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No. 102,853 IN THE COURT OF APPEALS OF THE STATE OF KANSAS BANK OF AMERICA, N.A., Appellant, v. SANJIV NARULA, INDUBALA NARULA, and PROMOTIONAL RESOURCES, INC., Appellees.

SYLLABUS BY THE COURT 1. An appellate court reviews a trial court's findings of fact to determine if the findings are supported by substantial competent evidence and are sufficient to support the trial court's conclusions of law. Substantial competent evidence is such legal and relevant evidence as a reasonable person might regard as sufficient to support a conclusion.

2. The interpretation of written agreements is a matter of law, and review is unlimited. Regardless of the construction given a written contract by the trial court, an appellate court may construe a written contract and determine its legal effect.

3. The first-to-breach rule precludes a party who has first materially breached a contract from attempting to enforce that contract until the breach is cured and entitles the nonbreaching party to suspend or terminate performance under that contract as long as the breach remains uncured.

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4. To be enforceable, every contract must be supported by adequate legal consideration. Moreover, a modification of a written contract must be supported by consideration that is independent and separate from the original consideration supporting the contract.

5. The adequacy of consideration on a release is normally for the trier of fact, and an appellate court reviews for substantial competent evidence.

6. Fraud is never presumed and must be established by clear and convincing evidence. The existence of fraud is normally a question of fact. The standard of review on appeal is limited to determining whether the trial court's findings of fact are supported by substantial competent evidence and whether the findings are sufficient to support the trial court's conclusions of law.

7. The elements of an action for fraud include an untrue statement of fact, known to be untrue by the party making it, made with the intent to deceive or with reckless disregard for the truth, upon which another party justifiably relies and acts to his or her detriment.

8. A duty to disclose arises when the party in a business transaction knows that the other party is about to enter into a contract or business transaction under a mistake about facts basic to the contract or the business transaction, and that the other party, because of the relationship between them, the customs of the trade, or other objective circumstances, would reasonably expect disclosure of those facts. 2

9. To constitute duress by threats, the actor's manifestation must be made for the purpose of coercing the other; must have for its object the securing of undue advantage with respect to the other; must be of such a character that it is adapted to overpower the will of the other and is reasonably adequate for the purpose; must in fact deprive the other of free exercise of will; and must cause the other to act to his or her detriment.

10. A breach of contract is a material failure of performance of a duty arising under or imposed by agreement.

11. The duty of good faith and fair dealing is implied in every contract, with the exception of employment-at-will contracts. The duty includes not intentionally and purposely doing anything to prevent the other party from carrying out his or her part of the agreement or doing anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.

12. The determination of a fiduciary relationship is essentially a factual one. Whether a confidential or fiduciary relationship exists depends on the facts and circumstances of each individual case.

13. A fiduciary relation does not depend upon some technical relation created by, or defined in, law. It may exist under a variety of circumstances and does exist in cases where there has been a special confidence reposed in one who, in equity and good conscience, is bound to act in good faith and with due regard to the interests of the one reposing the confidence. 3

14. A duty to disclose arises when one party has information that the other party is entitled to know because of a fiduciary or similar relation of trust and confidence between them.
Appeal from Johnson District Court; J. CHARLES DROEGE, judge. Opinion filed July 29, 2011. Affirmed.

Christine L. Schlomann, David L. Going, and Thomas B. Weaver, of Armstrong Teasdale LLP, of Kansas City, Missouri, for appellant.

Robert J. Bjerg, of Colantuono Bjerg Guinn, LLC, of Overland Park, and Michael D. Strobehn, of Walters, Bender, Strobehn and Vaughan, P.C., of Kansas City, Missouri, for appellees.

Before GREENE, C.J., GREEN and LEBEN, JJ.

GREEN, J.: This litigation arises out of a Loan Agreement for the construction of a new office building by the owners: Sanjiv Narula, Indubala Narula, and their closely held business, Promotional Resources, Inc. (the Narulas). Bank of America, N.A., encouraged the Narulas to construct the building. Moreover, it furnished a financing package to the Narulas to construct the building. The package included the Loan Agreement. Under the Loan Agreement, the Narulas received a Construction Loan that required monthly interest-only payments to Bank of America while the building was being constructed. The Loan Agreement also stated that if construction of the building was completed by December 31, 2001, the Construction Loan would automatically convert to a Permanent Loan.

