Case Name: Winlock, et al. Munday, et al.
Court: Kentucky Court of Appeals
Jurisdiction: Kentucky
Decision Date: 1914-01-14
Citations: 156 Ky. 806
Docket Number: 
Parties: Winlock, et al. Munday, et al.
Judges: 
Reporter: Kentucky Reports
Volume: 156
Pages: 806–813

Head Matter:
Winlock, et al. Munday, et al.
(Decided January 14, 1914.)
Appeal from Logan Circuit Court.
1. Equity — Title—Purchaser of Legal Title from Trustee — Trusts.— It is a fundamental principle that one who buys a legal title from a trustee for value, and without notice of the trust, acquires 'the title discharged from the trust.
2. Equity — Rule in Regard to Equities. — The recognized rule in regard to equities is, that he who has the prior equity in point of time has the prior right, and therefore a party resisting the equity, in order to maintain Ms defense, must protect himself either under an elder equity, or he must have purchased the legal title bona fide without notice, for a valuable consideration, and must have paid the purchase money.
3. Equity — Purchaser of Land — Payment—Notice.—Where the purchaser of land deposited a certified check for the purchase money in the hands of a third party, to be held pending the execution of the deed, the check amounted to an appropriation of the purchase money, and is a payment thereof within the meaning of the rule that a purchaser will be protected only when he is a bona fide purchaser for value without notice, and must have paid the purchase money before notice of an outstanding equity.
BROWDER & BROWDER for appellants.
S. R. CREWDSON for appellees.

Opinion:
Opinion op the Court by
Judge Miller
Reversing.
G. R. Bayless, of Ft. Wayne, Ind., owned a tract of 688 acres of timbered land, in Logan County- Kentucky, which he had been trying to sell for sometime prior to February, 1912.
Richardson, a real estate agent at Russellville, and Perry, a like agent at Bowling Green, had had correspondence with Bayless, each of said brokers endeavoring to make a sale of the land; Richardson negotiating with Russellville buyers, and Perry with Bowling Green buyers.
Bayless had fixed his minimum price at $3,000.00; and prior to February 6, 1912, Richardson wrote Bayless that he thought he had a purchaser at that price. As a result of the correspondence, Bayless went to Russell-ville and made a verbal agreement with J. W. Munday and J. W. Dockins, by which he sold them the land for $3,000.00 of which $1,500.00 was to be paid in cash, and for the remainder of the purchase money a lien note for $1,000.00 was to be made payable to Mrs. Bayless, and a further lien note of $500.00 payable to the Hamilton National Bank of Indiana; both notes being payable twelve months after their date. As a guaranty oí their good faith, Bayless required Munday and Dockins to put up a cheek for $300.00 as a forfeit, pending the completion of the sale. A deed was executed by Bayless and his wife to Munday and Dockins, and by agreement of all parties concerned, the deed and the check for $300.00 were delivered to the National Deposit Bank of Russellville as an escrow, pending the examination of Bayless ' title and a survey of the land. The bank was instructed that when Munday and Dockins became satisfied with the title, and had paid the remaining $1,200.00 upon the cash payment, and had executed the two lien notes which represented the balance of the purchase money, the deed would be delivered to Munday and Dockins, and the money, the notes, and the check for $300.00 would be delivered, to Bayless. It does not clearly appear whether the bank president was authorized to make the delivery, or whether the parties to the transaction would attend to it themselves. This, however, is not material under the view we take of the case.
Bayless was anxious to return home, and persistently urged Munday and Dockins to close the trade. The survey was made under the supervision and at the direction and expense of Bayless, but there was some further delay in the examination of the title. It became necessary to get a copy of a will which constituted a link in the title, and was recorded in Jefferson County. Munday wrote for* a copy of the will, and having received it on the m'oming of February 14, 1912, he went at once to see Bayless at his hotel, informing Bayless that he was ready to close the trade.
