JE Akers Co. v. Advertising Unlimited, Inc., 88,254.

• Citation: 49 P.3d 506,274 Kan. 359
• Decision Date: 12 July 2002
• Docket Number: No. 88,254.,88,254.
• Parties: J.E. AKERS CO., INC., a dissolved Kansas Corporation, Appellee, v. ADVERTISING UNLIMITED, INC., and McCLEERY-CUMMINGS COMPANY, INC., Appellants.
• Court: Kansas Supreme Court

274 Kan. 359

49 P.3d 506

J.E. AKERS CO., INC., a dissolved Kansas Corporation, Appellee, v. ADVERTISING UNLIMITED, INC., and McCLEERY-CUMMINGS COMPANY, INC., Appellants.

No. 88,254.

Supreme Court of Kansas.

Opinion filed July 12, 2002.

Keith J. Shuttleworth, of Cohen, McNeile, Pappas & Shuttleworth, P.C., of Leawood, argued the cause and was on the briefs for appellants.

Aaron J. Racine, Monaco, Sanders, Gotfredson & Racine, L.C., of Kansas City, Missouri, argued the cause and was on the brief for appellee.

The opinion of the court was delivered by

DAVIS, J.:

The court appointed a receiver for J.E. Akers Co., Inc. (J.E. Akers), a dissolved Kansas corporation. The receiver sought and the court granted authority under K.S.A. 17-6907 to sell corporate realty with improvements clear of encumbrances, including two judgment liens owned by the appellants, Advertising Unlimited, Inc. (Advertising Unlimited) and McCleery-Cummings Company, Inc. (McCleery-Cummings). K.S.A. 17-6907 permits such sale where, among other statutory requirements, "the validity, extent or legality of any such lien is disputed or brought in question." The appellants opposed the sale, contending that other than the allegations of the receiver, the record contains no evidence concerning the "validity, extent or legality" of the liens. We agree and, therefore, reverse.

Nancy Akers, as the trustee of the Nancy J. Akers Revocable Living Trust, filed a petition to appoint Chris Engeman as receiver for J. E. Akers. The trust is the sole shareholder in the corporation. The district court ordered the appointment on the same day. The record on appeal lists over 30 unsecured creditors and 2 secured creditors. The appellants are the two secured creditors by reason of their judgment liens.

Following his appointment, the receiver filed a motion under K.S.A. 17-6907 seeking authority to sell corporate real estate with improvements free and clear of all encumbrances, including the judgment liens of Advertising Unlimited and McCleery-Cummings. The appellants objected, noting that the receiver's motion to sell contained no facts challenging the validity of the judgment liens.

Approximately 1 year before the appointment of the receiver, Advertising Unlimited and McCleery-Cummings obtained default judgments against J.E. Akers in the amounts of $37,920.54 and $54,636.10, respectively. In accordance with K.S.A. 2001 Supp. 60-2202(a), those judgments became liens on J.E. Akers' real estate within the county in which the judgments were rendered.

In his motion to sell free and clear of the judgment liens, the receiver alleged that "[t]he judgments obtained by the plaintiffs... were obtained by default and the underlying validity thereof is disputed by the Receiver." (Emphasis added.) The receiver renewed his motion to sell clear of judgment liens without addressing the appellants' objection that the motion contained no facts challenging the validity of the judgment liens. A hearing was held, and other than statements of counsel, no evidence was presented. The district court, under the provisions of K.S.A. 17-6907, ordered the sale of the real property with improvements free and clear of the appellants' judgment liens without addressing the validity of the judgment liens. Advertising Unlimited and McCleery-Cummings appealed pursuant to K.S.A. 60-2102(a)(3). This court transferred the case from the Court of Appeals pursuant to K.S.A. 20-3018(c) K.S.A. 17-6907 authorizes a receiver or trustee to sell property of a corporation under the following circumstances:

"Whenever the property of a corporation is at the time of the appointment of a receiver or trustee encumbered with liens of any character, and the validity, extent or legality of any such lien is disputed or brought in question, and the property of the corporation is of a character which will deteriorate in value pending the litigation respecting the lien, the district court may order the receiver or trustee to sell the property of the corporation, clear of all encumbrances, at public or private sale, for the best price that can be obtained therefor. The net proceeds arising from the sale thereof, after deducting the costs of the sale, shall be paid into the court, there to remain subject to the order of the court, and to be disposed of as the court shall direct."

The sole issue in this case involves the interpretation of the statutory language which allows the sale of property free and clear of judgment liens if the "validity, extent or legality of any such lien is disputed or brought in question." K.S.A. 17-6907. The parties agree that the "property of the corporation is of a character which will deteriorate in value pending the litigation respecting the lien." While the receiver contends that the application of K.S.A. 17-6907 to the facts of this case calls for an abuse of discretion standard of review, we conclude that the issue raised involves the interpretation of K.S.A. 17-6907. The interpretation of a statute is a question of law, and the standard of review is unlimited. Robinett v. The Haskell Co., 270 Kan. 95, 100, 12 P.3d 411 (2000).

Upon appointment, a receiver is vested with title to all the corporate property subject to existing liens. K.S.A. 17-6902; Cates v. Musgrove Petroleum Corporation, 190 Kan. 609, 611, 376 P.2d 819 (1962). There is no dispute that Advertising Unlimited and Mc-Cleery-Cummings automatically secured judgment liens on J.E. Akers' real property located within the county by reason of their default judgments. See K.S.A. 2001 Supp. 60-2202(a). This case turns on determining whether the appellants' judgment liens have been disputed or brought in question within the meaning of K.S.A. 17-6907.

The receiver apparently relies in part on the default nature of the judgments entered in favor of the plaintiffs as well as documents presented at the hearing on the receiver's motion. According to the receiver, the above is sufficient to warrant application of K.S.A. 17-6907. Ultimately, the receiver relies on the last sentence of paragraph three of his motion to sell real property free of encumbrances which provided that "[t]he judgments obtained by the plaintiffs in the lawsuit as aforesaid were obtained by default and the underlying validity thereof is disputed by the Receiver." According to the receiver's argument in his brief, the above allegation is "the only allegation and showing that is required by the first prong of K.S.A. 17-6907 for selling receivership property free of liens and other encumbrances."

We note that the documents referenced by the receiver were not admitted into evidence and are not contained in the record on appeal. Thus, other than the default nature of the judgments, the record contains no evidence disputing or bringing into question the validity, extent, or legality of plaintiffs' judgment liens. Moreover, while the law favors determinations of disputed claims on the merits of the claims, the law also recognizes the necessity of achieving finality in litigation. Tyler v. Cowen Construction, Inc., 216 Kan. 401,...