Quest v. Barnett Bank of Pensacola
| Decision Date | 11 May 1981 |
| Docket Number | No. SS-487,SS-487 |
| Citation | 397 So.2d 1020 |
| Parties | 31 UCC Rep.Serv. 1502 Katherine L. QUEST and Sea-Sky Travel Agency, Inc., Appellants, v. BARNETT BANK OF PENSACOLA, Appellee. |
| Court | Florida District Court of Appeals |
Charles L. Cetti of Cetti & McGraw, Pensacola, for appellants.
John F. Windham of Beggs & Lane, Pensacola, for appellee.
Quest and Sea-Sky Travel Agency, Inc., appeal an order granting a directed verdict at the close of their case-in-chief in an action which had sought damages against the bank based upon alternative theories of trespass, conversion, negligence, and a count filed pursuant to Section 679.507, Florida Statutes (1975), authorizing a statutory right of action against a secured party who does not proceed against a debtor in accordance with the procedure required by Part V of Chapter 679. Appellants contend that the court erred in directing verdict because (1) the bank had no authority to declare appellants in default of their obligations and to accelerate two promissory notes, one a demand and the other an installment note, 1 and (2) the bank's self-help measures constituted a breach of the peace and were therefore unlawful. We affirm the trial court's finding on the first point, but reverse as to the second point and remand for further proceedings consistent with this opinion.
As to the bank's right to accelerate, it is obvious that the bank could require immediate payment of the demand note, since by its terms, it could be called at any time with or without reason. See comment to U.C.C. § 1-208. The only substantial issue before us is whether the bank had the right to accelerate the installment note, which contained the standard provision that the note could be accelerated "if the bank at any time feels insecure for any reason." Section 671.208, Florida Statutes (1975), explains that the word "insecure" means that the creditor "shall have power to (accelerate) only if he in good faith believes that the prospect of payment or performance is impaired." The burden of establishing the creditor's lack of good faith is placed by the statute upon the debtor.
We conclude from the evidence that Mrs. Quest did not meet her burden since she did not present evidence from which a jury could infer that the bank did not act in good faith in accelerating the two notes. In January, 1977, at the time the decision was made to accelerate payment of the remaining balance on the two notes of $41,600, the bank was confronted with the following circumstances: A draft in the amount of $10,000 had been accepted for payment, thereby creating a $6,500 overdraft; an additional draft for $6,000 had just been presented, although not accepted, and the bank had been informed that yet another draft in the amount of $14,000 would soon be presented.
The facts in the present case closely parallel those in Farmers Co-Op El., Inc., Duncombe v. State Bank, 236 N.W.2d 674 (Iowa 1975), in which a grain elevator brought an action against a bank for the latter's wrongful dishonor of checks and tortious interference with its prospective business advantage. Following the jury's verdict in favor of the elevator, the trial court entered judgment for the bank, notwithstanding the verdict, and the elevator appealed. After reviewing evidence showing that the elevator owed the bank $272,000 on six notes, and that it needed $50,000 within the next two weeks, and showing also that the bank was aware that the elevator had sustained a loss of $22,000 in the fiscal year just completed, the Iowa Supreme Court held that the bank's concern about the security of its loan was in good faith and that its acceleration of the notes was not, under the circumstances, improper. In construing U.C.C. § 1-208, the court stated that the burden imposed upon the debtor was "to introduce substantial evidence of lack of good faith; a mere scintilla would not suffice." 236 N.W.2d at 677. It rejected the debtor's argument that the good faith requirement of the statute requires not only honesty in fact, but also a reasonable belief by the creditor that the debtor's prospects of payment would be impaired, observing that "decisions construing (the statute) overwhelmingly agree that the test of good faith under that section is a wholly subjective one of honesty." Id. at 678.
We adopt the reasoning of the Iowa Supreme Court, and conclude that the debtor here has not presented substantial proof that the bank's concern about the security of its notes, whether or not reasonable, was not genuine, or that the bank had an ulterior motive. There was consequently no fact issue to be determined by a jury that the bank accelerated without good faith.
Mrs. Quest also argues that the bank was not legally authorized to declare the notes in default because she had relied upon a course of past dealings and prior agreements which had existed between the parties permitting the account to be overdrawn until the indebtedness was extinguished by the collection of receivables. She cites Ford Motor Credit Company v. Waters, 273 So.2d 96 (Fla.3d DCA 1973), as authority for her position, which held that because the buyer's pattern of payments was irregular and deviated substantially from the terms of the contract, the seller could not retake the goods without notice and without demand for the outstanding balance. The facts in the instant case are, however, clearly distinguishable from those in Waters. Although the evidence here reveals that there had existed a similar pattern of conduct, it also reveals that in October of 1976, following the acceptance of an overdraft, a loan agreement was executed by the parties providing that the travel agency would maintain net working capital, meaning the excess of current assets over current liabilities, in an amount no less than $10,000. Under the circumstances, Mrs. Quest cannot be said to have reasonably relied on the bank's prior practices, and must be considered to have been placed on notice by the terms of the loan agreement of the bank's change in policy.
The second issue, concerning whether the bank's self-help measures were lawful, is a far more difficult one to determine. On January 27, 1977, the bank seized possession of appellants' assets without judicial process. On that date, a bank agent phoned Mrs. Quest, who was at home ill, and requested her to come immediately to her place of business, because he intended to close it down. Mrs. Quest informed the agent that she could solve the cash flow problem in 48 hours, but he declined any further extensions. During a later telephone conversation, she advised the agent that there were very important papers in her office and that she needed more time to place her business affairs in order. He responded that she could come to the office and that the bank would not do anything until then. When she arrived at the scene, the bank's agents had already taken action; many of the business's contents had been removed, and the records were scattered on the floor. An employee of Sea-Sky testified that when one of the agents first arrived at the premises, she told him that she was not authorized to take any action, and that he would have to talk first with Mrs. Quest. The bank's agent testified as an adverse witness, and did not refute the essence of Mrs. Quest's or the employee's testimony.
The bank defends its self-help remedy by asserting that its actions were sanctioned by its security agreement giving it "immediately and without demand any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code." More specifically, the bank contends that its actions were authorized by Section 679.503, permitting a secured creditor to take possession of collateral "if this can be done without breach of the peace...."
This statute has been construed as providing a creditor a very limited right of possession. A two-pronged test has been established to determine whether a " 'breach of the peace has occurred' " within the meaning of the statute: " '(1) whether there was entry by the...
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