Jacoby v. Carrollton Federal Sav. & Loan Ass'n

• Court: Supreme Court of Kentucky
• Writing for the Court: MOREMEN
• Citation: Jacoby v. Carrollton Federal Sav. & Loan Ass'n, 265 S.W.2d 71 (Ky. 1954)
• Decision Date: 19 February 1954
• Parties: JACOBY et al. v. CARROLLTON FEDERAL SAVINGS & LOAN ASS'N.

Page 71

265 S.W.2d 71

JACOBY et al. v. CARROLLTON FEDERAL SAVINGS & LOAN ASS'N.

Court of Appeals of Kentucky.

Feb. 19, 1954.

William G. Reed, Carrollton, for appellant.

Alfred W. Minish, Carrollton, J. Ballard Clark, Clark & Manby, LaGrange, for appellee.

MOREMEN, Judge.

Appellee, Carrollton Federal Savings & Loan Association, herein called bank, obtained a judgment against appellant, Raymond Jacoby, on a note executed by him. Real property covered by the mortgage securing the note was ordered sold to satisfy the note. From this judgment appellant prosecutes this appeal.

Appellant is a carpenter and building contractor of Carroll County. Appellee, as its name implies, is engaged in the business of lending money secured by mortgages on real estate. Mr. L. T. Griffith is the secretary of the company and is the principal actor on behalf of the bank in the transaction which resulted in this lawsuit. Mr. Virgil Sanders is not a party to this action but is important because his business operations were commingled with those of the parties'.

On August 26, 1947, Virgil Sanders, who owned certain lots, entered into a contract with Raymond Jacoby by which the latter agreed to build two houses on the property of the former for a sum not to exceed $5,400 for each house, and it was further agreed that Jacoby was to receive a sum equal to twenty per cent of the net profit derived from the sale of the two houses. The contract was signed by both parties and Griffith signed as a witness. Although this contract, which was in skeleton form, purportedly set a flat price for the houses, the parties understood that Mr. Sanders would furnish the money for materials and labor because he had, several days before, obtained from appellee a construction loan in the sum of $8,500 secured by a mortgage on his lots. Construction work was commenced and simultaneously the bank made advancements for labor and material. The number given by the bank to this loan was 313.

On October 16, 1947, appellant, Jacoby, who owned lots in the immediate vicinity of the Sanders property, also obtained a construction loan in the sum of $8,500 from the appellee bank and he, too, pledged the lots owned by him as security, but he did not immediately begin construction. Certain minor work was done in connection with the basement excavation and he purchased lumber, millwork and other materials which were stacked on his lots. These items cost approximately $3,700 and were charged against his account, which was numbered 329. Appellant admits a charge in that amount was proper.

The difficulty presented by this case arises from the fact that a major portion of the loan to Jacoby was used in the construction of the Sanders houses and on this point there is a direct contradiction between the parties. Appellee insists that Jacoby requested that his money be used under the expectation that it would be replaced when the Sanders houses were sold, while Jacoby testified that he did not make such an agreement and did not know that his funds were being applied to the payment of construction costs of the Sanders houses.

The procedure that the bank used is as follows: Account cards were set up by the bank and numbered. The ledger card of Virgil Sanders was filed in the record with cancelled checks that represented the various items of disbursement. This card shows a credit of $8,500, proceeds of the note executed by Sanders, and two further credits in the amounts of $2,000 and $130 resulting from cash deposits and the proceeds of a sale of certain bath fixtures. The card and the accompanying checks balance out and show that all of the money was expended. The ledger and checks also show that on the day the account was opened (August 23, 1947) various checks to defray financing costs were issued. The first checks, other than those defraying the expenses incidental to the loan, were followed by a check in payment of basement excavation. The first check made payable to Raymond Jacoby is marked for labor and is in the amount of $50. It was endorsed by him as were all the checks subsequently issued in which he was named as payee. This batch of about twenty-two checks, totalling approximately $3,065.66, is made to Jacoby alone. There are other checks that name Jacoby as joint payee with others and these checks were definitely issued in payment for material and labor. The account card pertaining to the Jacoby loan is not in the record, but cancelled checks marked with the Jacoby number (329) have been presented and they show the date of issuance to be between October 16, 1947, and April 14, 1948, a period during which Jacoby was not working on his own construction, but on the houses belonging to Sanders. The money which Jacoby received, other than that which he expended for his own materials as mentioned above, was used in the construction of the Sanders houses. Griffith, secretary of the bank, and also the directors of the bank knew this money was being so applied.

After the completion of the Sanders houses, Jacoby requested money with which to complete the buildings on his own property and was told that the entire balance of his loan had been exhausted by advancements used in connection with the building of the Sanders houses. Thereafter, the bank brought suit on the promissory note which had been executed by appellant, sought judgment thereon and a decree that the property covered by the mortgage be sold and the proceeds applied to the payment of the note.

A trial before the chancellor resulted in a judgment against appellant for the entire amount of the loan, with interest, and sale of the land was ordered. On this appeal it is stated...