{ "id": 3256801, "name": "WATSEKA FIRST NATIONAL BANK, Appellant, v. FRANK RUDA et al., Appellees", "name_abbreviation": "Watseka First National Bank v. Ruda", "decision_date": "1990-02-16", "docket_number": "No. 68075", "first_page": "140", "last_page": "159", "citations": [ { "type": "official", "cite": "135 Ill. 2d 140" } ], "court": { "name_abbreviation": "Ill.", "id": 8772, "name": "Illinois Supreme Court" }, "jurisdiction": { "id": 29, "name_long": "Illinois", "name": "Ill." }, "cites_to": [ { "cite": "175 Ill. App. 3d 753", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3554372 ], "pin_cites": [ { "page": "757" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/175/0753-01" ] }, { "cite": "70 Ill. App. 3d 89", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 5574928 ], "pin_cites": [ { "page": "94" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/70/0089-01" ] }, { "cite": "54 Va. L. Rev. 195", "category": "journals:journal", "reporter": "Va. L. Rev.", "year": 1968, "opinion_index": 0 }, { "cite": "137 U. Pa. L. Rev. 335", "category": "journals:journal", "reporter": "U. Pa. L. Rev.", "year": 1988, "pin_cites": [ { "page": "371" } ], "opinion_index": 0 }, { "cite": "30 U. Chi. L. Rev. 666", "category": "journals:journal", "reporter": "U. Chi. L. Rev.", "year": 1963, "opinion_index": 0 }, { "cite": "437 So. 2d 26", "category": "reporters:state_regional", "reporter": "So. 2d", "case_ids": [ 7616990 ], "weight": 2, "pin_cites": [ { "page": "29" }, { "page": "29" } ], "opinion_index": 0, "case_paths": [ "/so2d/437/0026-01" ] }, { "cite": "397 So. 2d 1020", "category": "reporters:state_regional", "reporter": "So. 2d", "case_ids": [ 9593656 ], "year": 1987, "opinion_index": 0, "case_paths": [ "/so2d/397/1020-01" ] }, { "cite": "183 Ga. App. 812", "category": "reporters:state", "reporter": "Ga. App.", "case_ids": [ 8866269 ], "weight": 2, "year": 1978, "opinion_index": 0, "case_paths": [ "/ga-app/183/0812-01" ] }, { "cite": "145 Ga. App. 175", "category": "reporters:state", "reporter": "Ga. App.", "case_ids": [ 787337 ], "year": 1975, "opinion_index": 0, "case_paths": [ "/ga-app/145/0175-01" ] }, { "cite": "243 S.E.2d 528", "category": "reporters:state_regional", "reporter": "S.E.2d", "year": 1975, "opinion_index": 0 }, { "cite": "236 N.W.2d 674", "category": "reporters:state_regional", "reporter": "N.W.2d", "case_ids": [ 10696303 ], "year": 1981, "opinion_index": 0, "case_paths": [ "/nw2d/236/0674-01" ] }, { "cite": "275 Ind. 555", "category": "reporters:state", "reporter": "Ind.", "case_ids": [ 1830775 ], "weight": 2, "pin_cites": [ { "page": "566" } ], "opinion_index": 0, "case_paths": [ "/ind/275/0555-01" ] }, { "cite": "419 N.E.2d 115", "category": "reporters:state_regional", "reporter": "N.E.2d", "case_ids": [ 11047312 ], "weight": 2, "pin_cites": [ { "page": "122" } ], "opinion_index": 0, "case_paths": [ "/ne2d/419/0115-01" ] }, { "cite": "238 Kan. 246", "category": "reporters:state", "reporter": "Kan.", "case_ids": [ 1488621 ], "weight": 2, "year": 1964, "opinion_index": 0, "case_paths": [ "/kan/238/0246-01" ] }, { "cite": "385 S.W.2d 196", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 10157491 ], "year": 1986, "opinion_index": 0, "case_paths": [ "/sw2d/385/0196-01" ] }, { "cite": "713 S.W.2d 517", "category": "reporters:state_regional", "reporter": "S.W.2d", "case_ids": [ 9976700 ], "year": 1981, "opinion_index": 0, "case_paths": [ "/sw2d/713/0517-01" ] }, { "cite": "54 Or. App. 522", "category": "reporters:state", "reporter": "Or. App.", "case_ids": [ 2086513 ], "weight": 2, "year": 1972, "opinion_index": 0, "case_paths": [ "/or-app/54/0522-01" ] }, { "cite": "6 Wash. App. 959", "category": "reporters:state", "reporter": "Wash. App.", "case_ids": [ 1864304 ], "opinion_index": 0, "case_paths": [ "/wash-app/6/0959-01" ] }, { "cite": "497 P.2d 252", "category": "reporters:state_regional", "reporter": "P.2d", "opinion_index": 0 }, { "cite": "541 P.2d 740", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10471664 ], "pin_cites": [ { "page": "747" } ], "opinion_index": 0, "case_paths": [ "/p2d/541/0740-01" ] }, { "cite": "408 F.2d 1369", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 2203637 ], "weight": 2, "opinion_index": 0, "case_paths": [ "/f2d/408/1369-01" ] }, { "cite": "745 P.2d 1031", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10405735 ], "weight": 3, "pin_cites": [ { "page": "1032" }, { "page": "1033" } ], "opinion_index": 0, "case_paths": [ "/p2d/745/1031-01" ] }, { "cite": "164 Ind. App. 516", "category": "reporters:state", "reporter": "Ind. App.", "case_ids": [ 1389278 ], "weight": 2, "pin_cites": [ { "page": "521" } ], "opinion_index": 0, "case_paths": [ "/ind-app/164/0516-01" ] }, { "cite": "329 N.E.2d 620", "category": "reporters:state_regional", "reporter": "N.E.2d", "weight": 2, "pin_cites": [ { "page": "623" } ], "opinion_index": 0 }, { "cite": "688 P.2d 42", "category": "reporters:state_regional", "reporter": "P.2d", "case_ids": [ 10412239 ], "opinion_index": 0, "case_paths": [ "/p2d/688/0042-01" ] }, { "cite": "82 Misc. 2d 653", "category": "reporters:state", "reporter": "Misc. 2d", "case_ids": [ 1291020 ], "opinion_index": 0, "case_paths": [ "/misc2d/82/0653-01" ] }, { "cite": "370 N.Y.S.2d 323", "category": "reporters:state", "reporter": "N.Y.S.2d", "opinion_index": 0 }, { "cite": "57 Ill. App. 3d 295", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3419602 ], "year": 1985, "pin_cites": [ { "page": "299" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/57/0295-01" ] }, { "cite": "132 Ill. App. 3d 463", "category": "reporters:state", "reporter": "Ill. App. 3d", "case_ids": [ 3440729 ], "pin_cites": [ { "page": "468" } ], "opinion_index": 0, "case_paths": [ "/ill-app-3d/132/0463-01" ] } ], "analysis": { "cardinality": 1290, "char_count": 31063, "ocr_confidence": 0.749, "pagerank": { "raw": 1.8261624478316336e-07, "percentile": 0.7200593548118056 }, "sha256": "6ee82c61143d9fd6d39e6bfbb8e49cfa0452b3847057dae05bcda026394ddd93", "simhash": "1:e107a517141523fa", "word_count": 5194 }, "last_updated": "2023-07-14T20:44:01.441971+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [], "parties": [ "WATSEKA FIRST NATIONAL BANK, Appellant, v. FRANK RUDA et al., Appellees." ], "opinions": [ { "text": "JUSTICE RYAN\ndelivered the opinion of the court:\nWatseka First National Bank (Watseka Bank) filed suit on January 5, 1984, against Ken L. Ward as principal debtor and Patti Ward, Frank Ruda and Virginia Ruda, guarantors, seeking to recover the balance on two notes. The Wards were dismissed from this action after they were adjudicated bankrupt. The trial court awarded judgment on the notes in the amount of $186,322.97 with interest and costs. The appellate court reversed, holding that, under an objective standard, the bank failed to act in good faith in accelerating the debt, according to the terms of an insecurity clause, and that this failure to act in good faith discharged the Rudas from their liability as sureties. (175 Ill. App. 3d 753, 757.) We granted Watseka Bank\u2019s petition for leave to appeal (107 Ill. 2d R. 315). We reverse the appellate court.\nThis lawsuit involves two promissory notes, both dated May 2, 1983. These notes evidenced Ward\u2019s indebtedness to Watseka Bank arising out of the bank\u2019s funding of Ward\u2019s farming operations. The first was termed a \u201crenewal of capital note\u201d that renewed loans, the proceeds of which Ward used to purchase farm equipment. The note in the amount of $125,000 was due March 27, 1984. The second was termed an \u201con call line of credit\u201d that was to be used for operating expenses. It was in the amount of $121,000, $45,704.34 of which was a carryover from the preceding year, and was also to mature March 27, 1984. Both notes were secured by Ward\u2019s \u201cfarm machinery, equipment, feed, [and] crops on hand and growing,\u201d more particularly described in an accompanying security agreement. The notes were signed by Ken L. Ward alone. These notes were also accompanied by personal, unlimited guarantees signed by Frank Ruda, Virginia Ruda and Patti Ward.\nThe execution of these notes was not the first transaction involving these parties. According to Ken Ward\u2019s testimony, the bank first began loaning money to him in 1973, two years after he began to farm. Throughout the years leading up to this litigation, Watseka Bank financed Ward\u2019s farming operation. Ward repaid the bank, with varying degrees of success, out of the proceeds of his farming operation.\nWard did not own the land that he farmed but, rather, he leased it. He began farming land owned by the Rudas; his parents-in-law, in 1981. Ward paid the Rudas rent, both in cash and on a crop-share basis, at different points during the time he farmed their land. Ward also had a partner named Robert Taylor with whom he apparently shared the proceeds of his operations. The Iroquois First State Bank had also loaned Ward money and it too held a security interest in Ward\u2019s crops.\nIn July of 1981, with his total line of credit at $145,005.90 and the prospect of a loan from the Farmers Home Administration questionable, Ken Ward and Watseka Bank discussed the possibility of obtaining a guarantee from the Rudas, in order for the bank to be able to continue financing Ward\u2019s operation. The bank told Ward to obtain Frank Ruda\u2019s current financial statements. After discussing the matter with a representative of another bank, according to Watseka Bank\u2019s internal memoranda, it found that Frank Ruda did not qualify as a cosigner and that his character was \u201cvery questionable.