ADRIAN HADLEY v. CITIZEN DEPOSIT BANK
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RENDERED:
July 8, 2005; 10:00 a.m.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-000670-MR
ADRIAN HADLEY
APPELLANT
APPEAL FROM ADAIR CIRCUIT COURT
HONORABLE JAMES G. WEDDLE, JUDGE
ACTION NO. 00-CI-00041
v.
CITIZEN DEPOSIT BANK
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
HENRY AND VANMETER, JUDGES; MILLER, SENIOR JUDGE.1
HENRY, JUDGE:
Adrian Hadley appeals from the Adair Circuit
Court’s entry of summary judgment in favor of Citizen Deposit
Bank on a counterclaim and an amended counterclaim filed by
Hadley against the bank.
We affirm.
Wallace and Adrian Hadley married in 1959 and, for
over twenty-five years, lived in Louisville and worked for
1
Senior Judge John D. Miller sitting as Special Judge by assignment of the
Chief Justice pursuant to Section 110.(5)(b) of the Kentucky Constitution and
KRS 21.580.
Standard Oil/Chevron.
In 1985, the Hadleys retired from
Chevron, drew out their retirement benefits, relocated to Graves
County, Kentucky, and purchased what was then the Heath Oil
Company.
The Hadleys operated that business as the Hadley Oil
Company until selling it in 1998.
They then relocated to the
Adair County property that is part of the subject matter of this
litigation.
The Hadleys maintained a joint bank account at
Citizen Deposit Bank that was used by various businesses in
which the couple became involved both before and after their oil
company was sold.
In April 1998, in order to secure a line of credit in
the amount of $300,010.00 with Citizen Deposit Bank, Wallace
delivered to the bank a real estate mortgage covering the
Hadleys’ Adair County farm and residence property.
The mortgage
purported to contain the notarized signatures of both Wallace
and Adrian.
The bank subsequently obtained from attorney
Marshall Loy an opinion letter affirming the bank’s status as a
superior lienholder.
In the fall of 1998, Adrian learned about the mortgage
purporting to contain her signature and called the bank.
She
denied ever having signed the mortgage or even knowing anything
about it, and asked what could be done to remove her name from
the mortgage.
This issue was never resolved to the satisfaction
of both parties.
When Adrian confronted Wallace about what had
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happened, he admitted that he borrowed the money in order to
finance drug deals.
Wallace would later deed his one-half
interest in the real property in question to Adrian in February
1999.
Adrian would then transfer the interest to her limited
partnership by deed on December 14, 2000.
Also in February 1999, Adrian was notified by Ernest
Lee Williams, the president of Citizen Deposit Bank, that
Wallace had written two checks (totaling approximately
$125,000.00) on the Hadleys’ joint bank account, the balance of
which was insufficient to cover the checks.
The bank took the
position that Wallace and Adrian, as joint owners and depositors
on the account, were both responsible to the extent that these
potential overdrafts were honored.
On April 5, 1999, Adrian
executed a promissory note that effectively covered the
overdrafts on the joint account.
the note.
Wallace was not asked to sign
The note became due in March 2000 and was paid by
Adrian.
On August 28, 2001, Citizen Deposit Bank brought suit
on the mortgage, and various other promissory notes executed by
Wallace, to recover debts owed.
The bank included Adrian as a
party-defendant because: (1) her purported signature, properly
notarized, appeared on the mortgage; (2) she was the spouse of
Wallace Hadley; (3) she owned an interest in the property as of
the date of the mortgage; and (4) she, and later her limited
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partnership, had, subsequent to the making of the mortgage,
become succeeding owners of the property in question.
Citizen
Deposit Bank now acknowledges in its brief that Wallace had
apparently arranged for Adrian’s signature to be forged on the
mortgage and had procured an unlawful notary certificate
attesting to this fraudulent signature.2
On October 2, 2001, Adrian filed an answer and
counterclaim, and a crossclaim to the action filed by Citizen
Deposit Bank.
