Petition of City of Moran, 57791

Decision Date17 January 1986
Docket NumberNo. 57791,57791
Citation713 P.2d 451,238 Kan. 513
CourtKansas Supreme Court
Parties, 42 UCC Rep.Serv. 1763 In the Matter of the Petition of the CITY OF MORAN, Kansas, the Allen County Bank & Trust, Iola, Kansas, Trustee, and the Iola State Bank, Iola, Kansas, Paying Agent, Requesting Instructions Regarding Trust.

Syllabus by the Court

1. The procedure for obtaining a declaratory judgment (K.S.A.60-257) provides for the right of a jury trial in the same manner as provided by K.S.A. 60-238 and 60-239. Therefore the right to a jury trial in an action for a declaratory judgment is not absolute. It must first be determined whether the action is equitable in nature or one at common law. In determining whether an action is one in equity, the test is whether the essential nature of the action is grounded on equitable rights and is one in which equitable relief is sought.

2. In determining legislative intent, courts are not bound to an examination of the language alone but may properly look into the causes which impel the statute's adoption, the objective sought to be attained, the statute's historical background and the effect the statute may have under the various constructions suggested.

3. Under the Economic Development Revenue Bond Act, a lease-purchase agreement of a facility which includes realty, furnishings and equipment is to be viewed as a single transaction and as one created by the legislature.

4. Where a city or county, under the Economic Development Revenue Bond Act, owns a facility which includes the land, furnishings or equipment, and leases it for a period of years at a stipulated rental under a lease-purchase agreement containing a stipulation that the lessee shall have the right, during or at the expiration of the agreement, to purchase the facility, if the lessee so elects, at a fixed price, there is no complete sale.

5. A lease-purchase agreement created under the Economic Development Revenue Bond Act is not subject to the filing requirements of the UCC.

Kari S. Schmidt, Wichita, argued the cause and was on briefs, for appellant Wichita Bank for Cooperatives.

Frederick G. Apt, Jr. of Apt & Apt, Iola, appeared for appellant Brote.

Robert V. Talkington of Conderman & Talkington, Iola, argued the cause and was on brief, for appellee City of Moran.

LOCKETT, Justice:

This case involves the respective rights of parties to personal property sold by a receiver. The City of Moran filed an action alleging that under a statutory lease-purchase agreement it held a superior interest in the sales proceeds, because the original equipment was purchased with money from industrial revenue bonds issued through the City. K.S.A. 12-1741. The Wichita Bank for Cooperatives claimed a perfected security interest in the same proceeds under the Uniform Commercial Code. The district court granted judgment for the City.

On August 1, 1973, the City of Moran, Kansas, (City) issued industrial revenue bonds in the amount of $225,000. The bonds were issued pursuant to K.S.A. 12-1740 et seq., for the purpose of providing funds for the purchase of land and existing buildings, and to construct, furnish and equip the facility which was to be leased to The Farmers Cooperative Association (Cooperative).

The City pledged the facility and the net earnings of the Cooperative to the payment of the bonds, the interest and the premium. The principal and interest on the bonds were secured by a first lien on the real and personal property and the net revenues to be derived from the facility. The City entered a lease-purchase agreement dated August 1, 1973, with the City as the landlord and the Cooperative as the tenant. The City owned the facility under the lease-purchase agreement until the Cooperative exercised its right to purchase the facility.

Section 30 of the lease provided that the facility "shall consist of land, buildings and only such equipment and fixtures as may be necessary to render the Facility operable." To protect the interest of the bondholders, the lease provided that such items within the scope of Article 9 of the Uniform Commercial Code (UCC) would be covered by a financing agreement. The trustee was the Allen County State Bank, Iola, Kansas, and the paying agent was Iola State Bank, Iola, Kansas.

On September 10, 1973, the City filed a financing statement with the Secretary of State covering all equipment, machinery and fixtures now owned or later acquired by the Cooperative which constituted a part of the facility. A statement was also filed on September 12, 1973, with the Allen County Office of the Register of Deeds.