\u201d The bank, however, after reviewing the Rudas\u2019 financial statements, considered the Rudas\u2019 reported equity in their farm property of over $2 million sufficient to guarantee the Ward indebtedness and, based on these guarantees, the bank made additional advancements.\nDuring the next two years Ken Ward continued to borrow money and pay back portions out of the proceeds of his farming operation. His financial condition did not improve during this time, however, and it in fact worsened. The bank concluded, in February of 1983, that \u201c[i]f it were not for Frank and Virginia Ruda\u2019s guarantee, we would probably not be loaning Ward any money.\u201d\nIn April of 1983, Frank Ruda submitted then current financial statements reflecting a net worth of over $2 million. According to the bank\u2019s memoranda, it suspected that this figure was overstated but felt that the Rudas\u2019 net worth was approximately $1V2 million. Based on the Rudas\u2019 net worth, and despite previous cash-flow problems with both Frank Ruda and Ken Ward, the bank restructured and extended Ward\u2019s debt, culminating in the notes that are the subject of this lawsuit. These notes contained the following language: \u201cIf the holder deems itself insecure then at its option, without demand or notice of any kind, it may declare this note to be immediately due.\u201d\nThe ensuing summer of 1983, unfortunately, was not a kind one for Illinois farmers. A severe drought greatly affected the crops, and as a result, Ken Ward realized yields far below that which he projected. In October of that year, a meeting was held between Ken Ward, Frank Ruda, officers and attorneys of Watseka Bank and representatives of Iroquois First State Bank. The parties apparently agreed that, because the proceeds from the sale of Ken Ward\u2019s crops would not be sufficient to satisfy his indebtedness to the banks, Frank Ruda would have to sell some of his farmland and apply the proceeds to the various notes. Attorneys for Watseka Bank prepared lease terminations for the land Ward was renting from Ruda to facilitate the sale of that property. Ward soon began to sell the personal property that served as security for the debt and applied the proceeds to the debt.\nFrank Ruda evidently was not pleased with these arrangements and actively avoided any contact with Watseka Bank for the following two months. In early December of that year, attorneys for Watseka Bank sent Frank Ruda a letter informing him that the bank would take legal action if he did not sell the farms and apply the proceeds to the debt. The bank\u2019s memoranda indicate that, having received no response, it exercised the confession of judgment clause on the notes in late December. The bank actually filed its complaint against all four defendants on January 5, 1984, approximately three months prior to the stated maturity date, alleging that the notes were due pursuant to the insecurity clauses.\nWatseka Bank alleged that Ward was liable as debtor under the promissory notes, and alleged that the Rudas and Patti Ward were liable pursuant to the unlimited guarantees that they signed in 1981. The defendants set forth several affirmative defenses with their answer, including want of consideration and fraud in inducing the Rudas to sign the unlimited guarantees for the Ward indebtedness, failure by the bank to provide adequate notice of the sale of collateral pursuant to section 9 \u2014 504(3) of the Uniform Commercial Code (111. Rev. Stat. 1987, ch. 26, par. 9 \u2014 504(3)) (U.C.C. or Code), and breach of a fiduciary duty. The issue of plaintiff\u2019s failure to act in good faith in accelerating the debt appears to have first been raised in defendants\u2019 opening statement. Any procedural error that might have arisen from this method of raising this issue is inconsequential, however, because no objection appears in the record, counsel later argued the merits of the defense and the judge ruled on it. Truchon v. City of Streator (1979), 70 Ill. App. 3d 89, 94.\nThe trial judge ruled in favor of the plaintiffs as to all matters, except for the defendants\u2019 allegation regarding plaintiff\u2019s failure to accelerate in good faith. The trial judge, nevertheless, awarded to plaintiff judgment on the notes, but ordered counsel to recalculate the amount owing on the notes because the court determined that the bank inappropriately applied the proceeds from the sale of the collateral to the indebtedness before the maturity date stated on the notes.\nThe judge\u2019s specific finding was that Watseka Bank \u201chad no basis for accelerating the maturity date on the notes,\u201d but he refused to discharge the Rudas\u2019 liability as sureties because, at the time of trial, the stated maturity date on the notes had come and gone. It is not clear what standard the judge used for either of these decisions and the attorneys\u2019 memoranda of points and authorities shed little light on the question.