FIRST COMMONWEALTH BANK OF PRESTONSBURG v. SHELIA WEST; THURMAN WEST; THURMAN WEST TRUCKING COMPANY; UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE; AND FLOYD COUNTY, KENTUCKY
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RENDERED: September 8, 2000; 2:00 p.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1998-CA-001203-MR
FIRST COMMONWEALTH BANK
OF PRESTONSBURG
v.
APPELLANT
APPEAL FROM FLOYD CIRCUIT COURT
HONORABLE JOHN DAVID CAUDILL, JUDGE
ACTION NO. 96-CI-00671
SHELIA WEST;
THURMAN WEST;
THURMAN WEST TRUCKING COMPANY;
UNITED STATES OF AMERICA
DEPARTMENT OF THE TREASURY,
INTERNAL REVENUE SERVICE; AND
FLOYD COUNTY, KENTUCKY
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
GUIDUGLI, JOHNSON AND KNOPF, JUDGES.
GUIDUGLI, JUDGE.
First Commonwealth Bank of Prestonsburg, Inc.
(FCB), appeals from an order of the Floyd Circuit Court which
denied its motion for summary judgment against Shelia West
(Shelia).1
We reverse and remand this matter with instructions
to enter summary judgment in favor of FCB.
This case presents an issue of first impression namely whether a co-mortgagor can obligate another co-mortgagor’s
interest in real property covered by a mortgage containing a
future advance clause by incurring additional indebtedness with
the mortgagee without the knowledge or consent of the other comortgagor.
The facts in this case are fairly straightforward
and, for the most part, undisputed.
Shelia and Thurman West (Thurman) were married in 1978.
Throughout their marriage, Thurman operated a trucking company.
During their marriage, Shelia and Thurman purchased a house in
Ivel, Kentucky (the residential property) and a piece of property
from which the trucking business was operated (the commercial
property).
It appears from the record that FCB financed the
purchase of the commercial property.
On April 8, 1991, Shelia and Thurman executed a
promissory note in favor of FCB in the amount of $75,010.50.
The
note indicated on its face that the purpose of the loan was “ref
& business exp.”
The note was secured by a mortgage executed on
the same date covering both the residential and commercial
1
We are mindful of the fact that a denial of a motion for
summary judgment is generally not appealable due to its
interlocutory nature. CR 56.03. However, an exception to this
rule exists where “(1) the facts are not in dispute, (2) the only
basis of the ruling is a matter of law, (3) there is a denial of
the motion, and (4) there is an entry of a final judgment with an
appeal therefrom.” Transportation Cabinet, Bureau of Highways,
Commonwealth of Kentucky v. Leneave, Ky. App., 751 S.W.2d 36, 37
(1988). As this case satisfies the requirements for the
exception, we will review the trial court’s denial of summary
judgment.
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property as well as a third tract of land.
The mortgage
contained the following future advance clause:
It is understood and agreed that this
mortgage is given not only to secure the
above indebtedness, and all extensions,
modifications and renewals of same, but also
any and all financial obligations, however
arising, whether direct or indirect, and any
extensions, modifications and renewals
thereof which the Mortgagor or the Borrower
or any of them, may now owe or hereafter
incur to the Lender, or its successors in
title, so long as this mortgage shall remain
unreleased of record, even though the
original indebtedness referred to herein
shall have been reduced or fully paid, but
the maximum amount, exclusive of interest,
attorney fees and costs, secured hereunder
shall not at any one time exceed $115,000.00.
On December 21, 1992, Shelia and Thurman executed a
second promissory note in favor of FCB in the amount of
$74,454.62.
The note indicated on its face that the purpose of
the loan was “refinance balloon balance.”
According to an
affidavit submitted by Greg Wilson, Senior Vice-President of FCB,
the purpose of this loan was to refinance a five year note
executed in 1987 to purchase the commercial property.
The note
was secured by a mortgage executed on the same date covering only
the commercial property.
This mortgage contained a future
advance clause identical to the one contained in the first
mortgage, the only difference being that the maximum amount
secured was not to exceed $122,000.
Aside from the previously-described notes and
mortgages, Thurman had some financial dealings with FCB of which
Shelia was unaware.
On December 23, 1991, Thurman executed a
note in favor of FCB in the amount of $25,021 which was secured
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by a 1987 Mack tractor and a 1987 R and S trailer.
Thurman
signed the note as “Thurman West d/b/a Thurman West Trucking Co.”
