Bank v. Parish

• Decision Date: 09 September 2011
• Docket Number: No. 104,316.,104,316.
• Citation: 46 Kan.App.2d 422,264 P.3d 491,75 UCC Rep.Serv.2d 505
• Parties: Stanley BANK, Appellee,v.Johnny R. PARISH, et al., Defendants,andBazin Excavating, Inc. and Robert A. Bazin, Appellants.
• Court: Kansas Court of Appeals

46 Kan.App.2d 422

264 P.3d 491

75 UCC Rep.Serv.2d 505

Stanley BANK, Appellee,

v.Johnny R. PARISH, et al., Defendants,andBazin Excavating, Inc. and Robert A. Bazin, Appellants.

No. 104,316.

Court of Appeals of Kansas.

Sept. 9, 2011.

Syllabus by the Court

1. A purchase money security interest in an automobile held by a secured creditor is perfected when the certificate of title issues with the lien noted thereon.

2. A secured creditor may perfect its purchase money security interest during the interim time period between the purchase and the issuance of a certificate of title by timely mailing or delivering a formal notice of security interest, along with the applicable fee, to the Kansas Division of Motor Vehicles.

3. K.S.A. 60–2406 and 60–2409 are discussed and applied.

4. Conversion is the unauthorized assumption or exercise of the right of ownership over goods or personal chattels belonging to another to the exclusion of the other's rights. Michael A. Millett, of Law Offices of Michael A. Millett, P.A., of Overland Park, for appellants.R. Scott Beeler, of Lathrop & Gage LLP, of Overland Park, for appellee.Before ATCHESON, P.J., HILL and STANDRIDGE, JJ.STANDRIDGE, J.

Robert A. Bazin (Robert) and Bazin Excavating, Inc. (Bazin Excavating) appeal the district court's decision to grant summary judgment in favor of Stanley Bank (Bank) in this dispute over proceeds from the sale of a 2006 GMC Yukon, which was seized by Bazin Excavating in order to satisfy a judgment despite the Bank's purchase money security interest in the truck. For the reasons stated below, we affirm in part, reverse in part, and remand with directions.

Facts

In early 2006, the Bank loaned Johnny and Kellie Parish $40,000 to purchase a 2006 GMC Yukon. As security for the loan, Johnny and Kellie granted the Bank a security interest in the Yukon. The Bank properly filed its notice of this security interest with the Kansas Department of Revenue (KDR) and, thereafter, the lien was on record in KDR's electronic lien filing system known as E-lien and recorded on the truck's paper title and registration receipt.

In a lawsuit unrelated to either the Yukon or the Bank, the district court in Johnson County, Kansas, granted default judgment against Johnny Parish in favor of Bazin Excavating. Following judgment, Bazin Excavating levied on the Yukon and proceeded to have it sold at public auction.

In March 2008, the Bank filed suit against Robert and Bazin Excavating in conjunction with the levy and sale of the Yukon. Both parties filed motions for summary judgment. After considering the motions and arguments of counsel, the district court granted summary judgment in favor of the Bank. The court found the statement of facts in the Bank's motion to be uncontroverted and adopted the facts and reasoning set forth therein. The court ultimately awarded damages to the Bank in an amount equal to the monetary value of the Yukon at the time of the sale.

The Underlying Motion for Summary Judgment

In the dispositive motion it filed with the district court, the Bank sought summary judgment on the following counts of its five-count petition:

• Count I, within which the Bank sought a declaratory judgment that the Bank has a security interest in the Yukon that is superior to all other prior and existing interests.

• Count II, within which the Bank sought a declaratory judgment that Bazin Excavating conducted a sale of the Yukon without meeting and satisfying the statutory requirements as set forth in K.S.A. 60–2406 and 60–2409.

• Count IV, within which the Bank asserted a claim of conversion against Bazin Excavating for exercising unlawful dominion and control over the proceeds from the sale of the Yukon at the September 21, 2007, auction.

• Count V, within which the Bank asserted a claim of conversion against Robert Bazin and/or Bazin Excavating for exercising unlawful dominion and control over the Yukon.

In the journal entry granting summary judgment in favor of the Bank on all four of these counts, the district court relied on, and then subsequently adopted, the uncontroverted facts and legal analysis set forth by the Bank in its motion.

