House v. Farmers State Bank

• Decision Date: 23 April 1937
• Citation: 269 Ky. 80,106 S.W.2d 113
• Parties: HOUSE et al. v. FARMERS STATE BANK.
• Court: Kentucky Court of Appeals

106 S.W.2d 113

269 Ky. 80

HOUSE et al. v. FARMERS STATE BANK.

Court of Appeals of Kentucky

April 23, 1937

Rehearing Denied June 25, 1937.

Appeal from Circuit Court, Laurel County.

Action by the Farmers State Bank against Leander House and another wherein the Land Bank Commissioner filed an intervening petition. From the judgment, the defendants appeal.

Affirmed in part and reversed, with directions, in part.

Wm Lewis & Son, of London, for appellants.

C. R Luker, of London, for appellee.

MORRIS Commissioner.

The judgment from which appeal is prosecuted was rendered by the Laurel circuit court in two actions by appellee against Leander P. House, and others who were either joint makers or sureties (not including Mrs. House) upon notes executed to appellee bank. The two suits were consolidated below and on review will be considered together.

In suit No. 4359 appellee sought to recover of appellants $1,150 with interest from October 3, 1933. The note sued on was originally executed on April 3, 1928, the face being $1,000. It was renewed from time to time, and after August, 1929, some interest was included in the face. The final renewal was on January 2, 1933, and it was due some time in October, 1933.

The note in suit No. 4360 was for $1,500, the date not being given, but the last renewal was on February 9, 1933, and matured in August of the same year. It is observed that at least one of these notes had been executed as far back as 1928, and the other about the same time.

The pleadings and orders in each of the suits are very similar, the notable difference being in dates and amounts, both suits finally turning on a single issue, as will be seen later.

In each of the suits it was alleged that at the times of the execution of the notes Leander House was the owner of a tract of land described in each petition, containing about 200 acres, worth approximately $7,500; that while these notes were in the hands of the bank and unpaid, Leander, on April 28, 1928, conveyed the described tract to his wife, Martha House, "in order to cheat, hinder and delay the plaintiff in the collection of the indebtedness owing to it, and in fraud of its rights." It is charged that, while the deed from Leander to his wife recited a consideration of $500, same was untrue; that in fact there was no passing valid consideration. It was alleged that Leander had at all times, during the indebtedness and at each renewal of the notes, represented that he was the owner of the tract in question. Appellee pleads that it had no knowledge of the execution of the deed between the husband and wife until they had accepted the final renewals some time in 1933.

In the two suits it was sought to recover the gross sum of $2,760 with certain interest, and, asserting as above set out that the deed was executed for the purpose of consummating a fraud, it was sought to have the deed adjudged void and of no effect. It was alleged that at the time of the execution of the deed Leander House was and is insolvent, and a like allegation is made with reference to his co-makers or sureties.

Demurrers were filed, but the record does not show affirmatively that the court passed on same. However, it is noted that in answering the defendants did not waive demurrer but, still insisting on same, answered.

By their joint answer the appellants denied for the most part all the allegations of the petition, admitting however, the execution of the notes, and likewise the transfer of the 200-acre tract by Leander House to his wife by deed of April 9, 1928, which they allege was based on a valuable consideration. Affirmatively they pleaded that they were married some time prior to 1902, at which time Mrs. House owned a small tract of land which she sold and used the proceeds to purchase another farm. They continued to live on this farm until 1920, when Mrs. House sold it to Emily Feltner for $5,000, and at about the same time "purchased from Dan George and Fred Williams two tracts of land and paid for same." It is alleged that the two tracts were purchased with funds belonging to Martha House, but that in the preparation of the deeds, by oversight or misunderstanding, the George tract was conveyed to Leander, and the smaller Williams' tract to Mrs. House. It is alleged that the larger or George tract should have been conveyed to Mrs. House and the Williams' tract to Leander. The purchase prices of the two tracts were respectively $7,500 and $3,200. A short time thereafter they sold the Williams' tract to a son, W. C. House, for $3,200, the title to this tract then being in Martha House, and shortly thereafter, on April 9, 1928, Leander conveyed to his wife the George tract of land for the consideration mentioned above, this being the tract over which controversy arises.

In an amended joint answer they explain the transactions by saying that prior to the execution of the note (or notes) Leander was indebted to a bank at East Bernstadt in the sum of $4,000, and that prior to the note transaction they had executed a mortgage covering the George tract of land to the bank to secure the $4,000. The bank later demanded payment, and it was agreed that Mrs. House would convey the Williams' tract to the son for $3,200 and apply that much to the payment of the bank's mortgage debt, provided Leander would convey to her his title in the George tract. They allege that in conformity with the agreement the payment was made, and on the date above mentioned the George tract was conveyed to Mrs. House, thus, seemingly, making the consideration $500 as recited in the deed, plus the $3,200 applied on the bank debt.

The appellee replied to the joint answers and amended answers of appellants, making specific denials of the allegations of those pleadings without presenting any affirmative matter or new cause, thus leaving the issue one as to whether or not the deed from Leander to his wife was executed for the purpose of defrauding the bank and other creditors.

There is an intervening petition by the Land Bank Commissioner in which it is pleaded that the appellants had executed to the Land Bank a mortgage to secure the payment of a loan of $1,400 made to them on January 29, 1934. In the judgment below the court adjudged this debtor entitled to recover and that it had a prior lien, but, for some reason not disclosed, did not direct a foreclosure for its benefit. The Land Bank is not a party to this appeal.

There was considerable proof taken by both parties, which, for reasons hereinafter stated, will not be set out in detail, reference being made hereafter to only such portions as may have a bearing on the question which we have concluded is the controlling one.

Upon submission of the cause on the pleadings, exhibits, and proof, the court below adjudged appellee to be entitled to a recovery of the sum of $2,767, the total of the two notes, with interest from the respective due dates of each. It was further adjudged that the deed from Leander House to his wife be canceled, "insofar as it effects the plaintiff herein," and adjudges the entire tract to be in lien to secure the payment of the debt. A sale was ordered of so much of the land as should be necessary to satisfy the debt, interest, and cost, "any remainder to be paid to Martha and Leander House as their interests may appear." A deficiency judgment was also given, and from this entire judgment Martha and Leander House have prosecuted this appeal.

We have read the proof in the case at hand with considerable care, having in mind the statutes with regard to fraudulent and preferential conveyances, and also the rules in reference to transactions wherein the cancellation of a contract is sought. One rule is that the cancellation of a solemn contract, such as a deed, ought not to be decreed except in such cases as fraud is clearly shown. Another rule is that, where the parties to the contract occupy confidential relations toward each other, the courts will view the contract with some degree of suspicion. The first rule above mentioned is changed to the extent that the law throws the burden upon the one seeking to uphold the contract.

But we shall not go into a detailed statement of...