Opinion
No. 106,995.
2012-12-21
STANLEY BANK, Appellee, v. Johnny R. PARISH and Kellie A. Parish, Defendants, and Bazin Excavating, Inc., Appellant.
Appeal from Wyandotte District Court, David W. Boal, Judge. Edward L. Bigus, of Overland Park, for appellant. Carrie E. Josserand, of Lathrop & Gage LLP, of Overland Park, for appellee.
Appeal from Wyandotte District Court, David W. Boal, Judge.
Edward L. Bigus, of Overland Park, for appellant. Carrie E. Josserand, of Lathrop & Gage LLP, of Overland Park, for appellee.
Before MARQUARDT, P.J., McANANY and BUSER, JJ.
MEMORANDUM OPINION
PER CURIAM.
This case began as an action against Johnny R. Parish and Kellie A. Parish, husband and wife, to foreclose on the collateral for a consolidation loan the Stanley Bank made to them and for judgment against the Parishes on the loan. Bazin Excavating, Inc. (Bazin) was joined as a party because of its claim to the same collateral. This appeal arises out of the district court's summary judgment in favor of the Bank and against Bazin, its denial of Bazin's counter-motion for summary judgment, and its determination that the Bank had priority over Bazin with respect to the collateral.
We review an order granting summary judgment de novo. Kuxhausen v. Tillman Partners, 291 Kan. 314, 318, 241 P.3d 75 (2010). The parties are well acquainted with the standards for considering a summary judgment motion, and we need not restate them here. They can be found in Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011). In our review we apply those same standards. Therefore, our review of the facts will be confined to the uncontroverted facts in the competing summary judgment motions.
The basic uncontroverted facts are as follows. We will refer to additional uncontroverted facts in the course of our analysis.
Vehicle Loan 73–843–4
On March 29, 2006, the Bank loaned Johnny $57,000 for the purchase of a 1996 International truck. Johnny executed and delivered to the Bank his promissory note and a security agreement, pledging as collateral for the loan the truck “with 14' Mechanics Body, Welder, Crane, Air Compressor and all attachments.” The promissory note was due June 27, 2006.
On June 27, 2006, the Bank renewed the loan, extending its due date to August 28, 2006. Johnny executed and delivered to the Bank a renewal note and security agreement, covering the same collateral. The note and security agreement were again renewed on August 28, 2006.
On May 16, 2007, the Bank filed a lienholder statement with the Kansas Department of Revenue, Division of Vehicles. It listed the Parishes as the owners of the truck and the Bank as the secured party.
Mortgage Loan 74–156–2
On September 20, 2006, the Bank loaned the Parishes $96,000 for the purchase of a building and equipment. The loan was secured by a mortgage executed by the Parishes which gave the Bank a mortgage lien on real property located on Leavenworth Road in Wyandotte County. The mortgage lien covered the loan principle of $96,000 plus interest and fees accrued, attorney fees in the event of default, and advances made to protect the Bank's security. The Parishes also executed a security agreement acknowledging the Bank's mortgage lien. The mortgage was recorded with the Register of Deeds in Wyandotte County on September 21, 2006.
Consolidation of Vehicle Loan and Mortgage Loan into Loan 75–333–1
On November 10, 2008, the Bank and the Parishes agreed to consolidate the truck loan and the mortgage loan into a new loan which stated that the Parishes were liable to the Bank for $124,507.86, the combined balance of their two loans, and established a repayment plan of $1,800 per month. A security agreement was also executed on the consolidated loan. It listed the mortgage and the truck as collateral for the Parishes' loan.
On August 7, 2009, the consolidated loan was renewed with a current balance $115,470.53. The security agreement was also renewed, and it listed the same collateral as before.
Stanley Bank's Petition against the Parishes and Bazin Excavating, Inc.
On May 5, 2010, the Bank commenced an action in Wyandotte County against the Parishes and Bazin. The Bank sought judgment against the Parishes for having defaulted on the loan and for a determination that the Bank's lien on its security had priority over the Bazin's claimed interest in the collateral. Bazin answered, claiming it had priority over the collateral by virtue of a default judgment it obtained against Johnny in Johnson County District Court on June 27, 2007. Bazin also claimed that if the Bank's security interest had priority, Bazin was still entitled to the return of the Miller Pro 350 welder, the Goodall Super Boost Ali Model # 13–404 Control Box, and the tools found on the truck used as security. Bazin claimed it filed a UCC financing statement with the Kansas Secretary of State on April 11, 2008, covering the Miller Pro 350 welder.
