author: STERNBERG, Justice.

text:
    Oakley DAVIS, Appellant, v. COMMONWEALTH of Kentucky, Appellee.
    Supreme Court of Kentucky.
    Sept. 16, 1977.
    Harold G. Slone, Lexington, for appellant.
    Robert F. Stephens, Atty. Gen., David M. Whalin, Asst. Atty. Gen., Frankfort, for appellee.
   STERNBERG, Justice.

Appellant, 26 years of age, was indicted on May 25, 1976, by the Fayette County Grand Jury for first-degree robbery (KRS 515.020) and murder (KRS 507.020). Upon a jury trial in the Fayette Circuit Court, he was found guilty on both offenses and sentenced to 20 years’ imprisonment for murder and 10 years’ for robbery, said sentences to run consecutively.

As lifted from appellant’s brief, the issues on this appeal are:

“I. Can the Commonwealth elicit testimony of statements allegedly made by appellant which inferred a disposition toward committing a criminal act, when the statements did not establish identity, guilty knowledge, intent or motive and the issue of appellant’s character had not been placed in issue by appellant?
II. In the Commonwealth’s chief case, is it permissible to impeach appellant by showing evidence that prior statements made out of court were inconsistent and contradictory without laying a proper foundation and without permitting appellant to confront the pre-trial statement on the witness stand?
III. When photographs showing bloody pictures establishing stipulated facts are presented into evidence, did the trial court err in admitting evidence which had less probative weight than prejudicial effect?”

On April 22, 1976, between 2:30 and 3:00 p. m., the Hanover Liquor Store was robbed and its clerk, Alan Rankin, was murdered. Rankin received a .25-caliber bullet wound to the left temporal region of his head and six slash wounds to the back of his neck. Three .25-caliber shell casings were found in a pool of blood where the deceased had fallen. The weapons were not recovered and there was no witness to the killing.

Commencing in February, 1976, the appellant shared an apartment with a female companion. This arrangement was upsetting to her parents and they were trying desperately to disrupt it and take their daughter home. However, appellant was able to persuade his concubine to stay with him and to resist the efforts of her parents. Shortly after this clandestine relationship started, appellant showed his companion a silver-colored automatic pistol. She expressed displeasure with the weapon and he put it away. The witness testified that on several occasions during the time they lived together the appellant talked of armed robberies. No specifics were mentioned, and she considered the statements were made in jest. She further testified that in April the appellant sold a brown revolver to Mr. Gilbert Coreman.

On the morning of April 22, 1976, the appellant, driving his companion’s car, left the apartment for the avowed purpose of seeking work, but he returned between 10:30 and 11:00 a. m., without success. In the afternoon of the same day, and between 1:30 and 2:00 p. m., appellant left the apartment to go get some wine. His companion left to make a telephone’ call to her mother. About .an hour later the appellant returned to the apartment carrying two paper bags, each containing a bottle of T. J. Swann wine. Soon thereafter, while appellant was changing his clothes preparatory to going to the beach at Boonesboro, Kentucky, he displayed a large amount of money, consisting of a $20 bill and many $1 bills. At about 3:30 p. m. the parties went to the beach, but after only about thirty minutes or so they returned to the apartment, where they stayed the rest of the evening.

Bernard Howard, a witness for the Commonwealth, testified that he and the appellant, sometime around Christmas 1975, went to a dump near Lexington, Kentucky, for target practice. They had two pistols, both belonging to appellant. He stated that one pistol was a .22-caliber revolver and the other a small gun, but he could not identify the caliber, except that it was a silver-colored automatic. On this occasion the witness, Howard, shot the .22-caliber pistol and the appellant shot the other gun. Howard directed the police officers to the target area, where nine .25-caliber shell casings were recovered by the officers. Later, they were identified as having been fired from the same gun which fired the three shots found at the scene of the robbery.

William Stewart testified that on the day of the murder and robbery, between 9:30 and 10:00 a. m., the appellant visited him at his home. While there the appellant showed him a .25-caliber automatic pistol, which he took from his hip pocket, and talked of needing money and of armed robberies. Stewart was not familiar with guns so appellant removed the ammunition clip. The record reflects that in conversation before the trial judge and out of the hearing of the jury, the court was told that this witness, if permitted to do so, would testify that the appellant bragged that he had gotten away with robbing a grocery store in Louisville and with robbing the manager’s apartment at the apartment complex where he lived. Counsel for appellant objected to the introduction of this testimony. The objection was sustained. The jury was not permitted to hear any of the testimony relating to the other two robberies. The court did permit the jury to receive the testimony of Stewart relative to the other conversation with appellant.

On the day of the commission of the offenses and between 2:00 and 2:30 p. m., Lucian Lynn and Andy Caudill had driven to the Hanover Liquor Store where they bought a six-pack of beer. The appellant was there at the same time, having arrived there just prior to their arrival. He bought a $1.47 bottle of wine. The cash register receipt numbers for these two sales were 150 and 149 respectively. The appellant drove east on Richmond Road, the same direction in which these witnesses were traveling. He preceded them for about five miles until he turned off at the Idle Hour Shopping Center, where they parted directions.

Gilbert Coreman testified that on the 13th or 14th of April, 1976, appellant accosted him about buying a pistol. An hour or so later Coreman went to the appellant’s apartment and waited for appellant to bring the gun so that he could examine it. It was a .22-caliber white-handled revolver. The witness paid $20 for the weapon.

On the fateful day, at about 3:00 p. m., William Evans went to the liquor store to buy a six-pack of Pepsi and a bag of pork rinds. There was no clerk to wait on him, but in a very short time Linda Farley, another clerk, arrived and made the sale to him. The cash register receipt number on this sale was 157. Soon after making this sale, Clerk Farley discovered the deceased’s body stuffed in the beer cooling room. The sale immediately preceding the one made by Clerk Farley to Mr. Evans (No. 157) was for a $1.47 bottle of wine and was register tape number 156. Cash register receipt numbers 149 and 156 were the only sales made that day for $1.47 bottles of wine. The police removed two bottles of the $1.47 wine from appellant’s apartment and also a pair of blue jeans which he was wearing on the fateful day, April 22, which showed traces of lead in one of the pockets.

Appellant argues that so much of the testimony of his female companion and William Stewart, as relates to statements made by him with reference to armed robberies, was not admissible. He also charges that the trial judge erred in permitting so much of their conversations as relate to the day of the murder and robbery to go to the jury.

Counsel for appellant would have this court believe that the trial judge admitted testimony relating to appellant’s having told of committing two prior armed robberies. This is not so. The court refused testimony about these criminal acts, but it did permit testimony that on the fateful day the appellant talked about armed robbery. As a matter of fact, the record reflects that the only prior criminal conduct of appellant that was brought to the attention of the jury was that he was convicted of knowingly receiving stolen property and sentenced to one year in prison. This was brought out on direct examination by counsel for appellant. Clearly, the admission of testimony that the appellant merely talked of armed robbery was not sufficient to either charge him or convict him of any crime. It is admissible, however, to show appellant’s motive, intent, and design. This is the purpose for which the trial judge admitted it. In Leigh v. Commonwealth, Ky., 481 S.W.2d 75 (1972), this court said:

“ * * * Evidence of existence of collateral facts may be admitted which tend to establish identity, motive, intent, or design. * * * ”

Clearly, this, evidence was admissible.

The appellant denied the robbery or the killing; denied that he ever had a .25-eali-ber automatic pistol which would work; denied having any gun on the day in question; but admitted having a .22-caliber revolver and target practice at the time stated by the witness Bernard Howard. On direct examination he disclosed that he had a prior conviction for receiving stolen property; admitted having had a .38-ealiber pistol, a .22-caliber revolver, and a .25-caliber automatic pistol which didn’t work; and he attributed possession of the .38-caliber and .22-caliber pistols to Linda, one of his former live-in companions, who bought them for him. He said that someone left the .25-caliber automatic pistol in his apartment, that it did not have a clip, and that the trigger did not work. He further stated that unbeknownst to him, it disappeared from his apartment.

Appellant complains that the trial judge erred in permitting testimony which attempted to impeach his pretrial statements relative to owning a gun. We must bear in mind that the Commonwealth was not apprised of any defense which appellant was going to make, except that he did not rob or kill Alan Rankin. The testimony to which appellant refers is that of Officer Push. Counsel for appellant did not object to the introduction of the pretrial statements; his objection was to a portion of the substance of the statements. The statements were edited by the trial judge, with the assistance of counsel for both the Commonwealth and the appellant. As edited, counsel for appellant did not object to the introduction. Since no objection was made to the statements as edited and submitted to the jury, the propriety of their use has not been preserved for appellate review. Taylor v. Commonwealth, Ky., 545 S.W.2d 76 (1976); Caslin v. Commonwealth, Ky., 491 S.W.2d 832 (1973). The testimony was competent.

Alan Rankin was shot, slashed with a knife, and stuffed in a large beer cooling room. The Commonwealth was faced with the burden of proving every element of the offenses beyond a reasonable doubt. The weapons were never found and there was no eyewitness to the horrible deed. As a consequence, the guilt of the appellant, if proven at all, must be by circumstantial evidence relating to the commission of the crimes. The challenged portions of the pretrial statements are admissible if they are statements against interest, relate to the commission of the crimes, establish motive for the commission of the crimes, or establish possession of, use and familiarity with the sale of firearms. Although one statement or one act may not in and of itself establish the criminal offense or the motive for the commission of an offense, yet where a conglomerate of such statements or acts, when considered together, establishes a state of evidence from which an impartial jury might conclude guilt, then the separate acts are admissible. Regardless of the initial denial by appellant of his past or present ownership of a .25-caliber automatic weapon, his subsequent refreshed recollection on the subject, as set out in the pretrial statements, were relevant and admissible. The trial judge did not err in not excluding them.

