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84-9-315. Secured party's rights on disposition of collateral and in proceeds. (a) Disposition of collateral: continuation of security interest or agricultural lien; proceeds. Except as otherwise provided in this article and in K.S.A. 84-2-403(2), and amendments thereto:

(1) A security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien; and

(2) a security interest attaches to any identifiable proceeds of collateral.

(b) When commingled proceeds identifiable. Proceeds that are commingled with other property are identifiable proceeds:

(1) If the proceeds are goods, to the extent provided by K.S.A. 2023 Supp. 84-9-336, and amendments thereto; and

(2) if the proceeds are not goods, to the extent that the secured party identifies the proceeds by a method of tracing, including application of equitable principles, that is permitted under law other than this article with respect to commingled property of the type involved.

(c) Perfection of security interest in proceeds. A security interest in proceeds is a perfected security interest if the security interest in the original collateral was perfected.

(d) Continuation of perfection. A perfected security interest in proceeds becomes unperfected on the 21st day after the security interest attaches to the proceeds unless: (1) The following conditions are satisfied:

(A) A filed financing statement covers the original collateral;

(B) the proceeds are collateral in which a security interest may be perfected by filing in the office in which the financing statement has been filed; and

(C) the proceeds are not acquired with cash proceeds;

(2) the proceeds are identifiable cash proceeds; or

(3) the security interest in the proceeds is perfected other than under subsection (c) when the security interest attaches to the proceeds or within 20 days thereafter.

(e) When perfected security interest in proceeds becomes unperfected. If a filed financing statement covers the original collateral, a security interest in proceeds which remains perfected under subsection (d)(1) becomes unperfected at the later of:

(1) When the effectiveness of the filed financing statement lapses under K.S.A. 2023 Supp. 84-9-515, and amendments thereto or is terminated under K.S.A. 2023 Supp. 84-9-513, and amendments thereto; or

(2) the 21st day after the security interest attaches to the proceeds.

History: L. 2000, ch. 142, § 35; July 1, 2001.

KANSAS COMMENT, 1996

This section does not vary from the 1995 Official Text and has not been amended. It is another variation of the purchase money priority theme outlining when a secured party whose collateral contributes to a product has priority over others who have conflicting claims in the same product. Subsection (1) allows a perfected security interest in goods which have become commingled, so as to lose their identity, to continue in the resulting product. Under subsection (1)(b), the section is applicable to cases where components have been processed or assembled into a unit, even though the specific identity of the components is not lost. A secured party must elect, at the time of filing, whether to claim under this section or to claim a security interest in one component under 84-9-314. Subsection (2) allows equal priority to secured claims which arise under subsection (1), such claims sharing on the basis of the cost of the respective goods.

Does this section apply to fertilizer absorbed by crops or feed gobbled by livestock, on the ground that the fertilizer or feed has "become part of a product or mass"? Although a straightfaced argument could be made to this effect, the Official Comment to the section does not appear to contemplate such agricultural applications of the section. Moreover, the only judicial decision which has dealt with the argument has soundly rejected it, also turning aside the claim that cattle are "proceeds" of feed. First National Bank of Brush v. Bostron, 564 P.2d 964 (Colo. App. 1977).

Pre-UCC Kansas law only recognized the rights of the principal contributor. Arnott and Archer v. K.P. Rly. Co., 19 K. 95 (1877); Timma v. Timma, 72 K. 73, 82 P. 481 (1905).

Revisor's Note:

Former section 84-9-315 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

Law Review and Bar Journal References:

Paragraph (b) of subsection (1) explained with reference to security interest in a crop, Van Smith, 35 J.B.A.K. 299, 339 (1966).

"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 807, 808, 851, 862 (2003).

CASE ANNOTATIONS

1. Security interest continues notwithstanding sale unless disposition was authorized by secured party. Odette Family Ltd. Partnership v. Agco Finance, 35 Kan. App. 2d 1, 123 P.3d 212 (2006).


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