84-9-208. (a) Applicability of section. This section applies to cases in which there is no outstanding secured obligation and the secured party is not committed to make advances, incur obligations, or otherwise give value.
(b) Duties of secured party after receiving demand from debtor. Within 10 days after receiving an authenticated demand by the debtor:
(1) A secured party having control of a deposit account under K.S.A. 2023 Supp. 84-9-104(a)(2), and amendments thereto, shall send to the bank with which the deposit account is maintained an authenticated statement that releases the bank from any further obligation to comply with instructions originated by the secured party;
(2) a secured party having control of a deposit account under K.S.A. 2023 Supp. 84-9-104(a)(3), and amendments thereto, shall:
(A) Pay the debtor the balance on deposit in the deposit account; or
(B) transfer the balance on deposit into a deposit account in the debtor's name;
(3) a secured party, other than a buyer, having control of electronic chattel paper under K.S.A. 2023 Supp. 84-9-105, and amendments thereto, shall:
(A) Communicate the authoritative copy of the electronic chattel paper to the debtor or its designated custodian;
(B) if the debtor designates a custodian that is the designated custodian with which the authoritative copy of the electronic chattel paper is maintained for the secured party, communicate to the custodian an authenticated record releasing the designated custodian from any further obligation to comply with instructions originated by the secured party and instructing the custodian to comply with instructions originated by the debtor; and
(C) take appropriate action to enable the debtor or its designated custodian to make copies of or revisions to the authoritative copy which add or change an identified assignee of the authoritative copy without the consent of the secured party;
(4) a secured party having control of investment property under K.S.A. 84-8-106(d)(2) or K.S.A. 2023 Supp. 84-9-106(b), and amendments thereto, shall send to the securities intermediary or commodity intermediary with which the security entitlement or commodity contract is maintained an authenticated record that releases the securities intermediary or commodity intermediary from any further obligation to comply with entitlement orders or directions originated by the secured party;
(5) a secured party having control of a letter-of-credit right under K.S.A. 2023 Supp. 84-9-107, and amendments thereto, shall send to each person having an unfulfilled obligation to pay or deliver proceeds of the letter of credit to the secured party an authenticated release from any further obligation to pay or deliver proceeds of the letter of credit to the secured party; and
(6) a secured party having control of an electronic document shall:
(A) Give control of the electronic document to the debtor or its designated custodian;
(B) if the debtor designates a custodian that is the designated custodian with which the authoritative copy of the electronic document is maintained for the secured party, communicate to the custodian an authenticated record releasing the designated custodian from any further obligation to comply with instructions originated by the secured party and instructing the custodian to comply with instructions originated by the debtor; and
(C) take appropriate action to enable the debtor or its designated custodian to make copies of or revisions to the authoritative copy which add or change an identified assignee of the authoritative copy without the consent of the secured party.
History: L. 2000, ch. 142, § 18; L. 2007, ch. 90, § 69; July 1, 2008.
KANSAS COMMENT, 1996
This section, which was not amended, does not vary from the 1995 Official Text. It is one of the most important, and from the caselaw, one of the most neglected provisions in the UCC. Utilization of 84-9-208 could greatly reduce the priority contests between secured parties. 84-9-208 establishes a procedure whereby a later secured party may find out the interests of prior secured parties and protect themselves. The problem arises from the fact that it is generally in the debtor's interest to understate the amount of any prior debt or the collateral subject to security interests. At the same time, a prior secured party has no duty to later creditors to disclose the details of any existing financing of the debtor, beyond the financing statement, which can be very general. In fact, a secured party might be liable to the debtor for unauthorized disclosures. If an existing secured party does disclose, it might be tempted to overclaim the debt and collateral if it wants to discourage additional financing, or to understate the debt and the collateral to encourage other creditors to fund the debtors repayment of the debt owed the first secured party.
84-9-208 addresses these concerns by requiring the first secured party to respond to informational requests by the debtor, or be liable for damages, which might be responsibility for the failure of the business for lack of financing in extreme cases. Careful later secured parties and other purchasers should require this information as a condition to making the loan or purchase. The later secured party can learn the identity of the earlier creditors from prior filings. If the debtor understates the collateral or the debt, the prior secured party must correct the mistake or be bound by the lesser amount, and must inform the debtor (and thereby the later secured party if the interests have been assigned).
There is a danger that the later secured parties should plan for. First, even if there is no after-aquired property or future advance clause, priority is determined by the first to file rule in 84-9-312(5). Therefore, a later loan and security agreement, secured by new collateral or previously existing but unencumbered collateral of the same type listed in the financing statement under 84-9-402, will have priority over intervening perfected secured parties. (This would not be true for intervening, perfected purchase money secured parties who follow the special rules in 84-9-312 for priority.) To protect itself, the later secured party should enter into a partial or total subordination agreement with the previously filed perfected secured party (84-9-316), take an assignment from the prior party (84-9-302(2), 84-9-405), or, if the earlier secured party will not cooperate, take over all financing of the debtor, pay off the prior debt and force the prior secured party to file a termination statement (84-9-404). If none of these are possible or acceptable, the only safe route is to refuse to deal with the debtor.
Subsection (3) provides a little protection for the earlier secured party from the debtor's possible abuse of his rights under this section.
Revisor's Note:
Former section 84-9-208 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.
Law Review and Bar Journal References:
"Some Secured Transactions With the Farmer," Van Smith, 35 J.B.A.K. 299, 339 (1966).
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