The photographs about which complaint is made are those which, (1) show the bullet casings in the pool of blood; (2) show footprints in the blood, with a tape measure; (3) show blood near the door, with footprints;, and (4) show the bloody face of the victim. Counsel for appellant contends that these photographs were in fact used to inflame and to induce the jury to find the appellant guilty. It is not contended that the severity of the sentences given to appellant was induced by the use of the photographs. It can hardly be thus contended, since the sentences were the minimum authorized by statute. The bullet casings shown in the photograph were fired from the gun owned by the appellant and used by him in target practice with Bernard Howard. As a matter of fact, any and all relevant evidence is admissible. Evidence is relevant if it tends to render a fact more or less probable then it would be without it. We reiterate what we said in Deskins v. Commonwealth, Ky., 512 S.W.2d 520 (1974):

“ * * * In this advanced technological age of television, movies and the news media, those persons selected as jurors are able to view a picture of the body of a victim of crime without prejudice to the defendant. * * * ”

The court did not err in admitting the challenged photographs.

The judgment is affirmed.

All concur.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    Frank DEROSSETT, Jr., Appellant, v. Herbert Wayne BURGHER et al., Appellees.
    Supreme Court of Kentucky.
    Sept. 16, 1977.
    Dan Rowland, Prestonsburg, for appellant.
    James B. Todd, Pikeville, for appellees.
   PER CURIAM.

This personal injury action was dismissed because the trial court was of the opinion it was not brought within one year after the cause of action accrued, as prescribed by KRS 413.140. The accident occurred July 25, 1973, and the complaint was filed July 25, 1974.

KRS 446.030(l)(a), as amended in 1970, provides in part:

“In computing any period of time prescribed or allowed by order of court, or by any applicable statute, the day of the act, event or default after which the designated period of time begins to run is not to be included.”

Appellee asserts that in a long line of Kentucky decisions the court has consistently ruled that the day of the accident should be included in computing the time limitation and relies on Fannin v. Lewis, Ky., 254 S.W.2d 479 (1953). It is noted that in Fannin v. Lewis, decided prior to the 1970 amendment, the court commented that if a change was made, it should be done by the legislature and not the court. The legislature has now clearly spoken. The day of the accident should be excluded in computing the limitation period.

The judgment is reversed and the case remanded for a trial on the merits.

All concur.


author: LUKOWSKY, Justice.

text:
    James E. LEWIS and Thomas G. Lewis, Appellants, v. AMERICAN FAMILY INSURANCE GROUP, Appellee.
    Supreme Court of Kentucky.
    Sept. 16, 1977.

      Joe G. Leibson, Louisville, for appellants.
    Kenneth L. Anderson, Woodward, Hob-son & Fulton, Louisville, for appellee.
   LUKOWSKY, Justice.

This is an appeal from a summary judgment which held that James and Thomas Lewis were not entitled to recover under the uninsured motorist provisions of two automobile liability insurance policies. We reverse.

On July 3, 1972 the Lewis brothers were seriously injured while riding in James’ car when it collided with an uninsured motor vehicle. The uninsured motorist was a Kentucky resident, and the collision occurred in Kentucky. The Lewises were residents of Indiana. The insured vehicles were to be garaged principally in Indiana. The policies were sold and delivered in Indiana. They filed suit in the Jefferson Circuit Court against the uninsured motorist and the American Family Insurance Group, which had written both policies.

James, at one time, had a liability insurance policy on his automobile. American contends that this policy lapsed on June 9, 1972 for non-payment of the renewal premium. James admits that he never paid the premium. He states that sometime after June 9 he received a renewal premium notice and that he had his brother, Thomas, call American’s local agent the next day to arrange for the extension of coverage. According to Thomas, the local agent told him that the policy would continue in force and that James should pay the premium by July 9. The Lewises further contend that the policy continued in force because American did not comply with the statutory formalities for terminating the insurance policy.

The second insurance policy belonged to Marshall Lewis. Marshall is the uncle and guardian of James and Thomas, both of whom lived with Marshall in his home. The uninsured motorist provision of both insurance policies defined the “insured” to be the named insured and relatives residing with the named insured provided that these relatives do not own a passenger automobile. American contends that both Lewis brothers fail to meet the definition of an insured because they both own automobiles. Thomas disputes this contention by stating that at the time of the collision he is not sure whether title to his automobile had actually passed to him. He also says that the car was not driveable and should, therefore, not be considered to be a “passenger automobile” within the meaning of the insurance policy. His argument is that the purpose of this exclusion is to encourage persons who own automobiles to procure their own liability insurance, but people do not ordinarily insure automobiles that are not driveable.

Marshall’s policy also excluded from uninsured motorist protection persons who are injured while occupying a motor vehicle, other than the insured vehicle, owned by the named insured or a resident of his household. American contends that since the Lewis brothers were riding in James’ car at the time of their injury, they can not recover under Marshall’s policy.

I

The threshold issue which must be decided is whether Indiana or Kentucky law ought to be applied in this case. Traditionally the rule has been that the validity of a contract is to be determined by the laws of the state in which it was made, while the remedies to be enforced are those provided by the state in which suit is brought. Fry Bros. v. Theobold, 205 Ky. 146, 265 S.W. 498 (1924). Such a mechanical approach is no longer favored. The modern test is “which state has the most significant relationship to the transaction and the parties.” Restatement of Conflict of Laws 2d, sec. 188 (1971). Using this test, in most cases the law of the residence of the named insured will determine the scope of his automobile liability insurance policy. Section 193 of the Restatement of Conflict of Laws 2d, states:

“Contracts of Fire, Surety or Casualty Insurance
The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the principles stated in sec. 6 to the transaction and the parties, in which event the local law of the other state will be applied.”

Because the insurance contracts in this case were entered into in Indiana between Indiana parties and concerned automobiles which were licensed and garaged in Indiana, we are of the opinion that Indiana law should govern the rights and liabilities of the parties under these contracts. Allstate Insurance Co. v. Napier, Ky., 505 S.W.2d 169 (1974).

II

We now apply Indiana law to the insurance policy between James and American. It was effective from January 9, 1972 to June 9, 1972. At that time, it could be renewed by the named insured’s paying another premium. The payment was for a renewal of the insurance policy and was not a mere installment due on a continuing insurance policy. James cites Indiana statutes which require the insurer to notify the insured of a cancellation of the policy or of its intention not to renew the policy. Ind. Stat. IC 27-7-6-5; IC 27-7-6-6. However, both statutes explicitly state that they do not apply when a policy is not renewed for non-payment of a premium. Counsel for the appellants have called no Indiana statutes, regulations, or cases to our attention which require affirmative conduct on the part of the insurer to relieve itself from the terms of an insurance policy which the insured has failed to renew by paying the premium. An independent search has revealed no such requirement. It is noted in Blashfield, Automobile Law and Practice, sec. 293.2:

“Automobile insurance policies are frequently made for short periods, such as six months or a year, with provisions for renewal for a like term on payment and acceptance of the premium prior to the expiration of the current policy period. Unless the policy contains a grace period it will expire according to its terms if not renewed by payment of the premium provided by the policy, in the absence of any requirement for affirmative action to terminate it.”

We conclude that James let his policy lapse by failing to pay the renewal premium and that American was under no duty to notify James that the policy was no longer in force.

But the question remains, did the representation of American’s local agent that the policy would continue in force and that James could pay anytime prior to July 9 reinstate the policy? Of course, for purposes of this appeal from a summary judgment, we must assume that the conversation occurred as related by Thomas. Because the conversation occurred at least two weeks after the policy lapsed the issue is really whether the conversation constituted an offer and acceptance of a new insurance policy on the same terms as the one which expired.

Indiana law on the effect of an agent’s representations that an insurance policy is in force (when in fact it is not) has been summarized in Federated Mutual Implementation & Hardware Ins. Co. v. Bunch, 455 F.2d 247 (7th Cir. 1972). It appears that Indiana is quite protective of those to whom representations have been made that they are insured. In West v. National Casualty Co., 61 Ind.App. 479, 112 N.E. 115 (1916) it was stated: (1) if an insurance company by any agreement implied from its acts or conduct leads the insured to honestly believe that it would receive late payment of premiums and thereby keep his policy alive at all times, then the company will be estopped from asserting a forfeiture on account of delay in the payment of premiums; (2) an agent of an insurance company having ostensible authority to solicit applications and receive first premiums binds his principal by any acts within his apparent authority and he is presumed to have the power to waive immediate payment and extend credit for their payment; (3) where the policy provides that any waiver of its provisions must be endorsed on the policy, such may itself be waived by express agreement or by conduct; and (4) the fact that a payment is made after an injury is sustained is immaterial if an agent, acting with apparent authority, extends the time of payment to a point beyond the date of injury.

