303 P.3d 705
Kan. Ct. App.2013Background
- May 7, 2008: FNB loaned $9,716,600 to Centennial Park, LLC, and guarantees were executed by Vince and Sailors; loan secured by a mortgage and related security documents.
- Note required: monthly interest, a minimum $1,350,000 principal payment on or before April 10, 2010, and a final payment by April 10, 2011.
- By April 10, 2010, defendants paid $1,173,119.43 in principal and were in default for not paying the required $1,350,000; FNB could accelerate after default but did not immediately.
- April 23, 2010: Centennial Park dealer lot-sale proceeds of $167,531.49 were applied, bringing total principal paid to $1,340,650.80 (still $9,349.20 short).
- May 17, 2010: FNB issued a default letter and invited a cure plan; May 31, 2010 deadline passed; June 1, 2010, FNB accelerated the loan after rejection of an acceptable cure plan.
- September 17, 2010: Vince’s attorney sent a letter and included a $9,349.20 check; FNB deposited the funds; August 2010 – post-acceleration; subsequent proceedings led to summary judgment in favor of FNB and foreclosure against Centennial Park and against Vince and Sailors jointly and severally.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Equitable defense to acceleration after default | FNB's right to accelerate contractually authorized remains valid | Equitable factors (mistake/inequitable conduct) should bar acceleration | No; equity does not prevent acceleration where contract allows it |
| Substantial performance vs. material breach | Defendants failed to meet a $1,350,000 payment; default is material | Partial performance should excuse some breach under substantial performance doctrine | Defendants did not substantially perform; breach was material and willful |
| Waiver by accepting late payment | Anti-waiver provisions bar finding of waiver | Acceptance of $9,349 could imply waiver of acceleration | No waiver; anti-waiver provisions control; no waiver found |
| Implied covenant of good faith and fair dealing | Billing statement accurately reflected debt due; no hindrance to performance | FNB acted in bad faith by demanding large principal payment | No breach of the implied covenant; statements were proper |
Key Cases Cited
- Greenberg v. Service Business Forms Industries, 882 F.2d 1538 (10th Cir. 1989) (equitable relief when creditor's conduct is inequitable or deceptive)
- Snyder v. Miller, 71 Kan. 410, 80 P. 970 (Kan. 1905) (equitable intervention when creditor's conduct misleads debtor)
- Riley State Bank v. Spillman, 242 Kan. 696, 750 P.2d 1024 (Kan. 1988) (anti-waiver clause prevents waiver by late payments)
- Freel, 10 Kan. App. 2d 286, 698 P.2d 382 (Kan. App. 1984) (past practice of accepting late payments does not waive acceleration with anti-waiver clause)
- Foundation Property Investments, 286 Kan. 597 (Kan. 2011) (anti-waiver provisions bar implied waiver of acceleration)
- Almena State Bank v. Enfield, 24 Kan. App. 2d 834, 854 P.2d 724 (Kan. App. 1998) (substantial compliance standards and scope in contract defaults)