On March 4, 1980, the Cooperative, in need of operating capital, delivered a promissory note in the amount of $300,000 to the Wichita Bank for Cooperatives (Bank). Subsequent notes from the Cooperative were executed to the Bank for loans totaling more than $1,174,572. The Cooperative executed security agreements with the Bank as collateral for the notes. On February 6, 1980, the Bank filed local and central financing statements covering all the equipment now owned or thereafter acquired or defined by Section 9-109(2) of the UCC, including equipment, fixtures, inventories, accounts and investments whether presently owned or thereafter acquired by the Cooperative.

On March 7, 1980, the City and Allen County Bank and Trust filed their second financing statements with the identical language used by the City in its 1973 financing statements.

Three separate actions were filed by various parties. The pleadings and claims of the parties in the three actions are simplified for the sake of clarity. On March 24, 1983, the first action was filed when the Kansas State Grain Inspection Department filed a verified petition for appointment of a special receiver for the Cooperative, alleging that a grain shortage existed at the warehouse facility and that the Cooperative was insolvent. At a hearing on the petition, the court appointed a grain receiver and permitted the warehouse bonding company to intervene.

On March 31, 1983, a second action was begun when the Bank filed a petition in the district court to foreclose its mortgage and security interests in the Cooperative. Notice was given to all creditors to file claims against the Cooperative. The Bank filed its claim in the amount of $1,174,572 plus interest for C stock subscription obligations and the reasonable costs of collection.

At a hearing on April 28, 1983, the court addressed several issues involving prospective intervenors, attorney fees and certain creditors' claims. At the hearing, there was a discussion concerning bids which had been received for purchase of the Cooperative facility. BROTE, a partnership, had bid on the facility, but subsequently reduced its bid due to a dispute as to whether certain equipment belonged to the City by virtue of its bond issue for the Cooperative. At the hearing, the grain receiver made an oral motion to abandon to the City any right, title or interest of the Cooperative in the lease-purchase agreement as of May 1, 1983. The order to abandon was filed on May 19, 1983.

On September 28, 1983, a third action was commenced when the City filed a Petition for Instructions requesting that the court make a determination as to ownership of certain equipment because a dispute existed between the City and the Bank as to what equipment was subject to the bond ordinance and lease-purchase agreement. The City also alleged that the proceeds of the property which had been sold to BROTE were improperly forwarded by the receiver to the Bank pursuant to the Bank's security agreements with the Cooperative. The City's petition stated that all of the proceeds should have gone to the City to satisfy bondholders.

The Bank was served with a summons on the petition for instructions. The Bank filed a motion to dismiss due to insufficiency of process. When the court did not address the Bank's motion, the Bank filed an answer alleging that the City's petition failed to state a claim on which relief could be granted, laches on the part of the City, and a counterclaim for amounts owed to the Bank.

The original receivership and foreclosure actions were settled among the parties on September 28, 1984. In order to release the receiver, the Bank signed an agreement whereby it agreed to indemnify the receiver in the event that the petition for instructions matter developed into a lawsuit for conversion.

On December 12, 1984, the district court entered judgment in favor of the City on its petition for instructions. The court ruled that the City held title to the disputed equipment, except for a 1979 Chevrolet 3/4 ton truck, which had been titled in the Cooperative. The court found that the Cooperative had granted a security interest in the truck to the Bank, because title to the truck had been registered to the Cooperative. The court also found that the Kansas industrial revenue bond statutes authorize the City to enter into a lease or lease-purchase agreement, not an installment sales contract covered by the UCC. The Bank appeals those rulings.

The Bank argues that a "petition for instructions" is an administrative pleading used under our previous probate code. It contends that the statutory authority for such a petition was repealed in 1977, and, therefore, the City should have brought this action as a declaratory judgment. The City argues that a petition for instructions is proper despite the 1977 changes in the court system.

A petition for instructions was a procedure under our prior probate code available for administrators and executors who wished to ask a court having jurisdiction for advice to enable them to carry out their duties when they were in doubt as to the extent of their powers and duties relating to the administration of an estate. It was not an adversarial proceeding. With the repeal of K.S.A. 59-301 (Corrick) in 1976, there is no longer any statutory authority for such a proceeding.

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