While this case and the others discussed in Federated do not present facts identical to those in the case at bar, we find them determinative of the issue presented in this case. It is true that the cases relied upon are cases in which a policy was not permitted to be cancelled where the agent had related to the insured that a late payment would be permissible. This is somewhat different from the situation here, in which the policy has expired and is then reissued by the agent’s representations. However, the language of the West case is broad enough to encompass this situation. A general agent is generally deemed to be authorized to waive prepayment of initial premiums. Appleman, Insurance Law and Practice, sec. 8452 (1944). See also Anno: “Temporary Automobile Insurance Pending Issuance of Policy,” 12 ALR 3d 1304 in which it is stated that a binder may be oral (sec. 5), and that payment need not be made to activate the binder so long as there has been an agreement to pay (sec. 9). If the trier of the facts believes that the conversation occurred as described, there was a policy of insurance in effect on the date of the accident.

Ill

The next issue is whether the following exclusion from uninsured motorist coverage is valid under Indiana law:

“This endorsement does not apply:
(a) to bodily injury to an insured while occupying a motor vehicle (other than an ‘insured vehicle’ as defined above) owned by the named insured or a resident of his household.”

It is not disputed that at the time of their injury the Lewis brothers and Marshall were residents of the same household and that they occupied a vehicle owned by James. However, the law in Indiana is abundantly clear that this type of exclusion from uninsured motorist coverage imper-missibly narrows the scope of the uninsured motorist statute. Cannon v. American Underwriters Inc., 150 Ind.App. 21, 275 N.E.2d 567 (1971); State Farm Mutual Automobile Insurance Co. v. Robertson, 156 Ind.App. 149, 295 N.E.2d 626 (1973); Vantine v. Aetna Casualty and Surety Co., 335 F.Supp. 1296 (N.D.Ind.1971). Thus this exclusion is invalid.

It now becomes vital to determine whether James and Thomas were “insureds” within the meaning of these insurance policies. The policies define an insured to be, in effect, any relative living in the named insured’s home who does not own a private passenger automobile. The effect of this definition is to deny uninsured motorist coverage to members of the named insured’s household who own automobiles but do not insure them. It appears that the Lewis brothers are not insureds within this definition. Under Indiana law there is no requirement that relatives living in the same household must be covered by each other’s automobile liability insurance policies. In Indiana, automobile liability insurers must provide coverage for the owner of the automobile being insured and for persons using the automobile with his permission. Ind.Stat. IC 27-1-13-7. The insurer must further provide uninsured motorist protection within the liability policy for all persons insured thereunder. Ind.Stat. IC 27-7-5-1. This statute says that anyone who is an insured must be afforded uninsured motorist protection, but it does not expand the class of persons that must be considered to be “insureds.” The conclusion is inescapable that Indiana law did not require American to include the Lewis brothers as insureds in its automobile liability policy with Marshall or Thomas in its policy with James. Their rights under these insurance policies are, therefore, governed solely by the contracts.

This result is consistent with the Cannon case, supra, in which the Indiana Court of Appeals held that an insurer could not limit recovery on an uninsured motorist policy to those who were occupying insured vehicles at the time of their injury. The exclusion impermissibly narrowed the scope of uninsured motorist coverage. The daughter of the named insured was permitted to recover under her mother’s policy because by the terms of the contract the daughter was an “insured.” In distinguishing Ely v. State Farm Mutual Automobile Insurance Co., 148 Ind.App. 586, 268 N.E.2d 316 (1971) (a case upholding a clause in an insurance policy requiring a “hit” before the uninsured motorist provision would pay for a “hit and run”) the court stated:

“. . .In addition to protecting persons legally entitled to recover damages because of injury by provably uninsured motorist automobiles, the coverage afforded in Ely also gave protection to persons injured by drivers of ‘hit and run automobiles,’ such automobiles upon certain attached conditions being included in the policy’s definition of ‘uninsured automobile.’ Thus Ely deals not with a statutorily required uninsured motorists coverage, but with additional coverage, a hit and run coverage, which no Indiana law requires.”

We believe that an Indiana court would find Ely controlling and would hold that the Lewis brothers, assuming they owned passenger automobiles at the time of the collision, were not “insureds” as defined by Marshall’s policy and that Thomas was not an “insured” as defined by James’ policy.

However, there is an issue of fact remaining as to whether Thomas actually owned a passenger automobile. From his deposition it is not clear whether he had actually obtained title to the vehicle he allegedly owned at the time of his injury. Furthermore, it is not clear whether the vehicle he owned was driveable. One does not ordinarily carry liability insurance on an automobile that is not to be driven. Therefore, a car that has been retired from service for an indefinite time into the future should not be considered to be a “passenger automobile” within the meaning of this insurance policy.

IV

Reversal and remand are required because American has failed to establish by evidence of the necessary certitude the nonexistence of genuine issues of material fact. Barton v. Gas Service Company, Ky., 423 S.W.2d 902 (1968). The issues for trial in addition to liability of the uninsured motorist and damages, are:

1. Did an agent of American represent to Thomas that James’s insurance policy would continue in force and that James could have until July 9, 1972 to pay his renewal premium?
2. Did Thomas own a passenger automobile on July 3, 1972 that he had not retired from service for an indefinite time into the future?

If the answer to number 1 is yes, James may recover on his policy. If the answer to number 2 is no, Thomas may recover on Marshall’s policy. If the answer to number 1 is yes and the answer to number 2 is no, Thomas may recover on both James’ and Marshall’s policies.

The judgment is reversed and the cause is remanded for further proceedings consistent herewith.

All concur.


text:
    ALLSTATE INDUSTRIAL LOAN PLAN, INC., etc., Appellant, v. Charles C. MIHALEK, Jr., Director and Division of Securities of Department of Banking and Securities of the Commonwealth of Kentucky, Appellees.
    Supreme Court of Kentucky.
    Sept. 16, 1977.
    James T. Whitlow, Bondurant, Whitlow & Scott, Hodgenville, for appellant.
    Thomas C. Jacobs, Gen. Counsel, Dept, of Banking & Securities, Frankfort, for appel-lees.
    Bert T. Combs, H. Alexander Campbell, Louisville, Louis Loss, Cambridge, Mass., Charles W. Turnbaugh, Baltimore, Md., amicus curiae.
   STERNBERG, Justice.

The appellant is organized under and by the authority of KRS 291.410 through 291.-990, which pertain to industrial loan corporations. From the time of its organization, June 1970, until its right to do so was challenged by appellees, March 1973, it sold certificates of investment without registering them with the Kentucky Division of Securities. The appellees now challenge appellant’s authority to issue such certificates without first registering them with the office of the Division of Securities of the Department of Banking and Securities of the Commonwealth of Kentucky. After negotiations failed to resolve the controversy, a preliminary cease and desist order dated January 21, 1974, was entered by the Director of the Division of Securities of the Department of Banking and Securities. The preliminary order was made permanent on August 23, 1974. The reasoning of the Director for such an order is made manifest in the findings of fact dated August 23, 1974, in which he stated:

“* * * The language and intent of the Act is clear and I find no way to make industrial loan corporations into industrial loan associations unless the Legislature does it at some time in the future.”

In due time a petition for appeal was filed in the Franklin Circuit Court. Appellant contended it was exempt from the requirement of registration. The trial judge found:

“Being neither banks, trust companies nor loan associations, Industrial Loan Corporations are recognized by the Act as being distinctive entities, otherwise organized and operating than that character of institutions, or any of the ‘mutual’type institutions mentioned in the exemption.”

On October 16, 1974, a final judgment was entered affirming the action of the appel-lees. Thus, this appeal.

The single and only issue presented is whether appellant is exempt from the registration of its certificates of investment.

KRS 291.460, which defines the powers of the corporation, provides:

“An industrial loan company organized under KRS 291.410 to 291.60Ó may:
(2) Sell or negotiate bonds, notes and certificates of investment for the payment of money at any time, either fixed or uncertain, and receive payments therefor in installments or otherwise; provided that nothing herein contained shall be construed to create any liability on demand. No corporation making loans under this section or KRS 291.470 to 291.510 shall directly or indirectly advertise for or accept deposits, demand or otherwise, except an industrial loan company organized under KRS 291.410 to 291.600 may advertise the sale of certificates of investment as authorized under KRS 291.-410 to 291.600.”

We glean from KRS 291.410 through 291.990 that a certificate of investment is a writing evidencing an obligation on the part of the company to repay a sum of money to an investor at any time, either fixed or uncertain, and to receive payments therefor in installments or otherwise, other than an obligation to repay on demand. There is no requirement in KRS, Chapter 291 for industrial loan companies to register certificates of investment with the appel-lees. There is, however, ample supervisory authority in the Commissioner of Banking and Securities. KRS 291.530 and 291.550.

The Commissioner of Banking argues that registration of certificates of investment is required under the Kentucky Securities Act (KRS, Ch. 292). He calls our attention to KRS 292.340, which provides:

“It is unlawful for any person to offer or sell any security in this state, except securities exempt under KRS 292.400 or when sold in transactions exempt under KRS 292.410, unless such security is registered by notification under KRS 292.350 or by coordination under KRS 292.360 or by qualification under KRS 292.370.”

In other words, it is contended that all securities must be registered unless exempt. The exemption from registration referred to in KRS 292.400 is as follows:

“KRS 292.340 to 292.390 shall not apply to any of the following securities:
* * * * * *
(6) Any security issued or guaranteed by any federal credit union or any credit union, industrial loan association, or similar association organized and supervised under the laws of this state.”

Counsel for appellees makes much ado about appellant having the burden of proof. A stipulation was filed at the administrative level which portrays the factual situation.

