KANSAS OFFICE of
  REVISOR of STATUTES

  

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84-9-109. Scope. (a) General scope of article. Except as otherwise provided in subsections (c) and (d), this article applies to:

(1) A transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract;

(2) an agricultural lien;

(3) a sale of accounts, chattel paper, payment intangibles, or promissory notes;

(4) a consignment;

(5) a security interest arising under K.S.A. 84-2-401, 84-2-505, 84-2-711(3) or 84-2a-508(5), and amendments thereto, as provided in K.S.A. 2023 Supp. 84-9-110, and amendments thereto; and

(6) a security interest arising under K.S.A. 84-4-201 or 84-5-118, and amendments thereto.

(b) Security interest in secured obligation. The application of this article to a security interest in a secured obligation is not affected by the fact that the obligation is itself secured by a transaction or interest to which this article does not apply.

(c) Extent to which article does not apply. This article does not apply to the extent that:

(1) A statute, regulation, or treaty of the United States preempts this article;

(2) another statute of this state expressly governs the creation, perfection, priority or enforcement of a security interest created by this state or a governmental unit of this state;

(3) a statute of another state, a foreign country, or a governmental unit of another state or a foreign country, other than a statute generally applicable to security interests, expressly governs creation, perfection, priority, or enforcement of a security interest created by the state, country, or governmental unit; or

(4) the rights of a transferee beneficiary or nominated person under a letter of credit are independent and superior under K.S.A. 84-5-114, and amendments thereto.

(d) Inapplicability of article. This article does not apply to:

(1) A landlord's lien, other than an agricultural lien;

(2) a statutory lien, or a lien given by statute or other rule of law for services or materials, but K.S.A. 2023 Supp. 84-9-333, and amendments thereto, applies with respect to priority of the lien;

(3) an assignment of a claim for wages, salary, or other compensation of an employee;

(4) a sale of accounts, chattel paper, payment intangibles, or promissory notes as part of a sale of the business out of which they arose;

(5) an assignment of accounts, chattel paper, payment intangibles, or promissory notes which is for the purpose of collection only;

(6) an assignment of a right to payment under a contract to an assignee that is also obligated to perform under the contract;

(7) an assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness;

(8) a transfer of an interest in or an assignment of a claim under a policy of insurance, other than an assignment by or to a health-care provider of a health-care-insurance receivable and any subsequent assignment of the right to payment, but K.S.A. 2023 Supp. 84-9-315 and 84-9-322, and amendments thereto, apply with respect to proceeds and priorities in proceeds;

(9) an assignment of a right represented by a judgment, other than a judgment taken on a right to payment that was collateral;

(10) a right of recoupment or set-off, but:

(A) K.S.A. 2023 Supp. 84-9-340, and amendments thereto, applies with respect to the effectiveness of rights of recoupment or set-off against deposit accounts; and

(B) K.S.A. 2023 Supp. 84-9-404, and amendments thereto, applies with respect to defenses or claims of an account debtor;

(11) the creation or transfer of an interest in or lien on real property, including a lease or rents thereunder, except to the extent that provision is made for:

(A) Liens on real property in K.S.A. 2023 Supp. 84-9-203 and 84-9-308, and amendments thereto;

(B) fixtures in K.S.A. 2023 Supp. 84-9-334, and amendments thereto;

(C) fixture filings in K.S.A. 2023 Supp. 84-9-501, 84-9-502, 84-9-512, 84-9-516 and 84-9-519, and amendments thereto; and

(D) security agreements covering personal and real property in K.S.A. 2023 Supp. 84-9-604, and amendments thereto;

(12) an assignment of a claim arising in tort, other than a commercial tort claim, but K.S.A. 2023 Supp. 84-9-315 and 84-9-322, and amendments thereto, apply with respect to proceeds and priorities in proceeds;

(13) an assignment of a deposit account in a consumer transaction, but K.S.A. 2023 Supp. 84-9-315 and 84-9-322, and amendments thereto, apply with respect to proceeds and priorities in proceeds;

(14) an assignment of rights in or under:

(A) A claim or right to receive benefits under any workers compensation, industrial accident or similar statute or regulation which provides benefits for occupational injury or illness; or

(B) a deferred payment or benefit arrangement that enables a participant to exclude or defer recognition of income for purposes of federal or state income taxation;

(15) a transfer by a government or governmental agency or subdivision; or

(16) the creation, attachment, perfection, priority or enforcement of any sale, assignment of, pledge of, security interest in or other transfer of any interest in, right or portion of any interest or right in any securitized utility tariff property, as defined in K.S.A. 2023 Supp. 66-1,240, and amendments thereto, except as otherwise provided in the utility financing and securitization act.

