Born v. Born
304 Kan. 542
| Kan. | 2016Background
- John H. Born Jr. bought interests in two transactions: an asset purchase (TJ Leasing note secured by LLC membership units) and a stock purchase (Stock Purchase Note secured by Born Stone, Inc. stock). Sharon became holder of both notes and security agreements.
- John died shortly before the first annual payments were due. Sharon declared acceleration under the notes and served written notices that she accepted the pledged collateral in full satisfaction (strict foreclosure).
- The Born Trust (Betty as trustee) attempted to tender payment and objected to Sharon’s strict-foreclosure proposal; Sharon refused the tender and returned a certified check for $964,144.87.
- District court granted summary judgment for Sharon, ordering turnover of the pledged collateral; the Court of Appeals affirmed, holding the Trust had to both object and redeem (tender full payment) to preclude acceptance of collateral.
- The Kansas Supreme Court granted review and reversed: Article 9 of the UCC applied; the Trust’s timely objection precluded effective strict foreclosure, and the Trust had the right to cure by timely tender of the accelerated note balances in money.
Issues
| Issue | Plaintiff's Argument (Born Trust) | Defendant's Argument (Sharon) | Held |
|---|---|---|---|
| Does Article 9 apply? | UCC governs because the parties created security interests in personal property. | Agreed UCC applies. | Held: Yes; Article 9 applies to the transactions. |
| Was strict foreclosure (acceptance of collateral) effective when Trust objected? | Timely authenticated objection under K.S.A. 84-9-620 prevents effective strict foreclosure. | Sharon argued her notice manifested a valid proposal and only objection plus redemption would prevent acceptance. | Held: Trust’s timely objection precluded effective strict foreclosure; creditor could not accept collateral over that objection. |
| Must a debtor both object and redeem under § 9-620 to stop strict foreclosure? | No; § 9-620 requires only consent or failure to object within 20 days — no statutory requirement to redeem. | Court of Appeals: debtor must redeem in addition to objecting. | Held: Rejected Court of Appeals; statute does not impose an extra redemption requirement. |
| Could the Trust cure by tendering monetary payment after acceleration despite Sharon’s refusal? | Yes; upon acceleration the debtor may pay the accelerated balance in money and cure; Sharon was not required to accept strict foreclosure over a monetary tender. | Sharon refused payment, asserting strict foreclosure was the sole remedy and payment need not be accepted. | Held: Tender of payment in money was an effective method to cure; Sharon’s rejection created a disputed fact about amount due and summary judgment was improper; remanded to determine amounts and give credit for surrendered collateral. |
Key Cases Cited
- Prairie Land Elec. Co-op v. Kansas Elec. Power Co-op, 299 Kan. 360 (Kan. 2014) (appellate standard and contract/statute interpretation are questions of law)
- Cady v. Schroll, 298 Kan. 731 (Kan. 2014) (statutory interpretation is reviewed de novo)
- Stanley Bank v. Parish, 298 Kan. 755 (Kan. 2014) (summary-judgment standards)
- Kennedy v. Bank of Ephraim, 594 P.2d 881 (Utah 1979) (creditor may forego collateral remedies and sue on the note)
- Gillenwater v. Mid-American Bank & Tr. Co., 19 Kan. App. 2d 420 (Kan. Ct. App. 1994) (creditor not required to foreclose on security; may sue on the note)