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108315

First National Bank of Omaha v. Centennial Park, LLC, et al.

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No. 108,315

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

FIRST NATIONAL BANK OF OMAHA,
as successor by merger to FIRST NATIONAL BANK OF KANSAS,
Appellee,

v.

CENTENNIAL PARK, LLC, et al.
(CENTENNIAL PARK, LLC, BRADLEY D. VINCE, RICHARD H. SAILORS),
Appellants.


SYLLABUS BY THE COURT

1.
Under Kansas law, the application of an equitable doctrine rests within the sound
discretion of the trial court.

2.
A judicial action constitutes an abuse of discretion if the action: (1) is arbitrary,
fanciful, or unreasonable; (2) is based on an error of law; or (3) is based on an error of
fact.

3.
An abuse of discretion occurs if discretion is guided by an erroneous legal
conclusion or goes outside the framework of or fails to consider proper statutory
limitations or legal standards.

4.
The party asserting that the trial court abused its discretion bears the burden of
showing this abuse of discretion.
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5.
Generally, courts may invoke equitable principles to relieve a mortgagor from
acceleration of the maturity of a debt secured by a mortgage or deed of trust. Even so,
courts should use their power to refuse to accelerate the maturity of a debt on equitable
grounds sparingly and should refuse to foreclose a mortgage only under certain clearly
defined circumstances.

6.
Courts also may use equity to relieve the mortgagor against acceleration where the
default results from accident, mistake, or where strict enforcement of acceleration would
impose an inconceivable hardship on the mortgagor and give the mortgagee an
unconscionable advantage.

7.
Under the principles of contract law, the doctrine of substantial performance
provides that a party's performance may be considered complete if the essential purpose
of the contract is accomplished and that party has made a good-faith attempt to comply
with the terms of the agreement even though he or she fails to meet the precise terms of
the agreement.

8.
Substantial performance is the antithesis of material breach. If it is determined that
a breach is material, it follows that substantial performance has not be rendered.

9.
A material breach is one where the promisee receives something substantially less
or different than what he or she bargained for.

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10.
The doctrine of substantial performance does not apply where a breach is willful.
The willful transgressor must accept the penalty of his or her transgression.

11.
The legal effect of a written instrument is a question of law. It may be construed
and its legal effect determined by an appellate court regardless of the construction made
by a trial court.

12.
Promissory notes and mortgages are contracts between the parties, and the
ordinary rules of construction applicable to contracts apply to them.

13.
Under Kansas Law, waiver is an intentional relinquishment of a known right and
intention may be inferred from conduct.

14.
Generally, a mortgagee's acceptance of a late or partial payment will result in a
waiver of the right to declare default and accelerate a debt because of the lateness of that
payment.

15.
A past practice of excusing defaults occasioned by late payments may under
certain circumstances be construed as an implied waiver of an acceleration clause.

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16.
When the language of a contract states an unambiguous anti-waiver provision, no
inference of such a waiver can be drawn and acceptance of a late payment does not waive
a mortgagee's contractual right to accelerate the loan after default.

17.
Under Kansas law, the duty of good faith and fair dealing is implied in every
contract, with the exception of employment-at-will contracts. The duty requires that
contractual parties refrain from intentionally doing anything to prevent the other party
from carrying out his or her part of the agreement or from doing anything which will
have the effect of destroying or injuring the right of the other party to receive the fruits of
the contract.

18.
Whether the good faith standard was met is a question of fact. Nevertheless, when
the underlying facts are undisputed, a court may determine whether the implied covenant
of good faith and fair dealing was violated.

Appeal from Johnson District Court; GERALD T. ELLIOTT, judge. Opinion filed March 22, 2013.
Affirmed.

Paul D. Sinclair, Brendan L. McPherson, and Miriam E. C. Bailey, of Polsinelli Shughart PC, of
Kansas City, Missouri, for appellants Centennial Park LLC and Bradley Vince.

R. Douglas Gentile and Jeffrey D. Rowe, of Douthit Frets Rouse Gentile & Rhodes, LLC, of
Kansas City, Missouri, for appellant Richard H. Sailors.

