Western Video Collectors, L.P. v. Mercantile Bank of Kansas

• Decision Date: 28 March 1997
• Docket Number: No. 75342,75342
• Citation: 935 P.2d 237,23 Kan.App.2d 703
• Parties: WESTERN VIDEO COLLECTORS, L.P., et al., Appellants, v. MERCANTILE BANK OF KANSAS, Appellee.
• Court: Kansas Court of Appeals

Page 237

935 P.2d 237

23 Kan.App.2d 703

WESTERN VIDEO COLLECTORS, L.P., et al., Appellants, v. MERCANTILE BANK OF KANSAS, Appellee.

No. 75342.

Court of Appeals of Kansas.

March 28, 1997.

Syllabus by the Court

1. Unless the parties expressly agree to apply the statute of limitations of another state, general choice of law provisions in contracts incorporate only substantive law and do not displace the procedural law of the forum state.

2. The fact that the general choice of law provision in a contract does not mention the procedural law of a forum state does not render the provision ambiguous.

Gregory V. Blume and Kevin E. Dellett, Overland Park, for appellant.

Dan Biles, of Gates, Biles, Shields & Ryan, P.A., Overland Park, for appellee.

Before BRAZIL, C.J., and ELLIOTT and KNUDSON, JJ.

BRAZIL, Chief Judge.

Western Video Collectors, L.P., et al. (Western), appeals the trial court's order granting summary judgment to Mercantile Bank of Kansas (Mercantile). Western argues that a choice of law provision in its contract with Mercantile required the district court to apply Missouri procedural law, which contains a more lengthy statute of limitations. In the alternative, Western contends its action was timely under the Kansas statute of limitations. Western also argues genuine issues of material fact existed to preclude summary judgment. We affirm.

Western was in the business of selling old western films on videocassettes through television advertising. In November 1988, Western opened two business accounts at Galleria Bank (Galleria), Mercantile's predecessor. The accounts enabled Western to process credit card orders placed by its customers. One account served as the business checking account, and the other was a reserve account from which customer refunds, or charge-backs, were paid. Western and Galleria executed a written "Merchant Agreement" governing the processing of the credit card transactions.

In January 1989, Galleria notified Western's president, Ken Heard, that it was closing Western's accounts. In February 1989, Galleria informed Heard that it was freezing the funds in the accounts. Without access to the funds in the accounts, Western was unable to purchase its product from its suppliers, and by March 1989, customer complaints began increasing because Western was not filling its orders. Heard opened new accounts at another bank in April 1989.

The Merchant Agreement states: "This agreement shall be governed by the laws of the State of Missouri." Western urges this court to construe this provision to mean the parties agreed that Missouri procedural law would govern any lawsuit based on the agreement. Western contends that the provision is ambiguous because it does not speak to the issue of whether Missouri is intended as the forum state, and therefore must be strictly construed against the drafter of the agreement, Mercantile. We disagree.

The fact that something is not specifically provided for in a contract does not, by itself, make the contract ambiguous. See Quenzer v. Quenzer, 225 Kan. 83, 85-86, 587 P.2d 880 (1978). Likewise, in this case, the fact that the provision does not address whether Missouri should be the forum state does not render the agreement ambiguous. Moreover, the provision is not ambiguous on its face; the language used in the provision is clear and cannot reasonably be understood to have multiple meanings. It requires no construction by the court, and thus the strict construction rule is inapplicable. See Thomas v. Thomas, 250 Kan. 235, Syl. p 3, 824 P.2d 971 (1992).

Western also makes an unsupported allegation that the individuals who entered into the contract were laymen who may have had a different understanding of the choice of law provision. Western argues it was error to grant summary judgment without receiving testimonial evidence regarding the parties' intent. However, Kansas law provides that "[w]hen a contract is plain and unambiguous, the parties' intent should be determined from the instrument." Metropolitan Life Ins. Co. v. Strnad, 255 Kan. 657, 662, 876 P.2d 1362 (1994). Moreover, to avoid summary judgment, Western has the burden of producing evidence sufficient to establish a genuine issue of material fact concerning the parties' intent. See Mitzner v. State Dept. of SRS, 257 Kan. 258, 260, 891 P.2d 435 (1995). No such evidence appears in the record. Western's argument fails.

" 'The general rule in respect to limitation of actions is that the law of the forum governs.' " Muzingo v. Vaught, 18 Kan.App.2d 823, 825, 859 P.2d 977 (1993). Statutes of limitation are procedural in nature. See Sun Oil Co. v. Wortman, 486 U.S. 717, 722-26, 108 S.Ct. 2117, 2121-24, 100 L.Ed.2d 743 (1988); Muzingo v. Vaught, 18 Kan.App.2d at 828, 859 P.2d 977. In conflict of laws situations, matters of procedure are usually considered to be subject to the law of the forum. Annot., 78 A.L.R.3d 639, 647.