History: L. 2000, ch. 142, § 9; L. 2002, ch. 159, § 9; L. 2021, ch. 29, § 16; April 22.

KANSAS COMMENT, 1996

The classification of the all inclusive four types of goods is important in a number of situations, such as to determine questions of priority (84-9-312), the proper place to file a financing statement (84-9-401), and the rights of persons who buy from a debtor goods subject to a security interest (84-9-307). This section, which does not vary from the 1995 Official Text, employs a "primary use" of the debtor test. For example, if a doctor uses a television set in the office waiting room five days a week and takes it home for the weekend, the television set would constitute "equipment" rather than "consumer goods." The key to the classification of goods is the identity of the debtor and the use to which that debtor puts the goods, not any inherent quality of the goods themselves. A television set in the hands of a manufacturer or dealer is inventory under subsection (4). In a hospital or office, it is equipment under subsection (2). The same set in the hands of the ultimate consumer is consumer goods under subsection (1). If the secured party guesses wrong, the place of filing will probably be improper, the description in the security agreement or in the financing statement, or both, may be wrong, and the security interest will be unperfected. When in doubt, it is wise to require the debtor to covenant the intended use and define a breach of that covenant as a default. It may also help to make multiple filings. Note, however, that a change in primary use does not render unperfected a security interest which was properly perfected to begin with. 84-9-401(3).

The most interesting Kansas decision to date involving the categorization of goods is Garden City Production Credit Association v. International Cattle Systems, 32 U.C.C. Rep. 1207 (D. Kan. 1981). In that case, cattle were placed by the owner in a feedlot. The secured lender had filed locally as to "farm products," but not centrally as to "inventory." [84-9-401 has since been amended to require almost all commercial filings be made in the secretary of state's office.] The court held that the cattle were not "in the possession of a debtor . . .engaged in farming operations" under subsection (3), and that the cattle constituted inventory for which central filing was required. Therefore, the secured lender was subordinated to competing lenders, lien creditors and purchasers. In the alternative, the court concluded that, since the cattle constituted inventory, the packing houses which bought them from the feedlot took free from the lender's security interest in any case under 84-9-307(1).

It should be emphasized that inventory includes goods held for lease, under subsection (4). Thus, if a Kansas bank is financing the operations of a computer leasing company, the collateral will be inventory and it will be necessary to file a financing statement with the secretary of state in Topeka. See 84-9-401. Moreover, if the computers are under lease in jurisdictions other than Kansas, it may well be necessary to file financing statements in the state where each lessee is located, as well as to take possession of the leases themselves as "chattel paper." For a good case where the financier forgot to touch all the bases for such a debtor, see In re Leasing Consultants, Inc., 486 F.2d 367 (2d Cir. 1972). In addition, inventory includes goods consumed in the business, which can create difficult distinctions for very short lived machinery.

In John Deere Co. v. Butler County Implement, Inc., 232 K. 273 (1982), 625 P.2d 124, the Kansas supreme court held that a security agreement description of a farm implement dealer's inventory as "equipment" passed muster in spite of the misclassification. The court looked to the common commercial understanding that the term "equipment" is frequently used to describe the type of merchandise an implement dealer normally sells at retail. It would be safer to describe the collateral by UCC type —inventory—or by item, and name the specified items. The secured party had mixed the descriptions by describing the collateral as all "inventory" and then described some of the inventory as farm equipment.

Revisor's Note:

Former section 84-9-109 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

Law Review and Bar Journal References:

Cited as to definitions of "inventory" and "consumer goods," Charles H. Oldfather, 14 K.L.R. 571, 572, 576 (1966).

