KANSAS COMMENT, 1996

Subsection (1). This subsection, which determines when filing is necessary to perfect a security interest, contains a number of Kansas variations from the 1995 Official Text. The subsection should be read together with 84-9-115 and 84-9-116 (investment properties), 84-9-304 and 84-9-305, and 84-9-313 (fixtures). The provisions together set forth the rules determining how a security interest should be perfected as to various kinds of collateral. Subsection (1)(a) provides that collateral in the secured party's possession (under either a pledge or following repossession upon default) eliminates the need to file, at least if 84-9-305 allows perfection by possession. If stocks and bonds were involved, 84-9-115 generally provides that control is a way to perfect, and control includes possession (84-8-106); if goods were involved, the secured party could perfect either by taking possession or filing; and if accounts receivable were involved, filing under this subsection would be the only way to perfect. Thus, everything depends upon the classification of the collateral. Paragraph (1)(b) eliminates the need for filing or possession when perfection is automatic, as in the case of instruments and documents temporarily perfected under 84-9-304, or proceeds temporarily perfected under 94-9-306. Paragraph (1)(c) gives automatic perfection to an assignment of a beneficial interest in a trust or estate, an exclusion adopted in 1972.

The 1972 Official Text version of subsection (1)(d) provides for automatic perfection of purchase money security interests in consumer goods (except titled motor vehicles and fixture filings). Kansas is one of the few states in the country which has restricted this exception to purchases of $1,000 or less. It would seem that a series of purchases over time, each of which was less than $1,000 could all be automatically perfected, but if the same items were purchased at one time the secured party would have to perfect. With the adoption of § 522(f) of the bankruptcy code, under which nonpurchase money loans using consumer goods as collateral can be set aside in bankruptcy, and 16a-5-103, which prohibits a deficiency judgment if there is a repossession of consumer collateral with a cash price of less than $1,000, there is little incentive for finance companies to use consumer goods as collateral except in a purchase money context. Automatic perfection is also not allowed for most vehicles subject to titling and fixtures.

Paragraph (1)(e) exempts from the filing requirements an assignment of accounts which does not constitute a significant part of the assignor's outstanding accounts. A profession lender should file, however, to avoid litigation regarding how much is "a significant part." Note that certain types of assignments are totally excluded from the scope of Article 9 by 84-9-104(f) and Kansas Comment 1996 thereto.

Paragraph (1)(f) eliminates the need for a collecting bank to file a financing statement to perfect its security interest in an item for which provisional credit has been withdrawn. See 84-4-201 and 84-4-208 and Kansas Comments 1996 to those sections.

Paragraph (1)(g) exempts from the filing requirements of Article 9 an assignment for the benefit of all the transferor's creditors; this exemption was added in 1972 because assignments for the benefit of creditors are not financing transactions in the usual sense.

Paragraph (1)(h) was added to the Official Text in 1994 and is new to Kansas. It exempts the automatically perfected security interests in investment property.

Subsection (2). Subsection (2) provides that an assignment of a perfected security interest need not be filed by the assignee. Pre-UCC Kansas law was in accord. Even though there is no duty to perfect an assignment of a security interest, 84-9-405 sets forth a permissive device whereby a secured party who has assigned all or part of a security interest may have the assignment noted of record.

Subsection (3). Subsection (3)(a) defers to federal law in perfecting a security interest in property subject to a federal statute which provides for national filing. The most obvious example is the FAA Act of 1958, which establishes a preemptive national system for perfecting security interests in civil aircraft. See 49 U.S.C. § 1403 (central filing of liens with FAA office in Oklahoma City). Filing a UCC financing statement covering a private plane will do absolutely no good. Other federal statutes which occupy the field of filing (though not necessarily other aspects of Article 9 such as priorities and rights upon default) include the 1976 Copyright Act (17 U.S.C. § 205), the federal patent assignment statute (35 U.S.C. § 261), and the federal trademark law (15 U.S.C. § 1060).

Subsections (3)(b) and (3)(c) make it clear that security interests in motor vehicles can be perfected only by indication of the security interest on the certificate of title. These matters are governed by K.S.A. 8-135, which must be read in close relationship to this subsection. Of course if the vehicle is not required to be registered, as would be the case with most farm implements, filing under Article 9 would again come into play. On the other hand, mobile homes are generally titled and perfection would be governed by K.S.A. 8-135 rather than Article 9, even though other aspects of the secured transaction would still fall within the scope of the UCC.

