Community First National Bank, A Corporation Existing Under the Laws of the United States of America, Appellee,
Sarah Grace Nichols, aka Sara Grace Lillich, aka Sarah Lillich, and Kurtis Lee Nichols, Appellants.
BY THE COURT
are not included in the definition of supplier under the
Kansas Consumer Protection Act (KCPA) if the bank is subject
to state or federal regulation related to disposition of
from Wabaunsee District Court; Jeffrey R. Elder, judge.
Vokins and Krystal L. Vokins, of Sloan, Eisenbarth, Glassman,
McEntire & Jarboe, L.L.C., of Lawrence, for appellants.
P. Troup and Melissa D. Richards, of Weary Davis, L.C., of
Junction City, for appellee.
Arnold-Burger, C.J., Pierron, J., and McAnany, S.J.
case involves the foreclosure of two mortgages. Sarah Grace
Nichols and Kurtis Lee Nichols (the Nichols) obtained two
home loans from Community First National Bank (CFNB) and
granted CFNB mortgages on the homes they purchased. When the
Nichols failed to make payments on the loans, CFNB filed this
foreclosure action. The Nichols made several counterclaims,
which raised various violations of the Kansas Consumer
Protection Act, Kansas Uniform Consumer Credit Code, and
common-law claims. The district court granted judgment in
favor of CFNB and denied the Nichols' counterclaims. The
Nichols appealed and make several arguments on appeal.
Finding no reversible error we affirm.
AND PROCEDURAL HISTORY
case involves the foreclosure of two mortgages encumbering
two houses located in Wabaunsee County, Kansas.
a national banking association. In April 2010, the Nichols
obtained a $36, 000 loan from CFNB to purchase a home on Main
Street in Alta Vista (Home 1). The parties executed a
promissory note, designated Loan Number 32254 (2010 Loan).
The 2010 Loan was a variable interest loan, with the interest
rate initially set at 7.5%. Interest was to accrue on an
"Actual/365" basis. Payments for the loan were due
on the 15th of each month. Payments received more than 15
days after the payment due date were subject to a late charge
equaling 5% of the unpaid amount, up to a maximum of $25.00.
In total, the loan was estimated to require 179 monthly
payments of $333.79. However, due to the variable interest
rate, the promissory note stated that this amount may change
after the 36th payment. The Nichols assigned CFNB a mortgage
on the house they purchased to secure the loan.
Nichols' first payment was due on May 15, 2010. However,
they did not pay until May 27, 2010-late but within the grace
period. Their next payment was 29 days late-outside the grace
period. The pattern of late payments continued. By February
2014, the Nichols had made 40 payments and all but one
payment was late. Many of these late payments fell within the
15-day grace period. But some were made more than 15 days
after the due date. CFNB assessed late charges on most, but
not all, of the late payments.
six months after the loan was signed, in December 2010,
CFNB's audit department determined that the 7.5% interest
rate was too high. CFNB thought it was legally required to
lower the interest rate to 6.25%. To rectify this mistake,
the parties executed a new promissory note in January 2011.
CFNB backdated the note to the original note date and
recalculated the amount that the Nichols should have been
paying. This resulted in a $370.20 credit towards interest.
CFNB applied the credit to the Nichols' bill due on
February 15, 2011. CFNB later discovered that it incorrectly
interpreted the law, and that the 7.5% interest rate was not
illegal. However, CFNB continued to honor the 6.25% interest
rate provided for in the new promissory note.
2011, CFNB discovered what it believed to be another error.
Until that point, CFNB had been applying the Nichols'
payments on a "bill date to bill date" basis. This
meant that the Nichols' payments were applied to the
principal and to interest accrued between bill dates. For
example, their August 15, 2010 bill was for principal and for
interest accrued from July 15 through August 15, 2010. Even
though they did not pay the August 15, 2010 bill until August
27, 2010, their payment was applied to the interest gained
during the bill period and then to principal. Robert Stitt
Jr., president of CFNB, believed that because the loan was an
Actual/365 loan, the bill date to bill date payment
application method was incorrect. Stitt opined that the
payments should have been applied to interest accrued between
payment dates, not bill dates. After May 2011, CFNB began
applying the Nichols' payments on a payment date to
payment date basis. The Nichols' prior payment date had
been May 31, 2011. Their June bill, due June 15, 2011, showed
that they needed to pay interest accrued between May 31 and
June 15. However, because they did not pay their June bill
until June 30, their payment was applied to interest accrued
between May 31 and June 30, and then it was applied to
principal. Each payment after this was applied on a payment
date to payment date basis.