Jennifer K. Vath, of SNR Denton US LLP, of Kansas City, Missouri, for appellee.

Before ARNOLD-BURGER, P.J., GREEN, J., and HEBERT, S.J.
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GREEN, J.: On appeal, the defendants, Centennial Park, LLC, Bradley D. Vince,
and Richard H. Sailors, challenge the trial court's summary judgment granted in favor of
First National Bank of Omaha as successor by merger to First National Bank of Kansas
(FNB). Specifically, the defendants raise four arguments on appeal: (1) that equitable
principles should have prevented FNB from accelerating the defendants' loan debt
obligation even though FNB was entitled to accelerate the loan under the terms of the
promissory note; (2) that the trial court erred when it found that the defendants had not
substantially performed under the terms of the loan documents and therefore had
committed a material breach of the contract; (3) that FNB waived its right to accelerate
the loan debt when it accepted the defendants' late payment of $9,349 by depositing the
check in its account; and (4) that FNB breached the implied covenant of good faith and
fair dealing when it sent the defendants a billing statement requiring a principal payment
of $1,350,000. We disagree.

First, the equitable principle that the defendants rely on—mistake—does not apply
here because there was no mistake made. Second, the trial court correctly held that the
defendants had not substantially performed under the terms of the note and the loan
documents, and, therefore, had materially breached the contract. Third, FNB did not
waive its right to accelerate the loan debt when it accepted the defendants' late payment
because the parties' note contained multiple anti-waiver provisions. Finally FNB did not
breach the implied covenant of good faith and fair dealing when it sent the defendants a
billing statement requiring a principal payment of $1,350,000. Even though the trial court
determined that the defendants did not owe a principal payment of $1,350,000 on April
10, 2010, the trial court found that Centennial Park owed an unpaid balance of
$176,880.57 on that date. Accordingly, we affirm.

Generally, the underlying facts of this case are undisputed. On May 7, 2008, FNB
entered into a loan agreement with the defendants. The defendants wanted this loan to
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start a commercial real estate development project located on the borders of Johnson
County, Kansas, and Jackson County, Missouri. Under the terms of the promissory note
(note), FNB agreed to loan the defendants $9,716,600. The note contained the following
payment terms:

"(1) Monthly installments of accrued and unpaid interest shall be due and payable on the
tenth day of each month commencing with the payment due on May 10, 2008; (2) A
principal payment in a minimum amount of $1,350,000.00 on or before April 10, 2010;
and (3) A final payment of all unpaid principal and all accrued and unpaid interest shall
be due and payable April 10, 2011."

The note was secured by a document entitled "Amended And Restated First
Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing" that
was signed by the defendants' manager on May 7, 2008. The parties also executed other
loan documents that day, including: a construction loan agreement and personal
guarantees executed by Centennial Park's managing members, Bradley D. Vince and
Richard Sailors. Centennial Park and the guarantors did not negotiate any changes to the
documents previously listed before they were signed by the parties. Under the terms of
the construction loan agreement, FNB agreed to release part of its collateral each time
lots in the development were sold in exchange for 75 percent of the net proceeds of sale.
For more than a year, the parties' relationship continued as planned.

By the end of the second anniversary of the loan, May 7, 2010, the defendants had
paid FNB $1,173,119.43 in principal payments. On March 31, 2010, FNB sent
Centennial Park an automated invoice statement that indicated a payment of $1,350,000
was required for "Current Principal." After Centennial Park received the statement,
defendant Vince, a Centennial Park managing member, contacted FNB's vice president,
Christopher Willis, to ask about the statement. Willis told defendant Vince that he was
unaware of the statement and that he was surprised such an amount would be due. The
next morning, Willis sent an email to defendant Vince's attorney. In the email, Willis
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changed his position from the previous day. Specifically, Willis stated that his previous
recollection on whether a $1,350,000 principal payment was required was "faulty" and he
"did not remember this principal reduction payment, but it was clearly required by the
terms of the Note."

