Title: Stanley Bank v. Parish

State: kansas

Issuer: Kansas Supreme Court

Document:

1 
 
IN THE SUPREME COURT OF THE STATE OF KANSAS 
 
No. 104,316 
 
STANLEY BANK, 
Appellee, 
 
v. 
 
JOHNNY R. PARISH, et al., 
Defendants, 
and 
BAZIN EXCAVATING, INC. and ROBERT A. BAZIN, 
Appellants. 
 
 
SYLLABUS BY THE COURT 
 
1. 
 
Summary judgment is appropriate when the pleadings, depositions, answers to 
interrogatories, and admissions on file, together with the affidavits, show that there is no 
genuine issue as to any material fact and that the moving party is entitled to judgment as 
a matter of law. The trial court is required to resolve all facts and inferences which may 
reasonably be drawn from the evidence in favor of the party against whom the ruling is 
sought. When opposing a motion for summary judgment, an adverse party must come 
forward with evidence to establish a dispute as to a material fact. In order to preclude 
summary judgment, the facts subject to the dispute must be material to the conclusive 
issues in the case. On appeal, we apply the same rules and when we find reasonable 
minds could differ as to the conclusions drawn from the evidence, summary judgment 
must be denied. 
 
2. 
 
Under K.S.A. 2012 Supp. 84-9-311(a)(2), a purchase money security interest in 
property that is subject to any certificate-of-title law in Kansas, including automobiles, is 
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not perfected upon attachment. Instead, it can be perfected only by compliance with 
K.S.A. 2012 Supp. 8-135(c)(5), the Kansas statute applicable to certificates of title and 
security interests in motor vehicles. 
 
3. 
 
A secured party complies with K.S.A. 2012 Supp. 8-135(c)(5), and perfects its 
security interest in a motor vehicle, by properly completing and timely mailing or 
delivering a notice of security interest to the Kansas Department of Revenue. 
 
4. 
 
K.S.A. 2012 Supp. 8-135d(a) requires the Kansas Department of Revenue to 
electronically retain possession of a certificate of title and to create an electronic 
certificate of title when the vehicle at issue is subject to a lien or encumbrance. 
 
Review of the judgment of the Court of Appeals in 46 Kan. App. 2d 422, 264 P.3d 491 (2011). 
Appeal from Johnson District Court; GERALD T. ELLIOTT, judge. Opinion filed January 24, 2014. 
Judgment of the Court of Appeals affirming the district court is affirmed. Judgment of the district court is 
affirmed. 
 
Michael E. Millett, of Law Offices of Michael A. Millett, P.A., of Overland Park, argued the 
cause and was on the brief for appellant. 
 
R. Scott Beeler, of Lathrop & Gage, LLP, of Overland Park, argued the cause and was on the 
brief for appellee. 
 
The opinion of the court was delivered by  
 
MORITZ, J.:  This court granted review in this case to consider, as a matter of first 
impression, whether the purchaser of a vehicle who obtained a paper certificate of title 
from the Kansas Department of Revenue showing no existing liens could take the vehicle 
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free of a bank's properly perfected purchase money security interest in the vehicle which 
was recorded in the Kansas Department of Revenue's digital records and noted on an 
electronic certificate of title issued in the name of the original purchasers. We conclude 
the Court of Appeals panel correctly considered and applied perfection and priority rules 
under the Uniform Commercial Code (UCC), K.S.A. 84-9-101 et seq., to conclude the 
purchaser did not take free and clear of the bank's security interest. 
 
FACTUAL AND PROCEDURAL BACKGROUND 
 
 
On January 31, 2006, Stanley Bank (the Bank) loaned $40,000 to Johnny and 
Kellie Parish to purchase a 2006 GMC Yukon. As security for the loan, the Parishes gave 
the Bank a security interest in the Yukon. That same day, the Bank filed a notice of 
security interest (NOSI) with the Kansas Department of Revenue (KDOR) utilizing the 
KDOR's motor vehicle electronic lien filing system. On April 3, 2006, the Parishes 
applied for a title and registered the vehicle in their name. The KDOR provided a title 
and registration receipt to the Parishes reflecting the Bank's lien on the Yukon. K.S.A. 
2012 Supp. 8-135d requires the KDOR to retain such a lien-encumbered title 
electronically. It is undisputed that at all relevant times hereto, the KDOR's electronic 
lien system reflected the Bank's perfected lien and the Parishes' electronic title. 
 