This note was later modified under a loan modification agreement
dated March 31, 1995, between FCB and Thurman West d/b/a Thurman
West Trucking Company.
It is undisputed that Shelia did not sign
this note.
On June 8, 1994, Thurman executed another note in favor
of FCB, this one in the amount of $50,000.
Once again, Thurman
signed the note as “Thurman West d/b/a Thurman West Trucking Co.”
No security was listed on the face of the note.
On the loan
application, Thurman indicated that the purpose of the loan was
“business purposes - ins. & tires.”
on a loan memorandum form.
The same purpose was listed
that the loan was unsecured.
The loan application also provided
This loan was also modified by a
loan modification agreement dated March 31, 1995, between FCB and
Thurman West d/b/a Thurman West Trucking Co.
Once again, it is
undisputed that Shelia did not sign this note.
Shelia and Thurman separated in 1995 and eventually
divorced.
At some point in time either before or after their
separation, all four notes fell into default and on September 10,
1996, FCB instituted foreclosure proceedings and asked that the
mortgaged property be sold to satisfy the debt on all four notes.
In her answer, Shelia argued that the future advance clauses
contained in the 1991 and 1992 mortgages “were not applicable to
her undivided interest in the real property described therein
since she did not personally obligate herself upon any subsequent
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debts or other obligations to [FCB].” Thurman failed to answer
FCB’s complaint.2
FCB filed its first motion for summary judgment and
order of sale on November 11, 1996.
In response to Shelia’s
answer, FCB argued that future advance clauses such as those
contained in the two mortgages were valid in Kentucky.
On the
same day, FCB filed a combined motion for default
judgment/summary judgment and order of sale in which it argued
that some of the defendants had not answered and that the
defendants which had answered had raised no genuine issue of
material fact.
In her response, Shelia argued that future
advance clauses cannot be used to subject mortgaged property to
subsequent debt incurred by a joint mortgagor unless the other
mortgagor was aware of the subsequent debt and executed the
additional documents.
Shelia indicated that other jurisdictions
had held that a single co-mortgagor could bind both mortgages to
subsequent debt due to the operation of a future advance clause,
but argued that in those cases there was a “clear and explicit
intent shown within the . . . clause that it was to cover all
subsequent indebtedness.”
Shelia further argued that even if the
trial court adopted this position, summary judgment would still
be improper because there would be a factual issue as to whether
the future advance clauses “contained clear and explicit language
that all future obligations would be covered.”
FCB responded to
Shelia’s argument by noting that the question of whether the
2
There were other parties listed as defendants to FCB’s
complaint, but as they are not involved in the current dispute we
need not make mention of them.
-5-
language of the future advance clauses was ambiguous was a
question of law for the trial court to decide.
On January 21, 1997, the trial court entered the first
of two orders regarding FCB’s motions for summary judgment.
In
this order, the trial court denied FCB’s motion for summary
judgment, apparently as to Shelia alone, finding that factual
issues existed and needed to be addressed.
In the order, the
trial court also added sua sponte that “an issue has been raised
as to whether Shelia West executed the original mortgage notes as
an accommodation party for the business . . . and that as such
the discharge provisions of KRS 355.3-605(4) may be relevant to
this action[.]”
In a second order entered February 25, 1997, the trial
court entered a default judgment/partial summary judgment and
provisional order of sale in favor of FCB.
However, the trial
court noted:
The only contested issue in this litigation
is whether or not the undivided ownership
interest of Defendant Shelia West, in the
subject real property, is subject to two (2)
notes made individually by the Defendant
Thurman West by reason of a [future advance]
clause as contained in the mortgages herein
sued upon. That issue is not herein
addressed and is reserved for a later
determination.
The order also provided that the property was to be sold “only
upon supplemental order or amended judgment of this Court
directing such sale.”
FCB filed its second motion for summary judgment on
January 12, 1998.
FCB argued that the language of the future
advance clauses was clear and unambiguous and that the clauses
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should be enforced as written.
In regard to the issue of whether
Shelia was an accommodation party, FCB argued that because she
did not sign the two notes made by Thurman she could not be an
accommodation party as defined in the Uniform Commercial Code,
and that even if she was she waived her status as such when she
executed the mortgages containing the future advance clauses.
In her reply, Shelia addressed the issues concerning
accommodation status and enforceability of the future advance
clauses.
Additionally, Shelia argued that the future advance
clauses could not attach to Thurman’s 1991 note because it was
secured by other consideration, namely the 1987 tractor and
trailer.
