

OPINION OF THE COURT BY DRURY, COMMISSIONER.

Reversing.

From a judgment holding a certain instrument to be a deed and not a mortgage, Mrs. Tylene Talley et al. have appealed.

The Facts.

Some years ago R.E. Butler died intestate and without issue leaving his mother, Nancy Hill, as his sole heir. The First National Bank of Princeton, Ky., became his administrator.

Among the assets that came into its hands were some notes signed by J. Fred Talley and secured by mortgages upon a farm in Caldwell county, Ky. Subject to these liens this farm then belonged to J. Fred Talley in fee simple.

On October 3, 1930, Mr. and Mrs. Talley executed an instrument, which was that day acknowledged and recorded, the essential parts of which are:

The Instrument in Question.

"This deed made and entered into by and between J. Fred Talley and Tylene Talley, his wife of Princeton, Caldwell County, Kentucky, as parties of the first part and the First National Bank, of Princeton, Kentucky, Trustee, party of the second part. Witnesseth, That for and in consideration of the sum of ($2000.00) two thousand dollars and the cancellation of all indebtedness held by the estate of R.E. Butler, deceased, against the land hereafter described and hereby conveyed receipt of which is hereby acknowledged and of the covenants and agreements hereinafter contained, the said parties of the first part have this day bargained and sold and do by these presents grant, bargain, sell and convey unto the said party of the second part, as Trustee aforesaid the following described real estate, viz: (We omit the description.) But it is understood and agreed and this deed is made on the express condition that the said J. Fred Talley and Tylene Talley, his wife, parties of the first part are hereby given one year from date of this deed to redeem said land by paying said sum of $2000.00 without interest but otherwise this deed shall become absolute."

Mr. and Mrs. Talley continued to live upon the farm, to cultivate and improve the same. Mr. Talley listed it for taxes in his name, paid the taxes thereon, and insured it in his own name with a clause in the policy making the loss payable to the First National Bank, mortgagee.

On October 22, 1931, the bank conveyed this property to the above-named Mrs. Hill. Mrs. Hill thereafter died leaving a will by which she devised this property to her other children, M.F. Hill et al. The insurance was now made payable to M.F. Hill, mortgagee, as his interest may appear.

In 1931 the bank made this deed:

"This Deed of Conveyance, made and entered into this 22 day of October, 1931, by and between the First National Bank, of Princeton, Kentucky, Trustee and Administrator of the estate of R.E. Butler, deceased, intestate, as party of the first part, and Nannie Lowery Hill, of Piggott, Arkansas, sole heir of R.E. Butler, deceased, intestate, as party of the second part.

"Witnesseth: That whereas, the real estate hereinafter described and hereby conveyed was, on the 3rd day of October, 1930, conveyed by J. Fred Talley and wife to the aforesaid Trustee, to be held in trust by said Trustee for a period of one year, subject to the right of said grantors to redeem same upon payment to said Trustee of the sum of $2000.00 without interest, same being for a debt owed to the estate of said decedent, R.E. Butler and his heirs, said grantors, J. Fred Talley, and wife, have failed to pay to said Trustee said amount, or any part thereof, and said trust period has expired. `Now therefore, in consideration of the premises, and in order to vest the legal title to the land hereinafter described in the said party of the second part, who is the sole heir and beneficiary of the estate of the said R.E. Butler, deceased, etc.'"

On May 4, 1934, M.F. Hill et al. conveyed this property to the appellees, A.A. Eastland and wife. J. Fred Talley was killed in a railroad accident a few days thereafter. He died intestate, and whatever rights he had in this property passed to his widow Tylene Talley and his six children of whom five were infants. Mrs. Talley qualified as guardian of these infants, and in her own right and as guardian of these infants she joined with her adult son in this suit against Mr. and Mrs. Eastland to recover this land, seeking to have the first deed copied above construed to be a mortgage, and that they be permitted to pay their debt, etc.

What Is This Instrument?

It will be observed the grantee named is "the First National Bank, of Princeton, Ky., Trustee"; but there is not another word indicating for whom or for what it is trustee, and the question is: What is the effect of the use of this word?

We are persuaded by the opinion in Sansom, Trustee, v. Ayer & Lord Tie Co., 144 Ky. 555, 139 S.W. 778, that this word is merely descriptive and nothing more. When the bank attempted to convey this property to Mrs. Hill (see that deed supra), it described itself as "Trustee and Administrator of the estate of R.E. Butler deceased," and further on it says this property was to be held by it as trustee for a period of one year subject to the right of the grantors to redeem it by paying the $2,000.

One thing is certain, if this was enough to make this a deed of trust to be held by the bank awaiting the payment of this $2,000, then it is only a mortgage, for such, deeds of trust are uniformly held so to be. See Jones on Mortgages (8th Ed.) sec. 77; 41 C.J. p. 290, sec. 31; 19 R.C.L. p. 269, sec. 40. However, the parties in their briefs have not discussed this feature at all, so we shall now take up and consider this instrument in the light of their very able discussion of it, for they were in immediate contact with the parties; they got their impressions, of what this paper is, from the parties themselves; so we shall dismiss this idea and give our attention to the question they have presented.

Mortgage or Conditional Sale.

Whether such a transaction as this is a mortgage or a conditional sale is a question that has puzzled the courts of America no little, as will be seen by the case of Dickens v. Heston, 53 Idaho, 91, 21 P. (2d) 905, 90 A.L.R. 944 and the 14 pages of annotations following it.

By the case of Parks v. Mulledy, 49 Idaho, 546, 290 P. 205, A.L.R. 934 and the 21 pages of annotations following it.

By Sauer v. Fischer, 247 Mich. 283, 225 N.W. 518, 65 A.L.R. 766 and the 9 pages of annotations following it.

By Pollak v. Millsay, 219 Ala. 273, 122 So. 16, 65 A.L.R. 110 and the 4 pages of annotations following it.

By Mankin et al. v. Dickinson et al., 76 W. Va. 128, 85 S.E. 74, Ann. Cas. 1917D, 120 and 4 pages of notes following it.

Other annotated cases are: Plummer v. Ilse, 41 Wash. 5, 82 P. 1009, 2 L.R.A. (N.S.) 627, 111 Am. St. Rep. 997; Keithley v. Wood, 151 Ill. 566, 38 N.E. 149, 42 Am. St. Rep. 272; Friedley v. Hamilton, 17 Serg. & R. (Pa.) 70, 17 Am. Dec. 638; Harbison v. Lemon, 3 Blackf. (Ind.) 51, 23 Am. Dec. 376; Wallace v. Smith, 155 Pa. 78, 25 A. 807, 35 Am. St. Rep. 868; Edrington v. Harper, 3 J.J. Marsh. (Ky.) 353, 20 Am. Dec. 145; Hutzler Bros. v. Phillips, 26 S.C. 136, 1 S.E. 502, 4 Am. St. Rep. 687, and divers others too numerous to mention.

The result of an examination of these is the conclusion that if there is any doubt whether the transaction is a mortgage or a conditional sale, it will be held to be a...