 
The Parishes defaulted on the Yukon loan in April 2007 by failing to make 
payments. In June 2007, Johnny Parish's former employer, Bazin Excavating, Inc. (Bazin 
Excavating), obtained a money judgment against Parish in an action unrelated to the 
Yukon. Robert Bazin (Bazin) is the president and sole owner of Bazin Excavating. To 
satisfy its judgment against Parish, Bazin Excavating obtained a court order authorizing 
the attachment of Parish's personal property, including the Yukon and a motor home. 
Both vehicles were seized on July 3, 2007. On or before that date, Bazin saw a copy of 
the Yukon's title and registration receipt reflecting the Bank's lien. 
 
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At the end of August 2007, Bazin Excavating obtained a court order authorizing 
the sale of the Yukon and the motor home, and filed a notice of sale with the district court 
indicating the vehicles would be sold at auction on September 21, 2007. Bazin 
Excavating also sent notice of the sale to the Bank and published notice in a Wyandotte 
County paper. 
 
 
On September 20, 2007, Bazin, acting on behalf of Bazin Excavating, drove to the 
KDOR's motor vehicle office in Topeka, showed the clerk some court documents related 
to the money judgment against Parish, and requested titles for the Yukon and the motor 
home so he could sell them at auction. The clerk gave Bazin a paper certificate of title for 
each vehicle. The Yukon's paper title reflected an application and purchase date of 
September 19, 2007, and a printed date of September 20, 2007. Further, the title indicated 
that Bazin Excavating owned the Yukon and that it was not subject to any liens. 
 
 
On September 21, 2007, Bazin, acting on behalf of himself rather than Bazin 
Excavating, purchased the Yukon and the motor home at auction for $62,000, paying 
$23,000 for the Yukon. 
 
 
In March 2008, after Bazin Excavating failed to respond to demand letters from 
the Bank requesting that Bazin Excavating turn over the proceeds from the sale of the 
Yukon to the Bank, the Bank filed suit against Bazin Excavating and Bazin (collectively, 
"the defendants"). The Bank sought a declaratory judgment as to the superiority of its 
perfected purchase money security interest over any interests held by the defendants 
(Count I) and an order striking the sale of the Yukon based on Bazin Excavating's failure 
to comply with the notice requirements of K.S.A. 60-2406 and K.S.A. 60-2409 before 
conducting the sale (Count II). Further, the Bank named the Parishes as the defendants 
and sought to foreclose its lien against them (Count III). Additionally, citing its superior 
security interest, the Bank claimed Bazin Excavating unlawfully converted the proceeds 
from the sale of the Yukon (Count IV) and that Bazin Excavating and/or Bazin 
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unlawfully converted the Yukon (Count V). In June 2008, the Bank obtained a default 
judgment against the Parishes on Count III, and that count was not at issue on appeal. 
 
 
Ultimately, the Bank and the defendants filed cross-motions for summary 
judgment. After hearing oral argument, the district court adopted the Bank's 
uncontroverted facts and granted summary judgment in favor of the Bank on Counts I, II, 
IV, and V for the reasons argued in the Bank's motion. The court awarded the Bank 
$23,000 in damages, i.e., the proceeds of the sale. The court denied the defendants' 
summary judgment motion "for the reasons previously stated." Although those reasons 
are not entirely clear from the court's ruling, it appears the district court found it 
significant that Bazin had prior knowledge of the Bank's lien and failed to provide that 
information to the KDOR when he obtained the "clean" title. 
 
 
The defendants appealed, and the Court of Appeals affirmed the district court's 
grant of summary judgment in favor of the Bank on three claims:  (1) the Bank's request 
for a declaratory judgment indicating its superior security interest in the Yukon, (2) the 
Bank's claim that Bazin Excavating converted the proceeds from the sale of the Yukon, 
and (3) the Bank's claim that Bazin converted the Yukon. The panel vacated the district 
court's grant of summary judgment on the Bank's claims that Bazin Excavating failed to 
provide proper notice before the sale and that Bazin Excavating converted the Yukon. 
Stanley Bank v. Parish, 46 Kan. App. 2d 422, 435, 264 P.3d 491 (2011). 
 
