KANSAS COMMENT, 1996

The previous section sets forth the rules as to where to file the financing statement; this section spells out the formal requisites of the financing statement. It has been extensively amended since its original enactment by the legislature in 1965, but generally follows the 1995 Official Text.

Subsection (1). Subsection (1) imposes the following requirements for a financing statement filed to give public notice of a security interest: the names and addresses of secured party and debtor; the signature of the debtor; and a description of the collateral by item or type. As indicated in a related provision, 84-9-110, the general test for collateral description is "reasonable identification"; in the case of timber, minerals, accounts from minerals or fixtures, however, subsection (5) comes into play requiring a full-blown legal description of the real estate concerned as well as the name of the record owner of the realty. If the financing statement covers crops growing or to be grown, it must contain a description of the real estate, a nonuniform provision. For the precise requirements governing fixture filings, see 84-9-313.

This section generally adopts a system of "notice filing" and abandons the requirements of former K.S.A. 58-301 and 58-314 that the original instrument (the security agreement) or a true copy be filed. Similar to this section, former K.S.A. 58-802 merely prescribed that a form or notice of assignment of accounts receivable be filed. The standard financing statement form is provided by the secretary of state, although the creditor can also file a tailor-made financing statement for a slightly higher fee. See 84-9-403(5). The security agreement itself can double as a financing statement, so long as all the formal requisites are met. In most secured transactions, the creditor will retain the security agreement and file a separate financing statement.

The second sentence of the section is nonuniform and was added in 1990 to require the debtor's social security number (SSN) or federal employer identification number (FEIN) when the financing statement is filed with the secretary of state.

Subsection (1) contains an important variation from the 1972 Official Text. The third, fourth, and fifth sentences were added by the legislature in 1978 to make it clear that generic descriptions may be used consistent with the general classes of collateral set forth in Article 9. For example, a financing statement might describe collateral as "all farm products now owned or hereafter acquired" or "all inventory and accounts now owned or hereafter acquired." In other words, the description in the financing statement is often more general than that found in the security agreement, and many times all of a particular type of collateral is covered by a security agreement. A broader description in the financing statement is consistent with the mere notice-filing policy of Article 9, and 84-9-208 can be used to learn the details of the transaction. The 1978 amendment was intended to overrule In re Werth, 443 F. Supp. 738 (D. Kan. 1977), where a federal court held that a financing statement describing the collateral as "all equipment now owned or hereafter acquired by debtor" was invalid in bankruptcy even though the security agreement also described the collateral as all equipment "including but not limited to" a schedule of the debtor's farm equipment then on the premises. On the other hand, the 1978 amendment would not necessarily overrule cases such as In re Fuqua, 461 F.2d 1186 (10 th Cir. 1972), where the security agreement covered various specified items of farm machinery and livestock but the financing statement described the collateral merely as "all personal property" of the debtor. Such a super-generic description does not satisfy the "item or type" requirement of subsection (1). The 1978 amendment also makes it clear that there need be no exact congruence in collateral description between security agreement and financing statement, and that the description need not include the location of the collateral (e.g., the county where farm machinery is located) unless Article 9 specifically imposes such a requirement (as with respect to realty-related collateral covered by subsection (5)). 84-9-402a, enacted as a companion to the 1978 amendment to subsection (1), indicates the legislative view that the subsection, prior to the 1978 amendment, was not intended to embody the holding in the Werth case. For a decision which either excuses a misclassification or a nonuniform description, at least for security agreement description purposes, see John Deere Co. v. Butler County Implement, Inc., 232 K. 273 (1982).

Subsection (1) does not require a full-blown legal description of real estate on which crops retained as collateral are growing. All that is required is "a description of the real estate concerned." And 84-9-110 indicates that "any description of . . . real estate is sufficient whether or not it is specific if it reasonably identifies what is described." But there are limits on the generality of the real estate description in a crop loan. The leading Kansas case is Garst Seed Co. v. Wilson, 17 K.A.2d 130, 833 P.2d 138 (1992), where the court stated "In general, a financing statement land description is sufficient if it contains the name of the landowner, the approximate number of acres involved, the county in which the land is located, and the approximate distance and direction of the farm from the nearest town." Id. at 132, citing United States v. Collingwood Grain, Inc., 792 F.2d 972 (10 th Cir. 1986). See also, Chanute Production Credit Association v. Weir Grain and Supply, Inc., 210 Kan. 181, 499 P.2d 517 (1972), where the court invalidated a financing statement describing the farmland in a crop loan as "land owned or leased by the debtor in Cherokee County, Kansas." Of course the cautious creditor cannot go wrong by using a section-township legal description, so long as it is accurate.

