Foundation Property Invest. v. Ctp, LLC

• Decision Date: 03 July 2008
• Docket Number: No. 96,697.,96,697.
• Citation: 186 P.3d 766
• Parties: FOUNDATION PROPERTY INVESTMENTS, LLC, Appellee, v. CTP, LLC, Appellant.
• Court: Kansas Supreme Court

186 P.3d 766

FOUNDATION PROPERTY INVESTMENTS, LLC, Appellee, v. CTP, LLC, Appellant.

No. 96,697.

Supreme Court of Kansas.

July 3, 2008.

Joshua M. Ellwanger, of Blackwell Sanders Peper Martin LLP, of Kansas City, Missouri, argued the cause and was on the briefs for appellant.

Amy Fellows Cline, of Triplett, Woolf & Garretson, LLC, of Wichita, argued the cause and was on the briefs for appellee.

The opinion of the court was delivered by NUSS, J.:

This case requires us to determine whether a lender's right to enforce a promissory note's acceleration clause has been waived by lender's repeated acceptance of late monthly payments from its borrower. The district court granted summary judgment to lender, Foundation Property Investments, LLC (Foundation), holding that Foundation was entitled to accelerate. The borrower, CTP, LLC (CTP), appealed, and the Court of Appeals reversed, holding that Foundation waived its acceleration rights. Foundation Property Investments v. CTP, 37 Kan.App.2d 890, 159 P.3d 1042 (2007). We granted Foundation's petition for review; our jurisdiction is under K.S.A. 20-3018(b).

Foundation presents three questions on appeal, which we distill and answer as follows:

1. In addition to an acceleration feature, does the promissory note also contain an anti-waiver feature? No.

2. By repeatedly accepting late payments, has Foundation waived its right to accelerate the loan? Yes.

3. If Foundation has waived its right to accelerate, does it nevertheless have any recourse against CTP for continued late payments? Yes.

Accordingly, we affirm the Court of Appeals and reverse the district court.

FACTS

There is no dispute about the essential facts. In April 2004, CTP, an Iowa limited liability corporation, purchased a truck stop in South Hutchinson, Kansas. In connection with the purchase, CTP borrowed $96,000 from Foundation, a Kansas limited liability corporation. The loan was evidenced by a promissory note signed by John D. Daniels, manager for CTP, providing in relevant part:

"FOR VALUE RECEIVED, the undersigned promises to pay to the order of Foundation Property Investments, L.L.C., the sum of Ninety Six Thousand Dollars ($96,000.00) with interest thereon from April 26, 2004, payable monthly at the rate of Five and Three Quarters Percent (5.75%) per annum as follows:

Six Hundred Seventy Three Dollars and Fifty Four Cents ($673.54) including interest, on or before the 1st day of June, 2004, and Six Hundred Seventy Three Dollars and Fifty Four Cents ($673.54) including interest, on or before the 1st day of each and every month thereafter until June 1, 2009 when all sums due hereunder are due and payable in full.

"Interest shall first be deducted from the payment and any balance shall be applied on principal.

"Principal and interest not paid when due shall draw interest at the rate of twelve percent (12%) per annum. Upon default in payment of any interest, or any installment of principal, the whole amount then unpaid shall become immediately due and payable at the option of the holder without notice. The undersigned, in case of suit on this note, agrees to pay attorney's fees.

"Makers, endorsers and sureties waive demand of payment, notice of non-payment, protest and notice. Sureties, endorsers and guarantors agree to all of the provisions of this note, and consent that the time or times of payment of all or any part hereof may be extended after maturity, from time to time, without notice."

That same month, CTP and Foundation Properties Corporation (FPC), a corporation closely related to Foundation, entered into a contract for FPC to manage the truck stop. Part of FPC's management duties included making CTP's obligated monthly payments to Foundation.

CTP, through FPC, paid the first four installments on or before their due dates. Beginning in October 2004, however, and continuing through July 2005, CTP, either indirectly through FPC or directly, was late in making all payments. During this period, on April 1, 2005, the relationship between the parties changed: CTP took back from FPC the managerial duties, including responsibility for making its monthly loan payments.

In a letter dated July 8, 2005, Foundation's counsel informed CTP manager Daniels that a default existed in the payment of the interest and principal due July 1. As a result, counsel advised that Foundation was "exercising its option to declare all of the unpaid principal and interest immediately due and payable." Foundation demanded full payment of the note, $94,593.77 in principal and interest, by July 31. In a July 26 letter, CTP's counsel responded that because Foundation had continually accepted late payments, the parties had established a course of dealing permitting payments to be made after the first day of the month in which they are due.