\nOn appeal, the Rudas argued that the bank failed to act in good faith pursuant to section 1 \u2014 208 of the Code (111. Rev. Stat. 1987, ch. 26, par. 1 \u2014 208), and that the bank failed to provide proper notice of the sales of the collateral pursuant to section 9 \u2014 504 of the Code (111. Rev. Stat. 1987, ch. 26, par. 9 \u2014 504). Addressing only the first issue, the appellate court concluded that \u201cthe trial court\u2019s failure to find an absence of good faith in the acceleration of the due date of Ward\u2019s debt was contrary to the manifest weight of the evidence.\u201d (175 111. App. 3d 753, 757.) The appellate court also concluded that the bank\u2019s improper acceleration of the debt materially altered the Rudas\u2019 principal obligation, thereby releasing them from that obligation. While it is also unclear whether the appellate court properly characterized the trial judge\u2019s findings, neither court, in our view, articulated the proper standard that should be applied to the facts in this case.\nIn this appeal Watseka Bank argues that the appellate court (1) incorrectly termed the test under section 1 \u2014 208 as objective, (2) erred, in any event, in finding a lack of good faith, (3) erred in finding that the bank\u2019s acceleration of the notes served to release the Rudas from their guarantee liability, and (4) failed to properly find that the language of the Rudas\u2019 guarantees indicated a waiver of any defense based on wrongful acceleration. Because we find in favor of Watseka Bank as to the first two issues, we need not address the final two. We will discuss the Rudas\u2019 contention on cross-appeal later in this opinion.\nThe insecurity clauses, which provided the basis for the bank\u2019s acceleration of these notes, are specifically addressed in the Uniform Commercial Code (U.C.C.). Section 1 \u2014 208 states as follows:\n\u201cA term providing that one party or his successor in interest may accelerate payment or performance or require collateral or additional collateral \u2018at will\u2019 or \u2018when he deems himself insecure\u2019 or in words of similar import shall be construed to mean that he shall have power to do so only if he in good faith believes that the prospect of payment or performance is impaired. The burden of establishing lack of good faith is on the party against whom the power has been exercised.\u201d (111. Rev. Stat. 1987, ch. 26, par. 1 \u2014 208.)\nThis Code section specifically permits the use of insecurity clauses, but allows creditors to exercise them only if they do so in good faith. There has been considerable debate, however, concerning what the term \u201cgood faith\u201d means and whether it is properly measured subjectively or objectively.\nThe term \u201cgood faith\u201d appears repeatedly in the U.C.C. Section 1 \u2014 203 states that every contract or duty within the scope of the Code has an obligation of good faith. (111. Rev. Stat. 1987, ch. 26, par. 1 \u2014 203.) Other Code sections, such as 1 \u2014 208, and several within articles 2 and 3, specifically identify the obligation of the parties to act in good faith. Just what the term means, however, remains somewhat of a mystery. Its meaning, moreover, may change, depending upon the context in which it is used.\nThe concept of \u201cgood faith,\u201d under the Code, has been the subject of continued debate among the commentators. One has argued that the term \u201cgood faith\u201d has no independent meaning, and can only be determined by excluding that which can be identified as \u201cbad faith.\u201d (Summers, \u201cGood Faith\u201d in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va. L. Rev. 195 (1968).) Another author criticizes this approach and concludes that, in order to learn what \u201cgood faith\u201d means, \u201cwe need to consider the purposes that the concept serves in legal discourse.\u201d (Patterson, Wittgenstein and the Code: A Theory Of Good Faith Performance and Enforcement Under Article Nine, 137 U. Pa. L. Rev. 335, 371 (1988).) Another commentator traces the origin of the term as it became codified in the Code and identifies a distinction between \u201cgood faith purchase\u201d and \u201cgood faith performance.\u201d Farnsworth, Good Faith Performance and Commercial Reasonableness Under the Uniform Commercial Code, 30 U. Chi. L. Rev. 666 (1963).\nIn the article by Professor Patterson cited above, it is suggested that \u201cgood faith,\u201d as used in article 1 of the Code, implies a subjective standard, whereas that term, as used in article 2, implies an objective standard. Section 1 \u2014 201(19) defines good faith as follows: \u201c \u2018Good faith\u2019 means honesty in fact in the conduct or transaction concerned.