Bank of Kansas v. Davison

• Decision Date: 29 October 1993
• Docket Number: No. 68925,68925
• Citation: 861 P.2d 806,253 Kan. 780
• Parties: BANK OF KANSAS, Appellant, v. Charles W. DAVISON and Connie L. Davison; The State of Kansas Department of Revenue; First National Bank of Kingman; First Federal Savings and Loan Association of Hutchinson; Transamerica Commercial Finance Corporation; Patricia O. Simpson; Wurlitzer Music Stores, Inc.; Bank of Inman; Yamaha Corporation of America; Emprise Bank; and Thomas Burns, Appellees.
• Court: Kansas Supreme Court

Page 806

861 P.2d 806

253 Kan. 780

BANK OF KANSAS, Appellant, v. Charles W. DAVISON and Connie L. Davison; The State of Kansas Department of Revenue; First National Bank of Kingman; First Federal Savings and Loan Association of Hutchinson; Transamerica Commercial Finance Corporation Patricia O. Simpson; Wurlitzer Music Stores, Inc.; Bank of Inman; Yamaha Corporation of America; Emprise Bank; and Thomas Burns, Appellees.

No. 68925.

Supreme Court of Kansas.

Oct. 29, 1993.

Syllabus by the Court

1. A mortgagee has the right to show any fact that will defeat or postpone the interest of a competing lien creditor.

2. A corporate mortgagee bank has standing to assert the homestead exemption of a mortgagor to protect its mortgage lien.

3. Collateral estoppel prevents a second litigation of the same issues between parties or their privies.

4. Sales tax liens properly filed are not in fact judgments, but rather are only treated in the same manner as judgments.

5. A sales tax warrant filed with the clerk of the district court creates a valid lien pursuant to K.S.A. 79-3617 even though it is not delivered to the sheriff prior to filing with the clerk of the court.

6. A sales tax lien attaches to real property which is subject to a claim of homestead exemption under Article 15, § 9 of the Kansas Constitution.

7. The rights possessed by the State of Kansas as a sales tax lienholder include the right to force a sale to satisfy the lien.

Stuart R. Collier, of Arn, Mullins, Unruh, Kuhn & Wilson, Wichita, argued the cause, and Roger K. Wilson, of the same firm, was with him on the briefs, for appellant.

John Michael Hale, of Kansas Dept. of Revenue, argued the cause, and Jay D. Befort, of the same agency, was with him on the brief for appellee, Kansas Dept. of Revenue.

ABBOTT, Justice:

Bank of Kansas appeals the validity of sales tax liens and their attachment and enforceability against homestead property. The trial court held the Bank lacked standing and was estopped from challenging the validity of the sales tax liens and ordered the homestead property subject to the sales tax liens sold to satisfy the liens. This appeal followed.

Charles W. and Connie Davison own real estate in Reno County that is now and has been their homestead since they purchased it in March 1969.

On July 15, 1988, the Kansas Department of Revenue (KDR) filed a sales tax warrant with the Clerk of the District Court of Reno County, Kansas, Case No. K-587-B, in the principal amount of $24,041.99 against Charles W. Davison, Connie Davison, and Nelson Music Co., Inc. On September 2, 1988, KDR filed a sales tax warrant with the Clerk of the District Court of Reno County, Kansas, Case No. K-592-A, in the principal amount of $10,363.10 against Charles W. Davison (and others not parties herein).

On April 25, 1990, Charles W. Davison and Connie Davison executed a mortgage on the real estate in favor of Bank of Kansas. The mortgage was recorded in the Reno County Register of Deeds Office in the principal amount of $140,000.

On October 11, 1991, Bank of Kansas commenced a foreclosure action against Charles W. Davison and Connie Davison in the Reno County District Court, joining as defendants KDR and other parties alleged to have liens against the Davisons individually or jointly or against the real estate. KDR filed its answer and cross-claim on November 12, 1991, seeking foreclosure of its sales tax liens against Charles W. Davison and Connie Davison. Both Bank of Kansas and KDR requested the district court to determine the priority of the liens involved.

Bank of Kansas and KDR each moved for partial summary judgment. Bank of Kansas contended that KDR's sales tax liens were not valid because KDR failed to follow the proper filing procedure and that the Homestead Act, Article 15, § 9 of the Kansas Constitution, prohibited attachment and enforcement of the sales tax liens because the real estate was the homestead of the Davisons. KDR contended that Bank of Kansas lacked standing to challenge the sales tax liens, that Bank of Kansas was estopped from collaterally attacking the sales tax liens, that the liens were in fact properly filed, and that sales tax liens can attach to and be enforced against homestead property.

The trial court held that Bank of Kansas lacked standing to assert defects in KDR's filing of the sales tax warrants, that the sales tax judgments did attach to the homestead real estate, that the Bank's motion for partial summary judgment was denied, and that KDR's motion for partial summary judgment was granted. KDR's liens were declared first and prior liens.