In August of 2004, Bank of America sued the Narulas to foreclose its commercial mortgage on the building and for the breach of the Loan Agreement and note. The Narulas counterclaimed for damages caused by Bank of America's failure to convert the 4

Construction Loan to a Permanent Loan. The Narulas' counterclaims included claims for breach of contract, breach of the covenant of good faith and fair dealing, fraud, negligent misrepresentation, and breach of fiduciary duty. Before trial, the trial court also granted the Narulas leave to amend their counterclaims to assert a claim for punitive damages against Bank of America.

The case was tried to the court. After an 8-day bench trial, the trial court denied Bank of American's claims and granted the Narulas' counterclaims. The trial court awarded the Narulas $793,997 in compensatory damages and $750,000 in punitive damages. Bank of America appeals from the judgment against it on the counterclaims.

On appeal, Bank of America raises a number of issues: (1) whether the trial court correctly ruled that Bank of America was not entitled to recover interest on the note after December 31, 2001, because the bank was the first party to materially breach the Loan Agreement; (2) whether the trial court's finding that the Modification Agreements to the Loan Agreement were unenforceable was supported by substantial competent evidence; (3) whether the trial court's finding that Bank of America breached the Loan Agreement was supported by substantial competent evidence; (4) whether the trial court's finding that Bank of America breached its fiduciary duty to the Narulas was supported by substantial competent evidence; (5) whether the trial court's finding that Bank of America breached its duty of good faith and fair dealing in the Loan Agreement was supported by substantial competent evidence; (6) whether the trial court's award of $386,603 in damages for the forced liquidation of the Narulas' personal investments was supported by substantial competent evidence; and (7) whether the Narulas' claim for punitive damages was properly before the court, and, if so, whether the bank employee's conduct was willful, wanton, or malicious, and whether there was clear and convincing evidence that the conduct on which the court based punitive damages was authorized or ratified by someone at the bank expressly authorized to do so. Finding no reversible error, we affirm. 5

In this complex case, the trial court made the following findings. It found that the Narulas had a long-standing, close relationship with Bank of America. From 1993 until May 2001, the Narulas' principal personal banker, known as a "Relationship Manager," was Charles Wooten, a banker for Bank of America. He met with the Narulas many times and gave them advice on various personal and business financial matters such as working capital lines of credit, management of accounts receivable, creditworthiness of customers, and the Narulas' investment accounts.

The evidence showed that Bank of America handled both the Narulas' business needs and their personal investment funds. Bank of America repeatedly promoted itself to the Narulas as their "Trusted Financial Advisor." Bank of America wanted the Narulas to rely on it for its advice and counsel.

The Narulas, for their part, relied heavily on Bank of America as their "Trusted Financial Advisor" in their personal and business affairs, and Bank of America knew that the Narulas were relying on them for financial advice. Part of this advice dealt with various estate planning and trust issues. In 1998, Bank of America put together a team of estate planning advisors and made presentations to the Narulas on their estate planning needs.

Also in 1998, Promotional Resources, the Narulas' business, was outgrowing its office space. Wooten suggested to the Narulas that they should consider constructing their own building. Wooten told the Narulas that the building could be an important part of their estate plan and could serve as a source of income during their retirement. Wooten even suggested the building site, telling the Narulas that he had another customer who had just finished constructing an office building in the Corporate Lakes division in Overland Park and that construction sites were still available.

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The Narulas liked Wooten's idea but told him that they had no experience in constructing a building or how to finance it. Wooten explained that they should not worry because Bank of America would hold their hand through the entire process. The Narulas agreed, on two conditions: (1) that there be guaranteed financing once the construction of the building was completed; and (2) that the permanent financing carry a fixed interest rate.

