Peoples Bank of Bullitt County v. Stout's Feed Store, Inc., 2002-CA-001147-MR.
| Decision Date | 23 May 2003 |
| Docket Number | NO. 2002-CA-001147-MR.,2002-CA-001147-MR. |
| Parties | PEOPLES BANK OF BULLITT COUNTY, APPELLANT v. STOUT'S FEED STORE, INC, D/B/A STOUT'S BUILDING CENTER; FARM CREDIT SERVICES OF MID-AMERICA, ACA; JEFFREY A. PHILPOT; BULLITT COUNTY, KENTUCKY; AND COMMONWEALTH OF KENTUCKY, APPELLEES. |
| Court | Kentucky Court of Appeals |
APPEAL FROM BULLITT CIRCUIT COURT HONORABLE ROBERT A. MILLER,1 SPECIAL JUDGE ACTION NO. 98-CI-00502.
John W. Wooldridge, Shepherdsville, Kentucky, BRIEF AND ORAL ARGUMENT FOR APPELLANT.
John F. Carroll, Shepherdsville, Kentucky, BRIEF AND ORAL ARGUMENT FOR APPELLEE, STOUT'S FEED STORE.
Logan B. Askew, Hopkinsville, Kentucky, ORAL ARGUMENT FOR APPELLEE, FARM CREDIT SERVICES OF MID-AMERICA.
BEFORE: DYCHE, JOHNSON AND SCHRODER, JUDGES.
OPINION AFFIRMING
** ** ** ** **
Peoples Bank of Bullitt County has appealed from the findings of fact, conclusions of law and judgment entered by the Bullitt Circuit Court on April 29, 2002, which ordered that Stout's Feed Store had priority over Peoples Bank to the remaining proceeds from the sale of a tract of real estate. Having concluded that the trial court's factual findings were not clearly erroneous and that its ruling that Stout's Feed had priority over Peoples Bank was correct as a matter of law, we affirm.
On May 6, 1993, Jeffrey Philpot executed a promissory note and mortgage (hereinafter "93 Note" and "93 Mortgage")2 to Peoples Bank with a final maturity date of May 6, 1994. The original principal was $7,000.00, and the mortgage was on a 20-acre tract3 located in Bullitt County, Kentucky. Paragraph 13 of the 93 Mortgage provided that if Peoples Bank made future advances to Philpot, such future advances were to be secured by the 93 Mortgage "when evidenced by promissory notes stating said sums are secured thereby." The 93 Mortgage "secure[d] any additional indebtedness whether direct, indirect, existing, future, contingent or otherwise in no event to exceed $60,000.00 in addition to the amount loaned."
On June 22, 1996, Philpot executed a promissory note and mortgage to Peoples Bank (hereinafter "96 Note" and "96 Mortgage")4 with a final maturity date of June 22, 1997. The original principal was $21,000.00, and the mortgage was on Lots 8 and 10 of Beech Grove Place, Bullitt County, Kentucky.5 The 96 Mortgage also contained a future advances clause, which provided that Peoples Bank, at its option, may make future advances to Philpot prior to the release of this mortgage. Any future advances up to $175,000.00 would be secured by the 96 Mortgage "when evidenced by promissory notes stating said sums are secured thereby."
On April 27, 1997, Stout's Feed filed a mechanic's lien on Lot 8, Beech Grove Place, on a claim against Philpot for $12,328.00 plus interest and costs. Stout's Feed released its mechanic's lien on November 14, 1997, after it accepted $3,000.00 and a promissory note from Philpot in the amount of $13,162.27, with interest at a rate of ten percent per annum that was due and payable on May 14, 1998. To secure the promissory note, Stout's Feed accepted a mortgage from Philpot dated and filed on November 14, 1997 (hereinafter "Stout's Feed Mortgage")6 on Lot 10, Beech Grove Place and the 20-acre tract. The Stout's Feed Mortgage provided:
Mortgagor warrants and covenants that Mortgagor is lawfully seized of the Property and has the right to mortgage and convey same; that the Property is free from all encumbrances, liens, claims and charges, except the following encumbrances of record MTG to Peoples Bank of Bullitt County and that Mortgagor's heirs, executors, administrators, successors, and assigns will defend generally the title to the Property against all other claims and demands.
When Philpot failed to pay the note, Stout's Feed filed a complaint in the Bullitt Circuit Court on July 9, 1998, against Philpot, Peoples Bank, the Commonwealth of Kentucky, and Bullitt County.7 On the same date the complaint was filed, Stout's Feed filed a notice of lis pendens as to Lot 10 and the 20-acre tract in the office of the Bullitt County Court Clerk.