The trial court determined that KDR's sales tax liens in the total amount of $52,254.58 plus interest were first and prior liens against the real estate and ordered the real estate sold to satisfy these liens if the Davisons did not pay the liens within 10 days. The court also ordered that Bank of Kansas have a judgment against the Davisons in the amount of $139,631.60 plus interest, title insurance expense, and all expenses incurred by Bank of Kansas in preserving the real estate, that the mortgage be foreclosed, and that the real estate be sold if the judgment was not paid within 10 days. The judgment in favor of Bank of Kansas was determined to be a second lien on the real estate.

I. STANDING

KDR asserts that Bank of Kansas lacks standing to challenge the sales tax liens because the Bank was not a "real party in interest" to the filing of the sales tax liens. KDR contends that Bank of Kansas is attempting to step into the shoes of the Davisons and assert the rights the Davisons might have. KDR further contends that the Davisons no longer have a right to challenge the sales tax liens because they did not pursue the administrative and judicial remedies available to them.

KDR has misconstrued Bank of Kansas' attempts to challenge the sales tax liens. Bank of Kansas is not stepping into the Davisons' shoes and challenging the sales tax liens on behalf of the Davisons. Rather, Bank of Kansas is challenging the sales tax liens to protect its own interest in having a lien superior to that of KDR.

More than 100 years ago this court decided a priority controversy between a mortgage lien and a judgment lien as asserted against homestead property. Insurance Co. v. Nichols, 41 Kan. 133, 21 P. 111 (1889). There, this court stated:

"[T]he plaintiff [mortgagee] below had the unquestionable right to show [that the property in question was the homestead of the debtor] for the purpose of showing that beyond all question its mortgage lien was prior and superior to the supposed judgment lien of the German Insurance Company. It had the right to show this fact, not for the benefit of [the debtor], but for the benefit of itself and for the protection of its own rights and interests. [Citation omitted.] Indeed, it is our opinion that whenever a contest arises between two parties as to which has the prior or superior lien upon property owned and occupied by a third person, either party may show any fact that will defeat the other party's lien, or postpone the same so as to render it a subsequent or inferior lien, and this although the fact to be so shown may be that the property is the homestead of the third party." 41 Kan. at 136, 21 P. 111.

See First Nat'l Bank v. Tyler, 130 Kan. 308, 286 P. 400 (1930); Pitney v. Eldridge, 58 Kan. 215, 48 P. 854 (1897); Elwell v. Hitchcock, 41 Kan. 130, 21 P. 109 (1889).

KDR directs this court's attention to the proposition that only the "real party in interest," and not merely any party who will benefit from an adjudication, has standing to sue. See Ryder v. Farmland Mut. Ins. Co., 248 Kan. 352, 807 P.2d 109 (1991); Joe Self Chevrolet, Inc. v. Board of Sedgwick County Comm'rs, 247 Kan. 625, 802 P.2d 1231 (1990); Citizens State Bank of Grainfield v. Kaiser, 12 Kan.App.2d 530, 750 P.2d 422, rev. denied 243 Kan. 777 (1988). KDR contends, therefore, that even though Bank of Kansas will benefit from an adjudication of the validity of KDR's sales tax liens, Bank of Kansas is not the real party in interest.

K.S.A.1992 Supp. 60-217(a) does require that an action be prosecuted in the name of the real party in interest. The real party in interest is " 'the party who, by the substantive law, has the right sought to be enforced.' " Torkelson v. Bank of Horton, 208 Kan. 267, 270, 491 P.2d 954 (1971) (quoting 3A Moore's Federal Practice § 17.02 [2d ed. 1970]. See Ryder, 248 Kan. 352, 807 P.2d 109, Syl. p 5. A discussion of the "real party in interest" is inapplicable here, however. Bank of Kansas is not seeking relief from KDR, but merely a determination that its mortgage lien has first priority. The mistake KDR makes is in its argument that Bank of Kansas cannot challenge the integrity of the prior perfected tax judgments of KDR. This argument directly contradicts the cases cited above which conclude that a mortgagee has the right to show any fact that will defeat or postpone the interest of a competing lien creditor. First Nat'l Bank, 130 Kan. at 310, 286 P. 400; Pitney, 58 Kan. at 220-221, 48 P. 854; Insurance Co., 41 Kan. at 136, 21 P. 111; Elwell, 41 Kan. at 132, 21 P. 109.

KDR also asserts that only natural persons have the right to claim the homestead exemption. Neither of the cases KDR relies on, Bellport v. Harder, 196 Kan. 294, 411 P.2d 725 (1966), and Swenson v. Kiehl, 21 Kan. 533 (1879), supports KDR's assertion. Again, the line of cases discussed above clearly shows this court's view that a corporate mortgagee bank has standing to assert the homestead exemption of a mortgagor to protect its mortgage lien. First Nat'l Bank, 130 Kan. at 310, 286 P. 400; Pitney, 58 Kan. at 220-221, 48 P. 854; Insurance Co., 41 Kan. at 136, 21 P. 111; Elwell, 41 Kan. at 132, 21 P. 109.

Bank of Kansas is challenging the validity and attachment and enforcement of KDR's sales tax liens not to deprive KDR of its liens but to protect the Bank's own mortgage lien. The...