DONALD W. WOLTER, LAWRENCE J. WOLTER, AND CEDAR LANE RESORT, INC. v. US BANCORP
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RENDERED:
December 23, 2004; 10:00 a.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-002788-MR
DONALD W. WOLTER, LAWRENCE J.
WOLTER, AND CEDAR LANE RESORT, INC.
APPELLANTS
APPEAL FROM MARSHALL CIRCUIT COURT
HONORABLE DENNIS R. FOUST, JUDGE
ACTION NO. 02-CI-00554
v.
US BANCORP
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
COMBS, CHIEF JUDGE; JOHNSON AND MINTON, JUDGES.
COMBS, CHIEF JUDGE:
Donald W. Wolter, Lawrence J. Wolter, and
Cedar Lane Resort, Inc., appeal from a portion of a judgment of
the Marshall Circuit Court entered on December 1, 2003, which
denied their claim for damages sought under the provisions of
KRS1 382.385.
1
The statute addresses the timely release of liens
Kentucky Revised Statutes.
on real property.
After our review of the facts and pertinent
law, we affirm.
In October 1991, Donald Wolter and Lawrence Wolter
executed a promissory note for $100,682.00, payable to the Bank
of Marshall County, predecessor in interest to the appellee,
U.S. Bancorp.
The note was secured by a security agreement on
certain business goods and a mortgage on the Wolters’ real
estate.
It bore a variable interest rate and was payable on a
monthly basis.
In deference to the seasonal nature of the
business, the note also contained provisions to permit the
Wolters to avoid payments in December, January, and February -–
the months when business at their lake resort was slow.
Due to intermittent adjustments to the interest rate,
the original schedule of payments was insufficient to satisfy
the Wolters’ debt.
In February 2000, in order to avoid having a
balloon payment due at the end of the original term of the note,
the bank offered to modify the agreement to extend its maturity
date to May 3, 2002.
The Wolters agreed and executed a
modification agreement.
Pursuant to its terms, the Wolters
tendered a final payment on April 30, 2002.
However, the modification agreement contained a
calculating error in the amortization schedule that was not
discovered until after the final payment of April 30, 2002.
May 13, 2002, a computer-generated amortization statement
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On
revealed a past-due payment in the amount of $2,213.59.
Accordingly, the bank refused to release the mortgage. On May
31, 2002, the Wolters corresponded with the bank and explained
that the note had been satisfied.
They demanded that the bank
return the note marked “paid in full” and that it release the
mortgage.
Instead of meeting those demands, the bank sent
another invoice dated August 22, 2002.
The Wolters reiterated
their demand in correspondence with the bank on August 29, 2002.
Nonetheless, the bank took no action to release the mortgage.
On November 27, 2002, the appellants filed this action
against U.S. Bancorp in Marshall Circuit court.
They sought
release of the mortgage, damages pursuant to the provisions of
KRS 382.365, and attorney’s fees.
In its answer, the bank
acknowledged that it had erroneously calculated the amortization
contained in the modified agreement based upon twelve monthly
payments rather than the nine that had been set forth in the
parties’ original agreement.
Consequently, an outstanding
balance of $2,213.59 remained even after the Wolters tendered
their final payment in April 2002.
Although the bank finally
released the mortgage in January 2003, it denied that the
Wolters were entitled to the release.
The bank demanded payment
of the outstanding balance, interest, and attorney’s fees.
Following a bench trial, the court concluded that the
Wolters had complied fully with the terms of the modified
-3-
agreement.
Despite the bank’s accounting errors, the court
agreed that the Wolters’ final payment of April 30, 2002,
sufficed as a matter of law to extinguish the debt.
It entered
judgment in favor of the Wolters with respect to their full
satisfaction of the note but denied their claim for damages for
an untimely release of the mortgage sought under KRS 382.385.
In ruling in favor of the bank on this issue, the judgment
recited the following language:
While the [bank] did not release it as
demanded, it is clear that a legitimate
controversy did exist between the parties,
and [the Wolters] have shown no damage.
Further good cause has been shown by [the
bank]. . . .
Order and Judgment at 4.
On appeal, the Wolters contend that the trial court
erred in concluding that they were not entitled to damages
pursuant to the provisions of KRS 382.365.
We disagree.
KRS 382.365 provides in part as follows:
(1) A holder of a lien on real property,
including a lien provided for in KRS
376.010, shall release the lien in the
county clerk's office where the lien is
recorded within thirty (30) days from the
date of satisfaction.
(2) A proceeding may be filed by any owner
of real property or any party acquiring an
interest in the real property in District
Court or Circuit Court against a lienholder
that violates subsection (1) of this
section. A proceeding filed under this
-4-
section shall be given precedence over other
matters pending before the court.
(3) Upon proof to the court of the lien
being satisfied, the court shall enter a
judgment releasing the lien. The judgment
shall be with costs including a reasonable
attorney's fee. If the court finds that the
lienholder received written notice of its
failure to release and lacked good cause for
not releasing the lien, the lienholder shall
be liable to the owner of the real property
in the amount of one hundred dollars ($100)
per day for each day, beginning on the
fifteenth day after receipt of the written
notice, of the violation for which good
cause did not exist. (Emphasis added.)
The trial court concluded that even though the
Wolters’ final payment was sufficient as a matter of law to
satisfy the debt, the bank had shown good cause for refusing to
release the mortgage securing the debt.
The Wolters’ disagree
and contend that the bank’s good faith belief (based on its
computer analysis of its accounting) did not equate with good
cause for its refusal to release the mortgage.
Our review
reveals that the court carefully and correctly analyzed the law,
the facts, and the competing equities.
During discovery, the bank acknowledged that its loan
officer erred in his calculation of the amortization schedule
contained in the modification agreement.
Because of the
accounting error, a balance of $2,213.59 remained outstanding at
the end of the term.
The Wolters did not dispute the
-5-
calculation of the amortization schedule that showed an
outstanding balance.
But they contended that their full payment
under the terms of the modification agreement alone was
sufficient to extinguish the debt as a matter of law and that,
therefore, the bank’s immediate release of the mortgage was
required.
The bank argues that because there was no actual
payment of the full principal and interest due and owing, it had
an adequate reason (and therefore good cause under the statute)
to justify its refusal to release the mortgage.
The court correctly observed that a legitimate
controversy existed.
Therefore, good cause as contemplated by
the statute supported the bank’s refusal to release the lien
under the circumstances.
Since the competing legal positions
were not resolved until entry of the judgment, the Wolters were
not legally entitled to a release of the mortgage.
Thus, there
was no untimely release of the mortgage in this case.
The court
properly held that the Wolters were not entitled to damages
pursuant to the provisions of KRS 382.365.
The judgment is affirmed in all respects.
ALL CONCUR.
BRIEF FOR APPELLANTS:
Robert L. Prince
Benton, Kentucky
BRIEF AND ORAL ARGUMENT FOR
APPELLEE:
Tom Blankenship
Benton, Kentucky
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ORAL ARGUMENT FOR APPELLANTS:
William F. McGee, Jr.
Benton, Kentucky
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