Kentucky Joint Stock Land Bank of Lexington v. Farmers Exchange Bank of Millersburg

• Decision Date: 24 June 1938
• Citation: 274 Ky. 525,119 S.W.2d 873
• Parties: KENTUCKY JOINT STOCK LAND BANK OF LEXINGTON v. FARMERS EXCHANGE BANK OF MILLERSBURG et al.
• Court: Kentucky Court of Appeals

119 S.W.2d 873

274 Ky. 525

KENTUCKY JOINT STOCK LAND BANK OF LEXINGTON v. FARMERS EXCHANGE BANK OF MILLERSBURG et al.

Court of Appeals of Kentucky

June 24, 1938

Rehearing Denied Oct. 14, 1938.

Appeal from Circuit Court, Nicholas County.

Action to foreclose a mortgage and for personal judgment on the mortgage debt by the Kentucky Joint Stock Land Bank of Lexington, Ky. against the Farmers Exchange Bank of Millersburg, Ky. and the Deposit Bank of Carlisle, Ky. and others. From a judgment dismissing that portion of the petition seeking personal judgment against the named defendants, the plaintiff appeals, and the named defendants file a motion to dismiss the appeal.

Motion to dismiss denied and judgment reversed with directions.

Wm. H Hays, of Shelbyville, for appellant.

Geo Batterton, of Paris, and I. B. Ross, of Carlisle, for appellees.

THOMAS Justice.

On February 12, 1923, A. J. Ritchie and wife of Nicholas county Kentucky, borrowed from the appellant and plaintiff below, Kentucky Joint Stock Land Bank of Lexington, Kentucky, the sum of $20,000, evidenced by notes of the borrowers extending over a period of years and payable semi-annually in stipulated amounts with interest from date. To secure them the makers gave a mortgage to plaintiff on about 340 acres of land in Nicholas county, Kentucky, which was immediately recorded in the county clerk's office of that county. Shortly thereafter, the mortgagors (Ritchies) borrowed from the appellee and a defendant below, Deposit Bank of Carlisle, the sum of $4,283.75, and also borrowed the further sum of $3,309 from the Farmers Bank of Millersburg, Kentucky, for each of which amounts they executed their notes to the respective lenders and gave them as security therefor a second mortgage on the same tract of land. The borrowers met their installments of principal and interest as they became due to plaintiff, but it does not appear whether they did so as to the two banks which were the owners of a second lien upon the mortgaged property. However, on March 3, 1926, the Ritchies conveyed the land outright to the two banks, holding the second mortgage "In consideration of the parties of the second part (the vendees) assuming to pay and paying the mortgage indebtedness of the first party (the Ritchies) owing to the Kentucky Joint Stock Land Bank of Lexington, Kentucky, evidenced by a mortgage upon the land hereinafter described, and the further consideration of the cancellation of the balance of the mortgage indebtedness due from the first party to the parties of the second part."

Not quite two years thereafter (December 3, 1927) the Farmers Bank of Millersburg, Kentucky, conveyed its one-half undivided interest in the land to one McIntyre and on April 11, 1929, he and his joint owner, the Deposit Bank of Carlisle, conveyed the land to E. A. Campbell, who held the title at the time of the filing of this equity action in the Nicholas circuit court on March 21, 1934, by plaintiff against the Ritchies and all of the subsequent vendees who had assumed the payment of plaintiff's indebtedness, including the two banks. In that action plaintiff sought to recover a personal judgment against the makers of the notes held by it--as well as against all subsequent vendees who had assumed payment of its indebtedness--and to foreclose its lien upon the mortgaged land. None of the defendants resisted the prayer of plaintiff's petition, except the Deposit Bank of Carlisle and its co-defendant (and co-appellee) Farmers Exchange Bank of Millersburg--the latter being a reorganization of the Farmers Bank of Millersburg, which was one of the intermediate vendees of the mortgage property as well as assumers of the payment of plaintiff's debt--the reorganized bank having taken over all of the assets of its predecessor the Farmers Bank of Millersburg and assumed all of its obligations.

