State Bank of Stearns v. Stephens

• Decision Date: 16 October 1936
• Citation: 97 S.W.2d 553,265 Ky. 615
• Parties: STATE BANK OF STEARNS v. STEPHENS et al. BRYANT'S TRUSTEE v. SAME.
• Court: Kentucky Court of Appeals

97 S.W.2d 553

265 Ky. 615

STATE BANK OF STEARNS v. STEPHENS et al.

BRYANT'S TRUSTEE v. SAME.

Court of Appeals of Kentucky

October 16, 1936

Appeal from Circuit Court, McCreary County.

Appeal from Circuit Court, Whitley County.

Two actions by the State Bank of Stearns and L. E. Bryant's Trustee in Bankruptcy against E. L. Stephens and D. E Bryant, and others. From judgments dismissing both actions the plaintiffs appeal, and defendant D. E. Bryant cross-appeals.

Judgment dismissing action by the State Bank of Stearns affirmed Judgment dismissing action as to L. E. Bryant's Trustee in Bankruptcy reversed, with directions, and cross-appeal of D. E. Bryant dismissed.

Tye Siler, Gillis & Siler, of Williamsburg, for State Bank of Stearns and Bryant's Trustee.

Stephens & Steely, of Williamsburg, and Emmett Puryear, of Danville, for appellees.

DRURY, Commissioner.

The State Bank of Stearns, Ky. has appealed from a judgment dismissing an action begun by it against L. E. Bryant and Virginia L. Bryant, his wife, Dudley E. Bryant and Mrs. Dudley E. Bryant, his wife, Hester Bryant Glore and W. Scott Glore, her husband, E. L. Stephens, Nelle C. Steely, Boyle O. Rodes, George E. Fee, Genevieve H. Durell, Louis J. Dolle, A. T. Siler, trustee for bondholders, the First National Bank of Somerset, Ky. the Kentucky and Tennessee Property Company, and the Goodman Manufacturing Company, defendants.

This appellant had attacked a mortgage given by L. E. Bryant to Stephens and Steely as made with the intent to delay, hinder, and defraud it and other creditors of L. E. Bryant, as made without consideration and as preferential and void.

H. M. Barnett, as trustee in bankruptcy of L. E. Bryant, has appealed from a judgment dismissing an action begun by said trustee on January 18, 1933, in the Whitley circuit court against E. L. Stephens and Nelle C. Steely, in which the trustee attacked as preferential a mortgage given to them by the bankrupt. On May 5, 1936, the two appeals were ordered to be heard together.

The bankrupt's full name is Louis Edward Bryant, and at some places in this record he is referred to as "Louis" and sometimes as "Louis E.," but we shall refer to him as L. E. Bryant, that being the way his name most frequently appears, and all being one and the same man.

The Debt and Mortgage.

On July 23, 1932, L. E. Bryant owed E. L. Stephens and Nelle C. Steely 10 notes which with their interest then aggregated about $12,000. One of these notes is signed "L. E. Bryant, agent Bryant heirs, L. E. Bryant." The other notes and also the mortgage are signed "Bryant Estate, by L. E. Bryant, agent. L. E. Bryant."

Stephens & Steely were for years the attorneys for the Bryant estate. They rendered to it many and valuable services, as is well known to us from the evidence and from matters that have reached this court, and these notes were given for such services. Stephens & Steely, allege L. E. Bryant did this under a power of attorney to him, but that is denied, and there is no proof on the subject. Where a contract, required to be in writing and recorded, is made under a power of attorney as to third parties, the power of attorney must also be recorded. Section 499, Ky.Stats.

There is no suggestion anywhere that there was any lack of pre-existing consideration for these notes, or that they are not just and binding obligations.

Whether L. E. Bryant had or had not the power to bind the Bryant estate, by executing these notes and this mortgage as he did, is a question that is not before us. He certainly could and did bind himself by these notes, and by this mortgage he created a lien to secure them upon his share of the lands described in the mortgage which he gave. There was no contemporaneous but ample pre-existing consideration for the mortgage; it is a welldrawn instrument, and the only trouble about it, is that L. E. Bryant was then insolvent, owed divers other people and did not expressly include them in this mortgage, but at this point section 1910, Ky. Stats., intervenes and declares that a mortgage so given "shall operate as an assignment and transfer of all the property and effects of such debtor, and shall inure to the benefit of all his creditors," etc.

Stephens & Steely were possibly unaware of the insolvency of L. E. Bryant, but that does not alter the situation. Nock's Ex'r v. Goodloe, 5 Ky.Law Rep. 247, 12 Ky.Op. 278.

The Mortgaged Property.