\u201d Whereas section 2 \u2014 103(l)(b) defines good faith as follows: \u201c \u2018Good faith\u2019 in the case of a merchant means honesty in fact and the observance.of reasonable commercial standards of fair dealing in the trade.\u201d The 1950 draft of the Code did not contain a separate standard of good faith for merchants. In that draft, the good faith definition in article 1, in addition to the honesty in fact definition it now contains, also included the reasonable commercial standards provisions now found in article 2. From this difference in language and the history of the development of the Code, commentators have concluded that, as used in article 1, good faith is to be determined by a subjective test, whereas in article 2 that term implies an objective test. (137 U. Pa. L. Rev. at 380-81.) As it presently appears in the Code, section 1 \u2014 208, which provides that a party may accelerate only if he, in \u201cgood faith,\u201d believes the prospect of payment or performance is impaired, is governed by the definition of \u201cgood faith\u201d as defined in article 1. \u201c[H]onesty in fact in the conduct or transaction concerned,\u201d as noted, the definition in article 1, makes no mention of the commercial reasonableness standard. (111. Rev. Stat. 1987, ch. 26, par. 1 \u2014 201(19).) We construe this to mean that section 1 \u2014 208 permits a creditor to accelerate a debt pursuant to an insecurity clause if that creditor has an honest belief, based on whatever information it has, that the ability of the debtor to repay the debt has in some way become impaired.\nThis test, which at least one court has termed \u201cthe pure heart and empty head\u201d test, appears potentially draconian \u201cbecause of the great latitude it gives the creditor and the onerous burden of proof it imposes on the debtor.\u201d (Black v. Peoples Bank & Trust Co. (Miss. 1983), 437 So. 2d 26, 29.) While the debtor\u2019s burden of proof may be difficult because the debtor must delve into the creditor\u2019s state of mind, the burden is not impossible. That is, the debtor may successfully establish lack of good faith by proving that the creditor did not have possession of the information that the creditor contends caused the acceleration. (Comment, Standards For Insecurity Acceleration Under Section 1 \u2014 208 Of The Uniform Commercial Code: A Proposal For Reform, 13 U. Mich. J.L. Ref. 623, 642 (1980).) Similarly, the debtor can establish that the creditor had possession of the information that it asserts caused it to accelerate at the time the loan was made and, as such, the creditor cannot honestly feel less secure than it did when the loan was made.\nThe severity of recognizing the subjective test contemplated by section 1 \u2014 208 while at the same time placing the burden of proof on the debtor to establish the creditor\u2019s subjective lack of good faith, as that section also requires, is tempered by other Code sections. For instance, section 1 \u2014 103 allows courts to supplement the U.C.C. with common law principles and equity where the Code does not specifically displace them. (111. Rev. Stat. 1987, ch. 26, par. 1 \u2014 103.) Additionally, the general obligation of good faith found in section 1 \u2014 203 is \u201cfurther implemented by [sjection 1 \u2014 205 on course of dealing and usage of trade.\u201d (111. Ann. Stat., ch. 26, par. 1 \u2014 203, Uniform Commercial Code Comment, at 58-59 (Smith-Hurd 1963).) While these provisions do not go as far as measuring a creditor\u2019s actions by a \u201creasonable accelerator\u201d standard, they do insure that a creditor will not be permitted to accelerate in a manner that is contrary to an established course of performance or course of dealing between the parties, in violation of the clear intention of the parties, or in a manner that is inconsistent with the express practices of the industry.\nAn obligation to act in a commercially reasonable manner, however, is clearly not a part of section 1 \u2014 208. As noted, while this requirement may have appeared in early drafts of article 1, it ultimately made its way only into article 2 of the U.C.C. (30 U. Chi. L. Rev. at 673.) We must conclude that the drafters did so purposely, finding perhaps that inclusion of the \u201ccommercially reasonable\u201d standard for acceleration would detrimentally affect the cost and availability of credit, and that this outweighed any potential for abuse that the provision posed.