The defendants failed to make any additional payments on the loan on or before
April 10, 2010. Because the terms of the defendants' note required a minimum principal
payment of $1,350,000 on or before April 10, 2010, and it had paid only $1,173,119.43,
the defendants were in default according to the terms of the note. Although the terms of
the note gave FNB the authority to accelerate the loan immediately after default and
without notice, FNB did not accelerate the loan debt on April 10, 2010.

On April 23, 2010, FNB received the proceeds of a lot sale in Centennial Park's
development project in the amount of $167,531.49. The proceeds brought the defendants'
total principal paid balance to $1,340,650.80, which was $9,349 short of the amount that
was due on April 10, 2010. On May 17, 2010, FNB sent the defendants a default letter
stating that their account was delinquent for its failure to pay $1,350,000 on April 10,
2010. Even so, FNB still did not accelerate the loan then. Instead, FNB told the
defendants that they would be allowed to cure the default by delivering a plan, acceptable
to FNB, at its sole discretion, to cure the default on or before May 31, 2010. The letter
also told the defendants that FNB would accelerate the loan debt on May 31, 2010,
without further notice if the defendants failed to deliver an acceptable plan. Although the
defendants offered a plan to cure the default, FNB apparently did not feel that the plan
was acceptable, and on June 1, 2010, FNB told the defendants that it was accelerating the
loan debt.

On September 17, 2010, defendant Vince's attorney sent FNB's attorney a letter
concerning the payment dispute along with a check for $9,349.20. The check represented
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the difference between $1,350,000 and $1,340,650.80 before FNB accelerated the loan on
June 1, 2010. FNB accepted the check and deposited it in its account.
On August 6, 2010, FNB sued Centennial Park and it guarantors, Vince and
Sailors. Eventually, defendants Centennial Park, Vince, and Sailors, collectively moved
for summary judgment. FNB then filed a competing motion for summary judgment. After
the trial court conducted multiple hearings, it granted FNB's summary judgment motion
and denied Centennial Park's summary judgment motion. The trial court's final judgment
order granted FNB the following: (1) damages of $7,239,654.14 (principal), $550,587.57
(accrued interest), $1,659.087 (per diem interest), and $123,071.62 (attorney fees and
costs) against Centennial Park; (2) judicial foreclosure of the Kansas portion of the
Centennial Park property; and (3) damages of $7,239,654.14 (principal), $550,587.57
(accrued interest), $1,659.087 (per diem interest), and $123,071.62 (attorney fees and
costs) against defendants Vince and Sailors, jointly and severally.

After an additional hearing, the trial court denied defendants Centennial Park,
Vince, and Sailors' motion to reconsider.

Should equitable principles have prevented FNB from accelerating the defendants' loan
debt obligation even though FNB was entitled to accelerate the loan based on the terms
of the promissory note?

The defendants first argue that the trial court erred when it refused to prevent
acceleration of its loan debt obligation under equity principles. Conversely, FNB
maintains that the undisputed material facts defeat the defendants' equity arguments and
that the trial court did not abuse its discretion when it denied the defendants' equity
arguments.

The defendants expressly concede in their brief that they technically defaulted on
their loan obligation on April 10, 2010: "It was clear error for the district court not to
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alleviate [the defendants] from this technical default." The defendants' concession is
supported by the record on appeal. As mentioned earlier, paragraph three of the note
provided that "a principal payment in a minimum amount of $1,350,000.00 [was due] on
or before April 10, 2010." (Emphasis added.) Moreover, paragraph seven of the note
provided: "This Note shall be in default upon the occurrence of any one of the following
events ('Event of Default'): (a) if any payment of principal or interest is not made when
the same becomes due and payable."

