Brooks v. United Kentucky Bank

• Decision Date: 15 July 1983
• Citation: 659 S.W.2d 213
• Parties: 37 UCC Rep.Serv. 1186 Richard E. BROOKS, Sr., Appellant, v. UNITED KENTUCKY BANK, Appellee.
• Court: Kentucky Court of Appeals

Page 213

659 S.W.2d 213

37 UCC Rep.Serv. 1186

Richard E. BROOKS, Sr., Appellant, v. UNITED KENTUCKY BANK, Appellee.

Court of Appeals of Kentucky.

July 15, 1983.

Discretionary Review Denied

Nov. 16, 1983.

Larry D. Raikes, R. Keith Bond, Raikes & Bond, Hodgenville, for appellant.

James E. Bondurant, Hodgenville, for appellee.

Before GUDGEL, HOWARD and PAXTON, JJ.

GUDGEL, Judge:

This is an appeal from a judgment entered by the Larue Circuit Court in an action to enforce a guaranty agreement. The Court adjudged that appellant Richard E. Brooks, Sr. is liable on the agreement to appellee United Kentucky Bank in connection with a loan the bank made to a car dealership. Appellant contends that the court erred in finding that he is liable on the guaranty agreement and in failing to find that he was fraudulently induced to sign the agreement. We disagree with his contentions. Hence, we affirm.

In early 1978, appellant was in the process of purchasing the stock of Otis Smith Ford, Inc. from Otis Smith, its owner. The dealership was having financial difficulties, and Smith needed a thirty-day, $50,000 loan in order to purchase additional cars from the Ford Motor Company for resale. Frank Nichols, a senior vice-president of appellee, agreed to make the loan if it was guaranteed by appellant.

On August 21, 1978, Smith and appellant travelled to the appellee's office in Louisville, and Smith borrowed the needed $50,000. While the loan was being processed, Nichols took appellant into his office, and appellant signed the second page of a two-page printed form entitled "Unconditional Continuing Guarantee." The form stated as follows:

The undersigned unconditionally guarantees to the Bank, its successors, endorsees, and assigns, the prompt payment when due of all present and future obligations, liabilities and instruments of any and all kinds constituting or evidencing obligations or liabilities, present or future, of Borrower to the Bank, whether of Borrower alone or in conjunction with others, whether incurred by the Borrower as Maker, endorser, drawer, acceptor, guarantor, accommodation party or otherwise, and whether due or to become due, secured or unsecured, absolute or contingent, joint or several, and howsoever or whenever acquired by the Bank, including any renewals and extensions....

At the time appellant signed the form, spaces for the name of the borrower whose account was being guaranteed, the maximum amount to be guaranteed, and the date were left blank. The blanks were later filled in by Nichols' secretary. Nichols kept the completed form in his desk drawer for some time, but placed it in the car dealership's loan file before bank examiners conducted an audit.

Otis Smith renewed his note four times and received credit for certain payments made on it. However, when the note came due again in December 1978, the dealership was in bankruptcy, and Smith defaulted in making any additional payments on the note. On January 6, 1982, the bank sued appellant on his guaranty agreement. After a bench trial, the court entered judgment in favor of the bank in the amount of $37,831.65. This appeal followed.

At trial, appellant argued that the guaranty agreement he signed was unenforceable because it was not completely filled out at the time he signed it. The court, however, relying on KRS 355.3-115(1), which provides that an instrument incomplete when signed but later completed in accordance with authority given is enforceable as completed, found that the agreement was enforceable. Appellant contends that the court erred in relying on Section 3-115(1) of the Code in finding that he is liable on the guaranty agreement. While we agree with this contention, we have concluded nonetheless that the court did not err in finding appellant liable on the agreement.

KRS 355.3-115(1) applies to any "incomplete instrument." As used in Article 3 of the Code, the term "instrument" means a negotiable instrument. KRS 355.3-102(1)(e). In order to be a negotiable instrument, a writing must, among other things, contain an unconditional promise to pay a sum certain in money, be payable on demand or at a definite time, and be payable to order or to bearer. KRS 355.3-104(1)(b), (c), (d). The agreement signed by appellant does not specify a "sum certain," since it provides only that the guarantor's liability "shall not exceed" $50,000. Moreover, it is payable neither at a particular time or on demand, since it is a "continuing" guaranty. Further, it is made payable neither to order nor to bearer. Although our courts have not ruled on the question of whether guaranty agreements of the type signed by appellant are negotiable instruments, other jurisdictions which have considered the question have held that such agreements do not meet the Code's definition of a negotiable instrument. Halpin v. Frankenberger, 231 Kan. 344, 644 P.2d 452 (1982); Branch Banking & Trust Co. v. Creasy, 301 N.C. 44, 269 S.E.2d 117 (1980). We are persuaded by these decisions and accordingly hold that the guaranty agreement in the instant action is not within the purview of KRS 355.3-115(1).

It does not follow, however, that, because the court erred in relying on KRS 355.3-115(1), the judgment must be reversed. Appellant argues that, under the applicable common law, he cannot be held liable because the guaranty agreement was completed without his authorization after he had signed it. However, the rule relied on by appellant, as stated in 17 Am.Jur.2d Contracts § 73 at 411 and 412 (1964) and quoted with approval in Citizens Fidelity Bank & Trust Co. v. Lamar, Ky.App., 561 S.W.2d 326 (1977), is essentially the same as that set out in KRS 355.3-115: a contract incomplete when signed may be enforced as completed against the party signing it if its completion is as authorized by that party. Such is the situation in the case at bar. At trial, appellant testified that he signed...