Hartford Cas. Ins. Co. v. Credit Union 1 of Kansas

• Decision Date: 05 November 1999
• Docket Number: No. 82,095.,82,095.
• Citation: 992 P.2d 800,268 Kan. 121
• Parties: HARTFORD CASUALTY INSURANCE COMPANY, Appellee, v. CREDIT UNION 1 OF KANSAS, Appellant.
• Court: Kansas Supreme Court

268 Kan. 121

992 P.2d 800

HARTFORD CASUALTY INSURANCE COMPANY, Appellee, v. CREDIT UNION 1 OF KANSAS, Appellant.

No. 82,095.

Supreme Court of Kansas.

Opinion filed November 5, 1999.

Robert E. Keeshan, of Peterson & Keeshan, of Topeka, argued the cause and was on the brief for appellant.

Michael E. Francis, of Sloan, Listrom, Eisenbarth, Sloan, & Glassman, L.L.C., of Topeka, argued the cause and was on the brief for appellee.

The opinion of the court was delivered by

DAVIS, J.:

Credit Union 1 of Kansas (Credit Union 1) financed used car dealer Daniel E. Sanchez, d/b/a Midwest Motor Sport, with a floor loan secured by two of the vehicles purchased. Sanchez agreed to but did not remit the proceeds upon sale of the vehicles. Credit Union 1 made a claim upon Sanchez' vehicle dealer bond required by K.S.A. 1998 Supp. 8-2404 and issued by Hartford Casualty Insurance Company (Hartford). Hartford refused payment and filed a declaratory judgment action. The trial court granted Hartford judgment, holding that Kansas law limits the class of persons who may recover upon a vehicle dealer bond to consumers. We reverse and remand.

The case was presented to the trial court upon the following stipulated facts:

"1. At all times material, Credit Union 1 of Kansas has operated as a credit union organized and existing under the laws of the State of Kansas.

"2. Daniel E. Sanchez formerly operated Midwest Motor Sport, a proprietorship, in Topeka, Kansas.

"3. Midwest Motor Sport operated as a used car dealership.

"4. At all times material, Hartford Insurance Co. has operated as an insurance company organized and existing under the laws of the State of Connecticut and conducts business in the State of Kansas.

"5. Among the business conducted by Hartford Insurance Co. in Kansas is that of providing vehicle dealer bonds pursuant to K.S.A. 8-2401, et seq.

"6. At all times material hereto, Hartford Insurance Co. was the surety on bond #XXX-XXXX-XX ....

"7. That Daniel E. Sanchez signed a promise to pay Loan Liner per agreement dated December 15, 1986.

"8. In 1993, Credit Union 1 of Kansas made certain floor plan loans to Midwest Motor Sport and two of the loans were secured by a 1986 Pontiac Grand Am and a 1990 Nissan 4 × 2 standard pick-up truck.

"9. That Daniel E. Sanchez also had an Expandacheck Agreement and Real Estate Loan.

"10. That Credit Union 1 of Kansas sent to Daniel E. Sanchez Consumers Rights to Cure.

"11. As a part of the two loan transactions in question, it was agreed that Midwest Motor Sport would repay the loan to Credit Union 1 of Kansas from the proceeds of the sale of the vehicles [the Grand Am and the pickup].

"12. Sometime after entering into the loan agreement, the vehicles securing the debt were sold by Midwest Motor Sport yet the proceeds of the sales were retained rather than paid to Credit Union 1 of Kansas as required by the loan agreement.

"13. In 1996, Daniel E. Sanchez commenced a case under Chapter 13 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Kansas and the case captioned In re Daniel Emanuel Sanchez, Case No. 96 42040 13.

"14. In due course, Credit Union 1 of Kansas filed its proof of claim alleging that its claim was secured by the 1986 Pontiac Grand Am and the 1990 Nissan 4 × 2 pickup truck, among other property.

"15. In the bankruptcy proceeding, Credit Union 1 of Kansas was successful in lifting the stay under the bankruptcy code and was allowed to proceed with its claims against Daniel E. Sanchez, formerly doing business as Midwest Motor Sport in its case filed in Shawnee County, Kansas.

"16. After Credit Union 1 of Kansas discovered that the vehicles had been sold but the proceeds were not paid to it pursuant to terms of the agreement, Credit Union 1 of Kansas commenced its action against Daniel E. Sanchez, formerly doing business as Midwest Motor Sport in the District Court of Shawnee County, Kansas, Case No. 96 CV 260, alleging, among other things, that Sanchez, doing business as Midwest Motor Sport had committed fraud by selling the vehicles and retaining the proceeds of the sales instead of paying the proceeds to plaintiff from said vehicles.

"17. On November 12, 1997, Credit Union 1 of Kansas obtained judgment in the District Court of Shawnee County, Kansas, in its refiled action titled Credit Union 1 of Kansas v. Daniel Emanuel Sanchez, Case No. 97 CV 1145, in the amount of $15,519.64 plus interest and of that amount, $6,290.00 plus contractual pre-judgment interest of 10.5% A.P.R. from the date of December 5, 1986 and March 1, 1993 and post-judgment interest is attributable to the failure of Daniel W. Sanchez, d/b/a Midwest Motor Sport to pay the proceeds of the sale of the two vehicles as required under the terms of the loan agreement.