By April 10, 2010, the defendants had paid only $1,173,119.43 in principal
payments. Because the terms of the defendants' note required a minimum principal
payment of $1,350,000 on or before April 10, 2010, and they had not paid that amount,
the defendants were in default under the note when they failed to pay the amount due on
that date. After default, FNB was allowed to accelerate the loan debt obligation under the
note's acceleration clause, which stated the following:

"If this Note is in default, then upon and after such default the holder hereof shall have
the right, exercisable at such holder's discretion, to declare the entire unpaid principal
amount and all accrued interest due hereunder immediately due and payable without
notice . . . to the undersigned, and [FNB] shall have all the remedies available to it at law
or in equity for the collection of the amounts due. Failure at any time to exercise this
option shall not constitute a waiver of the right to exercise the same at any other time."
(Emphasis added.)

FNB did not accelerate the loan debt obligation immediately, and on April 23, 2010, FNB
received the proceeds of a lot sale in Centennial Park's development project in the
amount of $167,531.49. Even so, Centennial Park's proceeds still did not bring its
principal payments to the amount required under the note, and after notice from FNB,
FNB accelerated the loan on June 1, 2010.

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The defendants do not dispute that the terms of the promissory note allowed FNB
to accelerate the loan balance after default. Instead, the defendants maintain that FNB
should have been prohibited from accelerating the loan under equitable principles.
Specifically, the defendants argue that the trial court should have disallowed the
acceleration here because of FNB's "accident, mistake, or inequitable conduct." Thus, we
must answer the following question: Did equitable principles prevent FNB from
accelerating the defendants' loan debt obligation even though it was entitled to accelerate
the loan under the terms of the note?

Under Kansas law, "the application of an equitable doctrine rests within the sound
discretion of the trial court. [Citation omitted.]" National City Mortgage Co. v. Ross, 34
Kan. App. 2d 282, 287, 117 P.3d 880, rev. denied 280 Kan. 984 (2005). A judicial action
constitutes an abuse of discretion if the action: (1) is arbitrary, fanciful, or unreasonable;
(2) is based on an error of law; or (3) is based on an error of fact. State v. Ward, 292 Kan.
541, 550, 256 P.3d 801 (2011), cert. denied 132 S. Ct. 1594 (2012) (criminal); Critchfield
Physical Therapy v. The Taranto Group, Inc., 293 Kan. 285, 292, 263 P.3d 767 (2011)
(civil). Moreover, an abuse of discretion occurs if discretion is guided by an erroneous
legal conclusion or goes outside the framework of or fails to consider proper statutory
limitations or legal standards. O'Brien v. Leegin Creative Leather Products, Inc., 294
Kan. 318, 331, 277 P.3d 1062 (2012) (civil); State v. Woodward, 288 Kan. 297, 299, 202
P.3d 15 (2009). The party asserting that the trial court abused its discretion bears the
burden of showing this abuse of discretion. State v. Wells, 289 Kan. 1219, 1226, 221 P.3d
561 (2009).

Generally, courts may invoke equitable principles to relieve a mortgagor from
acceleration of the maturity of a debt secured by a mortgage or deed of trust. 59 C.J.S.,
Mortgages § 681. Even so, courts should use their power to refuse to accelerate the
maturity of a debt on equitable grounds sparingly and should refuse to foreclose a
mortgage only under certain clearly defined circumstances. 59 C.J.S., Mortgages § 681.
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When making this determination, courts generally have considered the following factors:
(1) the conduct of the parties; (2) the amount paid in reduction of the debt; and (3) the
improvements made on the property by the mortgagor. 59 C.J.S., Mortgages § 681.
Courts also may use equity to provide relief to the mortgagor against acceleration where
the default results from accident, mistake, or where strict enforcement of acceleration
would impose an inconceivable hardship on the mortgagor and give the mortgagee an
unconscionable advantage. 59 C.J.S. Mortgages § 681; see also Greenberg v. Service
Business Forms Industries, 882 F.2d 1538, 1542 (10th Cir. 1989) ("a court in equity can
relieve a debtor from the hardship of acceleration based on accident, mistake, fraud, or
inequitable conduct of the creditor").

While there seems to be no Kansas precedent involving the defendants' particular
argument, Kansas law recognizes similar equitable principles. Specifically, our Supreme
Court has stated the following:

"[I]f the default was induced by the fraudulent or inequitable conduct of the creditor, or
by any agreement or promise upon which the debtor might rely which operated to
mislead or throw the debtor off his guard, a court of equity would interfere to stay
proceedings, or the action might be abated upon the facts being properly pleaded." Snyder
v. Miller, 71 Kan. 410, 421, 80 P. 970 (1905).

