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84-9-206. Security interest arising in purchase or delivery of financial asset. (a) Security interest when person buys through securities intermediary. A security interest in favor of a securities intermediary attaches to a person's security entitlement if:

(1) The person buys a financial asset through the securities intermediary in a transaction in which the person is obligated to pay the purchase price to the securities intermediary at the time of the purchase; and

(2) the securities intermediary credits the financial asset to the buyer's securities account before the buyer pays the securities intermediary.

(b) Security interest secures obligation to pay for financial asset. The security interest described in subsection (a) secures the person's obligation to pay for the financial asset.

(c) Security interest in payment against delivery transaction. A security interest in favor of a person that delivers a certificated security or other financial asset represented by a writing attaches to the security or other financial asset if: (1) The security or other financial asset:

(A) In the ordinary course of business is transferred by delivery with any necessary indorsement or assignment; and

(B) is delivered under an agreement between persons in the business of dealing with such securities or financial assets; and

(2) the agreement calls for delivery against payment.

(d) Security interest secures obligation to pay for delivery. The security interest described in subsection (c) secures the obligation to make payment for the delivery.

History: L. 2000, ch. 142, § 16; July 1, 2001.

KANSAS COMMENT, 1996

This section, which does not vary from the 1972 Official Text, permits agreements by a buyer of goods not to assert defenses against an assignee (so-called "cutoff clauses" or "waiver of defense clauses") to be enforced if the assignee takes the assignment (1) for value, (2) in good faith, and (3) without notice of a claim or defense. These clauses are validated only as to defenses which could be cut off if a negotiable instrument were used.

Under pre-UCC Kansas case law it was held that a conditional sales contract was not a negotiable instrument, and that the assignee took the instrument subject to the defenses against the assignor. General Motors Acceptance Corp. v. Davis, 169 K. 220, 218 P.2d 181 (1950); Securities Acceptance Corp. v. Perkins, 182 K. 169, 318 P.2d 1058 (1957); Dearborn Motors Credit Corp. v. Neel, 184 K. 437, 337 P.2d 992 (1959). In particular, the Neel case indicated that a cutoff clause was void as against public policy. See also Kaw Valley State Bank & Trust Co. v. Riddle, 219 K. 550, 549 P.2d 927 (1976), where the court refused to recognize the holder in due course doctrine when the dealer and third-party financier (which bought the dealer's installment contracts) were closely connected. Moreover, since January 1, 1974, the Uniform Consumer Credit Code in Kansas has expressly made the assignee of consumer paper subject to all claims and defenses of the consumer debtor. K.S.A. 16a-3-404. The same is true of an "all in the family loan," where a close connection exists between direct lender and dealer. K.S.A. 16a-3-405. Finally, the Federal Trade Commission has promulgated a trade regulation rule which also does away with the holder in due course doctrine by subjecting an assignee of consumer paper to all claims and defenses. 16 C.F.R. Part 433. In short, the "subject to" clause which leads off this subsection has been activated by a variety of judicial, legislative and administrative rules protecting consumer debtors. If a non-consumer debtor is involved, this subsection may authorize a cutoff clause in spite of the broad language in the Neel case, which involved agricultural credit rather than a true consumer. However, the "close-connection doctrine" enunciated in the Riddle case might well still preclude cutoff clauses from being effective under this section under some circumstances.

Subsection (2) makes it clear that purchase money secured transactions are sales, and that warranty rules for sales remain applicable. So do Article 2 rules governing disclaimers; in this connection, see K.S.A. 50-639.

Revisor's Note:

Former section 84-9-206 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

Law Review and Bar Journal References:

Impact of the Uniform Consumer Credit Code upon Kansas, Barkley Clark, 18 K.L.R. 277, 288 (1970).

Consumer's right to assert personal defenses against lending institution under UCC discussed in "The New Kansas Consumer Legislation," Barkley Clark, 42 J.B.A.K. 147, 195 (1973).

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

"The U.C.C.C. and Real Estate Financing: A Square Peg in a Round Hole," Thomas L. Griswold, 28 K.L.R. 601, 615 (1980).

"Farmers and the Law: Exemptions and Exceptions," J. W. Looney, 50 J.B.A.K. 7, 16 (1981).

"The holder of U.C.C. Section 3-407(2)(a) and the Windfall Discharge," Charles C. Lewis, 26 W.L.J. 27, 58 (1986).

CASE ANNOTATIONS

1. Whether previously filed but undiscovered financing statement acts as notice to assignee for section's waiver provision purposes examined. Benedictine College v. Century Office Products, 853 F. Supp. 1315, 1321 (1994).


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