In her answer and counterclaim, Adrian again
denied executing the mortgage, and asserted that the mortgage
was procured by fraud.
She also stated that she had obtained
record title to the real property in question from Wallace
Hadley by deed dated February 26, 1999.
She further alleged
that the bank was attempting to enforce a void and fraudulent
mortgage.
On April 4, 2002, the trial court entered an order, on
motion of Citizen Deposit Bank, granting partial summary
judgment to the bank as to its claims against Wallace Hadley.
The court specifically found that the bank was entitled to
recover on promissory notes totaling over $417,000.00, and it
adjudged that the bank had a first and superior lien upon the
2
The bank further notes that because of this fact, the undivided one-half
interest in and to the subject real estate that Adrian owned at the time the
mortgage was made and delivered remains untouched, and the Adair Circuit
Court ultimately directed the judicial sale of only the undivided one-half
interest in the property owned by Wallace at the time he executed the
mortgage.
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real property that was the subject of the April 1998 mortgage.
The court noted, however, that this lien did not affect Adrian
Hadley’s one-half interest in the property, but only covered
Wallace’s one-half interest.
The trial court further held that
its order only pertained to the claims against Wallace, and that
all remaining claims were reserved for future adjudication.
Adrian attempted to appeal from this order, but this
court declined to entertain the appeal because the partial
summary judgment was deemed to be interlocutory.
Adrian also
sought a writ of prohibition from this court, pursuant to CR3
76.36, that would prohibit the trial court from ordering the
sale of her property; however, this court ruled that Adrian was
not entitled to extraordinary relief, and that her remedy was to
instead file a notice of appeal within thirty (30) days of the
trial court’s entry of an order of sale.
On May 6, 2002, the
trial court entered an order of sale as to Wallace Hadley’s onehalf interest in the real property in question and this interest
was ultimately sold.
2002 order.
The sale was confirmed in a September 24,
Neither Adrian nor Wallace attempted to appeal from
either of these orders.
On October 16, 2002, Adrian filed an amended
counterclaim again alleging that Citizen Deposit Bank was
attempting to enforce a void and fraudulent mortgage and also
3
Kentucky Rules of Civil Procedure.
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alleging for the first time that the bank fraudulently induced
her to execute the promissory note to cover the $125,000.00
overdraft on the Hadleys’ joint checking account.
On March 4, 2004, the trial court entered an order
granting summary judgment to Citizen Deposit Bank as to the
counterclaim and amended counterclaim filed by Adrian and her
limited partnership.
The court generally found that there was
no genuine issue of material fact as to these claims and that
the bank was entitled to summary judgment as a matter of law,
but it gave no other specific justification.
or authority was cited in the judgment.
motions were denied.
No legal precedent
Adrian’s post-judgment
This appeal followed.
The standard of review on appeal when a trial court
grants a motion for summary judgment is "whether the trial court
correctly found that there were no genuine issues as to any
material fact and that the moving party was entitled to judgment
as a matter of law."
Scifres v. Kraft, 916 S.W.2d 779, 781
(Ky.App. 1996); Palmer v. International Ass'n of Machinists &
Aerospace Workers, 882 S.W.2d 117, 120 (Ky. 1994); CR 56.03.
“The trial court must view the evidence in the light most
favorable to the nonmoving party, and summary judgment should be
granted only if it appears impossible that the nonmoving party
will be able to produce evidence at trial warranting a judgment
in his favor.”
Lewis v. B & R Corporation, 56 S.W.3d 432, 436
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(Ky.App. 2001), citing Steelvest, Inc. v. Scansteel Service
Center, Inc., 807 S.W.2d 476, 480-82 (Ky. 1991); Leslie v.
Cincinnati Sub-Zero Products, Inc., 961 S.W.2d 799, 804 (Ky.App.
1998).
“The moving party bears the initial burden of showing
that no genuine issue of material fact exists, and then the
burden shifts to the party opposing summary judgment to present
‘at least some affirmative evidence showing that there is a
genuine issue of material fact for trial.’"
