Benschoter v. First Nat. Bank of Lawrence

• Decision Date: 08 November 1975
• Docket Number: No. 47761,47761
• Citation: 218 Kan. 144,542 P.2d 1042
• Parties: , 18 UCC Rep.Serv. 246 Don BENSCHOTER, Appellant, v. FIRST NATIONAL BANK OF LAWRENCE, a corporation, and Kuhn Truck & Tractor Company, Inc., a corporation, Appellees.
• Court: Kansas Supreme Court

Page 1042

542 P.2d 1042

218 Kan. 144, 18 UCC Rep.Serv. 246

Don BENSCHOTER, Appellant, v. FIRST NATIONAL BANK OF LAWRENCE, a corporation, and Kuhn Truck & Tractor Company, Inc., a corporation, Appellees.

No. 47761.

Supreme Court of Kansas.

Nov. 8, 1975.

Syllabus by the Court

1. The self-help repossession provisions of K.S.A. 84-9-503 do not violate constitutional due process because no state action is present when the state passes a law which: (a) does not change the common law or previously codified statutory law; (b) does not significantly encourage and involve the state in private action and (c) does not involve any state official in the prejudgment self-help repossession of collateral.

2. A creditor may repossess collateral without judicial process if this can be done without breach of the peace. Standing alone, stealth, in the sense of a debtor's lack of knowledge of the creditor's repossession, does not constitute a breach of the peace.

3. The general rule that one may not be subrogated to the rights and securities of a creditor until the claim of the creditor has been paid in full is subject to limitation. The rule against subrogation on part payment is that a creditor cannot equitably be compelled to split his securities, and give up control of any part until he is fully paid. Such rule is for the benefit of creditors, and the creditor alone can object to subrogation under partial payment, and only to the extent that it would impair his preferred rights. But the rule extends only so far as its reason goes and is never invoked to defeat obligations in the interest of the debtor alone.

4. In a civil action for damages arising from a creditor's self-help repossession, the trial court granted summary judgment in favor of the creditor and its guarantor. On appeal the record is examined, and for the reasons stated in the opinion it is held: (a) The self-help provisions of K.S.A. 84-9-503 are not constitutionally infirm; (b) the 'stealth' asserted by the debtor in this case did not constitute a breach of the peace; (c) the guarantor of an obligation was entitled to be subrogated to the rights of the creditor against the principal; and (d) the trial court did not err in granting judgment as a matter of law in favor of the creditor and its guarantor.

Jane B. Werholtz, of Harley & Werholtz, Topeka, argued the cause and was on the brief for appellant.

Richard L. Zinn, of Barber, Emerson, Six, Springer & Zinn, Lawrence, argued the cause, and Thomas V. Murray, Lawrence, was with him on the brief for appellee, The First Nat. Bank of Lawrence.

Gerald L. Cooley, of Allen & Cooley, Lawrence, argued the cause, and was on the brief for appellee, Kuhn Truck and Tractor Co., Inc.

SCHROEDER, Justice:

This is an appeal from an order of the trial court granting a creditor judgment thereby affirming the creditor's 'self-help' repossession of the plaintiff's property (pledged as security for a loan) pursuant to K.S.A. 84-9-503. The provision of that statute in the Uniform Commercial Code pertinent to this appeal reads:

'Unless otherwise agreed a secured party has on default the right to take possession of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action. . . .'

The facts leading to the challenged 'self-help' repossession are not complicated. Don Benschoter (plaintiff-appellant) is a farmer and security guard in Lawrence, Kansas. On June 15, 1971, he negotiated a loan from Mr. Warren Rhodes, president of the First National Bank of Lawrence (hereafter referred to as the Bank). The appellant signed a $4,096.73 promissory note and security agreement secured by various items of farm equipment: a combine, a grain drill, a hay conditioner and a cadet mower. This security agreement gave the Bank 'the remedies of a secured party under the Kansas Uniform Commercial Code' and specifically provided that 'upon default Secured Party (Bank) shall have the right to the immediate possession of the Collateral.' The seller of the farm equipment which was pledged as security, Kuhn Truck and Tractor Company, Inc. (hereafter referred to as the Kuhn Company) endorsed the bank note evidencing the loan as guarantor.

The appellant met his payment obligations, although frequently late, until July 1, 1972. On July 1, 1972, a $900 payment was due. The appellant paid only $400. That $400 payment was made to Kuhn Company who paid the $400 plus the remaining $500 still due to the Bank.

On September 1, 1972, a $300 payment was due but never made. Shortly prior to this time Louis Kuhn, an officer of the Kuhn Company, had started out to the appellant's home to obtain the $500 owed on the July 1, 1972, payment. On the way he met the appellant and discussed the $500 owed and the approaching $300 payment. The appellant indicated he couldn't meet Mr. Kuhn's demands that day but he might have the money on Saturday, September 2, 1972. At that time the appellant said, 'if I can't get the money, I'll bring it (the farm equipment) back.' The bank had previously informed the appellant that unless payments were made, Mr. Kuhn would be asked to pick up the equipment. Mr. Kuhn testified he repeated that warning saying:

'. . . Don, what are we going to work out on this equipment that you owe us for? . . .'