The Standard of Review

In ruling on a summary judgment motion, the appellate court applies the same legal standard as the district court: Summary judgment is appropriate only when the pleadings, affidavits, and other materials filed with the court show that no genuine issue exists as to any important fact and that the moving party is entitled to judgment as a matter of law. All facts and inferences that may reasonably be drawn from the evidence must be resolved in favor of the nonmoving party. Even so, the nonmoving party must come forward with some evidence establishing a dispute as to the facts that are material to the claim. Shamberg, Johnson & Bergman, Chtd. v. Oliver, 289 Kan. 891, 900, 220 P.3d 333 (2009).

A Brief Overview of Kansas Law on Secured Transactions in the Context of Personal Property Subject to Certificates of Title in Kansas

Commercial transactions in Kansas are governed by the Kansas Uniform Commercial Code (UCC). K.S.A. 84–1–101 et seq. More specifically, the laws relating to secured transactions and the creation, attachment, perfection, priority, and enforcement of a security interest are set forth in Article 9 of the UCC. K.S.A. 84–9–101 et seq.

A security interest is a legal interest in personal property that secures the performance of an obligation, usually the payment of a debt. K.S.A. 2010 Supp. 84–1–201(35). The personal property subject to the security interest is commonly referred to as collateral. K.S.A. 2010 Supp. 84–9–102(12). A security interest attaches to collateral when it becomes enforceable against the debtor. To be enforceable, the secured party must give value to the debtor, the debtor must acquire legal rights in the collateral or the power to transfer rights in the collateral to a secured party, and the debtor must authenticate a security agreement that provides a description of the collateral. K.S.A. 2010 Supp. 84–9–203(a)–(b). Upon default of the underlying debt, a secured creditor is entitled to take possession and dispose of the collateral. K.S.A. 2010 Supp. 84–9–609.

In order to protect a secured interest in collateral against third parties who may claim a secured or unsecured interest in the same collateral, a secured creditor typically must file a financing statement with the appropriate government agency setting forth the name of the debtor, the name of the secured party, and the description of the collateral. K.S.A. 2010 Supp. 84–9–310(a). The process of filing this financing statement, usually referred to as “perfecting” the security interest, provides public notice to interested parties that a prior security interest exists.

The UCC creates an exception to the required filing of a financing statement when the secured transaction involves a purchase money security interest, which is created when the secured collateral is purchased by the debtor with money provided by the creditor just for that purpose. K.S.A. 2010 Supp. 84–9–103(b)(1); K.S.A. 2010 Supp. 84–9–309(1); K.S.A. 2010 Supp. 84–9–310(b)(2). A purchase money security interest ordinarily is deemed perfected at the time it attaches to the collateral. K.S.A. 2010 Supp. 84–9–309.

Notably, and relevant to the facts presented here, the UCC provides a secondary exception to the underlying exception, which as noted above deems perfection of a purchase money security interest to automatically occur upon attachment. More specifically, a purchase money security interest in property that is subject to any certificate-of-title law in Kansas, including automobiles, will not be perfected upon attachment but instead can be perfected only by compliance with K.S.A. 2010 Supp. 8–135(c)(5), the Kansas statute applicable to certificates of title and security interests in motor vehicles. K.S.A. 2010 Supp. 84–9–311(a)(2).

K.S.A. 2010 Supp. 8–135(c)(5) provides:

“[U]pon sale and delivery to the purchaser of every vehicle subject to a purchase money security interest as provided in article 9 of chapter 84 of the Kansas Statutes Annotated, and amendments thereto, the dealer or secured party may complete a notice of security interest and when so completed, the purchaser shall execute the notice, in a form prescribed by the division, describing the vehicle and showing the name and address of the secured party and of the debtor and other information the division requires.... The dealer or secured party, within 30 days of the sale and delivery, may mail or deliver the notice of security interest, together with a fee of $2.50, to the division. The notice of security interest shall be retained by the division until it receives an application for a certificate of title to the vehicle and a certificate of title is issued. The certificate of title shall indicate any security interest in the vehicle. Upon issuance of the certificate of title, the division shall mail or deliver confirmation of the receipt of the notice of security interest, the date the certificate of title is issued and the security interest indicated, to the secured party at the address shown on the notice of security interest. The proper completion and timely mailing or delivery of a notice of security interest by a dealer or secured party shall perfect a security interest in the vehicle, as referenced in K.S.A. 2010 Supp. 84–9–311, and amendments thereto, on the date of such mailing or delivery. The county treasurers shall mail a copy of the title application to the lienholder. For any vehicle subject to a lien, the county treasurer shall collect from the applicant a $1.50 service fee for processing and mailing a copy of the title application to the lienholder.”

Although more procedural than substantive, we believe it important to mention the relatively new statute pertaining to the electronic certificate of title. To that end, the division of motor vehicles (Division) is...