Case Name: Ronald McKAY and wife, Georgia McKay, Plaintiffs-Appellants, v. The FARMERS AND STOCKMENS BANK OF CLAYTON, New Mexico, et al., Defendants-Appellees
Court: Court of Appeals of New Mexico
Jurisdiction: New Mexico
Decision Date: 1978-07-11
Citations: 92 N.M. 181
Docket Number: No. 3146
Parties: Ronald McKAY and wife, Georgia McKay, Plaintiffs-Appellants, v. The FARMERS AND STOCKMENS BANK OF CLAYTON, New Mexico, et al., Defendants-Appellees.
Judges: SUTIN, J., specially concurring.
Reporter: New Mexico Reports
Volume: 92
Pages: 181–186

Head Matter:
585 P.2d 325
Ronald McKAY and wife, Georgia McKay, Plaintiffs-Appellants, v. The FARMERS AND STOCKMENS BANK OF CLAYTON, New Mexico, et al., Defendants-Appellees.
No. 3146.
Court of Appeals of New Mexico.
July 11, 1978.
Rehearing Denied July 20, 1978.
Bill Cornett and James D. Durham, Jr., Durham & Cornett, Amarillo, Tex., for plaintiffs-appellants.
Alvin F. Jones, Roswell, for defendantsappellees.

Opinion:
OPINION
LOPEZ, Judge.
Appellants (the McKays) brought suit to recover monetary damages for tortious and wrongful acceleration of secured promissory notes held by the appellees, Farmers and Stockmens Bank of Clayton, et al. (the Bank). The Bank moved for summary judgment and their motion was granted. The McKays appeal and we reverse.
Appellants present one issue for reversal: that the trial court erred in granting appellees' motion for summary judgment because a material question of fact exists as to whether or not the Bank's foreclosure of appellants' secured promissory notes was in good faith.
Facts
The McKays executed several promissory notes to the Bank. Their notes came due on January 20, 1976; thereafter appellants were in default. On January 20, 1976, the Bank estimated that its security exceeded appellants' debt by approximately $20,-000.00. On February 13, 1976, the Bank reviewed the notes, extended the maturity date to April 1, 1976, and waived any prior default with regard to the past due status of the notes.
On March 3, 1976, however, the Bank deemed itself to be insecure; accelerated the maturity of the McKays' notes; declared them in default; took possession of the security (chattels mortgaged); and sold part of the security. The McKays' complaint seeks about $350,000.00 in damages and arose as a result of the acceleration of the secured promissory notes and the seizure and partial sale of the security.
Summary Judgment was Erroneously Granted
The McKays argue that the Bank was not, in good faith, insecure and that, therefore, the court erred in granting the motion for summary judgment. The Bank contends that it did in good faith deem itself insecure in the acceleration of the notes and that summary judgment was the proper method to dispose of the issues below.
The notes in question contain the following pertinent clauses:
At the option of the holder, the payment of all principal and interest due in accordance with the terms of this note will be accelerated and such principal and interest shall be immediately due and payable without notice or demand, upon the occurrence of any of the following events of default:
(a) when the holder hereof in good faith deems itself insecure
The New Mexico Uniform Commercial Code governs the acceleration of notes. Sections 50A-1-208 and 50A-1-201, N.M. S.A. 1953 (Repl. Vol. 8, pt. 1, 1962) are applicable:
Option to accelerate at will. — A term providing that one party or his successor in interest may accelerate payment or performance or require collateral or additional collateral "at will" or "when he-deems himself insecure" or in words of similar import shall be construed to mean that he shall have power to do so only if he in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against whom the power has been exercised. [Emphasis added]
Section 50A-1-201(19)
(19) "Good faith" means honesty in fact in the conduct or transaction concerned.
