J.I. Case Credit Corp. v. Foos
Kansas Court of Appeals
717 P.2d 1064 (1986)
Clarence Foos was a long-time customer of The Bazine State Bank (Bank) (defendants). Dating back to 1966, the Bank held a security interest in Foos’s after-acquired farm equipment. In May 1980, Foos contracted to purchase farm equipment (the equipment) from Rural Equipment, Inc. (Rural Equipment). Foos agreed to pay for the equipment in annual installments and granted Rural Equipment a security interest in the equipment. Rural Equipment filed a financing statement on June 18, 1980. Thereafter, Rural Equipment assigned its rights under the contract to J.I. Case Credit Corporation (Case) (plaintiff). In July 1981, Foos failed to pay a full installment to Case. Case allowed Foos to pay the outstanding amount along with the next installment. Foos failed to pay the required amounts again the following year. Accordingly, Case informed Foos that he must pay the money owed to avoid surrendering the equipment. In September 1982, the Bank’s loan officer spoke with a Case representative regarding the status of Foos’s account. The Bank then loaned Foos enough money to pay Case the past-due funds. However, when Foos paid Case, Case’s computer system marked that Foos paid all the money owed, including the remaining unpaid installments, in full. Case stamped the contract “paid,” mailed the contract to Foos, and filed a termination statement in November 1982. In December 1982, relying on the stamped contract, a Case letter stating that the equipment was paid for, and Case’s termination statement, the Bank loaned Foos money, took a security interest in the equipment, and filed a financing statement. In February 1983, Case realized its mistake, notified Foos of the outstanding installments, and filed another financing statement. Foos did not pay Case anything further. Case repossessed the equipment. Case eventually sued and asked the district court to determine the validity and priority of the parties’ competing security interests in the equipment. The district court applied Uniform Commercial Code (UCC) Article 2, found that the Bank failed to act in good faith, and ruled in Case’s favor. The Bank appealed.
Rule of Law
Holding and Reasoning (Knudson, J.)
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