This court granted the defendants' petition for review of the Court of Appeals' 
decision under K.S.A. 20-3018(b), obtaining jurisdiction under K.S.A. 60-2101(b). The 
Bank did not cross-petition for review from the Court of Appeals' decision rejecting its 
notice claim and its conversion claim as to Bazin Excavating. Therefore, those issues are 
not before this court. See Supreme Court Rule 8.03(g)(1) (2013 Kan. Ct. R. Annot. 74); 
State v. Allen, 293 Kan. 793, 795-96, 268 P.3d 1198 (2012). 
 
6 
 
THE DISTRICT COURT DID NOT ERR IN GRANTING 
THE BANK'S SUMMARY JUDGMENT MOTION 
 
 
The defendants seek review of two issues:  (1) whether the district court erred in 
granting the Bank's summary judgment motion and (2) whether the district court erred in 
denying the defendants' summary judgment motion. The defendants recognize that the 
second issue was raised on appeal but not decided by the Court of Appeals. 
 
Standard of Review 
 
 
Our review of summary judgment motions is well known. 
 
 
"'Summary judgment is appropriate when the pleadings, depositions, answers to 
interrogatories, and admissions on file, together with the affidavits, show that there is no 
genuine issue as to any material fact and that the moving party is entitled to judgment as 
a matter of law. The trial court is required to resolve all facts and inferences which may 
reasonably be drawn from the evidence in favor of the party against whom the ruling is 
sought. When opposing a motion for summary judgment, an adverse party must come 
forward with evidence to establish a dispute as to a material fact. In order to preclude 
summary judgment, the facts subject to the dispute must be material to the conclusive 
issues in the case. On appeal, we apply the same rules and where we find reasonable 
minds could differ as to the conclusions drawn from the evidence, summary judgment 
must be denied.'" O'Brien v. Leegin Creative Leather Products, Inc., 294 Kan. 318, 330, 
277 P.3d 1062 (2012) (quoting Shamberg, Johnson & Bergman, Chtd. v. Oliver, 289 
Kan. 891, 900, 200 P.3d 333 [2009]). 
 
Analysis 
 
 
As noted, the Court of Appeals affirmed the district court's grant of summary 
judgment in favor of the Bank on the Bank's request for a declaratory judgment that it has 
a superior security interest in the Yukon, as well as the Bank's claims that Bazin 
Excavating converted the proceeds from the sale of the Yukon and Bazin converted the 
7 
 
Yukon. However, throughout this litigation, the defendants have addressed these claims 
collectively, consistently arguing the Bank lacks a perfected security interest in the 
Yukon because Bazin received a paper title from the KDOR that did not reflect the 
Bank's lien. Accordingly, we have addressed below the defendants' only discernibly 
coherent argument—their "clean title" argument. 
 
The panel correctly determined that the Bank's perfected purchase money security 
interest has priority over any interests held by the defendants. 
 
 
Although the parties failed to fully develop their arguments regarding the statutory 
basis of the Bank's priority claim, the panel initially provided a succinct overview of 
secured transactions law. See Stanley Bank, 46 Kan. App. 2d at 424-27. In relevant part, 
the panel stated: 
 
"[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)." 46 Kan. App. 2d at 425. 
 
 
As the panel further noted, a secured party complies with K.S.A. 2012 Supp. 8-
135(c)(5) by filing a notice of security interest with the KDOR. Importantly, that statute 
definitively provides that "[t]he proper completion and timely mailing or delivery of a 
notice of security interest . . . shall perfect a security interest in the vehicle as referenced 
in K.S.A. 2012 Supp. 84-9-311 . . . on the date of such mailing or delivery." K.S.A. 2012 
Supp. 8-135(c)(5). The KDOR is required to retain the NOSI "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." K.S.A. 2012 Supp. 8-
135(c)(5). 
 