Lewis, 56 S.W.3d at
436, citing Steelvest, 807 S.W.2d at 482; Hubble v. Johnson, 841
S.W.2d 169, 171 (Ky. 1992); Hibbitts v. Cumberland Valley Nat'l
Bank & Trust Co., 977 S.W.2d 252, 253 (Ky.App. 1998).
The trial
court "must examine the evidence, not to decide any issue of
fact, but to discover if a real issue exists."
S.W.2d at 480.
Steelvest, 807
The Kentucky Supreme Court has held that the
word “impossible,” as set forth in the standard for summary
judgment, is meant to be "used in a practical sense, not in an
absolute sense."
Lewis, 56 S.W.3d at 436, citing Perkins v.
Hausladen, 828 S.W.2d 652, 654 (Ky. 1992); Welch v. American
Publishing Co. of Kentucky, 3 S.W.3d 724 (Ky. 1999).
“Because
summary judgment involves only legal questions and the existence
of any disputed material issues of fact, an appellate court need
not defer to the trial court's decision and will review the
issue de novo.”
Id., citing Scifres, 916 S.W.2d at 781; Estate
of Wheeler v. Veal Realtors and Auctioneers, Inc., 997 S.W.2d
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497, 498 (Ky.App. 1999); Morton v. Bank of the Bluegrass and
Trust Co., 18 S.W.3d 353, 358 (Ky.App. 1999).
While Adrian’s arguments on appeal are somewhat
difficult to sort out it appears that she has two primary points
of contention: (1) summary judgment was inappropriate because
there was evidence that Citizen Deposit Bank knew that Adrian’s
signature was forged; accordingly, the bank should be liable for
trying to enforce a mortgage that it knew to be void; and (2)
summary judgment was inappropriate because Citizen Deposit Bank
made the fraudulent representation to her that Adrian was
jointly liable for any overdrafts made by Wallace from the
couple’s joint account.
As an initial matter, we are compelled to address the
fact that Adrian’s notice of appeal and introduction to her
brief address two separate summary judgment orders entered by
the trial court: (1) the April 4, 2002 partial summary judgment
order adjudging that Citizen Deposit Bank had a first and
superior lien upon the real estate that was the subject of the
April 1998 mortgage; and (2) the March 4, 2004 order dismissing
Adrian’s counterclaim and amended counterclaim.
This is despite
the fact that the argument section of Adrian’s brief only
addresses the March 4, 2004 order.
While, as a panel of this court previously held, the
April 4, 2002 partial summary judgment order was not a final and
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appealable judgment under CR 54.01 or 54.02, we note from the
record that the trial court explicitly made reference to this
order in its May 6, 2002 order of sale and cited it as a basis
for entering that order.
There is authority for the proposition
that an order of sale is a final order from which an appeal
lies.
In Security Federal Sav. & Loan Ass'n of Mayfield v.
Nesler, 697 S.W.2d 136 (Ky. 1985), our Supreme Court
specifically held that a “judgment holding that the purchase of
land was subject to a lien and decreeing a sale of the land to
satisfy that debt is a final order from which an appeal lies.”
Id. at 138, citing May v. Ball, 108 Ky. 180, 56 S.W. 7 (1900).
The Supreme Court further noted that an “order of sale which
directs a disbursement of the proceeds after payment of costs
definitely is a final and appealable order.”
v. Johnson, 255 S.W.2d 33 (Ky. 1953).
Id., citing Newsom
The Supreme Court also
concluded that an “order which orders property sold but does not
include the magic words of CR 54.02 ‘there is no reason for
delay,’ or ‘this is a final order,’ is still a final and
appealable order.”
Id., citing Alexander v. Springfield
Production Credit Assn., 673 S.W.2d 741 (Ky.App. 1984).