Bank of America told the Narulas that although it could provide both the construction and permanent financing for the building, it could not provide them with a fixed rate of interest. Nevertheless, Bank of America told the Narulas that through the use of a swap interest rate protection agreement, they would effectively end up with such a fixed rate of interest. These swap agreements were a profitable source of income for Bank of America. Bank of America earned a fee for placement of each swap agreement, and under its accounting rules, it was allowed to record as income the entire fee at the beginning of the swap transaction rather than spreading the fee over the entire term of the swap agreement. Bank of America encouraged its officers to promote swap agreements to their customers. Bank officers were given incentives to sell swap agreements through their annual bonuses, which were in part based on the number of swap agreements sold by the officers throughout the year.

Bank of America knew that the Narulas had no experience or understanding as to how a swap interest rate product worked. Wooten once again assured the Narulas that Bank of America would guide them through the entire process. Because Wooten lacked experience in the use of swap interest rate products, Bank of America had experts from its derivatives group in Chicago make a powerpoint presentation to the Narulas concerning swap agreements.

Nevertheless, the initial presentation was flawed. Bank of America incorrectly told the Narulas that they would owe a swap termination payment if interest rates rose, but the 7

contrary was true. The Narulas would owe a swap termination payment if interest rates fell. There was evidence in the record that Bank of America had failed to clearly explain to the Narulas what would happen if the bank decided not to make the Permanent Loan: that the Narulas could be charged a substantial termination fee.

On September 29, 2000, Bank of America and the Narulas signed a written Loan Agreement for the construction and financing of the building. Because the Narulas had dealt with Bank of America without counsel before, they did not retain counsel in this instance. The Loan Agreement called for three loans: (1) a Construction Loan in the amount of $1,320,000; (2) a Permanent Loan in the same amount to replace the Construction Loan once the construction of the building was completed; and (3) a Term Loan in the amount of $140,000 for the operation of the Narulas' business.

The Construction Loan was a monthly interest only loan at a variable rate of interest based on London Inter-Bank Offered Rate (LIBOR) plus 2.5%. At the commencement of the Construction Loan, this rate was 9.12%. The projected date for the completion of construction was September 29, 2001, the Construction Loan Maturity Date.

Once the building was completed, the Construction Loan would automatically convert to the Permanent Loan. The Permanent Loan was to be a 5-year term loan amortized over 20 years, also at LIBOR plus 2.5%. Because the Loan Agreement did not contain a financial insecurity provision, the Narulas were not required to obtain new credit approval when the Construction Loan was to be converted to the Permanent Loan. Moreover, Bank of America could not refuse to convert to the Permanent Loan for credit or financial insecurity reasons.

The Narulas also signed a Swap Agreement based on Bank of America's advice. The Swap Agreement was a nonnegotiable, lengthy, pre-printed form in small print that 8

was not shown to the Narulas before signing nor was it explained to them during closing. Bank of America actually had the Narulas sign the wrong forms of the Swap Agreement. Consequently, several months after closing the Loan Agreement, Bank of America asked the Narulas to sign the correct forms, which they did.

The Swap Agreement had a forward rate lock feature, which permitted the Narulas to lock in their swap interest rate during the construction phase of the building. Based on the advice of Bank of America's swap derivative group, the Narulas locked in an 8.76% fixed interest rate under the Swap Agreement on January 29, 2001. Later, in his first personal visit to the Narulas in August 2001, Bank of America Officer Dennis Nicely concluded that the Narulas had no idea as to how the Swap Agreement worked.

In August 2001, Promotional Resources moved into the building as a tenant under a temporary occupancy permit issued by the City of Overland Park. As the original construction deadline of September 29, 2001, approached, the construction was virtually complete except for some minor punchlist items. To provide time for these items, the parties agreed to sign a First Modification and Extension Agreement, which extended the Construction Loan Maturity Date for 3 months to December 29, 2001. Because December 29, 2001, fell on a Saturday, the effective date of the Extension Agreement was dated for December 31, 2001.

At this point, the Narulas were fully current with all their loan payments. Nicely, however, developed concerns as to the Narulas' cash flow and their future ability to service the debt.