When the trial court made its decision below, it adopted the equitable principles
listed in Greenberg, stating that it had "traced the legal basis in Greenberg to its origin,
and finds that the accident, mistake, fraud or inequitable conduct of the creditor
exceptions to acceleration are sensible."

In the absence of direct authority, we will draw guidance from several factors in
determining whether equitable principles should be used to relieve a mortgagor from
acceleration after default. The factors are the following: (1) the conduct of the parties; (2)
the amount paid in reduction of the debt; and (3) the improvements made on the property
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by the mortgagor. Moreover, a court should consider whether the default resulted from
accident, mistake, or inequitable conduct of the mortgagee. Nevertheless, as stated
earlier, courts should use their power to refuse to accelerate the maturity of a debt on
equitable grounds sparingly and should refuse to foreclose a mortgage only under limited
circumstances.

There was confusion below about the repayment schedule for the note. FNB
believed that a lump sum payment of $1,350,000 was due on April 10, 2010. The
defendants questioned this payment amount when they received the March 31, 2010,
statement. Then, according to defendant Vince's affidavit, Willis told him that he was
unaware of any billing for principal reduction and that he was surprised that a lump sum
$1,350,000 payment would be due. But Willis changed his position the following day
after he was contacted by defendant Vince's counsel, Brandon Ferguson.

In an email sent to Ferguson, Willis stated the following:

"Brandon,
"I am in meetings this morning. However, I will forward to you a copy of the Amended
and Restated Promissory Note. My recollection on this question was faulty. I did not
remember this principal reduction payment, but it is clearly required by the terms of the
Note. We will get the copy of the Note to you today.

"Chris Willis."

When the default occurred, FNB interpreted the loan documents to require a full
$1,350,000 payment, not a payment of $1,350,000 less lot sale proceeds to date. On the
other hand, the defendants contended, and the trial court later agreed, that the loan
documents as a matter of law required the latter (a payment of $1,350,000 less lot sale
proceeds to date), leaving an unpaid amount due of $176,880.57 on April 10, 2010. In
later briefing and bankruptcy court litigation, FNB accepted the trial court's ruling.
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Nevertheless, FNB pointed out that the defendants had failed to pay the shortfall amount
of $176,880.57. Moreover, FNB noted that the defendants had presented no evidence that
FNB had hindered them from making that payment.

The defendants assert that they did not make the $176,880.57 payment because
they disagreed with the automated billing statement. Nevertheless, the automated
monthly billing statements did not waive the requirements of the note. The parties
expressly agreed in the note that any waiver must be signed by the holder. Moreover, the
note also stated in the middle of page 2 that FNB would simply "attempt" to notify the
borrower of amounts due, but "the failure to give such notice will not affect the
obligation of the undersigned to pay the principal and interest due."

The trial court summarized the billing statement in this way:

"And there just simply isn't any evidence that anything the bank did, even the 3/31/10
billing statement . . . There is just no reason to believe that what the bank did resulted in
the default. And that's where the law is. So there is no basis for the application of an
equity defense preventing acceleration in this case." (Emphasis added.)

Equity cannot excuse Centennial Park's failure to pay because none of the
equitable principles that it relies on are present here, as the trial court ruled that,
notwithstanding the various asserted defenses, no basis existed for the application of an
equity defense preventing acceleration in this case. Moreover, the trial court pointed out
that "[t]here is no evidence of an honest endeavor in good faith on the part of the
defendant to pay that amount of money on 4/10/10."

Further, Centennial Park's classification as a commercial entity also supports the
position that equity should not be invoked here. As a commercial entity, Centennial Park
was in a better position than a consumer would have been in a similar situation. Cf.
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Medling v. Wecoe Credit Union, 234 Kan. 852, 678 P.2d 1115 (1984) ("It cannot be
denied that the more sophisticated debtor is in a better position to grapple fairly with the
creditor . . . ."). Indeed, as a commercial entity, Centennial Park could have negotiated
terms more favorable to it.