It should be stressed that the financing statement can be, and often should be filed before the security agreement is made or attaches. This will set the date for computing the priority of a subsequent security interest.

Subsection (2). This subsection does not vary from the 1995 Official Text. Subsection (2) allows filing of a financing statement signed by the secured party instead of the debtor in four situations. (A) is when collateral subject to a security interest in another state is brought into Kansas (e.g., a piece of equipment perfected in Nebraska which the debtor has removed to Kansas and on which the Nebraska security interest would lapse four months after being brought into Kansas under 84-9-103(1)(d)), or the debtor's location is moved from some other state to Kansas (e.g., the new chief executive office of a corporate debtor is moved into Kansas). To excuse the lack of the debtor's signature, the financing statement must state the collateral or debtor has moved to Kansas. (B) is when a new filing as to proceeds is necessary pursuant to 84-9-306(3)(c), when the security interest in the original collateral was perfected. This occurs most often when a different type of collateral than that listed in the financing statement is acquired with cash proceeds, or when the original financing statement describes the collateral by item. (C) is when a filing has lapsed and a new filing is made after lapse. If the new financing statement has not lapsed, the secured party can file without the debtor's signature under 84-9-403(3). (D) is when collateral is acquired more than four months after a change in name, identity or corporate structure of the debtor, as provided in 84-9-402(7). Collateral acquired more than four months after the name change would not be covered by the old financing statement. In all other cases, the debtor is the only proper party to sign the financing statement, but see the nonuniform provision in 84-9-402(9) which permits a copy of the debtor's signature. In addition, if the debtor is unavailable or uncooperative, the security agreement, which must be signed by the debtor, can be modified to serve as the financing statement. See 84-9-402(1).

Subsection (3). Subsection (3) is very close to the 1995 Official Text, but states that it is to be issued by the secretary of state's office and includes the nonuniform Kansas requirement that the financing statement give the social security number or the federal employer identification number of the debtor. This requirement was added in 1993, and should be on all filings since that date. There has been no requirement to check a "proceeds" box since the 1972 amendments. 84-9-306(2) provides that all security interests automatically continue in proceeds, and subsection (2)(b) provides that a perfected security interest in the original collateral automatically carries over to the proceeds. The same is true of the security agreement. See 84-9-203(3). When the code was amended in 1972, the Official text form deleted the reference to both proceeds and products. In the Kansas amendments adopted in 1975, however, they deleted only the part of the form which related to proceeds. They did not delete that part item 4 of the form in subsection (3) which referred to proceeds. The significance of this nonuniform amendment is not clear. It would appear that if "products" are covered, such as farm products from a security interest in seed, 84-9-306 would appear to allow a proceeds claim, while the failure to check the "products" box might indicate there is no automatic perfection. The safe course in any such situation is to claim seed both as "farm products" used or consumed in farming operations (84-9-109(3)) and the crops which will be the products of the seed. In the manufacturing context, the safe course is to claim inventory being consumed and the final product, if it is not inventory, which will be rare. The Kansas version of subsection (3) also differs from the 1995 Official Text in one more important respect: a full-blown legal description and the name of the record owner of the real estate must always accompany a security interest in timber, minerals or fixtures located on that realty. The Official Text requires the name of the record owner only when the debtor does not have an interest of record in the real estate. Finally, although the designated financing statement form shows a signature line for both debtor and secured party, the secured party's signature would not be required unless subsection (2) is applicable.

Subsection (4). This subsection does not vary from the 1995 Official Text. Subsection (4) sets forth the rules regarding amendments to financing statements. The most important rule is that an amendment must be signed by both parties. An amendment which adds collateral is not retroactive. Continuation statements are covered by 84-9-403 and termination statements by 84-9-404.

