PAUL D. SANDERS AND NANCY F. SANDERS; RONNIE BROWNING; TAMI BROWNING; SCOTT SHACKLEFORD; LOGAN COUNTY, KENTUCKY; FIRST UNION NATIONAL BANK; MID STATE TRUST X v. CITIZENS NATIONAL BANK; MID STATE TRUST X
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RENDERED:
NOVEMBER 5, 2004; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2004-CA-000153-MR
PAUL D. SANDERS AND NANCY F. SANDERS;
RONNIE BROWNING; TAMI BROWNING; SCOTT
SHACKLEFORD; LOGAN COUNTY, KENTUCKY;
FIRST UNION NATIONAL BANK;
MID STATE TRUST X
APPELLANTS
APPEAL FROM LOGAN CIRCUIT COURT
HONORABLE TYLER L. GILL, JUDGE
ACTION NO. 03-CI-00092
v.
CITIZENS NATIONAL BANK;
MID STATE TRUST X
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
DYCHE, KNOPF, AND MINTON, JUDGES.
KNOPF, JUDGE:
Paul and Nancy Sanders1 appeal from a judgment of
the Logan Circuit Court, entered November 13, 2003,
subordinating their mortgage on a forty-acre tract of land to a
1
The other appellants, though nominally parties, have not
actively participated in this appeal.
mortgage of Citizens National Bank.
The Sanderses contend that
a subsequent refinancing extinguished the bank’s mortgage.
We
agree with the trial court that it did not.
On November 20, 1998, Ronnie and Tami Browning
borrowed from Citizens National $38,500.00 to purchase an
unimproved forty-two acre tract in Logan County.
In exchange
the Brownings gave the bank a promissory note in that amount and
a mortgage on the property.
The mortgage, which was duly
recorded, included the following future-advance clause:
This mortgage shall secure the payment of
(1) all renewals, modifications, and
extensions of the mortgage note evidenced
thereby; and (2) any additional indebtedness
thereto, whether direct, indirect, existing,
future, contingent, or otherwise, of
mortgagors to mortgagee, and said additional
indebtedness in no event to exceed the
principal sum of One Hundred Thousand
Dollars ($100,000.00) in addition to the
principal balance of the mortgage note.
This mortgage will not secure any other debt
if the mortgagee fails to give any required
notice of the right of rescission.
The Brownings obtained two additional loans from
Citizens National.
On November 28, 1998, they borrowed
$18,822.60 to purchase a pickup truck, and on June 23, 2000,
they borrowed $12,834.16.
The Sanderses do not dispute that
these later loans were secured by the real estate under the
future-advance clause.
At some point, Citizens released about
an acre-and-a-half of the real estate from its mortgage so that
2
the Brownings could build a house.
Then in November 2001,
Tami’s parents, the Sanderses, loaned the couple $30,000.00 and
obtained a note and a second mortgage on the land.
On March 29, 2002, with all three of their notes to
Citizens National in default, and with a total outstanding
balance of about $60,800 the Brownings gave the bank a fourth
note in that amount plus refinancing charges.
Apparently the
bank cancelled the other three notes and returned them to the
Brownings.
This fourth note applied one interest rate to the
entire debt and provided for a single periodic payment.
It also
provides that it is secured by the original 1998 mortgage as
modified by the exclusion of the acre-and-a-half and by a new
mortgage on the entire forty-two acre tract.
In March 2003, after the Brownings had again defaulted
and gone through bankruptcy, the bank brought the present action
seeking a sale of the realty and satisfaction of its 1998 lien.
The Sanderses opposed the bank’s claim on the ground that the
March 2002 refinancing, by superceding the prior notes, had
extinguished the 1998 mortgage incident to those notes.
The
bank was thus left, according to the Sanderses, with its 2002
mortgage, which is junior to their mortgage of 2001.
The
Sanderses have appealed from the trial court’s rejection of this
argument.