Two days later, on July 28, Foundation sued CTP to collect the full amount due under the note. After the parties filed competing motions for summary judgment, the trial court granted Foundation's motion. It held that Foundation's repeated acceptance of late payments did not constitute a waiver of the option to accelerate and that Foundation was entitled to payment of the loan's full principal, accrued interest, attorney fees, and costs, for a total amount of $110,975.58.

The Court of Appeals reversed, holding that Foundation waived its acceleration rights, particularly in the absence of an anti-waiver clause. It remanded with instructions to the trial court to enter judgment in favor of CTP, i.e., reinstatement of the note and terms. 37 Kan.App.2d at 896-901, 159 P.3d 1042.

Additional facts will be provided as necessary to the analysis.

ANALYSIS

Standard of Review

There are no disputed material facts. Moreover, we must construe a promissory note. Accordingly, our review is de novo. Bomhoff v. Nelnet Loan Services, Inc., 279 Kan. 415, 419-20, 109 P.3d 1241 (2005) (appellate review of district court's grant of summary judgment on undisputed material facts is de novo); McGinley v. Bank of America, N.A., 279 Kan. 426, 441, 109 P.3d 1146 (2005) ("legal effect of a written instrument is a question of law for the court to decide; it may be construed and its legal effect determined by the appellate court regardless of the construction made by the trial court").

Issue 1: The promissory note does not contain an anti-waiver feature.

The arguments

At the trial court, Foundation focused on what it characterized as the clear language of one provision of the promissory note: "Upon default in payment of any interest, or any installment in principal, the whole amount then unpaid shall become immediately due and payable at the option of the holder without notice." (Emphasis added.) It argued that the word "any" signifies it may accelerate at the default of "any" payment, regardless of when the default occurs or even whether a previous default had occurred.

Foundation further argued that the word "option" meant that CTP, the drafter of the note, specifically granted Foundation the power to decide if and when to exercise the acceleration right. As a result, it did not waive its right to pursue its contractual remedies merely because it opted not to do so for a 9-month period. It cited, among other authorities, Nelson v. Robinson, 184 Kan. 340, 347, 336 P.2d 415 (1959), for the general rule that "no mere indulgence or silent acquiescence can be construed as a waiver of rights under a contract."

In granting summary judgment, the trial court agreed that the note language was clear and unambiguous and entitled Foundation to relief. Its analysis was straightforward, with particular emphasis upon the word "option":

"Although plaintiff accepted late payments for a number of months, and thus chose to forego a declaration of default during those months, the note clearly makes a declaration of default optional on plaintiff's part. An option is simply that. It is there to be exercised if and when the holder of the option chooses to do so.

"The plaintiff did not waive its right to pursue its contractual remedies merely because it chose to do so for a 9-month period (October 04-June 05)."

The Court of Appeals stated that a lender's acceptance of a late or partial payment will generally waive the right to declare default and accelerate the note citing, among other authorities, Postal Savings & Loan Ass'n v. Freel, 10 Kan.App.2d 286, 698 P.2d 382 (1984). It essentially rejected the trial court's heavy reliance upon the word "option" and specifically rejected Foundation's "attempts to analogize the anti-waiver language in Freel to the language in the present case, [because] it is clear that the CTP note did not contain a similar anti-waiver provision." Foundation, 37 Kan.App.2d at 897, 159 P.3d 1042. The Freel anti-waiver provision stated: "`Any waiver of any payment hereunder or under the instrument securing this note at any time, shall not, at any other time, be taken to be a waiver of the terms of this note or the instrument securing it.'" Freel, 10 Kan.App.2d at 287, 698 P.2d 382. After concluding that "the note does not contain an anti-waiver provision," the Court of Appeals then held that Foundation's conduct constituted a waiver of its right to accelerate and reversed and remanded for entry of judgment for CTP. Foundation, 37 Kan.App.2d at 900, 159 P.3d 1042.

On appeal to this court, Foundation repeats its trial court arguments. It also contends that the Court of Appeals basically rewrote the note by ignoring the plain meaning of the clear and unambiguous language, i.e., "any" and "option." Foundation also points out that under additional language, CTP specifically waived demand of payment, notice of nonpayment, and protest and notice, which allegedly "further underscores Foundation's ability to accelerate the note at any default, without notice to or opportunity for protest by, CTP."

Foundation concedes that under Freel, an intent to waive may be inferred from conduct. However, quoting F...