Subsection (5). The Kansas version varies from the 1995 Official Text by requiring the name of the record owner of the realty whether or not the debtor has an interest of record. Kansas has deleted the requirement in the 1995 Official Text that the financing statement must state that it is to be filed with the real estate records. As indicated earlier in this Comment, subsection (5) imposes special requirements with respect to certain collateral closely associated with real estate—timber, mineral interests and accounts arising from them, and fixtures. For the general rules governing fixtures, including the definition of "fixture," the elements of a proper "fixture filing," and priorities, see Kansas Comment 1996 to 84-9-313.

Subsection (6). This subsection follows the 1995 Official Text, except for the additional filing fee Kansas imposes for the filing. Subsection (6), closely related to subsection (5) and 84-9-313, allows a recorded real estate mortgage to do double duty as a financing statement, so long as it satisfies the formal requirements set forth in this section. Of course if the security interest covers both fixtures and pure personalty, the real estate recording will only perfect the creditor's interest as to the fixtures; in such a case, more than one filing would probably be necessary. Under 84-9-403(6), the perfection for fixtures would continue beyond the normal five-year limit, for as long as the real estate mortgage was effective as a recorded instrument.

Subsection (7). This subsection varies from the 1995 Official Text in the addition of the second sentence, which is not in the 1995 Official Text. Perhaps the most important rule found in this subsection is that a financing statement must be indexed in the name of the individual, not the trade name, when a sole proprietorship is involved. For example, if Sally Jones does business as "Acme Antiques", the financing statement must be drawn so that it will be indexed under "Jones" rather than "Acme Antiques." Adding the trade name is neither necessary nor sufficient for perfection. If a corporate debtor is involved, the financing statement should show the corporate name. For example, if the debtor is the Carruthers Catfish Division of Associated Industries, Inc., the name should be shown as "Associated Industries, Inc." with an indexing following that name. See Official Comment 7. On the other hand, if a division or trade name is quite similar to the corporate name, use of the trade name in the financing statement might not be "seriously misleading" under 84-9-402(8) and thus might pass muster. So it was in Records & Tapes, Inc. v. Argus, Inc., 8 K.A.2d 255 (1982), where the court of appeals upheld a filing under the debtor's trade name "Argus Tapes & Records" rather than under the true legal name, "Argus Inc." The address was correct and the competing secured party was familiar with the trade name. Since any third party checking the records would focus on the name "Argus", the error was not seriously misleading and was thus excused under 84-9-402(8). A secured party has a grave risk of the filing and perfection being nullified if it is not filed in the true name of the debtor. Two excellent opinions discussing this problem are Pearson v. Salina Coffee House, Inc., 831 F.2d 1531 (10 th Cir. 1987) and In re Glasco, Inc., 642 F.2d 793 (5 th Cir. 1981).

This subsection also deals with the common occurrence of post-filing changes in the name or structure of the debtor. In some situations, a new or amended financing statement will be required. This means constant policing of the debtor on the part of the secured creditor. A leading judicial decision construing subsection (7) in the neighboring state of Iowa is Citizens Savings Bank v. Sac City State Bank, 315 N.W.2d 20 (Iowa 1982). And for an excellent discussion of post-filing changes in general see Burke, "The Duty to Refile Under Section 9-402(7) of the Revised Article 9," 35 Business Lawyer 1083 (1980).

The nonuniform second sentence was added in Kansas in 1994 and addresses the problem raised in In re Griffin, 141 B.R. 207 (D. Kan. 1992), which denied a perfected secured party's right to claim a wife's interest in property owned as tenants in common by the wife and the husband because she was not mentioned in and had not signed the financing statement. The omission of the wife's name was seriously misleading.

Subsection (8). This subsection, which embodies the notion that de minimus errors in a financing statement should not be fatal, tracks with the 1995 Official Text. It promotes simplification and reduction of formal requisites by making financing statements effective even though they contain minor errors which are not seriously misleading to a third party searching the files in accord with pre-UCC Kansas law. An example of a de minimus error might be the name of the debtor designated as "ABC Corp." rather than "ABC Co., Inc." On the other hand, mistakenly designating "ABC Corp." as "BCA Corp." would probably be a substantial error since the indexing would be totally thrown off. See Records & Tapes, Inc. v. Argus, Inc., 8 K.A.2d 255 (1982), discussed in Kansas Comment to subsection (7).

Subsection (9). Subsection (9) is not a part of the 1972 Official Text, but was added as a non-uniform amendment by the Kansas legislature when the UCC was originally enacted in 1965. It would authorize a facsimile signature and should be read together with the last sentence of subsection (1). See also Official UCC Comment 2. This subsection complements and expands subsection 2.