On January 14, 2011, the Bank and Bazin filed competing motions for summary judgment. The Bank sought judgment on all issues, but because the Parishes filed no responsive pleading and were in default, the primary issue was the competing claims of priority to the collateral asserted by the Bank and Bazin. The district court granted summary judgment in the Bank's favor, finding that the facts were uncontroverted that the Bank's interest in the truck and Wyandotte County property had priority over Bazin's claims. Bazin's appeal brings the matter to us for a de novo review.
Discussion
We begin our analysis with a brief review of the applicable law relating to secured transactions. In Kansas, commercial transactions are governed by the Kansas Uniform Commercial Code, K.S .A.2011 Supp. 84–1–101, et seq. and, more particularly, Article 9 of the Code—K.S.A.2011 Supp. 84–9–101, et seq.
A security interest is an “interest in personal property or fixtures which secures payment or performance of an obligation.” K .S.A.2011 Supp. 84–1–201(35). The personal property subject to the security interest is “collateral.” K.S.A.2011 Supp. 84–9–102(12). A security interest attaches to collateral when it becomes enforceable against the debtor. Three criteria must be met for collateral to become enforceable: (1) the secured party must give value to the debtor; (2) the debtor must have rights in the collateral or the power to transfer rights in the collateral; and (3) the debtor must sign a security agreement that provides a description of the collateral. K.S.A.2011 Supp. 84–9–203.
The Truck and Equipment
There are a number of Code provisions applicable to the Bank's and Bazin's conflicting claims against the truck. A “secured party” is “[a] person in whose favor a security interest is created or provided for under a security agreement.” K.S.A.2011 Supp. 84–9–102(a)(71)(A). A “lien creditor” is “[a] creditor that has acquired a lien on the property involved by attachment, levy, or the like.” K.S.A.2011 Supp. 84–9–102(a)(52)(A). A security interest is subordinate to the rights of a person who becomes a lien creditor before the security interest is perfected. K.S.A.2011 Supp. 84–9–317(a)(2).
The law generally requires that secured parties file a financing statement to perfect their interests. K.S.A.2011 Supp. 84–9–310(a). A perfected security interest has priority over a conflicting unperfected security interest. K.S.A.2011 Supp. 84–9–322(a)(2). Conflicting perfected security interests rank according to priority in time of filing or perfection. K.S.A.2011 Supp. 84–9–322(a)(1). In other words, the secured party that perfects its interest first prevails. See K.S.A.2011 Supp. 84–9–322(a)(1)–(3). In addition, a perfected purchase-money security interest in goods has priority over a conflicting security interest. K.S.A.2011 Supp. 84–9–324(a).
The filing of a financing statement is not always necessary to perfect a security interest. One exception is when the lender has a purchase-money security interest, which is created when the collateral is purchased by the debtor with the money provided by the secured party. See K.S.A.2011 Supp. 84–9–103(b); K.S.A.2011 Supp. 84–9–309(1); K.S.A 2011 Supp. 84–9–310(b)(2). A purchase-money security interest is deemed perfected when it attaches to the collateral. K.S.A.2011 Supp. 84–9–309.
A second exception exists in the case of a security interest in property that is subject to a Kansas certificate-of-title law. K.S.A.2011 Supp. 84–9–311(a)(2) states: “[T]he filing of a financing statement is not necessary or effective to perfect a security interest in property subject to ... any certificate-of-title law of this state covering automobiles, trailers, mobile homes, boats or the like, which provides for a security interest to be indicated on the certificate.” In order to perfect a security interest in the truck under this second exception to the UCC filing requirement, the Bank had to deliver “the notice of security interest and tender of the required fee to the appropriate state agency.” K.S.A.2011 Supp. 84–9–311(a)(2). K.S.A.2011 Supp. 8–135(c)(5) spells out the process for accomplishing this.
