KANSAS COMMENT, 2010

1. This section must be read in conjunction with the preceding section (K.S.A. 16a-5-109 — default) and the following section (K.S.A. 16a-5-111— cure of default). K.S.A. 16a-5-109 delineates the legal criteria for default and recognizes that a default consisting of the failure to make a payment as required by the agreement is susceptible of being cured by the consumer without impairing the continuing contractual relationship between the consumer and the creditor. This section then provides for a notice which may be sent to the consumer in the case of a failure in payment. The notice may be given at any time after the payment is more than ten days late. This is the same point at which the creditor may be entitled to assess a delinquency charge under K.S.A. 16a-2-502. The notice is calculated to give the consumer enough information to understand the predicament and to encourage the consumer to take appropriate steps to alleviate it. For example, if a consumer misses an installment payment due on April 10, the creditor must wait until April 20, at which point the creditor may send the consumer a written notice indicating the default and the amount due. The "last day for payment" would be shown as May 10, the end of the cure period as provided in K.S.A. 16a-5-111. The notice must also mention the potential liability of the consumer for the collection agency fee or attorneys' fees of the creditor.

2. The notice must be correct. In Farmers State Bank v. Haflich, 10 Kan. App. 2d 333, 699 P.2d 533 (1985), the creditor violated this section by giving notice for the entire amount of the indebtedness rather than merely for past due installments. Note that K.S.A. 16a-5-111 provides that a default consisting of a failure to make a required payment may be cured by the consumer by making that payment before the expiration of the minimum period prescribed after written notice of the default, and that prior to that time the creditor may not proceed against goods that are collateral or accelerate the maturity of the unpaid debt. Repossession in the face of an improper notice, or before the cure period expires, entitles the consumer to damages for wrongful repossession and possibly for conversion. See Farmers State Bank v. Haflich, supra. This provision prevents the practice of some unscrupulous creditors who repossess collateral when a payment is only a day or two late. It also gives the average consumer the opportunity to rehabilitate an account, bring a billing error to the attention of, or present a breach of warranty claim to, the creditor, or negotiate a refinancing arrangement that may be required by a change in the consumer's financial circumstances.

3. The notice and right to cure provisions of this and the following sections apply only if the default is in the failure to make a required installment payment, and not to a default arising from significant impairment of the relationship under the previous section. This is because, unlike a late payment, a breakdown in the relationship between the consumer and the creditor which constitutes "significant impairment" cannot be cured. See Johnson County Auto Credit, Inc. v. Green, 277 Kan. 148, 83 P.2d 152 (2004); Prairie State Bank v. Hoefgen, 245 Kan. 236, 777 P.2d 811 (1989); Medling v. Wecoe Credit Union, 234 Kan. 852, 678 P.2d 1115 (1984). In addition, the cure provisions do not apply to a lump sum loan, i.e., a loan not "payable in installments." See First National Bank of Shawnee Mission v. Hundley, 12 Kan. App. 2d 487, 748 P.2d 903 (1988). In addition, it has been held that the debtor waives the right to cure default by filing a voluntary petition in bankruptcy. See In re Schwarting, 671 F.2d 1192 (8 th Cir. 1982), construing the Iowa version of the uniform act.

Law Review and Bar Journal References:

Deficiency judgments, 22 K.L.R. 297, 309 (1974).

"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 179 (1975).

"Summary Repossession, Replevin, and Foreclosure of Security Interests," Thomas V. Murray, 46 J.B.A.K. 93, 95 (1977).

"Commercial Transactions Under the New Bankruptcy Act," Paul B. Rasor, 48 J.B.A.K. 199, 215 (1979).

"The U.C.C.C. and Real Estate Financing: A Square Peg in a Round Hole," Thomas L. Griswold, 28 K.L.R. 601, 612 (1980).

"Interest on Legal Fees," Calvin J. Karlin, 58 J.K.B.A. No. 5, 23, 24 (1989).

"Creditor Beware: From Default Through Deficiency Judgment," Wanda M. Temm, 60 J.K.B.A. No. 8, 17, 18 (1991).

"New Legislation Affects the Collection of Unpaid Debts," Wayne T. Stratton, 95 Kan.Med. No. 9, 182 (1994).

"Will Debtors Win the Battle as Creditors Win the War?: Retroactive Recovery of Attorney Fees in Consumer Credit Contracts in Kansas," Tamara Putnam and Jonathan Lautt, 34 W.L.J. 556, 565, 566 (1995).

"The Fair Debt Collection Practices Act: Lawyers Beware," Laura L. Ice, 64 J.K.B.A. No. 10, 32, 34 (1995).

CASE ANNOTATIONS

1. Reaffirmation of debt after petition filed but prior to discharge in bankruptcy revived debt; consideration. Super Chief Credit Union v. McCoy, 3 Kan. App. 2d 25, 28, 595 P.2d 346 (1978).

2. Cited in holding where successful self-help repossession occurs without incident, totality of facts reveals no breach of peace under K.S.A. 16a-5-112, 84-9-503. Wade v. Ford Motor Credit Co., 8 Kan. App. 2d 737, 738, 668 P.2d 183 (1983).

3. Notice not required where default predicated on substantial impairment rather than nonpayment. Medling v. Wecoe Credit Union, 234 Kan. 852, 860, 678 P.2d 1115 (1984).

4. Notice must strictly comply with statute; damages may lie and attorney fees awarded (K.S.A. 16a-5-201) where notice insufficient. Farmers State Bank v. Haflich, 10 Kan. App. 2d 333, 337, 699 P.2d 553 (1985).

5. Creditor not required to give notice of right to cure default (K.S.A. 16a-5-111) where loan payable in single installment. First Nat'l Bank of Shawnee Mission v. Hundley, 12 Kan. App. 2d 487, 489, 748 P.2d 903 (1988).