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Finally, though the panel found it "more procedural than substantive," Kansas law 
requires the KDOR to electronically retain possession of a certificate of title and to create 
an electronic certificate of title when the vehicle at issue is subject to a lien or 
encumbrance. Stanley Bank, 46 Kan. App. 2d at 426; see K.S.A. 2012 Supp. 8-135d 
(implementing electronic titling as of January 1, 2003, and authorizing adoption of 
necessary rules and regulations); see also K.S.A. 2012 Supp. 8-135(c) (providing that the 
provisions of K.S.A. 2012 Supp. 8-135[c][1] through [14] apply to electronic certificates 
of title unless those provisions "are made inapplicable by or are inconsistent with K.S.A. 
2012 Supp. 8-135d" or rules or regulations adopted pursuant to K.S.A. 2012 Supp. 8-
135d). 
 
Applying these provisions to the facts at hand, the Court of Appeals panel 
correctly concluded that the Bank's properly perfected purchase money security interest 
had priority over any interests of the defendants. First, the Bank obtained a purchase 
money security interest in the Yukon when the Parishes signed a security agreement with 
the Bank and obtained a loan for the purchase of the Yukon. See K.S.A. 2012 Supp. 84-
9-103(a)-(b) (defining purchase money security interest). Next, the Bank properly 
perfected its purchase money security interest in the Yukon on January 31, 2006, by 
delivering a NOSI to the KDOR through the KDOR's electronic lien system. See K.S.A. 
2012 Supp. 8-135(c)(5) (perfection occurs as of date of mailing or delivery of NOSI to 
KDOR); K.S.A. 2012 Supp. 84-9-311(a)(2) (security interest in goods subject to 
certificate-of-title laws is deemed perfected upon compliance with K.S.A. 2012 Supp. 
8-135[c][5]). 
 
Because the Bank perfected its lien on January 31, 2006, and Bazin Excavating 
did not become a lien creditor until June 2007 when it obtained a money judgment 
against Parish and authorization to attach and sell the Yukon, the Bank's perfected 
security interest clearly had priority over any interest held by Bazin Excavating. See 
K.S.A. 2012 Supp. 84-9-102(a)(52)(A) (defining a "lien creditor" as "[a] creditor that has 
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acquired a lien on the property involved by attachment, levy, or the like"). As the panel 
correctly found, the rights of a lien creditor take priority over the rights of a creditor 
holding a perfected security interest only if the entity becomes a lien creditor before the 
security interest is perfected. See Stanley Bank, 46 Kan. App. 2d at 429; see also K.S.A. 
2012 Supp. 84-9-317(a)(2)(A). 
 
 
Further, we agree with the panel's conclusion that Bazin, as a buyer of consumer 
goods, did not qualify for any exception that would allow him, as the purchaser of a 
vehicle, to avoid a prior perfected purchase money security interest in that vehicle. 46 
Kan. App. 2d at 429. A buyer of consumer goods "takes free of a security interest, even if 
perfected, if the buyer buys:  (1) Without knowledge of the security interest; (2) for 
value; (3) primarily for the buyer's personal, family, or household purposes; and (4) 
before the filing of a financing statement covering the goods." (Emphasis added.) K.S.A. 
2012 Supp. 84-9-320(b); see K.S.A. 2012 Supp. 84-9-311(b) (providing that perfection 
pursuant to a certificate-of-title statute is equivalent to filing a financing statement). 
 
 
In their petition for review, the defendants suggest the panel erred in finding this 
exception inapplicable because factual disputes remain regarding whether Bazin knew of 
the Bank's security interest in the Yukon when he purchased it at auction. But the 
defendants' argument overlooks the conjunctive "and" that precedes the fourth 
requirement in K.S.A. 2012 Supp. 84-9-320(b). Here, the defendants simply cannot 
establish the necessary fourth requirement, i.e., that Bazin purchased the Yukon before 
the Bank perfected its security interest. As discussed, Bazin purchased the Yukon at 
auction in September 2007, long after the Bank perfected its security interest on January 
31, 2006, by complying with 8-135(c)(5). Thus, the panel correctly held that Bazin does 
not qualify for an exception under K.S.A. 2012 Supp. 84-9-320(b). See K.S.A. 2012 
Supp. 84-9-320(b)(4), Comment 5 ("After . . . the perfection requirements of the 
applicable certificate-of-title statute have been complied with . . . , all subsequent buyers, 
under the rule of subsection [b], are subject to the security interest."). 
10 
 
 
 
The authorities cited by the defendants do not compel a different result. 
 
