Twin Falls Bank & Trust Co. v. Holley

John Holley and Joan Holley (defendant) were married for many years, during which time John operated a construction company as a community asset. In 1981, John borrowed money on a line of credit from Twin Falls Bank & Trust Co. (the bank) (plaintiff) to operate the construction company. John failed to make timely repayment. Instead of attempting to collect on the loans, the bank issued a new unsecured promissory note to John for $125,000 in June 1981. John, alone, signed the note, which was due to be paid in a few months. At the time John signed the note, he and Joan were already living separate and apart. In August 1981, a divorce decree was entered that awarded John the construction business and certain other real and personal property. The awarded property was sufficient in value to satisfy the promissory note, which was also assigned to John. The divorce decree awarded Joan other community assets. In September 1981, John failed to timely repay the note. The bank did not initiate collection proceedings but executed an extension agreement that changed the due date on the note to November 1981 in exchange for a security interest in all of John’s property. Thereafter, John defaulted on the note, filed for bankruptcy, and had his debt discharged through bankruptcy. The bank had failed to perfect its security interest in John’s property and was unable to collect from him. In 1984, the bank initiated a collection action against Joan. The trial court found that property in Joan’s possession could not be used to satisfy the debt. The bank appealed.