3
The Sanderses rely on the following passage from Nolin
Production Credit Association v. The Citizens National Bank of
Bowling Green,2
Our law is well settled that a renewal note
will not extinguish an obligation. However,
a renewal note that is a novation which
operates to extinguish an original debt is
to be distinguished. Whether a second note
is a renewal of an original obligation or a
novation thereof, depends upon the
intentions of the parties.
The Sanderses maintain that the return to the Brownings of the
superseded notes, the adjustment of the interest rate, and the
bank’s recharacterization of the debt as consumer as opposed to
agricultural indicate that the parties intended the fourth note
to be a novation rather than a renewal of the prior agreements.
We disagree.
Novations are typically undertaken to effect an
alteration of the parties to a contract, as was the case in
Nolin, or to effect a material change in the parties’ bargain.3
The transaction at issue here did neither.
It was on its face
simply a continuation and refinancing of overdue notes,
including, as the trial court observed, an express provision
2
Ky. App., 709 S.W.2d 466, 467 (1986). We have disregarded the
Sanderses’ citation to an unpublished opinion of this Court as
we are obliged to do under CR 76.28(4)(c). We caution counsel
against this practice.
3
Cf. Restatement (Second) of Contracts §§ 279, 280 (1981)
(addressing discharge by means of substituted contracts and
substituted parties).
4
that the original security was to be retained.
Merely changing
the form of an obligation does not strip the obligation of its
security.4
The fourth note does nothing more than change the
form of the Brownings’ obligation.
The trial court did not err
by ruling that the parties intended it to be a renewal, not a
novation.
The return of the superseded notes to the Brownings
makes no difference.
As this Court observed in Georgi v. First
National Bank of Louisville,5
[w]here a note is given merely in renewal
for another note and not in payment, the
renewal does not extinguish the original
debt or in any way change the debt except
for postponing the time of payment, even
though the first note was surrendered.
The other factors the Sanderses cite are no more
significant.
The interest rates on the first three notes were
10.5% (variable), 12.61%, and 13.5% respectively.
rate on the consolidated note was 7.75% (variable).
The interest
Neither
this change, favorable to the Brownings, nor the alleged
recharacterization of the debt as consumer suggests that the
transaction was anything other than a consolidated renewal of
the Brownings’ obligations.
4
Amlung v. First National Lincoln Bank of Louisville, Ky., 411
S.W.2d 465 (1967).
5
Ky. App., 557 S.W.2d 442, 443 (1977) (citation and internal
quotation marks omitted).
5
Because the parties’ intent to renew is abundantly
clear on the face of the 2002 note, parol evidence of a
different intention was inadmissible.6
The trial court did not
err, therefore, by denying the Sanderses’ request for additional
fact finding.
Finally, the Sanderses contend that the 1998 mortgage
should be invalidated because in obtaining it the bank violated
the federal Truth in Lending Act.
The Sanderses’ reference in a
single sentence of their trial-court memorandum to procedural
requirements under that Act, without citation to authority, was
not enough to raise this issue before the trial court.
Their
post-judgment attempt to raise the issue under CR 59 was too
late.7
Because the issue was not properly raised in, and so
never addressed by, the trial court, we must likewise decline to
address it.
In sum, the return to the Brownings of their
superseded notes did not convert their fourth note to a
novation, where the new note was continuous with the superseded
notes and on its face merely renewed the Brownings’ obligation
and simplified its representation.
The trial court did not err
6
Kentucky-West Virginia Gas Company v. Browning, Ky., 521 S.W.2d
516 (1975).
7
Bingham v. Davis, Ky., 444 S.W.2d 123 (1969).
6
by so ruling.
Accordingly, we affirm the November 13, 2003,
judgment of the Logan Circuit Court.
ALL CONCUR.
BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEE:
Alicia C. Johnson
Russellville, Kentucky
Jesse L. Riley, Jr.
Russellville, Kentucky
7
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