As stated above, § 50A-1-201, supra, requires the showing of a lack of good faith by the party against whom the power has been exercised. The New Mexico courts have not defined "good faith" beyond the statutory definition. The only discussion in this context with regard to "good faith" is this Court's ruling in Merchant v. Worley, 79 N.M. 771, 449 P.2d 787 (Ct.App.1969). That ruling served to reiterate the last sentence of § 50A-1-208, supra, that the burden of establishing the lack of good faith is on the debtor. The burden of proof set out in § 50A-1-208, supra, and discussed by this Court in Merchant v. Worley, supra, applied to a directed verdict and not to a motion on summary judgment. The burden of proof applied to the quantum of evidence and sufficiency of proof as to the lack of good faith after all the evidence was before the court. That burden of proof does not apply to a motion for summary judgment where the sole question before the court is whether a genuine issue of material fact exists. On the contrary, the burden of proof is on the movant to show the absence of a genuine issue of fact. Goodman v. Brock, 83 N.M. 789, 498 P.2d 676 (1972).
Although § 50A-1-208, supra, requires a showing of a lack of good faith by the party against whom the power to accelerate has been exercised, this does not mean that the non-movant has this same burden of proof on a motion for summary judgment.
As stated many times in this jurisdiction, summary judgment is a drastic remedy and is to be used with great caution. Pharmaseal Laboratories, Inc. v. Goffe, 90 N.M. 753, 568 P.2d 589 (1977); Zengerle v. Commonwealth Insurance of N.Y., 60 N.M. 379, 291 P.2d 1099 (1955).
The New Mexico Supreme Court, in Goodman v. Brock, supra, adopted the rule to be applied in determining whether a motion for summary judgment should be granted.
"[T]he party opposing the motion is to be given the benefit of all reasonable doubts in determining whether a genuine issue exists. If there are such reasonable doubts, summary judgment should be denied. A substantial dispute as to a material fact forecloses summary judgment."
The question before us is whether the evidence in the entire record shows that there exists material issues of fact as to the Bank's good faith or lack of good faith in the acceleration of the McKays' notes.
The Bank contends that the issue of good faith, or lack thereof, can be decided as a matter of law and is therefore amenable to a summary judgment. It argues that the question of fact involved in the determination of good faith on the part of the accelerating party is a no more unique or different question of fact than any other fact question and as such does not merit any different treatment on a motion for summary judgment. In support of its position, the Bank refers to Van Horn v. Van De Wol, Inc., 6 Wash.App. 959, 497 P.2d 252, 61 A.L.R.3d 241 (1972), and Fort Knox National Bank v. Gustafson, 385 S.W.2d 196 (Ky.1964). However, the court in Van Horn v. Van De Wol, Inc., supra, made a clear distinction between secured and unsecured creditors finding that a secured creditor must show more compelling facts because he is in a less precarious position than is an unsecured creditor. In contrast there is no question that the Bank is a secured creditor.
The court in Fort Knox, supra, construed the latter portion of § 1-208 of the Uniform Commercial Code as requiring the submission to the jury of the issue of good faith unless the evidence relating to it is no more than a scintilla, or lacks probative value having fitness to induce conviction in the minds of reasonable men. Although the court in Fort Knox held the evidence was so conclusive as to warrant a directed verdict on the issue of good faith, a directed-verdict is procedurally different from a motion for summary judgment, requiring of the trial court a different approach to the evidence.
Furthermore, "good faith" is not generally a question of law, but is usually a question of fact.
Ordinarily the question of whether the holder of the option to accelerate has or has not acted in good faith presents a question of fact for the trier of fact. Anderson, Uniform Commercial Code, § 1-208:15 (1970).
A summary of the conflicting evidence with all reasonable doubts resolved in favor of the non-moving party is as follows: When the Bank seized the security of appellants, the McKays were attempting to secure financing from other sources. The Bank refused to cooperate with the McKays in attempting to obtain the financing from other sources and mislead them by telling them they were ineligible for FHA government financing. The Bank's secured position with respect to appellants' property would be the same either before or after bankruptcy, thus it is questionable as to whether the Bank could have believed and did believe that a default had occurred by a mere suggestion of bankruptcy. The value of the Bank's security in the McKays' property was greater than their indebtedness, and the Bank had agreed to continue its support of the McKays.
We hold the evidence was sufficient to create a reasonable doubt as to the existence of a genuine issue, thus precluding summary judgment.
We conclude that the trial court erred in granting the summary judgment. Summary judgment is reversed and the cause is remanded for proceedings consistent with this opinion.
IT IS SO ORDERED.
SUTIN, J., specially concurring.
HERNANDEZ, J., dissenting.