The record does not indicate that the defendants made any attempt to pay the
amount that it believed it owed. For instance, the defendants could have done any of the
following: tendered the $176,880.57 to FNB while informing them that it was disputing
the $1,350,000 lump sum payment; placed the $176,880.57 in escrow until it resolved the
payment dispute; or filed suit and offered the money to the court until the dispute was
decided. The defendants did not take any of these actions.

Because Centennial Park failed to pay the amount due of $176,880.57 by April 10,
2010, the trial court properly rejected the use of its equitable powers to prevent the
acceleration of the defendants' loan balance.

Did the trial court err when it found that the defendants had not substantially performed
under the terms of the loan documents and therefore had committed a material breach?

Under the principles of contract law, the doctrine of substantial performance
provides that a party's performance may be considered complete if the essential purpose
of the contract is accomplished and that party has made a good-faith attempt to comply
with the terms of the agreement even though he or she fails to meet the precise terms of
the agreement. Dexter v. Brake, 46 Kan. App. 2d 1020, 1033, 269 P.3d 846 (2012).
"Substantial performance is the antithesis of material breach. If it [is] determined that a
breach is material, it follows that substantial performance has not been rendered.
[Citation omitted.]" Almena State Bank v. Enfield, 24 Kan. App. 2d 834, 838, 854 P.2d
724 (1998). A material breach is one where the promisee receives something
substantially less or different than what he or she bargained for. 24 Kan. App. 2d at 838.
15

Kansas courts commonly characterize substantial performance as a fact question.
24 Kan. App. 2d at 838. But, as with other fact-based issues, we may determine if a
contractual party has substantially performed under the contract when the relevant
circumstances are undisputed. See, e.g., St. Clair v. Denny, 245 Kan. 414, 420, 781 P.2d
1043 (1989) (proximate cause decided as matter of law on undisputed facts); Lay v.
Kansas Dept. of Transportation, 23 Kan. App. 2d 211, 215, 928 P.2d 920 (1996) (same),
rev. denied 261 Kan. 1085 (1997). This is such a case.

Substantial performance does not apply if the breach was willful. The defendants'
failure to pay all but $176,880.57, which is undisputed, was deliberate. "The doctrine of
substantial performance does not apply where the breach is willful. 'The willful
transgressor must accept the penalty of his transgression.'" Calamari and Perillo on
Contracts, § 157, p. 249 (1970). Moreover, some courts have refused to apply substantial
performance when the variation from the contract was intentional, even though the
variation was made with good motives. See Shell v. Schmidt, 164 Cal. App. 2d 350, 330
P.2d 817 (1958), cert. denied 359 U.S. 959 (1959).

Here, the parties agreed in the loan documents to the specific and controlling terms
of this commercial development loan. As determined by the trial court, Centennial Park
failed to pay the amount due of $176,880.57 by April 10, 2010. The later payment of
$167,531.49 from lot sale proceeds on April 26, 2010, was applied to the debt owed, but,
under the terms of the loan documents, it did not constitute a partial cure or waiver of the
default.

With respect to the defense of substantial compliance and material breach, the trial
court relied on Almena State Bank v. Enfield, 24 Kan. App. 2d 834, 954 P.2d 724 (1998).
The trial court stated:

16

"Almena State Bank case enumerated the factors to consider with substantial
compliance, which is a concept that developed in construction law settings. While the
Court is reluctant to treat the concept of substantial compliance as a defense in this case
because of the history of the concept, it feels obligated to do so. One of the factors for
substantial compliance, from Almena State Bank is an honest endeavor to perform. The
contract before this Court called for a payment of $1.35 million on or before April 10,
2010. There is no evidence of an honest endeavor to make the full payment of $1.35
million on or before April 10, 2010. It was not paid. The Court does not believe that there
is substantial compliance. The court believes that the failure to pay, whether it is
$176,880.57 or $9,349.20 is a modest amount and percentage, and that the law in Kansas
on substantial compliance does not analyze the amount of money at issue, but rather,
pursuant to the contract, $1,350,000 was due on or before April 10, 2010 and it was not
paid."