early 2012, the Nichols decided to buy a bigger house on Main
Street (Home 2) in Alta Vista to accommodate their growing
family. Kurtis contacted CFNB to discuss obtaining a new loan
to finance the purchase. Kurtis testified that he asked CFNB
if they could combine his existing loan and the new loan into
a 30-year mortgage because he did not think they could afford
to make two payments on two 15-year mortgages. Jay Terrill,
vice president of CFNB, denied that the Nichols requested a
30-year note. Ultimately, the Nichols borrowed an additional
$38, 000 and agreed to a 15-year mortgage, designated Loan
Number 32410 (2012 Loan). The 2012 Loan had a lower interest
rate, 5.5%, than the 2010 Loan. The terms regarding interest
accrual and late fees were the same. The parties executed the
promissory note for the loan in March 2012.
time the Nichols got their new house, they intended to rent
their old house to a family member. However, that did not
occur. The Nichols failed to make payments on the 2010 Loan,
so CFNB sent them a notice of right to cure default. The
Nichols asked CFNB for a deferral on the 2010 Loan to allow
them time to look for another renter. In June 2012, CFNB
agreed to defer payment for two months. The deferral
agreement stated that the $502.10 payments due on May 15,
2012, and June 15, 2012, would be deferred to the maturity of
the note in April 2025. The Nichols would have to pay $200
towards escrow on June 29, 2012, and their next regularly
scheduled payment of $502.10 would be on July 15, 2012. The
deferral agreement stated that "[e]xcept as specifically
amended by this agreement, all other terms of the original
obligation remain in effect."
Nichols were unable to rent or sell Home 1 by the end of the
deferral agreement. So, they entered into a second deferral
agreement with CFNB for the 2010 Loan. In the second deferral
agreement, CFNB agreed to defer four payments due between
July 2012 and October 2012. On the same day, the parties
executed a deferral agreement for the 2012 Loan under which
CFNB agreed to defer the Nichols' August and September
payments until the maturity of the note in April 2027.
Nichols resumed their payments at the end of the deferral
period. They contacted CFNB, confused as to why their
payments were only being applied to interest. Terrill
explained that they were paying the interest that accrued
during the deferral period. The Nichols believed that the
extension agreements stopped interest from accruing.
met with Terrill at the bank in June 2013. Kurtis had just
noticed how CFNB handled the $370.20 credit it had granted
him after recalculating the interest rate, and Kurtis
disagreed with how CFNB applied the credit. Several people at
the bank spent two days calculating by hand the effect of the
reduced interest rate. They concluded that the Nichols were
billed appropriately. But, the Nichols continued to disagree.
August 15, 2013, the Nichols filed a complaint with the
Office of the Comptroller of Currency (OCC). They did not
agree with the way CFNB handled the $370.20 credit it granted
them after changing the interest rate from 7.5% to 6.25%.
They also thought CFNB inappropriately allowed interest to
accrue on the loans during the deferral periods.
of the OCC complaint, CFNB sent the Nichols a letter on
August 23, 2013, to address the disputed accounting. CFNB
explained again how it applied the $370.20 credit. Then, CFNB
addressed the Nichols concern that interest accumulated
during the deferral period. CFNB disputed that it agreed to
defer interest accumulation during the period, explaining
that it only deferred the Nichols' obligation to make
payments on the interest and principal. In order to
accommodate the misunderstanding, CFNB offered the Nichols a
$958.58 credit to offset the interest that accrued during the
deferral period. To conclude the letter, CFNB reminded the
Nichols that they were past due by four months on the 2010
Loan and by two months on the 2012 Loan. It threatened to
begin the collection process if the Nichols did not pay all
of their past due payments.
what the Nichols believed was a deteriorating relationship
with the bank, they stopped making payments on the loans. On
March 24, 2014, CFNB's attorneys sent the Nichols a
letter stating that CFNB had referred the Nichols' loans
to them for foreclosure. The letter informed the Nichols that
they were in default on both of their loans and that CFNB had
chosen to accelerate the amounts due. At the time, the
Nichols owed $33, 359.40 on the 2010 Loan and $37, 273.39 on
the 2012 Loan. The Nichols were also delinquent on a checking
reserve overdraft line and overdrawn on a checking account.