Revisor's Note:

Former section 84-9-402 was repealed by L. 2000, ch. 142, § 155 and the number reassigned to the current text.

Law Review and Bar Journal References:

UCC provisions concerning "floor plan financing," Charles H. Oldfather, 14 K.L.R. 571, 572, 575, 578 (1966).

Secured transactions with a farmer, Van Smith, 35 J.B.A.K. 299, 300, 302, 338 (1966).

"Survey of Kansas Law: Secured Transactions," J. Eugene Balloun, 16 K.L.R. 437, 438 (1968).

Requirements of filing, sufficiency of description and notice discussed in "Survey of Kansas Law: Secured Transactions," Gerald D. Haag, 21 K.L.R. 107, 109, 110 (1972).

"The New UCC Article 9 Amendments," Barkley Clark, 44 J.B.A.K. 131, 134 (1975).

"Changes in Article Nine of the Kansas Commercial Code," Alan Tipton, 15 W.L.J. 212, 213, 224, 225 (1976).

Tenth Circuit Survey on Contracts, U.C.C. and U.C.C.C., Martin R. Ufford, 15 W.L.J. 541, 544 (1976).

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

"The Perfection of Security Interests in Motor Vehicles in Kansas-Perfection or Confusion?" Susan C. Jacobson, 28 K.L.R. 315, 318, 319 (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, 352, 354, 355, 356, 362, 368 (1984).

"Agricultural Credit and The Uniform Commercial Code: A Need for Change?" Keith G. Meyer, 34 K.L.R. 469, 497, 499 (1986).

"Is the Agricultural Security Interest Legally Healthy?" David A. Lander, 34 K.L.R. 505, 512 (1986).

"Revised Article 9 in Kansas," Hon. John K. Pearson, 51 K.L.R. 769, 790, 793, 818, 819, 823 (2003).

Attorney General's Opinions:

Filing of financing statement which does not include social security number or federal employer identification number of debtor. 95-121.

CASE ANNOTATIONS

1. Filing of financial statement pursuant to Kansas law binding under bankruptcy proceedings. In re McCoy, 330 F. Supp. 533, 535.

2. Description of collateral insufficient to give protection as secured creditor in bankruptcy. In re Fuqua, 330 F. Supp. 1050, 1051.

3. Financing statement filed did not meet statutory requirements of description and form. In re Fuqua, 461 F.2d 1186, 1187, 1188.

4. Financing statement inadequate; did not constitute required notice; insufficient description of real estate. Chanute Production Credit Association v. Weir Grain and Supply, Inc., 210 Kan. 181, 182, 499 P.2d 517.

5. Description of farm equipment in financing statement as "all equipment now owned or hereafter acquired by debtor" held not in compliance with statutes (K.S.A. 84-9-109(2), 84-9-110, 84-9-402). In re Werth, 443 F. Supp. 738.

6. Subsection (5) applied in determining dairy equipment installed in barn was equipment, not fixture. Peoples State Bank of Cherryvale v. Clayton, 2 Kan. App. 2d 438, 439, 580 P.2d 1375.

7. Mentioned in discussing priorities under conflicting security interests. Allis-Chalmers Cred. Corp. v. Cheney Investment, Inc., 227 Kan. 4, 7, 8, 12, 605 P.2d 525.

8. Notation of lien on certificates of title was adequate notice to trustee as hypothetical lien creditor. In Re Key Truck Leasing, Inc., 9 B.R. 837, 838, 840, 841 (1981).

9. Approval of generic descriptions of collateral in financing statements applied retroactively. In Re Grey, 29 B.R. 286, 287, 288, 289, 290 (1983).

10. Real estate description in financing statement adequate although not exactly correct. In re McMannis, 39 B.R. 98, 99, 100, 101 (1983).

11. Financing statement effective despite minor errors which are not seriously misleading. Records & Tapes, Inc. v. Argus, Inc., 8 Kan. App. 2d 255, 655 P.2d 133 (1983).

12. Security interest filed under trade name rather than partnership name perfected where hotel business known only under trade name. In re Beacon Realty Inv.Co. of Salina, 44 B.R. 875, 879 (1984). Rev'd, Pearson V. Salina Coffee House, Inc., 61 B.R. 538 (1986).

