State v. Jones

748 P.2d 839, 242 Kan. 385, 5 U.C.C. Rep. Serv. 2d (West) 1479, 1988 Kan. LEXIS 31
Supreme Court of Kansas·Decided January 15, 1988·No. 58,351·Published·Cited by 15 cases

Opinions

[386] The opinion of the court was delivered by

Lockett, J.:

Defendant appealed his conviction of impairing a security interest (K.S.A. 21-3734[l][c]), claiming that the statute is unconstitutionally vague, that the complaint was constitutionally insufficient, that evidence was improperly excluded, that evidence was improperly admitted, and that various other trial errors were committed by both the State and the judge. Sua sponte holding that K.S.A. 21-3734(l)(c) violates the prohibition against imprisonment for debt found in Section 16 of the Bill of Rights of the Kansas Constitution, the Court of Appeals reversed defendant’s conviction. State v. Jones, 11 Kan. App. 2d 612, 731 P.2d 881 (1987). The State has exercised its statutory right to an appeal because the question as to the constitutionality of the statute arose for the first time as a result of the Court of Appeals decision. K.S.A. 1986 Supp. 60-2101(b). In a brief opinion, State v. Jones, 241 Kan. 627, 739 P.2d 933 (1987), this court unanimously held that K.S.A. 21-3734(l)(c) is not unconstitutional and reversed the Court of Appeals. In order that the other issues raised but not considered by the Court of Appeals could be determined, this case was set for further argument in September of 1987.

Jones was the sole stockholder, president, and operator of Johnson County Motors, Inc., (JoCo) a Yamaha motorcycle dealership. All of JoCo’s motorcycles were ordered from Yamaha under a financing arrangement with the manufacturer, commonly referred to as floorplanning or, under the Uniform Commercial Code (UCC), K.S.A. 84-1-101 et seq., as a consignment. Under the security agreement signed by Jones in his capacity as president of the corporation, Yamaha retained title to the goods until JoCo performed all obligations under the contract. The security agreement further provided that JoCo pay for each motorcycle as it was sold or, if not sold, make payments to Yamaha by a designated date in the invoice.

Despite JoCo’s sales awards, the corporation experienced perpetual cash flow problems. For the five years prior to 1982, Yamaha permitted JoCo to defer forwarding proceeds from the sale of secured inventory, which allowed the cash generated by [387] sales to pay local operating expenses. At the end of each year, Jones would retire JoCo’s debt to Yamaha by taking out personal loans locally. However, by the spring of 1982, JoCo’s chronic undercapitalization, low cash flow, and a debt to Yamaha caused the collapse of the corporation.

In May of 1984, the State filed a criminal complaint charging that Jones “d/b/a Johnson County Motors, Inc.,” had impaired a security interest by failing to account for proceeds of sales to a secured party. K.S.A. 21-3734(l)(c). The State claimed that Jones owed over $250,000 for motorcycles which were sold, but the proceeds were never forwarded to the manufacturer. Jones admitted that JoCo owed Yamaha about $150,000 under the floor plan when it went out of business, but denied any criminal intent to impair the security agreement. Jones was convicted by a jury and sentenced to a maximum term of two years and a minimum term of one year. K.S.A. 21-3734(l)(c).

Jones appealed his conviction to the Court of Appeals, raising numerous issues. Following oral argument, the Court of Appeals sua sponte questioned whether K.S.A. 21-3734(l)(c) violates Section 16 of the Bill of Rights of the Kansas Constitution, which states that “[n]o person shall be imprisoned for debt, except in cases of fraud.” The parties were requested to brief this issue in accordance with the cautionary guidelines set forth in State v. Puckett, 230 Kan. 596, 601, 640 P.2d 1198 (1982). Subsequently, the Court of Appeals in State v. Jones, 11 Kan. App. 2d 612, 731 P.2d 881 (1987), held that, because K.S.A. 21-3734(l)(c) does not require proof of intent to defraud, the statute violates the prohibition against imprisonment for debt found in Section 16 of the Bill of Rights of the Kansas Constitution. The State appealed.

CONSTITUTIONALITY of K.S.A. 21-3734(l)(c)

Section 16 of the Bill of Rights of the Kansas Constitution prohibits the legislature from enacting a law which imposes imprisonment for the mere nonperformance of a contract of indebtedness. 11 Kan. App. 2d at 613, citing Haglund v. Bank, 100 Kan. 279, 284, 164 Pac. 167 (1917); In re Wheeler, Petitioner, 34 Kan. 96, 98, 8 Pac. 276 (1885).

K.S.A. 21-3734 provides in part:

[388] “21-3734. Impairing a security interest.

(1) Impairing a security interest is:
(a) Damaging, destroying or concealing any personal property subject to a security interest with intent to defraud the secured party; or
(b) Selling, exchanging or otherwise disposing of any personal property subject to a security interest without the written consent of the secured party where such sale, exchange or other disposition is not authorized by the secured party under the terms of the security agreement; or
(c) Failure to account to the secured party for the proceeds of the sale, exchange or other disposition of any personal property subject to a security interest where such sale, exchange or other disposition is authorized and such accounting for proceeds is required by the secured party under the terms of the security agreement or otherwise.”

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State v. Jones, 748 P.2d 839, 242 Kan. 385, 5 U.C.C. Rep. Serv. 2d (West) 1479, 1988 Kan. LEXIS 31 (kan 1988).

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