Court Opinion

ID: 9561957
Source: CourtListenerOpinion
Date Created: 2023-08-21 18:19:39.180423+00
Date Added: 2024-06-11T09:17:08.716330
License: Public Domain

The opinion of the court was delivered by
Prager, J.;
This is a dispute between two judgment creditors and a garnishee bank over funds held by the bank in the defendant Lloyd’s bank account. In answer to the garnishment, the garnishee bank responded that it had no funds of the defendant because it had exercised its right of setoff against the defendant’s account. The plaintiff creditors contended that the setoff was wrongful. The district court held in favor of the bank. The plaintiffs then appealed, and the Court of Appeals affirmed in a published opinion in Karner v. Willis, 10 Kan. App. 2d 432, 700 *247P.2d 582 (1985). The Supreme Court granted the plaintiffs’ petition for review.
The facts in the case were undisputed and essentially were as follows: On March 15, 1983, the plaintiffs, Herbert and Ruth Karner, obtained a judgment against the defendants, Willis and Lloyd, in the sum of $58,352.40 in the State of Oklahoma. On April 4, 1983, a duly authenticated copy of the Oklahoma judgment was filed in the district court of Ellsworth County. On August 3, 1983, an order of garnishment was issued by the district court of Ellsworth County directed to the Citizens State Bank of Ellsworth and the Kanopolis State Bank of Kanopolis. By mistake, a sheriff s deputy served the garnishment addressed to the Citizens State Bank on the Kanopolis State Bank. Dale E. Hoosier, vice-president of Kanopolis State Bank, who received the garnishment, called the Ellsworth County sheriffs department and notified them that he had been served with a garnishment directed to the Citizens State Bank. The dispatcher of the sheriff s department notified the deputy of the mistake, and he immediately returned to the Kanopolis State Bank and exchanged the Citizens State Bank garnishment for the garnishment directed to the Kanopolis State Bank.
During the interim period, Dale E. Hoosier, acting on behalf of the Kanopolis State Bank, exercised a setoff against the account of the defendant debtor, Lloyd. In the Court of Appeals opinion, the Kansas statutes which control the right of a creditor bank to accelerate the maturity of a debt and to exercise a right of setoff against the debtor’s account are discussed. Simply stated, K.S.A. 84-1-208 states that a contractual term providing that a party may accelerate payments or performance “when he deems himself insecure” or in words of similar import shall be construed to mean that he shall have the power to do so only if he in good faith believes that the prospect of payment or performance is impaired.
In the present case, the defendant debtor was indebted to the bank on a note which contained a provision which permitted the bank to accelerate the maturity of the debt if it deemed itself insecure. The trial court, in effect, found that the garnishee bank had acted in good faith in accelerating the debt and in setting off the note against the debtor’s bank account.
The Court of Appeals viewed the basic issue on appeal to be *248whether there was substantial competent evidence in the record to support the findings of the trial court that, at the time the bank executed the setoff, it in good faith believed that the prospect of payment of the note was impaired. The Court of Appeals affirmed on the basis that “good faith” was a fact issue which the trial court resolved in the bank’s favor, and found there was substantial competent evidence to support the trial court’s findings.
When the trial court has made findings of fact and conclusions of law, the scope of appellate review is for this court to determine whether the trial court’s findings are supported by substantial competent evidence. Woods v. Midwest Conveyor Co., 236 Kan. 734, Syl. ¶ 2, 697 P.2d 52 (1985). The appellate court will not weigh the evidence or pass upon the credibility of the witnesses. The reviewing court must review the evidence in the light most favorable to the party prevailing below. Marcotte Realty & Auction, Inc. v. Schumacher, 229 Kan. 252, 254, 624 P.2d 420 (1981).
At the hearing of this case, the only witness who testified was Dale E. Hoosier, the vice-president of the garnishee, Kanopolis State Bank. Hoosier testified that the day before the garnishment was served, the bookkeeper for the debtor depositor had been to the bank and requested signature cards to change the account name and signatures. Hoosier was aware of the Oklahoma judgment filed in Ellsworth County against the debtor earlier that year. At the time he made the setoff, he did not actually know whether the debtor was insolvent or not. The debtor had not been delinquent on any payments and was current on August 3, 1983, when the setoff was made. Mr. Hoosier testified that he deemed the bank was impaired in its security because the garnishment would have resulted in the sum of $40,000 being taken from the debtor’s operating account as a farm implement dealer and, as a result, “he would have had no liquidity to operate.” The bank records showed that on August 16, 1983, 13 days after the setoff, the bank loaned the debtor an additional $50,000, but in the interim period the debtor had paid $99,000 on the loan and pledged his used farm equipment as additional collateral.
In its opinion, the Court of Appeals recognized that there certainly was evidence presented that, viewed objectively, the *249bank was not insecure, but that the test of good faith dictated by K.S.A. 84-1-208 is subjective and requires only honesty in fact. Iola State Bank v. Bolan, 235 Kan. 175, 183, 679 P.2d 720 (1984); and K.S.A. 84-1-201(19). The Court of Appeals then applied the subjective test required by the statute and concluded that the trial court’s finding of good faith was supported by substantial competent evidence. The majority of this court has concluded from the record that the Court of Appeals correctly determined the issue.
The judgment of the district court is affirmed. The judgment of the Court of Appeals is affirmed.