A series of three cases applying Kansas law nicely illustrates the interplay between K.S.A. 8-135 and UCC Article 9. In In re Littlejohn, 519 F.2d 356 (10 th Cir. 1975), a bank was held to have a perfected security interest in a motor vehicle even though its lien was never noted on the certificate of title. Although the dealer issued the buyers a sales tax receipt and bill of sale showing the bank's lien, the buyers kept the documents and never applied for registration of title to the car. The court of appeals reversed the trial court and found that the bank's security interest was nonetheless perfected since no purchaser could have bought from the debtor without the title, which would have shown the bank's lien if it were issued. In response to the earlier trial court decision holding the security interest was not valid, the Kansas legislature in 1975 amended K.S.A. 8-135, as well as this subsection, to authorize the filing of a "notice of security interest" to cover the secured party in the interim between the financing and notation of the creditor's lien on the certificate of title. This alternative is still available. In In re Kerr, 598 F.2d 1206 (10 th Cir. 1979), the bank got its name on the bill of sale as lienholder but the debtor never made application for title and the bank never filed the optional "notice of security interest." Distinguishing Littlejohn, the court held that the bank was unperfected since it had two different ways to perfect and chose to employ neither. See also In re Kern, 443 F. Supp. 219 (D. Kan. 1977), where the bank lost the car as a preference in bankruptcy for failing even to get its name noted on the bill of sale until shortly before bankruptcy. Kern is still good law.

Revisor's Note:

Former section 84-9-302 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

Law Review and Bar Journal References:

Subsections (1), (3) and (4) cited in article concerning "floor plan financing" under UCC, Charles H. Oldfather, 14 K.L.R. 571, 572, 576, 577 (1966).

"Some Secured Transactions With the Farmer," Van Smith, 35 J.B.A.K. 299, 300, 338 (1966).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 16 K.L.R. 437, 439, 440 (1968).

Cited in article concerning sureties, Larry A. Withers, 10 W.L.J. 356, 357 (1971).

Mineral lease exemptions from UCC coverage for security purposes, Bryan E. Nelson, 23 K.L.R. 367, 371 (1975).

"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 132 (1975).

Legislative survey, "Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 217, 227 (1976).

Tenth Circuit survey on Contracts, U.C.C. and U.C.C.C., Martin R. Ufford, 15 W.L.J. 541, 549, 550 (1976).

Perfecting security interests in mobile homes, 18 W.L.J. 708, 709, 711 (1979).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 27 K.L.R. 301, 303, 305 (1979).

"The Perfection of Security Interests in Motor Vehicles in Kansas-Perfection or Confusion?" Susan C. Jacobson, 28 K.L.R. 315 (1980).

"Secured Transactions: The Priority of Future Advances," Jennifer A. Strus, 21 W.L.J. 717 (1982).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 32 K.L.R. 351, 357, 358 (1984).

"Is the Agricultural Security Interest Legally Healthy?" David A. Lander, 34 K.L.R. 505, 508 (1986).

"Commercial Law: Identifiable Proceeds and the Knowledge Factor [Farmers State Bank v. Production Credit Association, 243 Kan. 87, 755 P.2d 518 (1988)]," Mahesh I. Patel, 28 W.L.J. 295, 305 (1988).

"To Be (Transformed) or Not to Be: The Transformation Versus Dual-Status Rules for Purchase-Money Security Interest Under Kansas' Former and Revised Article 9," Christopher Harry, 50 K.L.R. 1095 (2002).

"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 835, 837 (2003).

CASE ANNOTATIONS

1. Cited in case concerning summary judgment and the requirements therefor. State Bank of Burden v. Augusta State Bank, 207 Kan. 116, 120, 483 P.2d 1068.

2. There was a genuine issue of fact as to whether the trailers sought to be replevied under a security agreement were "vehicles held as inventory for sale" as that term is used in subsection (3)(c) hereunder. State Bank of Burden v. Augusta State Bank, 207 Kan. 116, 118, 120, 483 P.2d 1068.

3. Subrogation pursuant to surety contract not a "security interest" within meaning of statute. United States Fidelity & Guaranty Co. v. First State Bank, 208 Kan. 738, 749, 494 P.2d 1149.

4. Description of collateral insufficient to give protection as secured creditor in bankruptcy. In re Fuqua, 330 F. Supp. 1050, 1053.

5. Mentioned in discussion of commercial security interest priority over federal tax liens; circumstances necessary for priority. Donald v. Madison Industries, Inc., 483 F.2d 837, 844.

6. 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, 143, 144, 145, 146.

7. Subsection (3)(c) and certificate of title statutes construed; security interest perfected by lien notation on bill of sale. In re Littlejohn, 519 F.2d 356, 357, 358, 359. Rule announced In re Littlejohn abandoned; amendment to subsection (3)(c) changes rule. Matter of Kerr, 598 F.2d 1206, 1207, 1208.