Bayless has not testified; but according to Munday, Bayless refused to go further with the sale, saying- "it was all off." Shortly thereafter Bayless left for Bowling Green, arriving there about noon. On the afternoon of the 14th, acting through Perry the Bowling Green real estate agent, Bayless sold the land to Winlock and Roberts for $3,000 in cash. The trade was perfected the next day — February 15th — by the parties drawing a deed of conveyance of that date from Bayless and wife to Roberts, and by Winlock depositing with the Warren Stale Bank six certified checks, which aggregated the $3,000.00 purchase money. The separate' checks were given for convenience in removing the liens upon the property; one of them being for $1,122.74 to the Fidelity Trust Company; another for $500.00 to the Hamilton National Bank at Fort Wayne, Indiana; another for $82.26 taxes; another for $100.00 commissions due Perry, while the remaining two checks were payable to Mrs. Bayless.
Winlock is a man of wealth, and bought this land at the suggestion of Roberts. Winlock paid the purchase money, but had the title conveyed to Roberts* the deed retaining a lien to Winlock for the $3,000.00 purchase money.
Bayless returned home carrying the deed with him, which he and his wife subsequently acknowledged on February 17th, amdl returned to the bank at Bowling Green; whereupon the transaction was completed by a delivery of the deed to Winlock and a delivery of the checks to the payees thereof.
On February 15th — the same day the sale was made by Bayless to Winlock and Roberts — Munday and Dock-ins instituted this action in the Logan Circuit Court against Bayless and the National Deposit Bank of Russellville claiming to be the owners of the land; praying that the bank be required to deliver to them the deed which it held in escrow, and that the deed from Bayless to Roberts he canceled.
Bayless answered, denying the title of the plaintiffs, and alleging that he had sold the property to Winlock and Roberts for $3,'000.00, and that Winlock had paid the purchase money.
Upon their separate petitions, Winlock anti Roberts were made parties to the action, each alleging that he was a bona fid^ purchaser for value, and without notice of plaintiff's claim or title, and denying plaintiff's title.
The chancellor sustained the claim of Munday and Dockins to the land; required the bank to deliver to them the Bay less, deed which it held as an escrow, but subrogated Winlock to all the rights of Bayless by giving him a lien upon the land for his $3,000.00 purchase money. Winlock and Roberts appeal, and claim that the court erred in not sustaining their claim as bona fide purchasers for value, and without notice of appéllees' claim.
Two questions have been argued upon the appeal: (1) Is the contract of Munday and Dockins within the statute of frauds, and (2) if it is not within the statute, are Winlock and Roberts bona fide purchasers for value and without notice of the prior equitable title of Munday and Dockins?
Passing the first question, we will consider whether Winlock and Roberts were bona fide purchasers for value, and without notice.
The appellees' failure to file their notice of lien or ownership in the county court clerk's office as is required by section 2358a of the Kentucky Statutes, eliminates from the case the question of constructive notice, and leaves the question one of actual notice only.
The claim of Munday and Dockins to an equitable title to the land in question rests upon their right to a specific performance of their contract under which they claim Bayless held the legal title to the land as trustee for them. It is a fundamental principle that one who buys a legal title from a trustee for value and without notice of the trust acquires the title discharged from the trust.
Lindsey's Hrs. v. Rankin, 4 Bibb., 482; Moore v. Dodd, 1 A. K. M., 140; Halstead v. Bank of Kentucky, 4 J. J. M., 554.
In Hardin v. Harrington, 11 Bush, 371, the rule was stated as follows:
"The recognized rule in regard to equities is, that he who has the prior equity in point of time has the prior right, and, therefore, a party resisting' the equity in order to maintain his defense must protect himself either under an elder equity, or he must have purchased the legal title bona fide, without notice, for a valuable consideration ; and not only so, must have paid the purchase money. (2 Story's Equity, p. 829, 11th Ed.) "
Does the purchase of Winlock and Roberts come within this rule Í
Roberts had contemplated buying the land for sometime, and had heard that Bayless was in negotiation with Munday and Dockins, or some persons in Russellville. A short time, however, before the 15th of February, Roberts interested Winlock in the purchase of the land, and finally succeeded in getting Winlock to agree to buy it, as above indicated. Carrying out their agreement, Winlock completed the purchase on February 15th, by depositing his certified cheeks with the bank pending the return of the deed from Indiana. Winh>ck had never seen the land, and bought it wholly upon Roberts' judgment, with an agreement that Roberts should convey him a half interest therein, for $1,500.00, if Winlock desired the land after having examined it.
