Ward, et al. v. Ward.

(Decided June 12, 1913.)

Appeal from Henderson Circuit Court.

1. Vendor and Purchaser-Lien For Purchase Money-Priority Over Mortgage Lien.--A lien retained in deed conveying land to secure unpaid balance of purchase money is superior to a mortgage lien of the same date.

2.

Sureties-Indemnity-Mortgages-Pledges- Disposition of Proceeds. Where a debtor executes to his surety a mortgage and also assigns policies of life insurance to him to indemnify him against loss by reason of his suretyship and to secure the payment of indebtedness then existing between him and his surety, the proceeds of the policies of insurance should be applied, first to the payment of the mortgage debt, and second, to the discharge of any indebtedness of the principal to the surety existing at the time of the assignment of the policies.

YEAMAN & YEAMAN for appellants.

MONTGOMERY MERRITT for appellee

OPINION OF THE COURT BY JUDGE LASSING-Reversing.

In May, 1902, Thomas E. Ward and his wife, S. Isabel Ward, purchased a house and lot in the town of Henderson for something like $2,000 and had the title conveyed to them jointly. They paid a part of the purchase money in cash and executed their purchase money notes for the remainder, amounting to $1,200. For this balance of the purchase money they signed two promissory notes, of which the Ohio Valley Banking & Trust Company became the purchaser. Upon the day upon which said property was purchased and conveyed to them, Thomas E. Ward borrowed from said bank $1,000 for which he gave two notes for $500 each. These notes were secured by the endorsement of his brother, E. C. Ward, and others. To secure the endorsers on these two notes for $500 each against loss on account of their suretyship, Thomas E. Ward and his wife S. Isabel Ward, executed to them, or to one of them for the benefit of all, a mortgage upon the same property. Thomas E. Ward and his wife moved into said property and used and occupied it as a home until his death in June, 1911. He had procured two policies of insurance on his life, one for $3,000 and another for $1,000. The $3,000 policy had been permitted to lapse and he had received from the

company a paid-up policy for $120. The $1,000 policy was kept alive and in force from the time it was taken out until his death. About three months after the $1,000 policy was taken out, he assigned and transferred it absolutely to his brother, E. C. Ward, and at sometime be fore or after that date he also transferred to him absolutely the policy for $120.

Following the death of Thomas E. Ward, his widow called upon E. C. Ward, her brother-in-law, and notified him that he must apply the proceeds of these insurance policies to the payment of the two $500 notes of her husband, which were held by the bank and upon which he was surety. It appears that, at the time of the death of Thomas E. Ward, he was indebted to E. C. Ward in various sums, (some of which were evidenced by promissory notes) amounting in the aggregate to more than $1,400. Notwithstanding the request or demand made on him by the widow as to the application of the insurance money, E. C. Ward insisted upon his right to apply it to the discharge of his other indebtedness, leaving the two $500 notes unsatisfied. The widow brought suit against him to compel him to make the application as requested. He answered alleging the application in accordance with his expressed intentions to her and sought to have the mortgage foreclosed and the property sold to pay the two $500 notes upon which he was surety. The bank was made a party. Proof was taken and upon final submission, the chancellor was of opinion and held that the defendant E. C. Ward had the right to make the application as he did and directed the property sold to pay, first, the two $500 notes, and second, the bank's note for the purchase money. Both the widow and the bank appeal.

It is not stated in the judgment the ground upon which the court was influenced in holding that the lien to secure the mortgage notes was superior to that of the bank for the purchase money debt. This must have been due to inadvertence in the preparation of the judgment. The purchase money lien was superior to all other liens, and the bank should have been given a superior lien upon the entire property for the payment of its debt with accrued interest.

From the evidence it is plain that, at the time the assignment of these policies of insurance was made, Thomas E. Ward was not indebted to his brother in any sum in excess of $90, save on account of his suretyship

on the two $500 notes. It is not contended that the assignment was made other than for the purpose of securing E. C. Ward against loss on account of his suretyship for his brother. There is no evidence from which it could be even inferred that Thomas E. Ward, at that time, contemplated that he would become indebted to his brother, E. C. Ward, but, on the contrary, there is evidence tending to show that, he took this insurance for the purpose of paying off his $1,000 debt to the bank upon which his brother was surety, so that, in the event of misfortune to him, a home might be left to his wife and children. In the absence of some express agreement showing that the assignment of these policies was made to enable Thomas E. Ward to secure, through his brother's endorsement, additional sums of money, we conclude that the assignment was made to secure his then existing indebtedness, and the trial court erred in not holding that the insurance money should be applied to the discharge of these mortgage notes.