In an order entered March 3, 1998, the trial court
denied FCB’s motion for summary judgment.
The trial court
subsequently amended its order on April 17, 1998, and stated as
follows:
[I]t appearing to the Court that the sole
issue presented was whether the dragnet
clause in the two (2) mortgages signed by
Shelia West, were, as a matter of law so
clear and unambiguous that it should have
been clear to Shelia West that her comortgagor (her now ex-husband Thurman West)
can subsequently and unilaterally obligate
her undivided interest in the mortgaged real
property by executing additional promissory
notes with the Plaintiff and without the
knowledge or signature of Shelia West, and it
appearing to the Court that Shelia West
denies she had any knowledge of the
subsequent promissory notes and all parties
have agreed that Shelia West did not execute
the subsequent promissory notes, and it
further appearing to the Court that it is
significant that the first promissory note
subsequently executed solely by Thurman West,
dated December 23, 1991, did not refer back
to the mortgage and at one time had other
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collateral listed to secure same although
such collateral was released on September 1,
1992 and prior to the instant litigation, and
that the Plaintiff, First Commonwealth Bank,
did subsequently modify both promissory notes
signed solely by Thurman West without
obtaining the signature of Shelia West, it
does thereby appear to the Court that after
reviewing both mortgages and the subsequent
promissory notes executed solely by Thurman
West, that the dragnet clauses contained in
the mortgages do not, as a matter of law,
contain language that is so clear and
unambiguous that it would put a reasonable
person on notice that their co-mortgagor
could subsequently and unilaterally execute a
promissory note which would also bind the
first co-mortgagor’s undivided interest even
if said person was not aware of and did not
execute the subsequent promissory notes[.]
This appeal followed.
I. DOES THE FUTURE ADVANCE CLAUSE CONTAINED
IN THE TWO MORTGAGES EXECUTED BY SHELIA AND
THURMAN ALLOW THURMAN TO OBLIGATE SHELIA’S
UNDIVIDED INTEREST IN THE MORTGAGED PROPERTY
WITHOUT HER PERMISSION?
We would note at the outset that future advance clauses
such as the ones contained in the mortgages at issue are valid in
Kentucky.
“[A] mortgage may be drafted, if given in good faith,
so as to secure future extensions and renewals as well as a
present debt.”
816 (1964).
Bank of Maysville v. Brock, Ky., 375 S.W.2d 814,
See also Trio Realty Company, Inc. v. Queenan, Ky.,
360 S.W.2d 747 (1962); Taulbee v. First Nat. Bank of Jackson,
Ky., 130 S.W.2d 48 (1939).
“It is sufficient if the mortgage
clearly shows it is to stand as security for both an original
loan and for such additional indebtedness as may arise from
future dealings between the parties.”
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Brock, 375 S.W.2d at 816.
The validity of future advance clauses was taken one
step further in Martuscelli v. Planters Bank & Trust Company, Ky.
App., 705 S.W.2d 938 (1986).
In that case, Peter and Mary
Matruscelli executed a mortgage which provided:
Any additional advancement or loan made
hereunder by Second Party to any person who
is a First Party [mortgagor] hereto shall
bind all other persons who are First Parties
hereto just as if made to each and all of
them, and all First Parties shall be jointly
and severally liable to repay any such
obligations shall [sic] be fully secured by
this mortgage.
Peter subsequently executed a second note, and when he defaulted
the trial court entered summary judgment against Mary as Peter’s
guarantor on the second note.
court’s decision.
This Court affirmed the trial
Martuscelli, 705 S.W.2d at 939.
However, it
is not known in Martuscelli whether Peter executed the second
note without Mary’s consent, which is the issue facing us now.
As we noted earlier, this case presents an issue of first
impression in Kentucky, and “[n]o lamp of precedent lights our
way.”
First v. Byrne, 28 N.W.2d 509, 511 (Iowa 1947).
However,
other states have addressed this issue, and we turn to them for
guidance.
In Walters v. Merchants & Manufacturers Bank of
Ellisville, 67 S.W.2d 714 (Miss. 1953), the Mississippi Supreme
Court stated:
Where the [future advance] clause is broad
enough to cover subsequent debts of one of
the joint mortgagors, the . . . clause is
generally construed so as to extend the
security of the mortgage executed by joint
mortgagors to the individual indebtedness of
one of them afterward created.
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....