\nThe question of whether a particular creditor has in fact acted in good faith provides the focus of litigation involving section 1 \u2014 208. Most courts that have addressed the issue have determined that the test of good faith is subjectively measured. These courts have determined that a creditor acts properly in exercising an insecurity clause so long as it does so honestly, irrespective of whether it acts reasonably. Quest v. Barnett Bank (Fla. App. 1981), 397 So. 2d 1020; Builders Transport, Inc. v. Hall (1987), 183 Ga. App. 812, 360 S.E.2d 60; Ginn v. Citizens & Southern National Bank (1978), 145 Ga. App. 175, 243 S.E.2d 528; Farmers Cooperative Elevator, Inc. v. State Bank (Iowa 1975), 236 N.W.2d 674; Van Bibber v. Norris (1981), 275 Ind. 555, 419 N.E.2d 115 (apparently applying a subjective test); Karner v. Willis (1985), 238 Kan. 246, 710 P.2d 21; Fort Knox National Bank v. Gustafson (Ky. 1964), 385 S.W.2d 196; Rigby Corp. v. Boatmen\u2019s Bank & Trust Co. (Mo. App. 1986), 713 S.W.2d 517; Salsbery v. Ford Motor Credit Co. (1981), 54 Or. App. 522, 635 P.2d 669; Van Horn v. Van De Wol, Inc. (1972), 6 Wash. App. 959, 497 P.2d 252.\n\u2022 Several other courts, however, have chosen to impart an objective element into the test of whether a creditor has acted in good faith in accelerating a debt. In Kupka v. Morey (Alaska 1975), 541 P.2d 740, 747, the Alaska Supreme. Court held that, in order to enforce an insecurity clause, \u201cthe party invoking the clause must reasonably and in good faith believe that the prospect of payment or performance has somehow been impaired.\u201d In support of this conclusion, the court looked to article 2, and cited Sheppard Federal Credit Union v. Palmer (5th Cir. 1969), 408 F.2d 1369. The Sheppard court came to the following conclusion:\n\u201cIn his excellent treatise on security interests, Professor Gilmore indicates that the language of UCC \u00a7 1 \u2014 208 means in substance that \u2018[t]he creditor has the right to accelerate if, under all the circumstances, a reasonable man, motivated by good faith, would have done so.\u2019 \u201d (408 F.2d at 1371 n.2, quoting 2 G. Gilmore, Security Interests in Personal Property \u00a743.4, at 1197 (1965).)\nWe must disagree with the professor\u2019s conclusion on this question. There appears to have been some debate as to whether the standard of commercial reasonableness would become part of section 1 \u2014 208. Professor Gilmore might even have been a proponent of such a standard when the Code was being drafted. The absence of such a standard in section 1 \u2014 208, however, is conspicuous. We are not able to insert such a provision where the drafters chose to leave it out.\nA Colorado court, in Richards Engineers, Inc. v. Spanel (Colo. App. 1987), 745 P.2d 1031, also concluded that the proper test under section 1 \u2014 208 is whether a reasonable person, under the same circumstances, would have accelerated. It also relied upon Professor Gilmore\u2019s treatise as well as section 1 \u2014 201 of the U.C.C., which states that the definitions, including the definition of \u201cgood faith,\u201d apply only if the context in which they are used does not require otherwise. (Richards, 745 P.2d at 1032.) We are not convinced, as was this Colorado appellate court, that the context of an insecurity clause mandates that we abandon the definition provided in article 1, which is also the definition to which section 1 \u2014 208 is specifically cross-referenced in the Uniform Commercial Code comment. (See Ill. Ann. Stat., ch. 26, par. 1 \u2014 208, Uniform Commercial Code Comment, at 80-81 (SmithHurd 1963).) This Colorado appellate court also expressed concern for the \u201cinequity of a purely subjective standard.\u201d (Richards, 745 P.2d at 1033.) Equity, however, although a legitimate concern in this area, is something that must be decided on a case by case basis and cannot appropriately provide the basis for adopting a general rule of law that is contrary to the clear meaning of the statute.\nThe defendants cite an Indiana appellate court case. (Universal C.I.T. Credit Corp. v. Shepler (1975), 164 Ind. App. 516, 329 N.E.2d 620.) In Universal, the court concluded that \u201cto be in good faith the creditor must make a diligent and honest effort to discover from all available sources that the security is greatly impaired.\u201d (Universal, 164 Ind. App. at 521, 329 N.E.2d at 623.) While this might be the best rule, it is simply not the rule that the Code drafters adopted. The Universal court also stated that adoption of the subjective test would render section 1 \u2014 208 meaningless. We disagree. While the burden on the debtor is great, it is not insurmountable. Because of the safety nets provided by sections 1\u2014 103 (applicability of principles of equity) and 1 \u2014 203 (general requirement of good faith in performance and enforcement of contract or duty which is broader than good-faith requirement of section 1 \u2014 208), courts have the opportunity to refuse to enforce accelerations that are purely arbitrary or baseless. We also note that the persuasive value of Universal is suspect considering the Indiana Supreme Court opinion in Van Bibber v. Norris (1981), 275 Ind. 555, 566, 419 N.E.2d 115, 122, which stated the following:\n\u201cWe note, however, that the absence of a similar burden of observing \u2018reasonable commercial standards\u2019 on a secured party reflects the Code drafters\u2019 recognition that sales transactions are more amenable to establishment of \u2018reasonable commercial standards\u2019 than are the relations between secured parties and debtors.