Howard v. First Nat. Bank

• Decision Date: 12 November 1937
• Parties: HOWARD et al. v. FIRST NAT. BANK OF HARLAN, KY.
• Court: Kentucky Court of Appeals

110 S.W.2d 293

270 Ky. 586

HOWARD et al. v. FIRST NAT. BANK OF HARLAN, KY.

Court of Appeals of Kentucky

November 12, 1937

Appeal from Circuit Court, Harlan County.

Action on a note by the First National Bank of Harlan, Ky. which had passed into the hands of state authorities for liquidation against Carter Howard and others, which was consolidated for trial with suit in equity by the Banking Commissioner against Carter Howard and another to set aside a conveyance alleged to have been made to defraud the bank in the collection of its debt. From adverse judgments, the defendants appeal.

Affirmed.

C. B Spicer, of Harlan, for appellants.

J. C Baker, of Harlan, for appellee.

MORRIS Commissioner.

Prior to August 10, 1931, W. L., Vestina, and Curtis Bailey executed a six months' note for $5,000 to the First National Bank of Harlan. Wix Howard and appellant Carter Howard were obligated on the original. This note was renewed at times, until the date mentioned when it was renewed without the signature of Wix Howard, he having died in the meantime. After that date the note was renewed several times, each time bearing the indorsement of Carter Howard. The last renewal was on August 10, 1933.

Vestina Bailey was the wife of W. L. Bailey and Curtis, a son.

A few days after the last renewal the same parties executed a note to the bank for $150, accrued interest on the above note, with Carter Howard as indorser. On September 15, 1934, the Harlan Bank, which had passed into the hands of state authorities for liquidation, brought an action seeking to recover of the three Baileys as principals, and appellant Howard as indorser, the aggregate of the two notes, with accrued interest.

Vestina Bailey answered, saying that at the time she signed the original note, and each of the renewals, she was a married woman, and that she was only surety, and since the proceeds of the note went to W. L. Bailey she was not bound, pleading and relying upon section 2127, Ky.Stats., commonly known as the "Married Woman's Act." The court upon proof adjudged her plea good, and relieved her from liability. Neither the bank nor Howard controverted Mrs. Bailey's plea.

After Howard's demurrers, general and special, had been overruled, he answered, denying the allegations of the petition and alleging that his indorsement was procured by the insistence of the appellee bank; its officers representing to him that the principals, the Baileys, were alone liable; that the bank agreed with and promised him that it would take a mortgage on property of the principals of sufficient value to secure the payment of the two notes, and that "no liability would attach to this defendant."

He alleges that at the time he indorsed the notes the three Baileys had ample real estate in Harlan county to secure their payment, and that Vestina Bailey "now" has real estate of sufficient value to satisfy both of said notes. He alleged that the bank disregarded its promise to secure a mortgage, which he says was made a condition to its acceptance of the notes, and by reason of such failure he was and is relieved of liability. Thereafter, plaintiff by reply, denied the allegations of the answer. Later Howard filed an amended answer alleging that in the original note and later renewals Wix Howard had signed on "the face of the note along with the defendants" (the three Baileys), and that he was an indorser, and when the plaintiff later accepted the renewal without the name of Wix Howard, "or the signature of the administrator of his estate," defendant was relieved from any liability by reason of his indorsement.

He further relied on the fact that the bank had accepted Vestina Bailey, a married woman on said note, and that the bank officers are now saying that she did "not receive any of the proceeds of said note;" that, at the time he signed the original note as accommodation indorser, the bank's officers represented to him that Vestina Bailey was a maker, and primarily liable; that, if the court should determine that Vestina Bailey was surety and not a maker of said note and thus discharge her, he should be released from liability, because the bank knew, but he did not know, that she was merely surety.

To this pleading the bank replied, denying its allegations and alleging affirmatively that appellant Carter Howard was the son of Wix Howard, and qualified as administrator of his father's estate, and was such at the time of the renewal. That when he indorsed the note he (as administrator) knew that Wix Howard was deceased, and that he (defendant) had refused to sign said note as administrator. It was also alleged that Carter Howard was a brother of Vestina Bailey, and knew when he indorsed the note that she was a married woman.

At this stage of the proceedings the banking commissioner filed a petition in equity, in which he repeated the allegations of the original petition, and further alleged that on August 18, 1934, Carter Howard conveyed to his wife (who was made a defendant) certain described real estate by which conveyance he became insolvent; that the conveyance to the wife was made without consideration, with intent to hinder, delay, and defraud the bank in the collection of its debt. The court was asked to set aside the deed and order the land, or so much thereof as might be necessary, to be sold, the proceeds to be subjected to the payment of appellee's debt. It was alleged that all the Baileys were then insolvent. The defendants demurred and, without waiving demurrer, answered. By their joint pleading appellant Carter Howard reiterated his former pleadings to some extent and denied both that the conveyance of the real estate was without valuable consideration or that same was made for the purpose or with knowledge of fraud.

The bank replied, denying each allegation. Thus it seems the issues were completed, and after proof was taken the cause was submitted to the court on the pleadings and proof. The court, having theretofore consolidated the two actions, adjudged that Vestina Bailey, according to proof, was a married woman and had signed the note of her husband, W. L. Bailey, as surety, hence was not liable on the note.

It was then adjudged that the bank recover of W. L. and Curtis Bailey, and Carter S. Howard, the sums of the two notes, with interest. The court adjudged the deed of August 18, 1934, from Howard to his wife, to be void and set it aside. The defendants objected and excepted, and were granted appeal.

As the case is presented to us there appear to be only two instances urged in which it is claimed the court erred in rendering judgment. First, that appellant, being indorser, was released from liability on the note when the bank released Vestina Bailey. In support of this contention appellant cites section 3720b-120, Ky.Stats. 1936, and Williams v. Paintsville National Bank, 143 Ky. 781, 137 S.W. 535, Ann. Cas. 1912D, 350. A reading of the statute, and the case referred to, do not uphold the contention of appellant. The statute provides that a person secondarily liable is discharged (subsection 4) by the discharge of a prior party. As we read the statute it is clear that the discharge of a prior party, to have such a claimed effect, must result through some act of the payee or holder in due course. The rule does not apply here because the release of Mrs. Bailey was not with the consent of the creditor. The discharge was by operation of the law; the judgment of the court upon the married woman's plea.

As to the other defensive pleas made by Carter Howard relative to his nonliability, we may say we have considered same and find them to be without merit, as counsel for appellant perhaps, recognized, since neither the release of the former indorser or surety (Wix Howard), or the failure of the bank to protect this indorser, are urged as grounds for discharge of appellant. A reading of the proof discloses that neither of the grounds was sustained by satisfactory evidence.

Secondly it is said that the court erred in adjudging the deed void since the proof showed the same was made without fraudulent intent; that there was a valid consideration supporting the conveyance, and the grantee...