Wichita Computer & Supply, Inc. v. Mulvane State Bank

• Decision Date: 22 February 1991
• Docket Number: No. 65082,65082
• Citation: 15 Kan.App.2d 258,805 P.2d 1255
• Parties: WICHITA COMPUTER & SUPPLY, INC., a Kansas Corporation, Appellant, v. MULVANE STATE BANK, a Kansas Corporation, Appellee.
• Court: Kansas Court of Appeals

Page 1255

805 P.2d 1255

15 Kan.App.2d 258

WICHITA COMPUTER & SUPPLY, INC., a Kansas Corporation, Appellant, v. MULVANE STATE BANK, a Kansas Corporation, Appellee.

No. 65082.

Court of Appeals of Kansas.

Feb. 22, 1991.

Review Denied April 23, 1991.

Syllabus by the Court

1. In order to entertain an action for declaratory judgment, there must be an actual controversy. K.S.A. 60-1701. Implicit in this requirement is that Kansas courts will not render advisory opinions on abstract or moot questions of law.

2. Whether a dispute rises to the level of an actual controversy is one of degree, and the entertainment of the action rests within the discretion of the trial court.

3. The two principal criteria guiding the policy in favor of rendering declaratory judgments are (1) whether the judgment will serve a useful purpose in clarifying and settling the legal relations in issue and (2) whether the judgment will terminate the proceeding and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.

4. Declaratory judgments should not be used to try particular issues without settling the entire controversy, to anticipate issues in a court of coordinate jurisdiction, or for the purpose of relitigating legal issues which have already been decided by a tribunal in which an actual controversy exists and from which an appeal can be taken.

5. The record is examined in a declaratory judgment action where the trial court was asked to determine the applicability of K.S.A. 84-3-406 and burden of proof issues previously considered by another court in an action between the same parties. That action was then dismissed without prejudice at the request of this plaintiff prior to filing the present action. For the reasons set out in the opinion, it is held that (1) a declaratory judgment action was not a proper avenue for determining the applicability of K.S.A. 84-3-406/burden of proof issues and (2) the court's entertaining of the action was an abuse of discretion.

John C. King and Linda D. King of King & King, P.A., Wichita, for appellant.

Jay C. Hinkel and Alan V. Johnson of Sloan, Listrom, Eisenbarth, Sloan & Glassman, Topeka, for appellee.

Before BRAZIL, P.J., and DAVIS and LARSON, JJ.

BRAZIL, Presiding Judge:

Wichita Computer & Supply, Inc., (Wichita Computer) appeals entry of judgment in favor of Mulvane State Bank (Bank) in a declaratory action involving the applicability of K.S.A. 84-3-406 in an action concerning an unauthorized drawer's signature. We reverse and remand with directions.

The facts are not in dispute. Wichita Computer maintained a checking account at Bank. In 1986, Wichita Computer's bookkeeper obtained checks without authority, made the checks payable to herself through a "dummy" business by forging Wichita Computer's president's signature, and deposited the checks in her bank. The bookkeeper had unsupervised full access to and responsibility for all financial functions of Wichita Computer. Over a period of eight months, eleven forged checks totaling $37,089.70 were paid from the account. The first two forged checks were paid by Bank prior to Wichita Computer receiving the monthly bank statement containing any of the forgeries. The first notice provided by Wichita Computer to Bank of specific forged checks designated by check number and amount occurred by letter dated March 20, 1987.

Upon noticing the forged checks, Wichita Computer demanded to have its account credited with the amount of the checks, relying on K.S.A. 84-4-401(1) (checks not properly payable) and on K.S.A. 84-4- 406(3) (lack of ordinary care in paying the items). Bank's refusal to credit the account was based in part on K.S.A. 84-3-406 (customer's negligence contributing to the making of the unauthorized check).