\u201d\nThe Mississippi Supreme Court, citing Universal, Professor Gilmore\u2019s treatise and its own pre-Code law, also concluded that a creditor\u2019s belief that the prospect of payment has been impaired must be reasonable. (Black v. Peoples Bank & Trust Co. (Miss. 1983), 437 So. 2d 26, 29.) The supreme court of Oklahoma came to the same conclusion, citing Professor Gilmore\u2019s treatise in a footnote. Mitchell v. Ford Motor Credit Co. (Okla. 1984), 688 P.2d 42, 45 n.5.\nThe author of a well-known general treatise on the U.C.C. has criticized this line of cases. (1 R. Anderson, Uniform Commercial Code \u00a71 \u2014 208:47 (3d ed. 1981).) This author states that the confusion stems from the fact that there is a pseudo-objective element to which courts look when determining the credibility of the creditor\u2019s assertion that it felt that the security had become impaired:\n\u201cAs a practical matter, it can be expected that there is a theoretical breaking point and that the trier of fact will reach the conclusion that the non-merchant did not honestly believe when the circumstances are such that the trier does not think that any reasonable person could have possibly believed as the non-merchant claims to have believed.\u201d (1 R. Anderson, Uniform Commercial Code \u00a71-208:47, at 463 (3d ed. 1981).)\nIndeed, the question of whether a witness is credible is always an issue to be determined by the trier of fact. The proper inquiry, however, is whether the secured party acted honestly, not whether the secured party acted reasonably.\nA popular U.C.C. hornbook, however, concludes differently, stating as follows:\n\u201cSince 1 \u2014 208 requires only that the secured party act in \u2018good faith\u2019 (\u2018honesty in fact\u2019), the Code standard seems to lie somewhere between a strict objective test (reasonable prudent man) and a thoroughly subjective one (whim). The draftsmen apparently intended an objective standard.\u201d (J. White & R. Summers, Hornbook on the Uniform Commercial Code \u00a725 \u2014 3, at 1192 (3d ed. 1988).)\nThese authors also conclude, interestingly, through analyzing several of the cases in this area, that it makes little difference which test prevails because the question whether the creditor acted in good faith in accelerating a debt is answered the same way regardless of whether the test is termed subjective or objective.\nWe conclude that a purely objective test of reasonableness was not intended to be applied to the question of whether a secured party has a good-faith belief that the prospect of payment or performance has become impaired. We likewise conclude that a moderating influence brought to bear on section 1 \u2014 208 by sections 1 \u2014 103 and 1 \u2014 203, and the incorporation into the definition of good faith of the honesty in fact in the conduct or transaction concept of section 1 \u2014 201, prevents an arbitrary or capricious exercise of the power to accelerate the maturity of an instrument. Although we adhere generally to the belief that section 1 \u2014 208 incorporates a subjective rather than an objective test, we find that because of the effect of the other sections mentioned, the test is not purely subjective. A certain amount of objectivity is involved in ascertaining the honesty in fact concept of good faith. This requirement insists that the desire to accelerate be based on more than the mere whim of the obligee.\nOfficers of Watseka Bank stated, at trial, that the reason it accelerated these notes was because it became obvious that Ward would have an insufficient cash flow, due to the small yields caused by the drought, to pay the installments on the operating loan and the capital debt. Ward\u2019s inability to meet his obligation is, apparently, not in dispute. While Watseka Bank might have had knowledge of Ward\u2019s historically poor cash flow, and the interests of Iroquois First State Bank and Robert Taylor, when it made the loan, it did not know that there would be a drought, with the resulting decreases in yields of the crops. Additionally, the Rudas, who were the guarantors, refused to cooperate after the meeting with the bank officials in October 1983. They did not take steps to liquidate farmland to raise funds to apply to the debt, as was discussed at that meeting. The Rudas also affirmatively avoided all contact with the bank. Although the Rudas\u2019 net worth may well have been sufficient to liquidate the obligation, from the Rudas\u2019 lack of cooperation there was reason for the bank to honestly believe that their farmland would not voluntarily be sold so that the obligation could be paid at maturity. The Rudas did not offer any evidence that the bank did not possess this information when it decided to accelerate the debt, or that the bank had this information when it chose to make the loans. In fact, the evidence is to the contrary. As such, the bank must prevail under the subjective test articulated here.