The appellant replied:

'. . . I'm just to the point where I don't think I can do anything. Things have gone against me, and I'm just going to have to let you have it all back. There is no way I can pay for it, there is no way I can pay for it. I'm just going to let you have it back. . . . I'll bring the equipment in to you. I can't bring it in tomorrow. I can't bring it in tomorrow, but I'll bring it in Saturday. . . .'

Mr. Kuhn said:

'. . . Don, if you don't bring the equipment in, we are going to have to come and get it. . . .'

The appellant replied:

'. . . That's all right. If I don't bring it in to you, you come on out and get it. . . .' (Emphasis added.)

On Tuesday, September 5, 1972, not having received any money from the appellant, Louis Kuhn and an employee went to the appellant's home. Both the appellant and his wife were away from the home but their three children, ages seventeen, fifteen and thirteen were home. Mr. Kuhn went to the door of the appellant's house and asked the children to let him pick up the secured farm equipment. The hay conditioner was in the driveway in front of the barn. The cadet mower was in the barn. The appellant's seventeen-year-old son opened a padlocked gate protecting the equipment and helped them get the mower from the barn. The also gave Mr. Kuhn a carburetor which was not part of the secured property.

The appellant admits Mr. Kuhn never struck or threatened his children. But he contends the taking was without due process of law in violation of the Fourteenth Amendment of the United States Constitution.

The trial court sustained the appellees' motion for summary judgment holding: (1) The self-help provisions of K.S.A. 84-9-503 did not violate constitutional due process; (2) that no legal question existed as to whether the appellee Kuhn Company had breached the peace by the use of 'stealth'; and (3) that the appellee Kuhn Company as a guarantor of the appellant's obligation to the bank was subrogated to the rights of the bank and became a secured party and thus had a right to repossess the property.

The points assigned by the appellant for review challenge each of the rulings made by the trial court.

The appellant first argues the due process requirements of the Fourteenth Amendment of the United States Constitution requires that he should have been given notice and a prior hearing. The due process clause of the Fourteenth Amendment of the United States Constitution reads:

'. . . (N)or shall any State deprive any person of life, liberty, or property, without due process of law . . ..'

Under this clause, state action is necessary to invoke the Fourteenth Amendment. Acts of private individuals, however discriminatory or wrongful, are outside the scope of the Fourteenth Amendment. (Shelley v. Kraemer, 334 U.S. 1, 13, 68 S.Ct. 836, 92 L.Ed. 1161.)

The state action test is generally met when conduct formerly private becomes so entwined with governmental policies and so impregnated with governmental character as to become subject to the constitutional limitations placed upon state action. (Evans v. Newton, 382 U.S. 296, 299, 86 S.Ct. 486, 15 L.Ed.2d 373.) The courts have never attempted the impossible task of formulating an infallible test for determining whether the state in any of its manifestations has become significantly involved in private conduct. (Reitman v. Mulkey, 387 U.S. 369, 378, 87 S.Ct. 1627, 18 L.Ed.2d 830.) Only by sifting facts and weighing circumstances on a case-by-case basis can a non-obvious involvement of the state in private conduct be attributed its true significance. (Burton v. Wilmington Parking Authority, 365 U.S. 715, 722, 81 S.Ct. 856, 6 L.Ed.2d 45; and Reitman v. Mulkey, supra, 387 U.S. at 378, 87 S.Ct. 1627.)

The appellant's primary argument is that the state has passed a law which authorizes or encourages 'self-help repossession' so state action must be present. But the Federal Circuit Courts have unanimously rejected this argument. (Shirley v. State National Bank of Connecticut, 493 F.2d 739 (2nd Cir. 1974), cert. denied, 419 U.S. 1009, 95 S.Ct. 329, 42 L.Ed.2d 284; Gibbs v. Titelman, 502 F.2d 1107 (3rd Cir. 1974), cert. denied, 419 U.S. 1039, 95 S.Ct. 526, 42 L.Ed.2d 316; James v. Pinnix, 495 F.2d 206 (5th Cir. 1974); Turner v. Impala Motors, 503 F.2d 607 (6th Cir. 1974); Bichel Optical Lab., Inc. v. Marquette Nat. Bk. of Mpls., 487 F.2d 906 (8th Cir. 1973); Nowlin v. Professional Auto Sales, Inc., 496 F.2d 16 (8th Cir. 1974), cert. denied, 419 U.S. 1006, 95 S.Ct. 328, 42 L.Ed.2d 283; and Adams v. Southern California First National Bank, 492 F.2d 324 (9th...