Before buying tbe land Winloek bad made an examation of Bayless' title that satisfied bim be could safely make tbe purchase.
On February 22, 1912, Munday's attorney at Russell-ville wrote to Perry, tbe real estate agent at Bowling Green, saying that be bad beard of tbe sale to Roberts, and telling Perry to inform bis client Bayless that Mun-day and Dockins bad filed suit in tbe Logan Circuit Court, claiming tbe land under a purchase from Bayless.
Perry showed this letter to Winloek on tbe 23rd and it was tbe first information or knowledge that Winloek bad that Bayless bad ever been in negotiations with Munday and Dockins, or that they claimed tbe land. Upon receiving this information, Winloek telephoned to tbe county court clerk at Russellville, asking bim if there had been any notice of lien or ownership filed in tbe clerk's office as is required by tbe statute. It is perfectly plain that Winloek bad no notice whatever of tbe alleged equitable title of Munday and Dockins, prior to February 23rd.
It is insisted, however, that Roberts, tbe grantee named in tbe deed, bad notice of tbe sale to Munday and Dockins at tbe time Bayless made tbe sale to Winloek and Roberts, and that be, therefore, is not a purchaser without notice. It is true Roberts knew that Bayless bad been trying to sell tbe farm to several persons in Logan County; but on February 14th, Summers, who lived in Logan County and in the neighborhood of tbe land in question, having beard that tbe trade was off, telephoned that fact to Roberts, and Roberts immediately became active in making tbe purchase for himself and Winloek.
The proof is ratbed- indefinite, and unsatisfactory in many respects; but from a careful reading of it as a whole, we have reached tbe conclusion that there was no such knowledge brought home to Roberts as would put upon bim a. notice of any definite claim that Munday or Dockins bad. Munday and Dockins were dickering with Bayless for tbe land, but Roberts in no way bad any specific knowledge of tbe details of their proposed trade, or tbe point to which it bad gone. His first knowledge of tbe suit was obtained through Winloek on February 23rd. At that time, however, tbe certified checks of Winloek for tbe $3,000.00 purchase money bad been deposited with tbe bank at Bowling Green since February 15th.; tbe deed bad been acknowledged by Bayless and wife on the 17th, and, presumably, had been returned to the bank at Bowling .Green.
It is insisted, however, that the purchase money had' not been paid when Winlock and Roberts; received notice of appellees' equitable title on February 23rd; and we are advised in the brief, that while the circuit court found that Winlock and Roberts did not acquire notice of appellees' claim until February 23rd, it nevertheless applied the rule announced in Hardin v. Harrington, supra, and sustained appellees' equitable title upon the ground that Winlock had not paid the purchase money until after February 23rd.
In cases of this character the general rule is that a purchaser of the legal title is not protected from a prior equity if he receives notice thereof at any time before payment of the purchase money. Simms v. Richardson, 2 Lift., 274; Hardin v. Harrington, 11 Bush, 367. In such a case the purchaser has no equity because he has lost nothing.
Did the placing of the certified checks with the bank constitute a payment of the purchase money so as to bring Winlock within the rule of a purchaser without notice? We think it did. The checks were certified, thus amounting to an appropriation of that much money then to the credit of Winlock's account, and binding on the bank. A certification of a check by a bank is in fact, an acceptance by the bank to pay the amount called for to the payee, upon presentment. The bank, therefore, held the checks for the payees thereof and not for Winlock; and upon the delivery of the deed by Bayless the checks became the property of the payees. In the meantime they Were beyond the control of Winlock and presumably had been charged against his account. He could not have recalled them except with the consent of Bayless. Under these circumstances they constituted a payment of the purchase money on February 15th, the day they were placed with the bank; and as Winlock first had actual notice 'on February 23rd, he was a bona fide purchaser without notice of appellees' equity.
Our conclusion is that Winlock and Roberts had no' actual or constructive notice of the appellees' claim at the time they made their purchase on February 15th,. and being bonai fide purchasers for value, it becomes unnecessary to consider the first question argued concern ing tbe enforcibility of tbe appellees' contract with Bay-less.
Judgment reversed, with instructions to dismiss tbe petition..