Mercantile cites Chilson v. Capital Bank of Miami, 10 Kan.App.2d 111, 692 P.2d 406 (1984), aff'd 237 Kan. 442, 701 P.2d 903 (1985), for the proposition that general choice of law provisions relate only to substantive and not to procedural law. Chilson argued that Florida law provided the governing statute of limitations. Chilson based his argument on a provision in the Kansas Uniform Commercial Code, K.S.A. 84-4-102(2), which stated that in an action for mishandling a negotiable item, "liability ... is governed by the law of the place where the bank is located." Although basing its decision in the case on other grounds, the court noted in passing that Chilson's contention lacked merit. The court held: "The choice of law provision included in K.S.A. 84-4-102(2) relates only to the rules regarding liability in handling a negotiable item and not to the procedural restrictions on a lawsuit which vary in every state." 10 Kan.App.2d at 115, 692 P.2d 406.

The Chilson decision, while not directly on point with the facts of the case at bar, provides support for Mercantile's position. The Chilson court interpreted a general choice of law provision and concluded that it did not affect procedural law, such as a statute of limitations.

Although Kansas courts have not addressed this precise question, the prevailing authority indicates that, unless the parties expressly agree to apply the statute of limitations of another state, general choice of law provisions in contracts incorporate only substantive law and do not displace the procedural law of the forum state. See Phelps v. McClellan, 30 F.3d 658, 662 (6th Cir.1994); Gluck v. Unisys Corp., 960 F.2d 1168, 1179-80 (3d Cir.1992); Federal Deposit Ins. Corp. v. Petersen, 770 F.2d 141, 142-43 (10th Cir.1985); Des Brisay v. Goldfield Corp., 637 F.2d 680, 682 (9th Cir.1981). Western cites no authority to the contrary.

In the present case, the Merchant Agreement does not contain an express agreement to apply the Missouri statute of limitations. In accordance with the cited authority, we conclude that the choice of law provision in the Merchant Agreement does not displace Kansas procedural law. Therefore, the district court did not err in applying the Kansas statute of limitations.

Western contends that its action was timely filed under Kansas law. "The district court's interpretation of the statute of limitations for contract actions is a conclusion of law. This court's review of conclusions of law is unlimited. Hutchinson Nat'l Bank & Tr. Co. v. Brown, 12 Kan.App.2d 673, 674, 753 P.2d 1299, rev. denied 243 Kan. 778 (1988)." Edward Kraemer & Sons, Inc. v. City of Overland Park, 19 Kan.App.2d 1087, 1090, 880 P.2d 789 (1994).

K.S.A. 60-511(1) provides a 5-year statute of limitations for a cause of action based on a written contract. "The period for filing suit begins to run when the cause of action accrues." Edward Kraemer & Sons, Inc. v. City of Overland Park, 19 Kan.App.2d at 1089, 880 P.2d 789; see K.S.A. 60-510.

Western filed its petition on July 26, 1994. For Western's action to be timely, the 5-year statute of limitations must not have started running before July 26, 1989. The question is whether Western possessed a right to maintain a legal action before July 26, 1989, or whether the right of action did not arise until after July 26, 1989.

Western's petition states the basis for its cause of action. Western alleged that by freezing the bank accounts, Galleria prevented Western from being able to obtain merchandise and fill customer orders. Western also alleged that as a result of the frozen accounts, it could not pay its business expenses in a timely manner. These problems, which form the gravamen of Western's complaint, occurred in February and March 1989. In fact, by April 1989, Western had found another bank and established new accounts to replace the ones at Galleria. Clearly, Western's right to maintain a legal action arose before July 26, 1989.

Western points out that Galleria processed customer charge-backs through August 1989. In its petition, Western charged Galleria with failing to provide notice of customer charge-backs and complaints. Western alleged that Galleria should have afforded it the opportunity to address these customer problems.

Neither the Merchant Agreement nor the specific account agreements contain a provision requiring Galleria to give notice of customer charge-backs or complaints. Western admits that the obligation to notify was implied in its agreements with Galleria Bank. K.S.A. 60-512 provides a 3-year statute of limitations for actions based on implied contract obligations. See Zenda Grain & Supply Co. v. Farmland Industries, Inc., 20 Kan.App.2d 728, 740-45, 894 P.2d 881, rev. denied 257 Kan. 1096 (1995).

The last customer charge-back occurred in August 1989, over 3 years prior to the date the action was filed. Therefore, K.S.A. 60-512 bars Western's implied contract claims. It is well established that a trial court decision which reaches the right result will be upheld even though the trial...