Bank of America internally keeps an exposure strategy on all of its outstanding loans, which are divided into three categories: (1) decrease, (2) maintain, or (3) out. Bank of America's exposure strategy had been to maintain the Narulas' loans. Nicely, however, decided that the Narulas' loans should be transferred to the Special Assets Unit in St. 9

Louis for restructuring. This meant that Bank of America wanted to change its loan agreements and notes with the Narulas in a way that would benefit the bank.

David Orf, who worked in the Special Assets unit of the Bank, took over the loans in late October 2001. The Narulas were not initially told about the transfer of their loans, and when they inquired about the transfer of their loans, Bank of America did not explain. Orf changed the exposure strategy of the Narulas' loans to "out." This meant that the bank wanted all of the Narulas' loans out of Bank of America, including the obligation to make the Permanent Loan. Bank of America took this step because of its concern as to the Narulas' cash flow and their ability to service the debt obligations to the bank. Yet, the Loan Agreement contained no provision that allowed Bank of America to refuse to convert the Construction Loan to the Permanent Loan because of cash flow or credit concerns.

As stated earlier, the Narulas were unaware of the change in the exposure strategy, and Orf did not tell them. The Narulas still believed that Bank of America would convert the Construction Loan to the Permanent Loan on December 31, 2001.

Conversion of the Construction Loan to the Permanent loan on December 31, 2001, required two conditions: (1) issuance of a final Certificate of Occupancy by the City of Overland Park; and (2) receipt by Bank of America of appropriate releases of mechanic's liens from all of the contractors and suppliers. The Narulas presented the final Certificate of Occupancy to Bank of America on or about December 18, 2001. Moreover, the parties further stipulated in this action that construction of the building was physically completed by December 31, 2001.

As to the second condition, on December 31, 2001, the general contractor faxed to Bank of America a final lien waiver for all of its work on the building contingent only on receipt of a final payment from Bank of America in the amount of $17,506. The Loan 10

Agreement permitted lien waivers to be "either appropriate unconditional or conditional (conditioned only on payment)." Bank of America officers, including Nicely and Orf, testified at trial that an appropriate release under the Loan Agreement could be a conditional lien release that was contingent only on payment.

When Bank of America failed to convert the Construction Loan to the Permanent Loan on December 31, 2001, it continued to pursue its strategy to "out" the Narulas' loans. In mid-January 2002, Orf contacted the Narulas and told them that they needed to sign another Modification and Extension Agreement to extend the Construction Loan Maturity Date. Orf stated that another extension was necessary to process the final draw of $17,506 to the general contractor.

Nevertheless, Orf's real intention seemed to be the removal of Bank of America's obligation to make the Permanent Loan in the Loan Agreement. With the assistance of legal counsel, Bank of America prepared a Second Modification and Extension Agreement containing an inconspicuous provision that deleted the bank's obligation to make the Permanent Loan. Bank of America's counsel intentionally prepared the Second Modification and Extension Agreement to look almost like the First Modification and Extension Agreement. Bank of America's counsel did that to disguise the provision removing the bank's obligation to make a Permanent Loan. The trial court quoted the January 18, 2002, e-mail to Orf from Bank of America's counsel to establish this fact.

Orf did not tell the Narulas of the actual intent behind the Second Modification and Extension Agreement. He told them that Bank of America had been unable to make the Permanent Loan because the final draw had not been paid to the general contractor. Although the Narulas were on a business trip to Chicago, Orf sent the agreement to them by overnight delivery, insisting that they immediately sign the Second Modification and Extension Agreement and return the agreement to him by overnight delivery. When the

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Narulas inquired whether the matter could wait until they returned home, Orf stated that it could not.

Orf told the Narulas that they were required to immediately sign the extension agreement because the Construction Loan had matured on December 31, 2001. He further warned them that if they did not sign the document, the entire balance of nearly $1.32 million would immediately become due and payable. Orf knew that the Narulas could not pay the entire balance. Additionally, he told them that the failure to pay the entire balance would result in a foreclosure on the building.