The...clause here involved expressly covers
“any and all debts that the said grantors or
either of them may incur with or owe to the
said beneficiary,....’ The parties clearly
agreed that it would secure debts incurred by
both of them and either of them,. No fraud
is shown, and under the contract and the
decisions we must enforce the provision as
written.
Walters, 67 So. 2d at 717-718.
In Newton County Bank v. Jones, 299 So. 2d 215 (Miss.
1974),
which is factually similar to ours, the Mississippi
Supreme Court explained its rationale even further.
In this
case, Mr. and Mrs. Jones executed a deed of trust which provided
security as to not only the original note, but also “all loans
and advances which [the Bank] has made or may hereafter make to
the Grantor, or any one of them.”
Sometime after the execution
of the original note and mortgage, Mr. Jones, without Mrs.
Jones’s knowledge or consent, borrowed more money from the Bank.
This loan was secured by a herd of cattle.
When Mr. Jones
defaulted on the note and the cows were nowhere to be found, the
Bank sought to foreclose on the deed of trust.
In holding that
the Bank could use the future advance clause to foreclose on the
property even though Mrs. Jones had no knowledge of Mr. Jones’s
actions, the Mississippi Supreme Court stated:
The deed of trust before us explicitly states
that its purpose was ‘to secure all loans and
advances which the [Bank] has made or may
hereafter make to the grantor or any one of
them.’ Whoever drafted it was obviously
relying upon and tracking what the court said
in . . . Walters[.] The quoted language is
sufficiently clear and in such unambiguous
and unmistakable terms as to contemplate and
secure additional ‘loans’ obtained from the
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bank by Mr. Jones alone. Although Mr. Jones
may not have acted prudently or in the best
interest of himself or his wife when he
incurred the additional indebtedness, the
compelling legal aspect is that his action
was precisely what she bargained for and
contractually authorized him to do.
....
When inserted in a deed of trust, such a
clause operates as a convenience and an
accommodation to borrowing spouses. It makes
available additional funds without both
having to execute additional security
documents, thereby saving time, travel, loan
closing costs, costs of extra legal services,
recording fees, et cetera.
Jones, 299 So. 2d at 218 (emphasis added).
See also Holland v.
Bank of Lucedale, 204 S.W.2d 875 (Miss. 1967).
It is important to note in Jones that the Mississippi
Supreme Court focused on the fact that the clause referred to
future loans made by “the grantor or any one of them” and held
that the unmistakable and unambiguous effect of such language was
to both “contemplate and secure” loans obtained by one mortgagor
acting alone.
An examination of other states which have
addressed this issue shows that in order for future advance
clauses to secure additional loans made to a co-mortgagor without
the knowledge or consent of the other co-mortgagor, “the clause
should recite that it covers any other indebtedness of the
mortgagors “or either or any of them,” or contain similar
language.”
Milton Roberts, Annotation, Debts Included in
Provision of Mortgage Purporting to Cover All Future and Existing
Debts (Dragnet Clause) - Modern Status, 3 A.L.R. 4th 690, 698
(1981).
In fact, the annotation further provides that “[i]f it
is desired that a mortgage shall secure all indebtedness of the
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mortgagors to the mortgagee in addition to the specific debt
secured by the mortgage, care must be taken in drafting a [future
advance] clause in the mortgage to make that intention clear and
unmistakable.”
Id.
Other jurisdictions have upheld the
enforceability of similarly worded clauses.
See Padgett v.
Haston, 651 S.W.2d 460 (Ark. 1983)(upholding future advance
clause which secured future loans made to “any person designated
“mortgagor”); M.H. Wright v. Lincoln County Bank, 465 S.W.2d 877
(Tenn. Ct. App. 1970)(finding that language of future advance
clause purporting to bind “the undersigned, or either of them” to
be unambiguous and enforceable); Loudermilk v. Citizens Bank of
Mooreville, 505 N.E.2d 107 (Ind. Ct. App. 1987)(noting that
customary method of including future several debt in mortgage is
to use phrase such as “the indebtedness of the mortgagors or
either of them”). But see Citizen Bank & Trust Company v. Gibson,
490 N.E.2d 728 (Ind. 1986)(denying enforcement of clause
referencing “all indebtedness of mortgagors and borrowers to
Mortgagee whether now existing or hereafter incurred” against
wife whose husband incurred additional loans with lender); Bank
of Woodson v. Hibbitts, 626 S.W.2d 133 (Tex App. 1981)(holding
that future advance clause referring to indebtedness “now owing
or in the future may be owing by mortgagors” only provides
security for debt incurred by all mortgagors, “not either or any
of them”); Farmers Trust and Savings Bank v. Manning, 311 N.W.2d
285 (Iowa 1981)(holding that future advance clause which
referenced “any and all future and additional advances made to
the Mortgagors” to be unenforceable as to co-mortgagor alone);
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Holiday Inns, Inc. v. Susher-Schaefer Investment Co., 259 N.W.2d
179 (Mich. Ct. App. 1977)(holding future advance clause securing
“indebtedness and liabilities . . .now or hereafter owing . . .
