First Nat. Bank of Anthony v. Dunning, No. 68362

CourtCourt of Appeals of Kansas
Writing for the CourtBefore GERNON, P.J., PIERRON, J., and PAUL E. MILLER; PIERRON
Citation18 Kan.App.2d 518,855 P.2d 493
PartiesFIRST NATIONAL BANK OF ANTHONY, Kansas, Appellant/Cross-Appellee, v. Floyd Russell DUNNING, Jr., et al., Appellee, and Minnie I. Dunning, Appellee/Cross-Appellant.
Decision Date02 July 1993
Docket NumberNo. 68362

Page 493

855 P.2d 493
18 Kan.App.2d 518
FIRST NATIONAL BANK OF ANTHONY, Kansas, Appellant/Cross-Appellee,
v.
Floyd Russell DUNNING, Jr., et al., Appellee,
and
Minnie I. Dunning, Appellee/Cross-Appellant.
No. 68362.
Court of Appeals of Kansas.
July 2, 1993.
Review Denied Sept. 28, 1993.

Page 494

Syllabus by the Court

1. Under the facts of this case, where no prejudice can be shown by the surety, granting an extension of time to pay installment payments, but not the whole debt, is not a material modification of the obligation which would release a gratuitous surety.

2. The Kansas Consumer Protection Act does not apply to sureties who are not themselves seeking or acquiring property.

F.C. "Rick" Davis II, Bruce & Davis, Wichita, for appellant/cross-appellee.

Theodore C. Geisert, Geisert & Watkins, P.A., Kingman, for appellees and cross-appellant.

Before GERNON, P.J., PIERRON, J., and PAUL E. MILLER, District Judge, Assigned.

PIERRON, Judge:

The First National Bank of Anthony (Bank), plaintiff/appellant, appeals the trial court's decision in favor of Minnie I. Dunning, defendant/appellee. The court held Minnie was discharged from a surety agreement after the Bank and the principal, Floyd R. Dunning, Jr., modified the principal's contract without Minnie's consent. Minnie cross-appeals.

The main issue raised by appellant is whether the granting of an extension of time for two installment payments and increasing the rate of interest on the note

Page 495

modified the underlying agreement so as to discharge the surety.

On cross-appeal the appellee raises three issues:

Did the Bank unjustifiably impair the collateral?

[18 Kan.App.2d 519] Was there an express requirement that Mrs. Dunning sign the note before the mortgage could be given effect?

Did the Bank's actions violate the Kansas Consumer Protection Act?

The facts are as follows: Floyd was indebted to the Bank. In an effort to help Floyd stay in business, the Bank agreed to restructure Floyd's debt and loan him an additional $65,000. This agreement was reached in August 1987.

The note was to be amortized over 20 years and paid in 9 equal installments, commencing August 1988, and a 10th payment, which was to be a balloon payment. Interest was set at 11 1/4%. Future rates were to be adjusted yearly and indexed to the Bank's base rate, and Floyd's rate would always be 1/2% below the base rate.

As part of this agreement, the Bank required Floyd to present additional collateral. Floyd agreed, and his mother, Minnie, executed a mortgage to a quarter section of land. Minnie owned 11/12 of the section. Floyd owned the other 1/12. Floyd signed the note and mortgage at the Bank. Floyd requested that Minnie be allowed to sign at her home. The Bank agreed, and a notary public accompanied Floyd to Minnie's where her signature was obtained on the mortgage. It is uncontroverted that no Bank representative spoke with Minnie about the obligation she was assuming or about Floyd's precarious financial situation. At the time of restructuring, Floyd's financial statement showed a negative net worth of $119,531. He owed the Bank $451,000. Floyd was also indebted to the Federal Land Bank.

Floyd fell behind on his payments, and in January 1989 the Bank and Floyd executed a modification. The due date for the August 1988 payment was extended to April 1989. In addition, the interest rate was increased to 12.25%, variable as in the original agreement.

In September 1989, Floyd and the Bank entered into another extension agreement, extending the time for the August 1989 payment to October 31, 1989. When Floyd failed to make that payment, the Bank accelerated the note, sold Floyd's collateral, and foreclosed on the mortgage.

In a letter opinion issued after a bench trial, the district court held Minnie was discharged as surety because the time to make [18 Kan.App.2d 520] two payments was extended. The judge specifically held the increase in interest was not a modification which would discharge Minnie because "they followed the same interest rate formula set forth in the original note."

Minnie was a gratuitous surety because she was not compensated. A gratuitous surety is a "favorite of the law." See Stearns, The Law of Suretyship § 2.4 (Elder ed. 1951), and Simpson, Handbook on the Law of Suretyship § 29 (1950).

The preferential status accorded a gratuitous surety has been adopted by the Kansas Supreme Court. Fisher v. Pendleton, 184 Kan. 322, 327, 336 P.2d 472 (1959); Scovill v. Scovill, 144 Kan. 759, 761, 62 P.2d 852 (1936).

This rule of strictissimi juris is now generally interpreted as meaning that the contract be read to ascertain the intentions of the parties as expressed in the contract and that the surety's obligation be neither extended nor reduced by judicial construction. Simpson, § 29.

The obligation underlying a surety agreement cannot be modified without the surety's assent. A modification which alters the surety's obligation will discharge the surety. However, the alteration must be a material change. See Simpson, § 72; Stearns, § 6.3; Fassett v. Deschutes Enterprises, 69 Or.App. 426, 431-32, 686 P.2d 1034 (1984).