In her petition for extraordinary relief under CR
76.36, Adrian asked this Court to prevent enforcement of the
trial court’s order of sale, and she specifically acknowledged
that it implemented the court’s April 4, 2002 holding that
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Citizen Deposit Bank had a superior lien on Wallace’s interest
in the couple’s property.
However, this court expressly held
that Adrian should have filed a notice of appeal within thirty
(30) days of the order of sale rather than trying to obtain
extraordinary relief.
As we earlier noted, Adrian failed to
file any notice of appeal from the order of sale or any other
orders relating to the sale.
Consequently, we hold that Adrian is entitled to no
relief from the trial court’s partial summary judgment of April
4, 2002, as that judgment (as Adrian recognized) was directly
implemented by the court’s May 6, 2002 order of sale.
If Adrian
sought relief from the trial court’s conclusion that the bank
had a superior lien, an appeal should have been taken from that
order of sale.
In light of the fact that Citizen Deposit Bank has
been adjudicated to have a legitimate lien on the Hadleys’ real
estate, we are now confronted with the issue of whether Adrian’s
counterclaim—that her rights were violated due to the bank’s
enforcement of a “void and fraudulent” mortgage when it knew
that her signature was forged before seeking enforcement—remains
viable and not subject to summary judgment.
Adrian has provided
us with absolutely no legal authority to support her stance that
Citizen Deposit Bank’s mortgage was entirely void and
unenforceable, even as to Wallace, and that the bank should not
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have been able to obtain Wallace’s one-half interest in the
subject real estate even though there is no dispute that his
signature was legitimate.
Neither has she provided us with any
other substantive argument to support her position, with the
exception of a general assertion that “it was a question for the
jury to decide whether or not the Bank was aware of this forged
document.”
It is clear from the bank’s brief that it has
acknowledged that Adrian’s signature was forged on the mortgage
and, because of this fact, it did not attempt to recover
Adrian’s one-half interest in the subject real estate.
Adrian
has failed to provide us with any case law or other authority to
establish why she is entitled to further relief or why the
bank’s actions were fraudulent or in bad faith.
Our courts have established that an alleged error may
be deemed waived where an appellant fails to cite any authority
in support of the issues and arguments advanced on appeal. See
Pierson v. Coffey, 706 S.W.2d 409, 413 (Ky.App. 1986).
"[W]ithout any argument or citation of authorities, [an
appellate] [c]ourt has little or no indication of why the
assignment represents an error."
851 (La. 1988).
State v. Bay, 529 So.2d 845,
It is not our function as an appellate court to
research and construct a party’s legal arguments, and we decline
to do so here.
See, e.g., Doherty v. City of Chicago, 75 F.3d
318, 324 (7th Cir. 1996) (citations omitted); CR 76.12(4)(c)(v).
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Accordingly, we hold that Adrian is not entitled to relief as to
this issue.
Adrian’s second contention is that the trial court
improperly entered summary judgment as to her amended
counterclaim pertaining to the promissory note that she executed
to cover Wallace’s overdrafts.
She particularly asserts that
Citizen Deposit Bank fraudulently induced her to execute the
promissory note for no consideration and that she was not liable
for payment under KRS 355.4-401(2).
The bank counters this
assertion by arguing that Adrian failed to present enough
evidence of fraud to overcome the summary judgment threshold,
and that KRS 355.4-401(2) does not prohibit charging one
participant in a joint account for an overdraft by another
participant in the same joint account.
To bring an action for fraud in Kentucky, the party
claiming harm must establish six separate elements of fraud by
clear and convincing evidence: 1) the existence of a material
representation; 2) which is false; 3) which is known to be false
or made recklessly; 4) which is made with inducement to be acted
upon; 5) which is acted in reliance thereon; and 6) which causes
injury.
United Parcel Service Co. v. Rickert, 996 S.W.2d 464,
468 (Ky. 1999), citing Wahba v. Don Corlett Motors, Inc., 573
S.W.2d 357, 359 (Ky.App. 1978).