On July 17, 1998, Peoples Bank filed its answer and cross-claim against Philpot, asserting that it had a first and superior lien on the subject properties. Peoples Bank maintained that on November 14, 1997, Philpot had signed a promissory note for $34,538.87, with an interest rate of 9.25% per annum, (hereinafter "First 97 Note"), that was secured by the 93 Mortgage to Peoples Bank covering the 20-acre tract.8 Peoples Bank also maintained that on November 14, 1997, Philpot had signed a promissory note for $78,981.36, with an interest rate of 9.95% per annum, (hereinafter "Second 97 Note"), that was secured by the 93 Mortgage to Peoples Bank covering the 20-acre tract and the 96 Mortgage to Peoples Bank covering Lot 10.9 Peoples Bank alleged that it had a lien on the 20-acre tract for the $36,692.10, plus interest that it was owed, and a lien on only Lot 1010 for the $84,191.65, plus interest that it was owed.11
Stout's Feed moved the trial court for a summary judgment and an order of sale, which the trial court entered on October 13, 1998. However, since Philpot had previously filed bankruptcy he moved the trial court to vacate the summary judgment and the order of sale, which the trial court granted on November 2, 1998. The trial court then referred the matter "to the [Master] Commissioner for determination of liens, their priority and amounts." Thereafter, the trial court ordered the Master Commissioner to sell the tracts, adding that the "[d]etermination of the priority and amount of liens is reserved until after the sale of the property."12
On March 14, 2001, the Commissioner filed his report and recommended that Peoples Bank's 93 Mortgage be deemed superior to the lien of Stout's Feed based on the finding that "the note was an additional advance which was secured by the 1993 mortgage." As to Stout's Feed's equitable argument, the Commissioner recommended a finding that "Mr. Hardy13 did not intentionally mislead or deceive Mr. Stout [in releasing the mechanic's lien]."
Stout's Feed filed exceptions to the Commissioner's recommendation and report on March 23, 2001, and the matter was submitted to a special circuit court judge for a final determination. The trial court found that Peoples Bank had made additional loans to Philpot between May 6, 1993, and May 14, 1994, which totaled $84,884.41, and that this amount exceeded the $60,000.00 future advances clause by $24,884.41, whereby any future advances in November 1997 would also have exceeded the future advances limitation. The trial court found that Peoples Bank had admitted that the 93 Note was marked "PAID" and delivered to Philpot on or about May 14, 1994. The trial court also found that Peoples Bank's computer records indicated that the intervening notes from the 96 Note up to November 14, 1997, were "NEW" loans, rather than advances or extensions. The trial court further found that Peoples Bank had failed to produce any computer records in conformity with discovery requests to establish payments on the November 14, 1997, Promissory Note, and that Peoples Bank had failed to maintain a record of the loan history with copies of loan documents or notes to indicate that any subsequent loans were an extension of the original 93 Note and 93 Mortgage, or that any subsequent loans remained within the future advances clause limitations. The trial court concluded its factual findings by remarking that "[t]his was shoddy bookwork considering the number, size and complexity of the Philpot loans and properties involved[,]" and that Peoples Bank had the opportunity to form a paper trail regarding the loan history and to avoid the issue entirely, yet failed to do so.
The trial court determined that when Peoples Bank realized Stout's Feed had mechanic's liens on both Lots 8 and 10, and that it could not close the sale of Lot 8, Bill Hardy, the president and chief executive officer of Peoples Bank, contacted Kenneth Stout, the president of Stout's Feed, in order to negotiate a release of the mechanic's lien on Lot 8. The trial court found that as a result of these negotiations Peoples Bank agreed that Stout's Feed would receive $3,000.00 and a note for $13,162.27 from Philpot, with a mortgage on Lot 10 and the 20-acre tract in exchange for a release of its mechanic's lien on Lot 8.
The trial court further found that on November 14, 1997, after Philpot executed the note and mortgage to Stout's Feed and the sale of Lot 8 was closed with $3,000.00 paid to Stout's Feed, Peoples Bank had Philpot execute two new notes to it. The $34,538.87 note was secured by the 20-acre tract on the 93 Mortgage and the $78,981.36 note was secured by Lot 10 on the 96 Mortgage. The trial court concluded that Peoples Bank was attempting to have the two 1997 loans take priority over Stout's Feed's mortgage on Lot 10 and the 20 acres.
The trial court found that the Stout's Feed Mortgage from Philpot to Stout's Feed indicated that the property being secured was free and clear of all liens, claims and encumbrances except "MTG to Peoples Bank of Bullitt County." The trial court determined the term "MTG" is in the singular; and thus, the trial court reasoned that only the 96 Mortgage had any balance owed on it at the time of execution of the Stout's Feed Mortgage.
The trial court also found that Peoples Bank had actual knowledge of Stout's Feed's mechanic's lien against Lots 8 and 10. Thus, the trial court found that Peoples Bank "knew of the equitable interest of Stout's Feed before, not after, it had Philpot execute the new notes with itself," adding that it "knew it had not maintained copies of records of its prior notes with Philpot." The trial court cited State Street Bank & Trust Co. of Boston v. Heck's, Inc.,14 which "precluded the creditor who was on notice from claiming priority over an equitable lien." The trial court found that "[Peoples Bank] tried to recover...
To continue reading
Request your trial