Bank of Blaine v. Hanshaw

• Decision Date: 23 October 1934
• Citation: 255 Ky. 825,75 S.W.2d 529
• Parties: BANK OF BLAINE v. HANSHAW.
• Court: Kentucky Court of Appeals

75 S.W.2d 529

255 Ky. 825

BANK OF BLAINE v. HANSHAW.

Court of Appeals of Kentucky

October 23, 1934

Appeal from Circuit Court, Boyd County.

Action by the Ashland Loan & Building Association against the Bank of Blaine, wherein defendant filed an answer which was taken as a cross-petition against J. J. Hanshaw. From a judgment dismissing the answer and cross-petition against J. J Hanshaw, the Bank of Blaine appeals.

Reversed for proceedings consistent with opinion.

Woods Stewart & Nickell, of Ashland, for appellant.

Yager &amp Woods and J. B. Adamson, all of Ashland, for appellee.

RICHARDSON Justice.

Ebert Hanshaw was indebted to the Consolidated Grocery Company evidenced by note which was renewed and payments made on it until January 1, 1931, when there was a balance of $3,800. To secure the payment of the original note, he had executed and delivered a mortgage to the grocery company on the fixtures in a store and a second mortgage on a residence occupied by him in the city of Ashland; the first mortgage on the residence was held by the Ashland Loan & Building Association to secure the payment of $3,225. His note to the grocery company was assigned by it to the Bank of Blaine as collateral to secure an indebtedness of the grocery company. It became due January 1, 1931. A few days before its maturity, the grocery company filed a voluntary petition in bankruptcy. The bank, not satisfied with the sufficiency of the security, with the consent of the grocery company, took steps to have Ebert's note better secured. It declined to consent to a renewal of the note, unless it was better secured. To accomplish this, the president and cashier of the bank had a meeting at Ashland, Ky. with Ebert Hanshaw and representatives of the grocery company. At this meeting it was suggested that Ebert Hanshaw induce his father, J. J. Hanshaw, who was not present at the time, to sign a renewal note. Later, J. J. Hanshaw was approached with the proposition that he sign with Ebert the renewal note; he refused to sign it. It was then suggested to J. J. Hanshaw that he enter into a contract to keep up the payments on the note, secured by the first mortgage of the loan and building association on the residence of Ebert Hanshaw, on which the bank held the second mortgage. J. J. Hanshaw, the representatives of the grocery company and the officials of the bank, agreed on the terms and provisions of a "contract of indemnity" which was later signed by J. J. Hanshaw and delivered to the bank. It reads:

"Whereas, Ebert Harrison Hanshaw of Ashland, Boyd County, Kentucky, became indebted to the Consolidated Grocery Company, Inc., of Ashland, Boyd County, Kentucky, on the 20th day of May, 1930, in the amount of $4,153.58, said indebtedness being evidenced by a four months note, and secured by a mortgage on fixtures being used in the store operated by the said Ebert Harrison Hanshaw, and

Whereas, on the 31st day of May, 1930, the Bank of Blaine, Blaine, Kentucky, became the holder of said note as collateral for a loan of the same amount made to the Consolidated Grocery Company, Inc., and

Whereas, at the maturity of said notes at the Bank of Blaine, the said Ebert Harrison Hanshaw made a payment on the principal and interest, and reduced the principal to $3,800.00 and gave as additional security on the note a second mortgage on a certain piece of real estate, a house and lot on the southwest corner of the intersection of Winchester Avenue and 30th Street, and whereas the said $3,800.00 again became due on January 1st, 1931, and the said Consolidated Grocery Company, Inc., was on the 2nd day of January, 1931, adjudicated a bankrupt, and

Whereas, it is the desire of the Bank of Blaine, and Ebert Harrison Hanshaw to keep their affairs connected with these notes out of the bankruptcy court proceedings, and, whereas, the Ashland Loan and Building Association has a first mortgage indebtedness against the above mentioned real estate in the approximate amount of $3,142.40, which amount is being repaid the said Loan Company at the rate of $40.00 each month and which mortgage endangers and lessens the value of the second mortgage to The Bank of Blaine as security, and