8. Cited in holding enforceable lien existed between original parties; no action for damages for breach of contract when damage not a result of such breach. Kansas State Bank v. Overseas Motosport, Inc., 222 Kan. 26, 28, 29, 563 P.2d 414.

9. Lending bank has obligation to have its lien on mobile home noted on bill of sale. Matter of Kern, 443 F. Supp. 219, 220.

10. Mentioned in discussing priorities under conflicting security interests. Allis-Chalmers Cred. Corp. v. Cheney Investment, Inc., 227 Kan. 4, 7, 605 P.2d 525.

11. Secured party's interest in collateral prior to that of purchaser if such interest is perfected; if interest not perfected no priority over purchaser for value without knowledge. Farmers State Bank v. Cooper, 227 Kan. 547, 554, 608 P.2d 929.

12. Subsection (3)(c) construed; where alternative procedure not utilized, bank's lien held subordinate to trustee's lien. Matter of Kerr, 598 F.2d 1206, 1207, 1208.

13. Cited in discussing perfecting security interest in Kansas perfected in another state. Victory Nat'l Bank of Nowata v. Stewart, 6 Kan. App. 2d 847, 851, 636 P.2d 788 (1981).

14. Notice filing applies to perfection of security interests; same effect as filing financing statement. In Re Key Truck Leasing, Inc., 9 B.R. 837, 838, 841 (1981).

15. Right to receive payments under a contract for deed is a "general intangible"; must be perfected by filing with secretary of state. In re Southern, 32 B.R. 761, 762, 765 (1983).

16. If properly employed, UCC protects unpaid sellers in variety of ways. Holiday Rambler Corp. v. First Nat. Bank and Trust, 723 F.2d 1449, 1453 (1983).

17. Unless financing statement filed no perfected security interest arises. First Nat'l Bank of Gaylord v. Autrey, 9 Kan. App. 2d 96, 98, 673 P.2d 448 (1984).

18. Patent and trademark office filing system as preempting UCC with respect to patent assignments examined. In re Otto Fabric, Inc., 55 B.R. 654, 655 (1985).

19. Cited; action for failing to disclose existence of prior security interest, statute of limitations examined. Borg Warner Acceptance Corp. v. Kansas Secretary of State, 240 Kan. 598, 599, 731 P.2d 301 (1987).

20. Exclusive methods for perfecting security interest in a mobile home contained herein as specifically described in K.S.A. 8-135(c)(5). Beneficial Finance Co. v. Schroeder, 12 Kan. App. 2d 150, 154, 737 P.2d 52 (1987).

21. Land description in financing statement covering crops sufficient for security interest to maintain conversion action for unauthorized sale. U.S. v. Smoky Valley Bean, Inc., 673 F. Supp. 1551, 1554 (1987).

22. Cited; effect of Minnesota financing statements filed in Kansas with no after-acquired clauses on another's security interest examined. Farmers State Bank v. Production Cred. Ass'n of St. Cloud, 243 Kan. 87, 95, 755 P.2d 518 (1988).

23. Federal filing as not required to perfect security interest in patents against trustee in bankruptcy examined. City Bank and Trust Co. v. Otto Fabric, Inc., 83 B.R. 780, 782 (1988).

24. PIK certificates as nonnegotiable, creditor's protection of security interest therein, right to proceeds therefrom determined. In re George, 85 B.R. 133, 134, 145 (1988).

25. When certificate of motor vehicle title issued, lien must appear thereon to be perfected. Mid American Credit Union v. Board of Sedgwick County Comm'rs, 15 Kan. App. 2d 216, 223, 806 P.2d 479 (1991).

26. Seller's security interest in modular home was perfected by notation on home's certificate of title. In re Reed, 147 B.R. 571, 572, 573, 574 (1992).

27. Whether RTC qualified as holder in due course of financial instruments acquired in bulk transfer between itself and savings and loan examined. Resolution Trust Corp. v. A.W. Associates, Inc., 869 F. Supp. 1503, 1504 (1994).

28. Secured creditor's error in listing itself as owner rather than lienholder on certification of title did not render security interest unperfected. In re Charles, 278 B.R. 216, 225 (2002).

29. Creditor's security interest no longer noted on vehicle's certificate of title held unperfected. In re Trible, 290 B.R. 838, 547 (2003).

30. Strict compliance with perfection provisions not required to perfect motor vehicle certificate of title security interest. In re Charles, 323 F.3d 841, 844 (2003).

31. If secured party assigns perfected security interest, no filing required to continue perfected status against creditors. In re Jackson, 358 B.R. 412, 419 (2007).