In 1921, Roberta S. Bryant was the owner of many many thousands of acres of land, coal, timber, minerals, and mining rights in Pulaski, Wayne, Laurel, Whitley, and McCreary counties in Kentucky, and Scott and Campbell counties in Tennessee, and on September 6th, of that year she conveyed these to the following parties and in the following proportions: Louis E. Bryant 43 1/3 per cent., Dudley E. Bryant 23 1/3 per cent., Hester Bryant Glore and W. S. Glore 33 1/3 per cent., respectively.

Some of these properties were sold on January 23, 1923, and all the debts of the Bryant estate were paid, except these Stephens & Steely notes, which appear to have been given for subsequent services, but these parties continued to hold what property was left in these proportions and thus held them when this mortgage was executed, hence, without expressing any opinion as to the remaining 56 2/3 per cent., we can certainly say the lien created by it rested upon the 43 1/3 per cent. of this property which was the aliquot share of L. E. Bryant therein.

Suit by the Bank.

On October 5, 1932, the State Bank of Stearns filed its suit in the McCreary circuit court in which it set out a note due it amounting with interest to $7,050.32, for which it prayed judgment against L. E. Bryant, and asked that the mortgage to Stephens & Steely be declared void and preferential, that it be canceled and the bank be adjudged to have a lien on the land described in the mortgage, and that it have all proper relief. It sued out attachments upon the grounds of L. E. Bryant's nonresidency, and these were levied on this property in McCreary and Whitley counties. Stephens & Steely and L. E. Bryant now filed a pleading setting up the adjudication that L. E. Bryant was bankrupt, and no further steps were taken for four years.

The Partition.

On November 23, 1932, partition of this land having been made, by the owners, Dudley E. Bryant, and wife, and W. S. Glore and his wife, Hester Bryant Glore, conveyed to L. E. Bryant as his 43 1/3 per cent. of the theretofore jointly owned premises, a certain tract of land and certain mineral and mineral rights in Whitley and Laurel counties in Kentucky, alleged to aggregate 30,000 acres of land in fee and mineral rights and ___ acres of mineral rights in Tennessee, or more than 35,000 acres all told. Every one says this was a just and equitable division. This is copied from an order made by the referee in bankruptcy on January 26, 1933: "While the partition deeds were executed only a little more than thirty days prior to the filing of the petition in bankruptcy the Trustee reported that probably as equitable a partition of the lands was made as was possible, and recommended that no effort be made to set aside the partition deeds, and without objection the Trustee's report in this respect is approved."

Bankruptcy.

On December 1, 1932, L. E. Bryant filed in the District Court of the United States for the Eastern District of Tennessee, wherein he then resided, his petition in bankruptcy, and on that day he was adjudicated bankrupt.

On December 22, 1932, H. M. Barnett was appointed and qualified as trustee of the estate of the bankrupt and on January 18, 1933, he, as such trustee, began this action by filing in the Whitley circuit court a petition against E. L. Stephens and Nelle C. Steely, attacking this mortgage under section 1910, Ky.Stats., as preferential, and asking that it be so adjudged.

A special demurrer was filed, which was sustained, and the petition was dismissed. That judgment was reversed by this court. See 253 Ky. 573, 69 S.W.2d 1056.

The defendants Stephens & Steely now filed an answer, counterclaim, and cross-petition that with its exhibits and an amendment fills 42 pages of this record, and in which they sought to bring in by their cross-petition the Kentucky-Tennessee Property Company, Hester Bryant Glore, W. S. Glore, Dudley E. Bryant, his wife, Adeline Metcalfe Bryant, and the First National Bank of Somerset, Ky. The plaintiff filed motion to strike paragraphs 1 and 3 of this pleading and a general demurrer to paragraphs 2 and 4. The court overruled both. The court erred in overruling the motions to strike. See Wahl v. Lockwood & Gasser, 227 Ky. 183, 12 S.W.2d 321. A cross-petition can only be filed by defendants where it affects or is affected by the original cause of action. Subsection 3 of section 96, Civil Code of Practice.

When stripped to the bone, the plaintiff's petition said to the defendants: "I am told you took from my bankrupt when he was insolvent a mortgage to secure a preexisting debt." "Did you do it?" Instead of answering that simple question, defendants devoted all of these paragraphs 1 and 3 and much of paragraphs 2 and 4 to pleading and asserting certain rights they alleged they had to recover their debts from some one else. That had no proper place in this action by Barnett as trustee. Barnett as trustee had the right to have Stephens & Steely answer the simple question he had to them propounded, and if their answer raised an issue, then Barnett as trustee had the right to try out that issue without having it complicated and confused by the injection of an issue between Stephens & Steely on one hand and the parties they sought to bring in by their cross-petition on the other.

Demurrer to Paragraph 2.

Paragraph...