At the very beginning, we are faced with the question of whether a certificate of investment is a “security document.” The definition of a security, as set out in KRS 292.310(11), is broad enough to include certificates of investment. Thus, since certificates of investments are securities, they must be registered, unless they come within the exemption in KRS 292.400(6). The exemption applies to “any security issued or guaranteed by any * * * industrial loan association, or similar association organized and supervised under the laws of this state.” We construe appellees’ contention to be that this exemption applies to associations, not corporations, and that since appellant is a corporation it is not an association, therefore the exemption does not apply.

The types of organizations that are embraced within KRS 291.410 to 291.990 are referred to therein as “corporation,” “company,” “association” and “licensee”. This play on words does not manifest a basis for requiring the registration of certificates of investment by corporations and not by associations. The significance of the word “corporation” or “association” is only for the purpose of identifying the nature of the entity, not of identifying the nature of its undertakings. It is the undertakings of the entity with which we are concerned, not the name by which it is known.

KRS 292.530 provides:
“This chapter shall be so construed as to effectuate its general purpose to make uniform the law of those states which enact it and to coordinate the interpretation and administration of this chapter with the related federal regulation.”

The Uniform Securities Act is cited and argued as authority in support of and in opposition to the contentions made by both appellant and by appellees. From these arguments we find no mirror into the meaning of KRS 292.400(6). We do not find it necessary to engage in technical rules of statutory construction; common sense is sufficient. The policy of our blue-sky law will be as effective whether we make a play on the word “association” and eliminate all industrial loan businesses that do not bear the word “association” or whether we include the exemption to apply to industrial loan undertakings, whether they call themselves “associations,” “corporations,” or “companies.” We have not been shown that there is, from a practical standpoint, any difference in the operations, rights, duties or responsibilities whether the name carries the word “association” or the word “corporation.”

The design and stated purpose of the General Assembly of this Commonwealth was to have KRS, Chapter 292 construed so as to provide uniformity in its application. To limit the exemption, as appellees contend, to a name rather than to substance would merely require the change of a name to come within the terms of the exemption, without having changed the character of the undertakings. A sow’s ear is a sow’s ear, however many times it may be called a silk purse. Appendix A to the brief filed by Amicus Curiae favors us with the names of fifteen states that have identical or similar laws as KRS 292.400(6). Of the fifteen states, in only one, Virginia, does the subject entity bear the magic word “association.” The many different names by which the other fourteen states refer to this same type entity are not conducive to uniformity if the exemption is predicated on the word “association” rather than the substance of the organization.

Accordingly, we are of the opinion that the word “association” as used in KRS 292.-400(6) encompasses all entities organized pursuant to the provisions of KRS 291.410 through 291.990 and are exempt from registration.

The judgment is reversed, with directions that a new judgment be entered consistent with this opinion.

All concur.


author: REYNOLDS, Judge.

text:
    BOARD OF EDUCATION OF JEFFERSON COUNTY, Kentucky, Appellant, v. LOUISVILLE WATER COMPANY, Appellee.
    Court of Appeals of Kentucky.
    Feb. 4, 1977.
    Opinion Modified July 15, 1977.
    Discretionary Review Denied Oct. 3, 1977.

      E. Preston Young, Louisville, for appellant.
    Samuel R. Wells, Louisville, for appellee.
    Before REYNOLDS, HOWARD and YANCE, JJ.
   REYNOLDS, Judge.

The Louisville Water Company furnished water services free of charge to the Louisville Independent School District until April 1, 1975, which was the effective date of merger with the Board of Education of Jefferson County. This suit is for declaratory judgment to determine the right of the Board of Education to continue to receive free water services for certain of its school facilities and whether the Board of Education is entitled to receive tax equivalents from the Water Company for support of its schools in the event free water service is not furnished.

The Board of Education appeals from the trial court’s judgment which was adverse to its interests on both questions.

The Louisville Water Company was incorporated pursuant to Chapter 507 of the Acts of the General Assembly of 1854 and operated as a private corporation until 1906 when the General Assembly adopted an act, now codified as KRS 96.230- 310, which changed its status to an agency of the City of Louisville. In addition, the Water Company deeded its real property and transferred its assets to the City. In Ryan v. City of Louisville, 133 Ky. 714, 118 S.W. 992 (1909), the court held that the Water Company, being owned and operated for public use by the City of Louisville, was exempt from taxation by virtue of Section 170 of the Kentucky Constitution. Concerning free water, KRS 96.270 provides:

The city shall have, through its board of waterworks, the use free of charge of all the water necessary for its fire department, police department, public buildings and school board, and for sprinkling its public highways, parks and parkways. It shall in turn exempt from taxation for city purposes all the property of which it has the control through its board of waterworks. Nothing in this section shall affect the right and duty of the board of waterworks to fix and collect reasonable rates for the use of water furnished to any other person, whether by assessment or meter measurement.

A developmental outline of the Louisville public schools is presented in well-documented briefs. From 1903 until 1910 Louisville schools were managed and controlled by the Board of Education known as the “Louisville School Board,” pursuant to the Act of 1893, Section 1949 of Carroll’s Kentucky Statutes, 1903 Edition. Subsequently, the Board’s name was changed to “Board of Education of Louisville.”

With the revision of the school laws of Kentucky by the adoption of Chapter 65 of the Act of 1934, and when in 1942 the Kentucky Revised Statutes were adopted, provisions relating to education were placed in Title 13 of KRS, consisting of Chapters 156 through 168. In effect, all former city schools which had been governed by different statutes became independent school districts, governed by uniform statutes.

Through the progress, development, responsibility and control of the Louisville schools, the appellant seeks to identify its public purpose of education, geographical location of facilities and “its” identity with the City of Louisville in order to retain free water services to the Board’s facilities which are located within municipal boundaries.

Both parties have presented a plausible discourse upon their interpretation of the word, “its,” as contained in KRS 96.270. Thus reminded, we, however, conclude that the weighty task of answering this direct question may be answered, to our satisfaction, by referring to the cases of Board of Education of Campbell County v. Board of Education of Newport, 284 Ky. 774, 146 S.W.2d 30 (1940), and Board of Education of Pulaski County v. Nelson, 268 Ky. 83, 103 S.W.2d 691 (1937). “When an independent school district is made a part of the county district by action of the State Board of Education, the result is clearly a merger, for the independent school district loses its identity, and it is swallowed up and absorbed by the county district.” Id., at 86, 103 S.W.2d at 693. (Emphasis added.)

On April 1, 1975, the effective merger of the Louisville Independent School District with the Jefferson County School District erased, or terminated, any vestigial legal ties between the City of Louisville and “its” school board referred to in KRS 96.270. It follows that the Board of Education of Jefferson County is not entitled to receive water free of charge from the Louisville Water Company for its schools which are located within the boundaries of the former independent school district, pursuant to KRS 96.270.

Free water in exchange for freedom from taxation has a melodious ring, but the appellant’s more pointed contention that the furnishing of free water by the Water Company is the basis for exemption from the payment of taxes cannot be sustained.

The Louisville Water Company is not only justified in billing for its services but is required to do so by provisions of KRS 96.270. The Jefferson County School Board was a purchaser who was not exempt from the payment of reasonable water rates.

We conclude by way of answering appellant’s second question that the Board of Education of Jefferson County is not entitled to tax the Louisville Water Company. Taxation for school tax purposes of the Water Company’s property is clearly prohibited by Section 170 of the Kentucky Constitution. Ryan v. City of Louisville, supra.

The judgment of the lower court is affirmed.

ALL CONCUR.


author: PARK, Judge.

text:
    Wayne BLAKE, Appellant, v. WOODFORD BANK AND TRUST COMPANY, Appellee. WOODFORD BANK AND TRUST COMPANY, Cross-Appellant, v. Wayne BLAKE, Cross-Appellee.
    Court of Appeals of Kentucky.
    March 11, 1977.
    Rehearing Denied June 3, 1977.
    Discretionary Review Denied Oct. 3, 1977.

      Tom H. Pierce and Victor Hellard, Jr., Rouse, Rouse & Hellard, Versailles, for appellant and cross-appellee.
    W. Henry Graddy, IV and Gentry E. McCauley, Jr., McCauley & Elám, Versailles, for appellee and cross-appellant.
    Before MARTIN, C. J., and PARK and VANCE, JJ.
   PARK, Judge.

This case involves the liability of the ap-pellee and cross-appellant, Woodford Bank and Trust Company, on two checks drawn on the Woodford Bank and Trust Company and payable to the order of the appellant and cross-appellee, Wayne Blake. Following a trial without a jury, the Woodford Circuit Court found that the bank was excused from meeting its “midnight deadline” with respect to the two checks. Blake appeals from the judgment of the circuit court dismissing his complaint. The bank cross-appeals from that portion of the circuit court’s opinion relating to the extent of the bank’s liability on the two checks if it should be determined that the bank was not excused from meeting its midnight deadline.

BASIC FACTS

The basic facts are not in dispute. On December 6, 1973, Blake deposited a check in the amount of $16,449.84 to his account at the Morristown Bank, of Morristown, Ohio. This check was payable to Blake’s order and was drawn on the K & K Farm Account at the Woodford Bank and Trust Company. The check was dated December 3, 1973.

On December 19, 1973, Blake deposited a second check in the amount of $11,200.00 to his account in the Morristown Bank. The second check was also drawn on the K & K Farm Account at the Woodford Bank and Trust Company and made payable to Blake’s order. The second check was dated December 17, 1973.

