Karner v. Willis

• Decision Date: 31 May 1985
• Docket Number: No. 56535,56535
• Citation: 700 P.2d 582,10 Kan.App.2d 432
• Parties: , 41 UCC Rep.Serv. 721 Herbert R. KARNER and Ruth D. Karner, Plaintiffs-Appellants, v. Jim WILLIS and Ronald F. Lloyd, a/k/a Ron Lloyd, et al., Defendants-Appellees, v. KANOPOLIS STATE BANK, Garnishee/Defendant-Appellee.
• Court: Kansas Court of Appeals

Page 582

700 P.2d 582

10 Kan.App.2d 432, 41 UCC Rep.Serv. 721

Herbert R. KARNER and Ruth D. Karner, Plaintiffs-Appellants, v. Jim WILLIS and Ronald F. Lloyd, a/k/a Ron Lloyd, et al., Defendants-Appellees, v. KANOPOLIS STATE BANK, Garnishee/Defendant-Appellee.

No. 56535.

Court of Appeals of Kansas.

May 31, 1985.

Review Granted July 26, 1985.

Syllabus by the Court

1. A bank has the right to set off any mature claim or obligation which it has against any depositor.

2. If a loan agreement made by a bank with its depositor provides that the bank may accelerate the maturity of the

debt under certain circumstances, a properly accelerated loan may be found mature and the proper subject of setoff by the bank.

3. A term providing that a party may accelerate payments or performance "when he deems himself insecure" or in words of similar import shall be construed to mean that he shall have the power to do so only if he in good faith believes that the prospect of payment or performance is impaired.

4. The test of "good faith" dictated by K.S.A. 84-1-208 is subjective, requiring honesty in fact. K.S.A. 84-1-201(19).

5. A bank which holds the secured debt of its depositor need not exhaust the collateral pledged as security as a prerequisite to the exercise of setoff.

Dennis J. Keenan and Phillip Eugene Porter, of Keenan, Mauch & Keenan, P.A., Great Bend, for plaintiffs-appellants.

Ron Svaty, of Aylward, Svaty & Sherman, Ellsworth, for defendants-appellees.

Before ABBOTT, P.J., and REES and PARKS, JJ.

PARKS, Judge:

Plaintiffs, Herbert and Ruth Karner, are the judgment creditors of defendants, Willis and Lloyd. Plaintiffs obtained an order of garnishment against defendant Lloyd's bank account with garnishee, Kanopolis State Bank (Bank), in seeking to collect on their judgment. The Bank answered that it had no funds belonging to defendant because it had exercised its right of setoff against his account. The plaintiffs contended that the setoff was wrongful but the district court disagreed. Plaintiffs appeal from the court's decision.

A bank has the right to set off any mature claim or obligation which it has against any depositor. This right is recognized by statute (K.S.A. 9-1206) and case law. See Iola State Bank v. Bolan, 235 Kan. 175, 187-88, 679 P.2d 720 (1984). If the loan is not mature, the bank cannot set off deposits against it unless the bank can show that the debtor is insolvent. First Nat'l Bank of Gaylord v. Autrey, 9 Kan.App.2d 96, 99, 673 P.2d 448 (1983); Docking v. Commercial National Bank, 118 Kan. 566, 568, 235 P. 1044 (1925). The date on which a loan matures is determined by the agreement of the parties. Therefore, if the parties have included in their agreement a right of the creditor to accelerate the maturity of the debt under certain circumstances, a properly accelerated loan may be found "mature" and the proper subject of setoff. Olsen v. Valley Nat. Bank of Aurora, 91 Ill.App.2d 365, 234 N.E.2d 547 (1968); 5A Michie, Banks and Banking § 156 (1983).

In this case, the defendant was indebted to the Bank on a note secured by two parcels of real estate. The note did not mature on its face until several months after the garnishment was served. However, it contained a provision permitting the Bank to accelerate the debt if it "deemed itself insecure." Thus, the Bank contended that its exercise of setoff was proper because it had deemed itself insecure and accelerated the maturity of the note prior to setting off the funds in the account. Plaintiffs contend that regardless of the theoretical right of the Bank to declare the note mature, its setoff in this case was wrongful because it did not accelerate the note's maturity in accordance with the law.

K.S.A. 84-1-208 states that a term providing that a party may accelerate payments or performance "when he deems himself insecure" or in words of similar import shall be construed to mean that he shall have the power to do so only if he in good faith believes that the prospect of payment or performance is impaired. The issue of good faith is one of fact. See Iola State Bank, 235 Kan. at 186, 679 P.2d 720.

The bank officer who accelerated the note testified that defendant was not delinquent on any payments on the loan and that he was unaware at the time whether defendant was insolvent. He stated that his decision to exercise the right of setoff was based on his knowledge of the registration of the foreign judgment for $58,352.40, the inquiry by defendant concerning possible changes in the way the account was held and the service of the garnishment order on the Bank. The bank official also acknowledged that a few weeks after the Bank deemed itself insecure on the loan to defendant, it loaned him an additional $50,000 which was secured in part by the collateral pledged against the previous loan and in part by new collateral.

In its decision, the trial court stated as follows:

"The Court however believes that the controlling fact is the intent of the bank at the time that the funds were transferred and since the testimony is uncontradicted that at the time this was done by the bank they had deemed themselves insecure and the Court believes that on that basis the intent of the law would be that the bank should prevail."

Since the trial court is presumed to have found all of the facts in issue necessary to support the judgment (Celco, Inc. of America v. Davis Van Lines, Inc., 226 Kan. 366, Syl. p 2, 598 P.2d 188 [1979], we must conclude that it found that the Bank believed in good faith that the prospect of payment was impaired. When the trial court has made findings of fact and conclusions of law, the scope of appellate review is for this court to determine whether the trial court's findings are supported by substantial competent evidence. Woods v. Midwest Conveyor Co., 236 Kan. 734, Syl. p 2, 697 P.2d 52 (1985). The appellate court will not weigh the evidence or pass upon the credibility of the witnesses. The reviewing court must review the evidence in the light most favorable to the party prevailing below. Marcotte Realty & Auction, Inc. v. Schumacher, 229 Kan. 252, 254, 624 P.2d 420 (1981).

Although there was certainly evidence presented in this case to suggest that, viewed...