from the Mortgagor” to be unenforceable as to subsequent loans to
co-mortgagor acting alone).
Turning to the facts at hand, the clauses contained in
the mortgages at issue provide security for “any and all
financial obligations . . . and any extensions, modifications and
renewals therefor which the Mortgagor or Borrower or any of them,
may now owe or hereafter incur.”
We note at the outset that a
mortgage is essentially a contract between the borrower and
lender, and as such “[t]he rules of contract interpretation apply
to our review of the language of a mortgage.”
Woods, 727 A.2d 358, 362 (Md. 1999).
Calomiris v.
See also Connecticut
Housing Finance Authority v. John Fitch Court Associates Limited
Partnership, 713 A.2d 900, 904 (Conn. App. Ct. 1998); Ogan v.
Ogan, 702 N.E.2d 472, 474 (Ohio Ct. App. 1997).
The construction
and interpretation of a contract, including questions regarding
ambiguity, are questions of law to be decided by the court.
Hibbitts v. Cumberland Valley National Bank & Trust Company, Ky.
App. 977 S.W.2d 252, 254 (1998).
As the trial court’s decision
that the mortgage in this case was ambiguous is a matter of law,
our standard of review is de novo.
Calomiris, 727 A.2d at 362.
Based on our review of case law from other
jurisdictions, in particularly the Mississippi Supreme Court’s
decision in Jones, we find that the trial court erred in holding
that the future advance clauses are ambiguous.
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The clauses
clearly provide that it subjects “the Mortgagor or the Borrower
or any of them” to liability for any future debt incurred.
We
believe that this language is sufficient to subject Shelia’s
interest in the mortgaged property to liability for Thurman’s
notes even though she had no knowledge of his actions.
Although
this result is harsh, we are mindful that we are not permitted to
create an ambiguity where none exists even if doing so would
result in a more palatable outcome.
Friction Materials Company,
Inc. v. Stinson, Ky. App., 833 S.W.2d 388, 391 (1992).
When a contract is plain, unambiguous and
fair, not vitiated by fraud nor mistake in
its execution, the courts are not authorized
to make for the parties to it a different
one, or to construe it contrary to its
express terms.
Johnson v. Edwards, Ky., 20 S.W.2d 76, 77 (1929), citing
Stevenson v. Phoenix Insurance Co., Ky., 83 Ky. 7 (1884).
Furthermore, where a contract is free from ambiguity, “it needs
no construction and will be performed or enforced in accordance
with its express terms.”
745, 747 (1933).
Ex parte Walker’s Ex’r, Ky., 68 S.W.2d
We believe the following language from Jones to
be applicable:
Both spouses, being legally competent, had
the right to jointly enter into the
[mortgage] which included the [future
advance] clause. [Shelia] should not be
allowed to escape the consequences she risked
when she became signatory to such a contract.
....
Here [Shelia] reposed in her husband trust
and confidence which resulted in her
willingness to make the bargain evidenced by
the [mortgage]. In this manner she
contractually allowed [Thurman] to use her
credit (secured by her property). Having
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bargained and contracted as she did, it would
be unconscionable for us to hold that her
[interest in the land] does not secure the
funds loaned by the bank in reliance on the
contract. No charge or suggestion was made
that the bank was the aggressor or that
[Shelia] fell victim to a loan shark who
defrauded or overreached her in any manner.
She and her husband requested the original
loan which was made on the expressed
provision that it would be secured by the
[mortgage]. They covenanted with the bank
that either of them could individually
enlarge the deed of trust lien as was done.
Jones, 299 So.2d at 218-219.
II. DOES THE FACT THAT THURMAN’S DECEMBER
1991 NOTE WAS SECURED BY OTHER COLLATERAL
REQUIRE A DIFFERENT OUTCOME?
As previously indicated, the note Thurman executed in
December 1991 was secured by a tractor and trailer.