When Blake deposited the second check on December 19, he was informed by the Morristown Bank that the first check had been dishonored and returned because of insufficient funds. Blake instructed the Morristown Bank to re-present the first check along with the second check. Blake was a cattle trader, and the two checks represented the purchase price for cattle sold by Blake to James Knight who maintained the K & K Farm Account. Blake testified that he had been doing business with Knight for several years. On other occasions, checks had been returned for insufficient funds but had been paid when re-presented.

The two checks were forwarded for collection through the Cincinnati Branch of the Federal Reserve Bank of Cleveland. From the Federal Reserve Bank, the two checks were delivered to the Woodford Bank and Trust Company by means of the Purolator Courier Corp. The checks arrived at the Woodford Bank and Trust Company on Monday, December 24, 1973, shortly before the opening of the bank for business. The next day, Christmas, was not a banking day. The two checks were returned by the Woodford Bank and Trust Company to the Cincinnati Branch of the Federal Reserve Bank by means of Purolator on Thursday, December 27, 1973.

The two checks were received by the bank on Monday, December 24. The next banking day was Wednesday, December 26. Thus, the bank’s “midnight deadline” was midnight on Wednesday, December 26. KRS SSS^KMflXh). As the bank retained the two checks beyond its midnight deadline, Blake asserts that the bank is “accountable” for the amount of the two checks under KRS 355.4-302(l)(a).

HISTORY OF PAYOR BANK’S LIABILITY FOR RETAINING CHECK

Under the Uniform Negotiable Instruments Law a payor bank was not liable to the holder of a check drawn on the bank until the bank had accepted or certified the check. Ewing v. Citizens National Bank, 162 Ky. 551, 172 S.W. 955 (1915); W. Brit-ton, Bills and Notes § 169 (1943). Because of the payor bank’s basic nonliability on a check, it was essential that some time limit be placed upon the right of the payor bank to dishonor a check when presented for payment. If a payor bank could hold a check indefinitely without incurring liability, the entire process of collection and payment of checks would be intolerably slow. To avoid this problem, a majority of courts construing § 136 and § 137 of the Uniform Negotiable Instruments Law held that a payor bank was deemed to have accepted a check if it held the check for 24 hours after the check was presented for payment. Britton, op.cit. § 179. Thus, in a majority of jurisdictions, the payor bank had only 24 hours to determine whether to pay a check or return it. However, in Kentucky and a few other jurisdictions, the courts held that § 136 and § 137 of the Uniform Negotiable Instruments Law applied only to checks which were presented for acceptance. In Kentucky Title Savings Bank and Trust Company v. Dunavan, 205 Ky. 801, 266 S.W. 667 (1924), the Court of Appeals held that § 136 and § 137 of the Uniform Negotiable Instruments Law had no application to a check which was presented for payment. Consequently, the payor bank would be liable on the cheek only if it held the check “for an unreasonable length of time” and could thus be deemed to have converted the check.

In. order to bring uniformity to the check collection process, the Bank Collection Code was proposed by the American Bankers’ Association. The Bank Collection Code was adopted by Kentucky in 1930. Under § 3 of the Bank Collection Code, a payor bank could give provisional credit when a check was received, and the credit could be revoked at any time before the end of that business day. The payor bank became liable on the check if it retained the item beyond the end of the business day received. 1930 Kentucky Acts, ch. 13, § 3 (former KRS 357.030).

Banks had only a few hours to determine whether a check should be returned because of insufficient funds. Banks were required to “dribble post checks” by sorting and sending the checks to the appropriate bookkeepers as the checks were received. This led to an uneven workload during the course of a business day. At times, the bookkeeping personnel might have nothing to do while at other times they would be required to process a very large number of cheeks in a very short time. H. Bailey, The Law of Bank Checks (Brady on Bank Checks) § 10.4 (4th ed. 1969). Because of the increasingly large number of checks processed each day and the shortage of qualified bank personnel during World War II, it became impossible for banks to determine whether a check was “good” in only 24 hours. The banks were forced to resort to the procedure of “paying” for a check on the day it was presented without posting it to the customer’s account until the following day. See First National Bank of Elwood v. Universal C.I.T. Credit Corporation, 132 Ind.App. 353, 170 N.E.2d 238, at 244 (1960). To meet this situation, the American Banking Association proposed a Model Deferred Posting Statute. The Model Deferred Posting Statute was not adopted in Kentucky until 1956. 1956 Kentucky Acts, ch. 47 (former KRS 357.125).

Under the Model Deferred Posting Statute, a payor bank could give provisional credit for a check on the business day it was received, and the credit could be revoked at any time before midnight of the bank’s next business day following receipt. A provisional credit was revoked “by returning the item, or if the item is held for protest or at the time is lost or is not in the possession of the bank, by giving written notice of dishonor, nonpayment, or revocation; provided that such item or notice is dispatched in the mails or by other expeditious means not later than midnight of the bank’s next business day after the item was received.” 1956 Kentucky Acts, ch. 47, § 1(1) (former KRS 357.125). If the payor bank failed to take advantage of the provisions of the deferred posting statute by revoking the provisional credit and returning the check within the time and in the manner provided by the act, the payor bank was deemed to have paid the check and was liable thereon to the holder. First National Bank of Elwood v. Universal C.I.T. Credit Corporation, supra.

The Model Deferred Posting Statute was the basis for the provisions of the Uniform Commercial Code. Under § 4-301(1) of the Uniform Commercial Code (UCC), a payor bank may revoke a provisional “settlement” if it does so before its “midnight deadline” which is midnight of the next banking day following the banking day on which it received the check. Under the Model Deferred Posting Statute, the payor bank’s liability for failing to meet its midnight deadline was to be inferred rather than being spelled out in the statute. Under UCC § 4-302, the payor bank’s liability for missing its midnight deadline is explicit. If the payor bank misses its midnight deadline, the bank is “accountable” for the face amount of the check. See Farmers Cooperative Livestock Market v. Second National Bank, Ky., 427 S.W.2d 247 (1968).

Like the Model Deferred Posting Statute, the Uniform Commercial Code seeks to decrease, rather than increase, the risk of liability to payor banks. By permitting deferred posting, the Uniform Commercial Code extends the time within which a payor bank must determine whether it will pay a check drawn on the bank. Unlike the Bank Collection Code or the Uniform Negotiable Instruments Law as construed by most courts, the Uniform Commercial Code does not require the payor bank to act on the day of receipt or within 24 hours of receipt of a check. The payor bank is granted until midnight of the next business day following the business day on which it received the check.

EXCUSE FOR FAILING TO MEET MIDNIGHT DEADLINE
UCC § 4-108(2) [KRS 355.4-108(2)] provides:
“Delay by a * * * payor bank beyond time limits prescribed or permitted by this Act * * * is excused if caused by interruption of communications facilities, suspension of payments by another bank, war, emergency conditions or other circumstances beyond the control of the bank provided it exercises such diligence as the circumstances require.”
The circuit court found that the bank’s failure to return the two checks by its midnight deadline was excused under the provisions of UCC § 4-108.
The circuit court dictated its findings of fact into the record:
“From all of the evidence that was presented in this case, it would appear that there was no intentional action on the part of the bank to hold these checks beyond the normal course of business as an accommodation to its customer. In fact, the uncontroverted testimony of the bank officers was to the contrary. To say that the bank failed, through certain procedures, to return the checks by the midnight deadline does not, in the mind of this Court, imply or establish an intentional act on the part of the bank.
* * * * * *
“In this instance we have the Christmas Holiday, which caused in the bank, as in all businesses, certain emergency and overloaded situations. This is not unique to the banking industry; but is true of virtually every business in a Christian society, in which the holiday of Christmas is observed as the major holiday of the year. Special considerations are always given to employees as well as customers of these banking institutions.
“ * * * On the Christmas Holiday, two machines were broken down for periods of time during this critical day in question. There was an absence of a regular bookkeeper.”

Under CR 52.01, these findings of fact cannot be set aside by this court unless they are clearly erroneous. The foregoing findings are supported by the record, and are not questioned by Blake on the appeal.

After making findings of fact, the circuit court dictated the following conclusions into the record:

“ * * * The entire cumulative effect of what happened would constitute diligence on the part of the bank, as circumstances required.
“It is the opinion of the Court and it is the Finding of the Court that the circumstances described by the banking officers, the standards of banking care, as described by expert witnesses, would bring the bank within 4-108(2), and the Court therefore, finds as a fact that there were circumstances here beyond the control of the bank, and that it exercised such diligence as those circumstances required.”

When the circuit court concluded “that there were circumstances here beyond the control of the bank, and that it exercised such diligence as those circumstances required,” the circuit court was doing no more than repeating the words of the statute. This court must determine whether the circuit court’s findings of fact support these conclusions.