 
Rather than discuss the applicable UCC provisions relied upon by the panel, the 
defendants support their "clean title" argument with selective excerpts from Mid 
American Credit Union v. Board of Sedgwick County Comm'rs, 15 Kan. App. 2d 216, 
806 P.2d 479, rev. denied 248 Kan. 996 (1991), and In re Hicks, 491 F.3d 1136 (10th Cir. 
2007). But a review of these authorities does not compel the result suggested by the 
defendants. 
 
 
In both cases, the "clean" titles were issued before the secured parties claiming 
priority perfected their security interests. For instance, in Mid American Credit Union, 15 
Kan. App. 2d at 223, the panel found that a subsequent purchaser of a vehicle took the 
vehicle free of a purchase money security interest because the credit union did not file a 
NOSI with the KDOR. The court thus held that the credit union failed to perfect its 
security interest before the KDOR issued a paper title to the original purchaser that did 
not reflect the credit union's lien. 
 
 
In Hicks, 491 F.3d at 1138-43, the credit union filed a NOSI with the KDOR but, 
due to a clerical error, the purchase money security interest was neither recorded in the 
KDOR's digital records nor indicated on the purchasers' title application. Further, the 
KDOR issued a paper title to the original purchasers that did not indicate the credit 
union's lien. Applying Kansas law, the federal court concluded that the trustee in 
bankruptcy, as a lien creditor, had priority over the credit union because the credit union's 
purchase money security interest was not noted on the paper title issued to original 
purchasers and therefore was not perfected before the trustee became a lien creditor. 491 
F.3d at 1142-43. Significantly, the Hicks court specifically declined to address 8-135d 
and its impact on a party's ability to rely on paper titles because, unlike here, neither the 
paper nor the electronic title reflected the lien. 
11 
 
 
 
Here, as we have noted, the Bank had perfected its purchase money security 
interest in the Yukon under K.S.A. 2012 Supp. 8-135(c) by properly completing and 
delivering a NOSI to the KDOR before Bazin Excavating became a lien creditor and 
Bazin purchased the Yukon. And while K.S.A. 2012 Supp. 8-135(c) did not require the 
Bank to take any further action to perfect the lien, this case is further distinguished by the 
fact that the KDOR properly recorded the Bank's lien in its electronic records and issued 
an electronic title in the Parishes' name properly reflecting the Bank's lien before the 
defendants acquired any interests in the vehicle. Finally, the Bank's perfected lien 
continued to be reflected in the KDOR's digital records even after Bazin obtained a 
"clean" paper title from the KDOR. Thus, neither Hicks nor Mid American Credit Union 
support the defendants' argument. 
 
The panel's comments regarding K.S.A. 2012 Supp. 84-9-337 are dicta. 
 
Finally, we note that the defendants devote a significant portion of the argument in 
their petition for review to a discussion of facts they claim the panel misunderstood in 
reaching its decision. These facts pertain to the panel's discussion of K.S.A. 2012 Supp. 
84-9-337, a statute relating to security interests perfected in another jurisdiction. 
Significantly, the defendants fail to point out that the panel explicitly acknowledged the 
statute's inapplicability before inexplicably addressing the statute and finding it 
inapplicable under the facts of this case. Stanley Bank, 46 Kan. App. 2d at 430-31 ("This 
statute [K.S.A. 2012 Supp. 84-9-337] by its language applies only when 'a security 
interest in goods is perfected by any method under the law of another jurisdiction . . . .'"). 
 
Undeterred, the defendants excise three "facts" from the panel's discussion of 
K.S.A. 2012 Supp. 84-9-337 and argue the panel erroneously affirmed the district court's 
summary judgment ruling based on a misunderstanding of these facts. But in light of the 
statute's inapplicability to the facts at hand, that portion of the panel's decision is clearly 
12 
 
dicta and we need not address it here. See Black's Law Dictionary 519 (9th ed. 2009) 
(defining "gratis dictum" as "[a] court's discussion of points or questions not raised by the 
record or its suggestion of rules not applicable in the case at bar"). 
 
Conclusion 
 
 
In sum, we hold the panel correctly concluded that the Bank's perfected purchase 
money security interest had priority over the defendants' interests in the Yukon and we 
affirm the panel's decision affirming the district court's grant of summary judgment in 
favor of the Bank and denying the defendants' motion for summary judgment.