Shelia
contends that because that note was secured by security other
than that pledged in the mortgages executed by her, the future
advance clauses do not attach.
We disagree.
Shelia is correct that “[i]ndependent loans secured by
different security . . . have been held not covered by the
mortgage . . . under the construction placed on the [future
advance] clause in some mortgages.”
Sec. 73 (1996).
54A Am.Jur. 2d Mortgages
See also Tennis Coal Co. v. Asher & Hensley,
Ky., 136 S.W. 197, 198 (1911).
However, we believe there are two
reasons why Asher does not apply in this case.
First, Asher involved three notes: (1) a note executed
in June 1899 secured by timber standing on a tract of land; (2) a
note executed in September 1899 secured by a mortgage on two
tracts of land; and (3) a note executed in 1903.
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The mortgage
contained a future advance clause providing that it secured the
September note and “any other indebtedness second parties . . .
may incur[.]”
Thus, while this clause would cover the 1903 note,
it would not have covered the June 1899 note as it was a true
future advance clause as opposed to a dragnet clause.
Secondly, as FCB points out, the collateral securing
Thurman’s December 1991 note had been released on September 1,
1992.
We believe that the release of the collateral securing the
December 1991 note places it back into the scope of the future
advance clause.
Had the collateral not been released, we may
have been persuaded otherwise.
III. WAS SHELIA AN INDORSER OR ACCOMMODATION
PARTY SO THAT FCB’S AGREEMENTS TO MODIFY
THURMAN’S NOTES DISCHARGED HER OBLIGATION
THEREUNDER?3
Shelia maintains that when Thurman’s notes were
modified under the terms of the two modification agreements, her
liability was discharged pursuant to KRS 355.3-605(4).
disagree.
We
KRS 355.3-605(4) provides in pertinent part:
If a person entitled to enforce an instrument
agrees, with or without consideration, to a
material modification of the obligation of a
party other than an extension of the due
date, the modification discharges the
obligation of an indorser or accommodation
party having a right of recourse against the
3
FCB argues in its reply brief that this issue was moot
because the trial court’s default judgment/partial summary
judgment and provisional order of sale indicated that the sole
issue remaining to be decided was the effect of the future
advance clause. We disagree. The trial court clearly stated in
its order that one of the considerations it looked at in reaching
its decision was that FCB “ did subsequently modify both
promissory notes signed solely by Thurman West without obtaining
the signature of Shelia West[.]”
-16-
person whose obligation is modified to the
extent the modification causes loss to the
indorser or accommodation party with respect
to the right of recourse.
Pursuant to KRS 355.3-419:
If an instrument is issued for value given
for the benefit of a party to the instrument
(“accommodated party”) and another party to
the instrument (“accommodation party”) signs
the instrument for the purpose of incurring
liability on the instrument without being a
direct beneficiary of the value given for the
instrument, the instrument is signed by the
accommodation party “for accommodation.”
KRS 355.3-419(1)(emphasis added).
As Shelia did not sign either
of Thurman’s notes, she cannot be considered an accommodation
party.
The same is true to the extent that Shelia claims she
was an indorser of Thurman’s notes.
Under KRS 355.3-204, an
“indorser” is one who makes an indorsement.
“Indorsement” is
defined as:
[A] signature...that alone or accompanied by
other words is made on an instrument for the
purpose of:
(a) Negotiating the instrument;
(b) Restricting payment of the
instrument; or
(c) Incurring indorser’s liability
on the instrument[.]
KRS 355.3-204(1)(emphasis added).
Once again, as Shelia did not
sign Thurman’s notes, she was not an indorser.
Furthermore, Shelia’s reliance on Article 3 of the
Uniform Commercial Code (KRS 355.3-101 et seq.), particularly KRS
355.3-414(4), is misplaced.
Article 3 deals exclusively with
negotiable instruments, which are defined as “an unconditional
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promise or order to pay a fixed amount of money, with or without
interest or other charges[.]” KRS 355.3-104(1).
A mortgage,
while it may provide security for a negotiable instrument, is not
a negotiable instrument.
Having considered the parties’ arguments on appeal, the
order of the Floyd Circuit Court is reversed and this matter is
remanded to the trial court with instructions to enter summary
judgment in favor of FCB in accordance with the dictates of this
opinion.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE, SHELIA
WEST:
Richard E. Fitzpatrick
Martin L. Osborne
Prestonsburg, KY
Gregory A. Isaac
Prestonsburg, KY
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