Before turning to the facts presented in this case, it is appropriate to discuss the only two cases involving the application of UCC § 4-108 to a payor bank’s midnight deadline. In Sun River Cattle Co. v. Miners Bank of Montana, 164 Mont. 237, 521 P.2d 679, 14 UCC Rep. 1004 (1974), the payor bank utilized a computer in the adjacent town of Great Falls to process its checks. The checks were picked up at the Miners Bank by an armored car between 5:00 p. m. and 6:00 p. m. on the date of receipt. The checks would normally reach the computer center at Great Falls around 10:30 p. m. Ordinarily the checks would have been processed by 11:30 p. m., returned to the Miners Bank by 8:00 a. m. the next morning. The checks in question were received by the Miners Bank on May 11. On that day, the armored car broke down, and the checks did not reach the computer center at Great Falls until 1:30 a. m. the next morning, May 12. On that morning, the computer malfunctioned and the checks were not returned to the Miners Bank until 2:30 p. m. on May 12. There was no testimony as to what actually happened to the checks after they were received by the Miners Bank on the afternoon of May 12, but the Miners Bank failed to return the checks by midnight of May 12. The trial court held that the failure of the Miners Bank to meet its midnight deadline was excused by the provisions of UCC § 4r-108(2). The Montana Supreme Court reversed, holding that the Miners Bank had failed to show the degree of diligence required under the circumstances. The Montana court pointed out that the Miners Bank had more than the normal interest in the activities in the account upon which the checks were drawn, and that due diligence could not be shown merely by following ordinary operating procedures.

In Port City State Bank v. American National Bank, 486 F.2d 196, 13 UCC Rep. 423 (10th Cir. 1973), the payor bank, American National, was changing from machine posting to computer processing of its cheeks commencing Monday, December 1, 1969. Two checks were in dispute. The first check arrived at American National on Friday, November 28, 1969. As Monday was the next banking day, the midnight deadline for the first check was December 1. The second check arrived on Tuesday, December 2, 1969, and the midnight deadline for that check was Wednesday, December 3. American National’s new computer developed a “memory error” which rendered it unusable at 10:00 a. m. on December 1, the first day of computer operations. The computer manufacturer assured the bank that repairs would not take “too long.” Unfortunately repairs and testing were not completed until the early hours of Tuesday, December 2. In the meantime, American National attempted to utilize an identical computer in a bank some two and a half hours away. Processing commenced at the other bank at 11:30 p. m. on December 1, and continued through the night. Although work proceeded to the point of “capturing” all of the items on discs, the backup computer was required by its owner, and the American National personnel returned to the bank to complete the printing of the trial balances. Another memory error developed in the new computer which again rendered the computer unusable. No further use could be made of American National’s computer until a new memory module was installed on Thursday, December 4. The trial court held that the computer breakdown constituted a condition beyond the control of American National and that the bank had exercised due diligence. On appeal, the United States Court of Appeals affirmed, holding that the findings of the district court were not clearly erroneous.

There are no Kentucky cases construing § 4-108(2). However, there is one Kentucky case construing similar language in a contract. In American Bridge Co. v. Glenmore Distilleries Company, 32 Ky.L.Rptr. 873, 107 S.W. 279 (1908), the American Bridge Company contracted to construct a steel tower for Glenmore Distilleries in a period of 45 working days. The contract provided that American Bridge “shall not be held responsible for delays in transportation, strikes, fires, floods, storms, nor for any other circumstances beyond its reasonable control.” American Bridge attempted to excuse its failure to complete the tower within 45 working days on the grounds that it was not possible to obtain the steel necessary to erect the tower. The Kentucky Court of Appeals held that American Bridge was not excused for the delay in completing the tower, stating:

“Under the familiar rule of ejusdem gen-eris, the general language following the specific enunciation of the causes which prevented the appellant from being responsible for nonperformance of its contract within the stipulated time must be limited to include causes similar to those specifically set out; and, under this rule, we think it clear that the failure of the appellant to provide material with which to carry into effect its contract was not a circumstance beyond its reasonable control. None of the specified causes for nonresponsibility could possibly be controlled by any foresight on the part of the appellant; but foresight would undoubtedly suggest before making a contract so urgent in its nature as the one before us, that the material with which it was to be carried into effect should have been secured in advance, at least, foresight and diligence would have secured the material in advance, and therefore the failure to exercise these cannot be said to be a cause for nonfulfillment beyond the reasonable control of the appellant.” 107 S.W. at 283

The facts of this case will be examined in light of the principles set out in the foregoing cases.

The basic facts found by the circuit court can be summarized as follows: a) the bank had no intention of holding the checks beyond the midnight deadline in order to accommodate its customer; b) there was an increased volume of checks to be handled by reason of the Christmas Holiday; c) two posting machines were broken down for a period of time on December 26; d) one regular bookkeeper was absent because of illness. Standing alone, the bank’s intention not to favor its customer by retaining an item beyond the midnight deadline would not justify the application of § 4-108(2). The application of the exemption statute necessarily will turn upon the findings relating to heavy volume, machine breakdown, and absence of a bookkeeper.

The bank’s president testified that 4,200 to 4,600 checks were processed on a normal day. Because the bank was closed for Christmas on Tuesday, the bank was required to process 6,995 checks on December 26. The bank had four posting machines. On the morning of December 26, two of the machines were temporarily inoperable. One of the machines required two and one half hours to repair. The second machine was repaired in one and one half hours. As the bank had four bookkeepers, the machine breakdown required the bookkeepers to take turns using the posting machines for a time in the morning. One of the four bookkeepers who regularly operated the posting machines was absent because of illness on December 26. This bookkeeper was replaced by the head bookkeeper who had experience on the posting machines, although he was not as proficient as a regular posting machine operator.

Because of the cumulative effect of the heavy volume, machine breakdown and absence of a regular bookkeeper, the bank claims it was unable to process the two checks in time to deliver them to the courier from Purolator for return to the Federal Reserve Bank on December 26. As the bank’s president testified:

“Because we couldn’t get them ready for the Purolator carrier to pick them up by 4:00 and we tried to get all our work down there to him by 4:00, for him to pick up and these two checks were still being processed in our bookkeeping department and it was impossible for those to get into returns for that day.”

The validity of this claim must be considered in light of the testimony of the bank’s bookkeeper who processed the two checks.

Betty Stratton was the regular bookkeeper who posted all of the accounts from “D” through “K”, and she processed the two checks in question on December 26. While two posting machines were being repaired, Mrs. Stratton shared her posting machine with Garnetta Bunch, another regular bookkeeper and posting machine operator. Since the substitute bookkeeper was not processing the two checks in question and was not sharing a posting machine with Mrs. Stratton, it is difficult to see how the absence of one of the regular bookkeepers could have delayed the posting of the two checks in question.

Mrs. Stratton testified that she did not complete the posting of all of the checks in the “H” through “K” accounts until after 4:00. Had it not been for the extra volume of checks to be handled and the breakdown in the posting machines, she should have completed the process of posting by 12:30 p. m. In accordance with her operating instructions, Mrs. Stratton took the two cheeks to Susan Williams, the bank employee with the duty of handling any cheeks which were to be returned because of insufficient funds. Because of the lateness of the hour, Ms. Williams and all responsible officers of the bank had left for the day. Mrs. Stratton left the two checks on Ms. Williams desk. Mrs. Stratton testified on cross-examination:

“X50 And Ms. Williams was not there?
A. No.
X51 Did you make any effort, Mrs. Strat-ton to find anybody to give the check to?
A. No.
X52 Were you aware that if that check was not returned timely that the bank might be subject to some liability?
A. No, sir.”

The two checks were returned to the Cincinnati branch of the Federal Reserve Bank by the regular Purolator courier on Thursday afternoon, December 27.

The increased volume of items to be processed the day after Christmas was clearly foreseeable. The breakdown of the posting machines was not an unusual occurrence, although it was unusual to have two machines broken down at the same time. In any event, it should have been foreseeable to the responsible officers of the bank that the bookkeepers would be delayed in completing posting of the checks on December 26. Nevertheless, the undisputed evidence establishes that no arrangements of any kind were made for return of “bad” items which might be discovered by the bookkeepers after the departure of the Purolator courier. Thé two checks in question were in fact determined by Mrs. Stratton to be “bad” on December 26. The checks were not returned because the regular employee responsible for handling “bad” checks had left for the day, and Mrs. Stratton had no instructions to cover the situation.

Even though the bank missed returning the two checks by the Purolator courier, it was still possible for the bank to have returned the checks by its midnight deadline. Under UCC § 4-301(4)(b) an item is returned when it is “sent” to the bank’s transferor, in this case the Federal Reserve Bank. Under UCC § 1-201(38) an item is “sent” when it is deposited in the mail. 1 R. Anderson, Uniform Commercial Code § 1-201 pp. 118-119 (2d ed. 1970). Thus, the bank could have returned the two checks before the midnight deadline by the simple procedure of depositing the two checks in the mail, properly addressed to the Cincinnati branch of the Federal Reserve Bank.

This court concludes that circumstances beyond the control of the bank did not prevent it from returning the two checks in question before its midnight deadline on December 26. The circumstances causing delay in the bookkeeping department were foreseeable. On December 26, the bank actually discovered that the checks were “bad,” but the responsible employees and officers had left the bank without leaving any instructions to the bookkeepers. The circuit court erred in holding that the bank was excused under § 4-108 from meeting its midnight deadline. The facts found by the circuit court do not support its conclusion that the circumstances in the case were beyond the control of the bank.

RE-PRESENTMENT OF CHECK PREVIOUSLY DISHONORED BY NONPAYMENT

On its cross-appeal, the bank argues that the circuit court erred in holding that there was no difference in the status of the two checks. The bank makes the argument that it is not liable on the first check which had previously been dishonored by nonpayment. Blake received notice of dishonor when the first check was returned because of insufficient funds. The bank claims that it was under no further duty to meet the midnight deadline when the check was represented for payment.