\nWe are cognizant of the fact that the rule set forth in this case, that a creditor acts in good faith when exercising an acceleration clause so long as it acts honestly, irrespective of whether the \u201creasonable creditor\u201d would have accelerated under the same circumstances, has a potential for abuse. We assume, however, that the Code drafters were also aware of this potential when they excluded from section 1 \u2014 208 the duty to act in a commercially reasonable manner. While several courts in other jurisdictions have found unique ways to incorporate an objective element into the test of good faith (see Blaine v. G.M.A.C. (1975), 82 Misc. 2d 653, 370 N.Y.S.2d 323 (two-tiered test)), we choose rather to follow the majority of jurisdictions that apply the statute as it is written.\nIn light of this debate, there is no question that the Code drafters could have done a better job composing section 1 \u2014 208. In fact, the entire concept of good faith as it appears in the U.C.C. is in need of clarification. The fact that courts and commentators have strikingly divergent views of what the term \u201cgood faith\u201d means in section 1 \u2014 208, and in other parts of the Code, is \u201cantithetical to the idea of a uniform commercial code.\u201d (Emphasis in original.) (13 U. Mich. J.L. Ref. at 644.) Inconsistency and lack of clarity may unfortunately be the inevitable consequence of a statute that was subject to extreme lobbying efforts and was the result of political compromise. Reform, however, will have to come from the legislature, not this court.\nBecause there is no evidence in the record in this case that Watseka Bank did not actually possess the information it claims caused it to accelerate, or that Watseka Bank actually possessed the information it asserts caused it to accelerate at the time it made the loans, the inevitable conclusion is that the Rudas have failed to establish a lack of good faith. As such, we must reverse the appellate court as to this issue. The findings of the circuit court are unclear, however, and, in any event, it must determine the proper judgment amount in light of this opinion. We therefore remand this cause to the circuit court for further proceedings consistent with this opinion.\nDefendants argue on cross-appeal that they were entitled to notice of the sale of the collateral pursuant to section 9 \u2014 504(3) of the Code (Ill. Rev. Stat. 1987, ch. 26, par. 9 \u2014 504(3)). This section requires that the secured party provide notice to the debtor, which includes a guarantor (Commercial Discount Corp. v. Bayer (1978), 57 Ill. App. 3d 295, 299), of the details of the disposition of the collateral. We concur with the logic of the appellate court in Midwest Bank & Trust Co. v. Roderick (1985), 132 Ill. App. 3d 463, 468, which held that the notice provision in section 9 \u2014 504 pertains only to dispositions that the secured party effects. We hold, in the present case, that the trial court\u2019s conclusion that the debtor, Ken Ward, sold the property himself, not the bank, is not contrary to the manifest weight of the evidence.\nFor the reasons stated, the judgment of the appellate court is reversed, the judgment of the circuit court is affirmed in part and reversed in part, and the cause is remanded to the circuit court of Iroquois County.\nAppellate court reversed; circuit court affirmed in part and reversed in part; cause remanded.", "type": "majority", "author": "JUSTICE RYAN" } ], "attorneys": [ "Robert R. Watson and Melville W. Washburn, of Sidley & Austin, of Chicago, and Frank J. Simutis, of Ackman, Marek, Boyd & Simutis, Ltd., of Watseka, for appellant.", "Ronald E. Boyer, of Boyer & Thompson, Ltd., of Watseka, for appellees." ], "corrections": "", "head_matter": "(No. 68075.\nWATSEKA FIRST NATIONAL BANK, Appellant, v. FRANK RUDA et al., Appellees.\nOpinion filed February 16, 1990.\nRehearing denied April 9, 1990.\nRobert R. Watson and Melville W. Washburn, of Sidley & Austin, of Chicago, and Frank J. Simutis, of Ackman, Marek, Boyd & Simutis, Ltd., of Watseka, for appellant.\nRonald E. Boyer, of Boyer & Thompson, Ltd., of Watseka, for appellees." }, "file_name": "0140-01", "first_page_order": 150, "last_page_order": 169 }