But, it is insisted that, before the suit was brought, appellee had applied the insurance money to the discharge and satisfaction of his other indebtedness. He is in no position to shelter himself behind such defense. He knew, before he made such application, that his brother's family were claiming that he had no right to make such application, and his rush to do so could not put him in any better position than before he attempted to so apply the money. This is not a case where a payment was made without directions concerning its application. No payment of these policies could have been made during the life of Thomas E. Ward, and when he died and E. C. Ward collected the insurance money he was bound to apply it in satisfaction of that debt to secure which the policies were pledged-and this was the mortgage debt and perhaps another debt of $90. The court should have required that this insurance money be applied first, to the discharge of the two $500 notes secured by mortgage, and second, to the discharge of any other indebtedness on the part of Thomas E. Ward to E. C. Ward existing at the time the assignment of the policies was made.

Since the proper application of the insurance money will discharge the mortgage debt, the court will set aside the former judgment and enter one directing a sale of the property for the satisfaction of the bank's purchase money notes. When these are satisfied, one-half of the

balance realized by the sale belongs to the widow in her own right and in the remaining one-half she is entitled to a homestead.

Judgment reversed and cause remanded for further proceedings consistent herewith.

Hurst, Jr. v. Winchester Bank, et al.

(Decided June 12, 1913.)

Appeal from Wolfe Circuit Court.

Contracts-Construction of.-When the court comes to construe a writing, it will not be altogether controlled by the name that the parties have given it, but will look to the paper and determine for itself the nature and quality of the writing. If it is in fact a mortgage, although it may be called a deed, or is in truth a contract of sale and purchase, but designated a mortgage, the court, while giving due consideration to the acts of the parties in describing the paper, will not permit injustice or fraud to be practiced by following the title given to the paper by the parties, but will so construe it as to carry out what the facts show was their real intention in its execution.

J. J. C. BACH, GRANNIS BACH, J. M. TESTER and S. G. SAMPLE for appellant.

O'REAR & WILLIAMS and A. F. BYRD for appellees.

OPINION OF THE COURT BY JUDGE CARROLL-Affirming. In April, 1908, C. H. Loveland obtained from W. L. Hurst, Sr., an option on a large number of timber trees, and for some reason not shown, as the option contract is not a part of the record, the land on which the trees stood was divided into four boundaries, numbered 1, 2, 3 and 4. On June 2, 1909, a writing was made and entered into between C. H. Loveland of the first part and Day & MeLin, parties of the second part. This writing recited that,

"In consideration of ten thousand dollars paid in cash by the second to the first party, and the further sum of five thousand dollars, to be hereafter paid and loaned by the second parties to the first party in monthly payments to be made as the first party manufactures and stacks the lumber on his yards, cut from the timber hereinafter described, in sums sufficient to cover the monthly

pay-roll and cost of operation, including cutting and hauling, until the sum of five thousand dollars has been thus paid in full, all of the said money including the said ten thousand dollars, to bear interest at the rate of six per cent per annum from the date loaned until paid, and all of said sums to be due and payable on or before the first day of September, 1912, with accured interest, pursuant to the terms and conditions hereinafter stated, the first party does hereby grant, bargain, sell and convey unto the second parties, their heirs and assigns, in fee simple, all of the right, title and interest of the first party in and to the hereinafter described timber." ***

"To have and to hold all of the above described property unto the second parties, their heirs and asigns in fee simple, with covenant of general warranty; provided, however, that the first party shall have the right from time to time to make sales of any and all of the lumber and other products manufactured from said timber, or to contract in advance for same, and to secure thereon advancements of money from the purchaser, all to be subject to said mortgage thereon; and the second parties shall sign and deliver to the first party from time to time releases of such lumber as may be sold or contracted to be sold, from the effect and operation of said mortgage thereon, which shall be for the benefit of the purchaser, and any release signed by either of the second parties signing the firm name of Day & McLin shall be a sufficient release of such part of the property conveyed by this mortgage as therein specified, but to secure such release the first party shall furnish to second parties a full and complete statement of the lumber or other products to be sold or contracted for, and the terms terms of such sale or contract, and the amount of such advancements or advancement to be secured thereon which statement shall be subject to inspection and verification by second parties at first party's expense, as provided in the contract between the parties hereto of date June 1, 1909, relating to said timber, but the second parties shall within one week from the time they are furnished with such statement by first party, make whatever inspection or verification they may desire, and execute and deliver to first party said release, which release shall authorize the purchaser or party making advancements on said lumber to make all payments or advancements thereon by check or draft payable to the order of Day & McLin,