When the Narulas received the Second Modification and Extension Agreement in Chicago, it looked identical to the First Modification and Extension Agreement that they had signed a few weeks before. Believing it was just a short extension of the Construction Loan Maturity Date to process the final payment to the general contractor, the Narulas signed the document the same day and returned it to Orf, as directed, by overnight delivery.

Orf did not tell the Narulas at that time that the Swap Agreement had a negative balance of nearly $100,000. Moreover, Orf had known the Swap Agreement was underwater for several months, but he did not tell the Narulas that by signing the Second Modification and Extension Agreement, they would be liable for such a substantial termination fee when the Construction Loan matured on February 4, 2002.

After the Narulas signed and returned the Second Modification and Extension Agreement, Orf told them that Bank of America wanted them to find another lender for their loans. Orf did not tell them that Bank of America would never make the Permanent Loan as originally promised in the Loan Agreement. Instead, he told the Narulas that Bank of America would continue to work with them towards restructuring their loans.

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When the Narulas tried to find another lender, interest rates had fallen substantially since the commencement date of their loan: from 9.12% to approximately 4.25%. That being so, the Narulas were anxious to see if they could obtain a lower rate on their loan from another lender. During this process, however, the Narulas learned that because the interest rates had fallen significantly since the date they locked in their swap interest rate, they would incur a very substantial swap termination fee if they paid off and terminated their loan with Bank of America. Because this would push them into an unfavorable debt to equity ratio, the Swap Agreement prevented other lenders from viewing the Narulas as a good credit risk. They were unable to secure a loan to pay off Bank of America's loans.

At that point, the Narulas were basically out of options. With practically no bargaining power left, the Narulas chose to sign another Modification and Extension Agreement presented by Bank of America. First, however, Bank of America asked the Narulas to begin the process of liquidating funds from their personal investment accounts to pay down the balance of the corporate line of credit. The Narulas reluctantly conceded to the demands of the bank to liquidate their personal investment accounts.

On May 31, 2002, the parties signed a Third Modification and Extension Agreement that extended the Construction Loan to October 15, 2002, and changed the interest rate "from LIBOR plus 2.5% to Prime plus 3.0%, with a minimum monthly payment of $12,500." This increased the total interest rate under the Construction Loan from 8.76% to 12.16%. The Narulas' total monthly interest payments were increased from approximately $11,600 to approximately $17,500.

Contrary to the Narulas' instructions, Bank of America began making trades in one of the Narulas' investment accounts. On July 11 and 12, 2002, the bank simultaneously bought and sold over $115,000 in mutual funds in the Narulas' account, which resulted in commissions being paid to Bank of America. It then required the Narulas to liquidate 13

their investment accounts and to pay off the entire balance of the line of credit as a condition to the Fourth Modification and Extension Agreement.

After the line of credit was paid off, the Term Loan was rolled into the Construction Loan. The Construction Loan now totaled $1.5 million, and this was the only remaining note. On October 9, 2002, the parties signed a Fourth Modification and Extension Agreement that extended the maturity of the Construction Loan to March 31, 2003.

On April 1, 2003, Bank of America sent the Narulas a written Notice of Default. Bank of America gave the Narulas 10 days to pay in full the entire balance of the Construction Loan of $1,481,997. On April 11, 2003, Bank of America demanded a swap termination fee as a result of an early termination of the Swap Agreement in the amount of $183,918.38. When the Narulas failed to pay the balance of the Construction Loan and the swap termination fee, Bank of America sued the Narulas in August of 2004.

As noted earlier, the trial court ruled for the Narulas. Basing its ruling on breach of contract, breach of the duty of good faith and fair dealing, lack of consideration, breach of fiduciary duty, negligent misrepresentation, and fraud, the trial court awarded compensatory damages of $763,997, plus prejudgment interest. The trial court offset this amount against the unpaid principal balance of the Construction Loan, which totaled $1,481,997. The trial court further determined that Bank of America was not entitled to any interest payments after the date of its breach, December 31, 2001. The trial court also found Bank of America liable for punitive damages in the amount of $750,000.