Here, the Bank had a purchase-money security interest in the truck as evidenced by the March 29, 2006, note and security agreement. The Bank's purchase-money security interest in the truck became perfected when the certificate of title was issued with the lien noted on it, as evidenced by the lienholder statement from the Kansas Department of Revenue, Division of Vehicles, showing a title and registration receipt dated May 16, 2007, for the truck. The lienholder statement establishes that the Bank delivered notice of its security interest in the truck as required by K.S.A.2011 Supp. 84–9–311(a)(2) and that the Bank's security interest was listed on the certificate of title as required by K.S.A.2011 Supp. 8–135(c)(5).
But Bazin argues that the lienholder statement from the Department of Revenue is insufficient to prove that the Bank perfected its security interest because it is not the truck's title. This argument ignores the fact that the document is a title and registration receipt which reflects the condition of the title. While it is not the title itself, the receipt serves as an acknowledgment that the Bank took the appropriate steps to assure that the Bank's interest was shown on the title certificate. Even viewing the evidence in the light favoring Bazin, the lienholder statement constitutes uncontroverted and substantial evidence upon which the court can rely.
Bazin also questions why the date June 14, 2007, is listed in the left-hand corner of the lienholder statement when the Bank claims that the vehicle was perfected on May 16, 2007. Viewing the evidence in the light favoring Bazin, we are satisfied that the May date is the date that the vehicle was titled and the security interest perfected. The body of the document is the Title and Registration Receipt. Under the word “Transaction” is found the date, which is “05–16–2007.” The June date is clearly not the date when the Bank perfected its security interest in the truck.
Besides, we are only concerned with genuine issues of material fact which could preclude summary judgment. As we will later discuss, Bazin perfected an interest in the truck on June 27, 2007, after the June 14, 2007, date in the corner of the lienholder statement. Therefore, even if June 14, 2007, is the date the Bank perfected its interest, the Bank's interest was still perfected before Bazin's interest encumbered the truck. The Bank still has priority.
Next, Bazin points out that on June 27, 2007, the Johnson County District Court entered a default judgment in its favor against Johnny for $253,306.74. Bazin claims that under K.S.A. 60–2202 his judgment lien relates back to May 4, 2007, when Bazin filed suit. But the relation-back provision of K.S.A. 60–2202 applies only to judgment liens on real property, not on personal property such as Johnny's truck. Bazin's interest is that of a judgment creditor, and that interest arose on June 27, 2007, after the Bank perfected its security interest. The Bank's interest was perfected before Bazin became a judgment creditor. The Bank's perfected purchase-money security interest in the truck has priority. See K.S .A.2011 Supp. 84–9–317(a)(2).
Next, Bazin argues that it purchased the welder that was attached to the truck and that it made payments on the welder before the Bank entered into its agreement with the Parishes regarding the truck. But the Bank argues that because the equipment was attached to the truck, the Bank's interest in the equipment was perfected at the same time it perfected its interest in the truck.
Bazin presents several invoices showing that it made payments of $523.89 per month on a “Miller Pro 350 Engine” between February 12, 2003, and June 14, 2004. Bazin filed a financing statement with the Kansas Secretary of State on April 11, 2008, which refers to the welder as “[l]ast known to be attached to a 1996 International Truck VIN# 1HTSAADL3TH301592.”
The Bank obtained a purchase-money security interest in the truck and its attached equipment on March 29, 2006. See K.S.A.2011 Supp. 84–9–103(b)(1). The Bank took further steps to perfect its interest in the truck and the attached equipment by noting its lien on the truck's title certificate on May 16, 2007. Viewing the evidence in the light more favoring Bazin, if we consider the Miller Pro 350 welder to be the same as the welder referred to on the Bank's security agreement, it is apparent that Bazin did not file its financing statement covering the welder until April 11, 2008, long after the Bank perfected its security interest in the truck and attached equipment. As between conflicting perfected security interests, the Bank's interest has priority. See K.S.A.2011 Supp. 84–9–322(a)(1).
But Bazin argues that the Parishes had no interest in the welder, so they could not satisfy the requirement of K.S.A.2011 Supp. 84–9–203(b)(2) that the debtor must have rights in the collateral or the power to transfer rights in the collateral. The welder was on the truck that the Parishes bought with money borrowed from the Bank. Bazin presents evidence that it made payments on the welder. But nowhere in the uncontroverted facts do we find any statement that the Parishes did not have any rights in the welder. We find no support in the record for Bazin's claim that the Parishes had no rights in this collateral.