"18. The purpose of the loans secured by the vehicles to Midwest Motor Sport by Credit Union 1 of Kansas was to floor plan finance the business of Midwest Motor Sport.

"19. That Daniel E. Sanchez is paying $5,000.00 plus the contractual rate of interest in the Bankruptcy plan to pay this Real Estate Mortgage and also had a set off of $54.83 on his share account leaving a debt of more than $6,290.00 unpaid in the Bankruptcy case of which Credit Union 1 of Kansas claims herein with interest from Hartford Casualty Insurance Co."

Credit Union 1 demanded payment under the bond. Hartford responded that it could not pay out without a letter from the Dealer Licensing Bureau requesting payment. Credit Union 1 obtained a letter from the Director of Vehicles which stated that the judgment resulted from an act which would constitute grounds for suspension, revocation, or refusal to renew the motor vehicle dealer's license, or for the imposition of an administrative fine pursuant to K.S.A. 8-2411. The letter directed payment of $5,450 to be made under the bond.

Hartford, upon receipt of the letter, refused to pay the bond and filed a declaratory judgment action alleging that no payment was required because Credit Union 1 was not a member of the class sought to be protected by the bond requirements of K.S.A. 8-2402.

The trial court agreed and concluded that the purpose of the Kansas Vehicle Dealers and Manufacturers Licensing Act (Act), K.S.A. 8-2401 et seq., was to protect the public interest in the purchase and trade of vehicles. The trial court interpreted the Act as applying only to protect consumer purchasers of vehicles rather than lenders of vehicle dealers. The court found that because Credit Union 1 was not a purchaser, but rather a lender, Credit Union 1 was not within the class intended to be protected by the surety bond requirement of K.S.A. 1998 Supp. 8-2404(i). The court ruled that Credit Union 1 was not entitled to payment under the surety bond and granted judgment for Hartford.

Credit Union 1 appealed and the case was transferred to this court from the Kansas Court of Appeals under K.S.A. 20-3018(c).

Standard of Review

The resolution of this case on appeal involves the interpretation of a statute. The interpretation of a statute is a question of law, and this court's review is unlimited. Hamilton v. State Farm Fire & Cas. Co., 263 Kan. 875, 879, 953 P.2d 1027 (1998). The fundamental rule to be applied when interpreting a statute is that the intent of the legislature governs, where that intent can be ascertained. Legislative Coordinating Council v. Stanley, 264 Kan. 690, 702, 957 P.2d 379 (1998). Where a statute is plain and unambiguous, the court must give effect to the intention of the legislature as expressed, rather than determine what the law should be. In re Marriage of Killman, 264 Kan. 33, 42-43, 955 P.2d 1228 (1998). Where, however, the face of the statute leaves its construction uncertain, the court is not limited to a mere consideration of the language used, but may consider the historical background of the enactment, the circumstances attending its passage, the purpose to be accomplished, and the effect the statute may have under the various constructions suggested. See Adams v. St. Francis Regional Med. Center, 264 Kan. 144, 156, 955 P.2d 1169 (1998).

Interpretation of K.S.A. 1998 Supp. 8-2404

K.S.A. 1998 Supp. 8-2404 is part of the Vehicle Dealers and Manufacturers Licensing Act, which concerns licensing requirements for the sale and manufacturer of vehicles in Kansas. Section (i) of K.S.A. 1998 Supp. 8-2404 sets forth the bonding requirements for vehicle dealers and in pertinent part provides:

"Every applicant or licensee who is or applies to be a used vehicle dealer or a new vehicle dealer shall furnish and maintain a bond in such form, amount and with such sureties as the director approves, in the amount of $15,000, conditioned upon the applicant or licensee complying with the provisions of the statutes applicable to the licensee and as indemnity for any loss sustained by any person by reason of any act by the licensee in violation of any act which constitutes grounds for suspension or revocation of the license.... Upon determination by the director that a judgment from a Kansas court of competent jurisdiction is a final judgment and that the judgment resulted from an act in violation of this act or would constitute grounds for suspension, revocation, refusal to renew a license or administrative fine pursuant to K.S.A. 8-2411, and amendments thereto, the proceeds of the bond on deposit or in lieu of bond provided by subsection (j) shall be paid."

Kansas case law concerning the Act is sparse. The sole case concerning the surety bond required by vehicle dealers is Nicklin v. Harper, 18 Kan. App.2d 760, 860 P.2d 31 (1993). The plaintiff in Nicklin contracted with a used car dealer to sell her car. The dealer sold the car but did not remit the proceeds to the plaintiff. The Court of Appeals found that the dealer's action was a violation of then K.S.A. 1992 Supp. 8-2410, thus triggering the provisions of K.S.A. 1992 Supp. 8-2404(i). The Court of Appeals concluded that the...