State Street Bank and Trust Co. v. Heck's, Inc.

963 S.W.2d 626 (1998)

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State Street Bank and Trust Co. v. Heck’s, Inc.

Kentucky Supreme Court
963 S.W.2d 626 (1998)

Facts

In 1978, Heck’s, Inc. (Heck) (defendant) mortgaged property to secure a loan from State Street Bank and Trust Company (State Street) (plaintiff). State Street recorded the mortgage documents in the county land records. However, the mortgage was legally unenforceable because the mortgage documents were signed in the wrong places. Nevertheless, State Street’s lien on Heck’s property was enforceable as an equitable mortgage because Heck’s intent to mortgage its property was clear and because State Street loaned money in reliance on the documents’ validity. In 1991, Heck mortgaged the same property as security for a loan from First National Bank (First National) (defendant). The 1991 mortgage documents were properly signed, filed, and recorded. When Heck subsequently defaulted on the 1978 loan, State Street sued Heck and First National to enforce the 1978 mortgage and foreclose on the property. The trial court applied Kentucky’s race-notice recording statute and entered judgment for Heck and First National. An intermediate court affirmed on appeal. State Street took its appeal to the Kentucky Supreme Court, which ruled as a threshold matter that the trial record provided ample circumstantial evidence that First National had prior constructive, actual, and inquiry notice of the 1978 mortgage’s existence.

Rule of Law

Issue

Holding and Reasoning (Cooper, J.)

Dissent (Wintersheimer, J.)

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