Bazin also claims an interest in a starter box, if it is still on the truck and can be recovered. Bazin refers to a September 15, 2006, invoice that describes a control box. It is unclear whether this is the starter box to which Bazin refers. Further, it is unclear whether this box was attached to the truck securing the Bank's debt. In any event, if it was attached to the truck, Bazin did not file a UCC financing statement that made any reference to it. The Bank's perfected security interest has priority over any claim by Bazin to the starter box.
We conclude that there remains no genuine issue of material fact with respect to the Bank's claims of priority with respect to the truck and its equipment. The Bank's security interest in these items of personal property is superior to that of Bazin. Accordingly, the Bank is entitled to summary judgment on these claims, and the district court did not err in so concluding.
With respect to Bazin's cross-motion for summary judgment, Bazin simply recasts as its offense the arguments and positions it advanced on defense in opposing the Bank's motion. Without repeating the analysis above, we conclude that Bazin failed to demonstrate that it was entitled to judgment as a matter of law, and the district court did not err in denying Bazin's motion.
The Real Estate
The district court determined that the Bank had a first and prior mortgage lien on the Wyandotte County real estate and ordered that the mortgage be foreclosed and the property sold.
When the Bank recorded its mortgage at the office of the Wyandotte County Register of Deeds on September 21, 2006, it gave notice to the world of its mortgage interest in the property. See K .S.A. 58–2222. Further, recording the mortgage established the Bank's priority. In Kansas, the first to record a mortgage generally has priority over all others. The priority continues as long as the mortgage is not released. K.S.A. 58–2221; K.S.A. 55–2222; K.S.A. 58–2223; In re Patton, 314 B.R. 826, 832 (Bankr.Kan.2004) (applying Kansas law). There is no evidence that the Bank released its mortgage from the Parishes.
On June 27, 2007, long after the Bank recorded its mortgage, Bazin obtained a default judgment against Johnny in Johnson County. On July 2, 2007, the district court issued an attachment order, which included “all real and personal property” belonging to Johnny.
Bazin argues that this attachment order gives Bazin priority over the Bank with respect to the mortgaged property. But Bazin's interest in the property arose well after the Bank perfected its interest. Bazin did not become a judgment creditor until almost a year after the Bank recorded its mortgage.
In fact, Bazin's judgment lien on the Wyandotte County property did not become effective until January 28, 2011. Generally a lien on real property becomes effective upon judgment. K.S.A. 60–2202(a)–(b). But not when the property is located in a different county. As K.S.A. 60–2202(b) provides: “The lien shall become a lien only upon the debtor's real property that is located in the county in which the filing is made, but a filing may be made in any county in which real property of the judgment debtor is located,” On January 28, 2011, Bazin filed its Johnson County judgment in Wyandotte County as required by K.S.A. 60–2202(b). The Bank's mortgagee interest has priority over Bazin's judgment lien perfected over 4 years later.
Bazin contends that litigation between the Bank and Bazin was ongoing before Bazin filed its judgment lien in Wyandotte County and that its delay in filing its judgment in Wyandotte County was of no consequence because the Bank was aware of Bazin's judgment lien even if it did not have the legal notice created by filing. Therefore, Bazin argues, the purpose of K.S.A. 60–2202(b), which is to give notice of a lien on real property, was effectively satisfied even though Bazin did not comply with the statute.
We find no authority that supports our waiving the filing requirement of K.S.A. 60–2202(b). Further, the claimed notice to the Bank is predicated on the knowledge it obtained during the pendency of this litigation. But the Bank's interest as a mortgagee was perfected before the commencement of this litigation. The Bank's interest in the Wyandotte County property has priority over Bazin's judgment lien because the Bank's interest was recorded first. See K.S.A. 58–2221; K.S.A. 58–2222; K.S.A. 58–2223; In re Patton, 314 B.R. at 832.
Bazin also argues that the Bank did not have a purchase-money mortgage and, therefore, did not have priority on that basis. It is true that the record is unclear whether this was a purchase-money mortgage. But the Bank's priority is not based on being a purchase-money mortgagee. The Bank's priority arises from having filed first.