In the present case, there was no written agreement to allow the defendants a
partial payment breach or a right to cure for $176,880.57 or even $9,349.20.

As determined by the trial court and as admitted by the defendants, the full
payment of $1,350,000 was not made by April 10, 2010. On May 17, 2010, FNB gave the
defendants a 2-week opportunity to present a plan acceptable to FNB before it
accelerated the debt. The defendants presented no plan acceptable to FNB.

In short, the defendants' default was willful. The defendants argue that they
honestly believed that they did not owe a separate principal payment of $1,350,000.
Nevertheless, even if their belief was true, as the trial court later determined, they could
not have honestly believed that they had made principal payments totaling $1,350,000 by
April 10, 2010. Thus, an excuse of mistake as to what performance the loan documents
imposed on the defendants would not have legally excused them from performing under
the loan documents by paying the sum of $176,880.57 by April 10, 2010. Because the
deviations from the loan documents were deliberate, the defendants have not substantially
17

performed under the loan documents. As a result, the defendants' substantial performance
argument fails.

Did FNB waive its right to accelerate the loan debt when it accepted the defendants' late
payment of $9,349 by depositing the check in its account?

The defendants next argue that the trial court "erred by failing to find that a check
for $9,349 tendered to and deposited by FNB, did not constitute a waiver." FNB
disagrees and argues that it did not waive any of its rights and its acceptance of the
$9,349 check did not cure the defendants' accelerated debt. "The legal effect of a written
instrument is a question of law. It may be construed and its legal effect determined by the
appellate court regardless of the construction made by the trial court." Foundation
Property Investments, 286 Kan. 597, Syl. ¶ 2. Consequently, review of this issue is de
novo.

The defendants argue that FNB waived its right to accelerate the note when it
accepted the $9,349 late payment. Their argument is flawed. Promissory notes and
mortgages are contracts between the parties, and the ordinary rules of construction
applicable to contracts apply to them. Carpenter v. Riley, 234 Kan. 758, 763, 675 P.2d
900 (1984). Under Kansas law, waiver is an intentional relinquishment of a known right
and intention may be inferred from conduct. Iola State Bank v. Biggs, 233 Kan. 450, 458-
59, 662 P.2d 563 (1983). Generally, a mortgagee's acceptance of a late or partial payment
will result in a waiver of the right to declare default and accelerate a debt because of the
lateness of that payment. Postal Savings & Loan Ass'n v. Freel, 10 Kan. App. 2d 286,
287, 698 P.2d 382 (1984). Moreover, "'a past practice of excusing defaults occasioned by
late payments may under certain circumstances be construed as an implied waiver of an
acceleration clause.'" Foundation Property Investments, 286 Kan. at 609. But when the
unambiguous language of the contract states a contrary intention, no such inference of
waiver can be drawn. Freel, 10 Kan. App. 2d at 287. In other words, when the parties'
18

contract contains an unambiguous anti-waiver provision, acceptance of a late payment
does not waive a mortgagee's contractual right to accelerate the loan after default.

In this case, the parties agreed to the following provisions in the promissory note:

"If this Note is in default, then upon and after such default the holder hereof shall
have the right, exercisable at such holder's discretion, to declare the entire unpaid
principal amount and all accrued interest due hereunder immediately due and payable
without notice . . . to the undersigned, and [FNB] shall have all the remedies available to
it at law or in equity for the collection of the amounts due. Failure at any time to exercise
this option shall not constitute a waiver of the right to exercise the same at any other
time.
. . . .
". . . No delay or omission of the holder of this Note to exercise any right or
power hereunder shall impair such right or power or be a waiver of any default or an
acquiescence therein. Any single or partial exercise of any such right or power shall not
preclude other or further exercises of any other right. No waiver shall be valid unless in
writing signed by the holder of this Note and then only to the extent specifically set forth
in such writing." (Emphasis added.)

