Stanley Bank v. Parish
317 P.3d 750, 298 Kan. 755 (2014)
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Rule of Law:
A security interest in a vehicle is perfected upon the proper filing of a notice of security interest with the state's electronic lien system, and this perfected interest has priority over subsequent lien creditors and purchasers. An erroneously issued paper certificate of title that fails to show the lien does not extinguish the previously perfected security interest recorded in the state's official electronic records.
Facts:
- On January 31, 2006, Stanley Bank loaned $40,000 to Johnny and Kellie Parish to purchase a GMC Yukon, and the Parishes granted the Bank a security interest in the vehicle.
- On the same day, Stanley Bank perfected its security interest by filing a notice of security interest (NOSI) with the Kansas Department of Revenue (KDOR) through its electronic lien filing system.
- The KDOR subsequently issued an electronic certificate of title, retained in its system, which reflected the Bank's lien.
- In April 2007, the Parishes defaulted on the loan.
- In June 2007, Bazin Excavating, Inc. obtained a money judgment against Johnny Parish in an unrelated matter and had the Yukon seized in July 2007. Robert Bazin, the company's owner, saw a copy of the Yukon's registration receipt showing the Bank's lien.
- On September 20, 2007, Robert Bazin went to the KDOR and, using court documents related to the judgment, obtained a paper certificate of title for the Yukon that erroneously listed Bazin Excavating as the owner and showed no liens.
- On September 21, 2007, Robert Bazin purchased the Yukon for himself at an auction held to satisfy his company's judgment against Parish.
Procedural Posture:
- Stanley Bank filed suit against Bazin Excavating and Robert Bazin in district court, seeking a declaratory judgment on its lien's superiority and damages for conversion.
- The Bank and the defendants filed cross-motions for summary judgment.
- The district court granted summary judgment in favor of Stanley Bank, finding its lien had priority, and denied the defendants' motion.
- The defendants, as appellants, appealed the district court's decision to the Kansas Court of Appeals.
- The Court of Appeals affirmed the district court's judgment regarding the priority of the Bank's security interest but vacated part of the judgment on other grounds.
- The defendants petitioned the Kansas Supreme Court for review, which the court granted.
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Issue:
Does a purchaser of a vehicle take it subject to a bank's properly perfected security interest, which is recorded in the state's electronic title system, even if the purchaser later obtains a paper certificate of title from the state that erroneously shows no liens?
Opinions:
Majority - Moritz, J.
Yes, a purchaser takes the vehicle subject to the bank's prior perfected security interest. Under Kansas law, a security interest in a vehicle is perfected on the date a notice of security interest is delivered to the Kansas Department of Revenue (KDOR), making the official electronic record controlling. Stanley Bank perfected its interest on January 31, 2006, long before Bazin Excavating became a lien creditor in June 2007 or Bazin purchased the vehicle in September 2007. Under the UCC's priority rules, a perfected security interest takes priority over a lien creditor whose interest arises after perfection. Furthermore, Bazin does not qualify for the 'buyer of consumer goods' exception under K.S.A. 84-9-320(b) because that exception only applies if the purchase occurs before the security interest is perfected, which was not the case here. The erroneously issued 'clean' paper title does not defeat the Bank's properly perfected security interest that remained recorded in the KDOR's official electronic system.
Analysis:
This decision solidifies the legal authority of state electronic vehicle titling and lien systems over traditional paper titles. It establishes that a perfected security interest properly recorded in an electronic system is secure against subsequent claims, even if a clerical error by the state agency produces a conflicting paper document. This ruling reinforces the 'first in time, first in right' principle of secured transactions and places the risk of relying on a potentially erroneous paper title on the subsequent purchaser, rather than on the diligent secured creditor who followed the statutory perfection process. The case provides crucial guidance on lien priority in the age of digital record-keeping.