Bazin also attacks the validity of the loan agreement between the Bank and the Parishes, arguing that the loan was invalid and, therefore, so was the Bank's interest in the real property.
First, Bazin argues that the Bank improperly consolidated the truck loan with the real estate and equipment loan. The two loans were consolidated into a single note on November 10, 2008. As part of the transaction, the Bank and the Parishes executed a security agreement pledging the Wyandotte County real estate and the truck. Bazin argues that the consolidation of the two loans improperly encumbered the mortgage with antecedent debt because the consolidation increased the debt over the maximum amount stated in the mortgage.
K.S.A. 58–2336 allows a mortgage to cover future advances, “ Provided, That the lien of such mortgage shall not exceed at any one time the maximum amount stated in the mortgage.” Here, the Parishes' mortgage to the bank was for the principal sum of $96,000. The mortgage provided:
“The total principal amount secured by this Security Instrument at any one time shall not exceed $96,000. This limitation of amount does not include interest and other fees and charges validly made pursuant to this Security Instrument. Also, this limitation does not apply to advances made under the terms of this Security Instrument to protect Lender's security and to perform any of the covenants contained in this Security Instrument.”
In requesting judgment against the Parishes, the Bank sought a judgment for principal on the debt in the amount of $111,915.16, which exceeds the face amount of the $96,000 note. But in asking the court to recognize the extent of its mortgage lien, the Bank limited its claim to the face amount of the note, which is $96,000 plus accrued interest, attorney fees, and other advances to protect the collateral. Thus, in its Journal Entry of Judgment and Foreclosure, the court ordered that the proceeds from the Sheriff's sale of the property shall be applied: “FOURTH, to the payment of the amount of the Mortgage Lien, not to exceed $96,000 in principal, plus interest, fees, charges under the instrument, including attorneys' fees, and any advances made to protect Stanley Bank's security.” Bazin's argument on this issue fails.
Next, Bazin argues that the consolidated loan was a new loan that invalidated the previous loan the Bank had with the Parishes, thereby releasing the mortgage. Bazin offers no authority suggesting that the consolidation of two loans into one invalidates the liens and interests created by the prior loans. Consolidating the Parishes' loans did not invalidate the Bank's lien on their property. The note executed by the Bank and the Parishes on November 10, 2008, states that its purpose is to combine the vehicle loan and the equipment loan into one note. It lists each loan number from the prior loans and secures the same collateral as the previous loans. The security agreement executed with the note also references the mortgage lien, including the original dates of execution and filing. Bazin's argument on this issue also fails.
Bazin contends that an error regarding the date of the security agreement accompanying the November 10, 2008, note invalidates the transaction. The security agreement identifies its date as “11–4–08.” The Bank claims that this is a typographical error and presented the affidavit of a bank employee to prove that claim. The November 10, 2008, note states that “This loan is secured by a Security Agreement of the same date.” There is no November 4, 2008, loan. But the security agreement bearing the 11–4–08 date states that the Parishes grant to the Bank a security interest in the truck and the Wyandotte County property to secure Note # 75–333–1, which is the combined note for the truck and the real estate renewed on November 10, 2008. The security agreement also makes reference to the Bank's recorded mortgage which secures the Bank's position. There is no evidence the Bank ever released its mortgage before the court's order of foreclosure. The obvious typographical error on this security agreement does not invalidate the Bank's recorded mortgage covering the Wyandotte County property.
Finally, Bazin challenges the affidavit of Walter Dotson submitted in support of the Bank's summary judgment motion. Dotson's affidavit merely identifies the various loan documents which we have discussed above in detail. Dotson also addresses the issue of the Parishes' default on the consolidated note, a matter which is immaterial to the priority issue which is the heart of this dispute.
In conclusion, we find no genuine issue of material fact remains on the issue of whether the Bank's mortgage interest has priority over Bazin's interest as a judgment creditor. We conclude that the Bank is entitled to judgment as a matter of law, recognizing the priority of its mortgage interest. The district court did not err in concluding the same and in rejecting Bazin's cross-motion for summary judgment on this priority issue.
Affirmed.