13. Where financing statement contained no description of real estate, security interest in debtor's growing crops not perfected. In re Roberts, 38 B.R. 128, 129, 130, 132, 133, 134 (1984).

14. Sufficiency of description of land in financial statement covering growing crops examined. In re Lions Farms, Inc., 54 B.R. 241, 243 (1985).

15. References to townships in security agreement and financing statement adequate for crops on land owned by debtor; inadequate as to land leased. In re Law, 54 B.R. 434, 436 (1985).

16. Cited in holding additional digit in vehicle identification number not fatal to security interest. Dick Hatfield Chevrolet, Inc. v. Bob Watson Motors, Inc., 10 Kan. App. 2d 350, 354, 699 P.2d 566 (1985).

17. Cited; no requirement that livestock description include location; covenant to keep at specific location no limitation on security interest. First Nat'l Bank & Tr. Co. v. Atchison County Auction Co., 10 Kan. App. 2d 382, 385, 699 P.2d 1032 (1985).

18. Pre-UCC Kansas cash sale case law changed; later security agreement containing error encompassed by original financing statement. Dick Hatfield Chevrolet, Inc. v. Bob Watson Motors, Inc., 238 Kan. 41, 44, 708 P.2d 494 (1985).

19. Where nature of property changes daily, financing statement accurately describing property sufficient although reference to after-acquired property omitted. United Cooperatives v. Libel Oil Co., 10 Kan. App. 2d 427, 429, 699 P.2d 1040 (1985).

20. Security interest filed under debtor's trade name bearing no similarity to legal name can be set aside by bankruptcy trustee. Pearson v. Salina Coffee House, Inc., 61 B.R. 538, 541 (1986).

21. Cited; neither owner's name nor specific tract in section required in land description for financing statement covering growing crops. United States v. Collingwood Grain, Inc., 792 F.2d 972, 973 (1986).

22. Cited; distinctions between and purposes of collateral descriptions in security interest and financing statement examined. Maxl Sales Co. v. Critiques, Inc., 796 F.2d 1293, 1298, 62 B.R. [168] [169] [174] (1986).

23. 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).

24. 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).

25. Security interest filed under debtor's trade name unperfected. Pearson v. Salina Coffee House, Inc., 831 F.2d 1531, 1533, 79 B.R. [27][33] (1987).

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

27. Under Kansas law, financing statement need not indicate it covers after-acquired property. In Re Mobile Travelers, Inc., 117 B.R. 651, 653 (1990).

28. Security agreement and financing statements covering general intangibles included copyrights, trademarks and patents. In Re Topsy's Shoppes, Inc. of Kansas, 118 B.R. 797, 800 (1990).

29. Financing statement applicable to government payments pertaining to wheat crop was adequate to describe "Payment in Kind" certificates. In Re George, 119 B.R. 800, 804 (1990).

30. Failure to specify particular piece of land on which crops are growing will not destroy land description in security agreement; included land of adjoining owner. In Re Coones, 954 F.2d 596 (1992).

31. Inadequate land description of growing crops in security interest does not merge with reasonable identification in financing statement to perfect security interest. Garst Seed Co. v. Wilson, 17 Kan. App. 2d 130, 133, 833 P.2d 138 (1992).

32. Security interest in wife's interest in equipment unperfected; financing statement not listing her name seriously misleading. In re Griffin, 141 B.R. 207, 209, 214 (1992).

33. Whether financing statement's collateral description reasonably identifies what is described examined. In re Kruckenberg, 160 B.R. 663, 672 (1993).

34. Whether priority interest of a holder of purchase money security interest in fixtures may extend beyond fixtures examined. Capitol Fed'l Savings & Loan Ass'n v. Hoger, 19 Kan. App. 2d 1052, 1054, 880 P.2d 281 (1994).

35. Creditor filing under federal food security act (7 U.S.C. 1631(e)(1)) has priority over (K.S.A. 84-9-307) farm products exception. First Nat'l Bank & Tr. v. Miami Co. Co-op Ass'n, 257 Kan. 989, 992, 897 P.2d 144 (1995).

36. Certificates of title sufficient to perfect security interest despite creditor being listed as vehicle owner. In re Charles, 323 F.3d 841, 846 (2003).