Whereas, J. J. Hanshaw, because of his love and affection for his son, Ebert Harrison Hanshaw, desires to secure for him an extension of time on this note, and desires to strengthen the security of the Bank of Blaine, and offset their release of the Consolidated Grocery Company, as a party to the indebtedness. Now, therefore, the said J. J. Hanshaw, for and in consideration of the sum of $1.00 and for his love and affection for his son, Ebert Harrison Hanshaw, and other good and valuable consideration does hereby guarantee the payment of the first mortgage indebtedness in favor of the Ashland Loan and Building Association on the plan and basis by which it is now being paid thus giving the second mortgage held by the Bank of Blaine the same force and effect of a first mortgage, and agrees to indemnify the said Bank of Blaine against any loss whatsoever, which may occur by reason of a default in payment of any of said indebtedness due the Ashland Loan and Building Association, and for any amount they might be forced to pay on said loan of the Ashland Loan and Building Association in the case of a foreclosure by said Association, in order to protect the said second mortgage to the Bank of Blaine.

Signed at Ashland, Kentucky, this 14th day of January, 1931.

"J. J. Hanshaw

"Witness:

Fanny C. Mirandi."

This instrument was accepted by the bank as a compliance with its demand of additional security to Ebert's note. Thereupon he was permitted to renew his note payable to the bank and to mature April 4, 1931, and the bank surrendered its right to pursue, and participate in the distribution of, the assets of the grocery company in the bankruptcy proceeding. When Ebert's note matured in April, he disregarded it, and neither paid the interest nor renewed it. Later the bank filed an action against him, his wife, J. J. Hanshaw, and the Ashland Loan & Building Association to collect its note and to enforce its mortgage on the residence. As to J. J. Hanshaw, it alleged that he had not defaulted in the payment of the $40 a month to the loan and building association. The court sustained a demurrer to the petition as to J. J. Hanshaw, and dismissed it as to him.

However, the bank served notice on him, calling upon him to defend the action if he desired.

A judgment was rendered in September for the bank's debt, directing the residence sold subject to the mortgage of the loan and building association. It was sold in pursuance of the judgment; the bank bid it in; the sale was confirmed; a deed made conveying it to the bank, and it took possession of the residence. J. J. Hanshaw immediately ceased to pay to the loan and building association the $40 a month--bimonthly--as he agreed to do by the "contract of indemnity."

The loan and building association instituted an action to enforce its lien on the residence, making the bank a defendant. The bank filed its answer which was taken as a cross-petition against J. J. Hanshaw, and summons thereon served on him. No defense was made to the debt of the loan and building association, consequently a judgment was entered for its debt, with directions to the master commissioner to sell the property to satisfy its debt, interest, and costs. To avoid a sale, the bank paid its judgment amounting to $3,006.50, and it so alleged in its answer and cross-petition. J. J. Hanshaw traversed the cross-petition of the bank; pleaded no consideration for the "contract of indemnity"; that the import and purpose of the "contract of indemnity" was, that he was to have the rent derived from the residence covered by the two mortgages for the purpose of his taking care of the bimonthly payments to the loan and building association, and that, by reason of the sale under the judgment in the action of the bank against Ebert Hanshaw, he was deprived of the rent and thereby caused to breach the "contract of indemnity." Also he pleaded the proceedings of the bank against Ebert Hanshaw as a bar to the prosecution of this action as to him.

On the submission of the case, on the evidence and the pleadings, the court dismissed the answer and cross-petition of the bank against J. J. Hanshaw, and decreed that it take nothing on the "contract of indemnity."

J. J. Hanshaw is here insisting that the "contract of indemnity" should be given that construction which will afford him the right to retain possession of the residence, collect, and apply the rent therefrom to the debt of the loan and building association; that the action of the bank against Ebert Hanshaw, the rendition of the judgment therein, the bidding for, and accepting a deed to, the mortgaged property, by the bank, be considered a breach by the bank of the "contract of indemnity," such as to relieve him of his liability on the "contract of indemnity."

He argues the "contract of indemnity" is ambiguous, and that parol evidence is admissible to explain what the parties thereto mean by the language "the payment of the first mortgage indebtedness on the plan and basis by which it is now being paid, etc."; also there was no consideration as to him for the execution of the "contract of indemnity"; it "is nudum pactum on account of lack of mutuality in its terms."

In an amendment to his answer, he in substance reproduced his plea "that by reason of the acts and conduct of the bank" he was, and is, "released of all liability on the contract," and further averred "there was no consideration for his execution of the "contract of indemnity."

No responsive pleading was filed to this amendment, and he is now insisting he is entitled,...