In this case, the parties and the trial court focus on the extension of time to make two installment payments. There is a line of Kansas cases which holds that a surety is discharged when the time to pay a

Page 496

debt is extended. Fisher v. Spillman, 85 Kan. 552, 554, 118 P. 65 (1911); Bank v. Brooks, 64 Kan. 285, Syl., 67 P. 860 (1902); Stove Works v. Caswell, 48 Kan. 689, Syl., 29 P. 1072 (1892). Both sides point out that the specific question involved here, discharging a surety by granting an extension of time to make installment payments, as opposed to paying the whole debt, has not been considered by the Kansas appellate courts.

The "material modification of terms" doctrine is extensively discussed in treatises. However, relatively few Kansas cases have been decided using this theory. The Court of Appeals enunciated the standard in Plow Co. v. Ward, 1 Kan.App. 6, 41 P. 64 (1895). In that case, the surety was discharged because a three-[18 Kan.App.2d 521] year payment plan was modified to require payment of the entire debt within one year.

The material modification doctrine has been applied in other contexts in cases decided by the Kansas appellate...

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14 practice notes
  • Normand Josef Enterprises, Inc. v. Connecticut Nat. Bank, No. 14901
    • United States
    • Supreme Court of Connecticut
    • August 2, 1994
    ...v. Security Pacific National Bank, 23 Cal.3d 442, 591 P.2d 51, 153 Cal.Rptr. 28 (1979); First National Bank of Anthony v. Dunning, 18 Kan.App.2d 518, 855 P.2d 493 (1993); Raymer v. Bay State National Bank, 384 Mass. 310, 424 N.E.2d 515 (1981); Attorney General v. Michigan National Bank, 110......
  • First Dakota Nat. Bank v. Maxon, No. 18558
    • United States
    • Supreme Court of South Dakota
    • October 17, 1994
    ...obligation will discharge the surety. However, the alteration must be a material change." First Nat'l Bank of Anthony v. Dunning, 18 Kan.App.2d 518, 855 P.2d 493, 495 (1993). Courts have also noted "the law of suretyship provides that a surety is entitled to stand on the strict le......
  • Chavers v. Fleet Bank (R.I.) N.A., C.A. 00-5237
    • United States
    • Superior Court of Rhode Island
    • July 2, 2001
    ...v. Security Pacific National Bank, 23 Cal.3d 442, 591 P.2d 51, 153 Cal.Rptr. 28 (1979); First National Bank of Anthony v. Dunning, 18 Kan.App.2d 518, 855 P.2d 493 (1993); Raymer v. Bay State National Bank, 384 Mass. 310, 424 N.E.2d 515 (1981); Attorney General v. Michigan National Bank, 110......
  • Chavers v. Fleet Bank (R.I.) N.A., C.A. 00-5237
    • United States
    • Superior Court of Rhode Island
    • July 2, 2001
    ...v. Security Pacific National Bank, 23 Cal.3d 442, 591 P.2d 51, 153 Cal.Rptr. 28 (1979); First National Bank of Anthony v. Dunning, 18 Kan.App.2d 518, 855 P.2d 493 (1993); Raymer v. Bay State National Bank, 384 Mass. 310, 424 N.E.2d 515 (1981); Attorney General v. Michigan National Bank, 110......
  • Request a trial to view additional results
14 cases
  • Normand Josef Enterprises, Inc. v. Connecticut Nat. Bank, No. 14901
    • United States
    • Supreme Court of Connecticut
    • August 2, 1994
    ...v. Security Pacific National Bank, 23 Cal.3d 442, 591 P.2d 51, 153 Cal.Rptr. 28 (1979); First National Bank of Anthony v. Dunning, 18 Kan.App.2d 518, 855 P.2d 493 (1993); Raymer v. Bay State National Bank, 384 Mass. 310, 424 N.E.2d 515 (1981); Attorney General v. Michigan National Bank, 110......
  • First Dakota Nat. Bank v. Maxon, No. 18558
    • United States
    • Supreme Court of South Dakota
    • October 17, 1994
    ...obligation will discharge the surety. However, the alteration must be a material change." First Nat'l Bank of Anthony v. Dunning, 18 Kan.App.2d 518, 855 P.2d 493, 495 (1993). Courts have also noted "the law of suretyship provides that a surety is entitled to stand on the strict le......
  • Chavers v. Fleet Bank (R.I.) N.A., C.A. 00-5237
    • United States
    • Superior Court of Rhode Island
    • July 2, 2001
    ...v. Security Pacific National Bank, 23 Cal.3d 442, 591 P.2d 51, 153 Cal.Rptr. 28 (1979); First National Bank of Anthony v. Dunning, 18 Kan.App.2d 518, 855 P.2d 493 (1993); Raymer v. Bay State National Bank, 384 Mass. 310, 424 N.E.2d 515 (1981); Attorney General v. Michigan National Bank, 110......
  • Chavers v. Fleet Bank (R.I.) N.A., C.A. 00-5237
    • United States
    • Superior Court of Rhode Island
    • July 2, 2001
    ...v. Security Pacific National Bank, 23 Cal.3d 442, 591 P.2d 51, 153 Cal.Rptr. 28 (1979); First National Bank of Anthony v. Dunning, 18 Kan.App.2d 518, 855 P.2d 493 (1993); Raymer v. Bay State National Bank, 384 Mass. 310, 424 N.E.2d 515 (1981); Attorney General v. Michigan National Bank, 110......
  • Request a trial to view additional results

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