The bank relies upon the decision of the Kansas Supreme Court in Leaderbrand v. Central State Bank, 202 Kan. 450, 450 P.2d 1, 6 UCC Rep. 172 (1969). A check drawn on the Central State Bank was presented for payment on two occasions over the counter. On both occasions, the holder of the check was advised orally that there were not sufficient funds in the account to honor the check. Later, the holder deposited the check in his own account at the First State Bank. The First State Bank did not send the check through regular bank collection channels, but rather mailed the check directly to the Central State Bank for purposes of collection. The check arrived at the Central State Bank on March 21 or March 22, and the check was not returned by the Central State Bank to the First State Bank until April 5. The Kansas Supreme Court held that there was no liability under § 4-802 of UCC for a check which had previously been dishonored when presented for payment.

Relying on the provisions of UCC § 3-511(4), the Kansas Supreme Court held that “any notice of dishonor” was excused when a check had been “dishonored by nonacceptance” and was later re-presented for payment. The Kansas Supreme Court specifically held that § 3-511(4) applied to a check which was dishonored when presented for payment, stating:

“While the language of 84-3-511(4), supra — ‘Where a draft has been dishonored by nonacceptance’ — does not refer to a dishonor by nonpayment, we think reference to the dishonor of a ‘draft’ ‘by nonacceptance’ would, a fortiori, include the dishonor of a check by nonpayment.”

The Kansas Supreme Court concluded that a payor bank was excused from giving any further notice of dishonor when a previously dishonored check was re-presented for payment and there were still insufficient funds in the drawer’s account to cover the check.

The decision in the Leaderbrand case was approved in Goodman v. Norman Bank of Commerce, Okl.App., 551 P.2d 661, 19 UCC Rep. 638 (1976). The Oklahoma Court of Appeals held that a payor bank was not required to send an additional notice of dishonor before its midnight deadline when a previously dishonored check was represented for payment and there were still insufficient funds in the account to pay the check.

The decision of the Kansas Supreme Court in the Leaderbrand case has been criticized. As UCC § 3-511(4) applies by its terms to a “draft” which has been “dishonored by nonacceptance,” most of the criticism has been directed to the Kansas court’s application of § 3-511(4) to a check which had been dishonored by nonpayment. As stated in B. Clark and A. Squillante, The Law of Bank Deposits, Collections and Credit Cards at 71-72 (1970):

“Use of this section to excuse retention under § 4-302 seems questionable, since the draftsmen are saying nothing more than dishonor by nonacceptance excuses notice of dishonor by nonpayment. If a time draft is not accepted, it is a useless act to present it for payment. On the other hand, sending a check through a second or third time often yields results, since the depositor may have had time to make a deposit to his account. It is presumably for this reason that the Code draftsmen limited the excuse rule of § 3-511(4) to ‘nonacceptance’ of ‘drafts’ and did not by express language indicate ‘nonpayment’ of ‘checks.’ ”

See also Note, Uniform Commercial Code— Nonapplicability of Payor Banks “Midnight Deadline” to Re-Presented Checks, 18 Kan. L.Rev. 679 (1970).

Two courts have refused to follow the Leaderbrand decision. In Wiley, Tate and Irby v. Peoples Bank and Trust Company, 438 F.2d 513; 8 UCC Rep. 887 (5th Cir. 1971), the United States Court of Appeals for the Fifth Circuit held:

“We disagree with Leaderbrand and hold § 3-511(4) inapplicable here. Acceptance applies only to time items. It has nothing to do with demand items.”

In Sun River Cattle Co. v. Miners Bank of Montana, supra, the Montana Supreme Court rejected the Leaderbrand decision and followed the decision of the United States Court of Appeals in the Wiley, Tate and Irby case. The Montana Supreme Court held that § 3-511(4) of the UCC was inapplicable to checks payable on demand.

The decisions in the Wiley, Tate and Irby and Sun River Cattle Co. cases are consistent with the opinion of the Court of Appeals in Kentucky Title Savings Bank and Trust Co. v. Dunavan, supra, construing § 136 and § 137 of the Negotiable Instruments Law. As mentioned earlier in this opinion, the Court of Appeals held that statutory provisions relating to presentment for acceptance did not apply to presentment for payment. Thus, there are ample grounds for rejecting the Leaderb-rand opinion based upon the technical language of UCC § 3-511(4). However, there are more fundamental reasons why the Leaderbrand decision is unsound and should not be followed in Kentucky.

The Leaderbrand decision is based upon the assumption that the sanctions of § 4-302 are applied to a failure to give timely notice of dishonor. This assumption may appear reasonable from an initial reading of UCC § 4-302(l)(a). Under that section, a payor bank is accountable for a check if it “does not pay or return the item or send notice of dishonor until after its midnight deadline.” If a payor bank were excused from giving notice of dishonor, it would be plausible to argue that it was not accountable under § 4r-302. However, this reasoning ignores the primary purpose of notice of dishonor, and it completely ignores the language of UCC § 4-301.

Prior to the time that he received the first check, Blake had a contractual claim for the purchase price of the cattle. When Blake took the first check, his claim for the purchase price of the cattle was not discharged, but that claim was “suspended pro tanto” until Blake presented the check for payment. See UCC § 3-802(l)(b). Furthermore, at the moment he took the check, Blake had no claim against Knight on the check itself. As drawer of the check, Knight was a “secondary party.” UCC § 3-102(l)(d). As a secondary party, Knight was not liable on the first check until Blake had presented the check for payment and notice of dishonor had been given. See UCC § 3-501(l)(c) and (2)(b). The first check was dishonored when it was returned in a timely manner for insufficient funds. See UCC § 3-507(l)(a). As soon as the first check was dishonored, Blake had a right to maintain an action on the check itself or on the underlying contract for the cattle. See UCC § 3-802(l)(b); Clark and Squillante, op.cit., at 17. When Blake represented the check for payment, there was no need for a further notice of dishonor in order to revive the underlying contract or to make Knight liable on the check.

Even if it was unnecessary to give further notice of dishonor when the check was re-presented for payment in order to make Knight liable on the check and to revive the underlying contract, it does not follow that the bank was relieved of its obligation to meet the midnight deadline. Most opinions and commentaries have focused on UCC § 4-302 which only defines the extent of the payor bank’s liability for failure to meet its midnight deadline. Whether a payor bank has met its midnight deadline for return of an item is determined by UCC § 4-301, not § 4-302. Under § 4-301(1), a pay- or bank may “revoke” a provisional settlement if, before its midnight deadline, the payor bank complies with the following requirements:

“(a) returns the item; or
(b) sends written notice of dishonor or nonpayment if the item is held for protest or is otherwise unavailable for return.”

Written notice of dishonor is a permitted method of revoking a provisional settlement only if the check is unavailable for return or it is being held for protest. Otherwise, the check itself must be returned.

The relationship of UCC § 4-301 and § 4-302 was clearly demonstrated by the unusual facts presented in United States v. Loskocinski, 403 F.Supp. 75, 18 UCC Rep. 461 (E.D.N.Y.1975). In the course of an armed robbery of the National Bank of North America, eleven blank cashier’s checks were stolen. After forging the bank officer’s signature and completing the check in the approximate sum of $99,000.00, one of the stolen checks was presented for payment to the bank by a distant bank to which it had been negotiated. The payor bank dishonored and returned this check by its midnight deadline. In the course of investigating the armed robbery, a grand jury subpoena duces tecum was served upon the bank directing it to turn over any other stolen checks which might be presented. The bank moved to quash the subpoena on the grounds that its failure to return the checks as required by UCC § 4-301 would expose it to staggering liability under UCC § 4-302. In support of the subpoena, the government argued that the bank could avoid liability under § 4-302 by giving written notice of dishonor rather than returning the checks themselves. The United States District Court for the Eastern District of New York granted the bank’s motion to quash the subpoena. The district court held that the bank was under a duty to return the cheeks themselves unless the checks were being held for protest or were “otherwise unavailable for return.” Because of the district court’s doubt whether, as a matter of New York state law, the subpoena would make the checks “otherwise unavailable for return,” the court held that the bank could refuse to honor the subpoena so that the checks themselves could be returned.

In the present case, both checks were available to the bank for return. Neither check was being held for protest. Consequently, the only way the bank could revoke its provisional settlement for the check was by returning the check before its midnight deadline. As notice of dishonor was not available as a means of revoking the provisional settlement, the provisions of § 3-511(4) excusing notice of dishonor could have no application to the case.

A practical reason also exists for rejecting the Leaderbrand decision. In 1972, approximately 25 billion checks passed through the bank collection process. The Federal Reserve Banks handled 8 billion checks that year. Community Bank v. Federal Reserve Bank of San Francisco, 500 F.2d 282, (9th Cir. 1974) modified, 525 F.2d 690 (9th Cir. 1975), cert. denied 419 U.S. 1089, 95 S.Ct. 680, 42 L.Ed.2d 681. An earlier study indicated that only one half of one percent of all checks were dishonored when first presented for payment. Of those initially dishonored, approximately one half were paid upon re-presentment. F. Leary, Check Handling Under Article Four of the Uniform Commercial Code, 49 Marq.L.Rev. 331,333, n. 7 (1965). A significant number of previously dishonored checks are paid upon re-presentment in the regular course of the check collection process. Such checks are often presented through intermediate collecting banks, such as the Federal Reserve Bank in this case. Each collecting bank will have made a provisional settlement with its transferor, and, in turn, received a provisional settlement from the bank to which it forwarded the check. In this way, a series of provisional settlements are made as the check proceeds through the bank collection process.