Accordingly, in order for
Adrian to establish fraud on the part of the bank in informing
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her that she was responsible for any overdrafts on her joint
account with Wallace, not only must that representation be
proven false, it must also be proven that the bank knew that the
representation was false when it was made or that it was made
recklessly.
Adrian cites KRS 355.4-401(1) and (2) in support of
her position.
Those provisions read as follows:
(1) A bank may charge against the account of
a customer an item that is properly payable
from that account even though the charge
creates an overdraft. An item is properly
payable if it is authorized by the customer
and is in accordance with any agreement
between the customer and bank.
(2) A customer is not liable for the amount
of an overdraft if the customer neither
signed the item nor benefited from the
proceeds of the item.
Adrian relies in particular upon KRS 355.4-401(2), contending
that since she neither signed the items creating the overdraft
nor benefited from the proceeds of those items, she cannot be
liable for those overdrafts.
Accordingly, the argument goes,
Citizen Deposit Bank committed fraud in telling her that she was
responsible for them.
Our review of KRS 355.4-401 and the few cases citing
this statute provides us with little assistance in addressing
Adrian’s
contention.
KRS
355.4-401
unfortunately
does
not
directly address the issue of a non-drawing cosigner’s liability
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for a joint account overdraft, and we have been unable to find
any Kentucky case law that addresses this issue.
There are, however, a number of other jurisdictions
that have addressed the issue, including some within the context
of the Uniform Commercial Code (“UCC”), which is pertinent here
given that KRS 355.4-401 is Kentucky’s codified version of the
UCC’s section 4-401.
Among these jurisdictions, the majority
view appears to be that a non-drawing cosigner is not liable for
an overdraft unless he or she participated in creation of the
overdraft, received benefit from it, or in some way ratified it.
See John D. Hodson, Annotation, Nondrawing Cosigner’s Liability
For Joint Checking Account Overdraft, 48 A.L.R.4th 1136 (1986);
see also First Tennessee Bank, N.A. v. Mungan, 779 S.W.2d 798
(Tenn.Ct.App. 1989).
However, as noted by Citizen Deposit Bank
in its brief, there is case law holding that a cosigner of a
joint business checking account was liable for overdrafts of the
account, despite the fact that she had no ownership interest in
the business and was a signatory on the account only as a matter
of convenience.
See Bremen Bank & Trust Co. v Bogdan, 498
S.W.2d 306 (Mo.Ct.App. 1973); see also Pacenta v. American
Savings Bank, 552 N.E.2d 1276 (Ill.App.Ct. 1990).
Which position is actually the “correct” one is not of
primary importance here, particularly given that Adrian has
already made good on the overdraft in question.
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We do note,
however, that the “majority” opinion appears to be the one more
commensurate with the language of KRS 355.4-401(2).
We mention
the differences in perspective only to emphasize that the matter
is by no means a settled one; indeed, Kentucky courts have not
explicitly adopted either position.
Consequently, it is
difficult to see how Adrian could be successful in a fraudulent
misrepresentation claim that revolves around this very issue.
First, it is questionable as to whether or not the
representation that Adrian was responsible for Wallace’s
overdrafts, when made, was false, given that Kentucky law is
unclear on this point.
Second, even assuming that the bank’s
position would ultimately prove to be legally “incorrect,”
Adrian would then face the task of establishing that the bank
adopted this position in a reckless manner or knowing that it
was false.
We struggle to see how this could be done under the
current unsettled state of the law, particularly when looking
back in “hindsight,” as we must do here.
Given that Adrian has
provided us with nothing else to support her position that she
was not liable for a joint account overdraft (for example, the
couple’s agreement with the bank in starting the account), we
must conclude that the trial court did not err in awarding
Citizen Deposit Bank summary judgment.
The judgment of the Adair Circuit Court is therefore
affirmed.
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ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Willard Paxton
Princeton, Kentucky
James B. Brien, Jr.
Mayfield, Kentucky
Alan C. Stout
Marion, Kentucky
Robert Spragens, Jr.
Lebanon, Kentucky
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