April 2, 2014, Kurtis brought cash to the bank with the
intention of making his past due payments. According to
Kurtis, he asked the bank teller how much he owed on each
loan and paid that amount for a total payment of $5, 855.94.
Kurtis received four receipts from the transaction. One
stated that $3, 152.74 was applied to the 2010 Loan. The
other three showed various amounts paid toward the 2012 Loan:
$2, 500.00, $47.26, and $155.94.
days later the bank sent the Nichols a letter acknowledging
the payment and informing them that they were still past due
on both of the notes. The letter stated that the bank applied
the $5, 885.94 as follows:
Pay off of unrelated account
Payments due for [2010 Loan]
Late charges for [2010 Loan]
Payments due for [2012 Loan]
Late charges for [2012 Loan]
that the payment was allocated left the Nichols owing $459.34
on the 2010 Loan and $301.50 due on 2012 Loan. CFNB directed
the Nichols to catch up on the payments in full in order to
trial, CFNB admitted that the bank did not apply the $5,
855.94 as Kurtis directed the teller. Terrill explained that
bank tellers do not have the authority to apply payments.
When the payment was accepted, it went to the loan operations
department. The loan operations department discovered a
special warning on the loans, and asked Stitt how they should
apply the payments that Kurtis made. Stitt was unaware of the
conversation that Kurtis had with the bank teller. Stitt did
not immediately inform the Nichols that he changed the way
the payments were applied until the letter sent several days
Nichols never responded to CFNB's letter. They stopped
making payments on the loans. This prompted CFNB to file a
petition against the Nichols on May 11, 2015- over a year
after their last payment. CFNB asked the court to order the
Nichols to pay the full principal balance, interest, escrow,
and late charges accrued on each loan. It also asked the
court for leave to foreclose against the two properties
subject to the mortgages.
their answer, the Nichols alleged that CFNB was the first
party to breach the agreements, and that CFNB's breach of
contract excused the Nichols' obligations under the
contract. The Nichols also made several counterclaims,
including breach of contract, breach of duty of good faith
and fair dealing, several Kansas Consumer Protection Act
(KCPA) violations, and Kansas Uniform Consumer Credit Code
filed a motion for partial summary judgment arguing that it
was not subject to the KCPA. The KCPA prohibits suppliers
from engaging in deceptive acts or practices or from engaging
in unconscionable acts or practices in connection with a
consumer transaction. K.S.A. 2018 Supp. 50-626; K.S.A.
50-627. The Act defines "supplier" as:
"a manufacturer, distributor, dealer, seller, lessor,
assignor, or other person who, in the ordinary course of
business, solicits, engages in or enforces consumer
transactions, whether or not dealing directly with the
consumer. Supplier does not include any bank, trust company
or lending institution which is subject to state or federal
regulation with regard to disposition of repossessed
collateral by such bank, trust company or lending
institution." K.S.A. 2018 Supp. 50-624(1).
argued that it was not a supplier as defined by the KCPA
because it is a bank subject to state or federal regulation
with regard to disposition of repossessed collateral.
district court granted CFNB's motion for partial summary
judgment. It dismissed all of the Nichols' counterclaims
brought under the KCPA, holding that CFNB was not a supplier
within the meaning of the Act. The district court also
granted judgment in favor of CFNB in the amount of $37,
330.96 plus any interest accrued after August 30, 2016, for
the 2010 Loan and $40, 543.46 plus interest accrued after
August 30, 2016, for the 2012 Loan. The district court did
not include late fees in its award. The court also granted
CFNB's foreclosure claims and allowed them to begin the
Nichols' counterclaims for breach of contract, breach of
the covenant of good faith and fair dealing, violations of
the UCCC, and fraud proceeded to trial by the court. As
explained more fully below, at the conclusion of the trial,
the district court granted judgment in favor of CFNB on all