Classification of goods discussed in "Some Secured Transactions With the Farmer," Van Smith, 35 J.B.A.K. 299, 300, 302 (1966).

"Beefing Up Product Warranties: A New Dimension In Consumer Protection," Barkley Clark, Michael J. Davis, 23 K.L.R. 567, 607 (1975).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 27 K.L.R. 301, 302, 309 (1979).

"Comparative Fault and Strict Products Liability in Kansas: Reflections on the Distinction Between Initial Liability and Ultimate Loss Allocation," William Edward Westerbeke and Hal D. Meltzer, 28 K.L.R. 25, 97 (1979).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 32 K.L.R. 351, 355, 356, 363, 366, 368 (1984).

"Clear Title: A Buyer's Bonus, A Lender's Loss—Repeal of UCC § 9-307(1) Farm Products Exception by Food Security Act § 1324 [7 U.S.C. § 1631]," Mark V. Bodine, 26 W.L.J. 71, 74, 83, 86 (1986).

"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 773, 774, 777, 782 (2003).

Attorney General's Opinions:

Corporate swine and poultry confinement facilities; not exempt from ad valorem taxation. 87-35.

Coal and gas of public utility; system of taxation; classification; exemption. 89-85.

CASE ANNOTATIONS

1. Chief place of business of purchasers of truck tractor used in interstate commerce was Kansas; lien required to be perfected hereunder; security interest unprotected. In re Dobbins, 371 F. Supp. 141, 144.

2. Description of farm equipment in financing statement as "all equipment now owned or hereafter acquired by debtor," held not in compliance with statutes (84-9-109(2), 84-9-110, 84-9-402). In re Werth, 443 F. Supp. 738.

3. Cattle held by cattle feeder held to be "farm products" under (3), not "inventory" under (4). Financing statement properly filed with register of deeds. Security Natl. Bank v. Belleville Livestock, 619 F.2d 840, 850.

4. Description of collateral contained in security agreement sufficient to include after-acquired inventory. John Deere Co. v. Butler County Implement, Inc., 232 Kan. 273, 278, 281, 282, 655 P.2d 124 (1982).

5. Where priority of federal tax lien is question, state UCC not applicable. Adkisson v. Fallier, 565 F. Supp. 850, 855 (1983).

6. Severed crops are farm products, not "growing crops"; if in farm debtor's possession, financing statement needs no property description. In re Roberts, 38 B.R. 128, 129, 132, 133 (1984).

7. Cited in holding additional digit in vehicle identification number not fatal to security interest. Dick Hatfield Chevrolet, Inc. v. Bob Watson Motors, Inc., 10 Kan. App. 2d 350, 354, 699 P.2d 566 (1985).

8. Cited; no requirement that livestock description include location; covenant to keep at specific location no limitation on security interest. First Nat'l Bank & Tr. Co. v. Atchison County Auction Co., 10 Kan. App. 2d 382, 385, 699 P.2d 1032 (1985).

9. Farm creditor's oral consent at outset of loan, permitting sales conditioned on remitting proceeds, constitutes consent waiving security interest. Peoples Nat'l Bank & Trust v. Excel Corp., 236 Kan. 687, 689, 695 P.2d 444 (1985).

10. Cited; test to determine whether goods are inventory examined; not essential to include term "inventory" in consignment security agreement. Maxl Sales Co. v. Critiques, Inc., 796 F.2d 1293, 1298, 62 B.R. [168] [172] [173] (1986).

11. Conservation reserve program payments properly characterized as rents; not farm products; FDIC's filing ineffective. In re Zweygardt, 149 B.R. 673, 674, 678 (1992).

12. Creditor filing under federal food security act (7 U.S.C. 1631(e)(1)) has priority over UCC (84-9-307) farm products exception. First Nat'l Bank & Tr. v. Miami Co. Co-op Ass'n, 257 Kan. 989, 992, 897 P.2d 144 (1995).

13. Creditor claiming security interest in airplane for parts properly perfected interest precluding financing statement filing. In re Arcentral, Inc., 289 B.R. 170, 172 (2003).


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