Wichita Computer filed a civil action in 1988, which the district court dismissed without prejudice at Wichita Computer's request. K.S.A. 60-241(a)(2). Wichita Computer then filed a declaratory action seeking to determine the applicability of K.S.A. 84-3-406. The district court granted judgment for Bank, finding that "defendant should be allowed to pursue at trial defenses under both K.S.A. 84-4-406 and K.S.A. 84-3-406."

As phrased by Wichita Computer, the issue on appeal is "[w]hether the district court erred in holding that a bank which is liable to its customer if bank lacked ordinary care in paying checks over unauthorized signatures may shift that loss to its customer under K.S.A. 84-3-406." In short, should Bank be allowed to use K.S.A. 84-3-406 as a defense?

However, based on its brief and oral argument, what Wichita Computer sees as the real conflict between the statutes is that, under K.S.A. 84-3-406, Bank must establish that it acted in a commercially reasonable manner and, under K.S.A. 84-4-406, the customer has to establish that Bank failed to act in a commercially reasonable manner. Therefore, if both K.S.A. 84-4-406 and K.S.A. 84-3-406 are allowed to be raised in the same action, the question is which party has the burden of proving the commercial reasonableness of Bank's action. For whatever its reason, the trial court did not decide the burden of proof issue; the journal entry only indicated that both statutes may be argued--not who has the burden of proof.

This same issue (applicability of K.S.A. 84-3-406/burden of proof) was submitted to the trial court in the 1988 civil action, apparently about one week before the trial was scheduled to begin. The judge in that case refused to give Wichita Computer a ruling until after the presentation of evidence, prompting Wichita Computer to dismiss that case without prejudice and file the instant declaratory judgment action.

Based upon this procedural background, this panel has, on its own motion, raised the question of whether the district court abused its discretion by entertaining this declaratory judgment action.

In order to entertain an action for declaratory judgment, there must be an "actual controversy." K.S.A. 60-1701. Implicit in this requirement is that Kansas courts "will not render advisory opinions on abstract or moot questions of law." 2 Gard's Kansas C.Civ.Proc.2d Annot. § 60-1701 (1979). See Cady v. Cady, 224 Kan. 339, 345, 581 P.2d 358 (1978); 22A Am.Jur.2d, Declaratory Judgments §§ 33, 38.

Whether a dispute rises to the level of an actual controversy is one of degree, and the entertainment of the action rests within the discretion of the trial court. Mechling Barge Lines v. U.S., 368 U.S. 324, 331, 82 S.Ct. 337, 341-42, 7 L.Ed.2d 317 (1961) (declaratory relief "committed to judicial discretion"); Md. Casualty Co. v. Pacific Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941) (difference between abstract question and controversy is one of degree). "Such discretion, however, is not unlimited. The Court must exercise 'sound' discretion [citation omitted] in accordance with the purposes of the Declaratory Judgments Act." Ohio Cas. Co. v. Jackson County Bank, 562 F.Supp. 1165, 1167 (W.D.Wis.1983). The exercise of discretion by the trial court will not be disturbed on appeal absent a clear showing of abuse of discretion. Duggins v. Hunt, 323 F.2d 746, 748 (10th Cir.1963); 22A Am.Jur.2d, Declaratory Judgments § 17, p. 684.

"Judicial discretion is abused when judicial action is arbitrary, fanciful or unreasonable, which is another way of saying that discretion is abused only where no reasonable [person] would take the view adopted by the trial court. If reasonable [persons] could differ as to the propriety of the action taken by the trial court then it cannot be said that the trial court abused its discretion. All judicial discretion must thus be considered as exercisable only within the bounds of reason and justice in the broader sense, and only to be abused when it plainly overpasses those bounds." Stayton v. Stayton, 211 Kan. 560, 562, 506 P.2d 1172 (1973).

" 'The two principal criteria guiding the policy in favor of rendering declaratory judgments are (1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.' " 10A Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 2759, pp. 647-48 (1983).

See 22A Am.Jur.2d, Declaratory Judgments § 39. Declaratory judgments "should not be accorded ... to try a controversy by piecemeal, or to try particular issues without settling the entire controversy." Aetna...