Bank of America then brought the present action.

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Standard of Review

We "generally" review a trial court's "findings of fact to determine if the findings are supported by substantial competent evidence and are sufficient to support the [trial] court's conclusions of law." Hodges v. Johnson, 288 Kan. 56, 65, 199 P.3d 1251 (2009). "Substantial competent evidence is such legal and relevant evidence as a reasonable person might regard as sufficient to support a conclusion." 288 Kan. at 65. Where the question turns on the interpretation of written documents, our review is unlimited. Shamburg, Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009).

Releases

Bank of America first argues that the Narulas released it from liability by signing the Second, Third, and Fourth Modification and Extension Agreements. All of these Agreements included the following language: "As a material inducement to [Bank of America] to enter into this Agreement, [the Narulas] hereby . . . . release, acquit and forever discharge [Bank of America] . . . from any and all claims . . . now known, suspected, or unknown." (Emphasis added.) The First Modification and Extension Agreement contained similar language, but it released only those claims "now known or suspected." (Emphasis added.) Bank of America's counsel, in the January 18, 2002, email to Orf regarding the Second Modification and Extension Agreement, stated: "I changed the release provision a bit . . . to add a release for unknown claims--it may be unenforceable, but I like to have it there anyway."

The change to the Second Modification and Extension Agreement is telling. Bank of America would have known that any claims arising from its decisions were unknown to the Narulas in mid-January 2002. With respect to the enforcement of such releases, "Kansas is among the states where language in a release which purports to relinquish 15

unknown claims as well as known claims is not viewed as conclusive on its face. [Citations omitted.]" Ferguson v. Schneider National Carriers, Inc., 826 F. Supp. 398, 400 (D. Kan. 1993). The trial court refused to enforce the releases for several reasons, and we will consider each separately.

Lack of Consideration

The trial court first held that the Second Modification and Extension Agreement was "unenforceable because it is not supported by adequate legal consideration." Bank of America, however, maintains that it did provide consideration. The adequacy of consideration on a release is "normally for the trier of facts," Fieser v. Stinnett, 212 Kan. 26, 28, 509 P.2d 1156 (1973), with review for substantial competent evidence. See Wichita Clinic v. Louis, 39 Kan. App. 2d 848, 868, 185 P.3d 946, rev. denied 287 Kan. 769 (2008).

The trial court found "only two potential forms of consideration." The first was language in the Second Modification and Extension Agreement mentioning "Ten Dollars ($10.00) and other good and valuable consideration." The trial court found "the $10.00 was never paid by [Bank of America] to the Narulas," and Bank of America does not contest this finding.

The second form of consideration was "the extension of the Construction Maturity Date from December 31, 2001 to February 4, 2002." Bank of America maintains on appeal that "[w]ithout an extension of the Maturity Date, [the] Narulas could not receive the final disbursement." The trial court treated this consideration as illusory, however, because "the two prerequisites for the conversion of the Permanent Loan . . . had already been satisfied by December 31, 2001: (1) the issuance of a Certificate of Occupancy; and (2) 'appropriate releases' of mechanic's liens." Thus, the trial court reasoned that "an extension of the Construction Loan Maturity Date gave nothing of benefit or value to the 16

Narulas. Only the Bank benefited from the extension, so that it could issue its final payment to the general contractor."

By contrast, Bank of America argues that the trial court "confused the conditions precedent for the Permanent Loan with the conditions for the disbursement of the final holdback. Even if the Narulas satisfied the conditions precedent for the Permanent Loan, they did not satisfy the conditions precedent for the final disbursement prior to December 31, 2001." Bank of America relies upon Section 9 of the Loan Agreement, which governed "final Disbursement of the Holdback." The Holdback was defined as "10%" of the "hard construction costs" on the building. Section 9 required both "Certificates of Completion" and a "final unconditional lien waiver or release" before Bank of America was required to disburse the Holdback. Bank of America contends that because both conditions were not met by December 31, 2001, it "had no obligation to disburse the [Holdback]" and that "[a]fter that date, [it] could not make any disbursements unless the Maturity Date was extended."