Based on the contract provisions cited above, FNB did not waive its right by
accepting the defendants' late payment. Indeed, the clear language of the note provisions
italicized earlier constitute anti-waiver provisions. Because FNB and the defendants
agreed to these anti-waiver provisions under the terms of the note, FNB's acceptance of
the $9,349 late payment did not constitute a waiver of its contractual right to accelerate
the debt after the defendants' default.

Moreover, Kansas appellate courts have upheld lenders' contractual rights where
their loan documents contained anti-waiver provisions similar to the ones present here.
See, e.g., Riley State Bank v. Spillman, 242 Kan. 696, 701, 750 P.2d 1024 (1988) (Bank
did not waive its right to declare default after accepting late payment because promissory
19

note contained anti-waiver clause: "No waiver by the Secured Party of any default shall
be effective unless in writing nor operate as a waiver of any other default or of the same
default on a future occasion."); Freel, 10 Kan. App. 2d at 287 (Past practice of accepting
late payments did not waive party's right to accelerate a promissory note because the
note contained an express anti-waiver provision: "Any waiver of any payment hereunder
or under the instrument securing this note at any time, shall not, at any other time, be
taken to be a waiver of the terms of this note or the instrument securing it."); Foundation
Property Investments, 286 Kan. at 607 (citing Phipps v. First Federal Sav. & Loan, 438
N.W.2d 814 [S.D. 1989]) (mortgage note provision stating "failure to exercise this option
shall not constitute a waiver of the right to exercise the same in the event of any
subsequent default" created an anti-waiver provision indicating that bank's failure to
exercise its acceleration option did not constitute a waiver of its acceleration right);
Beneficial Mortg. Corp. v. Gietzen, No. 104,818, 2011 WL 4357841 (Kan. App. 2011)
(unpublished opinion), rev. denied November 4, 2011 (mortgagee not prohibited from
accelerating debt because mortgage contained anti-waiver provision). Consequently, the
defendants' waiver argument fails.

Did FNB breach the implied covenant of good faith and fair dealing when it sent the
defendants a statement requiring a principal payment of $1,350,000?

Finally, the defendants argue that FNB "breached their covenant of good faith and
fair dealing by first issuing the March Statement, and then proceeding to repeatedly
demand $1,350,000 when far less was due."

Under Kansas law, "[t]he duty of good faith and fair dealing is implied in every
contract, with the exception of employment-at-will contracts." Estate of Draper v. Bank
of America, 288 Kan. 510, Syl. ¶ 13, 205 P.3d 698 (2009). The duty requires that
contractual parties refrain from intentionally doing anything to prevent the other party
from carrying out his or her part of the agreement, or from doing anything which will
20

have the effect of destroying or injuring the right of the other party to receive the fruits of
the contract. Bonanza, Inc. v. McLean, 242 Kan. 209, 222, 747 P.2d 792 (1987).
"[W]hether the good faith standard was met is a question of fact. [Citation omitted.]" St.
Catherine Hospital of Garden City v. Rodriguez, 25 Kan. App. 2d 763, 765, 971 P.2d 754
(1998). Nevertheless, we may determine whether the implied covenant of good faith and
fair dealing was violated as the underlying facts here are undisputed. See St. Clair v.
Denny, 245 Kan. 414, 420, 781 P.2d 1043 (1989) (proximate cause decided as matter of
law on undisputed facts); Lay v. Kansas Dept. of Transportation, 23 Kan. App. 2d 211,
215, 928 P.2d 920 (1996) (same), rev. denied 261 Kan. 1085 (1997).

In this case, nothing FNB did hindered the defendants from carrying out their part
of the agreement. The billing statement was automated. The May 17, 2010, letter simply
stated the uncontroverted fact that the full $1,350,000 payment had not been made. The
billing statement accurately reflected the balance that was due by April 10, 2010, under
the terms of the note. Consequently, FNB did not breach the implied covenant of good
faith and fair dealing, and the defendants' implied covenant of good faith and fair dealing
argument fails.

Affirmed.
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