KANSAS OFFICE of
  REVISOR of STATUTES

  

Home >> Statutes >> Back


Click to open printable format in new window.Printable Format
 | Next

84-9-205. Use or disposition of collateral permissible. (a) When security interest not invalid or fraudulent. A security interest is not invalid or fraudulent against creditors solely because: (1) The debtor has the right or ability to:

(A) Use, commingle, or dispose of all or part of the collateral, including returned or repossessed goods;

(B) collect, compromise, enforce, or otherwise deal with collateral;

(C) accept the return of collateral or make repossessions; or

(D) use, commingle, or dispose of proceeds; or

(2) the secured party fails to require the debtor to account for proceeds or replace collateral.

(b) Requirements of possession not relaxed. This section does not relax the requirements of possession if attachment, perfection, or enforcement of a security interest depends upon possession of the collateral by the secured party.

History: L. 2000, ch. 142, § 15; July 1, 2001.

KANSAS COMMENT, 1996

This section, which was not amended, does not vary from the 1995 Official Text. It allows the parties to give the debtor considerable freedom in dealing with the collateral and its proceeds. The rule of Benedict v. Ratner, 268 U.S. 353 (1925) is rejected, and a security interest may be given on a shifting stock of goods, the very essence of inventory lending. The last sentence makes clear that this section does not mean that the holder of an unfiled security interest whose perfection depends on possession of the collateral, personally or by a bailee, may allow the debtor access to and control over the goods without thereby losing his perfected interest. The common law rules on perfection of pledges are not relaxed.

Former K.S.A. 58-805, which accorded with the principle of this section, provided that the assignor of accounts receivable could deal with the property which gave rise to the account, and could grant the account debtor credits, allowances, or adjustments, all without invalidating the assignment of the account, whether the assignee consented to such acts or not. But older Kansas case law was stricter than this section, and if the mortgagee allowed the mortgagor to retain possession of the collateral, and sell it without accounting for the proceeds of applying them to the debt, the transaction was void. Chapin v. Jenkins, 50 K. 385, 31 P. 1084 (1893); Richardson v. Jones, 56 K. 501, 43 P. 1127 (1896); Humphrey v. Mayfield, 63 K. 208, 65 P. 234 (1901). However, the mortgagee could allow the mortgagor to retain possession, sell the collateral, and apply the proceeds to the debt. Saddlery Co. v. Gray, 63 K. 79, 64 P. 987 (1901). Allowing the mortgagor to sell the stock of goods without applying the proceeds on the mortgage debt would, under the old rules, have invalidated the transaction, even though the mortgagor was required to replenish the security as it was sold. Bussert v. Quinlan, 267 F.2d 219 (10th Cir. 1959).

The sharp contrast between pre-UCC Kansas case law and this section epitomizes the philosophy of Article 9 to encourage the "floating lien." For judicial decisions which support this philosophy, see Community Bank v. Jones, 566 P.2d 470 (Ore. 1977); In re Mid State Wood Products Co., 323 F. Supp. 853 (N.D. Ill. 1971); In re United Thrift Stores, Inc., 242 F. Supp. 714 (D.N.J. 1965), aff'd 363 F.2d 11 (3d Cir. 1966); Sowards v. State, 224 S.E.2d 85 (Ga. App. 1976). Nor is there anything in the Bankruptcy Reform Act of 1978 which would preempt this section (see 11 U.S.C. §§ 544 (b) and 548 regarding fraudulent conveyances), although allowing the debtor to build up the aggregate of inventory, accounts and proceeds within 90 days before bankruptcy could cause the increment to be lost to the trustee in bankruptcy as a voidable preference. 11 U.S.C. § 547(c)(5).

Revisor's Note:

Former section 84-9-205 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

Law Review and Bar Journal References:

Cited in article on "floor plan financing," Charles H. Oldfather, 14 K.L.R. 571, 575 (1966).

"Commercial Law—Problems with Identifiable Proceeds and Transfers in Ordinary Course in Floor Plan Financing," Richard L. Cram, 30 K.L.R. 478, 481, 484, 486, 487, 489 (1982).

"A Brief Overview of Revised Article 9 in Kansas," John K. Pearson and J. Scott Pohl, 72 J.K.B.A. No. 8, 22 (2003).

CASE ANNOTATIONS

1. Section mentioned; purpose discussed; conviction under 21-3734 upheld. State v. Ferguson, 221 Kan. 103, 107, 558 P.2d 1092.

2. Bank's application of funds in debtor's account to antecedent debt should not be considered transaction in ordinary course of business to defeat perfected security interest (dissenting opinion). Tuloka Affiliates, Inc. v. Security State Bank, 229 Kan. 544, 557, 627 P.2d 816.


 | Next


LEGISLATIVE COORDINATING COUNCIL
  7/30/2024 Meeting Notice
  7/09/2024 Meeting Notice Agenda
  6/03/2024 Meeting Notice Agenda
  LCC Policies

REVISOR OF STATUTES
  Chapter 72 Statute Transfer List
  Kansas School Equity & Enhancement Act
  Gannon v. State
  A Summary of Special Sessions in Kansas
  Bill Brief for Senate Bill No. 1
  Bill Brief for House Bill No. 2001
  Information for Special Session 2021
  General Info., Legal Analysis & Research
  2023 Amended & Repealed Statutes
  2022 Amended & Repealed Statutes
  2021 Amended & Repealed Statutes
  2020 Amended & repealed Statutes
  2019 Amended & Repealed Statutes

USEFUL LINKS
Session Laws

OTHER LEGISLATIVE SITES
Kansas Legislature
Administrative Services
Division of Post Audit
Research Department