Bank of America raised this argument below, where it identified a "Holdback amount of $18,000." The trial court, however, rejected this argument. Nevertheless, if we assume the amount in question was the Holdback, Bank of America is partially correct. The conditional lien release it received on December 31, 2001, was not a "final unconditional lien release" as required by the Loan Agreement for final disbursement because it was conditioned on payment of $17,506.

Bank of America further assumes that final disbursement must have occurred on or before the Construction Loan Maturity Date. On the contrary, we do not read the written provisions that way. The general contactor's conditional release made the release "contingent upon receipt of payment," and it showed a "Contract Balance" of "-0-" based on "Current Payment" of $17,506. Moreover, according to the Loan Agreement, the Narulas appointed Bank of America as "their true and lawful attorney in fact to make 17

Disbursements directly, or jointly with the [Narulas], in [Bank of America's] sole discretion, to . . . [t]he General Contractor . . . or other party in payment of amounts due under construction contracts relating to the Improvements." As a result, Bank of America needed "[n]o further authorization" from the Narulas "to authorize [it] to make such Disbursements, and all such Disbursements shall satisfy [Bank of America's] obligations hereunder." Taking this all together, the general contractor's conditional release was also a claim for payment upon Bank of America.

When we consider that under the Loan Agreement, "[t]he proceeds of the Permanent Loan shall be used . . . solely to pay off the principal and interest balances of the Construction Loan on or before the Construction Loan Maturity Date," we can conclude that claim was made for the Holdback by the Construction Loan Maturity Date of December 31, 2001. Final disbursement, however, was not required because the release provided to Bank of America was still conditional. Yet, conversion to the Permanent Loan was required because, for that action, a conditional release was sufficient.

When the Narulas met the conditions precedent for conversion to the Permanent Loan on December 31, 2001, as Bank of America concedes for the sake of this argument, conversion should have occurred. All things considered, Bank of America, not the Narulas, created the need to extend the Construction Loan Maturity Date when it decided the Permanent Loan was not in its best interests. The extension did not benefit the Narulas, and the Second Modification and Extension Agreement therefore failed for a lack of consideration. As a result, the trial court properly determined that this one-sided bargain failed for lack of consideration. See Robbins v. City of Wichita, 285 Kan. 455, 471-72, 172 P.3d 1187 (2007).

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Prior material breach

The trial court also held that the Second, Third, and Fourth Modification and Extension Agreements were unenforceable because Bank of America was the first party to materially breach the Loan Agreement when it failed to convert the Construction Loan to the Permanent Loan on December 31, 2001. The trial court reasoned that "a party who has first materially breached a contract is precluded from attempting to enforce that contract until the breach is cured. As a result, all of the subsequent Modification and Extension Agreements are unenforceable . . . because [Bank of America] was in material breach of the Loan Agreement." Nevertheless, Bank of America contends that the material breach rule does not apply because the Second, Third, and Fourth Modification and Extension Agreements were "separate agreements supported by consideration." Breach is itself a question of fact, Wichita Clinic, 39 Kan. App. 2d at 868; but here, we are exercising unlimited review over the trial court's conclusion of law regarding the effect of a first material breach. See Owen Lumber Co. v. Chartrand, 283 Kan. 911, 91516, 157 P.3d 1109 (2007).

We have previously determined that the Second Modification and Extension Agreement was not supported by adequate consideration. We agree with Bank of America, however, that the Narulas could have released it from any claims for a prior material breach. See Frye v. St. Thomas Health Services, 227 S.W.3d 595, 612 (Tenn. Ct. App. 2007) (employer breaching employment contract "remains liable for breach . . . unless the facts clearly demonstrate a fairly bargained for release of the employer"). A release presumes a claim to be released.

Here, we determine that the trial court erred in holding any releases between the parties were unenforceable simply because Bank of America had committed a prior breach of the Loan Agreement. Conversely, this does not mean any releases were "fairly obtained and understandingly executed." Railway Co. v. Goodholm, 61 Kan. 758, 19

Syl.

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