Opinion ID: 2463825
Heading Depth: 1
Heading Rank: 2

Heading: enforceable default

Text: Hall does not contest that his filing of a bankruptcy petition constituted a default under the specific provisions of the contract, which included the following default provision: I. Default: You will be in default if: 1. You do not make a payment when it is due; or 2. You gave false or misleading information on your credit application relating to this contract; or 3. Your vehicle is seized by any local, state, or federal authority and is not promptly and unconditionally returned to you; or 4. You file a bankruptcy petition or one is filed against you; or 5. You do not keep any other promise in this contract. If you do not cure the default where allowed by law, Creditor can exercise Creditor's rights under this contract and Creditor's other rights under the law. (Emphasis added.) However, under this State's version of the UCCC, not all contractual default provisions are enforceable. The UCCC's default constraint is contained in K.S.A. 16a-5-109, which provides: An agreement of the parties to a consumer credit transaction with respect to default on the part of the consumer is enforceable only to the extent that (1) the consumer fails to make a payment as required by agreement; or (2) the prospect of payment, performance, or realization of collateral is significantly impaired; the burden of establishing the prospect of significant impairment is on the creditor. The official comment to the provision explains the reason for limiting contractual default provisions and describes the two circumstances which might constitute default on an installment obligation: 1. One of the vital terms of every consumer credit agreement is that which sets forth the criteria which will constitute default. By its nature `default' is not a term that is negotiated by the partiesit is generally controlled by the creditor. It is appropriate, therefore, that its content and implications be confined by the law so as to prevent abuse. This section is intended to accomplish that. 2. This section recognizes that there are two entirely distinct sets of circumstances which might constitute default on an installment obligation. The first and most common is the failure to pay an installment as required. A default of this type is susceptible of being cured by the consumer without impairing a continuing contractual relationship between the consumer and the creditor. See K.S.A. 16a-5-110. The second type of default relates to behavior of the consumer which endangers the prospect of a continuing relationship. It may be insolvency, illegal activity, or an impending removal of assets from the jurisdiction. There must, however, be circumstances present which significantly impair the relationship .... The burden of proof is on the creditor to justify action on a claim of default of this type. (Emphasis added.) K.S.A. 16a-5-109 (comment). Ford Credit did not claim that Hall failed to pay a required installment. Therefore, to enforce the contractual default provision, Ford Credit had to establish that it fit within the significant impairment provision of K.S.A. 16a-5-109(2). Hall contends that Ford Credit did not carry that burden.