The two appellees in their separate answers interposed--in common--five separate defenses to the recovery of a personal judgment by plaintiff for the balance of its indebtedness against them, and which, with interest, amounted to nearly as much as plaintiff's original debt. Those defenses were: (1) That the assumption of plaintiff's debt by the two banks at the time the land was conveyed to them jointly was an ultra vires act on their part and, therefore, unenforceable against them; (2) that default was made by the Ritchies in the payment of their note maturing March 1, 1933, and plaintiff failed to exercise its right to precipitate the payment of all of the indebtedness due it and neglected to then file its action to collect its debt and enforce its lien against the land and the crop grown by the borrowers on the farm for that year, and that by such failure it released all subsequent vendees who assumed the payment of its debt, since--as it was also contended--such vendee-assumer occupied toward plaintiff only the relationship of surety for the debt secured by its lien; (3) that in consenting to the assumption of its debt by the last vendee, E. A. Campbell, there was created a novation of plaintiff's debt whereby the answering banks were discharged; (4) that appellant had agreed with Campbell, after he became the owner of the land, to accept a conveyance of it from him in full satisfaction of its lien, but that it refused to carry out that agreement and by such refusal it released the answering defendants from all obligation to it; (5) that the two banks who assumed plaintiff's debt after they purchased the land in lien failed to report to the state banking commissioner the obligation they so assumed and failed to make a record of such assumption on their books and which "was contrary to public policy and void". The Farmers Exchange Bank interposed an additional, or (6), defense to the effect that upon the reorganization of the Farmers Bank of Millersburg, its predecessor, the liability of that bank--created by its assumption of plaintiff's debt--was not shown on its books, and that when it agreed to assume all liabilities of its predecessor it intended thereby to assume only the obligations shown on the books of its predecessor, and that the obligation here sought to be imposed upon it--not appearing upon its predecessor's books--was not assumed by it.

Plaintiff filed demurrers to each separate defense and to the answers as a whole. The court sustained plaintiff's demurrers to defenses (3), (5) and (6), but it overruled them as to defenses (1), (2) and (4), with objections and exceptions by plaintiff. Replies to the paragraphs left in the answers, after the court had acted on plaintiff's demurrers thereto, were filed, in which it denied the material facts of the remaining paragraphs in the answers and affirmatively pleaded, in extenso, the facts with reference to the assumption by the appellees of its indebtedness, including a plea of estoppel by them to rely on the ultra vires defense. Demurrers by the answering defendants to plaintiff's reply, or replies, were sustained by the court, and that portion of the petition seeking personal judgment against appellees was dismissed, to reverse which plaintiff prosecutes this appeal.

Early in the action--and considerably before the judgment appealed from was rendered--personal judgments were taken against all of the defendants who had not filed answers, and an order for the sale of the land was made without exception by anyone. It was executed by the Master Commissioner of the court and the land was appraised at $8,475. At the sale plaintiff became the purchaser for the amount of $13,071.19, an advance over the appraisement of $13.50 per acre. The sale was duly reported, and no exceptions were filed thereto and it was later confirmed--followed by a conveyance to plaintiff by the Master Commissioner. Such was the status of affairs at the time of the rendering of the judgment appealed from. Following its rendition, and after the appeal was prosecuted, plaintiff (appellant) sold the land--having held the title to it for something like two years--to one Lewis M. Crosley for a total consideration in excess over its bid sufficient to extinguish the deficiency judgment that it sought to recover against appellee; but, whether it will ever collect that consideration from its vendee, Crosley, is problematical, since its payment is spread over a long period of years, and whether his installment promises will be promptly or at all met is uncertain. But, whether they will or will not be met by him, appellees, since this appeal was taken, have filed in this court their pleading--setting up the fact of the sale to him--pursuant to section 757 of our Civil Code of Practice--and entered motion to dismiss the appeal, upon the ground that the profit realized by plaintiff in its sale to Crosley satisfied the unpaid balance of its debt after crediting the net proceeds of its bid thereon, and which wiped out the deficiency that it now seeks to recover from appellees. That motion was passed to the merits of the case and is the first question for determination.

The contention made by appellees in their motion to dismiss the appeal is indeed a novel one. It readily will be conceded that if the parties to the appeal had--following the rendition of the judgment appealed from--settled and compromised the controverted matters forming the subject matter of the litigation, then the procedure authorized by the section of the Code referred to would be available to the party litigant entitled to it; but no intimation, much less contention, is here made that any such settlement has ever been agreed to so as to authorize the invoking of the remedy furnished by that section. In support of the motion learned counsel for appellees with much vigor and apparent sincerity argue that the mortgage property...