Under UCC § 4-213(2), final payment of a check “firms up” all of the provisional settlements made in the collection process. Under subsection (l)(d) of UCC § 4-213, a payor bank makes final payment of a check when it fails to revoke a provisional settlement “in the time and manner permitted by statute, clearing house rule or agreement.” As to items not presented over the counter or by local clearing house, this means that a payor bank is deemed to have made final payment of a check when it fails to revoke a provisional settlement by its midnight deadline. See UCC § 4-213, Official Code Comment 6. In his article on check handling, Leary has described § 4-213 as the “zinger” section: “when provisional credit given by the payor bank becomes firm then —‘zing’—all prior provisional credits are instantaneously made firm.” Leary, op.cit., at 361. If a payor bank was not required to meet its midnight deadline with respect to previously dishonored items, then none of the other banks involved in the collection process could safely assume that the check had been paid. Consider the problems of the depository bank. It must permit its customer to withdraw the amount of the credit given for the check when provisional settlements have become final by payment and the bank has had “a reasonable time” to learn that the settlement is final. See UCC § 4-213(4)(a). The depository bank will rarely receive notice that an item has been paid. In actual practice, the depository bank will utilize availability schedules to compute when it should receive the check if it is to be returned unpaid. Leary, op.cit, at 345-346. If a payor bank is not bound by its midnight deadline as to previously dishonored items, then there is no way for the depository bank to know whether a previously dishonored item has been paid upon re-presentment except by direct communication with the payor bank. Such a procedure would impose an unnecessary burden upon the check collection process.

This court concludes that the circuit court was correct in holding that there was no difference in the status of the two checks.

MEASURE OF LIABILITY

The bank contends that its liability should be determined under subsection (5) of UCC § 4-103. The general measure of damages for failure to exercise ordinary care in handling a check in the collection process is the face amount of the check less any sum which could not have been realized even by the exercise of ordinary care. As there was never more than $1,853.32 in the K & K Farm Account at any time after December 11, 1973, the bank claims that Blake can show no actual damage resulting from the one day delay in returning the two checks. This argument ignores the fact that a payor bank is liable for the face amount of the check under UCC § 4-302 when it delays returning a check beyond its midnight deadline. Farmers Cooperative Livestock Market v. Second National Bank, supra; Rock Island Auction Sales v. Empire Packing Company, 32 Ill.2d 269, 204 N.E.2d 721, 18 A.L.R.3d 1368 (1965). The bank’s liability for the face amount of the check is not based upon its failure to exercise ordinary care. By delaying return of the check beyond its midnight deadline, the bank is deemed to have paid the check. Having paid the check, it is therefore accountable for the face amount of the check. See UCC § 4r-213(l). Damages have no relevance to the concept of accountability.

There is a rational basis for imposing a different liability on payor banks than is imposed upon collecting banks. The payor bank is the only bank in the collection process in a position to know the actual state of the drawer’s account, and it is the only bank in the collection process that can actually pay the cheek.

Deferred posting was authorized by the Bank Collection Article of the Uniform Commercial Code, and by its predecessor, the Model Deferred Posting Statute, in order to grant payor banks additional time within which to determine whether to pay a check presented for collection. If banks are no longer able to meet their midnight deadline because of new banking conditions, then the remedy of the banks is to be found in the legislature. The present statute is intended to provide a mechanical standard of easy application for determining the time of payment of checks and the liability of payor banks. Having in mind the need for prompt settlement of items in the collection process, this court is not at liberty to tinker with the present statute by judicial amendment.

When a payor bank has paid a check by failing to return the check by its midnight deadline, the bank may be entitled to relief under UCC § 3-418. Under the statute, payment of a check is final only in favor of a holder in due course or a person who has in good faith changed his position in reliance on the payment. As explained in the official comment:

“If no value has been given for the instrument the holder loses nothing by the recovery of the payment * * * and is not entitled to profit at the expense of the drawee; * * * If he has taken the instrument in bad faith or with notice he has no equities as against the drawee.” Comment 3, Official Code Comment, UCC § 3-418.

In their commentary on UCC § 3-418, Clark and Squillante state:

“For example, if a drawee bank pays a check and then realizes that the drawer has insufficient funds in his account, that mistake is irreversible as against a holder in due course or a person who has relied on the payment. Does this mean that payment by mistake is final in favor of the original payee of a check who deposited it for collection and did not negotiate it to a holder in due course? The Code provides that the payee may himself be a holder in due course. § 3-302(2). Therefore, if the payee gave value for the check and was without notice of any defense which might have been asserted by the drawer, the drawee bank is stuck. Conversely, if the payee is not a holder in due course, payment might be reversed since the payee could probably not show that he ‘has in good faith changed his position in reliance on the payment.’ ” op.cit. at 218.

Neither party relies upon § 3-418, and there is no evidence in the record that Blake was not a holder in due course at the time he took the checks from Knight.

The bank also contends that UCC § 4-302 is unconstitutional because of the different liability imposed upon payor banks and collecting banks. The record establishes that the attorney general was not notified that the constitutionality of the statute was being questioned. CR 24.03; KRS 418.075. Therefore, this court will not consider the issue. Dewey v. Allinder, Ky., 469 S.W.2d 548 (1971).

CONCLUSION

The judgment of the circuit court on the appeal is reversed with directions to enter judgment in favor of Blake for the face amount of the two checks, less a credit for any amounts which Blake may have recovered from Knight. The judgment on the cross-appeal is affirmed.

All concur.

      . KRS 355.4-104(l)(h) provides:
      “ ‘Midnight deadline’ with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later.”

      . KRS 355.4-302(1) provides:
      “In the absence of a valid defense such as breach of a presentment warranty (subsection (1) of KRS 355.4-207), settlement effected or the like, if an item is presented on and received by a payor bank the bank is accountable for the amount of (a) a demand item other than a documentary draft whether properly payable or not if the bank, in any case where it is not also the depository bank, retains the item beyond midnight of the banking day of receipt without settling for it or, regardless of whether it is also the depository bank, does not pay or return the item or send notice of dishonor until after its midnight deadline.”

      . KRS 355.4-301(1) provides:
      “Where an authorized settlement for a demand item (other than a documentary draft) has been made before midnight of the banking day of receipt the payor bank may revoke the settlement and recover any payment if before it has made final payment (subsection (I) of KRS 355.4-213) and before its midnight deadline it (a) returns the item; or (b) sends written notice of dishonor or nonpayment if the item is held for protest or is otherwise unavailable for return.”

      . KRS 355.4-301(4)(b) provides:
      “An item is returned in all other cases, when it is sent or delivered to the bank’s customer or transferor or pursuant to his instructions.”

      . KRS 355.1-201(38) provides:
      “ ‘Send’ in connection with any writing or notice means to deposit in the mail or deliver for transmission by any other usual means of communication with postage or cost of transmission provided for and properly addressed and in the case of an instrument to an address specified thereon or otherwise agreed, or if there be none to any address reasonable under the circumstances. The receipt of any writing or notice within the time at which it would have arrived if properly sent has the effect of a proper sending.”

      . KRS 355.3-511(4) provides:
      “Where a draft has been dishonored by nonacceptance a later presentment for payment and any notice of dishonor and protest for nonpayment are excused unless in the meantime the instrument has been accepted.”

      . KRS 355.3-802(l)(b) provides:
      “Unless otherwise agreed where an instrument is taken for an underlying obligation
      * * * the obligation is suspended pro tan-to until the instrument is due or if it is payable on demand until its presentment. If the instrument is dishonored action may be maintained on either the instrument or the obligation; discharge of the underlying obli-gor on the instrument also discharges him on the obligation.”

      . KRS 355.3-102(l)(d) provides:
      “ ‘Secondary party’ means a drawer or in-dorser.”

      . KRS 355.3-501 provides in part:
      ‘‘(1) Unless excused (KRS 355.3-511) presentment is necessary to charge secondary parties as follows: * * * in the case of any drawer, * * * presentment for payment is necessary * * *. (2) Unless excused * * * in the case of any drawer * * * notice of any dishonor is necessary

      .KRS 355.3-507(l)(a) provides in part:
      “An instrument is dishonored when * * * in case of bank collections the instrument is seasonably returned by the midnight deadline.”

      . In this case, the United States Court of Appeals held that any bank, which utilized the check collection facilities of the Federal Reserve System by magnetic encoding its checks, becomes subject to Regulation J of the Board of Governors dealing with check collections. See also § 4-103(2) of the UCC (KRS 355.4-103(2)) and Comment 3 of the Official Code Comment. Although the parties have argued whether the bank has violated any of the provisions of Regulation J, this Court concludes that Regulation J imposed no additional duty on the bank relevant to this case.

      . KRS 355.4-213 provides in part:
      “(1) An item is finally paid by a payor bank when the bank has done any of the following, whichever happens first:
      (d) made a provision settlement for the item , and failed to revoke the settlement in the time and manner permitted by statute, clearing house rule or agreement.
      Upon a final payment under paragraphs (b), (c) or (d) the payor bank shall be accountable for the amount of the item.
      (2) If provisional settlement for an item between the presenting and payor banks is made through a clearing house or by debits or credits in an account between them, then to the extent that provisional debits or credits for the item are entered in accounts between the presenting and payor banks or between the presenting and successive prior collecting banks seriatim, they become final upon final payment of the item by the payor bank.”